Document:

exv10w13

Exhibit 10.13

 

SERVICING AGREEMENT

between

BLUESTEM BRANDS, INC.,

Servicer,

FINGERHUT RECEIVABLES I, LLC,

Company,

and

GOLDMAN SACHS BANK USA,

Administrative Agent and Collateral Agent

Dated as of August 20, 2010

 

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	ARTICLE I

	DEFINITIONS

	 
	 	 	 	 
	Section 1.01 Definitions
	 	 	1	 
	Section 1.02 Other Definitional Provisions
	 	 	12	 
	 
	 	 	 	 
	ARTICLE II

	ADMINISTRATION AND SERVICING OF RECEIVABLES

	 
	 	 	 	 
	Section 2.01 Acceptance of Appointment and Other Matters Relating to the Servicer
	 	 	13	 
	Section 2.02 Servicing Compensation
	 	 	14	 
	Section 2.03 Collections, Allocations, Investments and Adjustments
	 	 	14	 
	Section 2.04 Reports and Records
	 	 	15	 
	Section 2.05 Annual Certificate of Servicer
	 	 	16	 
	Section 2.06 Annual Servicing Report of Independent Public Accountants; Copies of Reports Available
	 	 	16	 
	Section 2.07 Notices to the Seller
	 	 	17	 
	 
	 	 	 	 
	ARTICLE III

	REPRESENTATIONS AND WARRANTIES OF THE SERVICER

	 
	 	 	 	 
	Section 3.01 Organization and Good Standing
	 	 	18	 
	Section 3.02 Due Qualification
	 	 	18	 
	Section 3.03 Due Authorization
	 	 	18	 
	Section 3.04 Binding Obligation
	 	 	18	 
	Section 3.05 No Conflict
	 	 	18	 
	Section 3.06 No Violation
	 	 	18	 
	Section 3.07 No Proceedings
	 	 	18	 
	Section 3.08 Compliance with Requirements of Law
	 	 	18	 
	Section 3.09 All Consents
	 	 	19	 
	Section 3.10 Solvency
	 	 	19	 
	Section 3.11 Historical Financial Statements
	 	 	19	 
	Section 3.12 Three-Year Forecast
	 	 	19	 
	Section 3.13 Title to Assets
	 	 	19	 
	Section 3.14 Capital Stock and Ownership
	 	 	20	 
	Section 3.15 Material Adverse Effect
	 	 	20	 
	Section 3.16 Payment of Taxes
	 	 	20	 
	Section 3.17 No Defaults
	 	 	20	 

 

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 
	 	 	Page	 
	Section 3.18 Material Contracts
	 	 	20	 
	Section 3.19 Senior Management
	 	 	21	 
	Section 3.20 Operational Guidelines
	 	 	21	 
	 
	 	 	 	 
	ARTICLE IV

	AFFIRMATIVE COVENANTS OF THE SERVICER

	 
	 	 	 	 
	Section 4.01 Financial Covenants
	 	 	21	 
	Section 4.02 Financial Statements
	 	 	22	 
	Section 4.03 Payment Collection
	 	 	25	 
	Section 4.04 Notice of Change in Board of Directors
	 	 	25	 
	Section 4.05 Insurance
	 	 	25	 
	Section 4.06 Insurance Report
	 	 	26	 
	Section 4.07 Renewals and Rewrites of Insurance Policies
	 	 	26	 
	Section 4.08 Compliance with Requirements of Law
	 	 	26	 
	Section 4.09 Existence
	 	 	26	 
	Section 4.10 Payment of Taxes and Claims
	 	 	26	 
	Section 4.11 Further Assurances
	 	 	27	 
	Section 4.12 Other Covenants
	 	 	27	 
	Section 4.13 Other Information
	 	 	27	 
	Section 4.14 Account Owner Termination Rights
	 	 	27	 
	Section 4.15 Additional Investors
	 	 	27	 
	Section 4.16 Regulatory Compliance Changes
	 	 	28	 
	Section 4.17 Amendments to Operational Guidelines
	 	 	28	 
	Section 4.18 Additional Notice
	 	 	28	 
	 
	 	 	 	 
	ARTICLE V

	NEGATIVE COVENANTS OF THE SERVICER

	 
	 	 	 	 
	Section 5.01 Lockbox System
	 	 	28	 
	Section 5.02 No Rescission or Cancellation
	 	 	28	 
	Section 5.03 Protection of Rights
	 	 	28	 
	Section 5.04 Revolving Loan Product Agreements and Receivables Sale Agreements
	 	 	28	 
	Section 5.05 Defaulted Accounts
	 	 	29	 
	Section 5.06 Fiscal Year
	 	 	29	 

 

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 
	 	 	Page	 
	ARTICLE VI

	OTHER MATTERS RELATING TO THE SERVICER

	 
	 	 	 	 
	Section 6.01 Liability of the Servicer
	 	 	29	 
	Section 6.02 Limitation on Liability of the Servicer and Others
	 	 	29	 
	Section 6.03 Servicer Indemnification of the Company and the Administrative Agent
	 	 	29	 
	Section 6.04 Resignation of the Servicer
	 	 	30	 
	Section 6.05 Access to Documentation and Information Regarding the Receivables Accounts and Underlying Receivables
	 	 	30	 
	Section 6.06 Delegation of Duties
	 	 	31	 
	 
	 	 	 	 
	ARTICLE VII

	SERVICER DEFAULTS

	 
	 	 	 	 
	Section 7.01 Servicer Defaults
	 	 	31	 
	Section 7.02 Appointment of Successor
	 	 	34	 
	 
	 	 	 	 
	ARTICLE VIII

	MISCELLANEOUS PROVISIONS

	 
	 	 	 	 
	Section 8.01 Amendment
	 	 	35	 
	Section 8.02 Termination of Agreement
	 	 	35	 
	Section 8.03 GOVERNING LAW
	 	 	35	 
	Section 8.04 Notices
	 	 	35	 
	Section 8.05 Setoff
	 	 	36	 
	Section 8.06 Severability of Provisions
	 	 	36	 
	Section 8.07 Further Assurances
	 	 	36	 
	Section 8.08 No Waiver; Cumulative Remedies
	 	 	36	 
	Section 8.09 Counterparts
	 	 	36	 
	Section 8.10 Third-Party Beneficiaries
	 	 	36	 
	Section 8.11 Merger and Integration
	 	 	37	 
	Section 8.12 Headings
	 	 	37	 
	Section 8.13 Consent to Jurisdiction and Service of Process
	 	 	37	 
	Section 8.14 No Petition
	 	 	37	 

 

 

APPENDICES

APPENDIX A: Operational Guidelines

SCHEDULES

SCHEDULE 3.14: Capital Stock and Ownership

SCHEDULE 3.18: Material Contracts

SCHEDULE 3.19: Senior Management

SCHEDULE 4.05: Insurance Policies

SCHEDULE 4.16: Regulatory Compliance Changes

EXHIBITS

EXHIBIT A: Notice of Reinstatement

EXHIBIT B: Form of Servicing Report

EXHIBIT C: Form of Daily Settlement and Servicing Report

EXHIBIT D: Form of Annual Officer’s Certificate

EXHIBIT E: Form of Payment Date Report

EXHIBIT F: Data Tape Information

EXHIBIT G: Form of Compliance Certificate

EXHIBIT H: Form of Insurance Report

EXHIBIT I: Form of Financial Officer Certification

 

 

THIS SERVICING AGREEMENT, dated as of August 20, 2010 among BLUESTEM BRANDS, INC., a Delaware
corporation, as Servicer (the “Servicer”), FINGERHUT RECEIVABLES I, LLC (the
“Company”) and GOLDMAN SACHS BANK USA (“GS Bank”), as Administrative Agent (in such
capacity, “Administrative Agent”) and as Collateral Agent (in such capacity,
“Collateral Agent”).

ARTICLE I

DEFINITIONS

          Section 1.01 Definitions. All defined terms used but not otherwise defined herein
shall have meanings ascribed to them in the Credit Agreement. Whenever used in this Agreement, the
following words and phrases shall have the following meanings, and the definitions of such terms
are applicable to the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.

     “Account Owner Termination Rights” shall have the meaning specified in Section
2.1 of the Bluestem Letter Agreement.

     “Administrative Agent” as defined in the preamble hereto.

     “Agreement” shall mean this Servicing Agreement.

     “Annual Membership Fees” shall have the meaning specified in the Receivables Account
Agreement applicable to each Receivables Account for annual membership fees or similar terms.

     “Annual Service Charges” shall have the meaning specified in the Receivables Account
Agreement applicable to each Receivables Account for annual service charges or similar terms.

     “Backup Servicer” shall mean Systems & Services Technology, Inc. (a subsidiary of NCO
Group, Inc.), or any independent third party selected by the Administrative Agent, with the consent
of the Class Requisite Lenders of each Class, in consultation with Bluestem that performs servicing
and monitoring functions with respect to the Underlying Receivables.

     “Bluestem” shall mean Bluestem Brands, Inc., a Delaware corporation.

     “Bluestem Inventory Administrative Agent” means JPMorgan Chase Bank, N.A., in its
capacity as administrative agent under the Bluestem 2010 Inventory Credit Agreement.

     “Bluestem Inventory Loan Documents” means the “Loan Documents” as defined in the
Bluestem 2010 Inventory Credit Agreement, as amended in accordance with the Bluestem 2010 Inventory
Intercreditor Agreement.

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

 

 

     “Capital Lease Obligations” of any Person shall mean the obligations of such Person to
pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real
or personal property, or a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of
such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

     “Change of Control” shall mean

     (A) prior to an initial public offering by Bluestem, (i) Bain, Battery and any of their
Affiliates shall cease to beneficially own and control in the aggregate at least 42.5% on a fully
diluted basis of the economic and voting interests in the Capital Stock of Bluestem, (ii) Bain,
Battery and any of their Affiliates shall cease to beneficially own and control in the aggregate at
least 66 2/3% of the Series B Preferred Stock of Bluestem (or other series of Capital Stock senior
to or pari passu with the Series B Preferred Stock with voting rights substantially similar to the
voting rights of holders of the Series B Preferred Stock) or (iii) any Person or “group” (within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) other than Bain, Battery and any of
their Affiliates (a) shall have acquired beneficial ownership of 20% or more on a fully diluted
basis of the voting and/or economic interest in the Capital Stock of Bluestem or (b) shall have
obtained the power (whether or not exercised) to elect a majority of the members of the board of
directors (or similar governing body) of Bluestem; provided, however, that, with
respect to clause (iii)(a), (y) an increase in the beneficial ownership by the Petters Group of the
voting and/or economic interest in the Capital Stock of the Servicer to more than 20% on a fully
diluted basis solely as a result of the issuance of dividends shall not constitute a “Change of
Control” hereunder and (z) the acquisition by any Person of 20% or more, on a fully diluted basis,
of the voting and/or economic interests in the Capital Stock of the Servicer solely as a result of
transfers of Capital Stock beneficially owned by the Petters Group shall not constitute a “Change
of Control” hereunder; or

     (B) following an initial public offering by Bluestem, any Person or “group” (within the
meaning of Rules 13d-3 and 13d-5 under the Exchange Act) other than Bain, Battery and any of their
Affiliates (a) shall have acquired beneficial ownership of 35% or more on a fully diluted basis of
the voting and/or economic interest in the Capital Stock of Bluestem or (b) shall have obtained the
power (whether or not exercised) to elect a majority of the members of the board of directors (or
similar governing body) of Bluestem.

     “Collateral Agent” as defined in the preamble hereto.

     “Collection Period” means, for each calendar month, (x) the period from, and
including, the first calendar day of such month to, and including, the 15th calendar day of such
month and (y) the period from, and including, the 16th calendar day of such month to, and
including, the last day of such month; provided, that the initial Collection Period shall
commence on the Closing Date and shall end on August 31, 2010.

     “Collections” shall mean all payments by or on behalf of Receivables Obligors
(including Insurance Proceeds) (i) received in respect of the Underlying Receivables or (ii) that
constitute Recoveries, in each case, in the form of cash, checks, wire transfers, electronic
transfers, ATM

 

 

transfers or any other form of payment in accordance with a Receivables Account Agreement in
effect from time to time and all other amounts specified by this Agreement, the Credit Agreement or
the Receivables Purchase Agreement as constituting Collections.

     “Company” shall have the meaning specified in the preamble hereto.

     “Compliance Certificate” shall mean a Compliance Certificate certified by an
Authorized Officer of the Servicer substantially in the form of Exhibit G hereto.

     “Consolidated Adjusted EBITDA” shall mean, for any period, Consolidated Net Income for
such period plus (a) without duplication and to the extent deducted in determining Consolidated Net
Income for such period, the sum of (i) Consolidated Interest Expense for such period, (ii) income
tax expense for such period net of tax refunds, (iii) all amounts attributable to depreciation and
amortization expense for such period, (iv) for any period including the period in which such
amounts were paid, fees or expenses of the Administrative Agent and any Lender or arranger in
connection with the Credit Documents, or of any administrative agent, lender, or arranger in
connection with the Bluestem Inventory Loan Documents, in each case paid on or prior to the Closing
Date, (v) for any period (other than the period specified in the following clause (vi)) including
the period in which such amounts were paid, other fees or expenses in an amount not to exceed
$1,000,000 paid in connection with the Credit Documents, the Bluestem Inventory Loan Documents or
the Senior Subordinated Documents and the transactions contemplated therein, (vi) for the period
from, and including, the Closing Date to, and including, the last day of the first Fiscal Quarter
to end after the Closing Date, other fees and expenses in an amount not to exceed $6,500,000 paid
in connection with the Credit Documents and the transactions contemplated therein and the
refinancing or replacement of credit facilities existing prior to the Closing Date, (vii) any other
non-cash charges for such period (but excluding any non-cash charge in respect of an item that was
included in Consolidated Net Income in a prior period and any non-cash charge that relates to the
write-down or write-off of inventory) in an amount not to exceed $2,000,000, or any additional
amounts approved by the Class Requisite Lenders of each Class, (viii) reasonable fees and expenses
in connection with an initial public offering by Bluestem in an amount not to exceed the lesser of
(A) 12.5% of the gross proceeds thereof and (B) the actual fees and expenses incurred in connection
therewith, or any additional amounts approved by the Class Requisite Lenders of each Class and (ix)
the amount of any prepayment premiums or other similar fees paid in connection with the Credit
Documents or the Bluestem Inventory Loan Documents, minus (b) without duplication and to
the extent included in Consolidated Net Income, (i) any cash payments made during such period in
respect of non-cash charges described in clause (a)(vii) taken in a prior period and (ii) any
extraordinary gains and any non-cash items of income for such period, all calculated for the
Servicer Consolidated Group on a consolidated basis in accordance with GAAP.

     “Consolidated Cash Interest Expense” shall mean, for any period, Consolidated Interest
Expense for such period, excluding any amount not payable in Cash.

     “Consolidated Fixed Charges” shall mean, for any period, without duplication,
Consolidated Cash Interest Expense for such period, plus any administration fees owed
pursuant to paragraph 2 of the Fee Letter and any commitment fees owed pursuant to Section 2.9(a)
of the Credit Agreement and the Bluestem 2010 Inventory Credit Agreement, plus scheduled
principal

 

 

payments on Indebtedness made during such period (not including principal payments under the
Credit Agreement), plus the amount of any prepayment premiums or other similar fees paid in
connection with the Credit Documents or the Bluestem Inventory Loan Documents, plus income
and franchise taxes paid in cash net of income and franchise tax refunds (but not less than zero),
plus (x) dividends or distributions paid in cash and (y) any other Restricted Payments
permitted under Section 1.8(a)(iii), (iv), (v) and (vi) of the Bluestem Letter Agreement and paid
in cash, all calculated for the Servicer Consolidated Group on a consolidated basis.

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

     “Consolidated Net Income” shall mean, for any period, the consolidated net income (or
loss) for such period of the Servicer Consolidated Group, determined on a consolidated basis in
accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of
any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with
any member of the Servicer Consolidated Group, (b) the income (or deficit) of any Person (other
than a Subsidiary) in which any member of the Servicer Consolidated Group has an ownership
interest, except to the extent that any such income is actually received by the such member of the
Servicer Consolidated Group in the form of dividends or similar distributions and (c) the
undistributed earnings of any Subsidiary to the extent that the declaration or payment of dividends
or similar distributions by such Subsidiary is not at the time permitted by the terms of any
contractual obligation (other than under any Credit Document or Related Agreement) or Requirement
of Law applicable to such Subsidiary.

     “Controlled Account Control Agreement” shall have the meaning attributed to such term
in the Security Agreement.

     “Controlled Affiliate” shall mean, as applied to any Person, any Person directly or
indirectly controlled by such Person. For the purposes of this definition, “control”
(including, with correlative meanings, the terms “controlling,” and “controlled
by”), as applied to any Person, means the possession, directly or indirectly, of the power (a)
to vote 5% or more of the Securities having ordinary voting power for the election of directors of
such Person or (b) to direct or cause the direction of the management and policies of that Person,
whether through the ownership of voting securities or by contract or otherwise.

     “Credit Adjustment” shall have the meaning specified in Section 2.03(b)(i).

     “Credit Agreement” shall mean the Credit Agreement, dated as of August 20, 2010,
between the Company, GS Bank as Administrative Agent and Collateral Agent, Joint Lead Arranger,
Joint Bookrunner, Syndication Agent and Documentation Agent, and J.P. Morgan Securities Inc. as
Joint Lead Arranger and Joint Bookrunner and the lenders party thereto.

 

 

     “Daily Settlement and Servicing Report” shall mean a report prepared by the Servicer
and delivered to the Company and the Administrative Agent on each Business Day, substantially in
the form of Exhibit C hereto.

     “Date of Processing” shall mean, with respect to any transaction or receipt of
Collections, the date on which such transaction is first recorded on the Servicer’s computer file
of revolving credit card accounts or closed-end installment loan accounts (without regard to the
effective date of such recordation).

     “Debtor Relief Laws” shall mean Title 11 of the United States Code and all other
applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership,
insolvency, reorganization, suspension of payments, readjustment of debt, marshalling of assets,
assignment for the benefit of creditors or similar debtor relief laws of the United States, any
state thereof or any foreign country from time to time in effect, affecting the rights of creditors
generally or the rights of creditors of banks.

     “Defaulted Account” shall mean each Receivables Account with respect to which the
Servicer has charged off Underlying Receivables in such Receivables Account as uncollectible in
accordance with (i) the Operational Guidelines in effect on the date hereof or (ii) the Servicer’s
customary and usual servicing procedures for servicing credit account receivables comparable to the
Underlying Receivables. A Receivables Account shall become a Defaulted Account on the day on which
the Underlying Receivables in such Receivables Account are recorded as charged off as uncollectible
on the Servicer’s computer master file of accounts.

     “Depositary Bank” shall have the meaning attributed to such term in the Security
Agreement.

     “Determination Date” shall mean, with respect to any Interest Payment Date, the date
that is two Business Days prior to such Interest Payment Date.

     “Dollars,” “$” or “U.S. $” shall mean United States dollars.

     “Eligible Servicer” shall mean the Backup Servicer or, if the Backup Servicer is
unable to assume the duties, responsibilities and obligations of the Servicer in accordance with
Section 7.02(b) hereof, an entity which, at the time of its appointment as Servicer, (a) is
servicing a portfolio of revolving credit accounts and/or closed-end installment loan accounts, (b)
is legally qualified and has the capacity to service the Receivables Accounts, (c) has demonstrated
the ability to service professionally and competently a portfolio of similar accounts in accordance
with high standards of skill and care, (d) is qualified to use the software that is then being used
to service the Receivables Accounts or obtains the right to use such software or has its own
software which is adequate to perform the Servicer’s duties under this Agreement and (e) is
otherwise reasonably acceptable to the Administrative Agent and the Class Requisite Lenders of each
Class.

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

 

 

     “Finance Charge Collections” shall mean (i) all Collections of Finance Charge
Receivables, (ii) all Recoveries, (iii) all Contribution Amounts deposited into the Finance Charge
Collections Account and (iv) investment earnings on amounts on deposit in the Finance Charge
Collections Account, the Prepayment Account and the Spread Account.

     “Finance Charge Collections Account” shall have the meaning attributed to such term in
the Security Agreement.

     “Finance Charge Receivables” shall mean Underlying Receivables created in respect of
Periodic Finance Charges, Annual Membership Fees, Annual Service Charges, Late Fees, Return Check
Fees, SafeLine Account Protection fees and all other similar fees and charges designated by the
Servicer for each Collection Period.

     “Financial Officer Certification” shall mean, with respect to the financial statements
for which such certification is required, the certification of the chief financial officer of the
Servicer that such financial statements fairly present, in all material respects, the financial
condition of the Servicer Consolidated Group as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to changes resulting from audit
and normal year end adjustments.

     “Financial Plan” shall have the meaning specified in Section 4.02(g).

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

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

     “Fixed Charge Coverage Ratio” shall mean the ratio determined for the most-recently
ended four Fiscal Quarters of the Servicer of (a) Consolidated Adjusted EBITDA for such period
minus Capital Expenditures made during such period (excluding the portion thereof funded
with (i) long-term debt financing provided by third parties or (ii) for the period from the date of
the initial public offering of Bluestem to the first anniversary thereof, proceeds from such
initial public offering in an amount not to exceed $20,000,000 (provided that, such
exclusions shall not cause Capital Expenditures to be less than zero)) to (b) Consolidated Fixed
Charges for such period, all calculated for the Servicer Consolidated Group on a consolidated basis
in accordance with GAAP.

     “Governmental Authority” shall mean the United States of America, any state or other
political subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.

     “GS Bank” as defined in the preamble hereto.

     “Guarantee” of or by any Person (the “guarantor”) shall mean any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in
any manner, whether directly or indirectly, and including any obligation of the direct or indirect,
(a) to

 

 

purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness
or other obligation or to purchase (or to advance or supply funds for the purchase of) any security
for the payment thereof, (b) to purchase or lease property, securities or services for the purpose
of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to
maintain working capital, equity capital or any other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such Indebtedness or other
obligation or (d) as an account party in respect of any letter of credit or letter of guaranty
issued to support such Indebtedness or obligation; provided, that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of business.

     “Historical Financial Statements” shall mean as of the Closing Date, (a) the audited
financial statements of the Servicer Consolidated Group, for its most recently ended Fiscal Year,
consisting of balance sheets and the related consolidated statements of income, stockholders’
equity and cash flows for such Fiscal Year, and (b) for the interim period from January 30, 2010 to
the Closing Date, internally prepared, unaudited financial statements of the Servicer Consolidated
Group, consisting of a balance sheet and the related consolidated statements of income,
stockholders’ equity and cash flows for the February, March, April, May and June fiscal months, in
the case of clauses (a) and (b), certified by the chief financial officer of the Servicer that they
fairly present, in all material respects, the financial condition of the Servicer Consolidated
Group as at the dates indicated and the results of their operations and their cash flows for the
periods indicated, subject, if applicable, to changes resulting from audit and normal year end
adjustments.

     “Indebtedness” of any Person shall mean, without duplication, (a) all obligations of
such Person for borrowed money or with respect to deposits or advances of any kind, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid, (d) all obligations of
such Person under conditional sale or other title retention agreements relating to property
acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase
price of property or services (excluding current accounts payable incurred in the ordinary course
of business), (f) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property
owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed,
(g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of
such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise,
of such Person in respect of bankers’ acceptances, (k) obligations under any liquidated earn-out
and (l) any other Off-Balance Sheet Liability. The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such Person’s ownership
interest in or other relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.

     “Insurance Consultant” shall mean Lockton Companies, LLC and any replacement insurance
consultant for the Administrative Agent selected by the Administrative Agent.

 

 

     “Insurance Proceeds” shall mean any amounts received pursuant to the payment of
benefits under any credit life insurance policies, credit disability or unemployment insurance
policies covering any Receivables Obligor with respect to Underlying Receivables under such
Receivables Obligor’s Receivables Account.

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

     “Late Fees” shall have the meaning specified in the Receivables Account Agreement
applicable to each Receivables Account for late fees or similar terms.

     “Lien” means with respect to any asset, (a) any mortgage, deed of trust, lien, pledge,
hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest
of a vendor or a lessor under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.

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

     “Lockbox Account Bank” shall have the meaning attributed to such term in the Security
Agreement.

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

     “Material Contract” shall mean any contract or other arrangement to which any member
of the Servicer Consolidated Group is a party (other than the Credit Documents or Related
Agreements) for which breach, nonperformance, cancellation or failure to renew would reasonably be
expected to have a Material Adverse Effect.

     “Narrative Report” shall mean, with respect to the financial statements for which such
narrative report is required, a narrative report describing the operations of the Servicer
Consolidated Group, as the case may be, in the form prepared for presentation to senior management
thereof for the applicable Fiscal Quarter or Fiscal Year and for the period from the beginning of
the then current Fiscal Year to the end of such period to which such financial statements relate
with comparison to and variances from the immediately preceding period and budget.

     “Net Liquidity” shall mean, as of any date of determination, an amount equal to the
sum of (a) unrestricted Cash and Cash Equivalents of the Servicer Consolidated Group, plus
(b) Revolving Availability, plus (c) availability under the Bluestem 2010 Inventory Credit
Agreement; provided, that all conditions to funding under (b) or (c), as the case may be,
have

 

 

been fully satisfied (other than delivery of prior notice of funding and post-funding notices,
opinions or certificates).

     “Notice of Reinstatement” shall mean a notice of reinstatement substantially in the
form of Exhibit A hereto.

     “Notices” shall have the meaning specified in Section 8.04.

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

     “Operational Guidelines” shall mean the summary of certain operational guidelines and
policies and procedures of the Servicer with respect to its servicing of the Receivables Accounts
and Underlying Receivables attached as Appendix A hereto (as updated from time to time
pursuant to Section 4.17).

     “Payment Date Report” shall have the meaning specified in Section 2.04(g).

     “Periodic Finance Charges” shall have the meaning attributed to such term in the
Receivables Account Agreement applicable to each Receivables Account for finance charges (due to
periodic rate) or any similar term.

     “Petters Group” means Petters Group Worldwide LLC and its Affiliates or any receiver
or trustee therefor or any successor or transferee thereof.

     “Principal Collections” shall mean all Collections of Principal Receivables.

     “Principal Collections Account” shall have the meaning attributed to such term in the
Security Agreement.

     “Principal Receivables” shall mean all Underlying Receivables other than Finance
Charge Receivables. A Principal Receivable shall be deemed to have been created on the Date of
Processing of such Principal Receivable. In calculating the aggregate amount of Principal
Receivables on any day, the amount of Principal Receivables shall be reduced by the aggregate
amount of credit balances in the Receivables Accounts on such day.

     “Receivables Account” shall mean each consumer revolving credit account or closed-end
installment loan account established pursuant to a Receivables Account Agreement between the
applicable Receivables Account Owner and any Receivables Obligor.

     “Receivables Account Agreement” shall mean, with respect to a revolving credit account
or closed-end installment loan account, the agreements between a Receivables Account Owner and the
Receivables Obligor governing the terms and conditions of such account, including the

 

 

schedules, exhibits, annexes or appendices thereto, as such agreements may be amended,
modified or otherwise changed from time to time and as distributed (including any amendments and
revisions thereto) to holders of such account.

     “Receivables Account Owner” shall mean, with respect to any Receivables Account, the
entity which is either (i) the originator of such Receivables Account pursuant to a Receivables
Account Agreement or (ii) an entity which has acquired such Receivables Account and, in either
case, has sold the related Underlying Receivables to the Seller which has in turn sold the related
Underlying Receivables to the Company pursuant to a Receivables Purchase Agreement. Each of the
following shall be a “Receivables Account Owner”: (i) WebBank, (ii) MetaBank and (iii) any other
entity requested by the Servicer and approved by the Administrative Agent in its sole and absolute
discretion.

     “Receivables Obligor” shall mean, with respect to any Receivables Account, the Person
or Persons obligated to make payments with respect to such Receivables Account, including any
guarantor thereof, but excluding any merchant.

     “Recoveries” shall mean all amounts received with respect to Defaulted Accounts,
including without limitation any Insurance Proceeds attributable to Underlying Receivables in
Defaulted Accounts and the net proceeds of any sale or other disposition of such Underlying
Receivables.

     “Refinancing” means an extension, renewal or replacement.

     “Reinstatement Termination Date” shall have the meaning specified in Section
8.02.

     “Reinstatement Termination Event” shall have the meaning specified in Section
8.02.

     “Requirements of Law” shall mean any law, treaty, rule or regulation, or determination
of an arbitrator or Governmental Authority, whether federal, state or local (including usury laws,
the Federal Truth in Lending Act and Regulation B and Regulation Z of the Board of Governors of the
Federal Reserve System), and, when used with respect to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such Person.

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

     “Return Check Fees” shall have the meaning specified in the Receivables Account
Agreement applicable to each Receivables Account for return check fees or similar terms.

     “SafeLine Account Protection” shall have the meaning specified in the Receivables
Account Agreement applicable to each Receivables Account for account protection charges.

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

 

 

     “Seller” shall mean Bluestem.

     “Senior Subordinated Debt” means the Indebtedness of Bluestem in the aggregate
original principal amount of $30,000,000, as evidenced by the 13.00% Senior Subordinated Secured
Notes dated as of March 23, 2006 in the aggregate principal amount of $30,000,000 made by Bluestem,
together with any replacements thereof, in each case as amended, modified, supplemented or restated
in accordance with the terms of the Holdings Securities Purchase Agreement.

     “Senior Subordinated Documents” means the Holdings Securities Purchase Agreement and
any and all agreements, documents and instruments executed and delivered thereunder or in
connection therewith.

     “Service Transfer” shall have the meaning specified in Section 7.01.

     “Servicer” shall mean Bluestem, in its capacity as Servicer pursuant to this
Agreement.

     “Servicer Consolidated Group” shall mean Bluestem and its Subsidiaries.

     “Servicer Default” shall have the meaning specified in Section 7.01.

     “Servicing Fee” shall have the meaning specified in Section 2.02.

     “Servicing Report” has the meaning specified in Section 2.04(b) herein.

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

     “Subsidiary” means any direct or indirect wholly-owned subsidiary of the Servicer or a
Bluestem Credit Party, as applicable.

     “Successor Servicer” shall have the meaning specified in Section 7.02(a).

     “Swap Agreement” shall mean any agreement with respect to any swap, forward, future or
derivatives transaction or option or similar agreement involving, or settled by reference to, one
or more rates, currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk or value or any
similar transaction or any combination of these transactions; provided that no phantom
stock or similar plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of any member of the Servicer Consolidated
Group shall be a Swap Agreement.

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

 

 

     “Termination Notice” shall have the meaning specified in Section 7.01.

     “Three-Year Forecast” shall have the meaning specified in Section 3.12.

     “UCC” shall mean the Uniform Commercial Code, as amended from time to time, as in
effect in any specified jurisdiction.

     “Underlying Receivables” shall mean all amounts payable by Receivables Obligors on any
Receivables Account from time to time, other than such amounts that have not yet been sold by a
Receivables Account Owner to the Seller pursuant to the applicable Receivables Sale Agreement,
including amounts payable for Principal Receivables and Finance Charge Receivables.

     “US Bank Account” shall have the meaning attributed to such term in the Security
Agreement.

          Section 1.02 Other Definitional Provisions.

          (a) All terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise defined therein.

          (b) As used in this Agreement and in any certificate or other document made or delivered
pursuant hereto or thereto, accounting terms not defined in this Agreement or in any such
certificate or other document, and accounting terms partly defined in this Agreement or in any such
certificate or other document to the extent not defined, shall have the respective meanings given
to them under GAAP. To the extent that the definitions of accounting terms in this Agreement or in
any such certificate or other document are inconsistent with the meanings of such terms under GAAP,
the definitions contained in this Agreement or in any such certificate or other document shall
control.

          (c) Unless otherwise specified, references to any amount as on deposit or outstanding on any
particular date shall mean such amount at the close of business on such day.

          (d) The words “hereof,” “herein,” “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement; references to any subsection, Section, clause, Schedule or Exhibit are references to
subsections, Sections, clauses, Schedules and Exhibits in or to this Agreement unless otherwise
specified; the term “including” means “including without limitation”; references to any law or
regulation refer to that law or regulation as amended from time to time and include any successor
law or regulation; references to any Person include that Person’s successors and permitted assigns;
and references to any agreement refer to such agreement, as amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.

          (e) In the event that any reports are not available to any Person on the date on which such
Person is required to make a determination of whether a computational test has been

 

 

satisfied pursuant hereto, such determination shall be made using the most current available
information.

ARTICLE II

ADMINISTRATION AND SERVICING OF RECEIVABLES

          Section 2.01 Acceptance of Appointment and Other Matters Relating to the Servicer.

          (a) The Company and the Administrative Agent hereby appoint Bluestem Brands, Inc. to act as
Servicer under this Agreement, and Bluestem Brands, Inc. hereby agrees to act as the Servicer under
this Agreement until terminated in accordance with the terms hereof.

          (b) As agent for the Company and the Administrative Agent, the Servicer shall service and
administer the Underlying Receivables, shall record receipt of all Collections, shall allocate
amounts received under the Underlying Receivables and deposited in the Lockbox Account to the
Principal Collections Account and the Finance Charge Collections Account, pursuant to Section
2.03, and shall charge off as uncollectible Underlying Receivables in Defaulted Accounts, all
in accordance with its customary and usual servicing procedures for servicing revolving credit
account receivables and closed-end installment loan account receivables, in each case, comparable
to the Underlying Receivables and in accordance with the Operational Guidelines. Without limiting
the generality of the foregoing and subject to Section 7.01, the Servicer or its designee
is hereby authorized and empowered, and agrees, unless such power is revoked by the Collateral
Agent on account of the occurrence of a Servicer Default, (i) to instruct the Receivables Obligors
to deposit Collections in the US Bank Account or the Lockbox Account, (ii) to allocate Collections
to the Principal Collections Account or the Finance Charge Collections Account as set forth in
Section 2.03 hereto and (iii) to execute and deliver, on behalf of the Company, any and all
instruments of satisfaction or cancellation, or of partial or full release or discharge, and all
other comparable instruments, with respect to the Underlying Receivables and, after the delinquency
of any Underlying Receivable and to the extent permitted under and in compliance with applicable
Requirements of Law, to commence collection proceedings with respect to such Underlying Receivable.
The Company upon written request therefor shall furnish the Servicer with any documents necessary
or appropriate to enable the Servicer to carry out its servicing and administrative duties
hereunder.

          (c) The Servicer shall not be obligated to use separate servicing procedures, offices,
employees or accounts for servicing the Underlying Receivables from the procedures, offices,
employees and accounts used by the Servicer in connection with servicing other credit account
receivables.

          (d) The Servicer shall comply with and perform its servicing obligations with respect to the
applicable Receivables Accounts and Underlying Receivables in all material respects in accordance
with the Receivables Account Agreements relating to the Receivables Accounts and the Operational
Guidelines.

          (e) The Servicer shall pay out of its own funds all expenses incurred in connection with the
servicing activities hereunder including expenses related to enforcement of

 

 

the Underlying Receivables, the reasonable fees and expenses of its outside counsel and
independent accountants and all other fees and expenses, including the costs of filing UCC
continuation statements.

          Section 2.02 Servicing Compensation. As full compensation for its servicing
activities hereunder and as reimbursement for any expense incurred by it in connection therewith,
the Servicer shall be entitled to receive a servicing fee (the “Servicing Fee”) on each
Interest Payment Date, in accordance with Sections 2.13 and 2.15 of the Credit Agreement, in an
amount equal to one-twenty-fourth of the product of (a) the average daily outstanding balance of
Principal Receivables for the Collection Period related to such Interest Payment Date and (b)
3.00%.

          Section 2.03 Collections, Allocations, Investments and Adjustments.

          (a) Collections and Allocations. By 1:00 p.m. (New York City time) on the second
Business Day following the Date of Processing related to any Collections, the Servicer shall
determine if such Collections are Finance Charge Collections or Principal Collections and shall
direct the Lockbox Account Bank and the Depositary Bank, as applicable, to transfer such Principal
Collections from the Lockbox Account to the Principal Collections Account and to transfer such
Finance Charge Collections from the Lockbox Account to the Finance Charge Collections Account;
provided, however, that with respect to any payment received that does not contain
sufficient identification of the account number to which such payment relates or cannot be
processed due to an act beyond the control of the Servicer such deposit shall be made no later than
the second Business Day following the date on which such account number is identified or such
payment can be processed, as applicable. On the Business Day immediately preceding an Interest
Payment Date, the Servicer shall direct the Depositary Bank to transfer any investment earnings as
of the open of business on the related Determination Date on amounts on deposit in the Prepayment
Account or the Spread Account to the Finance Charge Collections Account.

          (b) Adjustments.

          (i) If, with respect to any Date of Processing, the amount of any Principal Receivable
is adjusted downward by the Servicer without receiving Collections therefor because of a
rebate, unauthorized charge, refund or billing error, because such Principal Receivable was
created in respect of merchandise which was refused or returned by a Receivables Obligor or
because the Principal Receivable was created through a fraudulent or counterfeit charge,
then an adjustment (a “Credit Adjustment”) shall be made on such Date of Processing
to the aggregate amount of Principal Receivables in an amount equal to such Credit
Adjustment, thereby reducing the aggregate amount of Principal Receivables for such Date of
Processing.

          (ii) If (1) the Servicer directs the Lockbox Account Bank to transfer funds from the
Lockbox Account to the Principal Collections Account or the Finance Charge Collections
Account in respect of a Collection and such Collection was received by the Servicer in the
form of a check which is not honored for any reason or (2) the Servicer makes a mistake with
respect to the amount of any Collection and directs the Lockbox Account Bank to transfer an
amount that is less than or more than the actual

 

 

amount of such Collection, the Servicer shall appropriately adjust the amount that it
directs the Lockbox Account Bank to subsequently transfer to the Principal Collections
Account or the Finance Charge Collections Account, as applicable, to reflect such dishonored
check or mistake. Any Underlying Receivable in respect of which a dishonored check is
received shall be deemed not to have been paid. Notwithstanding the first two sentences of
this paragraph, adjustments made pursuant to this Section 2.03(b) shall not require
any change in any report previously delivered pursuant to Section 2.04(a).

          (c) Investments. For so long as the Company is permitted to direct the Depositary
Bank to invest amounts held in the Finance Charge Collections Account, the Prepayment Account and
the Spread Account in Permitted Investments pursuant to the Controlled Account Control Agreement,
the Servicer (on behalf of the Company) may direct the Depositary Bank with respect to the
investment of such amounts in Permitted Investments.

          Section 2.04 Reports and Records.

          (a) Daily Records. On each Business Day, the Servicer shall make or cause to be made
available at the office of the Servicer for inspection by the Company, the Administrative Agent,
any Lender and the Backup Servicer upon request a record setting forth (i) the Collections in
respect of Principal Receivables and in respect of Finance Charge Receivables on the second
preceding Date of Processing in respect of each Receivables Account and (ii) the amount of
Underlying Receivables as of the close of business on the second preceding Date of Processing in
each Receivables Account. The Servicer shall, at all times, maintain its computer files with
respect to the Receivables Accounts in such a manner so that the Eligible Underlying Receivables
with respect to each Receivables Account may be specifically identified and shall make available to
the Company, the Administrative Agent, any Lender and the Backup Servicer at the office of the
Servicer on any Business Day any computer programs necessary to make such identification.

          (b) Servicing Report. Not later than the Determination Date after the end of a
Collection Period, the Servicer shall deliver to the Company, the Administrative Agent and the
Backup Servicer a servicing report (such report, the “Servicing Report”), which shall
contain the information with respect to the Underlying Receivables as set forth in Exhibit
B hereto.

          (c) Weekly Data Tape. By 1:00 p.m. (New York City time) on the first Business Day of
each week, the Servicer shall deliver to the Backup Servicer and the Administrative Agent a data
tape for the prior week containing the information set forth in Exhibit F hereto and in a
format requested by the Backup Servicer and reasonably acceptable to the Administrative Agent.

          (d) Collection Period Data Tape. Not later than the Determination Date after the end
of a Collection Period, the Servicer shall deliver to the Backup Servicer and the Administrative
Agent a data tape for such Collection Period in a form agreed to by the Backup Servicer and the
Administrative Agent.

 

 

          (e) Daily Settlement and Servicing Report.

          (i) The Servicer shall prepare a Daily Settlement and Servicing Report on each Business
Day, and shall deliver such report to the Company and the Administrative Agent by 1:00 p.m.
(New York City time). The daily report shall include allocations and payments made or
deemed to be made for each Date of Processing since the most recent Date of Processing
covered by the prior Daily Settlement and Servicing Report, shall include activity for the
Date of Processing two Business Days prior to the date of delivery, and shall include a
Borrowing Base Certificate, as of the Date of Processing two Business Days prior to the date
of delivery and taking into account any withdrawals from or deposits into the Principal
Collections Account, the Total Utilization of Revolving Commitments and the aggregate
outstanding amount of the Tranche B Term Loans, in each case, as of the date of delivery.

          (ii) Upon discovery of any error or receipt of notice of any error in any Daily
Settlement and Servicing Report, the Servicer and the Administrative Agent shall arrange to
confer and shall agree upon any adjustments necessary to the Principal Collections Account
or to the Finance Charge Collections Account to correct any such errors.

          (f) Other Reports. The Servicer shall provide in a timely manner to the
Administrative Agent any other report, document or information reasonably requested by the
Administrative Agent or the Class Requisite Lenders of either Class.

          (g) Payment Date Report. For each Interest Payment Date, the Servicer shall compile
and provide (or cause to be compiled and provided) by 1:00 p.m. (New York time) on the related
Determination Date an accounting (such accounting, the “Payment Date Report”) to the
Company, the Administrative Agent and each Lender substantially in the form of Exhibit E
hereto. If for any reason any of the amounts specified in a Payment Date Report must be adjusted
to reflect any changes after the Determination Date but prior to the related Interest Payment Date,
the Servicer shall provide a supplement to such Payment Date Report by the close of business on the
Business Day immediately preceding such Interest Payment Date and such supplement shall be deemed
to be part of the related Payment Date Report.

          Section 2.05 Annual Certificate of Servicer. The Servicer shall deliver to the
Company and the Administrative Agent within 120 calendar days from the end of the Fiscal Year of
the Company beginning with the Fiscal Year ending on January 28, 2011 certified by an Authorized
Officer of the Servicer, an officer’s certificate substantially in the form of Exhibit D
hereto.

          Section 2.06 Annual Servicing Report of Independent Public Accountants; Copies of Reports
Available.

          (a) Within 120 calendar days from the end of the Fiscal Year of the Servicer beginning with
the Fiscal Year ending on January 28, 2011, the Servicer shall cause a firm of nationally
recognized independent registered public accountants (who may also render other services to the
Servicer) to furnish a report to the Company and the Administrative Agent to the

 

 

effect that they have performed certain procedures agreed upon with the Servicer related to
the Servicer’s material compliance with the Operational Guidelines for the twelve months ended on
the last day of the preceding Fiscal Year of the Servicer. Such report shall set forth the
agreed-upon procedures performed, any exceptions noted related to such procedures or a statement
that no exceptions were noted. Notwithstanding the above, such report may be restricted in its
distribution to those parties who are a party to the engagement letter with such firm if required
by such registered public accountants. In the event a material discrepancy is noted on such
report, the Servicer will, within 30 calendar days of such notice, resolve such material
discrepancy.

          (b) Within 120 calendar days from the end of the Fiscal Year of the Servicer beginning with
the Fiscal Year ending on January 28, 2011, the Servicer shall cause a firm of nationally
recognized independent registered public accountants (who may also render other services to the
Servicer) to furnish a report to the Company and the Administrative Agent to the effect that they
have performed certain procedures agreed upon with the Servicer to recalculate certain mathematical
calculations of certain amounts set forth in the Servicer’s Servicing Reports during the period
covered by such reports and have compared such amounts with the Servicer’s computer records that
were the source of such amounts. Such report shall set forth the agreed-upon procedures performed,
any exceptions noted related to such procedures or a statement that no exceptions were noted.
Notwithstanding the above, such report may be restricted in its distribution to those parties who
are a party to the engagement letter with such firm if required by such registered public
accountants. In the event a material discrepancy is noted on such report, the Servicer will,
within 30 calendar days of such notice, resolve such material discrepancy.

          (c) Any Lender may obtain a copy of each certificate and report provided pursuant to
Section 2.04(b), Section 2.05 or Section 2.06, by a request in writing to
the Servicer.

          Section 2.07 Notices to the Seller. In the event that the Seller is no longer acting
as Servicer but the Receivables Purchase Agreement has not been terminated in accordance with its
terms, the Administrative Agent shall use reasonable efforts to cause any Successor Servicer to
deliver or make available to the Seller each certificate and report required to be provided
thereafter pursuant to Section 2.04(a), (b) and (e), Section 2.05
and Sections 2.06(a) and (b).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SERVICER

     Bluestem Brands, Inc., as Servicer, hereby makes on the Closing Date, as of the date hereof
and on each Credit Date (and on any other date specified in this Article III), unless such
representation and warranty refers to an earlier date, in which case such representation and
warranty shall be made as of such earlier date, the following representations, warranties on which
the Company and the Lenders, as applicable, shall be deemed to have relied in purchasing the
Underlying Receivables under the Receivables Purchase Agreement and making the Loans and entering
into the Credit Agreement:

 

 

          Section 3.01 Organization and Good Standing. The Servicer is an entity duly
organized, validly existing and in good standing under the laws of the jurisdiction of its
organization and has full power and authority to own its properties and conduct its credit account
servicing business as presently owned or conducted, and to execute, deliver and perform its
obligations under this Agreement.

          Section 3.02 Due Qualification. The Servicer is duly qualified to do business and is
in good standing as a foreign corporation (or is exempt from such requirements) in any jurisdiction
where such qualification is required in order to conduct its business, and has obtained all
necessary licenses and approvals in each jurisdiction in which the servicing of the Underlying
Receivables as required by this Agreement requires such qualification except where the failure to
so qualify or obtain such licenses and approvals would not reasonably be expected to have a
material adverse effect on its ability to perform its obligations as Servicer under this Agreement.

          Section 3.03 Due Authorization. The execution, delivery, and performance by the
Servicer of this Agreement and the other agreements and instruments executed or to be executed by
the Servicer as contemplated hereby have been duly authorized by the Servicer by all necessary
corporate or other appropriate action on the part of the Servicer, and this Agreement will remain,
from the time of its execution, an official record of the Servicer.

          Section 3.04 Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Servicer, enforceable in accordance with its terms, except as such
enforceability may be limited by applicable Debtor Relief Laws now or hereafter in effect or by
general principles of equity (whether considered in a suit at law or in equity).

          Section 3.05 No Conflict. The execution and delivery of this Agreement by the
Servicer, and the performance of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof applicable to the Servicer, will not conflict with, violate or
result in any breach in any material respect of any of the terms and provisions of, or constitute
(with or without notice or lapse of time or both) a default under, any indenture, contract,
agreement, mortgage, deed of trust or other instrument to which the Servicer is a party or by which
it or its properties are bound.

          Section 3.06 No Violation. The execution, delivery and performance of this Agreement
by the Servicer, and the fulfillment of the terms and transactions hereof applicable to the
Servicer will not conflict with or violate any Requirements of Law applicable to the Servicer.

          Section 3.07 No Proceedings. There are no proceedings or investigations pending or,
to the best knowledge of the Servicer, threatened against the Servicer before any Governmental
Authority seeking to prevent the consummation of any of the transactions contemplated by this
Agreement or seeking any determination or ruling that would reasonably be expected to have a
material and adverse effect on the performance by the Servicer of its obligations under this
Agreement.

          Section 3.08 Compliance with Requirements of Law. The Servicer shall duly satisfy all
obligations on its part to be fulfilled under or in connection with each Underlying

 

 

Receivable and the related Receivables Account, if any; will maintain in effect all
qualifications required under Requirements of Law in order to service properly each Underlying
Receivable and the related Receivables Account, if any; and will comply in all respects with all
other Requirements of Law in connection with servicing each Underlying Receivable and the related
Receivables Account the failure to comply with which would reasonably be expected to have a
material adverse effect on the performance by the Servicer of its obligations under this Agreement.

          Section 3.09 All Consents. All authorizations, consents, licenses, orders or
approvals of or registrations or declarations with any Governmental Authority required to be
obtained, effected or given by the Servicer in connection with the execution and delivery of this
Agreement by the Servicer and the performance of the transactions contemplated by this Agreement by
the Servicer, have been duly obtained, effected or given and are in full force and effect.

          Section 3.10 Solvency. The Servicer is Solvent.

          Section 3.11 Historical Financial Statements. The Historical Financial Statements
were prepared in conformity with GAAP and fairly present, in all material respects, the financial
position, on a consolidated basis, of the Persons described in such financial statements as at the
respective dates thereof and the results of operations and cash flows, on a consolidated basis, of
the entities described therein for each of the periods then ended, subject to (a) any changes
resulting from restatements as may be required to comply with the Securities Act, Exchange Act and
the rules and regulations promulgated thereunder in connection with an initial public offering by
Bluestem and subject or (b) in the case of any such unaudited financial statements, changes
resulting from audit and normal year end adjustments. As of the Closing Date, no member of the
Servicer Consolidated Group has any contingent liability or liability for taxes, long term lease or
unusual forward or long term commitment that is not reflected in the Historical Financial
Statements or the notes thereto and which in any such case is material in relation to the business,
operations, properties, assets, condition (financial or otherwise) or prospects of the Servicer
Consolidated Group taken as a whole.

          Section 3.12 Three-Year Forecast. On and as of the Closing Date, the Three-Year
Forecast dated June 11, 2010 of the Servicer Consolidated Group for the period of Fiscal Year 2010
through and including Fiscal Year 2013, including monthly projections for each month during the
current Fiscal Year ending on January 28, 2011 (the “Three-Year Forecast”) delivered
pursuant to Section 4.02(a) was based on good faith estimates and assumptions made by the
management of the Servicer; provided, that actual results during the period or periods
covered by the Three-Year Forecast may differ from such Three-Year Forecast and that the
differences may be material; provided further, as of the Closing Date, management
of the Servicer believes that the Three-Year Forecast was reasonable and attainable.

          Section 3.13 Title to Assets. The Servicer had, as of the dates specified therein,
good and valid title to all of its assets reflected in the Historical Financial Statements referred
to in Section 3.11 and in the most recent financial statements delivered pursuant to
Section 4.02. Except as permitted by this Agreement or the Credit Agreement, all such
properties and assets

 

 

are free and clear of liens other than liens permitted under Section 1.2 of the Bluestem
Letter Agreement.

          Section 3.14 Capital Stock and Ownership. As of the Closing Date, the Capital Stock
of each member of the Servicer Consolidated Group has been duly authorized and validly issued and
is fully paid and non assessable. Except as set forth on Schedule 3.14 hereto, as of the
Closing Date, there is no existing option, warrant, call, right, commitment or other agreement to
which any member of the Servicer Consolidated Group is a party requiring, and there is no
membership interest or other Capital Stock of any member of the Servicer Consolidated Group
outstanding which upon conversion or exchange would require, the issuance by any member of the
Servicer Consolidated Group of any additional membership interests or other Capital Stock of any
member of the Servicer Consolidated Group convertible into, exchangeable for or evidencing the
right to subscribe for or purchase, a membership interest or other Capital Stock of any member of
the Servicer Consolidated Group. Schedule 3.14 correctly sets forth the ownership interest
of each member of the Servicer Consolidated Group in their respective Subsidiaries as of the
Closing Date.

          Section 3.15 Material Adverse Effect. Since January 29, 2010, no event, circumstance
or change has occurred that has caused or evidences, either in any case or in the aggregate, a
Material Adverse Effect with respect to the Servicer.

          Section 3.16 Payment of Taxes. Except as otherwise permitted under Section
4.10, all tax returns and reports of each member of the Servicer Consolidated Group required to
be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due
and payable and all assessments, fees and other governmental charges upon each member of the
Servicer Consolidated Group and upon their respective properties, assets, income, businesses and
franchises which are due and payable have been paid when due and payable. The Servicer knows of no
proposed tax assessment against any member of the Servicer Consolidated Group that could reasonably
be expected to have a material adverse effect on the performance by the Servicer of its obligations
under this Agreement, which is not being actively contested by the Servicer or a Subsidiary in good
faith and by appropriate proceedings; provided, such reserves or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have been made or provided
therefor.

          Section 3.17 No Defaults. No member of the Servicer Consolidated Group is in default
in the performance, observance or fulfillment of any of the obligations, covenants or conditions
contained in any of its Contractual Obligations, and no condition exists which, with the giving of
notice or the lapse of time or both, would reasonably be expected to constitute such a default,
except where the consequences, direct or indirect, of such default or defaults, if any, could not
reasonably be expected to have a Material Adverse Effect with respect to the Servicer.

          Section 3.18 Material Contracts. Schedule 3.18 contains a true, correct and
complete list of all the Material Contracts in effect on the Closing Date, together with any
updates provided pursuant to Section 4.02(l). All such Material Contracts are in full
force and effect, and no defaults currently exist thereunder (other than as described in
Schedule 3.18 or in such updates).

 

 

          Section 3.19 Senior Management. Schedule 3.19 contains a true, correct and
complete list of all the members of Senior Management and their respective titles as of the Closing
Date.

          Section 3.20 Operational Guidelines. Appendix A contains a true, correct and
complete copy of the Operational Guidelines as updated pursuant to Section 4.17.

ARTICLE IV

AFFIRMATIVE COVENANTS OF THE SERVICER

     Bluestem Brands, Inc., as Servicer, covenants and agrees that so long as this Agreement is in
effect and until satisfaction of its obligations hereunder, that it shall perform, and shall cause
each of its Subsidiaries and Controlled Affiliates to perform, all covenants in this Article
IV.

          Section 4.01 Financial Covenants.

          (a) Minimum Net Liquidity. The Servicer Consolidated Group’s Net Liquidity shall be
equal to or greater than (i) for each fiscal month of the Servicer other than the December and
January fiscal months, $25,000,000 (measured as of the last day of each such fiscal month of the
Servicer) and (ii) for the December and January fiscal months of the Servicer, $20,000,000
(measured as of the last day of each such fiscal month of the Servicer), in each case, after giving
effect to any payments under the Bluestem Inventory Credit Agreement on such date of measurement.

          (b) Net Worth. The Servicer Consolidated Group shall have a Tangible Net Worth
(measured as of the last day of each Fiscal Quarter) equal to or greater than the sum of (i)
$120,000,000, plus (ii) 75% of its Consolidated Net Income (if positive) for each full
Fiscal Year after the Closing Date, plus (iii) 85% of the gross proceeds actually received
in cash by the Servicer Consolidated Group from the proceeds of any issuance of Capital Stock by
the Servicer Consolidated Group after the Closing Date.

          (c) Minimum LTM EBITDA Margin: The LTM EBITDA Margin for the Servicer Consolidated
Group shall be equal to or greater than 8.5% (measured as of the last day of each Fiscal Quarter).

          (d) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio for the Servicer
Consolidated Group (measured as of the last day of each Fiscal Quarter) shall be:

 

 

	 	 	 
	Relevant period	 	Fixed Charge Coverage Ratio
	Closing Date through and including the
Fiscal Quarter ending on or about October
31, 2011

	 	Equal to or greater than 1.00x
	 	 	 
	Following the Fiscal Quarter ending on or
about October 31, 2011, through and
including the Fiscal Quarter ending on or
about October 31, 2012
	 	Equal to or greater than 1.05x
	 	 	 
	Following the Fiscal Quarter ending on or
about October 31, 2012
	 	Equal to or greater than 1.10x

          Section 4.02 Financial Statements. Unless otherwise provided below, the Servicer
shall deliver to the Administrative Agent and the Lenders:

          (a) Closing Date Financial Statements; Three-Year Forecast. As of the Closing Date,
(i) the Three-Year Forecast, (ii) the Historical Financial Statements, (iii) a Financial Officer
Certification, and (iv) Servicing Reports for the most recent calendar month period completed five
Business Days after the last day of the preceding calendar month.

          (b) Monthly Reports. As soon as available, and in any event within 30 days after the
end of each month (beginning (i) for the Servicer Consolidated Group, with the monthly period ended
on July 2, 2010 and (ii) for the Company, with the monthly period ended on July 2, 2010), the
consolidated balance sheets of the Servicer Consolidated Group and the stand-alone balance sheets
of the Company as at the end of such month, the related consolidated and stand-alone statements of
income and the consolidated statements of stockholders’ equity and consolidated statements of cash
flows of the Servicer Consolidated Group for such month and for the period from the beginning of
the then current Fiscal Year to the end of such month, setting forth in each case in comparative
form the corresponding figures for the corresponding periods of the previous Fiscal Year and the
corresponding figures from the Financial Plans for the current Fiscal Year, subject to normal
year-end audit adjustments and the absence of footnotes, all in reasonable detail, together with a
schedule of reconciliations for any reclassifications in excess of $250,000 with respect to prior
months or periods (and, in connection therewith, copies of any restated financial statements for
any impacted month or period) and a Financial Officer Certification;

          (c) Quarterly Financial Statements. As soon as available, and in any event within 45
days after the end of each Fiscal Quarter of each Fiscal Year (including the fourth Fiscal
Quarter), the consolidated balance sheets of the Servicer Consolidated Group as at the end of such
Fiscal Quarter and the related consolidated statements of income, stockholders’ equity and cash
flows of the Servicer Consolidated Group, as the case may be, for such Fiscal Quarter and for the
period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter,
setting forth in comparative form the corresponding figures for the corresponding periods of the
previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal
Year, subject to normal year-end audit adjustments and the absence of footnotes,

 

 

all in reasonable detail, together with a Financial Officer Certification, substantially in
the form attached as Exhibit I hereto, and a Narrative Report with respect thereto and any
other operating reports of the Servicer as may be reasonably requested by the Administrative Agent;

          (d) Annual Financial Statement. As soon as available, and in any event within 120
days after the end of each Fiscal Year, (i) the consolidated and consolidating balance sheets of
the Servicer Consolidated Group as at the end of such Fiscal Year and the related consolidated (and
with respect to statements of income, consolidating) statements of income, stockholders’ equity and
cash flows of the Servicer Consolidated Group, as the case may be, for such Fiscal Year, setting
forth in each case in comparative form the corresponding figures for the previous Fiscal Year and
the corresponding figures from the Financial Plan for the Fiscal Year covered by such financial
statements, in reasonable detail, together with a Financial Officer Certification and a Narrative
Report with respect thereto (such financial statements shall also include (x) a detailed summary of
any audit adjustments; (y) a reconciliation of any material audit adjustments or reclassifications
to the previously provided monthly or quarterly financials; and (z) restated monthly or quarterly
financials for any periods that are required to be restated pursuant to GAAP); and (ii) with
respect to such consolidated financial statements a report thereon of Deloitte & Touche LLP or
other independent certified public accountants of recognized national standing selected by the
Servicer, and reasonably satisfactory to the Administrative Agent (which report shall be
unqualified as to going concern and scope of audit, and shall state that such consolidated
financial statements fairly present, in all material respects, the consolidated financial position
of the Servicer Consolidated Group, as the case may be, as at the dates indicated and the results
of their operations and their cash flows for the periods indicated in conformity with GAAP applied
on a basis consistent with prior years (except as otherwise disclosed in such financial statements)
and that the examination by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing standards) together with a
written statement by such independent certified public accountants stating that in the course of
their audit, nothing has come to their attention that caused them to believe that the Servicer has
failed to comply with the terms, covenants, provisions or conditions of Section 6.5 of the Credit
Agreement or Section 4.01 of this Agreement, in each case insofar as they relate to
financial and accounting matters, and if any such failure has come to their attention, specifying
the nature and period of existence thereof;

          (e) Compliance Certificates. Together with each delivery of the relevant financial
statements of the Servicer Consolidated Group pursuant to Sections 4.02(b), 4.02(c)
and 4.02(d), the Servicer shall deliver a duly executed and completed Compliance
Certificate;

          (f) Statements of Reconciliation after Change in Accounting Principles. If, as a
result of any change in accounting principles and policies from those used in the preparation of
the Historical Financial Statements, the consolidated financial statements of the Servicer
Consolidated Group or the Company delivered pursuant to Sections 4.02(a), 4.02(b),
4.02(c) or 4.02(d) will differ in any material respect from the consolidated
financial statements that would have been delivered pursuant to such subdivisions had no such
change in accounting principles and policies been made, then, together with the first delivery of
such financial statements after such change, one or more statements of reconciliation for all such
prior financial statements in form and substance reasonably satisfactory to the Administrative
Agent;

 

 

          (g) Financial Plans. As soon as practicable and in any event no later than February
25th of each year, a consolidated plan and financial forecast for such Fiscal Year and, as soon as
practicable and in any event no later than October 15 of each year, a one-year and a three-year
consolidated plan and financial forecast including such Fiscal Year (or portion thereof)
(collectively, the “Financial Plans”), including (i) a forecasted consolidated balance
sheet and forecasted consolidated statements of income and cash flows of the Servicer Consolidated
Group for each such Fiscal Year, together with pro forma Compliance Certificates for each such
Fiscal Year and an explanation of the assumptions on which such forecasts are based, (ii)
forecasted consolidated statements of income and cash flows of the Servicer Consolidated Group for
each month of each such Fiscal Year, (iii) forecasts demonstrating projected compliance with the
requirements of Section 4.01 hereunder through the final maturity date of the Loans, and
(iv) forecasts demonstrating adequate liquidity through the final maturity date of the Loans,
together, in each case, with an explanation of the assumptions on which such forecasts are based
all in form and substance reasonably satisfactory to the Administrative Agent;

          (h) Notice of Change in Senior Management. Promptly, written notice of any change in
Senior Management of the Servicer;

          (i) Tax Returns. As soon as practicable and in any event within 30 days following the
filing thereof, copies of the federal income tax return filed by or on behalf of the Servicer;

          (j) Notice of Default. Promptly upon any Authorized Officer of the Servicer obtaining
knowledge (i) of any condition or event that constitutes a Servicer Default, Default or an Event of
Default or that notice has been given to the Servicer with respect thereto, (ii) that any Person
has given any notice to any member of the Servicer Consolidated Group or taken any other action
with respect to any event or condition set forth in Section 7.01(b), or (iii) of the
occurrence of any event or change that has caused or evidences, either by itself or in the
aggregate, a Material Adverse Effect with respect to the Servicer, an Authorized Officer of the
Servicer shall deliver a certificate to the Administrative Agent specifying the nature and period
of existence of such condition, event or change, or specifying the notice given and action taken by
any such Person and the nature of such claimed Servicer Default, Event of Default or Default, and
what action the Servicer has taken, is taking and proposes to take with respect thereto;

          (k) Notice of Litigation. Promptly upon any Authorized Officer of the Servicer
obtaining knowledge of (i) the institution of, or non frivolous threat of, any Adverse Proceeding
not previously disclosed in writing by the Servicer to the Administrative Agent, or (ii) any
material development in any Adverse Proceeding that (x) in the case of either clause (i) or (ii) if
adversely determined, could be reasonably expected to have a Material Adverse Effect with respect
to the Servicer or (y) seeks to enjoin or otherwise prevent the consummation of, or to recover any
damages or obtain relief as a result of, the transactions contemplated hereby, the Servicer shall
provide to the Administrative Agent and the Lenders written notice thereof, together with such
other information as may be reasonably available to the Servicer to enable the Lenders and their
counsel to evaluate such matters; and

 

 

          (l) Notice Regarding Material Contracts and Related Agreements. The Servicer shall
provide reasonable notice to the Administrative Agent of the termination or expiration of any
Material Contract or Related Agreement and shall provide to the Administrative Agent copies of any
material amendments to Material Contracts or Related Agreements or any new contract that
constitutes a Material Contract and shall revise Schedule 3.18 from time to time to reflect
any new Material Contracts and the termination of any Material Contract.

Notwithstanding the foregoing, after an initial public offering by Bluestem, the obligations in
Sections 4.02(c) and (d) and Section 4.13 may be satisfied with respect to
financial information (including any Narrative Report) by furnishing to the Administrative Agent
Bluestem’s Form 10-K or 10-Q, as applicable, to the extent filed with the Securities and Exchange
Commission. Documents required to be delivered pursuant to Sections 4.02(c) and (d)
and Section 4.13 may be delivered electronically and if so delivered, shall be deemed to
have been delivered on the date on which Bluestem posts such documents, or provides a link thereto,
on Bluestem’s website on the Internet; provided that Bluestem shall notify (which may be by
facsimile or electronic mail) the Administrative Agent of the posting of any such documents.

In accordance with the Credit Agreement, the Company’s financial position, assets, liabilities, net
worth and operating results may be included in the consolidated financial statements of Bluestem,
provided that such consolidated financial statements contain a footnote indicating that the Company
is a separate legal entity and that the Company’s assets and liabilities are neither available to
pay the debts of Bluestem nor constitute obligations of Bluestem.

          Section 4.03 Payment Collection. The Servicer has directed, and will at all times
hereafter direct, all of the Receivable Obligors to forward all payments on account of Underlying
Receivables directly to the Lockbox Account or the US Bank Account. The Servicer agrees to use all
reasonable efforts to cause each Receivable Obligor to make all payments with respect to Underlying
Receivables directly to the Lockbox Account or the US Bank Account. The Servicer shall promptly
(but in any event within two Business Days of receipt) deposit all payments received by it on
account of Underlying Receivables, whether in the form of cash, checks, notes, drafts, bills of
exchange, money orders or otherwise, in the Lockbox Account or the US Bank Account in precisely the
form in which they are received (but with any endorsements of the Servicer necessary for deposit or
collection), and until they are so deposited to hold such payments in trust for and as the property
of the Administrative Agent.

          Section 4.04 Notice of Change in Board of Directors. With reasonable promptness, the
Servicer shall provide the Company and the Administrative Agent written notice of any change in the
board of directors (or similar governing body) of the Servicer.

          Section 4.05 Insurance. The Servicer shall maintain or cause to be maintained, with
financially sound and reputable insurers, the insurance coverage described in Schedule 4.05
hereto, and such other insurance coverage as may customarily be carried or maintained under similar
circumstances by persons of established reputation engaged in similar businesses, in each case in
such amounts (giving effect to self insurance), with such deductibles, covering such risks and
otherwise on such terms and conditions as shall be customary for such persons.

 

 

          Section 4.06 Insurance Report. As soon as practicable and in any event by the last
day of each Fiscal Year, the Servicer will provide to the Administrative Agent a report in a form
substantially similar to Exhibit H hereto outlining all material insurance coverage
maintained as of the date of such report by the Servicer Consolidated Group and all material
insurance coverage to be maintained by each member of the Servicer Consolidated Group in the
immediately succeeding Fiscal Year.

          Section 4.07 Renewals and Rewrites of Insurance Policies. With respect to each
insurance policy specified in Schedule 4.05 hereto and any report delivered pursuant
Section 4.06, within 10 Business Days after the renewal or rewrite of any such insurance
policy and any replacement policy, the Servicer shall cause its insurance broker to provide to the
Insurance Consultant a standard certificate of insurance evidencing such renewal or rewrite, which
certificate shall include evidence that the Company has been added as a named insured under such
policies. If an insurance policy that is renewed or rewritten is not evidenced by a standard
certificate of insurance, the Servicer shall cause its insurance agent to provide to the Insurance
Consultant other documentation, acceptable to the Insurance Consultant, evidencing such renewal or
rewrite.

          Section 4.08 Compliance with Requirements of Law. The Servicer shall duly satisfy all
obligations on its part to be fulfilled under or in connection with each Underlying Receivable and
the related Receivables Account, if any; will maintain in effect all qualifications required under
Requirements of Law in order to service properly each Underlying Receivable and the related
Receivables Account, if any; and will comply in all respects with all other Requirements of Law in
connection with servicing each Underlying Receivable and the related Receivables Account the
failure to comply with which would reasonably be expected to have a material adverse effect on the
performance by the Servicer of its obligations under this Agreement.

          Section 4.09 Existence. Except as otherwise permitted under the Credit Documents, the
Servicer shall, and will cause each of its Subsidiaries to, at all times preserve and keep in full
force and effect its existence and all rights and franchises, licenses and permits material to its
business; provided that no member of the Servicer Consolidated Group shall be required to
preserve any such existence, right or franchise, licenses and permits if such Person’s board of
directors (or similar governing body) shall determine that the preservation thereof is no longer
desirable in the conduct of the business of such Person, and that the loss thereof is not
disadvantageous in any material respect to such Person or to the Lenders.

          Section 4.10 Payment of Taxes and Claims. The Servicer will, and will cause each of
its Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect
of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all
claims (including claims for labor, services, materials and supplies) for sums that have become due
and payable and that by law have or may become a Lien upon any of its properties or assets, prior
to the time when any penalty or fine shall be incurred with respect thereto; provided that,
no such Tax or claim need be paid if (i) the validity or amount thereof is being contested in good
faith by appropriate proceedings, (ii) Bluestem or its Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with GAAP and (iii) such liabilities would not
result in aggregate liabilities in excess of $2,500,000 and none of the

 

 

Collateral becomes subject to forfeiture or loss as a result of the contest. The Servicer
will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any
consolidated income tax return with any Person (other than any other member of the Servicer
Consolidated Group).

          Section 4.11 Further Assurances. At any time or from time to time upon the request of
the Administrative Agent or the Class Requisite Lenders of any Class, the Servicer will, at its
expense, promptly execute, acknowledge and deliver such further documents and do such other acts
and things as the Administrative Agent or the Class Requisite Lenders of any Class may reasonably
request in order to effect fully the purposes of this Agreement, including providing the
Administrative Agent with any information reasonably requested by it or the Class Requisite Lenders
of any Class in order to comply with Requirements of Law.

          Section 4.12 Other Covenants. In the event that any member of the Servicer
Consolidated Group has entered into or shall enter into or amend an existing purchase agreement,
warehouse facility, credit facility, indenture, note, financing agreement or other similar
arrangement or instrument with any Person which by its terms provides more favorable treatment to
the lenders or holders thereunder with respect to any financial covenants covering the same or
similar subject matter as the financial covenants set forth above in Section 4.01, the
Servicer shall provide prompt notice of such financial covenants to the Administrative Agent and
the Administrative Agent, in its sole and absolute discretion, may modify the financial covenants
set forth in Section 4.01 to match such financial covenants.

          Section 4.13 Other Information. The Servicer will provide or cause to be provided (a)
promptly upon their becoming available, copies of (i) all financial statements, reports, notices
and proxy statements sent or made available generally by the Servicer to its security holders
acting in such capacity or by any Subsidiary of the Servicer to its security holders other than
itself or another of its Subsidiaries, (ii) to the extent applicable, all regular and periodic
reports and all registration statements and prospectuses, if any, filed by any member of the
Servicer Consolidated Group 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 generally by any member of the Servicer Consolidated Group to the
public concerning material developments in the business of any member of the Servicer Consolidated
Group, and (b) such other information and data with respect to the Servicer Consolidated Group as
from time to time may be reasonably requested by the Administrative Agent.

          Section 4.14 Account Owner Termination Rights. The Servicer shall provide prompt
written notice to the Administrative Agent upon the occurrence of any event or condition that could
give rise to an Account Owner Termination Right.

          Section 4.15 Additional Investors. The Servicer shall cause any Person who becomes a
Sponsor after the Closing Date other than through purchase of Capital Stock issued in connection
with an initial public offering by the Servicer to execute an indemnity agreement in form and
substance similar to the Sponsor Indemnity Agreement and otherwise acceptable to the Administrative
Agent in its sole and absolute discretion.

 

 

          Section 4.16 Regulatory Compliance Changes. Within the time periods specified
therein, the Servicer shall have made each of the changes specified in Schedule 4.16 to the
Receivables Account Agreements, Bluestem’s underwriting policies and/or other applicable documents,
as applicable.

          Section 4.17 Amendments to Operational Guidelines. Promptly after the Servicer makes
any amendment, modification or other revision to the Operational Guidelines, the Servicer shall
deliver to the Administrative Agent a copy of such amended Operational Guidelines and upon such
delivery thereof, Appendix A shall automatically be deemed to be updated to reflect such amended
Operational Guidelines.

          Section 4.18 Additional Notice. The Servicer shall give prompt written notice to the
Administrative Agent if (a) the Servicer has become an Affiliate of any Receivables Account Owner,
(b) the Servicer does not account for the transfer of Underlying Receivables under the applicable
Receivables Sale Agreement as a sale for tax and accounting purposes or (c) an Authorized Officer
receives notice or has actual knowledge that any Receivables Account Owner does not account for the
transfer of Underlying Receivables under the applicable Receivables Sale Agreement as a sale for
tax and accounting purposes.

ARTICLE V

NEGATIVE COVENANTS OF THE SERVICER

     Bluestem Brands, Inc., as Servicer, covenants and agrees that so long as this Agreement is in
effect and until satisfaction of its obligations hereunder, that it shall perform all covenants in
this Article V.

          Section 5.01 Lockbox System. Except as permitted under the Credit Documents, the
Servicer shall not, in a manner adverse to the Lenders, Administrative Agent or the Collateral
Agent, (A) change the general instructions given to Receivable Obligors in respect of payments on
account of Underlying Receivables to be deposited in the Lockbox Account or the US Bank Account or
(B) change any instructions given to any bank or financial institution which in any manner
redirects the proceeds of any Collections in the Lockbox System to any account which is not the
Lockbox Account, US Bank Account, the Principal Collections Account or the Finance Charge
Collections Account.

          Section 5.02 No Rescission or Cancellation. The Servicer shall not permit any
rescission or cancellation of any Underlying Receivable except in accordance with the Operational
Guidelines or as ordered by a court of competent jurisdiction or other Governmental Authority.

          Section 5.03 Protection of Rights. The Servicer shall take no action which, nor omit
to take any action the omission of which, would impair the rights of the Company in any Underlying
Receivable or the related Receivables Account, if any, nor shall it reschedule, revise or defer
payments due on any Underlying Receivable except in the ordinary course of its business and in
accordance with the Operational Guidelines.

          Section 5.04 Revolving Loan Product Agreements and Receivables Sale Agreements.

 

 

          (a) Without the consent of the Administrative Agent, the Servicer shall not, and shall not
permit any of its Affiliates, to, directly or indirectly, enter into any revolving loan product
agreement, receivables sale agreement or any similar agreement with respect to revolving credit
card accounts or closed-end installment loan accounts with any Person other than the WebBank
Receivables Purchase Agreements, the MetaBank Receivables Purchase Agreements or any revolving loan
product agreement and/or receivables sale agreement entered into pursuant to a Backup Originator
Agreement.

          (b) Without the consent of the Administrative Agent (such consent not to be unreasonably
withheld), the Servicer shall not agree to any amendments to the WebBank Receivables Purchase
Agreements or the MetaBank Receivables Purchase Agreements.

          Section 5.05 Defaulted Accounts. Other than as permitted under the Receivables
Purchase Agreement, the Servicer shall not sell, assign, convey or otherwise transfer Underlying
Receivables related to any Defaulted Account or an interest therein to any of its Subsidiaries or
Affiliates without the prior written consent of the Administrative Agent.

          Section 5.06 Fiscal Year. The Servicer shall not, nor shall it permit any of its
Subsidiaries to, change its Fiscal Year-end from the Friday nearest to the 31st of January of each
calendar year.

ARTICLE VI

OTHER MATTERS RELATING TO THE SERVICER

          Section 6.01 Liability of the Servicer. The Servicer shall be liable under this
Article VI only to the extent of the obligations specifically undertaken by the Servicer in its
capacity as Servicer.

          Section 6.02 Limitation on Liability of the Servicer and Others. Except as provided
in Section 6.03, neither the Servicer nor any of its directors, officers, employees or
agents shall be under any liability to the Company, the Administrative Agent, any Lender or any
other Person for any action taken or for refraining from the taking of any action in good faith in
its capacity as Servicer pursuant to this Agreement; provided, however, that this
provision shall not protect the Servicer or any such Person against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations and its duties
hereunder. The Servicer and any director, officer, employee or agent of the Servicer may rely in
good faith on any document of any kind prima facie properly executed and submitted by any Person
(other than the Servicer) respecting any matters arising hereunder. The Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action which is not incidental to
its duties as Servicer in accordance with this Agreement and which in its reasonable judgment may
involve it in any expense or liability.

          Section 6.03 Servicer Indemnification of the Company and the Administrative Agent.
The Servicer shall indemnify and hold harmless each of the Company, the Administrative Agent and
each Lender and their respective directors, officers, employees and agents from and against any and
all loss, liability, claim, expense, damage or injury suffered or

 

 

sustained (a) by reason of any acts or omissions of the Servicer, acting in its capacity as
Servicer, with respect to a breach of this Agreement or any other Credit Document or (b) due to the
occurrence of a Servicer Default (other than a breach of Section 4.01) but only to the
extent such Servicer Default resulted from or was caused by a breach by Servicer of its obligations
hereunder, including, in either case, any judgment, award, settlement, reasonable attorneys’ fees
and other costs or expenses incurred in connection with the defense of any action, proceeding or
claim and any transition expenses incurred in connection with the appointment of a Successor
Servicer (collectively, the “Servicer Indemnified Liabilities”); provided,
however, that the Servicer shall not indemnify the Company, the Administrative Agent or any
Lender, as the case may be, (w) if such acts, omissions or alleged acts or omissions constitute or
are caused by fraud, gross negligence, or willful misconduct of the Company, the Administrative
Agent or any Lender, as the case may be, (x) for losses, liabilities, costs or expenses due to the
failure to pay or defaults by any Receivables Obligor, (y) for any amounts owed by the Company
pursuant to the Credit Agreement as result of an Event of Default thereunder (unless such amounts
are otherwise Servicer Indemnified Liabilities) and (z) for any liabilities, costs or expenses
arising under any tax law, including any federal, state, local or foreign income or franchise taxes
or any other tax imposed on or measured by income (or any interest or penalties with respect
thereto or arising from a failure to comply therewith) required to be paid by the Company, the
Administrative Agent or any Lender in connection herewith to any taxing authority. The Servicer’s
obligations under this Section 6.03 shall survive the termination of this Agreement. The
Company, the Administrative Agent or any Lender, as applicable, shall notify the Servicer promptly
of any claim for which it may seek indemnity. Failure by the Company, the Administrative Agent or
any Lender, as applicable, to so notify the Servicer shall not relieve the Servicer of its
obligations hereunder unless such loss, liability or expense could have been avoided with such
prompt notification and then only to the extent of such loss, expense or liability which could not
have been so avoided.

          Section 6.04 Resignation of the Servicer. The Servicer shall not resign from the
obligations and duties hereby imposed on it except (a) upon a determination that (i) the
performance of its duties hereunder is no longer permissible under applicable law and (ii) there is
no action which the Servicer could reasonably take to make the performance of its duties hereunder
permissible under applicable law or (b) upon execution by the Backup Servicer or any other
Successor Servicer of a successor servicing agreement. No resignation shall become effective until
a Successor Servicer shall have assumed the responsibilities and obligations of the Servicer in
accordance with Section 7.02 hereof. If within 120 days of the date of the determination
that the Servicer may no longer act as Servicer under clause (a) above, the Backup Servicer has not
assumed the obligations of the Servicer, the Servicer may petition a court of competent
jurisdiction to appoint any established institution qualifying as an Eligible Servicer as the
Successor Servicer hereunder.

          Section 6.05 Access to Documentation and Information Regarding the Receivables Accounts
and Underlying Receivables. The Servicer shall provide to the Company, the Administrative
Agent or the Backup Servicer, as applicable, access to the documentation regarding the Receivables
Accounts, the Underlying Receivables and any other information in the possession of the Servicer in
connection therewith, such access being afforded without charge but only (a) upon reasonable
request, (b) during normal business hours, (c) subject to the Servicer’s normal security and
confidentiality procedures and (d) at the Servicer’s principal

 

 

office or at the Servicer’s office in the continental United States where the documentation
regarding the Receivables Accounts and Underlying Receivables are normally kept. Nothing in this
Section shall derogate from the obligation of the Company, the Administrative Agent, any Lender,
the Backup Servicer and the Servicer to observe any applicable law prohibiting disclosure of
information regarding the Receivables Obligors, and the failure of the Servicer to provide access
as provided in this Section as a result of such obligation shall not constitute a breach of this
Section.

          Section 6.06 Delegation of Duties. In the ordinary course of business, upon 30 days
prior written notice to the Company, the Backup Servicer and the Administrative Agent, the Servicer
may at any time delegate its duties hereunder with respect to the Receivables Accounts and the
Underlying Receivables to any Person that agrees to conduct such duties substantially in accordance
with the applicable Operational Guidelines and this Agreement. Such delegation shall not relieve
the Servicer of its liability and responsibility with respect to such duties, and shall not
constitute a resignation within the meaning of Section 6.04.

ARTICLE VII

SERVICER DEFAULTS

          Section 7.01 Servicer Defaults. If any one of the following events (a “Servicer
Default”) shall occur and be continuing:

          (a) any failure by the Servicer to make any payment, transfer or deposit before the date
occurring one Business Day after the date such payment, transfer or deposit is required to be made,
as the case may be, under the terms of this Agreement; provided, that if the Servicer is
making such payment on behalf of the Company, such failure shall be limited to the funds available
to the Servicer to make such payment; or

          (b) (i) failure of the Servicer to pay when due any principal of or interest on or any other
amount payable in respect of one or more items of Indebtedness (other than Indebtedness of the
Company) having an aggregate principal amount in excess of $2,500,000 beyond the grace period, if
any, provided therefor; or (ii) a breach or default by the Servicer with respect to any other
material term of (1) one or more items of the Indebtedness referred to in clause (i) above, or (2)
any loan agreement, mortgage, indenture or other agreement relating to such item(s) of
Indebtedness, in each case beyond the grace period, if any, provided therefor, if the effect of
such breach or default is to cause, or to permit the holder or holders of that Indebtedness (or a
trustee on behalf of such holder or holders) to cause, that Indebtedness to become or be declared
due and payable (or subject to a compulsory repurchase or redeemable) prior to its stated maturity
or the stated maturity of any underlying obligation, as the case may be; or

          (c) to the extent not covered elsewhere in this Section 7.01, failure on the part of the
Servicer duly to observe or perform in any respect any other covenants or agreements of the
Servicer set forth in this Agreement and which failure continues unremedied for a period of 30 days
after the date on which the Servicer had actual knowledge of such failure or on which notice of
such failure, requiring the same to be remedied, shall have been given to the Servicer by the
Company, the Administrative Agent or any Lender; or

 

 

          (d) (i) failure by the Servicer to perform or comply with any term or condition contained in
Sections 2.05, 2.06, 4.01, 4.02 and Article V (other than
Sections 5.02 and 5.03) or (ii) failure by the Servicer to perform or comply with
any term or condition contained in Sections 5.02 and 5.03, where such failure
affects a material amount (measured by Dollars owed) of Underlying Receivables or material number
of Receivables Accounts; or

          (e) the Servicer shall assign or delegate its duties under this Agreement, except as permitted
by Sections 6.06 and 7.02; or

          (f) any representation, warranty or certification made by the Servicer in this Agreement or in
any certificate delivered pursuant to this Agreement shall prove to have been incorrect in any
respect when made, which has a material adverse effect on the rights of the Company or the ability
of the Servicer to perform its duties hereunder, and in each case, such material adverse effect and
its consequences are not remedied within a period of 30 days after the date on which the Servicer
had actual knowledge of such failure or on which notice thereof was given to the Servicer by the
Company, the Administrative Agent or any Lender; or

          (g) an Event of Default shall have occurred and be continuing under the Credit Agreement;

          (h) an event of default or termination event shall have occurred and be continuing under any
Material Contract and such event of default or termination event has not been cured or such
Material Contract has not been reinstated or replaced before the later of (i) 30 days after such
event of default or termination event and (ii) the expiration of the applicable grace period or
cure period, as applicable, for such event of default or termination event specified in such
Material Contract; or

          (i) (i) failure by the Servicer to perform or comply with any term or condition contained in
Sections 2.04(a), (b) or (e) and such failure continues unremedied for a
period of one Business Day or (ii) failure by the Servicer to perform or comply with any term or
condition contained in Sections 2.04(c) or (d) and such failure continues
unremedied for a period of two Business Days; or

          (j) a Change of Control shall occur; or

          (k) any money judgment, writ or warrant of attachment or similar process involving (i) in any
individual case an amount in excess of $1,000,000 or (ii) in the aggregate at any time an amount in
excess of $2,500,000 in either case to the extent not (1) paid, (2) covered by a third-party
indemnity agreement as to which such third party is solvent (after giving effect to the payment of
such indemnification) and has accepted liability, or (3) adequately covered by insurance (as to
which a solvent and unaffiliated insurance company has not denied coverage) shall be entered or
filed against any member of the Servicer Consolidated Group or any of their respective assets and
shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty days (or in any
event later than five days prior to the date of any proposed sale thereunder in connection with any
enforcement proceedings commenced by a creditor upon such judgment, writ, warrant, attachment or
similar process);

 

 

          (l) the Servicer shall consent to the appointment of a bankruptcy trustee, or conservator, or
receiver or liquidator in any bankruptcy proceeding or other insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings of or relating to the Servicer or of
or relating to all or substantially all its property, or a decree, or order of a court, or agency
or supervisory authority having jurisdiction in the premises for the appointment of a bankruptcy
trustee, or a conservator, or receiver or liquidator in any bankruptcy, insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings, or the winding-up or
liquidation of its affairs, shall have been entered against the Servicer and such decree or order
shall have remained undischarged or unstayed for a period of 30 days; or the Servicer shall admit
in writing its inability to pay its debts generally as they become due, file a petition to take
advantage of any applicable bankruptcy, insolvency or reorganization statute, make any assignment
for the benefit of its creditors or voluntarily suspend payment of its obligations; or

          (m) at any time, the termination of three or more members of Senior Management, and the
failure to replace such members with Persons acceptable to the Administrative Agent within 90 days
of the termination of the third such member of Senior Management (such that no more than two such
positions are vacant at the end of the 90-day cure period); provided that if any terminated
member of Senior Management is replaced on a temporary basis with a Person acceptable to the
Administrative Agent within such 90-day period, the Servicer shall have an additional 90 days from
the date of such temporary replacement to fill such position, so long as the temporary replacement
remains in such position for such additional 90-day period,

THEN, in the event of any Servicer Default, so long as the Servicer Default shall not have been
remedied within the time period applicable thereto, the Company, at the direction of the
Administrative Agent, by notice to the Servicer (a “Termination Notice”), shall terminate
all but not less than all of the rights and obligations of the Servicer as Servicer under this
Agreement; provided that notwithstanding anything to the contrary in this Agreement or any
other Credit Document, neither the termination of this Agreement pursuant to Section
8.02(a), nor any event, condition, action or failure to act, in each case resulting
therefrom, shall constitute or give rise to a Servicer Default or a Default or an Event of Default.
The Administrative Agent shall provide the Backup Servicer with a copy of any Termination Notice
delivered hereunder.

     After receipt by the Servicer of a Termination Notice or the occurrence of a Reinstatement
Termination Event pursuant to Section 8.02, and on the date that a Successor Servicer is
appointed by the Administrative Agent pursuant to Section 7.02, all authority and power of
the Servicer under this Agreement shall pass to and be vested in the Successor Servicer (a
“Service Transfer”). The Company is hereby authorized and empowered (upon the failure of
the Servicer to cooperate) to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, all documents and other instruments upon the failure of the Servicer to execute or
deliver such documents or instruments, and to do and accomplish all other acts or things necessary
or appropriate to effect the purposes of such Service Transfer. The Servicer agrees to cooperate
with the Company and any Successor Servicer in effecting the termination of the responsibilities
and rights of the Servicer to conduct servicing hereunder, including the transfer to such Successor
Servicer of all authority of the Servicer to service the Receivables Accounts and the Underlying
Receivables provided for under this Agreement, including all authority over all Collections which
shall have been deposited in the Lockbox Account and the US Bank

 

 

Account, or which shall thereafter be received with respect to the Underlying Receivables.
The Servicer shall promptly and in any event within 5 Business Days after appointment of a
Successor Servicer transfer its electronic records relating to the Receivables Accounts and the
Underlying Receivables to the Successor Servicer in such electronic form as the Successor Servicer
may reasonably request and shall promptly transfer to the Successor Servicer all other records,
correspondence and documents necessary for the continued servicing of the Underlying Receivables in
the manner and at such times as the Successor Servicer shall reasonably request. If the Successor
Servicer is not the Backup Servicer, to the extent that compliance with this Section shall require
the Servicer to disclose to such Successor Servicer information of any kind which the Servicer
deems to be confidential, such Successor Servicer shall be required to enter into such customary
licensing and confidentiality agreements as the Servicer shall deem reasonably necessary to protect
its interests.

          Section 7.02 Appointment of Successor.

          (a) After the receipt by the Servicer of a Termination Notice pursuant to Section 7.01
or the occurrence of a Reinstatement Termination Event pursuant to Section 8.02, the
Servicer shall continue to perform all servicing functions under this Agreement until the effective
date of the appointment of the Backup Servicer or, if the Backup Servicer cannot assume the
responsibilities and obligations of the Servicer for any reason, an Eligible Servicer as Successor
Servicer. The Company, at the direction of the Administrative Agent, shall, as promptly as
possible after the delivery of a Termination Notice or the occurrence of a Reinstatement
Termination Event, appoint the Backup Servicer or, if the Backup Servicer cannot assume the
responsibilities and obligations of the Servicer for any reason, an Eligible Servicer, selected by
the Administrative Agent, in either case, as a successor servicer (any Person so appointed, the
“Successor Servicer”), and such Successor Servicer shall accept its appointment by
execution of a successor servicing agreement substantially in the form of the Successor Servicing
Agreement. Notwithstanding the foregoing, if a Successor Servicer has not been appointed within 120
days of the delivery to the Servicer of the Termination Notice or the occurrence of a Reinstatement
Termination Event, the Servicer may petition a court of competent jurisdiction to appoint any
established institution qualifying as an Eligible Servicer as the Successor Servicer hereunder.

          (b) Upon its appointment as Successor Servicer under the successor servicing agreement, the
Successor Servicer shall be subject to all the responsibilities, duties and liabilities relating
thereto placed on the Successor Servicer by the terms and provisions of the applicable successor
servicing agreement entered into between the Company and the Successor Servicer; provided,
however, that in no case shall such Successor Servicer have (i) any liability with respect
to any claim of a third party based on any alleged action or inaction of the terminated Servicer
with respect to any obligation which was required to be performed by the terminated Servicer prior
to the date that such Successor Servicer executed the successor servicing agreement or (ii) any
liability or obligation with respect to any Servicer indemnification obligations of any prior
servicer including the original Servicer.

 

 

ARTICLE VIII

MISCELLANEOUS PROVISIONS

          Section 8.01 Amendment. This Agreement may be amended from time to time by the
Servicer, the Company and the Administrative Agent and the Collateral Agent, by a written
instrument signed by each of them; provided, that no such amendment may be effected without
the consent of the Requisite Lenders; provided further, that no such amendment
shall change any provision of this Agreement in a manner that by its terms materially and adversely
affects the rights of one Class differently than the other Class, without the consent of the Class
Requisite Lenders of such other Class. The Administrative Agent shall provide notice to the
Lenders of any amendment prior to the effectiveness thereof.

          Section 8.02 Termination of Agreement. Except with respect to the duties and
obligations described in Section 6.03 and Article VIII and as specified in the
immediately following sentence, this Agreement and the respective rights, obligations and
responsibilities of Bluestem (including in its capacity as the Servicer), the Administrative Agent,
the Collateral Agent and the Company under this Agreement shall automatically terminate on the
earliest of (a) the last day of each Monthly Period unless the Administrative Agent shall have
delivered a Notice of Reinstatement prior thereto (such date, the “Reinstatement Termination
Date”), (b) the date the Credit Agreement is terminated and (c) the date that a Successor
Servicer executes a successor servicing agreement. If this Agreement terminates pursuant to clause
(a) of the preceding sentence (a “Reinstatement Termination Event”), the Administrative
Agent shall appoint a successor in accordance with (x) the last paragraph of Section 7.01
and (y) Section 7.02, and each of the Company and the Servicer shall comply with their
respective obligations under such sections of this Agreement.

          Section 8.03 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN
SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW), AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

          Section 8.04 Notices. All demands, notices, instructions, directions and
communications (collectively, “Notices”) under this Agreement shall be in writing and shall
be deemed to have been duly given if personally delivered, mailed by registered mail, return
receipt requested, or sent by facsimile transmission to:

          (a) in the case of the Company, to Fingerhut Receivables I, LLC, 6509 Flying Cloud Drive,
Suite 101, Eden Prairie, Minnesota, 55344, Attn: Treasurer, Fax No. (952) 674-2225;

          (b) in the case of the Servicer, to Bluestem Brands, Inc., 6509 Flying Cloud Drive, Eden
Prairie, MN 55344, Attn: Treasurer, Fax No. (952) 656-4113;

          (c) in the case of the Administrative Agent or the Collateral Agent to Goldman Sachs Bank USA,
6011 Connection Drive, Irving, TX 75039, Attn: Bluestem Account

 

 

Manager, Fax No.: 972-368-5099, with a copy to Goldman Sachs Bank USA, 6011 Connection Drive,
Irving, TX 75039, Attn: GSSLG In-House Counsel, Fax No.: 972-368-5099;

          (d) in the case of the Backup Servicer to Systems & Services Technologies, Inc., 4315 Pickett
Road, St. Joseph, Missouri 64503, Attn: Jonathan Pike, Fax No. (816) 671-2038 with a copy to NCO
Group, Inc., 507 Prudential Drive, Horsham, Pennsylvania 19044, Attn: Joshua Gindin, EVP/General
Counsel;

or, as to each party, at such other address or facsimile number as shall be designated by such
party in a written notice to each other party; provided that (i) for purposes of
Sections 2.04(b) and (c) any reports or other information required to be delivered
thereunder shall be delivered by any means agreed to by the parties hereto and (ii) any Notice of
Reinstatement may be delivered via email.

          Section 8.05 Setoff. The Servicer agrees that it shall have no right of setoff or
banker’s lien against, and no right to otherwise deduct from, any funds held in the Collateral
Agent Accounts for any amount owed to it by the Company, the Administrative Agent, the Collateral
Agent or any Lender except as otherwise set forth in the Credit Documents.

          Section 8.06 Severability of Provisions. If any one or more of the covenants,
agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid,
then such invalid covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall in no way affect
the validity or enforceability of the remaining covenants, agreements, provisions or terms of this
Agreement.

          Section 8.07 Further Assurances. The Servicer agrees to do and perform, from time to
time, any and all acts and to execute any and all further instruments required or reasonably
requested by the Company more fully to effect the purposes of this Agreement, including the
execution of any financing statements, continuation statements or amendments thereto relating to
the Underlying Receivables for filing under the provisions of the UCC of any applicable
jurisdiction.

          Section 8.08 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Company or the Servicer, any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege under this Agreement preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges provided under this Agreement are cumulative and not exhaustive of any
rights, remedies, powers and privileges provided by law.

          Section 8.09 Counterparts. This Agreement may be executed in two or more counterparts
(and by different parties on separate counterparts), each of which shall be an original, but all of
which together shall constitute one and the same instrument.

          Section 8.10 Third-Party Beneficiaries. Except as provided in Section 6.03
and as otherwise expressly provided in this Agreement, no other Person will have any right or
obligation hereunder.

 

 

          Section 8.11 Merger and Integration. Except as specifically stated otherwise herein,
this Agreement sets forth the entire understanding of the parties relating to the subject matter
hereof, and all prior understandings, written or oral, are superseded by this Agreement. This
Agreement may not be modified, amended, waived or supplemented except as provided herein.

          Section 8.12 Headings. The headings herein are for purposes of reference only and
shall not otherwise affect the meaning or interpretation of any provision hereof.

          Section 8.13 Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS
BROUGHT AGAINST BLUESTEM ARISING OUT OF OR RELATING HERETO, OR ANY OF THE OBLIGATIONS OF BLUESTEM
HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE,
COUNTY AND CITY OF NEW YORK. BLUESTEM HEREBY AGREES THAT PROCESS MAY BE SERVED ON IT BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, TO THE ADDRESSES PERTAINING TO IT AS SPECIFIED IN SECTION 8.04 OR
ON CT CORPORATION SYSTEM, ATTN: SERVICE OF PROCESS DEPT., 111 EIGHTH AVENUE, NEW YORK, NY 10011,
AND HEREBY APPOINTS CT CORPORATION SYSTEM, AS ITS AGENT TO RECEIVE SUCH SERVICE OF PROCESS. ANY
AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE
EFFECTIVE AGAINST BLUESTEM IF GIVEN BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR
BY ANY OTHER MEANS OR MAIL WHICH REQUIRES A SIGNED RECEIPT, POSTAGE PREPAID, MAILED AS PROVIDED
ABOVE. IN THE EVENT CT CORPORATION SYSTEM SHALL NOT BE ABLE TO ACCEPT SERVICE OF PROCESS AS
AFORESAID AND IF BLUESTEM SHALL NOT MAINTAIN AN OFFICE IN NEW YORK CITY, BLUESTEM SHALL PROMPTLY
APPOINT AND MAINTAIN AN AGENT THAT MAINTAINS AN OFFICE IN NEW YORK CITY AND IS QUALIFIED TO ACT AS
AN AGENT FOR SERVICE OF PROCESS, AND ACCEPTABLE TO THE ADMINISTRATIVE AGENT, AS BLUESTEM’S
AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON BLUESTEM’S BEHALF SERVICE OF ANY AND ALL PROCESS
WHICH MAY BE SERVED IN ANY SUCH ACTION, SUIT OR PROCEEDING.

          Section 8.14 No Petition. Notwithstanding any prior termination of this Agreement,
the Servicer, prior to the date which is one year and one day after the repayment of the last Loan
under the Credit Agreement, shall not acquiesce, petition or otherwise invoke or cause the Company
to invoke the process of any Governmental Authority for the purpose of commencing or sustaining a
case against the Company under any federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Company or any substantial part of its property or ordering the winding-up or
liquidation of the affairs of the Company.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

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

	 	 	 	 	 
	 	BLUESTEM BRANDS, INC.

 	 
	 	By:  	/s/  Mark Wagener
 	 
	 	 	Name:  	Mark Wagener 	 
	 	 	Title:  	Executive Vice President and Chief Financial Officer 	 
	 
	 	FINGERHUT RECEIVABLES I, LLC

 	 
	 	By:  	/s/  Mark Wagener
 	 
	 	 	Name:  	Mark Wagener 	 
	 	 	Title:  	President and Chief Financial Officer 	 
	 
	 	GOLDMAN SACHS BANK USA,

as Administrative Agent and Collateral Agent

 	 
	 	By:  	/s/  Jason P. Gelberd
 	 
	 	 	Name:  	Jason P. Gelberd 	 
	 	 	Title:  	Authorized Signatory 	 

Sch. 3.14-1

 

	 	 	 	 	 

SCHEDULE 3.14

Capital Stock and Ownership

Classes of Equity Interests of the Borrower and beneficial ownership

	 	 	 	 	 	 	 
	Class	 	Authorized	 	Issued and Outstanding
	Common

	 	 	2,592,550,586	 	 	see Capitalization Table
	Series A Convertible Preferred
Stock

	 	 	791,738,012	 	 	see Capitalization Table
	Series B Convertible Preferred
Stock

	 	 	750,839,038	 	 	see Capitalization Table

Beneficial Ownership: see attached capitalization table.

Type of entity:

	 	1.	 	Bluestem Brands, Inc. is a Delaware corporation.
	 
	 	2.	 	Bluestem Fulfillment, Inc. is a Delaware corporation.
	 
	 	3.	 	Fingerhut Receivables I, LLC is a Delaware limited liability company.

Sch. 3.14-2

 

Capitalization Table

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Series A Convertible	 	 	Series B Convertible	 	 	 	 	 	 	% Ownership of	 	 	Common & Warrant	 	 	Total Shares,	 	 	% Ownership	 
	 	 	Preferred Stock	 	 	Preferred Stock	 	 	Common Stock	 	 	Shares	 	 	Holders	 	 	Options and	 	 	of Total Shares,	 
	Name	 	Shares	 	 	Shares	 	 	Shares	 	 	Outstanding	 	 	Shares	 	 	Warrants	 	 	Options & Warrants	 
	Bain Capital Venture Fund, L.P.
	 	 	83,218,962	 	 	 	145,218,255	 	 	 	—	 	 	 	12.51	%	 	 	—	 	 	 	228,437,217	 	 	 	10.50	%
	Brookside Capital Partners Fund, L.P.
	 	 	100,079,802	 	 	 	167,807,760	 	 	 	—	 	 	 	14.67	%	 	 	—	 	 	 	267,887,562	 	 	 	12.31	%
	BCIP Associates, LLC
	 	 	15,860,046	 	 	 	20,911,429	 	 	 	—	 	 	 	2.01	%	 	 	—	 	 	 	36,771,475	 	 	 	1.69	%
	RGIP, LLC
	 	 	1,000,797	 	 	 	1,678,076	 	 	 	—	 	 	 	0.15	%	 	 	—	 	 	 	2,678,873	 	 	 	0.12	%
	Battery Ventures L.P.
	 	 	199,683,914	 	 	 	335,615,518	 	 	 	—	 	 	 	29.32	%	 	 	—	 	 	 	535,299,432	 	 	 	24.60	%
	Kermit Stofer
	 	 	475,692	 	 	 	—	 	 	 	—	 	 	 	0.03	%	 	 	—	 	 	 	475,692	 	 	 	0.02	%
	Brian Smith
	 	 	3,695,254	 	 	 	6,712,310	 	 	 	74,888,000	 	 	 	4.67	%	 	 	—	 	 	 	85,295,564	 	 	 	3.92	%
	Other Management & Employees
	 	 	—	 	 	 	1,342,462	 	 	 	172,309,391	 	 	 	9.51	%	 	 	45,426,974	 	 	 	219,078,827	 	 	 	10.07	%
	Petters Group Worldwide, LLC
	 	 	338,731,641	 	 	 	—	 	 	 	53,687,483	 	 	 	21.49	%	 	 	—	 	 	 	392,419,124	 	 	 	18.03	%
	RTB Holdings, LLC
	 	 	—	 	 	 	—	 	 	 	1,321,552	 	 	 	0.07	%	 	 	—	 	 	 	1,321,552	 	 	 	0.06	%
	Non-Employee Directors
	 	 	2,682,801	 	 	 	4,430,124	 	 	 	6,625,000	 	 	 	0.75	%	 	 	1,900,000	 	 	 	15,637,925	 	 	 	0.72	%
	T. Deikel
	 	 	—	 	 	 	—	 	 	 	16,103,658	 	 	 	0.88	%	 	 	—	 	 	 	16,103,658	 	 	 	0.74	%
	Prudential
	 	 	—	 	 	 	67,123,104	 	 	 	—	 	 	 	3.68	%	 	 	41,742,458	 	 	 	108,865,562	 	 	 	5.00	%
	CIGPF I
	 	 	4,566,645	 	 	 	—	 	 	 	—	 	 	 	0.25	%	 	 	33,116,154	 	 	 	37,682,799	 	 	 	1.73	%
	Warrant Holders (various)
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	0.00	%	 	 	227,938,194	 	 	 	227,938,194	 	 	 	10.48	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Outstanding
	 	 	749,995,554	 	 	 	750,839,038	 	 	 	324,935,084	 	 	 	100.00	%	 	 	350,123,780	 	 	 	2,175,893,456	 	 	 	100.00	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	     
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Available for Grant
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	6,169,954	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total Outstanding and Available for
Grant (“Fully Diluted”)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2,182,063,410	 	 	 	100.00	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	   

Sch. 3.14-3

 

SCHEDULE 3.18

Material Contracts

CoreCard. That certain Software License Agreement dated June 12, 2003 by and between
CoreCard Software, Inc. and Fingerhut Direct Marketing, Inc. (now known as Bluestem Brands, Inc.)

Sch. 3.19 

 

SCHEDULE 3.19

Senior Management

	 	 	 

	Bluestem Brands, Inc.

	 	 
	 
	 	 
	Chief Executive Officer

	 	Brian Smith
	Chief Financial Officer

	 	Mark Wagener
	Chief Credit Officer

	 	Saby Sengupta
	Chief Marketing Officer

	 	Chidam Chidambaram
	Chief Operations Officer

	 	Ray Frigo

Sch. 3.19 

 

SCHEDULE
4.05

Insurance
Policies

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Insurance Coverage	 	Carrier	 	Policy Term	 	 	Limits	 	 	Deductible	 
	General Liability
	 	One Beacon Insurance	 	10/1/09-10/1/10	 	 	 	$1,000,000/$2,000,000	 	 	 	$1,000	 
	Commercial Automobile
	 	One Beacon Insurance	 	10/1/09-10/1/10	 	 	 	$1,000,000	 	 	$500 - Liability

$1000 - Phys. Damage	 
	Workers Compensation & Employers’ Liability
	 	Employers Insurance Company of Wausau	 	10/1/09-10/1/10	 	 	Statutory - WC	 	 	 	$0	 
	Foreign Package
	 	Ace Insurance Group	 	10/1/09-10/1/10	 	 	 	$1,000,000	 	 	 	$0	 
	Umbrella Liability
	 	Liberty Mutual	 	10/1/09-10/1/10	 	 	 	$25,000,000	 	 	 	$10,000	 
	Jewelers Block
	 	Travelers Property Casualty Company of America	 	10/1/09-10/1/10	 	 	 	$2,500,000	 	 	 	$25,000	 
	Commercial Property
	 	Zurich	 	3/23/10-10/1/11	 	 	 	$175,000,000	 	 	 	$50,000	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Ocean Cargo
	 	St. Paul Fire & Marine Company	 	10/1/09-10/1/10	 	 	 	$3,000,000	 	 	 	$25,000	 
	Professional Liability
	 	National Union Fire Insurance Co.	 	10/1/09-10/1/10	 	 	 	$3,000,000	 	 	 	$10,000	 
	D&O Liability
	 	National Union Fire Insurance Co.	 	10/1/09-10/1/10	 	 	 	$15,000,000	 	 	Non-Indemnity- $0;

Indemnity - $100,000	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Excess D&O Side A DIC
	 	Indian Harbor Insurance Co.	 	10/1/09-10/1/10	 	 	 	$5,000,000	 	 	 	$0	 
	Fiduciary Liability
	 	National Union Fire Insurance Co.	 	10/1/09-10/1/10	 	 	 	$3,000,000	 	 	 	$2,500	 

Sch. 4.05 

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Insurance Coverage	 	Carrier	 	Policy Term	 	 	Limits	 	Deductible
	 

	 	Insurance Co.
	 	10/1/10
	 	 	 	 	 	 	 	 	 
	Crime

	 	National Union Fire Insurance Co.
	 	10/1/09-10/1/10
	 	 	$	500,000	 	 	$	10,000	 
	Cyber Liability

	 	Ace American Insurance Co.
	 	10/1/09-10/1/10
	 	 	$	10,000,000	 	 	$	250,000	 

Sch. 4.05 

 

SCHEDULE 4.16

Regulatory Compliance Changes

	1.	 	Changes to be implemented by August 31, 2010:

	 	a.	 	Update tables in the summary account disclosures/terms to eliminate references to
“non-variable rate” in the APR box and to “terms may vary” in the grace period box.
	 
	 	b.	 	Update consents for electronic disclosures to include an option to withdraw, and
disclosing the process to be used for updating account information.
	 
	 	c.	 	Update triggering terms (e.g., “No Annual Fee”, “No Over Limit Fees”, etc.) to be
accompanied by additional disclosures referring consumers to the appropriate detailed
terms.
	 
	 	d.	 	Revise Fingerhut periodic statement to replace reference to “cost” with
“savings”, where appropriate.
	 
	 	e.	 	Add notation on periodic statements with address for notice of billing errors,
and that telephoning will not preserve billing rights.
	 
	 	f.	 	Change balance computation method noted in the Fingerhut script for telephone
applications (from “Average Daily Balance, including new balances” to “Average Daily
Balance, including new purchases”).

	2.	 	Changes to be implemented by December 31, 2010: Complete analysis of possible state law
compliance issues for the Gettington program and, based on results of the analysis, develop an
appropriate remediation plan for affected Gettington program materials.

Sch. 4.16 

 

EXHIBIT A

Notice of Reinstatement

GOLDMAN SACHS BANK USA

6011 Connection Dr.

Irving, TX 75039

________ __, 20__

Bluestem Brands, Inc.

6509 Flying Cloud Drive

Eden Prairie, MN 55344

Attn: Treasurer, Fax No. (952) 656-4113

Fingerhut Receivables I, LLC

6509 Flying Cloud Drive, Suite 101

Eden Prairie, Minnesota, 55344

Attn: Treasurer, Fax No. (952) 656-4113

          Re:      Extension of Term of Servicing Agreement.

Ladies and Gentlemen:

          Reference is made to the Servicing Agreement, dated as of August 20, 2010, by and among
BLUESTEM BRANDS, INC., as Servicer (the “Servicer”), FINGERHUT RECEIVABLES I, LLC (the
“Company”) and GOLDMAN SACHS BANK USA, as Administrative Agent (the “Administrative
Agent”) and Collateral Agent (as amended, restated, replaced, supplemented or otherwise
modified from time to time the “Servicing Agreement”). Any capitalized term used but not
defined herein shall have the meaning assigned to such term in the Servicing Agreement.

          Pursuant to Section 8.02 of the Servicing Agreement, the Administrative Agent hereby notifies
the Company and the Servicer of the Administrative Agent’s election to extend the term of the
Servicing Agreement as of the date hereof until the last day of the Monthly Period that immediately
succeeds the current Monthly Period.

[SIGNATURE PAGE FOLLOWS]

A-1

 

	 	 	 	 	 
	 	Very truly yours, 

GOLDMAN SACHS BANK USA

as Administrative Agent

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

A-2

 

EXHIBIT B

[Form of Servicing Report]

Servicing Report

Fingerhut Receivables I, LLC

	 	 	 	 	 	 	 

	 

	 	       Interest Payment Date:
	 	 
	 	 
	 

	 	           Determination Date:
	 	 
	 	 
	 
	 

	 	Collection Period:
	 	 

	 	 
	 

	 	
	 	 

	 	 

Pursuant to (a) Section 2.04(b) of the Servicing Agreement, dated as of August 20, 2010 (the
“Servicing Agreement”), among Bluestem Brands, Inc., as Servicer (“Bluestem”), Fingerhut
Receivables I, LLC (“LLC”), and Goldman Sachs Bank USA (“GS Bank”), as administrative agent (the
“Administrative Agent”) and as collateral agent and (b) Section 3.1(i) of the Credit Agreement,
dated as of August 20, 2010, among LLC, GS Bank as administrative agent, collateral agent, joint
lead arranger, joint bookrunner, syndication agent and documentation agent, J.P. Morgan Securities
Inc., as joint lead arranger and joint bookrunner and the Lenders party thereto from time to time,
Bluestem is required to prepare certain information each Collection Period regarding the current
distributions to the Lenders and the performance of the Underlying Receivables during the previous
Collection Period. The undersigned, a duly authorized representative of Bluestem, does hereby
certify in this report:

	 	i	 	Capitalized terms used in this report have their respective meanings set forth in the
Servicing Agreement and, if not defined therein, the Credit Agreement. References herein to
certain sections and subsections are references to their respective sections and subsections
of the respective agreements.
	 
	 	ii	 	This report is being delivered pursuant to Section 2.04(b) of the Servicing Agreement and
Section 2.15 of the Credit Agreement.
	 
	 	iii	 	Bluestem is the Servicer under the Servicing Agreement. The undersigned is an Authorized
Officer of the Servicer.
	 
	 	iv	 	The date of this report is on, or prior to the Interest Payment Date specified above.
	 
	 	v	 	No Event of Default has occurred under the Credit Agreement.
	 
	 	vi	 	As of the date hereof, to the best knowledge of the undersigned, the Servicer has performed
in all material respects all of its obligations under the Servicing Agreement through the
Collection Period preceding such Interest Payment Date (or, if there has been a default in the
performance of any such obligation, set forth in detail (i) the nature of such default, (ii)
the action taken by the Servicer, if any, to remedy such default and
(iii) the current status of each such default, if applicable).

	 	 	 	 	 	 	 	 	 

	I. INVESTED AMOUNTS
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	LOAN PRINCIPAL BALANCE
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Tranche A Revolving Loan
	 	 	 	 	 	 	 	 
	a) Date & balance at end of last Interest Period
	 	 	0.00	 	 	 	 	 
	b) Date & balance at end of current Interest Period
	 	 	0.00	 	 	 	 	 
	c) Daily average balance for current Interest Period
	 	 	0.00	 	 	 	 	 
	d) Total Revolving Commitment
	 	 	0.00	 	 	 	 	 
	e) Average unused Revolving Commitment
	 	 	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Tranche B Term Loan
	 	 	 	 	 	 	 	 
	f) Date & balance at end of last Interest Period
	 	 	0.00	 	 	 	 	 
	g) Date & balance at end of current Interest Period
	 	 	0.00	 	 	 	 	 
	h) Daily average balance for current interest period
	 	 	0.00	 	 	 	 	 
	 
	II. UNDERLYING RECEIVABLES
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ELIGIBLE RECEIVABLES
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	a) Beginning of Collection Period Principal Receivables
	 	$	0.00	 	 	 	 	 
	b) Principal Collections
	 	$	0.00	 	 	 	 	 
	c) Defaulted Principal
	 	$	0.00	 	 	 	 	 
	d) Dilution
	 	$	0.00	 	 		 	 
	e) Sales
	 	$	0.00	 	 	 	 	 
	f) Addition of Eligible Principal Receivables
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	g) End of
Collection Period Principal Receivables (a − b − c − d + e + f)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	h) Daily Average Principal Balance of Eligible Underlying Receivables
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	i) End of Collection Period Finance Charge Receivables
	 	$	0.00	 	 	 	 	 
	j) Ending total receivables (g + i)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	INELIGIBLE RECEIVABLES
	 	 	 	 	 	 	 	 
	k) Beginning of Collection Period Principal Receivables
	 	$	0.00	 	 	 	 	 
	l) Principal Collections
	 	$	0.00	 	 	 	 	 
	m) Defaulted Principal
	 	$	0.00	 	 	 	 	 
	n) Dilution
	 	$	0.00	 	 	 	 	 
	o) Sales
	 	$	0.00	 	 	 	 	 
	p) Reclassification of Eligible Principal Receivables
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	q) End of Collection Period Principal Receivables (k - l - m − n + o + p)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	r) End of Collection Period Finance Charge Receivables
	 	$	0.00	 	 	 	 	 
	s) Ending total Receivables (q + r)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	t) Daily Average Principal Balance of Ineligible Underlying Receivables
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	RECEIVABLES ACCOUNT OWNER RECEIVABLES
	 	 	 	 	 	 	 	 
	u) End of Collection Period Receivables relating to eligible accounts
	 	$	0.00	 	 	 	 	 
	v) End of Collection Period Receivables relating to ineligible accounts
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	w) End of Collection Period Receivables (u + v)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	III. ELIGIBLE RECEIVABLES PERFORMANCE SUMMARY (REPORTED AT CALENDAR MONTH-END ONLY)
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	CURRENT MONTHLY PERIOD:
	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	 	 	Principal Receivables	 	 	Active Accounts	 
	DELINQUENCIES — END OF MONTHLY PERIOD
	 	 	 	 	 	 	 	 
	a) Current
	 	$	0.00	 	 	 	0	 
	b) 1 cycle delinquent
	 	$	0.00	 	 	 	0	 
	c) 2 cycles delinquent
	 	$	0.00	 	 	 	0	 
	d) 3 cycles delinquent
	 	$	0.00	 	 	 	0	 
	e) 4 cycles delinquent
	 	$	0.00	 	 	 	0	 
	f) 5 cycles delinquent
	 	$	0.00	 	 	 	0	 
	g) 6 cycles delinquent
	 	$	0.00	 	 	 	0	 
	h) 7+ cycles delinquent
	 	$	0.00	 	 	 	0	 
	 
	 	 	 	 	 	 
	i) Total Principal Receivables
	 	$	0.00	 	 	 	0	 
	 
	 	 	 	 	 	 	 	 
	j) 2+ cycles delinquent (sum c through h)
	 	$	0.00	 	 	 	 	 
	k) Delinquency Ratio (j / i)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	EXCESS SPREAD (Including Contribution Amount)
	 	 	 	 	 	 	 	 
	l) Portfolio
Yield ( V(i) + VI(g) + VI(j) + VI(n)) x 12 / II(a)
	 	 	0.00	%	 	 	 	 
	m) Principal Default Ratio (II(c) x 12) / II(a)
	 	 	0.00	%	 	 	 	 
	n)
Receivables Base Rate ((VIII(b) + IX(f) + X(2) + X(3)) X 12) / II(a)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 
	o) Excess Spread Percentage (l - m - n)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ADJUSTED EXCESS SPREAD (Excluding Contribution Amount)
	 	 	 	 	 	 	 	 
	p) Adjusted
Portfolio Yield ( V(i) + VI(g) +VI(j) + VI(n) - VI(d) ) x 12 / II (a)
	 	 	0.00	%	 	 	 	 
	q) Principal
Default Ratio (II(c) x 12) / II(a)
	 	 	0.00	%	 	 	 	 
	r)
Receivables Base Rate ((VIII(b) + IX(f) + X(2) + X(3)) X 12) / II(a)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 
	s) Adjusted
Excess Spread Percentage (l − m - n)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	t) Principal Payment Ratio (VI(a) / II(a))
	 	 	0.00	%	 	 	 	 
	u) Total Payment Ratio (VI(e) + VI(k) + VI(n) + V(i) / ( II(a) + BOM F/C AR)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	THREE-MONTH AVERAGE:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	PRINCIPAL DEFAULT RATIO
	 	 	 	 	 	 	 	 
	v) Principal Default Ratio (current Monthly Period)
	 	 	0.00	%	 	 	 	 
	w) Principal Default Rate (prior Monthly Period]
	 	 	0.00	%	 	 	 	 
	x) Principal Default Ratio (2 months prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 
	y) Three-Month Average Principal Default Ratio
	 	 	0.00	%	 	 	 	 

B-1

 

Servicing Report

Fingerhut Receivables I, LLC

	 	 	 	 	 	 	 

	 

	 	        Interest Payment Date:
	 	 
	 	 
	 

	 	             Determination Date:
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	Collection Period:
	 	 
	 	 

	 	 	 	 	 	 	 	 	 

	EXCESS SPREAD PERCENTAGE
	 	 	 	 	 	 	 	 
	z) Excess Spread Percentage (current Monthly Period)
	 	 	0.00	%	 	 	 	 
	aa) Excess Spread Percentage (prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	ab) Excess Spread Percentage (2 months prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 
	ac) Three-Month Average Excess Spread Percentage
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 
	PRINCIPAL PAYMENT RATE
	 	 	 	 	 	 	 	 
	ad) Principal Payment Ratio (current Monthly Period)
	 	 	0.00	%	 	 	 	 
	ae) Principal Payment Ratio (prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	af) Principal Payment Ratio (2 months prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 
	ag) Three-Month Average Principal Payment Ratio
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 
	DELINQUENCY RATIO
	 	 	 	 	 	 	 	 
	ah) Delinquency Ratio (current Monthly Period)
	 	 	0.00	%	 	 	 	 
	ai) Delinquency Ratio (prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	aj) Delinquency Ratio (2 months prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 
	ak) Three-Month Average Delinquency Ratio
	 	 	0.00	%	 	 	 	 
	 
	ADJUSTED EXCESS SPREAD PERCENTAGE
	 	 	 	 	 	 	 	 
	al) Excess Spread Percentage (current Monthly Period)
	 	 	0.00	%	 	 	 	 
	am) Excess Spread Percentage (prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	an) Excess Spread Percentage (2 months prior Monthly Period)
	 	 	0.00	%	 	 	 	 
	 
	 	 	 	 	 	 	 
	ao) Three-Month Average Excess Spread Percentage
	 	 	0.00	%	 	 	 	 

	 	 	 	 	 	 	 	 	 
	 	 	Principal Receivables	 	 	Active Accounts	 
	IV. BORROWING BASE TEST AT END OF COLLECTION PERIOD
	 	 	 	 	 	 	 	 
	REQUIRED BORROWING BASE TEST
	 	 	 	 	 	 	 	 
	a) Principal Balance of Eligible Underlying Receivables
	 	$	0.00	 	 	 	0	 
	b) Amounts on deposit in the Principal Collections Account
	 	$	0.00	 	 	 	 	 
	c) Less: Reserves
	 	 	 	 	 	 	 	 
	(i) Bankruptcy
	 	$	0.00	 	 	 	0.00	 
	(ii) Deceased
	 	$	0.00	 	 	 	0.00	 
	(iii) Accounts more than 180 days delinquent
	 	 	0.00	 	 	 	0.00	 
	(iv) Re-aged more than once
	 	$	0.00	 	 	 	0.00	 
	(v) Customers who have not made at least one payment (Such payment not being returned for NSF)
	 	$	0.00	 	 	 	0.00	 
	Ineligible Receivables
	 	$	0.00	 	 	 	0.00	 
	d) Less: Concentration limits (As of Date of Processing)
	 	 	 	 	 	 	 	 
	(i) Gettington program Eligible Underlying Receivables of > 10.0%
	 	$	0.00	 	 	 	0.00	 
	(ii) Underlying Receivables with a Credit Score <= 600 of > 50.0%
	 	$	0.00	 	 	 	0.00	 
	(iii) Underlying Receivables with a Credit Score <= 575 of > 37.5%
	 	$	0.00	 	 	 	0.00	 
	(iv) Underlying Receivables with a Credit Score <= 550 of > 22.5%
	 	$	0.00	 	 	 	0.00	 
	(v) Underlying Receivables related to Receivable Accounts with a credit limit > $1,500 of > 25.0%
	 	$	0.00	 	 	 	0.00	 
	(vi) Underlying Receivables with a deferred balance of > 25.0%
	 	$	0.00	 	 	 	0.00	 
	e) Borrowing Base ( a + b − c − d )
	 	$	0.00	 	 	 	 	 
	f) Tranche A Advance Rate
	 	 	54.0	%	 	 	 	 
	g) Maximum Revolving Availability
	 	$	0.00	 	 	 	 	 
	h) Less: Tranche B Term Loan in excess of 14.0% of Borrowing Base
	 	$	0.00	 	 	 	 	 
	i) Effective Maximum Revolving Availability
	 	$	0.00	 	 	 	 	 
	j) Additional Revolving Availability (Tranche A Borrowing Base Deficiency)
	 	$	0.00	 	 	 	 	 
	k) Tranche B Borrowing Base Deficiency
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	V. ACCOUNT BALANCES AND EARNINGS
	 	 	 	 	 	 	 	 
	ACCOUNT BALANCES — END OF COLLECTION PERIOD
	 	 	 	 	 	 	 	 
	a) Spread Account
	 	$	0.00	 	 	 	 	 
	b) Principal Collection Account
	 	$	0.00	 	 	 	 	 
	c) Finance Charge Collection Account
	 	$	0.00	 	 	 	 	 
	d) Prepayment Account
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	INTEREST AND INVESTMENT EARNINGS
	 	 	 	 	 	 	 	 
	amounts deposited into such accounts since the prior Interest Payment Date
	 	 	 	 	 	 	 	 
	e) Interest and investment earnings on Spread Account
	 	$	0.00	 	 	 	 	 
	f) Interest and investment earnings on Prepayment Account
	 	$	0.00	 	 	 	 	 
	g) Interest and investment earnings on Finance Charge Collection Account
	 	$	0.00	 	 	 	 	 
	h) Interest and investment earnings on Principal Collections Account
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	i) Total interest and investment earnings (e + f + g + h)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	VI. COLLECTIONS FROM CUSTOMERS
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	COLLECTIONS ON ELIGIBLE RECEIVABLES
	 	 	 	 	 	 	 	 
	a) Collections of Principal Receivables II(b)
	 	$	0.00	 	 	 	 	 
	b) Collections of Finance Charge Receivables
	 	$	0.00	 	 	 	 	 
	c) Recoveries
	 	$	0.00	 	 	 	 	 
	d) Contribution Amount (8.00% x (II(e) + II(f) )
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	e) Total Collections (a + b + c + d)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	f) Principal Collections (a)
	 	$	0.00	 	 	 	 	 
	g) Finance Charge Collections & Contribution Amounts (b + c + d)
	 	$	0.00	 	 	 	 	 
	 
	COLLECTIONS ON INELIGIBLE RECEIVABLES
	 	 	 	 	 	 	 	 
	h) Collections of Principal Receivables
	 	$	0.00	 	 	 	 	 
	i) Collections of Finance Charge Receivables
	 	$	0.00	 	 	 	 	 
	j) Recoveries
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	k) Total Collections (h + i + j)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	l) Principal Collections (h)
	 	$	0.00	 	 	 	 	 
	m) Finance Charge Collections (l + i)
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	COLLECTIONS FROM THIRD PARTIES
	 	 	 	 	 	 	 	 
	n) Recovery proceeds from sale of charged-off receivables
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	VII. [RESERVED FOR FUTURE USE]
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	VIII. SERVICING FEE
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	a) Servicing Fee Rate
	 	 	3.00	%	 	 	 	 
	b) Servicing Fee on Eligible Receivables (a/12*II(h))
	 	$	0.00	 	 	 	 	 
	c) Servicing Fee on Ineligible Receivables (a/12 * II(t))
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	IX. INTEREST EXPENSE & UN-DRAWN FACILITY FEE
	 	 	 	 	 	 	 	 
	Tranche A Interest Expense & Undrawn Facility Fee
	 	 	 	 	 	 	 	 
	a) LIBOR as determined on the LIBOR Determination Date
	 	 	 	 	 	 	 	 
	b) Margin to LIBOR
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	c) Total Interest Rate
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	d) Collection Period Interest
	 	$	0.00	 	 	 	 	 
	e) Un-drawn Facility Fee (0.375%)
	 	$	0.00	 	 	 	 	 
	f) Commitment Reduction Premium
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	g) Total Tranche A Interest & Fees
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Tranche B Interest Expense
	 	 	 	 	 	 	 	 
	h) Fixed Rate (14.75% based on 360 day year)
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	i) Collection Period Interest
	 	$	0.00	 	 	 	 	 
	j) Prepayment Premium
	 	$	0.00	 	 	 	 	 
	 
	 	 	 	 	 	 	 
	k) Total Tranche B Interest & Fees
	 	$	0.00	 	 	 	 	 

B-2

 

Servicing Report

Fingerhut Receivables I, LLC

	 	 	 	 	 	 	 

	 

	 	Interest Payment Date:
	 	 
	 	 
	 

	 	     Determination Date: 
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	Collection Period: 
	 	 
	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 

	X. APPLICATION OF FINANCE CHARGE COLLECTIONS
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Finance Charge Collections (VI(b) + VI(i))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	b)
Recoveries (VI(c) + VI(n))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	c) Contribution Amount (VI(d)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	d) Investment Earnings (V(i))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	e) Available Spread Account Withdrawal (XIII(e))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	f) Total available distributions under the finance charge waterfall (Section 2.14b))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	1) Servicing Fee due to Servicer (VIII(b) + VIII(c))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	2) Backup Servicer Fees due Backup Servicer and Successor Servicing Fees due Successor Servicer
	 	$	0.00	 	 	 	 	 	 	 	 	 
	3) Third party costs and Fees due to Agent (Semi-Annual)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	4) Costs, fees and accrued interest due to Tranche A Lenders (IX (g)) (and swap payments, if applicable)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	5) Costs, fees and accrued Interest due to Tranche B Lenders (IX (k))
	 	 	0.00	 	 	 	 	 	 	 	 	 
	6) Repayment
of Tranche A Revolving Loans in an amount necessary to (A) cure any Tranche A Borrowing Base
Deficiency and (B) cure any Tranche B Borrowing Base Base Deficiency
	 	$	0.00	 	 	 	 	 	 	 	 	 
	7) Repayment of the Tranche B Term Loans in an amount necessary to cure any Tranche B Borrowing Base Deficiency
	 	$	0.00	 	 	 	 	 	 	 	 	 
	8) Administrative Agent costs not paid in X(3)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	9) Any termination payments due to a swap counterparty
	 	$	0.00	 	 	 	 	 	 	 	 	 
	10) Fund the excess of the Required Spread Account Amount over the amounts
then on deposit in the Spread Account
	 	 	0.00	 	 	 	 	 	 	 	 	 
	11)
Remaining funds to be deposited in the Company Account (f - sum of (1 to 8))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	FINANCE CHARGE COLLECTION ACCOUNT RECONCILIATION
	 	 	 	 	 	 	 	 	 	 	 	 
	g) Finance
Charge Collection Account balance — end of Collection Period (V(c))
	 	$	000	 	 	 	 	 	 	 	 	 
	h) Finance Charge Collections relating to the Collection Period deposited subsequent to period end
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	i) Distributions to be applied under the finance charge waterfall (Excludes interest income)
reconciles to (a + b + c)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	XI. APPLICATION OF PRINCIPAL COLLECTIONS
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Principal Collections (VI(a)+ VI(m))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	PRINCIPAL COLLECTION ACCOUNT RECONCILIATION
	 	 	 	 	 	 	 	 	 	 	 	 
	b) Principal Collection Account balance — beginning of Collection Period
	 	$	0.00	 	 	 	 	 	 	 	 	 
	c) Plus: Principal Collections relating to the Collection Period (a)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	d) Plus: Principal Collections relating to the prior Collection Period deposited in the current Collection Period
	 	$	0.00	 	 	 	 	 	 	 	 	 
	e) Less: Principal Collections relating to the current Collection Period deposited subsequent to period end
	 	$	0.00	 	 	 	 	 	 	 	 	 
	f) Less: Amount used to purchase new Underlying Receivables
	 	$	0.00	 	 	 	 	 	 	 	 	 
	g) Less: Amount used to paydown loan during Collection period (optional each Wednesday)
	 	 	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	h) Amount
remaining in the Principal Collection Account at end of Collection
period (b + c + d - e - f - g)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	i) Less: Principal Collection applied to pay down Loan on the Distribution Date
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	j) Amount remaining in the Principal Collection Account after loan paydown (h -i) (up to $1,000,000)
	 	$	0.00	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Trigger	 	 	Actual	 	 	Test	 	 	Collection Actual	 
	XII. COVENANTS AND CONCENTRATION LIMITS
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	a) Three-Month Average Principal Default Ratio
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	April 1 to August 31
	 	 	24.00	%	 	>= 	0.00	%	 	 	 	 	 	 	0.00	%
	September 1 to March 31
	 	 	28.00	%	 	>=	 0.00	%	 	 	 	 	 	 	0.00	%
	b) Three-Month Average Excess Spread Percentage
	 	 	8.00	%	 	<= 	0.00	%	 	 	 	 	 	 	0.00	%
	c) Three-Month Average Principal Payment Rate
	 	 	5.00	%	 	<=	 0.00	%	 	 	 	 	 	 	0.00	%
	d) Three-Month Average Delinquency Ratio
	 	 	14.50	%	 	>= 	0.00	%	 	 	 	 	 	 	0.00	%
	e) Three-Month Average Adjusted Excess Spread Percentage
	 	 	-4.00	%	 	<= 	0.00	%	 	 	 	 	 	 	0.00	%
	f) One-Month Total Payment Ratio
	 	 	6.50	%	 	<=	 0.00	%	 	 	 	 	 	 	0.00	%
	g) One-Month Principal Delinquency Ratio Rate
	 	 	16.00	%	 	>=	 0.00	%	 	 	 	 	 	 	0.00	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Eligible Principal Receivables at end of Collection Period by Credit Score:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	f) No Score
	 	 	 	 	 	$	0.00	 	 	 	 	 	 	 	 	 
	g) 1 - 500
	 	 	 	 	 	$	0.00	 	 	 	 	 	 	 	 	 
	h) 501-525
	 	 	 	 	 	$	0.00	 	 	 	 	 	 	 	 	 
	i) 526-550
	 	 	 	 	 	$	0.00	 	 	 	 	 	 	 	 	 
	j) 551-575
	 	 	 	 	 	$	0.00	 	 	 	 	 	 	 	 	 
	k) 576-600
	 	 	 	 	 	$	0.00	 	 	 	 	 	 	 	 	 
	l) 601+
	 	 	 	 	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	m) Total excluding No Score
	 	 	 	 	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	n) Receivables Accounts related to the Gettington program
	 	 	 	 	 	$	 	 	 	 	 	 	 	 	 	 
	o) Receivable Accounts with a credit limit > $1,500
	 	 	 	 	 	$	 	 	 	 	 	 	 	 	 	 
	p) Eligible Underlying Receivables with a deferred balance
	 	 	 	 	 	$	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	q)
Receivables Accounts with a Credit Score < = 600
	 	 	50.00	%	 	>	 0.00	%	 	 	 	 	 	 	 	 
	r)
Receivables Accounts with a Credit Score < = 575
	 	 	37.50	%	 	>	 0.00	%	 	 	 	 	 	 	 	 
	s)
Receivables Accounts with a Credit Score < = 550
	 	 	22.50	%	 	>	 0.00	%	 	 	 	 	 	 	 	 
	t) Gettington program Eligible Underlying Receivables
	 	 	10.00	%	 	> 	0.00	%	 	 	 	 	 	 	 	 
	u) Underlying Receivables related to Receivable Accounts with a credit limit > $1,500
	 	 	25.00	%	 	>	 0.00	%	 	 	 	 	 	 	 	 
	v) Underlying Receivables with a deferred balance
	 	 	25.00	%	 	>	0.00	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	XIII. SPREAD ACCOUNT
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Spread Account	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Increase Percentage	 	 	 	 	 	 	 	 
	EXCESS SPREAD RATIO THRESHOLD
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	If Three-Month Average Excess Spread Percentage is:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Greater than 14.00%
	 	 	 	 	 	 	0.00	%	 	 	 	 	 	 	 	 
	Greater than 12.50% but less than or equal to 14.00%
	 	 	 	 	 	 	2.00	%	 	 	 	 	 	 	 	 
	Greater than 11.00% but less than equal to 12.50%
	 	 	 	 	 	 	4.00	%	 	 	 	 	 	 	 	 
	Greater than 9.50% but less or equal to 11.00%
	 	 	 	 	 	 	6.00	%	 	 	 	 	 	 	 	 
	Less than or equal to 9.50%
	 	 	 	 	 	 	8.00	%	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Spread Account	 	 	 	 	 	 
	 	 	 	 	 	 	Increase Percentage	 	 	 	 	 	 	 	 
	TOTAL PAYMENT RATIO THRESHOLD
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	If One-Month Total Payment Ratio Percentage is:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Greater than 8.00%
	 	 	 	 	 	 	0.00	%	 	 	 	 	 	 	 	 
	Greater than 7.25% but less than or equal to 8.00%
	 	 	 	 	 	 	1.00	%	 	 	 	 	 	 	 	 
	Less than or equal to 7.25%
	 	 	 	 	 	 	2.00	%	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Spread Account	 	 	 	 
	 	 	Increase Percentage	 	 	 	 	 	 	 	 
	PRINCIPAL DELIQUENCY RATIO THRESHOLD
	 	 	 	 	 	 	 	 	 	 	 	 
	If One-Month Principal Delinquency Ratio Percentage is:
	 	 	 	 	 	 	 	 	 	 	 	 
	Less than 12.50%
	 	 	0.00	%	 	 	 	 	 	 	 	 
	Greater than or equal to 12.50% but less than 14.00%
	 	 	1.00	%	 	 	 	 	 	 	 	 
	Greater than or equal to 14.00%
	 	 	2.00	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Performance Ratios
	 	 	 	 	 	 	 	 	 	 	 	 
	Three-Month Average Excess Spread (III(v)) (current Monthly Period)
	 	 	0.00	%	 	 	 	 	 	 	 	 
	Three-Month Average Excess Spread (prior Monthly Period)
	 	 	0.00	%	 	 	 	 	 	 	 	 
	Three-Month Average Excess Spread (2 months prior Monthly Period)
	 	 	0.00	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	One-Month Total Payment Ratio (III(u)) (current Monthly Period)
	 	 	0.00	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	One-Month
Principal Delinquency Ratio (III(k)) (current Monthly Period)
	 	 	0.00	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	b) Required Spread Account Percentage (from tables above)
	 	 	0.00	%	 	 	 	 	 	 	 	 
	c) Required Spread Account Amount on current Distribution Date
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	d) Spread Account balance on previous Distribution Date
	 	$	0.00	 	 	 	 	 	 	 	 	 
	e) Spread Account withdrawal amount (d + f − c)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	f) Deposits to the Spread Account due to Additional Invested Amounts
	 	$	0.00	 	 	 	 	 	 	 	 	 
	g) Deposits to the Spread Account from Available Finance Charge Collections (X(8))
	 	$	0.00	 	 	 	 	 	 	 	 	 
	h) Spread Account balance after taking effect to the above (e − f + g + h − i)
	 	$	0.00	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	XIV.
FINGERHUT CORPORATE COVENANTS - Fiscal month-end
	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Minimum	 	Actual	 	Test
	a) Cash & Cash Equivalents
	 	 	 	 	 	 	 	 	 	 	 	 
	b) Revolving Availability
	 	 	 	 	 	 	 	 	 	 	 	 
	c) Availability under the FDM Inventory Credit Agreement
	 	 	 	 	 	 	 	 	 	 	 	 
	d) Net Liquidity (a+ b + c)
	 	 	 	 	 	 	 	 	 	 	 	 
	February through November
	 	 	25,000,000.00	 	 	 	 	 	 	 	 	 
	December and January
	 	 	20,000,000.00	 	 	 	 	 	 	 	 	 

IN WITNESS WHEREOF, the undersigned has duly executed this Servicer Report.

BLUESTEM BRANDS. INC.

Servicing Officer.

 

DATE

B-3

 

EXHIBIT C

[Form of Daily Settlement and Servicing Report]

Daily Settlement and Servicing Report

Fingerhut Receivables I, LLC

	 	 	 	 	 	 	 

	 

	 	               Report Date:
	 	 
	 	 
	 
	 	 	 	 	 	 
	 

	 	Date(s) of Processing:
	 	 
	 	 

Pursuant
to (a) Section 2.04(e) of the Servicing Agreement, dated as of August 20, 2010 (the
“Servicing Agreement”), among Bluestem Brands, Inc. as Servicer (“Bluestem”) and Fingerhut
Receivables I, LLC (“LLC”), Goldman Sachs Bank USA (“GS Bank”), as administrative agent (the
“Administrative Agent”) and collateral agent, and (b) Section 2.15 of the Credit Agreement, dated
as of August 20, 2010, among LLC, GS Bank as administrative agent, collateral agent, joint lead
arranger, joint bookrunner, syndication agent and documentation agent, J.P. Morgan Securities Inc.,
as joint lead arranger and joint bookrunner and the Lenders party thereto from time to time,
Bluestem is required to prepare certain information each day regarding the cash receipts,
distributions and performance of the Underlying Receivables for the Date of Processing specified
above. The undersigned, a duly authorized representative of Bluestem, does hereby certify in this
report:

	 	i	 	Capitalized terms used in this report have their respective meanings set forth in the
Servicing Agreement and, if not defined therein, the Credit Agreement. References herein to
certain sections and subsections are references to their respective sections and subsections
of the respective agreements.
	 
	 	ii	 	This report is being delivered pursuant to Section 2.04 of the Servicing Agreement and
Section 2.15 of the Credit Agreement.
	 
	 	iii	 	Bluestem is the Servicer under the Servicing Agreement. The undersigned is an Authorized
Officer of the Servicer.
	 
	 	iv	 	No Event of Default has occurred under the Credit Agreement.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Effective	 
	 	 	 	 	 	 	Advance Rate	 
	I. INVESTED AMOUNTS (AS OF REPORT DATE)
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	LOAN PRINCIPAL BALANCE
	 	 	 	 	 	 	 	 
	a) Beginning of day Tranche A loan balance
	 	$	—	 	 	 	 	 
	b) Beginning of day Tranche B loan balance
	 	$	—	 	 	 	 	 
	c) Tranche A Loan principal paydown/borrowing
	 	$	—	 	 	 	 	 
	d) Tranche B Loan principal paydown/borrowing
	 	$	—	 	 	 	 	 
	e) End of day Tranche A Revolving Loan balance
	 	$	—	 	 	 	 	 
	f) End of day Tranche B Term Loan balance
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	II. UNDERLYING RECEIVABLES (AS OF DATE OF PROCESSING)
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ELIGIBLE RECEIVABLES
	 	 	 	 	 	 	 	 
	a) Beginning of day Eligible Principal Receivables
	 	$	—	 	 	 	 	 
	b) Principal Collections
	 	$	—	 	 	 	 	 
	c) Defaulted principal
	 	$	—	 	 	 	 	 
	d) Dilution
	 	$	—	 	 	 	 	 
	e) Sales
	 	$	—	 	 	 	 	 
	f) Transfer of Ineligible Principal Receivables to Eligible Principal Receivables
	 	$	—	 	 	 	 	 
	g) End of day Eligible Principal Receivables (a − b − c − d + e + f)
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	h) Ending Eligible Finance Charge Receivables
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	i) Ending total Eligible Receivables (g + h)
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	j) Daily average Eligible Principal Receivables
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	INELIGIBLE RECEIVABLES
	 	 	 	 	 	 	 	 
	k) Beginning of day Ineligible Principal Receivables
	 	$	—	 	 	 	 	 
	l) Principal Collections
	 	$	—	 	 	 	 	 
	m) Defaulted principal
	 	$	—	 	 	 	 	 
	n) Dilution
	 	$	—	 	 	 	 	 
	o) Sales
	 	$	—	 	 	 	 	 
	p) Transfer of Ineligible Principal Receivables to Eligible Principal Receivables
	 	$	—	 	 	 	 	 
	q) End of
day Ineligible Principal Receivables (k − l − m − n + o + p)
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	r) Ending Ineligible Finance Charge Receivables
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	s) Ending total Ineligible Receivables (q + r)
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	t) Daily Average Principal Balance of Ineligible Underlying Receivables
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	META/WEB RECEIVABLES
	 	 	 	 	 	 	 	 
	u) End of day receivables relating to eligible accounts
	 	$	—	 	 	 	 	 
	v) End of day receivables relating to ineligible accounts
	 	$	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	w) End of day Meta/Web receivables (u + v)
	 	$	—	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	 	 	Principal Receivables	 	 	Active Accounts	 
	III. ELIGIBLE RECEIVABLES PERFORMANCE SUMMARY
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	DELINQUENCIES - END OF MONTHLY PERIOD
	 	 	 	 	 	 	 	 
	a) Current
	 	$	—	 	 	 	—	 
	b) 1-29 days delinquent
	 	$	—	 	 	 	—	 
	c) 30-59 days delinquent
	 	$	—	 	 	 	—	 
	d) 60-89 days delinquent
	 	$	—	 	 	 	—	 
	e) 90-119 days delinquent
	 	$	—	 	 	 	—	 
	f) 120-149 days delinquent
	 	$	—	 	 	 	—	 
	g) 150-179 days delinquent
	 	$	—	 	 	 	—	 
	h) 180+ days delinquent
	 	$	—	 	 	 	—	 
	i) Total Principal Receivables
	 	$	—	 	 	 	—	 
	 
	 	 	 	 	 	 	 	 
	j) Total 30+ days delinquent (sum of c through h)
	 	$	—	 	 	 	 	 
	k) Delinquency Ratio (j / i)
	 	 	—	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	 	 	Principal Receivables	 	 	Active Accounts	 
	IV. BORROWING BASE TEST
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	REQUIRED BORROWING BASE TEST
	 	 	 	 	 	 	 	 
	a) Principal Balance of Eligible Underlying Receivables (II(g)) (As of Date of Processing)
	 	$	—	 	 	 	—	 
	b) Amounts
on deposit in the Principal Collections Account (As of Report Date) V(b)
	 	$	—	 	 	 	 	 
	c) Less: Reserves (As of Date of Processing)
	 	 	 	 	 	 	 	 
	Bankrupt
	 	$	—	 	 	 	—	 
	Deceased
	 	$	—	 	 	 	—	 
	180+ days delinquent
	 	$	—	 	 	 	—	 
	Re-aged more than once
	 	$	—	 	 	 	—	 
	Customers who have not made at least one payment (Such payment not being returned for NSF)
	 	 	—	 	 	 	—	 
	Ineligible Receivables
	 	$	—	 	 	 	—	 
	d) Less: Concentration limts (As of Date of Processing)
	 	 	 	 	 	 	 	 
	Gettington receivables constitute greater than 10% of principal Eligible Underlying Receivables
	 	$	—	 	 	 	—	 
	More than 50.0% of Eligible Underlying Receivables have a FICO score of 600 or less
	 	$	—	 	 	 	—	 
	More than 37.5% of Eligible Underlying Receivables have a FICO score of 575 or less
	 	$	—	 	 	 	—	 
	More than 22.5% of Eligible Underlying Receivables have a FICO score of 550 or less
	 	$	—	 	 	 	—	 
	More than
25.0% of the Receivable Accounts have a credit limit greater than $1,500
	 	$	—	 	 	 	—	 
	More than 25.0% of Eligible Underlying Receivables have a deferred balance
	 	$	—	 	 	 	—	 
	e) Borrowing Base ( a + b − c − d )
	 	$	—	 	 	 	 	 
	f) Tranche A Advance Rate
	 	 	54.0	%	 	 	 	 
	g) Maximum Revolving Availability
	 	$	—	 	 	 	 	 
	h) Less: Tranche B Term Loan in excess of 14.0% of Borrowing Base
	 	$	—	 	 	 	 	 
	i) Effective Maximum Revolving Availability
	 	$	—	 	 	 	 	 
	j) Additional Revolving Availability (Tranche A Borrowing Base Deficiency)
	 	$	—	 	 	 	 	 
	k) Tranche B Borrowing Base Deficiency
	 	$	—	 	 	 	 	 

C-1

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	V. ACCOUNT BALANCES AND EARNINGS (AS OF END OF DAY ON REPORT DATE)
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	ACCOUNT BALANCES
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Spread Account
	 	$	—	 	 	 	 	 	 	 	 	 
	b) Principal Collection Account
	 	$	—	 	 	 	 	 	 	 	 	 
	c) Finance Charge Collection Account
	 	$	—	 	 	 	 	 	 	 	 	 
	d) Prepayment Account
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	VI. COLLECTIONS FROM CUSTOMERS AND ALLOCATION OF COLLECTIONS (AS OF DATE OF PROCESSING)
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	COLLECTIONS ON ELIGIBLE RECEIVABLES
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Collections of Principal Receivables
	 	$	—	 	 	 	 	 	 	 	 	 
	b) Collections of Finance Charge Receivables
	 	$	—	 	 	 	 	 	 	 	 	 
	c) Recoveries
	 	$	—	 	 	 	 	 	 	 	 	 
	d) Contribution Amount (VIII(d))
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	e) Total Collections (a + b + c + d)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	g) Principal Collections on Eligible Receivables (a)
	 	$	—	 	 	 	 	 	 	 	 	 
	h) Finance Charge Collections on Eligible Receivables (b + c + d)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	COLLECTIONS ON INELIGIBLE RECEIVABLES
	 	 	 	 	 	 	 	 	 	 	 	 
	i) Collections of Principal Receivables
	 	$	—	 	 	 	 	 	 	 	 	 
	j) Collections of Finance Charge Receivables
	 	$	—	 	 	 	 	 	 	 	 	 
	k) Recoveries
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	l) Total Collections (i + j + k)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	m) Principal Collections on Ineligible Receivables (i)
	 	$	—	 	 	 	 	 	 	 	 	 
	n) Finance Charge Collections on Ineligible Receivables (j + k)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	o) Recovery Proceeds from Sale of Charged-Off Receivables
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	p) Total Principal Collections (q + m)
	 	$	—	 	 	 	 	 	 	 	 	 
	q) Total Finance Charge Collections (h + n + o)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	VII. NEW RECEIVABLES PURCHASED ON REPORT DATE
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Daily Purchase of Receivables
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Purchase of new Eligible Principal Receivables (on Report Date)
	 	$	—	 	 	 	 	 	 	 	 	 
	b) Purchase of new Ineligible Principal Receivables (on Report Date)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	c) Purchase price (a+b)
	 	$	—	 	 	 	 	 	 	 	 	 
	d) RPA Credit Adjustments (as of Date of Processing)
	 	$	—	 	 	 	 	 	 	 	 	 
	e) Credit Balance Refunds (as of Date of Processing)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	f) Net Purchase Price (c − d + e)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Payment of Net Purchase Price to Seller:
	 	 	 	 	 	 	 	 	 	 	 	 
	g) Cash payment from Principal Collection Account (o)
	 	$	—	 	 	 	 	 	 	 	 	 
	h) Cash payment from Company Account
	 	$	—	 	 	 	 	 	 	 	 	 
	i) Receivables contributed by seller (deemed to be a capital contribution)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	j) Total payment of Net Purchase Price / (Net Purchase Price Reversal) (g + h + i)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Principal Collection account roll-forward:
	 	 	 	 	 	 	 	 	 	 	 	 
	k) Principal Collection Account beginning balance (On Report Date)
	 	$	—	 	 	 	 	 	 	 	 	 
	l) Principal Collection deposits VI(p)
	 	$	—	 	 	 	 	 	 	 	 	 
	m) Amounts not deposited due to shortfall at Lockbox Account
	 	$	—	 	 	 	 	 	 	 	 	 
	n) Amounts of prior Lockbox shortfalls deposited
	 	$	—	 	 	 	 	 	 	 	 	 
	o) Amount
used to purchase new receivables (minimum of (f), (k) + (l))
	 	$	—	 	 	 	 	 	 	 	 	 
	p) Capital Contribution from Bluestem Brands, Inc.
	 	$	—	 	 	 	 	 	 	 	 	 
	q) Amount applied to loan balance (each Wednesday and Interest Payment Date)
	 	$	—	 	 	 	 	 	 	 	 	 
	r) Monthly interest income received from Bank of America related to Principal
Collection account
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	s) Principal
Collection Account ending balance (On Report Date) (k + l +
m + n - o + p - q + r)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Lockbox Account Shortfall roll-forward:
	 	 	 	 	 	 	 	 	 	 	 	 
	t) Lockbox Account shortfall beginning balance (On Report Date)
	 	$	—	 	 	 	 	 	 	 	 	 
	u) Excess at
Lockbox (Acct #: 01661780221) (or replacement account)
	 	$	—	 	 	 	 	 	 	 	 	 
	v) Shortfall
at Lockbox (Acct #: 01661780221) (or replacement account)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	w) Lockbox
Account shortfall ending balance (On Report Date) (t − u + v)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	x)
Investment Earnings (Spread, Finance Charge, & Principal Collections Accounts)
	 	$	—	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	% of Eligible	 
	 	 	Principal Receivables	 	 	Active Accounts	 	 	Underlying Receivables	 
	VIII. CONCENTRATION LIMITS
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Eligible Underlying Receivables related to Gettington accounts
	 	$	—	 	 	 	—	 	 	 	 	 
	b) Eligible Underlying Receivables with a FICO score of 600 or less
	 	$	—	 	 	 	—	 	 	 	 	 
	c) Eligible Underlying Receivables with a FICO score of 575 or less
	 	$	—	 	 	 	—	 	 	 	 	 
	d) Eligible Underlying Receivables with a FICO score of 550 or less
	 	$	—	 	 	 	—	 	 	 	 	 
	e) Receivable Accounts with a credit limit greater than $1,500
	 	$	—	 	 	 	—	 	 	 	 	 
	f) Eligible Underlying Receivables with a deferred balance
	 	$	—	 	 	 	—	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	IX. CONTRIBUTION AMOUNT
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Purchases of Eligible Principal Receivables (as of Report Date) VII(a)
	 	$	—	 	 	 	 	 	 	 	 	 
	b) Receivables subsequently designated as Eligible Underlying Receivables (as of Date
of Processing) II(f)
	 	$	—	 	 	 	 	 	 	 	 	 
	c) Contribution %
	 	 	8.00	%	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	d) Contribution Amount (c * (a+b))
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	X. TRANSFER OF FUNDS
	 	 	 	 	 	 	 	 	 	 	 	 
	CASH PAYMENTS FROM FINGERHUT RECEIVABLES I, LLC PRINCIPAL COLLECTION ACCOUNT TO COMPANY
ACCOUNT
	 	 	 	 	 	 	 	 	 	 	 	 
	a) Advances for purchases of new receivables (VII(m))
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	CASH
PAYMENTS FROM FINGERHUT RECEIVABLES I, LLC COMPANY ACCOUNT TO BLUESTEM.
	 	 	 	 	 	 	 	 	 	 	 	 
	b) Advances for purchases of new receivables (VII(m))
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	CASH PAYMENTS FROM AGENT TO FINGERHUT RECEIVABLES I, LLC COMPANY ACCOUNT
	 	 	 	 	 	 	 	 	 	 	 	 
	c) Advances under the Credit Agreement (up to maximum of IV(f))
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	CASH PAYMENTS FROM BLUESTEM. TO FINGERHUT RECEIVABLES I, LLC PRINCIPAL COLLECTION
ACCOUNT
	 	 	 	 	 	 	 	 	 	 	 	 
	d) Negative Net Purchase Price (VII(h)) if less than $0.00)
	 	$	—	 	 	 	 	 	 	 	 	 
	e) Capital
Contribution from Bluestem to Fingerhut Receivables I, LLC
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	f) Total payments to Fingerhut Receivables I, Inc. Principal Collection Account
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	CASH
PAYMENTS FROM BLUESTEM TO FINGERHUT RECEIVABLES I, LLC FINANCE CHARGE COLLECTION
ACCOUNT
	 	 	 	 	 	 	 	 	 	 	 	 
	g) Contribution Amount (VIII(d))
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	CASH
PAYMENTS FROM FINGERHUT RECEIVABLES I, LLC PRINCIPAL COLLECTION ACCOUNT to AGENT
FOR DISTRIBUTION TO LENDERS AS PAYMENT OF PRINCIPAL
	 	 	 	 	 	 	 	 	 	 	 	 
	h) Distributions from the Principal Collection Account (VII(o))
	 	$	—	 	 	 	 	 	 	 	 	 
	i) Repayment of Borrowing Base Deficit (IV(g) if less than $0.00)
	 	$	—	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 
	j) Total payments to Agent
	 	$	—	 	 	 	 	 	 	 	 	 

XI. PAYMENT INSTRUCTIONS TO AGENT

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	First Beneficiary	 	 	Second Beneficiary	 
	 	 	Amount	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Account No.	 
	a) To
Fingerhut Receivables I, LLC - Company Account
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	FROM: FRI (Principal Collection Account)
	 	$	—	 	 	Bank of America	 	 	026009593	 	 	 	2047628893869	 	 	 	725436.1	 
	TO: FRI (Company Account)
	 	$	—	 	 	Bank of America	 	 	026009593	 	 	 	2047628893869	 	 	 	725437.1	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Amount	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Account No.	 
	b) To Bluestem Brands, Inc.
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	FROM: FRI (Company Account)
	 	$	—	 	 	Bank of America	 	 	026009593	 	 	 	2047628893869	 	 	 	725437.1	 
	TO: Bluestem
	 	$	—	 	 	JP Morgan Chase	 	 	021000021	 	 	 	758660021	 	 	 	758660021	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Amount	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Account No.	 
	c) To
Fingerhut Receivables I, LLC - Finance Charge Collections Account
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	FROM: FRI (Principal Collections Account)
	 	$	—	 	 	Bank of America	 	 	026009593	 	 	 	2047628893869	 	 	 	725436.1	 
	TO: FRI (Finance Charge Collections Account)
	 	$	—	 	 	Bank of America	 	 	026009593	 	 	 	2047628893869	 	 	 	725436.2	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Amount	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Account No.	 
	d) To
Fingerhut Receivables I, LLC - Finance Charge Collections Account
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 
	FROM: FRI (Spread Account)
	 	$	—	 	 	Bank of America	 	 	026009593	 	 	 	2047628893869	 	 	 	725436.3	 
	TO: FRI (Finance Charge Collections Account)
	 	$	—	 	 	Bank of America	 	 	026009593	 	 	 	2047628893869	 	 	 	725436.2	 

Requested By:

	 	 	 	 	 	 	 

	 

	 
	 	 	 	 

	 

Approved By:

	 	 	 	 	 	 	 

	 

	 
	 	 	 	 

	 

C-2

 

EXHIBIT D

ANNUAL OFFICER’S CERTIFICATE

[DATE]

The undersigned, a duly authorized representative of BLUESTEM BRANDS, INC., as Servicer (the
“Servicer”), pursuant to that certain Servicing Agreement, dated as of August 20, 2010, by
and among the Servicer, FINGERHUT RECEIVABLES I, LLC (the “Company”) and GOLDMAN SACHS BANK
USA, as Administrative Agent (the “Administrative Agent”) and Collateral Agent (as amended,
restated, replaced, supplemented or otherwise modified from time to time the “Servicing
Agreement”), (defined terms used and not otherwise defined herein shall have the meaning
ascribed to them in the Servicing Agreement)), does hereby certify that:

	 	1.	 	The Servicer is, as of the date hereof, the Servicer under the Servicing
Agreement.

	 	2.	 	The undersigned is an Authorized Officer of the Servicer who is duly
authorized pursuant to the Servicing Agreement to execute and deliver this Certificate
to the Company and the Administrative Agent.

	 	3.	 	A review of the activities of the Servicer during the year ended on or
about January 31, 201_ and of its performance under the Servicing Agreement was
conducted under my supervision.

	 	4.	 	Based on such review, the Servicer has, to the best of my knowledge,
performed in all material respects its obligations under the Servicing Agreement
throughout such year and no default in the performance of such obligations has occurred
or is continuing except as set forth in paragraph 5 below.

	 	5.	 	The following is a description of each default in the performance of the
Servicer’s obligations under the provisions of the Servicing Agreement known to me to
have been made by the Servicer during the year ended January 31, 201__ which sets forth
in detail (i) the nature of each such default, (ii) the action taken by the Servicer,
if any, to remedy each such default and (iii) the current status of each such default:
[If applicable, insert “NONE.”]

D-1

 

IN WITNESS WHEREOF, the undersigned has duly executed this Certificate as of the date first written
above pursuant to Section 2.05 of the Servicing Agreement.

	 	 	 	 	 
	 	BLUESTEM BRANDS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

D-2

 

	 	 	 	 	 

EXHIBIT E

Form of Payment Date Report

Payment Date Report

Fingerhut Receivables I, LLC

	 	 	 	 	 	 	 	 	 	 	 

	I.

	 	APPLICABLE DATES	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Interest Payment Date:	 	 	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 

	 	 
	 

	 	Determination Date:	 	 	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 	 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Collection Period:	 	 	 	 	 	 	 	 
	 

	 	 	 	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	Pursuant to
(a) Section 2.04(g) of the Servicing Agreement, dated as of
August 20, 2010 (the “Servicing Agreement”), among
Bluestem Brands, Inc. as Servicer (“Bluestem”),
Fingerhut Receivables I, LLC (“LLC”) and Goldman
Sachs Bank USA (“GS Bank”), as
Administrative Agent (the “Administrative Agent”) and Collateral Agent and (b) Section 2.15 of the Credit Agreement, dated as of
August 20, 2010, among LLC, the Administrative Agent and the Lenders party thereto from time to time, Bluestem is required to prepare
certain information each Collection Period regarding the current distributions to the Lenders and other Persons specified in Section
2.15 of the Credit Agreement and the performance of the Underlying Receivables during the Collection Period. The undersigned, a duly
authorized representative of Bluestem, does hereby certify in this report:

	 	 	 

	i.

	 	Capitalized terms used in this report have their respective meanings set forth in the Servicing Agreement and, if note defined
therein, the Credit Agreement. References herein to certain sections and subsections are references to their respective sections and
subsections of the respective agreements.
	 
	 	 
	ii.

	 	This Report is being delivered pursuant to Section 2.04(g) of the Servicing Agreement.
	 
	 	 
	iii.

	 	Bluestem is the Servicer under the Servicing Agreement. The undersigned is an Authorized Officer of the Servicer.
	 
	 	 
	iv.

	 	The date of this report is on, or prior to, the Interest Payment Date specified above.
	 
	 	 
	v.

	 	No Event of Default has occurred under the Credit Agreement.
	 
	 	 
	vi.

	 	As of the date hereof, to the best knowledge of the undersigned, the Servicer has performed in all material respects all of its
obligations under the Servicing Agreement and the Credit Agreement through the Collection Period preceding such Interest Payment Date
(or, if there has been a default in the performance of any such obligation, set forth in detail (i) the nature of such default, (ii)
the action taken by the Servicer, if any, to remedy such default and (iii) the current status of each such default, if applicable).

E-1

 

	I.	 	INSTRUCTION TO MAKE WITHDRAWALS

	 	 	 	 	 	 	 	 	 
	Allocation to Lenders:	 	 	 	 
	 	 	 	 	 
	 	 	[   ]	%
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	[   ]	%
	 	 	 	 	 
	 	 	 
	 	 	 	 	[LENDERS]
	 	 	[   ]	%
	 	 	 	 	 
	 	 	 
	 	 	 	 	Total Allocation
	 	 	100.0	%
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 
	Application of Finance Charge Collections:	 	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	1	)	 	Servicing Fee due to Servicer
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	2	)	 	Backup Servicer Fees due Backup Servicer and Successor
Servicing Fees due Successor Servicer
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	3	)	 	Costs and fees due to Agent
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	4	)	 	Costs, fees and accrued but unpaid interest due the Tranche A Lenders and any fixed
payments due per any Interest Rate Agreements other than an interest rate cap.
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	5	)	 	Costs, fees and accrued but unpaid interest due the Tranche B Lenders
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	6	)	 	Prepayment of the Tranche A Revolving Loans in an amount necessary to (A) cure any
Tranche A Borrowing Base Deficiency and (B) cure any Tranche B Borrowing Base
Deficiency
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	7	)	 	Prepayment of the Tranche B Term Loans in an amount
necessary to cure any Tranche B Borrowing Base Deficiency
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	8	)	 	Costs and fees due Agent not paid per item 3 above
	 	 	0.00	 
	 	 	 	 	 
	 	 	 
	 	9	)	 	Senior Termination Payments due any Lender Counterparty
not paid per item 4 above.
	 	 	0.00	 
	 	 	 	 	 
	 	 	 
	 	10	)	 	Fund the excess of the Required Spread Account Amount over the amounts
then on deposit in the
Spread Account
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	11	)	 	Remaining funds to be deposited in the Company Account
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	 	 	 	 
	 	 	 	 
	Application of Principal Collections:	 	 	 	 
	 	 	 	 	 
	 	 	 	 
	 	1	)	 	To pay any amounts owed
but unpaid under the
preceding clauses (1) to
(11)
	 	$	0.00	 
	 	 	 	 	 
	 	 	 
	 	2	)	 	Repayment of the
outstanding principal
balance of the Tranche A
Revolving Loans
	 	$	0.00	 

E-2

 

	II.	 	WIRE TRANSFER INSTRUCTIONS

Bluestem Brands, Inc.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Amount	 	 	 	 	 
	FROM:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 
	TO:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 

Systems & Services Technology, Inc.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Amount	 	 	 	 	 
	FROM:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 
	TO:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 

Goldman Sachs Bank USA

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Amount	 	 	 	 	 
	FROM:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 
	TO:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 

Fingerhut Receivables I, LLC (Company Account)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Amount	 	 	 	 	 
	FROM:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 
	TO:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 

Fingerhut Receivables I, LLC (Spread Account)

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Bank Name	 	 	ABA	 	 	Account No.	 	 	Amount	 	 	 	 	 
	FROM:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 
	TO:
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.00	 

E-3

 

IN WITNESS WHEREOF, the undersigned has duly executed this Payment Date Report.

          BLUESTEM BRANDS, INC.

          Servicing Officer:

	 	 	 	 	 
	 	 	 
	 	
 	 
	 	[DATE] 	 
	 	 	 

E-4

 

	 	 	 	 	 

EXHIBIT F

Data Tape Information

Account Data Layout:

	 	 	 	 	 	 	 	 	 	 	 
	Field	 	Type	 	Length	 	Description	 	Header Record Name
	Account Number

	 	varchar
	 	 	19	 	 	10-digit Bluestem customer number
	 	AccountNumber
	Account ID

	 	int
	 	 	4	 	 	Unique AR system ID
	 	AcctId
	Credit Card Number

	 	varchar
	 	 	19	 	 	16-digit credit card number
	 	CardNumber
	SSN

	 	varchar
	 	 	9	 	 	 	 	SSN
	First Name

	 	varchar
	 	 	40	 	 	 	 	FirstName
	Middle Name

	 	varchar
	 	 	40	 	 	 	 	MiddleName
	Last Name

	 	varchar
	 	 	40	 	 	 	 	LastName
	Primary Address Line 1

	 	varchar
	 	 	40	 	 	 	 	PrimaryAddressLine1
	Primary Address Line 2

	 	varchar
	 	 	40	 	 	 	 	PrimaryAddressLine2
	Primary City

	 	varchar
	 	 	40	 	 	 	 	PrimaryCity
	Primary State

	 	varchar
	 	 	5	 	 	 	 	PrimaryState
	Primary Zip Code

	 	varchar
	 	 	5	 	 	 	 	PrimaryZipCode
	Primary Carrier Route

	 	varchar
	 	 	2	 	 	 	 	PrimaryCarrierRoute
	Primary Carrier Route 2

	 	varchar
	 	 	2	 	 	 	 	PrimaryCarrierRoute2
	Statement Address Line 1

	 	varchar
	 	 	40	 	 	Valued only if different from primary address
	 	StatementAddressLine1
	Statement Address Line 2

	 	varchar
	 	 	40	 	 	Valued only if different from primary address
	 	StatementAddressLine2
	Statement City

	 	varchar
	 	 	40	 	 	Valued only if different from primary address
	 	StatementCity
	Statement State

	 	varchar
	 	 	5	 	 	Valued only if different from primary address
	 	StatementState
	Statement Zip Code

	 	varchar
	 	 	10	 	 	Valued only if different from primary address
	 	StatementZipCode
	Statement Carrier Route

	 	varchar
	 	 	2	 	 	Valued only if different from primary address
	 	StatementCarrierRoute
	Statement Carrier Route 2

	 	varchar
	 	 	2	 	 	Valued only if different from primary address
	 	StatementCarrierRoute2
	Home Phone Number

	 	varchar
	 	 	19	 	 	 	 	HomePhone
	 

	 	 	 	 	 	 	 	0 — not set	 	 
	Home Phone Number Bad Indicator

	 	int
	 	 	4	 	 	1 — bad phone number
	 	HomePhoneBadInd
	Work Phone Number

	 	varchar
	 	 	19	 	 	 	 	WorkNumber
	Work Phone Number Bad Indicator

	 	int
	 	 	4	 	 	0 — not set 

1 — bad phone number
	 	WorkPhoneBadInd

F-1

 

	 	 	 	 	 	 	 	 	 	 	 
	Field	 	Type	 	Length	 	Description	 	Header Record Name
	Mobile Phone Number

	 	varchar
	 	 	19	 	 	 	 	MobileNumber
	 

	 	 	 	 	 	 	 	0 — not set	 	 
	Mobile Phone Number Bad Indicator

	 	int
	 	 	4	 	 	1 — bad phone number
	 	MobilePhoneBadInd
	ANI Phone Number

	 	varchar
	 	 	19	 	 	 	 	ANINumber
	 

	 	 	 	 	 	 	 	0 — not set	 	 
	ANI Phone Number Bad Indicator

	 	int
	 	 	4	 	 	1 — bad phone number
	 	ANIPhoneBadInd
	Other Phone Number

	 	varchar
	 	 	19	 	 	 	 	OtherPhoneNumber
	 

	 	 	 	 	 	 	 	0 — not set	 	 
	Other Phone Number Bad Indicator

	 	int
	 	 	4	 	 	1 — bad phone number
	 	OtherPhoneBadInd
	Alternate Phone Number

	 	varchar
	 	 	19	 	 	 	 	AlternatePhoneNumber
	 

	 	 	 	 	 	 	 	0 — not set	 	 
	Alternate Phone Number Bad Indicator

	 	int
	 	 	4	 	 	1 — bad phone number
	 	AlternatePhoneBadInd
	Credit File Phone Number

	 	varchar
	 	 	19	 	 	 	 	CreditFilePhoneNumber
	 

	 	 	 	 	 	 	 	0 — not set	 	 
	Credit File Phone Number Bad Indicator

	 	int
	 	 	4	 	 	1 — bad phone number
	 	CreditFilePhoneBadInd
	Email Address

	 	varchar
	 	 	100	 	 	 	 	Email
	Systematic Status Code

	 	int
	 	 	4	 	 	see Status Code Cross-Reference
	 	SystemStatus
	Manual Status Code

	 	int
	 	 	4	 	 	see Status Code Cross-Reference
	 	ManualStatus
	Credit Limit

	 	money
	 	 	8	 	 	Current Credit Limit
	 	CreditLimit
	Credit Score

	 	varchar
	 	 	5	 	 	Credit Score
	 	FICOScore
	 

	 	 	 	 	 	 	 	BC96 = EQ Beacon 96	 	 
	 

	 	 	 	 	 	 	 	TU95 = TU Classic 95	 	 
	Credit Score Model

	 	varchar
	 	 	30	 	 	PIN2 — Pinnacle
	 	FICOModel
	Credit Score Date

	 	char
	 	 	10	 	 	Date of credit score
	 	FICOScoreDate
	Fixed Interest Rate

	 	real
	 	 	4	 	 	interest rate if assigned to a fixed interest plan
	 	FixedInterestRate
	Prime Interest Rate

	 	real
	 	 	4	 	 	prime rate if assigned to a variable interest plan
	 	PrimeInterestRate
	Margin Rate

	 	real
	 	 	4	 	 	margin rate if assigne to a variable interest plan
	 	MarginRate
	 

	 	 	 	 	 	 	 	1 = paper statement produced	 	 
	Statement Flag

	 	varchar
	 	 	5	 	 	2 = paper statement not produced
	 	StatementFlag
	Cycle ID

	 	varchar
	 	 	5	 	 	Billing Cycle — 1,3,5,7,9,11,13,15,17,19,22,24,25,26,28
	 	BillingCycle
	Days in cycle

	 	int
	 	 	4	 	 	# of days into current billing cycle
	 	DaysSinceLastCycle
	Next Statement Date

	 	varchar
	 	 	10	 	 	Date of the next billing statement
	 	NextStatementDate
	Last Statement Date

	 	varchar
	 	 	10	 	 	Date last statement produced
	 	LastStatementDate
	Statement Balance

	 	money
	 	 	8	 	 	Balance as of last statement
	 	StatementBalance
	Current Balance

	 	money
	 	 	8	 	 	Total balance
	 	CurrentBalance
	Non-deferred Balance

	 	money
	 	 	8	 	 	Balance used to determine minimum payment due
	 	NonDeferred

F-2

 

	 	 	 	 	 	 	 	 	 	 	 
	Field	 	Type	 	Length	 	Description	 	Header Record Name
	 Deferred Balance

	 	money
	 	 	8	 	 	Balance deferred — no minimum
due requested until end of deferral
	 	Deferred
	Current Charge Off Balance

	 	money
	 	 	8	 	 	Balance charged-off — no payment due requested
	 	ChargeOffBalance
	Dispute Amount

	 	money
	 	 	8	 	 	Amount of balance in dispute
	 	DisputeAmount
	Dispute Count

	 	int
	 	 	4	 	 	Number of disputes on account
	 	DisputeCount
	Outstanding Authorization Amount

	 	money
	 	 	8	 	 	Pending authorization $ amount
	 	OutStandingAuthAmount
	Outstanding Authorization Count

	 	int
	 	 	4	 	 	Number of pending authorizations
	 	OutStandingAuthCount
	Statement Minimum Payment Due

	 	money
	 	 	8	 	 	Minimum payment as of last statement
	 	StatementMinimumDue
	Fixed Payment Amount

	 	money
	 	 	8	 	 	Payment amount if customer is on a fixed payment plan
	 	FixedPaymentAmount
	Payment Due Date

	 	varchar
	 	 	10	 	 	Payment due date from last statement
	 	PaymentDueDate
	Last Payment Date

	 	varchar
	 	 	10	 	 	Date last payment was received
	 	LastPaymentDate
	Last Payment Amount

	 	money
	 	 	8	 	 	Amount of last payment received
	 	LastPaymentAmount
	Last Purchase Date

	 	varchar
	 	 	10	 	 	Date last purchase was posted
	 	LastPurchaseDate
	Last Purchase Amount

	 	money
	 	 	8	 	 	Amount of last posted purchase
	 	LastPurchaseAmount
	Days Delinquent

	 	int
	 	 	4	 	 	Number of days delinquent
	 	DaysDelinquent
	Total Due Amount

	 	money
	 	 	8	 	 	Current Payment Due
	 	CurrentPaymentDue
	Current Due Amount

	 	money
	 	 	8	 	 	Amount due from current cycle
	 	CurrentDueAmount
	Past Due Amount

	 	money
	 	 	8	 	 	Amount due from previous cycle
	 	PastDueAmount
	One Cycle Past Due Amount

	 	money
	 	 	8	 	 	Amount due from 2 cycles prior to current cycle
	 	OneCyclePastDueAmount
	Two Cycle Past Due Amount

	 	money
	 	 	8	 	 	Amount due from 3 cycles prior to current cycle
	 	TwoCyclesPastDueAmount
	Three Cycle Past Due Amount

	 	money
	 	 	8	 	 	Amount due from 4 cycles prior to current cycle
	 	ThreeCyclesPastDueAmount
	Four Cycle Past Due Amount

	 	money
	 	 	8	 	 	Amount due from 5 cycles prior to current cycle
	 	FourCyclesPastDueAmount
	Five Cycle Past Due Amount

	 	money
	 	 	8	 	 	Amount due from 6 cycles prior to current cycle
	 	FiveCyclesPastDueAmount
	Six Cycle Past Due Amount

	 	money
	 	 	8	 	 	Amount due from 7 cycles prior to current cycle
	 	SixCyclesPastDueAmount
	Seven Cycle Past Due Amount

	 	money
	 	 	8	 	 	Amount due from 8 or more cycles prior to current cycle
	 	SevenCyclesPastDueAmount
	Total Past Due Amount

	 	money
	 	 	8	 	 	Total amount past due (past due amount + all cycle past due amounts)
	 	TotalPastDueAmount
	 

	 	 	 	 	 	 	 	Current cycle due:	 	 
	 

	 	 	 	 	 	 	 	0, 1 — current	 	 
	 

	 	 	 	 	 	 	 	2 — past due	 	 
	 

	 	 	 	 	 	 	 	3 — one cycle past due	 	 
	 

	 	 	 	 	 	 	 	4 — two cycles past due	 	 
	 

	 	 	 	 	 	 	 	5 — three cycles past due	 	 
	 

	 	 	 	 	 	 	 	6 — four cycles past due	 	 
	 

	 	 	 	 	 	 	 	7 — five cycles past due	 	 
	Cycle Due

	 	int
	 	 	4	 	 	8 — six or more cycles past due
	 	CycleDue

F-3

 

	 	 	 	 	 	 	 	 	 	 	 
	Field	 	Type	 	Length	 	 	Description	 	Header Record Name
	 
	 	 	 	 	 	 	 	0 - not in collections	 	 
	Account in Collections
	 	int	 	 	4	 	 	1 - in colllections	 	AccountInCollections
	 
	 	 	 	 	 	 	 	0 - none	 	 
	 
	 	 	 	 	 	 	 	1 - status forced	 	 
	 
	 	 	 	 	 	 	 	2 - status: high	 	 
	 
	 	 	 	 	 	 	 	3 - status: low	 	 
	 
	 	 	 	 	 	 	 	4 - excessive use	 	 
	 
	 	 	 	 	 	 	 	5 - delinquent	 	 
	 
	 	 	 	 	 	 	 	6 - first payment default	 	 
	 
	 	 	 	 	 	 	 	7 - charged off	 	 
	 
	 	 	 	 	 	 	 	8 - overlimit	 	 
	Reason Account in Collections
	 	int	 	 	4	 	 	9 - delinquent and overlimit	 	ReasonAccountInCollections
	Entered Collections Date
	 	varchar	 	 	10	 	 	Date account entered collections	 	EnteredCollectionsDate
	Removed from Collections Date
	 	varchar	 	 	10	 	 	Date account removed from collections	 	RemovedFromCollectionsDate
	Date Last Delinquent
	 	varchar	 	 	10	 	 	Date account was last delinquent	 	DateLastDelinquent
	Date of Original Payment Due
	 	varchar	 	 	10	 	 	Date of original payment due (if delinquent)	 	DateOfOriginalPaymentDue
	Active Promise Date
	 	varchar	 	 	10	 	 	Date of an active Promise to Pay	 	ActivePromiseDate
	Agency Name
	 	varchar	 	 	50	 	 	Name of agency account is placed with for collections	 	CollectionsAgency
	Last Reage Date
	 	varchar	 	 	10	 	 	Date account last reaged	 	LastReageDate
	Number of Times Reaged
	 	int	 	 	4	 	 	Number of times account has been reaged	 	NumberOfTimesReaged
	 
	 	 	 	 	 	 	 	0 - none	 	 
	 
	 	 	 	 	 	 	 	1 - suppress letters	 	 
	 
	 	 	 	 	 	 	 	2 - suppress phone	 	 
	 
	 	 	 	 	 	 	 	3 - suppress all collection activity	 	 
	Generated Dun Suppress Flag
	 	int	 	 	4	 	 	4 - Insurance claim OR disaster	 	GeneratedDunSuppressFlag
	 
	 	 	 	 	 	 	 	0 - none	 	 
	 
	 	 	 	 	 	 	 	1 - suppress letters	 	 
	 
	 	 	 	 	 	 	 	2 - suppress phone	 	 
	Manual Dun Suppress Flag
	 	int	 	 	4	 	 	3 - suppress all collection activity	 	ManualDunSupressFlag
	Dun Suppress Date
	 	varchar	 	 	10	 	 	Date dun suppress set on account	 	DunSuppressDate
	Unpaid Interest
	 	money	 	 	8	 	 	 	 	InterestBilledNotPaid
	Unpaid Late Fees
	 	money	 	 	8	 	 	 	 	LateFeesBilledNotPaid
	Unpaid Debt Waiver Fees
	 	money	 	 	8	 	 	 	 	InsuranceFeesBilledNotPaid
	Unpaid Collections Fees
	 	money	 	 	8	 	 	 	 	CollectionFeesBilledNotPaid
	Unpaid Membership Fees
	 	money	 	 	8	 	 	 	 	MembershipFeesBilledNotPaid
	Unpaid Overlimit Fees
	 	money	 	 	8	 	 	 	 	OverLimitFeesBilledNotPaid
	Unpaid Recovery Fees
	 	money	 	 	8	 	 	 	 	RecoveryFeesBilledNotPaid

F-4

 

	 	 	 	 	 	 	 	 	 	 	 
	Field	 	Type	 	Length	 	 	Description	 	Header Record Name
	Unpaid Service Fees
	 	money	 	 	8	 	 	 	 	ServiceFeesBilledNotPaid
	Unpaid Principal
	 	money	 	 	8	 	 	 	 	Principal
	Unpaid NSF Fees
	 	money	 	 	8	 	 	 	 	NSFFeesBilledNotPaid
	Behavior Score
	 	varchar	 	 	5	 	 	Most recent Behavior Score	 	Behavior2Score
	Behavior Score Model
	 	varchar	 	 	30	 	 	Model Code of most recent Behavior Score	 	Behavior2Model
	Behavior Score Date
	 	varchar	 	 	10	 	 	Effective date of most recent Behavior Score	 	Behavior2ScoreDate
	Account Opened Date
	 	varchar	 	 	10	 	 	 	 	AccountOpenDate
	FICO score at account origination
	 	varchar	 	 	5	 	 	 	 	OriginationFICOScore
	First Pay Default Score
	 	varchar	 	 	5	 	 	 	 	FPDScore
	First Pay Default Model
	 	varchar	 	 	30	 	 	 	 	FPDModel
	First Pay Default Date
	 	varchar	 	 	10	 	 	 	 	FPDScoreDate
	AR12 Score
	 	varchar	 	 	5	 	 	 	 	AR12Score
	AR12 Model
	 	varchar	 	 	30	 	 	 	 	AR12Model
	AR12 Date
	 	varchar	 	 	10	 	 	 	 	AR12ScoreDate
	Deferred Expiration Date
	 	varchar	 	 	10	 	 	Maximum expiration date for deferred balance	 	 
	Accrued Deferred Finance Charge
	 	money	 	 	8	 	 	finance charge currently accrued against deferred balance	 	 
	Past Due count
	 	int	 	 	4	 	 	Number of times past due	 	 
	One Cycle Past Due count
	 	int	 	 	4	 	 	Number of times one cycle past due	 	 
	Two Cycle Past Due count
	 	int	 	 	4	 	 	Number of times two cycles past due	 	 
	Three Cycle Past Due count
	 	int	 	 	4	 	 	Number of times three cycles past due	 	 
	Four Cycle Past Due count
	 	int	 	 	4	 	 	Number of times four cycles past due	 	 
	Five Cycle Past Due count
	 	int	 	 	4	 	 	Number of times five cycles past due	 	 
	Six Cycle Past Due count
	 	int	 	 	4	 	 	Number of times six cycles past due	 	 
	Seven Cycle Past Due count
	 	int	 	 	4	 	 	Number of times seven cycles past due	 	 
	 
	 	 	 	 	 	 	 	A, B, D, N, Z — Legacy	 	 
	 
	 	 	 	 	 	 	 	C - Unsolicitated	 	 
	 
	 	 	 	 	 	 	 	F - PreScreened	 	 
	 
	 	 	 	 	 	 	 	G - Gettington PreScreened	 	 
	 
	 	 	 	 	 	 	 	H - No Hit/ No Score	 	 
	 
	 	 	 	 	 	 	 	J, K, L - Fresh Start Direct Offer	 	 
	 
	 	 	 	 	 	 	 	M, S, T - Fresh Start Counter Offer	 	 
	Customer Segment
	 	char	 	 	1	 	 	R - Catalog Requests	 	CustomerSegment
	Net LTD Payments
	 	int	 	 	4	 	 	Count of Net life to date payments received	 	NetLTDPayments
	 
	 	 	 	 	 	 	 	1000 - Fingerhut Regular	 	 
	 
	 	 	 	 	 	 	 	3000- Fingerhut Fresh Start	 	 
	Institution Id
	 	int	 	int	 	 	1001 - Gettington	 	institutionid
	User Charge Off Status
	 	char	 	 	2	 	 	0 - Not Charged-off	 	UserChargeOffStatus

F-5

 

	 	 	 	 	 	 	 	 	 	 	 
	Field	 	Type	 	Length	 	 	Description	 	Header Record Name
	 
	 	 	 	 	 	 	 	1 - Pending Manual Initial Charge-off	 	 
	 
	 	 	 	 	 	 	 	2 - Hold Initial Charge-off	 	 
	 
	 	 	 	 	 	 	 	3 - Started Initial Charge-off	 	 
	 
	 	 	 	 	 	 	 	4 - Started Final Charge-off	 	 
	Pool Identifier
	 	int	 	 	4	 	 	Pool account assigned to	 	PoolIdentifier
	Date Moved Into Pool
	 	varchar	 	 	30	 	 	Date account moved Into pool	 	DateMovedIntoPool
	Brand Description
	 	varchar	 	 	10	 	 	Fingerhut, Gettington	 	BrandDescription

Transaction File Layout:

	 	 	 	 	 
	 	 	 	 	Debit/Credit
	Tran Code	 	Source	 	A/R
	001

	 	Conversion Sale
	 	Debit
	011

	 	System generated sale
	 	Debit
	012

	 	Manual sale
	 	Debit
	013

	 	3rd Party Revenue Holsted
	 	Debit
	014

	 	3rd Party Revenue Flower Club
	 	Debit
	015

	 	3rd Party Revenue Tranzact
	 	Debit
	016

	 	3rd Party Revenue Trilegent
	 	Debit
	017

	 	3rd Party Revenue New Benefits
	 	Debit
	018

	 	3rd Party Revenue CPP — Annual Fee
	 	Debit
	019

	 	3rd Party Revenue CPP — Monthly Fee
	 	Debit
	020

	 	Palm Beach Sale
	 	Debit
	021

	 	3rd Party Revenue GE — Annual Fee
	 	Debit
	022

	 	3rd Party Revenue GE — Monthly Fee
	 	Debit
	023

	 	3rd Party Revenue Affinion — Annual Fee
	 	Debit
	025

	 	3rd Party Revenue Affinion — Monthly Fee
	 	Debit
	026

	 	3rd Party Revenue Art Select
	 	Debit
	027

	 	3rd Party Revenue AIG — Monthly Fee
	 	Debit
	028

	 	3rd Party Revenue Aegon — Monthly Fee
	 	Debit
	029

	 	3rd Party Revenue — Synapse
	 	Debit
	030

	 	Sale reversal
	 	Credit
	031

	 	3rd Party Revenue — Encore
	 	Debit
	032

	 	3rd Party Revenue — Cosmetique
	 	Debit

F-6

 

	 	 	 	 	 
	 	 	 	 	Debit/Credit
	Tran Code	 	Source	 	A/R
	033

	 	3rd Party Revenue — Ortega
	 	Debit
	 
	 	 	 	 
	050

	 	Conversion Return
	 	Credit
	051

	 	System generated return
	 	Credit
	052

	 	Manual return
	 	Credit
	053

	 	3rd Party Return Hosted
	 	Credit
	054

	 	3rd Party Return Flower Club
	 	Credit
	055

	 	3rd Party Return Tranzact
	 	Credit
	056

	 	3rd Party Return Trilegent
	 	Credit
	057

	 	3rd Party Return New Benefits
	 	Credit
	058

	 	3rd Party Return CPP — Annual Fee
	 	Credit
	059

	 	3rd Party Return CPP — Monthly Fee
	 	Credit
	060

	 	Palm Beach Return
	 	Credit
	061

	 	3rd Party Return GE — Annual Fee
	 	Credit
	062

	 	3rd Party Return GE — Monthly Fee
	 	Credit
	063

	 	3rd Party Return Affinion — Annual Fee
	 	Credit
	064

	 	3rd Party Return Affinion — Monthly Fee
	 	Credit
	065

	 	3rd Party Return Art Select
	 	Credit
	066

	 	3rd Party Return AIG — Monthly Fee
	 	Credit
	067

	 	3rd Party Return AEGON — Monthly Fee
	 	Credit
	069

	 	3rd Party Return Synapse
	 	Credit
	070

	 	Return Reversal
	 	Debit
	071

	 	3rd Party Return Encore
	 	Credit
	072

	 	3rd Party Return Cosmetique
	 	Credit
	072

	 	3rd Party Return Ortega
	 	Credit
	 
	 	 	 	 
	100

	 	Conversion Payment
	 	Credit
	101

	 	Remitco — Stmt Stub
	 	Credit
	102

	 	Remitco — Dunning Stub
	 	Credit
	103

	 	St Cloud
	 	Credit
	104

	 	Payment Telecheck
	 	Credit
	105

	 	CCCS Gross Amount
	 	Credit
	107

	 	Agency Payment Gross
	 	Credit

F-7

 

	 	 	 	 	 
	 	 	 	 	Debit/Credit
	Tran Code	 	Source	 	A/R
	109

	 	Missing Payment
	 	Credit
	110

	 	Payment — Misc
	 	Credit
	111

	 	Payment Correction (Debit)
	 	Debit
	112

	 	Payment Correction (Credit)
	 	Credit
	113

	 	Reversal of NSF Check — Rvs NSF Fee
	 	Credit
	114

	 	Reversal of Account Closed — Rvs NSF
	 	Credit
	115

	 	Reversal of Stop Payment — Rvs NSF Fee
	 	Credit
	116

	 	Reversal of Other NSF Check — Rvs NSF Fee
	 	Credit
	117

	 	Reversal of NSF Check Only
	 	Credit
	118

	 	Reversal of Account Closed Only
	 	Credit
	119

	 	Reversal of Stop Payment Only
	 	Credit
	120

	 	Reversal of Other NSF Check Only
	 	Credit
	121

	 	Refund Issue — Systematically
	 	Credit
	122

	 	Refund Issue — Manually
	 	Credit
	123

	 	Payment electronic (Moneygram)
	 	Credit
	124

	 	Payment — Telecheck Manual
	 	Credit
	125

	 	Payment — 3rd Party Credit Card
	 	Credit
	126

	 	Payment — Manual Remitco
	 	Credit
	127

	 	Payment — 3rd Party Credit Card EEP
	 	Credit
	128

	 	Payment — Home Banking
	 	Credit
	129

	 	Payment ORCC
	 	Credit
	130

	 	Payment — Agentless ACH
	 	Credit
	131

	 	Payment — Agentless Credit Card
	 	Credit
	132

	 	Payment 3rd Part Credit Card ORCC
	 	Credit
	133

	 	Payment Checkfree
	 	Credit
	134

	 	Payment Virtual Agent
	 	Credit
	 
	 	 	 	 
	161

	 	Remitco — NSF Check
	 	Debit
	162

	 	Remitco — Account Closed
	 	Debit
	163

	 	Remitco — Stop Payment
	 	Debit
	164

	 	St Cloud — NSF Check — Chrg NSF Fee
	 	Debit
	165

	 	St Cloud — Account Closed — Chrg NSF Fee
	 	Debit
	166

	 	St Cloud — Stop Payment — Chrg NSF Fee
	 	Debit

F-8

 

	 	 	 	 	 
	 	 	 	 	Debit/Credit
	Tran Code	 	Source	 	A/R
	167

	 	Other NSF Check — Chrg NSF Fee
	 	Debit
	168

	 	St Cloud — NSF Check — No NSF Fee
	 	Debit
	169

	 	St Cloud — Account Closed — No NSF Fee
	 	Debit
	170

	 	St Cloud — Stop Payment — No NSF Fee
	 	Debit
	171

	 	Other NSF Check — No NSF Fee
	 	Debit
	172

	 	Reversal — Missing Payment
	 	Debit
	173

	 	Reversal — Remitco Payment
	 	Debit
	174

	 	Reversal — St Cloud Payment
	 	Debit
	175

	 	Reversal — Telecheck
	 	Debit
	176

	 	Reversal — CCCS Payment Gross
	 	Debit
	178

	 	Reversal — Agency Payment Gross
	 	Debit
	180

	 	Reversal — Refund check voided
	 	Debit
	181

	 	Payment Adjustment — Debit
	 	Debit
	183

	 	Reversal — electronic payment (MoneyGram)
	 	Debit
	184

	 	Reversal — Telecheck Manual
	 	Debit
	185

	 	Reversal — 3rd Party Credit Card
	 	Debit
	186

	 	Pmt Correction Debit — Agentless Pmt
	 	Debit
	187

	 	Reversal — 3rd Party Credit Card (EEP)
	 	Debit
	188

	 	Pmt Reversal — Home Banking
	 	Debit
	189

	 	Pmt Reversal ORCC
	 	Debit
	190

	 	Pmt Reversal — Agentless ACH
	 	Debit
	191

	 	Pmt Reversal — Agentless Credit Card
	 	Debit
	192

	 	Pmt Reversal — 3rd Party CC ORCC
	 	Debit
	193

	 	Pmt Reversal — Checkfree
	 	Debit
	192

	 	Pmt Reversal — Virtual Agent
	 	Debit
	 
	 	 	 	 
	300

	 	Conversion Cr Adj
	 	Credit
	301

	 	Merchandise Not Received
	 	Credit
	302

	 	Shipping and Handling Allowance
	 	Credit
	303

	 	Postage Allowance
	 	Credit
	304

	 	Goodwill Allowance
	 	Credit
	305

	 	Discount Coupon
	 	Credit

F-9

 

	 	 	 	 	 
	 	 	 	 	Debit/Credit
	Tran Code	 	Source	 	A/R
	306

	 	Gift Certifcate
	 	Credit
	307

	 	Allowance 3rd party Holsted
	 	Credit
	308

	 	Other Allowance
	 	Credit
	309

	 	Late fee allowance
	 	Credit
	310

	 	Finance Charge Allowance
	 	Credit
	311

	 	NSF Fee Allowance
	 	Credit
	312

	 	Small Balance Writeoff
	 	Credit
	313

	 	Small Balance Writeup
	 	Debit
	314

	 	Safeline Fee Refund
	 	Credit
	315

	 	Debt Waiver Allowance (2)
	 	Credit
	316

	 	Dispute resolved — Balance Waived
	 	Credit
	317

	 	Dispute Resolved — Finance Charge Waived
	 	Credit
	318

	 	Dispute Resolved — Late Charge Waived
	 	Credit
	319

	 	Credit — Other Allowance
	 	Credit
	320

	 	Allowance 3rd party Flower Club
	 	Credit
	321

	 	Allowance 3rd Party Tranzact
	 	Credit
	322

	 	Allowance 3rd Party Trilegent
	 	Credit
	323

	 	Allowance 3rd Party New Benefits
	 	Credit
	324

	 	Allowance — Return PPD
	 	Credit
	325

	 	Allowance 3rd Party CPP Annual Fee
	 	Credit
	326

	 	Allowance 3rd Party CPP Monthly Fee
	 	Credit
	327

	 	Allowance Palm Beach Jewelry
	 	Credit
	328

	 	Allowance 3rd Party GE Annual Fee
	 	Credit
	329

	 	Allowance 3rd Party GE Monthly Fee
	 	Credit
	330

	 	Allowance 3rd Party Affinion Annual Fee
	 	Credit
	331

	 	Allowance 3rd Party Affinion Monthly Fee
	 	Credit
	332

	 	Allowance 3rd Party Art Select
	 	Credit
	333

	 	Allowance 3rd Party AIG Monthly Fee
	 	Credit
	334

	 	Allowance 3rd Party AEGON Monthly Fee
	 	Credit
	335

	 	Allowance 3rd Party Synapse
	 	Credit
	336

	 	Allowance 3rd Party Encore
	 	Credit
	337

	 	Allowance 3rd Party Cosmetique
	 	Credit
	338

	 	Allowance Conversion Fee
	 	Credit
	339

	 	Allowance Ortega
	 	Credit

F-10

 

	 	 	 	 	 
	 	 	 	 	Debit/Credit
	Tran Code	 	Source	 	A/R
	340

	 	Allowance Safeline Fees
	 	Credit
	 
	 	 	 	 
	350

	 	Conversion Debit Adj
	 	Debit
	351

	 	Reversal Merchandise Not Received
	 	Debit
	352

	 	Reversal ‘Shipping & Handling Allow
	 	Debit
	353

	 	Reversal Postage Allowance
	 	Debit
	354

	 	Reversal Goodwill Allowance
	 	Debit
	355

	 	Reversal Discount Coupon
	 	Debit
	356

	 	Reversal Gift Certifcate
	 	Debit
	357

	 	Reversal Allow 3rd Party (1)
	 	Debit
	358

	 	Reversal Other Allowance
	 	Debit
	359

	 	Reversal Late fee allowance
	 	Debit
	360

	 	Reversal Finance Charge Allowance
	 	Debit
	361

	 	Reversal NSF Fee Allowance
	 	Debit
	362

	 	Reversal Small Balance Writeoff
	 	Debit
	363

	 	Reversal Small Balance Writeup
	 	Credit
	364

	 	Safeline Fee Refund Reversal
	 	Debit
	365

	 	Reversal Debt Waiver Allowance (2)
	 	Debit
	366

	 	Rev Dispute Resolved — Balance Waived
	 	Debit
	367

	 	Rev Dispute Resolved — FC Waived
	 	Debit
	368

	 	Rev Dispute Resolved — Late Charge Waived
	 	Debit
	369

	 	Reversal Credit — Other Allowance
	 	Debit
	370

	 	Reversal Allow 3rd Party Flower Club
	 	Debit
	371

	 	Reversal Allow 3rd Party Tranzact
	 	Debit
	372

	 	Reversal Allow 3rd Party Trilegiant
	 	Debit
	373

	 	Reversal Allow 3rd Party New Benefits
	 	Debit
	374

	 	Rvs Allowance — Return PPD
	 	Debit
	375

	 	Reversal Allow 3rd Party CPP Annual Fee
	 	Debit
	376

	 	Reversal Allow 3rd Party CPP Monthly Fee
	 	Debit
	377

	 	Reversal Allow Palm Beach Jewelry
	 	Debit
	378

	 	Reversal Allow GE Annual Fee
	 	Debit
	379

	 	Reversal Allow GE Monthly Fee
	 	Debit
	380

	 	Reversal Allow Affinion Annual Fee
	 	Debit

F-11

 

	 	 	 	 	 
	 	 	 	 	Debit/Credit
	Tran Code	 	Source	 	A/R
	381

	 	Reversal Allow Affinion Monthly Fee
	 	Debit
	382

	 	Reversal Allow Art Select
	 	Debit
	383

	 	Reversal Allow AIG Monthly Fee
	 	Debit
	384

	 	Reversal Allow AEGON Monthly Fee
	 	Debit
	385

	 	Reversal Allow Synapse
	 	Debit
	386

	 	Reversal Allow Encore
	 	Debit
	387

	 	Reversal Allow Cosmetique
	 	Debit
	388

	 	Reversal Allow Conversion Fees
	 	Debit
	389

	 	Reversal Allow Ortega
	 	Debit
	389

	 	Reversal Safeline Fees
	 	Debit
	 
	 	 	 	 
	200

	 	Conversion — Finance Charge
	 	Debit
	201

	 	Finance Charge Billed
	 	Debit
	202

	 	Deferred Finance Charge Billed
	 	Debit
	203

	 	Finance Charge Reversal
	 	Credit
	204

	 	Deferred Finance Charge Reversal
	 	Credit
	210

	 	Conversion — Late Fee
	 	Debit
	211

	 	Late Fee Billed
	 	Debit
	212

	 	Late Fee Reversal
	 	Credit
	221

	 	NSF Fee
	 	Debit
	222

	 	NSF Reversal
	 	Credit
	223

	 	Telecheck Processing Fee
	 	Debit
	224

	 	Telecheck Processing Fee Reversal
	 	Credit
	225

	 	PPD Return Postage Fee
	 	Debit
	226

	 	PPD Return Postage Fee Reversal
	 	Credit
	227

	 	3rd Party CC Processing Fee
	 	Debit
	228

	 	3rd Party CC Processing Fee Reversal
	 	Credit
	229

	 	Conversion Fee — Systematic
	 	Debit
	230

	 	Conversion Fee — Manual
	 	Debit
	231

	 	Minimum Interest Fee
	 	Debit
	232

	 	Minimum Interest Fee Reversal
	 	Credit

F-12

 

	 	 	 	 	 
	 	 	 	 	Debit/Credit
	Tran Code	 	Source	 	A/R
	501

	 	SafeLine Fee
	 	Debit
	502

	 	SafeLine Fee Plus
	 	Debit
	511

	 	SafeLine Balance Waived
	 	Credit
	512

	 	SafeLine Fee Plus Balance Waived (2)
	 	Credit
	513

	 	Reverse SafeLine Balance Waived
	 	Debit
	514

	 	Disability Balance Waived
	 	Credit
	515

	 	Reverse Disability Balance Waived
	 	Debit
	516

	 	Unemployment Balance Waived
	 	Credit
	517

	 	Reverse Unemployment Balance Waived
	 	Debit
	516

	 	Hospitalization Balance Waived
	 	Credit
	517

	 	Reverse Hospitalization Balance Waived
	 	Debit
	 
	 	 	 	 
	5100

	 	Writeoffs
	 	Credit
	5200

	 	Writeoff Reversal
	 	Debit
	 
	 	 	 	 
	601

	 	Debit Balance Adjustment
	 	Debit
	602

	 	Credit Balance Adjustment
	 	Credit
	 
	 	 	 	 
	603

	 	Credit Plan Rollover Adj Debit
	 	Debit
	604

	 	Credit Plan Rollover Adj Credit
	 	Credit
	 
	 	 	 	 
	620

	 	Down Pmt Debit Card
	 	Credit
	621

	 	Reversal Down Pmt Debit Card
	 	Debit
	622

	 	Down Pmt ACH
	 	Credit
	623

	 	Reversal Down Pmt ACH
	 	Debit
	624

	 	Down Pmt Check Card
	 	Credit
	625

	 	Reversal Down Pmt Check
	 	Debit
	626

	 	Down Pmt Money Order
	 	Credit
	627

	 	Reversal Down Pmt Money Order
	 	Debit
	628

	 	Down Pmt Other
	 	Credit
	629

	 	Reversal Down Pmt Other
	 	Debit

F-13

 

	 	 	 
	Transactions not	 	 
	effecting AR:	 	 
	106

	 	CCCS Donation Amount
	108

	 	Agency Payment Commission
	177

	 	Reversal — CCCS Commission
	179

	 	Reversal — Agency Commission
	401

	 	Merchandise Writeoff
	402

	 	Late Fee Writeoff
	403

	 	Finance Charge Writeoff
	404

	 	NSF Fee Writeoff
	405

	 	SafeLine Writeoff
	406

	 	Misc Writeoff
	9163

	 	Other Fee Writeoffs
	421

	 	Reversal Mdse Writeoff
	422

	 	Reversal Late Fee Writeoff
	423

	 	Reversal FC Writeoff
	424

	 	Reversal NSF Fee Writeoff
	425

	 	Reversal SafeLine Writeoff
	426

	 	Reversal Misc Writeoff
	024

	 	Skip a Payment (no cash received)

F-14

 

EXHIBIT G

Form of Compliance Certificate

COMPLIANCE CERTIFICATE

The undersigned, a duly authorized representative of BLUESTEM BRANDS, INC., as Servicer (the
“Servicer”), pursuant to that certain Servicing Agreement, dated as of August 20, 2010, by
and among the Servicer, FINGERHUT RECEIVABLES I, LLC (the “Company”) and GOLDMAN SACHS BANK
USA, as Administrative Agent (the “Administrative Agent”) and Collateral Agent (as amended,
restated, replaced, supplemented or otherwise modified from time to time the “Servicing
Agreement”), does hereby certify that:

	 	1.	 	The undersigned is an Authorized Officer of the Servicer who is duly authorized
pursuant to the Servicing Agreement to execute and deliver this Certificate to the
Administrative Agent.
	 
	 	2.	 	The determination and calculations of the computations specified in Annex
A attached hereto (the “Computations”) and a review of the information used
in determining and calculating such Computations was conducted under my supervision.
	 
	 	3.	 	The Computations were made pursuant Section 4.01 of the Servicing Agreement and
are based on the information in the financial statements attached to the Compliance
Certificate dated as of the date hereof.
	 
	 	4.	 	I hereby certify that the results of the Computations are true, correct and
accurate in all respects.
	 
	 	5.	 	Defined terms used and not otherwise defined herein shall have the meaning
ascribed to them in the Servicing Agreement.

G-1

 

IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this ___ day of
_______________, 20___ pursuant to Section 4.02(e) of the Servicing Agreement.

	 	 	 	 	 
	 	BLUESTEM BRANDS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

G-2

 

	 	 	 	 	 

Annex A

FOR THE FISCAL MONTH ENDING [      ]

	 	 	 	 	 

	I. Minimum Net Liquidity: I.(i) + I.(ii) + I.(iii)
	 	 	 	 
	 
	 	 	 	 
	(i) Unrestricted Cash and Cash Equivalents of the Servicer
Consolidated Group
	 	$	—	 
	(ii) Revolving Availability
	 	$	—	 
	(iii) Availability under the Bluestem 2010 Inventory Credit
Agreement
	 	$	—	 
	 
	 	 	 	 
	(x) Required Amount:[$25,000,000][$20,000,000]
	 	$	 	 
	 
	 	$	 	 
	 
	 	 	 	 
	(y) Actual Amount:
	 	$	—	 
	 
	 	 	 	 
	(z) Compliance (Yes/No):
	 	 	 	 

FOR THE FISCAL QUARTER ENDING [ ]

	 	 	 	 	 

	II. Tangible Net Worth: II.(i) — II.(ii)
	 	 	 	 
	 
	 	 	 	 
	(i) Total stockholder’s or other equity (excluding treasury
stock and subscribed but unissued capital stock)
	 	$	—	 
	 
	 	 	 	 
	(ii) The sum of:
	 	 	 	 
	(a) Intangible Assets, which is the sum of
	 	 	 	 
	(1) Customer lists
	 	$	—	 
	(2) Goodwill
	 	$	—	 
	(3) Computer software
	 	$	—	 
	(4) Copyrights
	 	$	—	 
	(5) Trade Names
	 	$	—	 
	(6) Trademarks
	 	$	—	 
	(7) Patents
	 	$	—	 
	(8) Franchises
	 	$	—	 
	(9) Licenses
	 	$	—	 
	(10) Unamortized deferred charges
	 	$	—	 
	(11) Unamortized debt discount
	 	$	—	 
	(12) Capitalized research and developmental
costs
	 	$	—	 
	(13) Other intangibles under GAAP
	 	 	 	 
	Total Intangible Assets
	 	$	—	 
	 
	 	 	 	 
	(b) Prepaid expenses
	 	$	—	 
	(c) Amounts due from Affiliates
	 	$	—	 
	 
	 	 	 	 
	(x) Required Amount: The sum of:
	 	 	 	 
	(a) $120,000,000
	 	$	120,000,000	 

G-3

 

	 	 	 	 	 

	(b) 75% of its Consolidated Net Income (if positive) for
each full Fiscal Year after the Closing Date
	 	$	—	 
	(c) 85% of the gross proceeds actually received in cash
by the Servicer Consolidated Group from the proceeds of
any issuance of Capital Stock by the Servicer
Consolidated Group after the Closing Date
	 	$	—	 
	 
	 	 	 	 
	(y) Actual Amount:
	 	$	—	 
	 
	 	 	 	 
	(z) Compliance (Yes/No):
	 	 	 	 
	 
	III. Consolidated Adjusted EBITDA: III. (i) — III. (ii)
	 	 	 	 
	 
	 	 	 	 
	(i) The sum of:
	 	 	 	 
	(a) Consolidated Net Income for such period
	 	$	—	 
	(b) Consolidated Interest Expense for such period
	 	$	—	 
	(c) Income tax expense for such period net of tax
refunds
	 	$	—	 
	(d) All amounts attributable to depreciation and
amortization expense for such period
	 	$	—	 
	(e) Fees or expenses of the Administrative Agent and
any Lender or arranger in connection with the Credit
Documents, or of any administrative agent, lender, or
arranger in connection with the Bluestem Inventory Loan
Documents, in each case paid on or prior to the Closing
Date
	 	$	—	 
	(f) For any period (other than the period specified in
the following clause (g)) including the period in which
such amounts were paid, other fees or expenses in an
amount not to exceed $1,000,000 paid in connection with
the Credit Documents, the Bluestem Inventory Loan
Documents or the Senior Subordinated Documents and the
transactions contemplated therein
	 	$	—	 
	(g) For the period from, and including, the Closing
Date to, and including, the last day of the first
Fiscal Quarter to end after the Closing Date, other
fees and expenses in an amount not to exceed $6,500,000
paid in connection with the Credit Documents and the
transactions contemplated therein and the refinancing
or replacement of credit facilities existing prior to
the Closing Date
	 	$	—	 
	(h) Any other non-cash charges for such period (but
excluding any non-cash charge in respect of an item
that was included in Consolidated Net Income in a prior
period and any non-cash charge that relates to the
write-down or write-off of inventory) in an amount not
to exceed $2,000,000, or any additional amounts
approved by the Class Requisite Lenders of each Class
	 	$	—	 
	(i) Reasonable fees and expenses in connection with an
initial public offering by Bluestem in an amount not to
exceed the lesser of (A) 12.5% of the gross proceeds
thereof and (B) the actual fees and expenses incurred
in connection therewith, or any additional amounts
approved by the Class Requisite Lenders of each Class
	 	$	—	 
	(j) any prepayment premiums or other similar fees paid
in connection with the Credit Documents or the Bluestem
Inventory Loan Documents
	 	$	—	 

G-4

 

	 	 	 	 	 

	(ii) The sum of:
	 	 	 	 
	(k) Any cash payments made during such period in
respect of non-cash charges described in clause (h)
above taken in a prior period
	 	$	—	 
	(l) Any extraordinary gains and any non-cash items of
income for such period, all calculated for the Servicer
Consolidated Group on a consolidated basis in
accordance with GAAP
	 	$	—	 
	 
	 	 	 	 
	Total LTM Consolidated Adjusted EBITDA
	 	$	—	 
	 
	IV. Minimum LTM EBITDA Margin: IV.(i) / IV.(ii)
	 	 	 	 
	 
	 	 	 	 
	(i) Consolidated Adjusted EBITDA of
the Servicer Consolidated Group for the
previous twelve months
	 	$	—	 
	 
	 	 	 	 
	(ii) Net sales of the Servicer
Consolidated Group for the previous
twelve months
	 	$	—	 
	 
	 	 	 	 
	(x) Required Amount:
	 	 	8.5	%
	 
	 	 	 	 
	(y) Actual Amount:
	 	 	[   ]	%
	 
	 	 	 	 
	(z) Compliance (Yes/No):
	 	 	 	 
	 
	 	 	 	 
	V. Consolidated Fixed Charges: V.(i) + V.(ii) + V.(iii) + V. (iv) + V. (v)
	 	 	 	 
	 
	 	 	 	 
	(i) Consolidated Cash Interest
Expense
	 	$	—	 
	(ii) Fees and charges owed with respect
to paragraph 2 of the Fee Letter, Section
2.9(a) of the Credit Agreement and the
Bluestem 2010 Inventory Credit Agreement
(other than any facility fees payable on
the Closing Date)
	 	$	—	 
	(iii) Scheduled principal payments on
Indebtedness made during such period (not
including principal payments under the
Credit Agreement)
	 	$	—	 
	(iv) income and franchise taxes paid in
cash net of income and franchise tax
refunds (but not less than zero)
	 	$	—	 
	(v) dividends or distributions paid in
cash
	 	$	—	 
	Total Fixed Charges
	 	$	—	 
	 
	 	 	 	 
	VI. Fixed Charge Coverage Ratio: VI.(i) / VI. (ii)
	 	 	 	 
	 
	 	 	 	 
	(i)The difference of:
	 	 	 	 
	(a) Consolidated Adjusted EBITDA
	 	$	—	 
	(b) Capital Expenditures in an
amount not to exceed $20,000,000
(excluding the portion thereof
funded with (i) long-term debt
financing provided by third parties
or (ii) for the period from the date
of the initial public offering of
Bluestem Brands, Inc. to the first
anniversary thereof, proceeds from
such initial public offering
(provided that, such exclusions
shall not cause Capital Expenditures
to be less than zero))
	 	$	—	 

G-5

 

	 	 	 	 	 

	Net Consolidated Adjusted EBITDA
	 	$	—	 
	 
	 	 	 	 
	(ii) Consolidated Fixed Charges, all
calculated for the Servicer Consolidated
Group on a consolidated basis in
accordance with GAAP
	 	$	—	 
	 
	 	 	 	 
	(x) Required Amount:
	 	 	[1.00][1.05][1.10]x	 
	 
	 	 	 	 
	(y) Actual Amount:
	 	 	[   ]x	 
	 
	 	 	 	 
	(z) Compliance (Yes/No):
	 	 	 	 

G-6

 

EXHIBIT H

Form of Insurance Report

Bluestem Brands, Inc.

Prepared By: [       ]

Dated: [       ]

Material Insurance Coverage as of the date hereof.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Insurance Coverage	 	 	Broker	 	 	Carrier	 	 	Policy Term	 	 	Limits	 	 	Deductible	 	 	Other	 

Material Insurance Coverage to be maintained in the immediately succeeding Fiscal Year of the
Servicer.

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Insurance Coverage	 	 	Broker	 	 	Carrier	 	 	Policy Term	 	 	Limits	 	 	Deductible	 	 	Other	 

H-1

 

EXHIBIT I

Form of Financial Officer Certification

FINANCIAL OFFICER CERTIFICATION

THE UNDERSIGNED HEREBY CERTIFIES AS FOLLOWS:

	 	1.	 	I am the Chief Financial Officer of Bluestem Brands, Inc. (the
“Servicer”) and Fingerhut Receivables I, LLC (the “Company”).
	 
	 	2.	 	I have reviewed the terms of that certain Servicing Agreement, dated as of
August 20, 2010, by and among the Servicer, the Company and Goldman Sachs Bank USA, as
Administrative Agent (the “Administrative Agent”) and Collateral Agent (as
amended, restated, replaced, supplemented or otherwise modified from time to time the
“Servicing Agreement”), and I have made, or have caused to be made under my
supervision, a review in reasonable detail of the transactions and condition of either
the Servicer and its Subsidiaries or the Company, as the case may be, during the
accounting period covered by the attached financial statements.
	 
	 	3.	 	The examination described in paragraph 2 above did not disclose, and I
have no knowledge of, the existence of any condition or event which constitutes a
Servicer Default, Event of Default or Default during or at the end of the accounting
period covered by the attached financial statements or as of the date of this
Certificate, except as set forth in a separate attachment, if any, to this Certificate,
describing in detail, the nature of the condition or event, the period during which it
has existed and the action which either the Servicer or its Subsidiaries or Company, as
the case may be, has taken, is taking or proposes to take with respect to each such
condition or event.
	 
	 	4.	 	The financial statements attached hereto fairly present, in all material
respects, the financial condition of either the Servicer and its Subsidiaries or the
Company, as the case may be, as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to changes resulting
from audit and normal year-end adjustments.
	 
	 	5.	 	Defined terms used and not otherwise defined herein shall have the meaning
ascribed to them in the Servicing Agreement.

I-1

 

IN WITNESS WHEREOF, the undersigned has duly executed this Certificate this ___ day of
_______________, 20___ pursuant to Section 4.02[(b)][(c)][(d)] the Servicing Agreement.

	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	Chief Financial Officer 	 

I-2

 

	 	 	 	 	 

APPENDIX A

[Attached separately.]

 

 

Bluestem Brands, Inc.

Operational Guidelines

	 	•	 	Collections Policies
	 
	 	•	 	Consumer Credit Compliance
	 
	 	•	 	Credit Policies = See Exhibit “B” to WebBank and Meta Bank Program Agreements

	 	 	Collections Policies:

1.1 Philosophy

The principle objective of the Collections Department is to encourage delinquent account
holders to remit their past due payments. The strategy for achieving this goal is to make
payment easy for the customer while invoking increasingly severe action as the customer’s
delinquency worsens.

Management develops procedures and oversees efforts of both the in-house staff and outside
vendors of direct collections with the goal of controlling delinquency at minimal operating
expense to maintain an acceptable level and rate of write-off dollars.

Each customer must be treated individually, with attention paid to the unique circumstances
and conditions of the delinquency. Collectors must deal with customers in both a
professional and efficient manner, to produce the desired delinquency and write-off levels
while maintaining customer goodwill. Central to achieving this balance is a progressive
application of skill and effort as an account ages to later states of delinquency and/or as
the risk of credit loss increases.

1.2. Regulatory Oversight

1.2.1 Collections Practices

Although Fingerhut’s internal collections department operates under the definition of a
“first-party” creditor, customer contact activities by internal collections and recovery
units as well as contracted external third-party vendors are conducted within the
regulations of the Fair Debt Collections Practices Act as administered by the Federal Trade
Commission.

1.2.2 Data Security and Privacy

Both internal and external collections vendor operations and practices are conducted within
the regulations of the Graham-Leach-Bliley Act

1.2.3 Account Management Policy

Fingerhut Direct Marketing is not a financial institution, but voluntarily complies with the
Uniform Retail Credit Classification and Account Management Policy as promulgated by the
FFIEC (Federal Financial Institutions Examination Council) as related to practices such as
account aging, delinquency and charge-off status.

2. Aging and Delinquency

2.1 Delinquency

An account is considered delinquent whenever a qualifying payment (meeting the requirements
in the paragraph below) has not been received by the payment due date as indicated on the
periodic billing statement. An account will remain delinquent as long as it continues to
have an amount past due

 

 

A received payment to be considered a “qualifying payment” for purposes of preventing
advancing delinquent age:

     a. excludes credits such as returns, or allowances and adjustments not
related to
dispute resolution;

     b. a $2.00 payment variance is allowed.

               2.2 “Curing” and “re-aging”

An account is considered “cured” when there is no past due amount. Curing a delinquency
may be the result of full payment of all past due amounts, or in specific situations, by
“re-aging”.

Re-aging will be limited to accounts that have been active at least nine months1
and reach a delinquency level of 66 or more days and are blocked from additional
extensions of credit above the current balance. To be eligible for re-age, an account must
subsequently have three consecutive monthly payments (as per original installment terms, or
as agreed upon under reduced pay plan — CCCS/Hardship policy) or the equivalent within 90
days. An account not in a “work-out” program (a reduced pay plan such as CCCS or Hardship
status classification) will not be re-aged more than once within any 12-month period and no
more than twice within any five-year period. Accounts in work-out programs will be limited
to no more than one additional re-age within a five year period, incremental to the re-age
maximum for non work-out program accounts. After entering a work-out program, accounts will
be blocked from any additional credit authorization by the CCCS/Hardship classification
status.

In addition to systematically triggered re-ages, manual re-ages may be applied to cure
delinquency in circumstances of dispute resolution or other situations requiring a
correction of the delinquency status. The reason for doing a manual re-age will be
documented with standardized annotations to the account record.

2.3 Late Fees

Unless other arrangements are made with the customer, a late fee will be assessed and added
to the customer’s balance when the minimum payment due has not been received by the
statement closing date following the payment due date. Late fees are billed on accounts less
than 90 days delinquent.

1 Systematic Auto-Reage function is to be enhanced under pending project
to enable restriction of eligibility by time in months that account has been active.

3. Bankruptcy

All collection efforts cease when a customer states they are filing for bankruptcy
protection and are represented by an attorney or when a bankruptcy filing notice is
received.

Once verification is received, the account is appropriately coded and processed as a
bankruptcy. Notices are generally provided using outside electronic reporting services such
as Lexis-Nexis or Pacer. However, if an electronic notice is not received, verification can
be through: (i) receipt of Notice of the Meeting of Creditors; (ii) a copy of the Petition
for Relief filed with the court; or (iii) confirmation of filing with an independent
3rd party or pro se.

 

 

Pursuit of recovery dollars on a bankrupt account is dependent on the write-off balance,
customer assets, etc., as well as the dollar magnitude of recent purchase activity.
Verified bankrupt accounts are charged off in the fiscal month that is 60 days after the
receipt of the notice, or when the account reaches 185 days delinquent, whichever comes
first. Accounts less than 6 days delinquent are not charged off

 

 

4. Collections Processes and Activities

4.1 Queuing

The queuing of delinquent accounts for telephone contact generally is based on the severity
of the delinquency, and amount of receivable at risk. Such queuing allows the application
of different collection strategies and dialogues determined to be most effective in
collecting the amount past due.

Within an established queue, further segmentation by time on file, account balance, billing
cycle, or statistical risk assessment may be employed.

Any telephone contact with a customer whose account is delinquent is pursued in a dignified
and professional manner.

4.2 Dunning

The Collections Department uses statement messages, computer generated letter duns, and
e-mails as a means to contact delinquent accounts. All dunning statement messages,
collection letters and e-mails must be approved by legal counsel and the Vice President of
Collections. The severity of the delinquency is reflected in the intensity of the message,
letter, or e-mail.

4.3 Settlements

Settlement policy herein relates only to accounts that have not charged-off.

To “settle” an account is to accept a dollar payment smaller than the total balance
outstanding — i.e., not the total delinquent balance and hence to consider the account as
having been paid in full.

Allowances for late fees and finance charge are not, per se, considered settlement waivers.

Accounts may be targeted for settlement opportunities when they reach certain delinquency
levels as specified under management-approved criteria. Using industry-accepted valuation
tools, settlements will be structured to generate positive net present value. (The terms
“management-approved criteria” and “industry-accepted valuation tools” refer to quantitative
measures such as probability of charge-off and expected value based on statistical modeling
as well as selected risk segments based on balance, past due amount and other parameters.)

 

 

(4.3 Settlements contd.)

Balances below $200

For accounts with balances below $200 that meet management-approved criteria, collectors may
approve settlement waivers up to 50% of the balance, but not exceeding the sum of
life-to-date finance charge and late fees.

Balances $200+

For accounts with balances at or above $200 that meet management-approved criteria,
supervisors may approve settlement waivers up 50% of the balance with a maximum waiver of
$150, not to exceed the sum of life-to-date finance charge and late fees.

Waivers exceeding $150

For settlement waivers exceeding $150, or waivers greater than the sum of life-to-date
finance charges and late fees, manager approval is required.

A 1099C form will be issued for account holders completing a settlement agreement where the
amount waived exceeds $599.99.

A ‘31-Settlment Account’ status code will used to identify all accounts with completed
settlements.

4.4 Terminating Collection Efforts

Collection activity continues on delinquent accounts until such time as the effort is
eitherunnecessary, waived, or deemed ineffective. In particular, collection efforts
terminate or get suspended under the following circumstances:

	 	•	 	when an account becomes current;
	 
	 	•	 	when notification has been received that the account-holder has filed for
bankruptcy and there is no asset discharge (see section #3. Bankruptcy);
	 
	 	•	 	when there is an open dispute on the outstanding account balance;,
	 
	 	•	 	when the account holder has retained an attorney regarding their account or
indicated to Cease and Desist collection efforts and they reside in CA (verbal
notice) or LA (written notice);
	 
	 	•	 	when the account is in Consumer Credit Counseling;,
	 
	 	•	 	when the customer is deceased or under legal age.

 

 

4.5 Bad Debt Write-off

Accounts charge off for contractual delinquency at 180 days delinquent if there has not been
a qualifying payment of at least the greater of $10 or 2.5% of the current balance within
the previous 30 days and there is not an active Promise to Pay. At any point past 180 days
delinquent that those conditions cease to be true the account will
charge off.
Bankruptcy and deceased customer accounts are charged off in the fiscal month that is 60
days after the receipt of the notice, or when the account reaches 185 days delinquent,
whichever comes first. Accounts that are less than 6 days
delinquent are not charged off.
Accounts determined to be fraudulent (confirmed as fraud) are charged off no later than 90
days after the confirmation date or when they reach 185 days delinquent, whichever comes
first. Accounts that are less than 6 days delinquent are not charged off.

4.6 Skip Tracing

The Collections Department engages in skip tracing, with the extent of the effort dependent
on the account’s balance and delinquency. Such efforts might include accessing the National
Change of Address file, credit bureau report information, skip tracing services provided by
outside vendors, or other methods deemed to be cost effective and in compliance with any
legal restrictions.

4.7 Champion-Challenger Testing

It is the policy of Fingerhut to engage continuously in the comparative testing of the
performance of collections services vendors as well as collections strategies and techniques
developed and implemented by the Collections Department management.
Generally, the most relevant measured characteristics are bad debt and productivity. Such
gains in bad debt reduction and productivity will be measured against both the operational
and marketing income expense (loss in subsequent sales revenue) incurred to produce these
gains.

5. Collections Transactions

5.1 Consumer Credit Counseling Services (CCCS)

Fingerhut reviews all payment schedules proposed by CCCS representatives. Payment proposals
will be in accordance with guidelines issued by the Collections Department.

(see Reduced pay
plan — CCCS guidelines in appendix A)

Provided the customer adheres to the agreement, Fingerhut ceases efforts to contact the
customer, and discontinues assessment of late fees. Additionally, the interest rate will be
reduced accordingly.

5.2 Hardship Requirements

When a customer does not have access to CCCS or chooses not to use its services, Fingerhut
considers its own hardship arrangement for repayment. At a minimum, the Collections
representative must have reliable contact with the customer, the customer must have
expressed a renewed commitment to make payments, In addition, the customer must give
Fingerhut information describing when the hardship occurred and what caused it, expected
duration of the hardship, monthly income, source of income, and information regarding the
customer’s employer name, city and state.

To the degree possible, such “alternate pay plans” will be temporary, spanning only the time
period necessary for the customer to recover from the hardship.

(see Reduced pay plan — CCCS guidelines in appendix A)

Provided the customer adheres to the agreement, Fingerhut (or its vendors) will have its
representatives cease efforts to contact the customer, and will cease the assessment of late

 

 

fee charges. A reduced interest rate may apply during the term of the Reduced Payment Plan.

5.3 Disputes

During a collections contact, a customer may dispute all or a portion of the balance. If
the customer disputes all or a portion of the balance all collection activity ceases. In
either instance, Customer Service will resolve the dispute. If the dispute is resolved in
the customer’s favor the account will be adjusted accordingly and appropriate collection
activity will follow if there is a remaining delinquent balance. If the dispute is resolved
in Fingerhut’s favor, then appropriate collection activity will follow depending on the
stage of delinquency.

6. Collections Strategies

6.1 Portfolio Segmentation

Portfolio segmentation will be evolutionary and limited by practical considerations such as
automated systems capabilities, overall population size and feasibility of multiple
strategies. Behavior score plays a vital role in targeting accounts for collection actions
based on balance, payment behavior, FICO, and numerous other characteristics used in the
modeling process.

6.2 Dunning and Bad Debt Charge-off

Appendix B includes example schedules that describe the timing of “dun events” (i.e., phone
calls, and letters) based on days delinquent status of the account. Dunning
schedules/events are subject to change as our collection and risk management tools evolve.
Any changes will focus on maximizing collection effectiveness and efficiency. While the
grids in Appendix B are representative of a few of our basic strategies, they are not all
inclusive of the various strategies we employ.

In states requiring such disclosures, a “right to cure default” notice will be issued
generally not less than 30 days prior to the scheduled date of bad debt write-off.

Appendix A
— Reduced Pay Plan — CCCS policy

Reduced Payment Plan Options (after completing documentation of hardship)

	 	1.	 	Customer Requested Reduced Payment Plan or Collections-Initiated Reduced Payment Plan

          Account Retention approach — for accounts less than 90 days delinquent

	 	i.	 	Negotiate reduced payment with a minimum of
the greater of 2.5% or $10
	 
	 	ii.	 	Ask for immediate payment of the new
payment due amount (e.g., payment via ORCC ACH, Clear Commerce)
	 
	 	iii.	 	Maintain delinquency, unless customer
misses reduced payment
	 
	 	iv.	 	Account is blocked from authorization but
not closed using Account Status Code 26-Hardship Retention. This
automatically waives future late fees.
	 
	 	v.	 	Set APR to 14.9%

	 	b.	 	Closed Account approach — for accounts 90+ days delinquent.

 

 

	 	i.	 	Negotiate reduced payment with a minimum of
the greater of 2.5% or $10
	 
	 	ii.	 	Ask for immediate payment of the new
payment due amount (e.g., payment via ORCC ACH, Clear Commerce)
	 
	 	iii.	 	Close account using Account Status of 27-
Hardship Closed. This automatically waives future late fees.
	 
	 	iv.	 	Re-age account after the equivalent of
three consecutive payments are made. Account remains closed
	 
	 	v.	 	Set the APR to 9.9%. In extreme
circumstances, the APR may be set to 0.0%.

	2.	 	CCCS (Counseling Agency)

	 	a.	 	Account Retention approach — Reduced Payment — Customer willing
to make larger payments in order not to have a closed account while receiving
an APR reduction

	 	i.	 	Maintain delinquency
	 
	 	ii.	 	Account is blocked from authorization but
not closed using Account Status Code 20 — CCCS Account. This
automatically waives future late fees.
	 
	 	iii.	 	Change credit limit to $0
	 
	 	iv.	 	Set APR to 14.9%

 

 

Appendix A — Reduced Pay Plan — CCCS policy — continued

	 	b.	 	Account Retention approach (for those who enrolled and don’t
really need debt management)

	 	i.	 	Negotiate reduced payment with a minimum of
the greater of 2.5% or $10
	 
	 	ii.	 	Maintain delinquency, unless reduced
payment is missed
	 
	 	iii.	 	Account is blocked from authorization but
not closed using Account Status Code 20 — CCCS Account. This
automatically waives future late fees.
	 
	 	iv.	 	Change credit limit to $0
	 
	 	v.	 	Set APR to 14.9%

	 	c.	 	Closed Account approach — for accounts 90+ days delinquent.

	 	i.	 	Negotiate reduced payment with a minimum of
the greater of 2.5% or $10
	 
	 	ii.	 	Set the APR to 9.9%
	 
	 	iii.	 	Close account using Account Status Code
24-CCCS Closed. This automatically waives future late fees.
	 
	 	iv.	 	Re-age account after the equivalent of
three consecutive payments are made. Account remains closed.

 

 

Appendix B — Examples of Dunning Strategies

Example of “Good Phone” Dunning Grid

Good Phone Dunning Grid

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Dun Type	 	 	 	 	 	 
	 	 	 	 	Letter	 	1=Phn	 	Current	 	Last Digit of	 	 
	Dun	 	Days	 	Interval	 	2=Letter	 	Script	 	Account	 	 
	Event	 	Delinquent	 	Days	 	3=Chg-off	 	Code	 	Number	 	Notes
	01A
	 	1-4	 	 	 	1	 	PC010	 	0-9	 	 
	02
	 	5	 	0	 	2	 	LC010	 	0-9	 	 
	01B
	 	6-17	 	 	 	1	 	PC010	 	0-9	 	 
	03A
	 	18-21	 	 	 	1	 	PC020	 	0-9	 	 
	04
	 	22	 	17	 	2 	 	LC020	 	0-9	 	 
	03B
	 	23-35	 	 	 	1	 	PC020	 	0-9	 	 
	05A
	 	36-39	 	 	 	1	 	PC030	 	0-9	 	 
	06
	 	40	 	18	 	2 	 	LC030	 	0-9	 	 
	05B
	 	41-51	 	 	 	1	 	PC030	 	0-9	 	 
	07A
	 	52-55	 	 	 	1	 	PC040	 	0-9	 	 
	08
	 	56	 	16	 	2 	 	LC040	 	0-9	 	 
	07B
	 	57-66	 	 	 	1	 	PC040	 	0-9	 	 
	09
	 	67-69	 	 	 	1	 	PC050	 	0-9	 	 
	10
	 	70	 	14	 	2 	 	LC099*	 	0-9	 	 
	11
	 	70	 	14	 	2 	 	LC055	 	0-9	 	 
	12A
	 	71-84	 	 	 	1	 	PC060	 	0-9	 	 
	12B
	 	85-104	 	 	 	1	 	PC060	 	0-9	 	 
	12C
	 	87	 	17	 	2 	 	LC065	 	2-9	 	Test 1
	13
	 	105-119	 	 	 	1	 	PC070	 	0-9	 	 
	13A
	 	117	 	30	 	2 	 	LC075	 	2-9	 	Test 1
	14
	 	120-139	 	 	 	1	 	PC075	 	0-9	 	 
	15
	 	140-159	 	 	 	1	 	PC080	 	0-9	 	 
	15A
	 	145	 	28	 	2	 	DL070	 	2-9	 	Test 1
	16
	 	160-179	 	 	 	1	 	PC090	 	0-9	 	 
	16A
	 	165	 	20	 	2	 	LC080	 	2-9	 	Test 1
	17
	 	180-184	 	 	 	3	 	PC099	 	0-9	 	 
	18
	 	185	 	20	 	2	 	LC085	 	2-9	 	Test 5
	18A
	 	185-999	 	 	 	3	 	PC099	 	0-9	 	 

 

			
	*	 	LC099 — Right To Cure letter required in CO, SC and KS

 

 

Example of “Bad Phone” Dunning Grid

Bad Phone / No Phone / Skip Dunning Grid

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Dun Type	 	 	 	 	 	 
	 	 	 	 	Letter	 	1=Phn	 	 	 	Last Digit of	 	 
	Dun	 	Days	 	Interval	 	2=Letter	 	Current	 	Account	 	 
	Event	 	Delinquent	 	Days	 	3=Chg-off	 	Script Code	 	Number	 	Notes
	01
	 	1	 	0	 	2	 	LC010	 	0-9	 	 
	01SK
	 	2-15	 	 	 	1	 	PC010	 	0-9	 	 
	02
	 	16	 	16	 	2	 	LC020	 	0-9	 	 
	02SK
	 	17-30	 	 	 	1	 	PC020	 	0-9	 	 
	03
	 	31	 	15	 	2	 	LC030	 	0-9	 	 
	03SK
	 	32-45	 	 	 	1	 	PC030	 	0-9	 	 
	04
	 	46	 	15	 	2	 	LC040	 	0-9	 	 
	04SK
	 	47-60	 	 	 	1	 	PC040	 	0-9	 	 
	05
	 	61	 	15	 	2	 	LC050	 	0-9	 	 
	05SK
	 	62-75	 	 	 	1	 	PC050	 	0-9	 	 
	06
	 	76	 	15	 	2	 	LC055	 	0-9	 	 
	06SK
	 	77-89	 	 	 	1	 	PC055	 	0-9	 	 
	07
	 	90	 	14	 	2	 	*LC099	 	0-9	 	 
	07SK
	 	91-104	 	 	 	1	 	PC050	 	0-9	 	 
	08
	 	90	 	14	 	2	 	LC065	 	0-9	 	 
	09
	 	105	 	15	 	2	 	LC050	 	0,1	 	 
	09A
	 	105	 	15	 	2	 	LC060	 	2-9	 	Test 1
	09SK
	 	106-119	 	 	 	1	 	PC060	 	0-9	 	 
	10
	 	120	 	15	 	2	 	LC055	 	0,1	 	 
	10A
	 	120	 	15	 	2	 	LC065	 	2-9	 	Test 1
	10SK
	 	121-134	 	 	 	1	 	PC070	 	0-9	 	 
	11
	 	135	 	15	 	2	 	LC050	 	0,1	 	 
	11A
	 	135	 	15	 	2	 	LC070	 	2-9	 	Test 1
	11SK
	 	136-149	 	 	 	1	 	PC070	 	0-9	 	 
	12
	 	150	 	15	 	2	 	LC055	 	0,1	 	 
	12A
	 	150	 	15	 	2	 	LC075	 	2-9	 	Test 1
	12SK
	 	151-164	 	 	 	1	 	PC080	 	0-9	 	 
	13
	 	165	 	15	 	2	 	LC080	 	0,1	 	 
	13A
	 	165	 	15	 	2	 	LC080	 	2-9	 	Test 1
	13SK
	 	166-179	 	 	 	1	 	PC080	 	0-9	 	 
	14
	 	180	 	 	 	3	 	PC999	 	0-9	 	 
	14SK
	 	181-184	 	 	 	3	 	PC999	 	0-9	 	 
	15
	 	185	 	20	 	2	 	LC085	 	2-9	 	Test 5
	15SK
	 	185-999	 	 	 	3	 	PC999	 	0-9	 	 

 

			
	*	 	LC099 right to cure letter required in CO, SC and KS

 

 

Example of Focused Dunning Strategy Grid for NCA Accounts

Focused
Strategy — Series 00003

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Dun Type	 	 	 	 	 	 	 	Last Digit
	 	 	 	 	 	 	1=Phn	 	 	 	 	 	 	 	of
	Dun	 	Days	 	Ltr Int	 	2=Letter	 	Script	 	Alt	 	 	 	Account
	Event	 	Delq	 	Days	 	3=Chg-off	 	ID	 	Letter	 	Notes	 	Number
	01
	 	1	 	0	 	2	 	LC020	 	 	 	 	 	3-9
	02
	 	4-12	 	 	 	1	 	PC010	 	None	 	 	 	3-9
	03
	 	13	 	12	 	2	 	LC040	 	 	 	 	 	3-9
	03A
	 	14-24	 	 	 	1	 	PC020	 	None	 	 	 	3-9
	04
	 	25	 	12	 	2	 	LC030	 	 	 	 	 	3-9
	04A
	 	26-37	 	 	 	1	 	PC020	 	None	 	 	 	3-9
	05
	 	38	 	13	 	2	 	LC040	 	 	 	 	 	3-9
	05A
	 	39-48	 	 	 	1	 	PC030	 	None	 	 	 	3-9
	06
	 	49	 	11	 	2	 	LC050	 	 	 	 	 	3-9
	06A
	 	50-59	 	 	 	1	 	PC040	 	None	 	 	 	3-9
	07
	 	60	 	11	 	2	 	LC055	 	 	 	 	 	3-9
	07A
	 	61-71	 	 	 	1	 	PC050	 	None	 	 	 	3-9
	08
	 	72	 	12	 	2	 	LC060	 	 	 	 	 	3-9
	08A
	 	73-89	 	 	 	1	 	PC060	 	None	 	 	 	3-9
	09
	 	90	 	18	 	2	 	LC099*	 	 	 	 	 	3-9
	10
	 	90	 	18	 	2	 	LC065	 	 	 	 	 	3-9
	10A
	 	91-104	 	 	 	1	 	PC060	 	None	 	 	 	3-9
	11
	 	105	 	15	 	2	 	LC070	 	 	 	 	 	3-9
	11A
	 	106-119	 	 	 	1	 	PC070	 	None	 	 	 	3-9
	12
	 	120	 	15	 	2	 	LC075	 	 	 	 	 	3-9
	12A
	 	121-134	 	 	 	1	 	PC075	 	None	 	 	 	3-9
	13
	 	135	 	15	 	2	 	LC070	 	 	 	 	 	3-9
	13A
	 	136-149	 	 	 	1	 	PC075	 	None	 	 	 	3-9
	14
	 	150	 	15	 	2	 	LC075	 	 	 	 	 	3-9
	14A
	 	151-164	 	 	 	1	 	PC080	 	None	 	 	 	3-9
	15
	 	165	 	15	 	2	 	LC080	 	 	 	 	 	3-9
	15A
	 	166-179	 	 	 	1	 	PC090	 	None	 	 	 	3-9
	15B
	 	180-184	 	 	 	1	 	PC099	 	None	 	Charge-Off	 	3-9
	16
	 	185	 	20	 	2	 	LC085	 	 	 	 	 	3-9
	17
	 	186-999	 	 	 	1	 	PC099	 	None	 	Charge-Off	 	3-9

 

			
	*	 	LC099 — Right To Cure letter required in CO, SC and KS

 

 

     Consumer Credit Compliance Program:

	•	 	Program

	 	•	 	The Bluestem Consumer Credit Compliance Program (“CCCP”) is a company-wide program
that documents policies and procedures, and monitors practices, to evidence compliance
with applicable consumer credit laws and regulations.

	•	 	Governance

	 	•	 	Steering Committee comprised of the General Counsel, Credit Compliance Manager,
Vice President of Collections/Account Services, Vice President of Credit Policy and
Forecasting, and Manager of Credit Operations.
	 
	 	•	 	Steering Committee approves Consumer Credit Compliance Policies. All policies
(new and revised) are drafted by the Credit Compliance Manager and then routed through
the Steering Committee for approval prior to implementation.
	 
	 	•	 	Operating team units, chaired by applicable Steering Committee member, create/edit
procedures and monitors. The applicable Steering Committee member and Credit Compliance
Manager approve all procedures and monitors.

CCCP Policies and Procedures

Overview of Laws and Regulations Governing the Program (subject to addition, deletion
or change from time to time based on changes in laws/regulations)

	•	 	Reg Z/Truth in Lending Act
	 
	•	 	Reg B/Equal Credit Opportunity Act
	 
	•	 	Fair and Accurate Credit Transactions Act of 2003/FACTA
	 
	•	 	Fair Credit Reporting Act
	 
	•	 	Bank Secrecy Act
	 
	•	 	Right to Financial Privacy
	 
	•	 	Servicemembers’ Civil Relief Act/SCRA
	 
	•	 	Fair Debt Collection Practices Act
	 
	•	 	Gramm-Leach-Bliley Privacy Act
	 
	•	 	USA PATRIOT Act of 2001
	 
	•	 	FTC Unfair and Deceptive Practices Rule

Procedure Development

	•	 	Work types within each functional area included in the
CCCP are reviewed annually to determine applicability of one
or more of the governing laws or regulations.
	 
	•	 	In the event new procedures are necessary, they are
created by the appropriate operating team unit.
	 
	•	 	Existing procedures are reviewed by the appropriate
operating team unit to ensure they are current and accurate.
	 
	•	 	All new procedures and any revisions to existing
procedures are routed in accordance with CCCP governance
requirements.

CCCP Monitoring

 

 

	•	 	Monitors

	 	•	 	Each customer facing functional area is responsible for monitoring a statistically
valid sample of work types, by regulation, to ensure compliance with the applicable
rules.

	•	 	Defects

	 	•	 	Defect remedy process is in place to provide coaching to reps as necessary, as
well as to ensure that accounts not handled in accordance with approved procedures are
corrected.

	•	 	Reviews

	 	•	 	Monitors are reviewed by the Credit Compliance Manager on a monthly basis.exv10w17

Exhibit 10.17

 

FINGERHUT DIRECT MARKETING, INC.

$30,000,000

13.00% SENIOR SUBORDINATED SECURED NOTES DUE MARCH 24, 2013

AND

WARRANTS

 

SECURITIES PURCHASE AGREEMENT

 

Dated as of March 23, 2006

 

 

 

TABLE OF CONTENTS

(Not Part of Agreement)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	1.	 	AUTHORIZATION OF ISSUE OF SECURITIES	 	 	1	 
	 	 	1A Authorization of Subordinated Notes	 	 	1	 
	 	 	1B Authorization of Preferred Stock Warrants	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	2.	 	PURCHASE AND SALE OF SECURITIES	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	3.	 	CONDITIONS OF CLOSING	 	 	2	 
	 
	 	3A.	 	Documents	 	 	2	 
	 
	 	3B.	 	Opinion of Purchasers’ Special Counsel	 	 	5	 
	 
	 	3C.	 	Opinion of Company’s Counsel	 	 	5	 
	 
	 	3D.	 	Representations and Warranties; No Default; Satisfaction of Conditions	 	 	5	 
	 
	 	3E.	 	Purchase Permitted By Applicable Laws; Approvals	 	 	5	 
	 
	 	3F.	 	Certificates of Insurance	 	 	6	 
	 
	 	3G.	 	UCC Searches	 	 	6	 
	 
	 	3H.	 	Material Adverse Effect	 	 	6	 
	 
	 	31.	 	Amended and Restated Credit Agreement	 	 	6	 
	 
	 	3J.	 	Third Amended and Restated Certificate of Incorporation	 	 	6	 
	 
	 	3K.	 	Termination of Certain Existing Indebtedness	 	 	7	 
	 
	 	3L.	 	Fees and Expenses	 	 	7	 
	 
	 	3M.	 	Structuring Fee	 	 	7	 
	 
	 	3N.	 	Proceedings	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	4.	 	PREPAYMENTS	 	 	7	 
	 
	 	4A	 	Maturity	 	 	7	 
	 
	 	4B	 	Optional Prepayment	 	 	7	 
	 
	 	4C	 	Notice of Optional Prepayment	 	 	8	 
	 
	 	4D.	 	Partial Payments Pro Rata	 	 	8	 
	 
	 	4E.	 	No Acquisition of Subordinated Notes	 	 	8	 
	 
	 	 	 	 	 	 	 	 
	5.	 	AFFIRMATIVE COVENANTS	 	 	9	 
	 
	 	5A.	 	Financial Statements	 	 	9	 
	 
	 	5B.	 	Information Required by Rule 144A	 	 	10	 
	 
	 	5C.	 	Inspection of Property	 	 	11	 
	 
	 	5D.	 	Covenant to Secure Subordinated Notes Equally	 	 	11	 
	 
	 	5E.	 	Compliance with Law	 	 	11	 
	 
	 	5F.	 	Insurance	 	 	11	 
	 
	 	5G.	 	Maintenance of Properties	 	 	12	 
	 
	 	51-1.	 	Payment of Taxes	 	 	12	 
	 
	 	51.	 	Corporate Existence	 	 	12	 
	 
	 	5J.	 	Lines of Business	 	 	12	 
	 
	 	5K.	 	Agreement Assuming Liability on Subordinated Notes	 	 	12	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	5L	 	Pay Obligations	 	 	13	 
	 
	 	5M	 	Further Assurances	 	 	13	 
	 
	 	5N	 	Future Subsidiaries	 	 	13	 
	 
	 	5O.	 	Amendments to Credit Agreement	 	 	14	 
	 
	 	5P	 	Delivery of Landlord Lien Waivers	 	 	14	 
	 
	 	5Q	 	Further Actions with Respect to Domain Names	 	 	14	 
	 
	 	5R	 	Further Assurances with Respect to Deposit Accounts	 	 	15	 
	 
	 	5S	 	Applicable Projected Cash Bum Rate	 	 	15	 
	 
	 	 	 	 	 	 	 	 
	6.	 	NEGATIVE COVENANTS	 	 	15	 
	 
	 	6A	 	Liens and Other Interests	 	 	15	 
	 
	 	6B	 	Indebtedness; Guarantees	 	 	15	 
	 
	 	6C	 	Investments	 	 	16	 
	 
	 	6D	 	Merger or Consolidation	 	 	17	 
	 
	 	6E	 	Asset Dispositions	 	 	17	 
	 
	 	6F	 	Restricted Payments	 	 	17	 
	 
	 	6G	 	Negative Pledge	 	 	18	 
	 
	 	6H	 	Amendments to Organizational Documents	 	 	18	 
	 
	 	61.	 	Changes in Name, Location of Inventory, Etc	 	 	18	 
	 
	 	6J	 	Financial Covenants	 	 	19	 
	 
	 	6K	 	Related Party Transactions	 	 	20	 
	 
	 	6L	 	Issuance of Stock by Subsidiaries	 	 	20	 
	 
	 	6M	 	Limitation on Issuance of Other Subordinated Indebtedness Senior to the Subordinated Notes	 	 	20	 
	 
	 	6N	 	Payment Limitations	 	 	21	 
	 
	 	60.	 	Credit Agreement	 	 	21	 
	 
	 	6P.	 	Terrorism Sanctions Regulations	 	 	21	 
	 
	 	 	 	 	 	 	 	 
	7.	 	EVENTS OF DEFAULT	 	 	21	 
	 
	 	7A	 	Acceleration	 	 	21	 
	 
	 	7B	 	Rescission of Acceleration	 	 	24	 
	 
	 	7C	 	Notice of Acceleration or Rescission	 	 	25	 
	 
	 	7D	 	Other Remedies	 	 	25	 
	 
	 	 	 	 	 	 	 	 
	8.	 	REPRESENTATIONS, COVENANTS AND WARRANTIES	 	 	25	 
	 
	 	8A(1).	 	Organization; Subsidiary Preferred Stock	 	 	25	 
	 
	 	8A(2).	 	Equity Interests	 	 	25	 
	 
	 	8A(3).	 	Power and Authority	 	 	26	 
	 
	 	8A(4).	 	Execution and Delivery of Transaction Documents	 	 	 	 
	 
	 	8B	 	Financial Statements	 	 	27	 
	 
	 	8C	 	Actions Pending	 	 	27	 

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	8D.	 	Outstanding Indebtedness	 	 	27	 
	 
	 	8E.	 	Title to Properties	 	 	27	 
	 
	 	8F.	 	Taxes	 	 	28	 
	 
	 	8G.	 	Conflicting Agreements and Other Matters	 	 	28	 
	 
	 	8H.	 	Offering of Subordinated Notes and Warrants	 	 	28	 
	 
	 	81.	 	Use of Proceeds	 	 	28	 
	 
	 	8J.	 	ERISA	 	 	29	 
	 
	 	8K.	 	Governmental Consent	 	 	29	 
	 
	 	8L.	 	Compliance with Environmental and Other Laws	 	 	30	 
	 
	 	8M.	 	Regulatory Status	 	 	30	 
	 
	 	8N.	 	Permits and Other Operating Rights	 	 	30	 
	 
	 	80.	 	Rule 144A	 	 	30	 
	 
	 	8P.	 	Absence of Financing Statements, etc.	 	 	30	 
	 
	 	8Q.	 	Establishment of Security Interest	 	 	30	 
	 
	 	8R.	 	Foreign Assets Control Regulations, Etc.	 	 	31	 
	 
	 	8S.	 	Disclosure	 	 	32	 
	 
	 	8T.	 	Inventory Locations; Etc.	 	 	32	 
	 
	 	 	 	 	 	 	 	 
	9.	 	REPRESENTATIONS OF EACH PURCHASER	 	 	32	 
	 
	 	9A	 	Nature of Purchase	 	 	32	 
	 
	 	9B	 	Source of Funds	 	 	32	 
	 
	 	 	 	 	 	 	 	 
	10.	 	[INTENTIONALLY OMITTED]	 	 	34	 
	 
	 	 	 	 	 	 	 	 
	11.	 	DEFINITIONS; ACCOUNTING MATTERS	 	 	34	 
	 
	 	11A	 	Yield-Maintenance Amount and Related Terms	 	 	34	 
	 
	 	11B	 	Other Terms	 	 	37	 
	 
	 	11C	 	Accounting and Legal Principles, Terms and Determinations	 	 	50	 
	 
	 	 	 	 	 	 	 	 
	12.	 	MISCELLANEOUS	 	 	50	 
	 
	 	12A.	 	Subordinated Note Payments	 	 	50	 
	 
	 	12B.	 	Expenses	 	 	50	 
	 
	 	12C.	 	Consent to Amendments	 	 	51	 
	 
	 	12D.	 	Form, Registration, Transfer and
Exchange of Subordinated Notes; Lost Subordinated Notes	 	 	52	 
	 
	 	12E.	 	Persons Deemed Owners; Participations	 	 	53	 
	 
	 	12F.	 	Survival of Representations and Warranties; Entire Agreement	 	 	53	 
	 
	 	12G.	 	Successors and Assigns	 	 	53	 
	 
	 	12H.	 	Independence of Covenants	 	 	53	 
	 
	 	121.	 	Notices	 	 	53	 
	 
	 	12J.	 	Payments Due on Non-Business Days	 	 	54	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	12K.	 	Satisfaction Requirement	 	 	54	 
	 
	 	12L.	 	GOVERNING LAW	 	 	54	 
	 
	 	12M.	 	SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL	 	 	54	 
	 
	 	12N.	 	Severability	 	 	55	 
	 
	 	120.	 	Descriptive Headings; Advice of Counsel; Interpretation	 	 	55	 
	 
	 	12P.	 	Counterparts; Facsimile Signatures	 	 	56	 
	 
	 	12Q.	 	Severalty of Obligations	 	 	56	 
	 
	 	12R	 	Independent Investigation	 	 	56	 
	 
	 	12S	 	Directly or Indirectly	 	 	56	 
	 
	 	12T	 	Confidential Information	 	 	56	 
	 
	 	12U	 	Original Issue Discount	 	 	57	 
	 
	 	12V.	 	Binding Agreement	 	 	58	 

 

 

PURCHASER SCHEDULE

	 	 	 	 	 

	SCHEDULE 6A 

SCHEDULE 6B 

SCHEDULE 6C 

SCHEDULE 6J(v) 

SCHEDULE 6J(vi) 

SCHEDULE 6K 

SCHEDULE 8A(1) 

SCHEDULE 8A(2) 

SCHEDULE 8G 

SCHEDULE 8K 

SCHEDULE 8Q 

SCHEDULE 8T

	 	-

-

-

-

-

-

-

-

-

-

-

-
	 	EXISTING LIENS

EXISTING INDEBTEDNESS

EXISTING INVESTMENTS

MAXIMUM SALES SHORTFALL

MAXIMUM NET INCOME SHORTFALL

RELATED PARTY TRANSACTIONS

SUBSIDIARIES

STOCKHOLDERS AND OUTSTANDING STOCK

LIST OF AGREEMENTS RESTRICTING INDEBTEDNESS

FILINGS

COLLATERAL MATTERS

INVENTORY LOCATIONS
	 
	EXHIBIT A 

EXHIBIT B 

EXHIBIT C

	 	-

-

-
	 	FORM OF SUBORDINATED NOTE

FORM OF WARRANT

FORM OF DISBURSEMENT DIRECTION LETTER
	EXHIBIT D

	 	-
	 	FORM OF AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
	EXHIBIT E 

EXHIBIT F 

EXHIBIT G 

EXHIBIT H 

EXHIBIT I 

EXHIBIT J 

EXHIBIT K 

EXHIBIT L 

EXHIBIT M 

EXHIBIT N 

EXHIBIT O

	 	-

-

-

-

-

-

-

-

-

-

-
	 	FORM OF AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

FORM OF SUBSIDIARY GUARANTY

FORM OF SECURITY AGREEMENT

FORM OF SUBSIDIARY SECURITY AGREEMENT

FORM OF IP SECURITY AGREEMENT

FORM OF EQUITYHOLDER AGREEMENT

FORM OF VCOC LETTER

FORM OF AGREEMENT TO SUBORDINATE

FORM OF COLLATERAL AGENCY AGREEMENT

FORM OF OPINION OF COMPANY’S COUNSEL

FORM OF THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

 

FINGERHUT DIRECT MARKETING, INC.

4400 Baker Road

Minnetonka, Minnesota 55343

As of March 23, 2006

To Each of the Purchasers Named in the

Purchaser Schedule Attached Hereto

Ladies and Gentlemen:

     The undersigned, Fingerhut Direct Marketing, Inc., a Delaware corporation (herein called the
“Company”), hereby agrees with the purchasers named in the Purchaser Schedule attached hereto
(herein called the “Purchasers”) as set forth below. Reference is made to paragraph 11 hereof for
definitions of capitalized terms used herein and not otherwise defined herein.

     1. AUTHORIZATION OF ISSUE OF SECURITIES.

     IA. Authorization of Subordinated Notes. The Company will authorize the issue of its senior
subordinated secured promissory notes (the “Subordinated Notes”) in the aggregate principal amount
of $30,000,000, to be dated the date of issue thereof, to mature March 24, 2013, to bear interest
on the unpaid balance thereof from the date thereof until the principal thereof shall have become
due and payable at the rate of 13.00% per annum (provided that, during any period when an Event of
Default shall be in existence, at the election of the Required Holder(s) the outstanding principal
balance of the Subordinated Notes shall bear interest from and after the date of such Event of
Default and until the date such Event of Default ceases to be in existence at the rate per annum
from time to time equal to the Default Rate) and on overdue payments at the rate per annum from
time to time equal to the Default Rate, and to be substantially in the form of Exhibit A attached
hereto. The term “Subordinated Notes” as used herein shall include each such senior subordinated
secured promissory note delivered pursuant to any provision of this Agreement and each such senior
subordinated secured promissory note delivered in substitution or exchange for any other
Subordinated Note pursuant to any such provision.

     1B. Authorization of Preferred Stock Warrants. The Company will authorize the issue to the
Purchasers of its Series A Preferred Stock Warrants in the form of Exhibit B hereto (the
“Warrants”), initially exercisable for 41,742,458 shares of the Preferred Stock, representing 4.00%
of the equity of the Company (determined on a fully diluted basis). The term Warrant as used herein
shall include each Warrant delivered pursuant to any provision of this Agreement. The Warrants and
the Subordinated Notes are sometimes collectively referred to herein as the “Securities.”

     2. PURCHASE AND SALE OF SECURITIES. The Company hereby agrees to sell to each Purchaser and,
subject to the terms and conditions herein set forth, each Purchaser agrees to purchase from the
Company the aggregate principal amount of Subordinated Notes set

8

 

forth opposite such Purchaser’s name in the Purchaser Schedule attached hereto at 100% of such
aggregate principal amount and, in connection therewith, the Company agrees to issue to such
Purchaser Warrants to purchase the number of shares of Preferred Stock set forth opposite such
Purchaser’s name in the Purchaser Schedule attached hereto at the price set forth therein. The
Company will deliver to each Purchaser, at the offices of Schiff Hardin LLP at 6600 Sears Tower,
Chicago, Illinois 60606, one or more Subordinated Notes and one or more Warrants, in each case,
registered in such Purchaser’s name (or, if specified in the Purchaser Schedule, in the name of the
nominee(s) for such Purchaser specified in the Purchaser Schedule), evidencing the aggregate
principal amount of Subordinated Notes or Warrants representing the right to purchase the aggregate
number of shares of Preferred Stock, as applicable, to be purchased by or issued to such Purchaser
and in the denomination or denominations specified with respect to such Purchaser in the Purchaser
Schedule against payment of the purchase price thereof by transfer of immediately available funds
on the date of closing, which shall be March 24, 2006 or any other date on or before March 31, 2006
upon which the Company and the Purchasers may mutually agree (herein called the “closing” or the
“date of closing”), for credit to the account or accounts as shall be specified in a letter on the
Company’s letterhead, in substantially the form of Exhibit C attached hereto, from the Company to
the Purchasers delivered prior to the .date of closing.

3. CONDITIONS OF CLOSING. Each Purchaser’s obligation to purchase and pay for the Securities to be
purchased by such Purchaser hereunder is subject to the satisfaction, on or before the date of
closing, of the following conditions:

     3A. Documents. Such Purchaser shall have received original counterparts or, if satisfactory to
such Purchaser, certified or other copies of all of the following, each duly executed and delivered
by the party or parties thereto, in form and substance satisfactory to such Purchaser, dated the
date of closing unless otherwise indicated, and, on the date of closing, in full force and effect
with no event having occurred and being then continuing that would constitute a default thereunder
or constitute or provide the basis for the termination thereof:

     (i) the Subordinated Note or Subordinated Notes to be purchased by such Purchaser in
the form of Exhibit A attached hereto;

     (ii) the Warrant or Warrants to be issued to such Purchaser in the form of Exhibit B
attached hereto;

     (iii) an Amended and Restated Investor Rights Agreement among the Company, the
Purchasers and the other holders of the Equity Interests of the Company in the form of
Exhibit D hereto (herein, as the same may be amended, modified or supplemented from time to
time in accordance with the provisions thereof, called the “Investor Rights Agreement”) and
an Amended and Restated Stockholders Agreement among the Company, the Purchasers and the
other holders of the Equity Interests of the Company in the form of Exhibit E hereto
(herein, as the same may be amended, modified or supplemented from time to time in
accordance with the provisions thereof, called the “Stockholders Agreement”);

     (iv) a Guaranty Agreement made by the Subsidiary Guarantors in favor of the Purchasers
in the form of Exhibit F hereto (as the same may be amended, modified or

 

 

supplemented from time to time in accordance with the provisions thereof, called the
“Subsidiary Guaranty”);

     (v) a Security Agreement made by the Company in favor of Prudential Capital Partners
II, L.P. (the “Subordinated Collateral Agent”) for the benefit of the holders of the
Subordinated Notes in the form of Exhibit G hereto (as the same may be amended, modified, or
supplemented from time to time in accordance with the provisions thereof, the “Security
Agreement”);

     (vi) a Security Agreement made by each Subsidiary of the Company in favor of the
Subordinated Collateral Agent for the benefit of the holders of the Subordinated Notes in
the form of Exhibit H hereto (as the same may be amended, modified, or supplemented from
time to time in accordance with the provisions thereof, the “Subsidiary Security
Agreement”);

     (vii) an IP Security Agreement made by the Company and each Subsidiary Guarantor in
favor of the Subordinated Collateral Agent for the benefit of the holders of the
Subordinated Notes in the form of Exhibit I hereto (as the same may be amended, modified, or
supplemented from time to time in accordance with the provisions thereof, the “IP Security
Agreement”);

     (viii) a letter agreement among the Purchasers and the other holders of Equity
Interests of the Company in the form of Exhibit J hereto (as the same may be amended,
modified or supplemented from time to time in accordance with the provisions thereof, called
the “Equityholder Agreement”);

     (ix) a management rights letter agreement in the form of Exhibit K hereto (as the same
may be amended, modified or supplemented from time to time in accordance with the provisions
thereof, called the “VCOC Letter”);

     (x) (a) a landlord lien waiver with respect to the premises located at 6250 Ridgewood
Road, St. Cloud, Minnesota, duly executed by the Bank Agent and the Subordinated Collateral
Agent and acknowledged by. FAC, the Company and each Subsidiary Guarantor and (b) a landlord
lien waiver with respect to the premises located at 7777 Golden Triangle, Eden Prairie,
Minnesota, duly executed by the Company, Liberty Property Limited Partnership, the Bank
Agent and the Subordinated Collateral Agent;

     (xi) an Agreement to Subordinate made and delivered by Thomas J Petters, Petters
Company, Inc., FAC, Petters Group Worldwide, LLC and Theodore Deikel, in favor of the
Subordinated Collateral Agent and the holders of Subordinated Notes in the form of Exhibit L
hereto (as the same may be amended, modified or supplemented from time to time in accordance
with the provisions thereof, called the “Agreement to Subordinate”);

     (xii) a Collateral Agency Agreement between the Subordinated Collateral Agent and the
Purchasers and acknowledged by the Company in the form of Exhibit M

 

 

hereto (as the same may be amended, modified or supplemented from time to time in
accordance with the provisions thereof, called the “Collateral Agency Agreement”);

     (xiii) a Secretary’s Certificate signed by the Secretary or Assistant
Secretary and one other officer of the Company certifying, among other things (a) as to the
name, titles and true signatures of the officers of the Company authorized to sign this
Agreement, the Subordinated Notes, the other Transaction Documents and the other documents
to be delivered in connection with this Agreement, (b) that attached thereto is a true,
accurate and complete copy of the Restated Certificate of Incorporation, certified by the
Secretary of State of the state of Delaware as of a recent date, (c) that attached thereto
is a true, accurate and complete copy of the by-laws of the Company which were duly adopted
and are in effect as of the date of closing and have been in effect immediately prior to and
at all times since the adoption of the resolutions referred to in clause (d) below, (d) that
attached thereto is a true, accurate and complete copy of the resolutions of the board of
directors of the Company, duly adopted at a meeting or by unanimous written consent of such
board of directors, authorizing the execution, delivery and performance of this Agreement,
the Subordinated Notes, the other Transaction Documents and the other documents to be
delivered in connection with this Agreement, and that such resolutions have not been
amended, modified, revoked or rescinded, are in full force and effect and are the only
resolutions of the shareholders of the Company or of such board of directors or any
committee thereof relating to the subject matter thereof, (e) that this Agreement, the
Subordinated Notes, the other Transaction Documents and the other documents executed and
delivered to such Purchaser by the Company are in the form approved by its board of
directors in the resolutions referred to in clause (d), above, and (f) that no dissolution
or liquidation proceedings as to the Company or any Subsidiary have been commenced or are
contemplated;

     (xiv) a Secretary’s Certificate signed by the Secretary or Assistant
Secretary and one other officer of each Subsidiary Guarantor.certifying, among
other things (a) as to the name, titles and true signatures of the officers of such
Subsidiary Guarantor authorized to sign the Transaction Documents to which such Subsidiary
Guarantor is a party and the other documents to be delivered in connection with this
Agreement, (b) that attached thereto is a true, accurate and complete copy of the
certificate of incorporation or other formation document of such Subsidiary Guarantor,
certified by the Secretary of State of the state of organization of such Subsidiary
Guarantor as of a recent date, (c) that attached thereto is a true, accurate and complete
copy of the by-laws, operating agreement or other organizational document of such Subsidiary
Guarantor which were duly adopted and are in effect as of the date of closing and have been
in effect immediately prior to and at all times since the adoption of the resolutions
referred to in clause (d) below, (d) that attached thereto is a true, accurate and complete
copy of the resolutions of the board of directors or other managing body of such Subsidiary
Guarantor, duly adopted at a meeting or by unanimous written consent of such board of
directors or other managing body, authorizing the execution, delivery and performance of the
Transaction Documents to which such Subsidiary Guarantor is a party and the other documents
to be delivered in connection with this Agreement, and that such resolutions have not been
amended, modified, revoked or rescinded, are in full force and effect and

 

 

are the only resolutions of the shareholders, partners or members of such Subsidiary Guarantor or of such board of directors or other managing body or any committee thereof
relating to the subject matter thereof, (e) that the Transaction Documents to which such
Subsidiary Guarantor is a party and the other documents executed and delivered to such
Purchaser by such Subsidiary Guarantor are in the form approved by its board of directors or
other managing body in the resolutions referred to in clause (d), above, and (f) that no
dissolution or liquidation proceedings as to the Company or any Subsidiary Guarantor have
been commenced or are contemplated;

     (xv) a certificate of corporate or other type of entity and tax good standing for the
Company and each of its Subsidiaries from the Secretary of State of the state of
organization of the Company and each such Subsidiary and of each state in which the Company
or any such Subsidiary is required to be qualified to transact business as a foreign
organization, in each case dated as of a recent date; and

     (xvi) such other certificates, documents and agreements as such Purchaser may
reasonably request.

     3B Opinion of Purchasers’ Special Counsel. Such Purchaser shall have received from Schiff
Hardin LLP, who are. acting as special counsel for the Purchasers in connection with this
transaction, a favorable opinion satisfactory to such Purchaser as to such matters incident to the
matters herein contemplated as it may reasonably request.

     3C Opinion of Company’s Counsel. Such Purchaser shall have received from Lindquist & Vennum
P.L.L.P., special counsel for the Company, a favorable opinion satisfactory to such Purchaser and
substantially in the form of Exhibit N attached hereto, and the Company, by its execution hereof,
hereby requests and authorizes such special counsel to render such opinion, and understands and
agrees that each Purchaser receiving such an opinion will and is hereby authorized to rely on such
opinion.

     3D Representations and Warranties; No Default; Satisfaction of Conditions. The representations
and warranties contained in paragraph 8 and in the other Transaction Documents shall be true on and
as of the date of closing, both before and immediately after giving effect to the issuance of the
Securities on the date of closing and the consummation of any other transactions contemplated
hereby and by the other Transaction Documents; there shall exist on the date of closing no Event of
Default or Default, both before and immediately after giving effect to the issuance of the
Securities on the date of closing and the consummation of any other transactions contemplated
hereby and by the other Transaction Documents; the Company shall have performed all agreements and
satisfied all conditions required under this Agreement or the other Transaction Documents to be
performed or satisfied on or before the date of closing; and the Company shall have delivered to
such Purchaser an Officer’s Certificate, dated the date of closing, to each such effect.

     3E Purchase Permitted By Applicable Laws; Approvals. The purchase of and payment for the
Subordinated Notes and the Warrants to be purchased by such Purchaser on the date of closing on the
terms and conditions herein provided (including the use of the proceeds of such Securities by the
Company) shall not violate any applicable law or governmental regulation

 

 

(including, without
limitation, section 5 of the Securities Act or Regulation T, U or X of the Board of Governors of the Federal Reserve System) and shall not subject such Purchaser to any
tax, penalty, liability or other onerous condition under or pursuant to any applicable law or
governmental regulation, and such Purchaser shall have received such certificates or other evidence
as it may request to establish compliance with this condition. All necessary authorizations,
consents, approvals, exceptions or other actions by or notices to or filings with any court or
administrative or governmental body or other Person required in connection with the execution,
delivery and performance of this Agreement, the Subordinated Notes and the other Transaction
Documents or the consummation of the transactions contemplated hereby or thereby shall have been
issued or made, shall be final and in full force and effect and shall be in form and substance
satisfactory to such Purchaser.

     Certificates of Insurance. The Company shall have delivered from insurance carriers acceptable
to the Subordinated Collateral Agent certificates of insurance in such forms and amounts acceptable
to such Purchaser evidencing insurance required to be maintained under paragraph 5F hereof or under
any of the Security Documents under insurance policies with loss payable clauses in favor of the
Bank Agent, and acceptable to the Subordinated Collateral Agent.

     3F UCC Searches. Such Purchaser shall have received certified copies of UCC search reports
listing all effective financing statements which name the Company or any Subsidiary (under its
present name and previous names) as debtor and which are filed in the office of the Secretary of
State in any state in which the Company or any Subsidiary is organized or maintains an office or in
which any assets of the Company or any Subsidiary are located, and lien and judgment search reports
from the county recorder of any county in which the Company or any Subsidiary maintains an office
or in which any assets of the Company or any Subsidiary are located.

     3G Material Adverse Effect. Since January 28, 2005, no event having a Material Adverse Effect
shall have occurred or be threatened, as determined by such Purchaser in its sole judgment.

     3I. Amended and Restated Credit Agreement. The Credit Agreement, providing for a $150,000,000
revolving credit facility to the Company and having other terms and conditions satisfactory to such
Purchaser, shall have been duly executed and delivered by the Company, the Bank Agent and the
Banks, and shall be in full force and effect. All conditions precedent to the amendment and
restatement of the existing credit agreement shall have been satisfied (other than the issuance and
sale of the Subordinated Notes hereunder) and such Purchaser shall have received satisfactory
evidence thereof. Such Purchaser shall have received a copy of the Credit Agreement and all
instruments, documents and agreements delivered at the closing of the amendment and restatement
thereof, certified by an Officer’s Certificate of the Company, dated the date of closing, as
correct and complete.

     3J. Third Amended and Restated Certificate of Incorporation. The Board of Directors and the
shareholders of the Company shall have duly adopted the Third Amended and Restated Certificate of
Incorporation of the Company, in the form attached hereto as Exhibit O (the “Restated Certificate
of Incorporation”), and the Restated Certificate of Incorporation shall have been duly filed with
the Secretary of State of Delaware and shall have become

 

 

effective under the laws of the State of
Delaware. Termination of Certain Existing Indebtedness. All obligations of the Company under (1) the Subordinated Loan Agreement, dated April 9, 2003,
among the Company, Stafford Towne, LTD., Bennington International Holdings, LTD. and Westford
Special Situations Fund, LTD., (2) the Financing Agreement, by and between CIT Group/ Business
Credit, the Company and the lenders party thereto, dated April 9, 2003 and The Assignment and
Transfer Agreement (Textron) by and between CIT Group/ Business Credit, Inc. and the Company, dated
September 9, 2003, and (3) the Supplemental Financing Agreement, by and between Petters Company,
Inc. and the Company, dated February 17, 2004, shall have been discharged, each such financing
arrangement shall have been terminated, all liens and security interests securing any of such
obligations, and all financing statements or other filings and recordings relating thereto, shall
have been terminated and released, and such Purchaser shall have received such evidence as it may
reasonably request to demonstrate the satisfaction of the foregoing.

     3K Fees and Expenses. Without limiting the provisions of paragraph 12B hereof, the Company
shall have paid the reasonable fees, charges and disbursements of special counsel to the Purchasers
referred to in paragraph 3B hereof.

     3L Structuring Fee. The Company shall have paid to Stetson Street Partners, L.P., by wire
transfer of immediately available funds to JPMorgan Chase, New York, New York, ABA #021-000-021,
for credit to the account of Stetson Street Partners, L.P., account
no. 304-244-325, a structuring
fee in the amount of $600,000 in immediately available funds.

     3M Proceedings. All corporate and other proceedings taken or to be taken in connection with
the transactions contemplated hereby and all documents incident thereto shall be satisfactory in
substance and form to such Purchaser, and such Purchaser shall have received all such counterpart
originals or certified or other copies of such documents as it may reasonably request.

     4. PREPAYMENTS. The Subordinated Notes shall be subject to prepayment with respect to the
optional prepayments permitted by paragraph 4B.

     4A Maturity. As provided therein, the entire outstanding principal amount of the Subordinated
Notes, together with any accrued and unpaid interest thereon, shall become due on March 24, 2013,
the maturity date of the Subordinated Notes.

     4B Optional Prepayment.

     4B(1). Optional Prepayments. The Subordinated Notes shall be subject to prepayment, in
whole at any time or from time to time in part (in aggregate integral multiples of
$1,000,000 and an aggregate minimum of $5,000,000 on any one occurrence), at the option of
the Company, at 100% of the principal amount so prepaid plus interest thereon to the
prepayment date and the Prepayment Amount, if any, with respect to each Subordinated Note.

     4B(2). Optional Prepayment in Connection with Specified Event. The Subordinated Notes
shall be subject to prepayment, in whole (but not in part),

 

 

concurrently with a Specified
Event, at the option of the Company, at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the
Specified Event Prepayment Amount with respect to each Subordinated Note.

     4C Notice of Optional Prepayment. The Company shall give the Subordinated Collateral Agent
irrevocable written notice of any prepayment pursuant to paragraph 4B not less than 10 Business
Days prior to the prepayment date. Each such notice shall state: (1) that such notice is being
given by the Company in accordance with this paragraph 4C and whether such prepayment is being
effected pursuant to paragraph 4B(1) or 4B(2), (2) the date fixed for prepayment, (3) the aggregate
principal amount of Subordinated Notes to be prepaid and the principal amount of Subordinated Notes
held by each Holder to be prepaid and the accrued and unpaid interest that will be paid in
connection with such prepayment, (4) the Prepayment Amount or Specified Event Prepayment Amount
payable with respect to each Subordinated Note, (5) in connection with a prepayment pursuant to
paragraph 4B(2), that such prepayment is in connection with a Specified Event and a description of
such Specified Event in reasonable detail, and (6) that the Company’s obligation to prepay the
Subordinated Notes is irrevocable, subject only, in connection with a prepayment pursuant to
paragraph 4B(2), to consummation of the applicable Specified Event. Notice of prepayment having
been given as aforesaid, the principal amount of the Subordinated Notes specified in such notice,
together with interest thereon to the prepayment date and together with the Prepayment Amount, if
any, or Specified Event Prepayment Amount, as applicable, with respect thereto, shall become due
and payable on such prepayment date. The Company shall, on or before the day on which it gives
written notice of any prepayment pursuant to paragraph 4B, give telephonic notice of the principal
amount of the Subordinated Notes to be prepaid and the prepayment date to each Significant Holder
which shall have designated a recipient of such notices in the Purchaser Schedule attached hereto
or by notice in writing to the Company.

     4D Partial Payments Pro Rata. In the case of each prepayment of less than the entire
outstanding principal amount of all Subordinated Notes pursuant to paragraph 4B(1), the principal
amount so prepaid shall be allocated pro rata to all Subordinated Notes at the time outstanding.

     4E No Acquisition of Subordinated Notes. The Company shall not, and shall not permit any of
its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their
stated final maturity (other than by prepayment pursuant to paragraph 4B or upon acceleration of
such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or
indirectly, Subordinated Notes held by any holder unless the Company or such Subsidiary or
Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the
case may be, the same proportion of the aggregate principal amount of Subordinated Notes held by
each other holder of Subordinated Notes at the time outstanding upon the same terms and conditions.
Any Subordinated Notes so prepaid or otherwise retired or purchased or otherwise acquired by the
Company or any of its Subsidiaries or Affiliates shall not be deemed to be outstanding for any
purpose under this Agreement.

     4. AFFIRMATIVE COVENANTS. The Company covenants that so long as any Subordinated Note is outstanding:

 

 

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

     (i) within 120 days after the end of each fiscal year of the Company (but in any event
no later than 120 days following the last Friday of January), the audited consolidating and
consolidated balance sheets of the Company and its consolidated Subsidiaries as at the end
of such fiscal year and the related consolidating and consolidated statements of income,
retained earnings and cash flows for the Company and its consolidated Subsidiaries for such
year, setting forth in each case in comparative form the figures for the previous year,
accompanied by an unqualified report and opinion thereon of independent certified public
Accountants of recognized national standing, which shall state that said consolidated
financial statements fairly present the consolidated financial condition and results of
operations of the Company and its consolidated Subsidiaries as at the end of, and for, such
fiscal year in accordance with GAAP;

     (ii) within 15 Business Days after the end of each fiscal quarter of the Company, the
unaudited consolidating and consolidated balance sheets of the Company and its consolidated
Subsidiaries as at the end of such period and the related unaudited consolidating and
consolidated statements of income, retained earnings and cash flows for such period;

     (iii) (a) within 12 Business Days after the end of each fiscal month, the unaudited
consolidating and consolidated balance sheets of the Company and its consolidated
Subsidiaries showing the Company’s financial condition as of the close of such month and (b)
within 12 Business Days after the end of each fiscal month, the related unaudited
consolidating and consolidated statements of income, retained earnings and cash flows for
such period;

     (iv) promptly upon transmission thereof, copies of all such financial statements, proxy
statements, notices and reports as it shall send to its public stockholders and copies of
all registration statements (without exhibits) and all reports which it files with the
Securities and Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission);

     (v) promptly upon receipt thereof, a copy of each management letter or other report
submitted to the Company or any Subsidiary by independent accountants in connection with any
annual, interim or special audit made by them of the books of the Company or any Subsidiary;

     (vi) promptly upon preparation thereof, a copy of the Company’s annual operating budget
for each fiscal year which has been approved by the Company’s board of directors (which
shall include, without limitation, projections for the net income of the Company and its
Subsidiaries and projections for net sales for the Company and its Subsidiaries, in each
case, for each twelve fiscal month period ending during such fiscal year);

 

 

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

     (viii) promptly, and in any event no later than 15 Business Days after a Responsible
Officer of the Company obtains knowledge thereof, written notice of any actions, suits or
proceedings (including arbitrations) threatened or pending by or against the Company before
any court, arbitrator or other Governmental Authority which would be likely to have a
Material Adverse Effect;

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

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

Together with each delivery of financial statements required by clauses (i), (ii) and (iii) above,
the Company will deliver to the Subordinated Collateral Agent an Officer’s Certificate
demonstrating (with computations in reasonable detail) compliance by the Company and its
Subsidiaries with the provisions of paragraph 6J and stating that there exists no Event of Default
or Default, or, if any Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Company proposes to take with respect thereto. Together with
each delivery of financial statements required by clause (i) above, the Company will deliver to the
Subordinated Collateral Agent a certificate of such Accountants stating that, in making the audit
necessary for their report on such financial statements, they have obtained no knowledge of any
Event of Default or Default, or, if they have obtained knowledge of any Event of Default or
Default, specifying the nature and period of existence thereof. Such Accountants, however, shall
not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or
Default which would not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards. The Company also covenants that immediately after any
Responsible Officer obtains knowledge of an Event of Default or Default, it will deliver to the
Subordinated Collateral Agent an Officer’s Certificate specifying the nature and period of
existence thereof and what action the Company proposes to take with respect thereto.

     5B. Information Required by Rule 144A. The Company covenants that it will, upon the
request of the holder of any Subordinated Note, provide such holder, and any qualified
institutional buyer designated by such holder, such financial and other information as such holder
may reasonably determine to be necessary in order to permit compliance with the information
requirements of Rule 144A under the Securities Act in connection with the resale of Subordinated
Notes, except at such times as the Company is subject to and in compliance with the reporting
requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the
term “qualified institutional buyer” shall have the meaning specified in Rule 144A under the
Securities Act.

 

 

     5C Inspection of Property. The Company covenants that it will permit any Person designated by
the Subordinated Collateral Agent in writing, at the Subordinated Collateral Agent’s expense if no
Default or Event of Default exists and at the Company’s expense if a Default or an Event of Default
exists, to visit and inspect any of the properties of the Company and its Subsidiaries, to examine
the corporate books and financial records of the Company and its Subsidiaries and make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such
corporations with the principal officers of the Company and its independent public accountants, all
at such reasonable times and as often as the Subordinated Collateral Agent may reasonably request;
provided that, during any period when no Event of Default exists, the Subordinated Collateral Agent
shall give the Company not less than 48 hours’ prior notice of such visit.

     5D Covenant to Secure Subordinated Notes Equally. The Company covenants that if it or any
Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or
hereafter acquired, other than Liens permitted by the provisions of paragraph 6A (unless prior
written consent to the creation or assumption thereof shall have been obtained pursuant to
paragraph 12C), it will make or cause to be made effective provision whereby the Subordinated Notes
will be secured by such Lien equally and ratably with any and all other Indebtedness thereby
secured so long as any such other Indebtedness shall be so secured; provided that the creation and
maintenance of such equal and ratable Lien shall not in any way limit or modify the right of the
holders of the Subordinated Notes to enforce the provisions of paragraph 6A.

     5E Compliance with Law. The Company covenants that it will, and will cause each of its
Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, including, without limitation, environmental laws, and will obtain and
maintain in full force and effect all licenses, certificates, permits, franchises, operating rights
and other authorizations from federal, state, foreign, regional, municipal and other local
regulatory bodies or administrative agencies or governmental bodies having jurisdiction over the
Company and its Subsidiaries or any of their respective properties necessary to the ownership,
operating or maintenance of their respective properties or to the conduct of their respective
businesses, in each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or maintain in full force and
effect such licenses, certificates, permits, franchises, operating rights and other authorizations
could not reasonably be expected, individually or in the aggregate, to have a Material Adverse
Effect.

     5G Insurance. The Company covenants that it will, and will cause each of its Subsidiaries to,
maintain, with financially sound and reputable insurers, insurance with respect to their respective
properties and businesses against such casualties and contingencies, of such types, on such terms
and in such amounts as is customary in the case of entities of established reputations engaged in
the same or a similar business and similarly situated. Maintenance of Properties. The Company
covenants that it will, and will cause each of its Subsidiaries to, maintain and keep, or cause to
be maintained and kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear), and from time to time make, or cause to be made, all needful
and proper repairs, renewals and replacements thereto, so that the business carried on in
connection therewith may be properly conducted at all times, provided that

 

 

this paragraph 5G shall not prevent the Company or any Subsidiary from discontinuing the
operation and the maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and such discontinuance could not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.

     5H Payment of Taxes. The Company covenants that it will, and will cause each of its
Subsidiaries to, file all income tax or similar tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all
other taxes, assessments, governmental charges or levies payable by any of them, and to pay and
discharge all amounts payable for work, labor and materials, in each case to the extent such taxes,
assessments, charges, levies and amounts payable have become due and payable and before they have
become delinquent, provided that neither the Company nor any Subsidiary need pay any such tax,
assessment, charge, levy or amount payable if (i) the amount, applicability or validity thereof is
being actively contested by the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or such Subsidiary has established adequate reserves
therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the
nonpayment of all such taxes, assessments, charges, levies and amounts payable in the aggregate
could not reasonably be expected to have a Material Adverse Effect.

     5I Corporate Existence. The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to paragraph 6D, the Company will at all times preserve and
keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged
into the Company or a Wholly-Owned Subsidiary), unless the termination of or failure to preserve
and keep in full force and effect such corporate existence, could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.

     5J Lines of Business. The Company covenants that it will not, and it will not permit any
Subsidiary of the Company to, engage in any business if, as a result thereof, the general nature of
the businesses of the Company and its Subsidiaries, taken as a whole, would be substantially
changed from the businesses of the Company and its Subsidiaries as conducted as of the date of
closing.

     5K Agreement Assuming Liability on Subordinated Notes. The Company covenants that, if at any
time any Person should become liable (as co-obligor, endorser, guarantor or surety) on any other
obligation of the Company, the Company will, at the same time, cause such Person to deliver to the
holders of the Subordinated Notes an agreement pursuant to which such Person becomes similarly
liable on the Subordinated Notes; provided this paragraph 5K shall not apply to (1) any Person
becoming liable solely as an endorser of a check in the ordinary course of business and (2) FAC,
Thomas J. Petters, and Theodore Deikel pursuant to the FAC Guaranty and the FAC Member Guaranty, as
applicable (each as defined in the Credit Agreement (as in effect on the date of closing)). The
delivery of such an agreement shall not in any way limit or modify the rights of the holders of the
Subordinated Notes to enforce the provisions of paragraph 6B.

     5L Pay Obligations. The Company covenants that it will, and will cause each of its
Subsidiaries to, pay, discharge or otherwise satisfy at or before maturity or before they become

 

 

delinquent, as the case may be, all of its material obligations, except when the (i) amount or
validity thereof is currently being contested in good faith by appropriate proceedings and such
Person has established adequate reserves in accordance with GAAP with respect thereto and no Liens
in respect thereof have been filed or (ii) the failure to so pay, discharge or otherwise satisfy
such obligations would not be likely to have a Material Adverse Effect.

     5M Further Assurances. The Company covenants that it will, and will cause each of its
Subsidiaries to, maintain the security interest created by this Agreement or any Security Document
subject only to (1) Liens securing the obligations under the Credit Agreement to the extent set
forth in the Intercreditor Agreement and (2) with respect to CIT Bank Collateral, Liens securing
the Company’s obligations under the Program Agreement. At its sole cost and without expense to any
Purchaser or the Subordinated Collateral Agent, on demand, the Company covenants that it will, and
will cause each its Subsidiaries to, do, execute, acknowledge and deliver all and every such
further acts, deeds, conveyances, assignments, notices of assignment, transfers and assurances as
the Subordinated Collateral Agent shall from time to time reasonably require for better assuring,
conveying, assigning, transferring and confirming to the Subordinated Collateral Agent the property
and rights pledged or assigned or intended now or hereafter so to be, or which any such Person may
be or may hereafter become bound to convey, pledge or assign to the Subordinated Collateral Agent
or for carrying out the intention or facilitating the performance of the terms of this Agreement or
any of the Security Documents.

     5L Future Subsidiaries. Upon any Person becoming, after the date of closing, a Subsidiary of
the Company, or upon the Company acquiring additional Equity Interests of any existing Subsidiary,
the Company shall notify each Purchaser and the Subordinated Collateral Agent of such acquisition
and

     (i) the Company shall promptly (but in any event within five (5) days) cause such
Subsidiary to execute and deliver to each Purchaser a supplement to the Subsidiary Guaranty
and a supplement to the Subsidiary Security Agreement, together with appropriate UCC
financing statements;

     (ii) the Company shall promptly deliver, or cause to be delivered to the
Subordinated Collateral Agent or its designee certificates (or, if such Equity Interest is
uncertificated, validly executed control agreements acceptable to the Subordinated
Collateral Agent) representing all the issued and outstanding Equity Interests of such
Subsidiary owned by the Company or any Subsidiary of the Company, as applicable, together
with undated stock powers for such certificates executed in blank (or, if such Equity
Interest is uncertificated, confirmation of all appropriate book entries), and shall take or
cause to be taken all other appropriate steps under applicable law to ensure perfection of
the security interest granted to the Subordinated Collateral Agent under the Security
Documents; provided that so long as the Credit Agreement requires the Company to deliver
certificates evidencing such Equity Interests and stock powers related thereto to the Bank
Agent, the requirement to deliver such certificates and stock powers to the Subordinated
Collateral Agent shall be deemed to be satisfied by the delivery thereof to the Bank Agent
pursuant to the Credit Agreement; and

 

 

     (iii) such opinions, in form and substance and from counsel reasonably satisfactory
to the Required Holder(s), as the Required Holder(s) may reasonably require.

     5O. Amendments to Credit Agreement. Upon entering into any amendment or other modification
of the Credit Agreement (or any other agreement relating to the Senior Debt) the effect of which is
to add or make more restrictive any event of default or any covenant contained in the Credit
Agreement (or any other agreement relating to the Senior Debt) or make any change to any event of
default or any covenant that would have the effect of making such event of default or covenant more
restrictive, the Company shall (1) promptly, and in any event within 3 Business Days provide
written notice thereof to each holder of Subordinated Notes describing such amendment in reasonable
detail and (2) offer to enter into an amendment of this Agreement within 10 Business Days of
consummating such amendment or modification to make corresponding changes or additions herein in
respect of such covenants and events of default; provided, that, during any period when a Senior
Default (as defined in the Intercreditor Agreement) has occurred and is continuing, the Company
shall not be required to make the offer referred to in this clause (2); provided, further, however,
that as to covenants or events of default which set forth any requisite ratio or compliance amounts
such ratios and compliance amounts may, if so required by the terms of the Credit Agreement or the
Intercreditor Agreement, be less restrictive on the Company to the same extent as the applicable
covenant or event of default is on the date of closing.

     5P Delivery of Landlord Lien Waivers. Without limiting the generality of any other provision
of this Agreement or any other Transaction Document, the Company shall, and shall cause its
Subsidiaries to, deliver promptly to the Subordinated Collateral Agent (for the benefit of the
Purchasers) landlord lien waivers (in form and substance satisfactory to the Subordinated
Collateral Agent), duly executed by the Company and/or such Subsidiary and the applicable landlord,
with respect to (i) each property at which a material portion of the Company’s or such Subsidiary’s
business is conducted or (ii) which the loss of use of such property would result in a Material
Adverse Effect.

     5Q Further Actions with Respect to Domain Names. Without limiting the generality of any other
provision of this Agreement or any other Transaction Documents, the Company shall, and shall cause
its Subsidiaries to, take promptly such further actions and to execute and deliver such further
documents and instruments (and, if necessary, use its best efforts to cause the applicable domain
name registrars to execute and deliver such documents and instruments) as the Subordinated
Collateral Agent may deem necessary or desirable from time to time (all in form and substance
satisfactory to the Subordinated Collateral Agent) to enable the Subordinated Collateral Agent (on
behalf of the Purchasers) to establish, preserve and protect its rights, remedies and privileges
with respect to each domain name of the Company and its Subsidiaries from time to time, including
the execution and delivery of such documents and instruments as would enable the Subordinated
Collateral Agent to sell or transfer each such domain name following an Event of Default; provided,
that in the event it is impracticable for the Company to simultaneously comply with the provisions
of this paragraph 5Q and the provisions of Section 8.13 of the Credit Agreement (as in effect on
the date of closing), the Company shall comply with the provisions of Section 8.13 of the Credit
Agreement (as in effect on the date of closing) and shall be relieved from its obligation to comply
with this paragraph 5Q for so long as such impracticability exists.

 

 

     5R. Further Assurances with Respect to Deposit Accounts. Without limiting the generality
of any other provision of this Agreement or any other Transaction Document,

     (i) the Company shall deliver to the Subordinated Collateral Agent promptly, and in
any event within 45 days of the date of closing, a consent from U.S. Bank National
Association and Huntington National Bank to any future assignment of the Bank Agent’s
interest in the related deposit account control agreement in form and substance reasonably
satisfactory to the Subordinated Collateral Agent; and

     (ii) the Company shall cause any deposit account control agreement entered into
after the date of closing to permit the future assignment of the Bank Agent’s interest in
such agreement to the Subordinated Collateral Agent.

     5S. Applicable Projected Cash Burn Rate. Within 30 days prior to December 1, 2007, the
Company shall deliver to the Subordinated Collateral Agent an updated forecast of the Applicable
Projected Cash Burn Rate for each of the three-month rolling periods ending on March 31, April 30
and May 31, 2008.

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

     6A. Liens and Other Interests. The Company covenants that it will not, and will not permit any
Subsidiary to, grant, create, incur, assume or suffer to exist any Lien or assign or transfer any
of its Property, whether now owned or hereafter acquired, to secure any Indebtedness, including any
option to buy or right to receive income with respect to such Property, except for:

     (i) Liens securing payment of the Senior Debt;

     (ii) Liens securing payment of the Subordinated Notes and the other Obligations;

     (iii) Liens granted on or prior to the date of closing securing payment of
Indebtedness of the type permitted and described in paragraph 6B(iii) and are identified as
Permitted Liens on Schedule 6A; and

     (iv) other Permitted Liens.

     6B. Indebtedness; Guarantees. The Company covenants that it will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist or otherwise become liable for any
Indebtedness other than, without duplication, the following: Senior Debt;

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

 

 

     (ii) Indebtedness existing on the date of closing and set forth in Schedule 6B
(identified by the holder of such Indebtedness, the outstanding principal amount thereof as
of the date of closing and the instrument pursuant to which such Indebtedness was incurred);

     (iii) unsecured Indebtedness incurred in the ordinary course of business including
open accounts extended by suppliers on normal trade terms in connection with purchases of
goods and services by the Company, but excluding Indebtedness incurred through the borrowing
of money or any Guarantee thereof; provided, however, that if the Company or its
Subsidiaries can properly incur Indebtedness under this paragraph 6B, then the Company or
its Subsidiaries, as applicable may provide a Guarantee for such Indebtedness so incurred;
and

     (iv) Indebtedness of the Company to any of its Wholly-Owned Subsidiaries, or
Indebtedness of any such Wholly-Owned Subsidiary to the Company, which intercompany
Indebtedness (a) shall be evidenced by one or more promissory notes in form and substance
satisfactory to the Required Holder(s) and which has been duly executed and delivered to
(and indorsed to the order of) the Subordinated Collateral Agent (or, until such time as no
Senior Debt is outstanding, the Bank Agent) in pledge pursuant to a Security Document, and
(b) shall not be forgiven or otherwise discharged for any consideration other than full
payment in cash unless the Required Holder(s) shall otherwise consent.

     6C. Investments. The Company covenants that it will not, and will not permit any Subsidiary
to, make, incur, assume or suffer to exist any Investment in any other Person, except:

     (i) Investments existing on the date of closing and set forth in Schedule 6C;

     (ii) Permitted Investments;

     (iii) without duplication, Investments permitted as Indebtedness pursuant to
paragraph 6B;

     (iv) without duplication, Investments made in the ordinary course of business by
the Company in any of its Wholly-Owned Subsidiaries, or by any such Subsidiary in any of its
Wholly-Owned Subsidiaries, by way of contributions to capital (subject, in all cases, to
compliance with paragraph 5N);

     (v) commissions, travel and similar advances to officers, directors and employees
made in the ordinary cause of business not to exceed $10,000 in the aggregate outstanding at
any time; and

     (vi) advances in the form of prepaid rent (not to exceed one month in the case of
Related Parties, and three months in all other cases); provided, however, that no Investment
otherwise permitted by clause (iii) shall be permitted to be made if, immediately before or
after giving effect thereto, any Default or Event of Default shall have occurred and be
continuing.

 

 

     6D. Merger or Consolidation. The Company covenants that it will not, and will not permit
any Subsidiary to, sell, pledge, assign or transfer to any other Person, all or substantially all
of its Property, or merge or consolidate with or acquire all or substantially all of the Property
of, any other Person; provided however, that the Company may merge any of its Wholly-Owned
Subsidiaries into itself and may acquire all or substantially all of the Property of such
Subsidiaries.

     6E Asset Dispositions. The Company covenants that it will not, and will not permit any
Subsidiary to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or
other rights with respect to, all or a substantial part of its Property (including receivables and
Equity Interests of its Subsidiaries) to any Person, unless such sale, transfer, lease,
contribution or conveyance is a sale of inventory made in the ordinary course of its business or is
a sale or disposition of surplus or obsolete goods being retired or replaced; provided, however,
that (a) any of the Company’s Wholly-Owned Subsidiaries may transfer all or substantially all of
the Property of such Subsidiary to the Company, (b) the Company may sell receivables pursuant to a
Securitization so long as the proceeds of any such Securitization are used to prepay Senior Debt to
the extent contemplated in the Intercreditor Agreement and (c) the Company may sell, transfer or
otherwise dispose of any receivable which is more than 180 days past due (as reflected on the
Company’s computer system). All sales of inventory will be sold and shipped by the Company to its
customers only in the ordinary course of the Company’s business, and then only on open account or
in exchange for cash, check or payment by credit or debit card or other similar means and on terms
currently being extended by the Company to its customers, provided that, absent the prior written
consent of the Required Holder(s), the Company shall not sell inventory on a consignment basis nor
retain any lien or security interest in any sold inventory. None of the Company’s Subsidiaries
shall own any inventory.

     6F. Restricted Payments.

     (i) The Company covenants that it will not, and will not permit any Subsidiary to,
declare or make, or agree to declare or make, directly or indirectly, any Restricted
Payment, or incur any obligation (contingent or otherwise) to do so; provided, however, that
the Wholly-Owned Subsidiaries may make Restricted Payments to the Company.

     (ii) The Company covenants that it will not, and will not permit any Subsidiary to,
make any Investment in or advances to FAC or any of its Affiliates (other than such
Affiliates of FAC that are Subsidiaries of the Company).

     (iii) The Company covenants that it will not, and will not permit any Subsidiary
to, provide any Guarantee in respect of Indebtedness of FAC or any of its Affiliates (other
than in respect of Indebtedness of the Company or a Subsidiary permitted under paragraph
6B).

     6G. Negative Pledge. The Company covenants that it will not, and will not permit any
Subsidiary to, enter into or suffer to exist any agreement (excluding this Agreement, any other
Transaction Document and the Credit Agreement), prohibiting:

 

 

     (i) the creation or assumption of any Lien upon its properties, revenues or assets,
whether now owned or hereafter acquired, or, except as set forth in the Intercreditor
Agreement, the ability of the Company or any Subsidiary of the Company to amend or otherwise
modify this Agreement or any other Transaction Document; or

     (ii) the ability of any Subsidiary of the Company to make any payments, directly or
indirectly, to the Company by way of dividends, advances, repayments of loans or advances,
reimbursements or management and other intercompany charges, expenses and accruals or other
returns on investments, or any other agreement or arrangement which restricts the ability of
any such Subsidiary to make any payment, directly or indirectly, to the Company.

     6H. Amendments to Organizational Documents. The Company covenants that it will not, and
will not permit any Subsidiary to, amend, modify, supplement or restate any Organizational Document
without the prior consent of the Required Holder(s) if such amendment, modification, supplement or
restatement:

     (i) could reasonably be expected to materially adversely affect (a) any Purchaser’s
rights and remedies hereunder or (b) the Company’s or any other Obligor’s ability to perform
hereunder or under any other Transaction Document; or

     (ii) would increase the amount or accelerate the time for any payment, dividend or
other distribution to the holders of any Equity Interest of the Company or any Subsidiary.

     6I. Changes in Name, Location of Inventory, Etc.

     (i) The Company covenants that it will not, and will not permit any Subsidiary to,
(a) change its jurisdiction of organization, name, identity or corporate structure or the
equivalent, (b) change the location of its chief executive office/chief place of business,
unless it shall have given each holder of a Subordinated Note at least 45 days’ prior
written notice thereof or (c) change its fiscal year from a fiscal year ending on the Friday
closest in number of days (either prior or subsequent) to January 31st of each calendar
year. Notwithstanding the foregoing, the Purchasers hereby acknowledge that the Company will
relocate its chief executive office/chief place of business to 7777 Golden Triangle Drive,
Eden Prairie, Minnesota 55344, commencing on or prior to May 1, 2006.

     (ii) The Company shall not change the location of any of its inventory (other than
to another inventory location identified on Schedule 8T), unless (a) it shall have given the
Subordinated Collateral Agent at least 45 days’ prior written notice thereof and, at the
time of such change in location, it shall have delivered to the Subordinated Collateral
Agent an updated Schedule 8T, (b) except to the extent such requirement is expressly waived
by the Subordinated Collateral Agent in writing, the landlord with respect to each new
inventory location shall have executed and delivered to the Subordinated Collateral Agent a
landlord lien waiver in a form approved by the Subordinated Collateral Agent at or prior to
the time of such change in location and (c)

 

 

the Company shall have taken such actions (if
any) as the Subordinated Collateral Agent
may reasonably request to perfect (or maintain the perfection of) the Subordinated
Collateral Agent’s security interest in the inventory located at such new location.

     6J. Financial Covenants.

     (i) Leverage Ratio. The Company shall not permit the Leverage Ratio as of the end
of any fiscal quarter of the Company (or occurring on any date during any fiscal quarter of
the Company) to be greater than 6.65:1.00.

     (ii) Current Ratio. The Company shall not permit the Current Ratio as of the end of
any fiscal quarter of the Company (or occurring on any date during any fiscal quarter of the
Company) to be less than 0.9:1.0.

     (iii) Minimum Tangible Net Worth. The Company shall not permit its Tangible Net
Worth as of the end of any fiscal quarter of the Company (or occurring on any day during any
fiscal quarter of the Company) to be less than (a) for each fiscal quarter ending on or
prior to March 23, 2007, $21,000,000, (b) for each fiscal quarter ending after March 23,
2007 but on or prior to March 23, 2008, $25,000,000 and (c) for each fiscal quarter
thereafter, (i) 75% of the Tangible Net Worth as of February 1, 2008 plus (ii) an aggregate
amount equal to 100% of the consolidated net income (as determined in accordance with GAAP)
of the Company and its Subsidiaries (but, in each case, only if a positive number) for each
completed fiscal year thereafter.

     (iv) Minimum Cash Balance. The Company shall not permit, on any day, the amount of
cash including, without duplication, Permitted Investments, which would appear on the
Company’s balance sheet for such day, to be less than the sum of (a) $750,000 and (b) the
Applicable Projected Cash Burn Rate.

     (v) Maximum Sales Shortfall. The Company shall not permit net sales for any period
set forth in Schedule 6J(v), to be less than 70% of the projected net sales for such period
as set forth in Schedule 6J(v).

     (vi) Maximum Net Income Shortfall. The Company shall not permit net income
(determined in accordance with GAAP) for any period set forth in Schedule 6J(vi), to be less
than the net income set forth opposite such period as set forth in Schedule 6J(vi).

     (vii) Maximum Capital Expenditures~ The Company shall not, and shall not permit any
Subsidiary to, contract for, purchase or make any expenditure or commitments for Capital
Expenditures in any fiscal year in an aggregate amount in excess of the amount set forth
below for such fiscal year:

 

 

	 	 	 
	Maximum Capital Expenditures.	 	 
	The Company shall not, and shall	 	 
	not permit any Subsidiary to,	 	 
	contract for, purchase or make any	 	 
	expenditure or commitments for	 	 
	Capital Expenditures in any fiscal	 	 
	year in an aggregate amount in	 	 
	excess of the amount set forth	 	 
	below for such fiscal year:	 	 
	Fiscal Year	 	Amount
	2006
	 	$8,250,000
	2007
	 	$9,350,000
	2008 and each fiscal year thereafter
	 	125% of the amount of Capital Expenditures

indicated in the budget for such fiscal year

delivered pursuant to paragraph 5A(vi)

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

	 	 	 
	Fiscal Year	 	Amount
	2008
	 	$35,000,000
	2009
	 	$40,000,000
	2010
	 	$50,000,000
	2011
	 	$55,000,000
	2012 and each fiscal year thereafter
	 	$60,000,000

     6K Related Party Transactions. The Company covenants that it will not, and will not permit any
Subsidiary to, enter into, or otherwise be a party to, directly or indirectly, any transaction
(including, without limitation, the purchase, lease, sale or exchange of properties of any kind or
the rendering of any service) with any Related Party, except pursuant to the reasonable
requirements of the Company’s or such Subsidiary’s business and on fair and reasonable terms no
less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm’s
length transaction with a Person not a Related Party; provided, however, that the foregoing
covenant shall not apply to (i) any agreement set forth on Schedule 6K as in effect on the date of
closing or (ii) out-of-pocket expense reimbursement for officers of the Company or a Subsidiary
(consistent with paragraph 6C(v)) and for directors of the Company and observers of the Company’s
Board of Directors meetings.

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

     6M Limitation on Issuance of Other Subordinated Indebtedness Senior to the Subordinated Notes.
The Company shall not create, incur, assume, permit or exist, Guarantee, or in any other manner
become liable with respect to any Indebtedness, other than the
Subordinated Notes, that is contractually subordinate in right of payment to any Senior Debt

 

 

unless such Indebtedness is otherwise permitted by the terms hereof and is Indebtedness that is
pari passu with, or subordinate pursuant to provisions substantially similar to those
contained in the Intercreditor Agreement in right of payment to, the Subordinated Notes.

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

     6O. Credit Agreement. The Company covenants that it will not (i) enter into any oral or
written amendment, supplement, alteration, waiver or other modification of any of the terms or
provisions of the Credit Agreement (or any instrument or agreement relating thereto) if the effect
or result of any such amendment, supplement, alteration, waiver or other modification is to
increase the advance rates on collateral by more than 5% (in the aggregate when added to the amount
of overadvances referred to in clause (ii) below) from those in effect on the date of closing and
(ii) request or receive any loan under the Credit Agreement in excess of 5% (in the aggregate when
added to the amount of increases to the advance rates referred to in clause (i) above) over the
amount permitted by the advance rates contained in the Credit Agreement as in effect on the date of
closing.

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

7. EVENTS OF DEFAULT.

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

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

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

     (iii) (a) the Company or any Subsidiary defaults in the payment or performance of any
term contained in the Credit Agreement (or if any other event thereunder shall occur and be
continuing) and the effect of such default or other event is to cause (or the Bank Lenders
cause) the loans under the Credit Agreement to become due prior to stated maturity or (b)
the Company or any Subsidiary defaults (whether as primary obligor or as guarantor or other
surety) in any payment of principal of or interest on any other
obligation for money borrowed (or any Capitalized Lease Obligation, any

 

 

obligation
under a conditional sale or other title retention agreement, any obligation issued or
assumed as full or partial payment for property whether or not secured by a purchase money
mortgage or any obligation under notes payable or drafts accepted representing extensions of
credit) beyond any period of grace provided with respect thereto, or the Company or any
Subsidiary fails to perform or observe any other agreement, term or condition contained in
any agreement under which any such obligation is created (or if any other event thereunder
or under any such agreement shall occur and be continuing) and the effect of such failure or
other event is to cause, or to permit the holder or holders of such obligation (or a trustee
on behalf of such holder or holders) to cause, such obligation to become due (or to be
repurchased by the Company or any Subsidiary) prior to any stated maturity, provided that
the amount of such obligation as to which such a payment default shall occur and be
continuing or such a failure or other event causing or permitting acceleration (or resale to
the Company or any Subsidiary) shall occur and be continuing exceeds $150,000; or

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

     (v) the Company (a) fails to perform or observe any agreement contained
in paragraph 5A(vii), paragraph 51 or paragraph 6 or (b) fails to give notice of a Default
or Event of Default as required by the last sentence of paragraph 5A; or

     (vi) the Company fails to perform or observe (a) any agreement contained
in paragraph 5C, paragraph 5E, paragraph 5H, paragraph 5L or paragraph 5S and such failure
shall continue unremedied for a period of 5 consecutive Business Days; provided, that the
Company shall not have the right to cure Defaults arising pursuant to this clause (vi)(a)
(and thereby prevent the occurrence of an Event of Default) more than three times in any
calendar year or (b) any other agreement, term or condition contained herein and such
failure shall not be remedied within 10 Business Days after any Responsible Officer obtains
actual knowledge thereof, or the Company or any Subsidiary fails to perform or observe any
agreement contained in any other Transaction Document and such failure shall not be remedied
within the grace period, if any, provided therefor in such Transaction Document (or, if no
grace period is provided therefor in such Transaction Document, within 10 Business Days
after any Responsible Officer obtains actual knowledge thereof); provided that the Company
and its Subsidiaries shall not, in the aggregate, have the right to cure Defaults arising
pursuant to this clause (vi)(b) (and thereby prevent the occurrence of an Event of Default)
more than three times in any calendar year; or

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

     (ix) any decree or order for relief in respect of the Company or any Subsidiary is
entered under any bankruptcy, reorganization, compromise, arrangement, insolvency,

 

 

readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in
effect (herein called the “Bankruptcy Law”), of any jurisdiction; or the Company or any
Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or
taking possession by, a trustee, receiver, custodian, liquidator or similar official of the
Company or any Subsidiary, or of any substantial part of the assets of the Company or any
Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States or
any proceedings (other than proceedings for the voluntary liquidation and dissolution of a
Subsidiary) relating to the Company or any Subsidiary under the Bankruptcy Law of any other
jurisdiction; or

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

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

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

     (xiii) one or more final judgments in an aggregate amount in excess of $500,000 (to
the extent not covered by independent third-party insurance as to which the insurer does not
dispute coverage) is rendered against the Company or any Subsidiary and either (a)
enforcement proceedings have been commenced by any creditor upon any such judgment or (b)
within 30 days after entry thereof, any such judgment is not discharged or execution thereof
stayed pending appeal, or within 30 days after the expiration of any such stay, such
judgment is not discharged; or

     (xiv) any ERISA Event shall occur; or

     (xv) any Change of Control shall occur; or

 

 

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

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

     7B. Rescission of Acceleration. At any time after any or all of the Subordinated Notes shall
have been declared immediately due and payable pursuant to paragraph 7A, the Required Holder(s)
may, by notice in writing to the Company, rescind and annul such declaration and its consequences
if (i) the Company shall have paid all overdue interest on the Subordinated Notes, the principal of
and Yield-Maintenance Amount, Prepayment Amount or Specified Event Prepayment Amount payable with
respect to any Subordinated Notes which

 

 

have become due otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield-Maintenance Amount, Prepayment Amount or Specified Event
Prepayment Amount at the Default Rate, (ii) the Company shall not have paid any amounts which have
become due solely by reason of such declaration, (iii) all Events of Default and Defaults, other
than non-payment of amounts which have become due solely by reason of such declaration, shall have
been cured or waived pursuant to paragraph 12C, and (iv) no judgment or decree shall have been
entered for the payment of any amounts due pursuant to the Subordinated Notes or this Agreement. No
such rescission or annulment shall extend to or affect any subsequent Event of Default or Default
or impair any right arising therefrom.

     7C Notice of Acceleration or Rescission. Whenever any Subordinated Note shall be declared
immediately due and payable pursuant to paragraph 7A or any such declaration shall be rescinded and
annulled pursuant to paragraph 7B, the Company shall forthwith give written notice thereof to the
holder of each Subordinated Note at the time outstanding.

     7D Other Remedies. If any Event of Default or Default shall occur and be continuing, the
holder of any Subordinated Note may proceed to protect and enforce its rights under this Agreement
and such Subordinated Note by exercising such remedies as are available to such holder in respect
thereof under applicable law, either by suit in equity or by action at law, or both, whether for
specific performance of any covenant or other agreement contained in this Agreement or in aid of
the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the
holder of any Subordinated Note or the Subordinated Collateral Agent is intended to be exclusive of
any other remedy, and each and every such remedy shall be cumulative and shall be in addition to
every other remedy conferred herein or now or hereafter existing at law or in equity or by statute
or otherwise.

8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants as
follows:

     8A(1). Organization; Subsidiary Preferred Stock. The Company is a corporation duly
organized and existing in good standing under the laws of the State of Delaware and each Subsidiary
is duly organized and existing in good standing under the laws of the jurisdiction in which it is
incorporated. The Company and each of its Subsidiaries have duly qualified or been duly licensed,
and are authorized to do business and are in good standing, in each jurisdiction in which the
ownership of their respective properties or the nature of their respective businesses makes such
qualification or licensing necessary and in which the failure to be so qualified or licensed could
be reasonably likely to have a Material Adverse Effect. Schedule 8A(1) hereto sets forth, as of the
date hereof, a correct list of each Subsidiary, its jurisdiction of incorporation and its
ownership. No Subsidiary has any outstanding shares of any class of Equity Interests which has
priority over any other class of Equity Interests of such Subsidiary as to dividends or in
liquidation except as may be owned beneficially and of record by the Company or a Wholly-Owned
Subsidiary.

     8A(2). Equity Interests.

     (i) On the date of closing, immediately after giving effect to the transactions
contemplated by the Transaction Documents:

 

 

     (a) the authorized and issued Equity Interests of the Company will consist of
(1) 1,255,114,166 shares of authorized Common Stock, 125,029,168 shares of which
will be issued and outstanding and 789,055,211 shares of which will be reserved for
issuance upon conversion of the Preferred Stock and upon conversion of the Preferred
Stock issuable upon exercise of the Warrants, and (2) 789,055,211 shares of
authorized Preferred Stock, 747,312,753 shares of which will be issued and
outstanding and 41,742,458 shares of which will be reserved for issuance upon the
exercise of the Warrants;

     (b) other than (1) the Warrants, (2) the Preferred Stock, (3) outstanding
warrants to purchase 49,991,158 shares of Common Stock, (4) shares of Common Stock
issuable upon exercise of outstanding options or available for additional awards
under the 2003 Equity Incentive Plan and the 2005 Non-Employee Directors Plan in the
aggregate amount of 79,485,909 shares and (5) issuance of Common Stock, in lieu of
cash, in payment of the 8% dividend on the Preferred Stock when declared by the
Board of Directors and upon written election of the holders of at least 75% of the
then outstanding Preferred Stock, there are no other options for, rights to acquire,
agreements to issue, or securities exercisable for or convertible into shares of the
Company’s Equity Interests; and

     (c) Schedule 8A(2) hereto sets forth a true and complete list of
stockholders of the Company and the number and class of shares held by each.

     (ii) The total number of outstanding shares of Common Stock, on a fully-diluted basis
after giving effect to the exercise of the Warrants, the conversion of the Preferred Stock,
the exercise of outstanding Common Stock Warrants,’ the exercise of options outstanding and
available for additional grants and the transactions contemplated by the Transaction
Documents, is 1,043,561,446.

     8A(3). Power and Authority. The Company and each Subsidiary has all requisite corporate
power to own or hold under lease and operate their respective properties which it purports to own
or hold under lease and to conduct its business as currently conducted and as currently proposed to
be conducted.

     8A(4). Execution and Delivery of Transaction Documents. The Company has all requisite
corporate power to execute, deliver and perform its obligations under this Agreement, the
Subordinated Notes and the other Transaction Documents to which it is a party. The execution,
delivery and performance of this Agreement, the Subordinated Notes and the other Transaction
Documents to which it is a party have been duly authorized by all requisite corporate action, and
this Agreement, the Subordinated Notes and the other Transaction Documents to which it is a party
have been duly executed and delivered by authorized officers of the Company and are valid
obligations of the Company, legally binding upon and enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors’ rights generally and
(ii) general principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The Company has duly authorized the issuance of 41,742,458 shares
of the Preferred Stock upon the exercise of the

 

 

Warrants, such number of shares of the Preferred Stock has been reserved for issuance upon the
exercise of the Warrants and, upon such exercise and payment of the purchase price therefor
pursuant to the Warrants, such shares will be duly authorized and issued, fully paid and
non-assessable.

     8B Financial Statements. The Company has furnished each Purchaser with the following financial
statements, identified by a principal financial officer of the Company: (i) a consolidated balance
sheet of the Company and its Subsidiaries as at January 31, 2003, and consolidated statements of
income, retained earnings and cash flows of the Company and its Subsidiaries for the period from
September 11, 2002 to January 31, 2003, all reported on by Deloitte & Touche; (ii) a consolidated
balance sheet of the Company and its Subsidiaries as at January 30, 2004 and January 28, 2005, and
consolidated statements of income, retained earnings and cash flows of the Company and its
Subsidiaries for each such year, all reported on by Deloitte & Touche; and (iii) a consolidated
balance sheet of the Company and its Subsidiaries for each completed fiscal month since January 28,
2005 and consolidated statements of income, retained earnings and cash flows for the fiscal period
ended on each such date, prepared by the Company. Such financial statements (including any related
schedules and/or notes) are true and correct in all material respects (subject, as to interim
statements, to changes resulting from audits and year-end adjustments), have been prepared in
accordance. with GAAP consistently followed throughout the periods involved and show all
liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in
accordance with such principles. The balance sheets fairly present the condition of the Company and
its Subsidiaries as at the dates thereof, and the statements of income, retained earnings and cash
flows fairly present the results of the operations of the Company and its Subsidiaries and their
cash flows for the periods indicated. Since November 1, 2004, neither the Company nor any
Subsidiary of the Company has paid or declared any dividend on any shares of its Equity Interests
or made any other distribution on account of any shares of its Equity Interests (other than
dividends or distributions payable solely to the Company or a Wholly-Owned Subsidiary of the
Company) or redeemed, purchased, retired or otherwise acquired any shares of its Equity Interests
or any warrants, rights or options to acquire, or securities convertible into or exchangeable for,
any shares of its Equity Interests (other than from the Company or a Wholly-Owned Subsidiary of the
Company). There has been no material adverse change in the business, property or assets, condition
(financial or otherwise), operations or prospects of the Company and its Subsidiaries taken as a
whole since January 28, 2005.

     8C Actions Pending. There is no action, suit, investigation or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any
properties or rights of the Company or any of its Subsidiaries, by or before any court, arbitrator
or administrative or governmental body which, individually or in the aggregate, could reasonably be
expected to result in any Material Adverse Effect.

     8D Outstanding Indebtedness. Neither the Company nor any of its Subsidiaries has outstanding
any Indebtedness except as permitted by paragraph 6B. There exists no default under the provisions
of any instrument evidencing such Indebtedness or of any agreement relating thereto.

 

 

     8E Title to Properties. Neither the Company nor any of its Subsidiaries is fee owner of any
real properties. The Company and each of its Subsidiaries has good title to all of its respective
properties and assets, including the properties and assets reflected in the balance sheet as at
January 28, 2005 referred to in paragraph 8B (other than properties and assets disposed of in the
ordinary course of business), subject to no Lien of any kind except Liens permitted by paragraph
6A. All leases necessary in any material respect for the conduct of the respective businesses of
the Company and its Subsidiaries are valid and subsisting and are in full force and effect.

     8F Taxes. The Company has and each of its Subsidiaries has filed all federal, state and other
income tax returns which, to the knowledge of the officers of the Company and its Subsidiaries, are
required to be filed, and each has paid all taxes as shown on such returns and on all assessments
received by it to the extent that such taxes have become due, except such taxes as are being
actively contested in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP.

     8G Conflicting Agreements and Other Matters. Neither the Company nor any of its Subsidiaries
is a party to any contract or agreement or subject to any charter or other corporate restriction
which materially and adversely affects its business, property or assets, condition (financial or
otherwise) or prospects. Neither the execution nor delivery of this Agreement, the Subordinated
Notes or the other Transaction Documents, nor the offering, issuance and sale of the Subordinated
Notes or the Warrants, nor fulfillment of nor compliance with the terms and provisions hereof, of
the Subordinated Notes, of the Warrants and of the other Transaction Documents will conflict with,
or result in a breach of the terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien (other than Liens created
pursuant to the Security Documents) upon any of the properties or assets of the Company or any of
its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any
award of any arbitrator or any agreement (including any agreement with stockholders), instrument,
order, judgment, decree, statute, law, rule or regulation to which the Company or any of its
Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or
otherwise subject to any provision contained in, any instrument evidencing Indebtedness of the
Company or such Subsidiary, any agreement relating thereto or any other contract or agreement
(including its charter) which limits the amount of, or otherwise imposes restrictions on the
incurring of, Indebtedness of the Company of the type to be evidenced by the Subordinated Notes or
Indebtedness of any Subsidiary Guarantor of the type to be evidenced by the Subsidiary Guaranty
except as set forth in the agreements listed in Schedule 8G attached hereto.

     8H Offering of Subordinated Notes and Warrants. Neither the Company nor any agent acting on
its behalf has, directly or indirectly, offered the Subordinated Notes or the Warrants or any
similar security of the Company for sale to, or solicited any offers to buy the Subordinated Notes
or the Warrants or any similar security of the Company from, or otherwise approached or negotiated
with respect thereto with, any Person other than Institutional Investors, and neither the Company
nor any agent acting on its behalf has taken or will take any action which would subject the
issuance or sale of the Subordinated Notes or the Warrants to the provisions of section 5 of the
Securities Act or to the provisions of any securities or Blue Sky law of any applicable
jurisdiction.

 

 

     8I. Use of Proceeds. Neither the Company nor any Subsidiary owns or has any present intention
of acquiring any “margin stock” as defined in Regulation U (12 CI-R Part 221) of the Board of
Governors of the Federal Reserve System (herein called “margin stock”). The proceeds of sale of the
Subordinated Notes will be used to refinance existing Indebtedness of the Company (including
Indebtedness outstanding under the Stafford Loan Agreement) and for working capital purposes. None
of such proceeds will be used, directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any Indebtedness which was originally incurred to purchase or
carry any stock that is currently a margin stock or for any other purpose which might constitute
the sale or purchase of any Subordinated Notes a “purpose credit” within the meaning of such
Regulation U. The Company is not engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin stock. Neither the
Company nor any agent acting on its behalf has taken or will take any action which might cause this
Agreement or any Subordinated Note to violate Regulation T, Regulation U or any other regulation of
the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case
as in effect now or as the same may hereafter be in effect.

     8J ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA
and section 412 of the Code), whether or not waived, exists with respect to any Plan (other
than a Multiemployer Plan). No liability to the PBGC has been or is expected by the Company or any
ERISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company, any Subsidiary or any ERISA Affiliate which is or could reasonably be expected to be
materially adverse to the business, property or assets, condition (financial or otherwise) or
operations of the Company and its Subsidiaries taken as a whole. Neither the Company, any
Subsidiary nor any ERISA Affiliate has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any Multiemployer Plan which is or could
reasonably be expected to be materially adverse to the business, condition (financial or otherwise)
or operations of the Company and its Subsidiaries taken as a whole. The execution and delivery of
this Agreement and the issuance and sale of the Subordinated Notes and the Warrants will be exempt
from, or will not involve any transaction which is subject to, the prohibitions of section 406 of
ERISA and will not involve any transaction in connection with which a penalty could be imposed
under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code. The
representation by the Company in the next preceding sentence is made in reliance upon and subject
to the accuracy of each Purchaser’s representation in paragraph 9B.

     8K Governmental Consent. Neither the nature of the Company or of any Subsidiary, nor any of
their respective businesses or properties, nor any relationship between the Company or any
Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance,
sale or delivery of the Subordinated Notes or the Warrants is such as to require any authorization,
consent, approval, exemption or other action by or notice to or filing with any court or
administrative or governmental body (other than routine filings after the date of closing with the
Securities and Exchange Commission and/or state Blue Sky authorities and other than the filings and
recordings necessary to perfect the Liens in the Collateral intended to be created by the Security
Documents described on Schedule 8K hereto) in connection with the execution

 

 

and delivery of this Agreement and the other Transaction Documents, the offering, issuance,
sale or delivery of the Subordinated Notes or the Warrants or fulfillment of or compliance with the
terms and provisions hereof, of the Subordinated Notes, or of the other Transaction
Documents.Compliance with Environmental and Other Laws. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in all respects with all
federal, state, local, foreign and regional statutes, laws, ordinances and judicial or
administrative orders, judgments, rulings and regulations, including, without limitation, those
relating to protection of the environment except, in any such case, where failure to comply,
individually or in the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.

     8L Regulatory Status. Neither the Company nor any of its Subsidiaries is (i) an “investment
company” as defined in, or subject to regulation under, the Investment Company Act of 1940, as
amended, (ii) a “holding company” as defined in, or subject to regulation under the Public Utility
Holding Company Act of 2005, as amended, or (iii) a “public utility” within the meaning of the
Federal Power Act, as amended.

     8M Permits and Other Operating Rights. The Company and each Subsidiary has all such valid and
sufficient certificates of convenience and necessity, franchises, licenses, permits, operating
rights and other authorizations from federal, state, foreign, regional, municipal and other local
regulatory bodies or administrative agencies or other governmental bodies having jurisdiction over
the Company or any Subsidiary or any of its properties, as are necessary for the ownership,
operation and maintenance of its businesses and properties, as presently conducted and as proposed
to be conducted, while the Subordinated Notes are outstanding, subject to exceptions and
deficiencies which, individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, and such certificates of convenience and necessity, franchises, licenses,
permits, operating rights and other authorizations from federal, state, foreign, regional,
municipal and other local regulatory bodies or administrative agencies or other governmental bodies
having jurisdiction over the Company, any Subsidiary or any of its properties are free from
restrictions or conditions which, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, and neither the Company nor any Subsidiary is in violation of any
thereof in any material respect.

     8O. Rule 144A. The Subordinated Notes are not of the same class as securities of the
Company, if any, listed on a national securities exchange, registered under Section 6 of the
Exchange Act or quoted in a U.S. automated inter-dealer quotation system.

     8P Absence of Financing Statements, etc. Except with respect to Liens permitted by
paragraph 6A hereof, there is no financing statement, security agreement, chattel mortgage, real
estate mortgage or other document filed or recorded with any filing records, registry or other
public office, that purports to cover, affect or give notice of any present or possible future Lien
on, or security interest in, any assets or property of the Company or any of its Subsidiaries or
any rights relating thereto.

     8Q Establishment of Security Interest. Schedule 8Q hereto sets forth as of the
date of closing a complete and accurate list of (i) the location of the chief executive office of
the Company and each of its Subsidiaries, (ii) all real property owned or leased by the Company or

 

 

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

     8R. Foreign Assets Control Regulations, Etc.

     (i) Neither the sale of the Subordinated Notes or the Warrants by the Company
hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act,
as amended, or any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or
executive order relating thereto; provided, that the representation set forth in this
paragraph 8R(i) is made on the assumption that no Purchaser is a Person described in clause
(a) of paragraph 8R(ii).

     (ii) Neither the Company nor any Subsidiary (a) is a Person described or designated
in the Specially Designated Nationals and Blocked Persons List of the Office of Foreign
Assets Control or in Section 1 of the Anti-Terrorism Order or (b) engages in any dealings or
transactions with any such Person; provided, that the representation set forth in this
clause (b) is made on the assumption that no Purchaser is a Person described in clause (a)
above. The Company and its Subsidiaries are in compliance, in all material respects, with
the USA Patriot Act.

     (iii) No part of the proceeds from the sale of the Subordinated Notes or the
Warrants hereunder will be used, directly or indirectly, for any payments to any
governmental official or employee, political party, official of a political party, candidate
for political office, or anyone else acting in an official capacity, in order to obtain,
retain or direct business or obtain any improper advantage, in violation of the United
States

 

 

Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases that such Act
applies to the Company.

     8S. Disclosure. Neither this Agreement nor any other document, certificate or statement
furnished to any Purchaser by or on behalf of the Company in connection herewith contains any
untrue statement of a material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading. There is no fact or facts peculiar to
the Company or any of its Subsidiaries which materially adversely affects or in the future may (so
far as the Company can now reasonably foresee), individually or in the aggregate, reasonably be
expected to materially adversely affect the business, property or assets, or financial condition of
the Company or any of its Subsidiaries and which has not been’ set forth in this Agreement or in
the other documents, certificates and statements furnished to each Purchaser by or on behalf of the
Company prior to the date hereof in connection with the transactions contemplated hereby. Any
financial projections delivered to any Purchaser on or prior to the date hereof are reasonable
based on the assumptions stated therein and the best information available to the officers of the
Company.

     8T. Inventory Locations; Etc. Except for inventory drop shipped directly from a supplier
or vendor directly to a customer, all of the Company’s inventory is located at one of the locations
identified on Schedule 8T, as such Schedule may be modified from time to time in accordance with
paragraph 6I(ii). Except to the extent such requirement has been expressly waived by the
Subordinated Collateral Agent in writing, the landlord with respect to each inventory location has
executed and delivered to the Subordinated Collateral Agent a landlord lien waiver in a form
approved by the Subordinated Collateral Agent.

9. REPRESENTATIONS OF EACH PURCHASER. Each Purchaser represents as follows:

     9A Nature of Purchase. Such Purchaser is an Institutional Investor and is not acquiring the
Subordinated Notes or the Warrants to be purchased by it or issued to it hereunder with a view to
or for sale in connection with any distribution thereof within the meaning of the Securities Act,
provided that the disposition of such Purchaser’s property shall at all times be and remain within
its control.

     9B Source of Funds. At least one of the following statements is an accurate representation as
to each source of funds (a “Source”) to be used by such Purchaser to pay the purchase price of the
Subordinated Notes to be purchased by such Purchaser hereunder:

     (i) the Source is an “insurance company general account” (as that term is defined
in the United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95-60)
in respect of which the reserves and liabilities (as defined by the annual statement for
life insurance companies approved by the National Association of Insurance Commissioners
(the “NAIC Annual Statement”)) for the general account contract(s) held by or on behalf of
any employee benefit plan together with the amount of the reserves and liabilities for the
general account contract(s) held by or on behalf of any other employee benefit plans
maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the
same employee organization in the general account do

 

 

not exceed 10% of the total reserves
and liabilities of the general account (exclusive of
separate account liabilities) plus surplus as set forth in the NAIC Annual Statement
filed with such Purchaser’s state of domicile; or the Source is a separate account that is
maintained solely in connection with such Purchaser’s fixed contractual obligations under
which the amounts payable, or credited, to any employee benefit plan (or its related trust)
that has any interest in such separate account (or to any participant or beneficiary of such
plan (including any annuitant)) are not affected in any manner by the investment performance
of the separate account; or

     (ii) the Source is either (a) an insurance company pooled separate account, within
the meaning of PTE 90-1, or (b) a bank collective investment fund, within the meaning of the
PTE 91-38 and, except as disclosed by such Purchaser to the Company in writing pursuant to
this clause (iii), no employee benefit plan or group of plans maintained by the same
employer or employee organization beneficially owns more than 10% of all assets allocated to
such pooled separate account or collective investment fund; or

     (iii) the Source constitutes assets of an “investment fund” (within the meaning of
Part V of PTE 84-14 (the “QPAIVI Exemption”)) managed by a “qualified professional asset
manager” or “QPAM” (within the meaning of Part V of the QPAM Exemption), no employee benefit
plan’s assets that are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same employer or by an
affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or
by the same employee organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the
definition of “control” in Section V(e) of the QPAM Exemption) owns a 5% or more interest in
the Company and (a) the identity of such QPAM and (b) the names of all employee benefit
plans whose assets are included in such investment fund have been disclosed to the Company
in writing pursuant to this clause (iv); or

     (iv) the Source constitutes assets of a “plan(s)” (within the meaning of Section IV
of PTE 96-23 (the “INHAM Exemption”)) managed by an “in-house asset manager” or “INHAM”
(within the meaning of Part IV of the INHAM Exemption), the conditions of Part I(a), (g) and
(h) of the INHAM Exemption are satisfied, neither the WHAM nor a person controlling or
controlled by the INHAM (applying the definition of “control” in Section IV(h) of the INHAM
Exemption) owns a 5% or more interest in the Company and (a) the identity of such INHAM and
(b) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been
disclosed to the Company in writing pursuant to this clause (v); or

     (v) the Source is a governmental plan; or

     (viii) the Source is one or more employee benefit plans, or a separate account or
trust fund comprised of one or more employee benefit plans, each of which has been
identified to the Company in writing pursuant to this clause (vii); or the Source does not

 

 

include assets of any employee benefit plan, other than a plan exempt from the coverage
of ERISA; or

     (ix) the Source does not include “plan assets” within the meaning of 29 C.F.R.
section 2510.3-101.

As used in this paragraph 9B, the terms “employee benefit plan”, “governmental plan”, and
“separate account” shall have the respective meanings assigned to such terms in Section
3 of ERISA.

     10. [INTENTIONALLY OMITTED].

     11. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement, the terms defined
in paragraphs 11A and 11B (or within the text of any other paragraph) shall have the respective
meanings specified therein and all accounting matters shall be subject to determination as provided
in paragraph 11C.

     11A. Yield-Maintenance Amount and Related Terms.

          “Called Principal” shall mean, with respect to any Subordinated Note, the principal of such
Subordinated Note that is declared to be immediately due and payable pursuant to paragraph 7A, as
the context requires.

          “Discounted Value” shall mean, with respect to the Called Principal of any Subordinated Note,
the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the Settlement Date with respect to such
Called Principal, in accordance with accepted financial practice and at a discount factor (as
converted to reflect the periodic basis on which interest on such Subordinated Note is payable, if
interest is payable other than on a semi-annual basis) equal to the Reinvestment Yield with respect
to such Called Principal.

          “Prepayment Amount” shall mean, with respect to the principal amount of any Subordinated Note
that is to be prepaid pursuant to paragraph 4B(1) hereof or is declared or deemed to be immediately
due and payable pursuant to paragraph 7A hereof, the Yield-Maintenance Amount or percentage of such
principal amount set forth below opposite the Settlement Date:

 

 

	 	 	 
	 	 	Yield-Maintenance Amount /
	Settlement Date	 	Percentage
	After the date of closing and 

on or before March 24, 2008
	 	Yield-Maintenance Amount with 
respect to such principal amount
	After March 24, 2008 and on or 

before March 24, 2009
	 	5.00%
	After March 24, 2009 and on or 

before March 24, 2010
	 	2.00%
	After 24, 2010 	 	0.00%

          “Reinvestment Yield” shall mean, with respect to the Called Principal of any Subordinated
Note, 2.00% over the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New
York City local time) on the Business Day next preceding the Settlement Date with respect to such
Called Principal for actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date on the display
designated as “Page PX1” on the Bloomberg Financial Services Screen (or such other display as may
replace Page PX1 on the Bloomberg Financial Services Screen or, if Bloomberg Financial Services
shall cease to report such yields or shall cease to be Prudential Capital Group’s customary source
of information for calculating yield-maintenance amounts on privately placed notes, then such
source as is then Prudential Capital Group’s customary source of such information), or if such
yields shall not be reported as of such time or the yields reported as of such time shall not be
ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for
which such yields shall have been so reported as of the Business Day next preceding the Settlement
Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15(519) (or
any comparable successor publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S.
Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice
and (b) interpolating linearly between yields reported for various maturities. The Reinvestment
Yield shall be rounded to that number of decimal places as appears in the coupon of the applicable
Subordinated Note.

          “Remaining Average Life” shall mean, with respect to the Called Principal of any Subordinated
Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i)
such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining
Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with
respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.

          “Remaining Scheduled Payments” shall mean, with respect to the Called Principal of any
Subordinated Note, all payments of such Called Principal and interest thereon
that would be due on or after the Settlement Date with respect to such Called Principal if no
payment of such Called Principal were made prior to its scheduled due date.

 

 

          “Settlement Date” shall mean, with respect to the Called Principal of any Subordinated Note,
the date on which such Called Principal is to be prepaid pursuant to paragraph 4B or is declared to
be immediately due and payable pursuant to paragraph 7A, as the context requires.

          “Specified Event Prepayment Amount” shall mean, with respect to the principal amount of any
Subordinated Note that is to be prepaid pursuant to paragraph 4B(2) hereof or is declared or deemed
to be immediately due and payable pursuant to paragraph 7A hereof solely as a result of an Event of
Default described in paragraph 7A(xv) hereof which also constitutes a Specified Event, the
Yield-Maintenance Amount or percentage of such principal amount set forth below opposite the
Settlement Date:

	 	 	 
	 	 	Yield-Maintenance Amount /
	Settlement Date	 	Percentage
	After the date of closing and 

on or before March 24, 2007
	 	Yield-Maintenance Amount with 
respect to such principal amount
	After March 24, 2007 and on or 

before March 24, 2008
	 	8.00%
	After March 24, 2008 and on or 

before March 24, 2010
	 	2.00%
	After March 24, 2010
	 	0.00%

; provided, that in the event the Specified Event Prepayment Amount is payable in connection with
an acceleration as a result of an Event of Default described in paragraph 7A(xv) based solely on
clause (v) of the definition of “Change of Control” and such event also constitutes a Specified
Event, the Yield-Maintenance Amount or percentage of principal amount set forth below shall apply:

	 	 	 
	 	 	Yield-Maintenance Amount /
	Settlement Date	 	Percentage
	After the date of closing and 

on or before March 24, 2007
	 	Yield-Maintenance Amount with 
respect to such principal amount
	After March 24, 2007 and on or 

before March 24, 2008
	 	8.00%
	After March 24, 2008 and on or 

before March 24, 2009
	 	5.00%
	After March 24, 2009 and on or 

before March 24, 2010
	 	2.00%
	After March 24, 2010
	 	0.00%

 

 

          “Yield-Maintenance Amount” shall mean, with respect to any Subordinated Note, an amount equal
to the excess, if any, of the Discounted Value of the Called Principal of such Subordinated Note
over the sum of (i) such Called Principal plus (ii) interest accrued thereon as of (including
interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance
Amount shall in no event be less than zero.

     11B. Other Terms.

          “Accountants” shall mean any of Deloitte Touche Tohmatsu, Ernst & Young, KPMG or
PricewaterhouseCoopers.

          “Affiliate” shall mean with respect to any Person, any other Person directly or indirectly
controlling, controlled by, or under direct or indirect common control with, such first Person,
except a Subsidiary of the Company shall not be an Affiliate of the Company. A Person shall be
deemed to control a corporation or other entity if such Person possesses, directly or indirectly,
the power to direct or cause the direction of the management and policies of such corporation or
entity, whether through the ownership of voting securities, by contract or otherwise.

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

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

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

          “Applicable Projected Cash Burn Rate” shall mean (i) on January 1, 2008, the greater of (x)
$3,000,000 and (y) 75% of the minimum amount required to pay in cash all forecast monthly net cash
requirements for the three months ending March 31, 2008 (as determined by the Bank Agent for
purposes of determining the “Applicable Projected Cash Burn Rate” under the Credit Agreement); (ii)
on February 1, 2008, the greater of (x) $3,000,000 and (y) 75% of the minimum amount required to
pay in cash all forecast monthly net cash requirements for the three months ending April 30, 2008
(as determined by the Bank Agent for purposes of determining the “Applicable Projected Cash Burn
Rate” under the Credit Agreement); (iii) on March 1, 2008, the greater of (x) $3,000,000 and (y)
75% of the minimum amount required to pay in cash all forecast monthly net cash requirements for
the three months ending May 31, 2008 (as determined by the Bank Agent for purposes of determining
the “Applicable Projected Cash Burn Rate” under the Credit Agreement); and (d) on any other day,
zero.

          “Bank Agent” shall mean CIGPF I Corp., in its capacity as agent under the Credit Agreement,
and its successors and assigns in that capacity.

          “Banks” shall mean CIGPF. I Corp. and the other lending parties to the Credit Agreement, and
their respective successors and assigns.

44

 

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

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

          “Capital Expenditures” shall mean, for any period, all amounts capitalized during such period
by the Company and its Subsidiaries as capital expenditures for property, plant, and equipment or
similar fixed asset accounts, including any such expenditures by way of Capitalized Leases, the
acquisition of a Person or by way of assumption of Indebtedness or other obligations, to the extent
reflected as property, plant and equipment.

          “Capitalized Lease” shall mean any lease the obligations of the lessee under which constitute
Capitalized Lease Obligations.

          “Capitalized Lease Obligation” shall mean any rental obligation which, under GAAP, would be
required to be capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance with such principles.

          “Change of Control” shall mean the occurrence of any of the following:

     (i) an acquisition of any Equity Interests or voting securities of the Company or
FAC (the “Voting Securities”) by any “Person” (as the term person is used for purposes of
Section 13(d) or 14(d) of the Exchange Act), as a result of which immediately after such
acquisition such Person has acquired “Beneficial Ownership” (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of the then
outstanding Equity Interests or the combined voting power of the Company’s or FAC’s then
outstanding Voting Securities; or

     (ii) the consummation of:

     (a) a merger, consolidation or reorganization with or into the Company or FAC
or in which securities of the Company or FAC are issued, unless such merger,
consolidation or reorganization is a “Non-Control Transaction.” A “Non-Control
Transaction” shall mean a merger, consolidation or reorganization with or into the
Company or FAC, as applicable, or in which securities of the Company or FAC are
issued where:

     (1) the beneficial owners of the Voting Securities of the Company
or FAC, as applicable, immediately before such merger, consolidation or
reorganization, own directly or indirectly immediately following such
merger, consolidation or reorganization, at least ninety percent (90%) of
the combined voting power of the outstanding voting
securities of the entity resulting from such merger or consolidation or

45

 

reorganization (the “Surviving Entity”) in substantially the same proportion
as their ownership of the Voting Securities immediately before such merger,
consolidation or reorganization;

     (2) the individuals who were members of the incumbent board of
directors (or other comparable governing body) of the Company or FAC, as
applicable, immediately prior to the execution of the agreement providing
for such merger, consolidation or reorganization constitute at least 75% of
the members of the board of directors (or other comparable governing body)
of the Surviving Entity, or a corporation beneficially directly or
indirectly owning a majority of the Voting Securities of the Surviving
Entity; and

     (3) no Person other than (A) the Company, (B) FAC or (C) any
Person who, immediately prior to such merger, consolidation or
reorganization had beneficial ownership of ten percent (10%) or more of the
then outstanding Voting Securities or Equity Interests, has beneficial
ownership of ten percent (10%) or more of the combined voting power of the
Surviving Entity’s then outstanding voting securities or Equity Interests;

     (iii) a complete (or substantially complete) liquidation or dissolution of the
Company or FAC;

     (iv) the sale or other disposition of all or substantially all of the assets of the
Company or FAC to any Person; or

     (v) the occurrence of a “Change in Control” (or similar event) under the Credit
Agreement (or any replacement thereto) which has not been cured or waived pursuant to the
terms thereof.

     Notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because
any Person (the “Subject Person”) acquired beneficial ownership of more than the permitted amount
of the then outstanding Equity Interests or Voting Securities, of additional Equity Interests or
Voting Securities as a result of (x) the acquisition by a Subject Person already a beneficial owner
of Equity Interests or Voting Securities from the Company or FAC, as applicable, for fair value
paid in cash, (y) the acquisition of Equity Interests or Voting Securities of the Company or FAC,
as applicable, by the Subject Person from a Person who qualifies as a “Permitted Transferee” under
the Stockholders Agreement; or (z) the acquisition of Equity Interests or Voting Securities by the
Company or FAC, as applicable, which, by reducing the number of Equity Interests or Voting
Securities then outstanding, increases the proportional number of shares beneficially owned by the
Subject Person, provided that if a Change of Control would occur (but for the operation of this
sentence), and after such share acquisition, such Subject Person becomes the beneficial owner of
any additional Equity Interests or Voting Securities (not otherwise covered by this sentence) which
increases the percentage of the then
outstanding Equity Interests or Voting Securities beneficially owned by such Subject Person,
then a Change of Control shall occur.

46

 

          “CIT Bank Collateral” shall mean the reserve account securing the Company’s obligation to
purchase receivables from CIT Bank pursuant to the Program Agreement (and documents related
thereto) in an amount not to exceed 10% of the aggregate outstanding amount of such receivables
owned and held by CIT Bank from time to time.

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

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

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

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

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

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

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

          “Credit Agreement” shall mean the Amended and Restated Warehouse Loan Agreement dated as of
March 23, 2006, among the Company, as borrower and servicer, the Bank Agent and the Banks, as
amended, restated, supplemented or otherwise modified from time to time.

          “Current Assets” shall mean, at any time, the total assets of the Company and its Subsidiaries
which would be shown as current assets on a balance sheet of the Company and its Subsidiaries
prepared in accordance with GAAP at such time, provided, that in determining such current assets,
(a) notes and accounts receivable shall be included only if good and collectible and payable on
demand or within one year from such date (and not by their terms or by the terms of any instrument
or agreement relating thereto directly or indirectly renewable or extendible at the option of the
obligor beyond such year) and shall be valued at their face value less reserves or accruals for
uncollectible accounts determined to be sufficient in accordance with GAAP, and (b) life insurance
policies (other than the cash surrender value of any unencumbered policies that is properly
classified as a current asset in accordance with GAAP) shall be excluded.

          “Current Liabilities” shall mean, at any time, the Total Liabilities of the

47

 

Company and its Subsidiaries at such time, but in any event including as current liabilities, without limitation,
Current Maturities of Funded Debt.

          “Current Maturities of Funded Debt” shall mean, at any time and with respect to any item of
Funded Debt, the portion of such Funded Debt outstanding at such time which by the terms of such
Funded Debt or the terms of any instrument or agreement relating thereto is due on demand or within
one year from such time (whether by sinking fund, other required prepayment or final payment at
maturity) and is not directly or indirectly renewable, extendible or refundable at the option of
the obligor under an agreement or firm commitment in effect at such time to a date one year or more
from such time.

          “Current Ratio” shall mean, as of any date, the ratio of (a) Current Assets to (b) Current
Liabilities.

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

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

          “EBITDA” shall mean, for any period, the consolidated net income (determined in accordance
with GAAP) of the Company and its Subsidiaries for such period, plus, to the extent deducted in
computing such consolidated net income and without duplication, (i) depreciation, depletion, if
any, and amortization expense for such period, (ii) consolidated interest expense for such period,
(iii) income tax expense for such period and (iv) any one-time item(s) as may be consented to by
the Subordinated Collateral Agent in its discretion from time to time, all as determined in
accordance with GAAP.

          “Equity Interests” shall mean shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or other equity interests
in any person, or any obligations convertible into or exchangeable for, or giving any person a
right, option or warrant to acquire such equity interests or such convertible or exchangeable
obligations.

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

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

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

48

 

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

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

          “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended. “FAC” shall mean
FAC Acquisition, LLC, a Delaware limited liability company.

          “Funded Debt” shall mean, with respect to any Person, all Indebtedness of such Person which by
its terms or by the terms of any instrument or agreement relating thereto matures, or which is
otherwise payable or unpaid, one year or more from, or is directly or indirectly renewable or
extendible at the option of the obligor in respect thereof to a date one year or more (including,
without limitation, an option of such obligor under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or more) from the date
of the creation thereof.

          “GAAP” shall mean generally accepted accounting principles as in effect in the United States
from time to time, applied on a consistent basis.

          “Governmental Authority” shall mean any nation, government or state, or any political
subdivision thereof, or any court, stock exchange, self-regulatory organization, entity or agency
exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

          “Guarantee” shall mean, with respect to any Person (the “guaranteeing person”), any obligation
of the guaranteeing person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations (the “primary obligations”) of any other third Person (the “primary
obligor”) in any manner, whether directly or indirectly, including any
obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security therefor, (ii) to
advance

49

 

or supply funds for the purchase or payment of any such primary obligation or to maintain
working capital or equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (iii) to 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 or (iv) otherwise to assure or hold harmless the
owner of any such primary obligation against loss in respect thereof; provided, however, that the
term Guarantee shall not include any endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Guarantee of any guaranteeing person shall be deemed
to be the lower of (i) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee is made and (ii) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee,
unless such primary obligation and the maximum amount for which such guaranteeing person may be
liable are not stated or determinable, in which case the amount of such Guarantee shall be such
guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by
the guaranteeing person in good faith.

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

          “Indebtedness” shall mean, with respect to any Person, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (iii) all indebtedness of others secured by (or
for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed (only to the extent of the fair market value of such asset if
such Indebtedness has not been assumed by such Person), (iv) all Guarantees of such Person, (v) all
capitalized lease obligations of such Person and (vi) all obligations of such Person as an account
party in respect of letters of credit and similar instruments issued for the account of such
Person; provided however, that the Preferred Stock outstanding on the date of closing shall in no
event be considered Indebtedness.

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

          “Intercreditor Agreement” shall mean the Intercreditor Agreement, dated as of March 23, 2006,
between the Bank Agent and the Subordinated Collateral Agent, as amended, restated, supplemented or
otherwise modified from time to time in accordance with its terms.

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

          “Lien” shall mean any mortgage, pledge, security interest, encumbrance, minimum or
compensating balance arrangement, lien (statutory or otherwise) or charge of any

50

 

kind (including any agreement to give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof (including Capitalized Leases), and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction),
or any other type of preferential arrangement for the purpose, or having the effect, of protecting
a creditor against loss or securing the payment or performance of an obligation.

          “Leverage Ratio” shall means the ratio of (i) Total Liabilities to (ii) Tangible Net Worth.

          “Material Adverse Effect” shall mean a (i) material adverse effect on the business, assets,
liabilities, operations, prospects or condition, fmancial or otherwise, of the Company and its
Subsidiaries, taken as a whole, (ii) material impairment of the Company’s ability to perform any of
its obligations under this Agreement, the Subordinated Notes, the Warrants or the other Transaction
Documents, (iii) material impairment of the validity or enforceability of the rights of, or the
benefits available to, the holders of any of the Subordinated Notes or the Warrants under this
Agreement, the Subordinated Notes, the Warrants or the other Transaction Documents, (iv) material
adverse effect on the existence, perfection or priority of the Subordinated Collateral Agent’s
security interest in the Collateral, or (v) material adverse effect on the enforceability,
collectibility, marketability of 15% or more of the Company’s inventory.

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

          “Multiemployer Plan” shall mean any Plan which is a “multiemployer plan” (as such term is
defined in section 4001(a)(3) of ERISA).

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

51

 

any
holder of a Subordinated Note or which otherwise can be reasonably identified by the Subordinated
Collateral Agent or any holder of a Subordinated Note based on then known facts and circumstances.

          “Obligors” shall mean the Company, each Subsidiary and any other Person that now or hereafter
guarantees or grants a Lien in any of its assets to secure any of the Obligations.

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

          “Organizational Documents” shall mean, with respect to any (i) corporation, its certificate or
articles of incorporation and bylaws, (ii) limited partnership, its certificate of limited
partnership and limited partnership agreement, (iii) general partnership, its partnership
agreement, (iv) limited liability company, its certificate of formation or limited liability
company and limited liability company agreement, (v) trust, its certificate of trust and trust
agreement or (vi) any other entity, its governing documents of a similar nature.

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

          “Permitted Investments” shall mean, with respect to any Person, (i) investments in direct
obligations of the United States of America or any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the United States of America having a
maturity of ninety (90) days or less, commercial paper rated “A-1” or higher by Standard & Poor’s
or “P-1” or higher by Moody’s or certificates of deposit or bankers’ acceptances having a maturity
of one year or less issued by banks rated “A-1” or higher by Standard & Poor’s or “P-1” or higher
by Moody’s; and (ii) investments in money market fund securities rated “AA” or better by Standard &
Poor’s or “Aa” or higher by Moody’s.

          “Permitted Liens” shall mean, with respect to any Person, (i) Liens for taxes, assessments or
governmental charges or levies on its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good faith and by appropriate
proceedings and for which adequate reserves in accordance with generally accepted principles of
accounting shall have been set aside on its books; (ii) Liens imposed by law, such as carriers’,
warehousemen’s and mechanics’ liens and other similar liens arising in the ordinary course of
business that secure payment of obligations not more than 30 days past due; (iii) Liens arising out
of pledges or deposits under worker’s compensation laws, unemployment insurance, old age pensions,
or other social security or retirement benefits, or similar legislation; (iv) utility easements,
building restrictions and such other encumbrances or charges against real property as are of a
nature generally existing with respect to properties of a similar character and which do not in any
material way affect the marketability of the same or interfere with the use thereof in the business
of the Company; (v) Liens identified on Schedule 6A; provided, however, that with respect
to Liens described in this clause (v), such Liens shall constitute Permitted Liens only so long as
with respect to any Collateral, such Liens shall be second-priority or lower relative to the
Lien of the Subordinated Collateral Agent and the holders of Subordinated Notes; and (vi) a
Lien granted by the Company for the benefit of Liberty Property Limited Partnership, on a cash

52

 

security deposit securing the Company’s obligations under its lease with respect to the premises
located at 7777 Golden Triangle, Eden Prairie, Minnesota; provided, that, the amount of such
deposit shall not exceed $175,000.

          “Person” shall mean and include an individual, a partnership, a joint venture, a corporation,
a trust, a limited liability company, an unincorporated organization and a government or any
department or agency thereof.

          “Plan” shall mean any “employee pension benefit plan” (as such term is defined in section 3 of
ERISA) which is or has been established or maintained, or to which contributions are or have been
made, by the Company or any ERISA Affiliate.

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

          “Program Agreement” shall mean the Second Amended and Restated Revolving Loan Product Program
Agreement, dated as of February 11, 2004, between CIT Bank, FDMAR1, Inc. and the Company, as the
same may be amended, restated or supplemented from time to time.

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

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

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

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

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

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

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

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          “Restricted Payment” shall mean (i) any dividend or other distribution (whether in cash, or
other property) with respect to any Equity Interests in the Company or any of its Subsidiaries, or
any payment (whether in cash or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or termination of any
Equity Interests in the Company or any of its Subsidiaries or any option, warrant or other right to
acquire any Equity Interests in the Company or any of its Subsidiaries, provided however that such
dividends, distributions or payment in the form of shares of Equity Interests in the Company or its
Subsidiary, as applicable shall not be considered Restricted Payments so long as no Default or
Event of Default has occurred and is continuing and (ii) management consulting advisory fees in any
fiscal year of the Company other than reasonable compensation (no less favorable to the Company or
a Subsidiary than would be obtainable in a comparable arm’s length transaction with a Person not an
Affiliate) for services in excess of services provided as of the date of closing.

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

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

          “Securitization” shall mean any (i) financing transaction undertaken by the Company or an
Affiliate thereof that is secured, directly or indirectly, by any portion or all of the receivables
of the Company and its Subsidiaries or any interest therein, or (ii) any sale, lease or other
transfer by the Company or an Affiliate thereof of an interest in any portion or all of the
receivables of the Company and its Subsidiaries to or by means of a conduit, trust or special
purpose vehicle under the following conditions: (1) the consideration received in exchange for such
transfer is cash and/or equity interests in any such entity in an aggregate amount of not less than
the reasonably equivalent value of such transferred interests as determined by the Required
Holder(s) in the exercise of their reasonable discretion, and (2) the sale is nonrecourse to the
Company with respect to collectibility of the transferred receivables.

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

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

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

          “Significant Holder” shall mean (i) each Purchaser, so long as such Purchaser or

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one of its Affiliates shall hold (or be committed under this Agreement to purchase) any Subordinated Note, or
(ii) any other Person which, together with its Affiliates, is the holder of at least 5% of the
aggregate principal amount of the Subordinated Notes from time to time outstanding.

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

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

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

          “Subordinated Collateral Agent” shall have the meaning given in paragraph 3A(v) hereof.

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

          “Subsidiary” shall mean, as to any Person, any corporation, association or other business
entity in which such Person or one or more of its Subsidiaries or such Person and one or more of
its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group)
ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons
performing similar function) of such entity, and any partnership or joint venture if more than a
50% interest in profits or capital thereof is owned by such Person or one or more of its
Subsidiaries of such Person and one or more of its Subsidiaries (unless such partnership can and
does ordinarily taken major business actions without the approval of such Person or one or more of
its Subsidiaries). Unless the context otherwise clearly requires, any reference to a “Subsidiary”
is a reference to a Subsidiary of the Company.

          “Subsidiary Guarantors” shall mean Fingerhut Fulfillment Inc., a Delaware corporation, and
each other Subsidiary from time to time required to enter into the Subsidiary Guaranty pursuant to
paragraph 5N.

          “Subsidiary Guaranty” shall have the meaning given in paragraph 3A(iv) hereof.

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

          “Tangible Net Worth” shall mean, at any time:

     (i) the total assets of the Company and its Subsidiaries which would be
shown as assets on a consolidated balance sheet of the Company and its Subsidiaries as of
such time prepared in accordance with GAAP, after eliminating all amounts properly
attributable to minority interests, if any, in the stock and surplus of Subsidiaries, minus

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     (ii) the Total Liabilities of the Company and its Subsidiaries as of such
time, minus

     (iii) the net book value of all assets, after deducting any reserves
applicable thereto, which would be treated as intangible under GAAP, including, without
limitation, good will, trademarks, trade names, service marks, brand names, copyrights,
patents and unamortized debt discount and expense, organizational expenses and the excess of
the equity in any Subsidiary over the cost of the investment in such Subsidiary.

          “Total Liabilities” shall mean, at any time, the total liabilities of the Company and its
Subsidiaries which would be shown as liabilities on a consolidated balance sheet of the Company and
its Subsidiaries as of such time prepared in accordance with GAAP.

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

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

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

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

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

          “Wholly-Owned Subsidiary” shall mean any Subsidiary of the Company all of the outstanding
Equity Interests of every class of which is owned by the Company or another Wholly-Owned Subsidiary
of the Company, and which has outstanding no options, warrants, rights or other securities
entitling the holder thereof (other than the. Company or a Wholly-Owned Subsidiary) to acquire
shares of Equity Interests of such Subsidiary. 11C. Accounting and Legal Principles, Terms and
Determinations. Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder shall be made, and all
unaudited financial statements and certificates and reports as to financial matters required to be
furnished hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with
the most recent audited consolidated
financial statements of the Company and its Subsidiaries delivered pursuant to clause (ii) of
paragraph 5A or, if no such statements have been so delivered, the most recent audited financial
statements referred to in clause (i) of paragraph 8B. Any reference herein to any specific
citation, section or form of law, statute, rule or regulation shall refer to such new, replacement
or analogous citation, section or form should citation, section or form be modified, amended or
replaced.

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12. MISCELLANEOUS.

     12A Subordinated Note Payments. The Company agrees that, so long as any Purchaser shall hold
any Subordinated Note, it will make payments of principal of, interest on and any Yield-Maintenance
Amount, Prepayment Amount and Specified Event Prepayment Amount payable with respect to such
Subordinated Note, which comply with the terms of this Agreement, by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on the date due) to such
Purchaser’s account or accounts as specified in the Purchaser Schedule attached hereto, or such
other account or accounts in the United States as such Purchaser may designate in writing,
notwithstanding any contrary provision herein or in any Subordinated Note with respect to the place
of payment. Each Purchaser agrees that, before disposing of any Subordinated Note, such Purchaser
will make a notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been paid. The Company agrees
to afford the benefits of this paragraph 12A to any Transferee which shall have made the same
agreement as each Purchaser has made in this paragraph 12A. No holder shall be required to present
or surrender any Subordinated Note or make any notation thereon, except that upon the written
request of the Company made concurrently with or reasonably promptly after the payment or
prepayment in full of any Subordinated Note, the applicable holder shall surrender such
Subordinated Note for cancellation, reasonably promptly after such request, to the Company at its
principal office.

     12B Expenses. Whether or not the transactions contemplated hereby shall be consummated, the
Company shall pay, and save each Purchaser and any Transferee harmless against liability for the
payment of, all out-of-pocket expenses arising in connection with such transactions, including:

     (i) (a) all stamp and documentary taxes and similar charges, (b) costs of obtaining a
private placement number from Standard and Poor’s Ratings Group for the Subordinated Notes
and Warrants and (c) fees and expenses of brokers, agents, dealers, investment banks or
other intermediaries or placement agents, in each case as a result of the execution and
delivery of this Agreement or the other Transaction Documents or the issuance of the
Subordinated Notes;

     (ii) document production and duplication charges and the fees and expenses of any
special counsel engaged by such Purchaser or such Transferee in connection with (a) this
Agreement, any of the other Transaction Documents and the transactions contemplated hereby
or thereby and (b) any subsequent proposed waiver, amendment or modification of, or proposed
consent under, this Agreement or any other Transaction
Document, whether or not such proposed waiver, amendment, modification or consent shall
be effected or granted;

     (iii) the costs and expenses, including attorneys’ and financial advisory fees,
incurred by such Purchaser or such Transferee in enforcing (or determining whether or how to
enforce or cause the Subordinated Collateral Agent to enforce) any rights under

57

 

this Agreement, the Subordinated Notes or any other Transaction Document (including, without
limitation, to protect, collect, lease, sell, take possession of, release or liquidate any
of the Collateral) or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or any other Transaction
Document or the transactions contemplated hereby or by reason of your or such Transferee’s
having acquired any Subordinated Note or any Warrant, including without limitation costs and
expenses incurred in any workout, restructuring or renegotiation proceeding or bankruptcy
case;

     (iv) all costs and expenses, including without limitation reasonable attorneys’
fees, preparing, recording and filing all financing statements, instruments and other
documents to create, perfect and fully preserve and protect the Liens granted in the
Security Documents and the rights of the holders of the Subordinated Notes or of the
Subordinated Collateral Agent for the benefit of the holders of the Subordinated Notes; and

     (v) any judgment, liability, claim, order, decree, cost, fee, expense, action or
obligation resulting from the consummation of the transactions contemplated hereby,
including the use of the proceeds of the Subordinated Notes by the Company.

     The Company also will promptly pay or reimburse each Purchaser or holder of a Subordinated
Note (upon demand, in accordance with each such Purchaser’s or holder’s written instruction) for
all fees and costs paid or payable by such Purchaser or holder to the Securities Valuation Office
of the National Association of Insurance Commissioners in connection with the initial filing of
this Agreement and all related documents and financial information, and all subsequent annual and
interim filings of documents and financial information related to this Agreement, with such
Securities Valuation Office or any successor organization acceding to the authority thereof.

     The obligations of the Company under this paragraph 12B shall survive the transfer of any
Subordinated Note or portion thereof or interest therein by any Purchaser or Transferee and the
payment of any Subordinated Note.

     12C. Consent to Amendments. This Agreement may be amended, and the Company may take any
action herein prohibited, or omit to perform any act herein required to be performed by it, if the
Company shall obtain the written consent to such amendment, action or omission to act, of the
Required Holder(s) except that, without the written consent of the holder or holders of all
Subordinated Notes at the time outstanding, no amendment to this Agreement shall change the
maturity of any Subordinated Note, or change the principal of, or the rate, method of computation
or time of payment of interest on or any Yield-Maintenance Amount,
Prepayment Amount or Specified Event Prepayment Amount payable with respect to any
Subordinated Note, or affect the time, amount or allocation of any prepayments, or change the
proportion of the principal amount of the Subordinated Notes required with respect to any consent,
amendment, waiver or declaration. Each holder of any Subordinated Note at the time or thereafter
outstanding shall be bound by any consent authorized by this paragraph 12C, whether or not such
Subordinated Note shall have been marked to indicate such consent, but any

58

 

Subordinated Notes
issued thereafter may bear a notation referring to any such consent. No course of dealing between
the Company and the holder of any Subordinated Note nor any delay in exercising any rights
hereunder or under any Subordinated Note shall operate as a waiver of any rights of any holder of
any Subordinated Note. As used herein and in the Subordinated Notes, the term “this Agreement” and
references thereto shall mean this Agreement as it may from time to time be amended or
supplemented.

     12D. Form, Registration, Transfer and Exchange of Subordinated Notes; Lost Subordinated
Notes. The Subordinated Notes are issuable as registered notes without coupons in denominations of
at least $100,000, except as may be necessary to (i) reflect any principal amount not evenly
divisible by $100,000 or (ii) enable the registration of transfer by a holder of its entire holding
of Subordinated Notes; provided, however, that no such minimum denomination shall apply to
Subordinated Notes issued upon transfer by any holder of the Subordinated Notes to any other entity
or group of Affiliates with respect to which the Notes so issued or transferred shall be managed by
a single entity. The Company shall keep at its principal office a register in which the Company
shall provide for the registration of Subordinated Notes and of transfers of Subordinated Notes.
Upon surrender for registration of transfer of any Subordinated Note at the principal office of the
Company, the Company shall, at its expense, execute and deliver one or more new Subordinated Notes
of like tenor and of a like aggregate principal amount, registered in the name of such transferee
or transferees. At the option of the holder of any Subordinated Note, such Subordinated Note may be
exchanged for other Subordinated Notes of like tenor and of any authorized denominations, of a like
aggregate principal amount, upon surrender of the Subordinated Note to be exchanged at the
principal office of the Company. Whenever any Subordinated Notes are so surrendered for exchange,
the Company shall, at its expense, execute and deliver the Subordinated Notes which the holder
making the exchange is entitled to receive. Every Subordinated Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed, by the holder of such Subordinated Note or such holder’s attorney duly authorized in
writing. Any Subordinated Note or Subordinated Notes issued in exchange for any Subordinated Note
or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which
were carried by the Subordinated Note so exchanged or transferred, so that neither gain nor loss of
interest shall result from any such transfer or exchange. Upon receipt of written notice from the
holder of any Subordinated Note of the loss, theft, destruction or mutilation of such Subordinated
Note and, in the case of any such loss, theft or destruction, upon receipt of such holder’s
unsecured indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Subordinated Note, the Company will make and deliver a new Subordinated Note,
of like tenor, in lieu of the lost, stolen, destroyed or mutilated Subordinated Note.

     12E Persons Deemed Owners; Participations. Prior to due presentment for registration of
transfer, the Company may treat the Person in whose name any Subordinated Note is registered as the
owner and holder of such Subordinated Note for the purpose of receiving payment of principal of,
interest on and any Yield-Maintenance Amount, Prepayment Amount or Specified Event Prepayment
Amount payable with respect to such Subordinated Note and for all other purposes whatsoever,
whether or not such Subordinated Note shall be overdue, and the Company shall not be affected by
notice to the contrary. Subject to the preceding sentence, the

59

 

holder of any Subordinated Note may
from time to time grant participations in such Subordinated Note to any Person on such terms and
conditions as may be determined by such holder in its sole and absolute discretion.

     12F Survival of Representations and Warranties; Entire Agreement. All representations and
warranties contained herein or made in writing by or on behalf of the Company in connection
herewith shall survive the execution and delivery of this Agreement, the Subordinated Notes and the
other Transaction Documents, the transfer by any Purchaser of any Subordinated Note or portion
thereof or interest therein and the payment of any Subordinated Note, and may be relied upon by any
Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or
any Transferee. Subject to the preceding sentence, this Agreement, the Subordinated Notes and the
other Transaction Documents embody the entire agreement and understanding between the Purchasers
and the Company with respect to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.

     12G Successors and Assigns. All covenants and other agreements in this Agreement contained by
or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto (including, without limitation, any Transferee)
whether so expressed or not.

     12H. Independence of Covenants. All covenants hereunder shall be given independent effect
so that if a particular action or condition is prohibited by any one of such covenants, the fact
that it would be permitted by an exception to, or otherwise be in compliance within the limitations
of, another covenant shall not (i) avoid the occurrence of a Default or Event of Default if such
action is taken or such condition exists or (ii) in any way prejudice an attempt by the holder of
any Subordinated Note to prohibit through equitable action or otherwise the taking of any action by
the Company or any Subsidiary which would result in a Default or Event of Default.

     12I. Notices. All written communications provided for hereunder shall be sent by first
class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to the
Subordinated Collateral Agent, addressed to the Subordinated Collateral Agent at the address
specified for such communications for Prudential Capital Partners II, L.P., in the Purchaser
Schedule attached hereto, or at such other address as the Subordinated Collateral Agent shall have
specified to the Company in writing, (ii) if to any Purchaser, addressed to such Purchaser at the
address specified for such communications in the Purchaser Schedule attached hereto, or at such
other address as such Purchaser shall have specified to the Company in writing, (iii) if to any
other holder of any Subordinated Note, addressed to such other holder at such address as
such other holder shall have specified to the Company in writing or, if any such other holder
shall not have so specified an address to the Company, then addressed to such other holder in care
of the last holder of such Subordinated Note which shall have so specified an address to the
Company, and (iv) if to the Company, addressed to it at 4400 Baker Road, Minnetonka, Minnesota
55343, Attention: President (Telecopier no. (952) 933-9307; Telephone no. (952) 936-5389) or Chief
Financial Officer (Telecopier no. (952) 933-9306; Telephone no. (952) 9323230), with a copy to
Attention: General Counsel (Telecopier no. (952) 933-9314; Telephone no.

60

 

(952) 932-3151), or at such other address as the Company shall have specified to the Subordinated Collateral Agent and the
holder of each Subordinated Note in writing; provided, however, that any such communication to the
Company may also, at the option of the Subordinated Collateral Agent or a holder of any
Subordinated Note, be delivered by any other means either to the Company at its address specified
above or to any officer of the Company if a copy of such communication is sent to the Company as
set forth above reasonably promptly thereafter.

     12J Payments Due on Non-Business Days. Anything in this Agreement or the Subordinated Notes to
the contrary notwithstanding, any payment of principal of or Yield-Maintenance Amount, Prepayment
Amount or Specified Event Prepayment Amount or interest on any Subordinated Note that is due on a
date other than a Business Day shall be made on the next succeeding Business Day without including
the additional days elapsed in the computation of the interest payable on such next succeeding
Business Day.

     12K Satisfaction Requirement. If any agreement, certificate or other writing, or any action
taken or to be taken, is by the terms of this Agreement required to be satisfactory to any
Purchaser or to the Required Holder(s), the determination of such satisfaction shall be made by
such Purchaser or the Required Holder(s), as the case may be, in the sole and exclusive judgment
(exercised in good faith) of the Person or Persons making such determination.

     12L GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY
CONFLICTS OF LAW RULES WHICH WOULD OTHERWISE CAUSE THIS AGREEMENT TO BE CONSTRUED OR ENFORCED IN
ACCORDANCE WITH, OR THE RIGHTS OF THE PARTIES TO BE GOVERNED BY, THE LAWS OF ANY OTHER
JURISDICTION).

     12M SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR THE SUBORDINATED NOTES MAY BE BROUGHT IN THE COURTS OF THE STATE OF
ILLINOIS IN COOK COUNTY, ILLINOIS, OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY IRREVOCABLY ACCEPTS,
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR
PROCEEDING. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO IT AT ITS ADDRESS PROVIDED IN PARAGRAPH 121 OR TO CT CORPORATION SYSTEM AT 208 S.
LASALLE STREET, 8TH FLOOR, CHICAGO, ILLINOIS 60604, SUCH SERVICE TO BECOME EFFECTIVE UPON RECEIPT.
THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON SUCH

61

 

JUDGMENT OR IN ANY OTHER MANNER PROVIDED
BY LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER OF A SUBORDINATED NOTE TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS BROUGHT IN
ANY OF THE AFORESAID COURTS AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM
IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. TO THE EXTENT THAT THE COMPANY HAS OR MAY HEREAFTER ACQUIRE IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE WITH RESPECT TO ITSELF OR
ITS PROPERTY), THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS AGREEMENT. THE COMPANY AND EACH PURCHASER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY.

     12N. Severability. Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.

     12O. Descriptive Headings; Advice of Counsel; Interpretation. The descriptive headings of
the several paragraphs of this Agreement are inserted for convenience only and do not constitute a
part of this Agreement. Each party to this Agreement represents to the other parties to this
Agreement that such party has been represented by counsel in connection with this Agreement, the
Subordinated Notes and the other Transaction Documents, that such party has discussed this
Agreement, the Subordinated Notes and the other Transaction Documents with its counsel and that any
and all issues with respect to this Agreement, the Subordinated Notes and the other Transaction
Documents have been resolved as set forth herein. No provision of this Agreement, the Subordinated
Notes or any other Transaction Document shall be construed
against or interpreted to the disadvantage of any party hereto by any court or other
governmental or judicial authority by reason of such party having or being deemed to have
structured, drafted or dictated such provision.

     12P Counterparts; Facsimile Signatures. This Agreement may be executed in any number of
counterparts (or counterpart signature pages), each of which counterparts shall be an original but
all of which together shall constitute one instrument. Delivery of an executed

62

 

counterpart of a signature page to this Agreement by facsimile shall be effective as delivery of a manually executed
counterpart of this Agreement.

     12Q Severalty of Obligations. The sales of Subordinated Notes to the Purchasers are to be
several sales, and the obligations of the Purchasers under this Agreement are several obligations.
No failure by any Purchaser to perform its obligations under this Agreement shall relieve any other
Purchaser or the Company of any of its obligations hereunder, and no Purchaser shall be responsible
for the obligations of, or any action taken or omitted by, any other Purchaser hereunder.

     12R Independent Investigation. Each Purchaser represents to and agrees with each other
Purchaser that it has made its own independent investigation of the condition (financial and
otherwise), prospects and affairs of the Company and its Subsidiaries in connection with its
purchase of the Notes hereunder and has made and shall continue to make its own appraisal of the
creditworthiness of the Company. No holder of Subordinated Notes shall have any duties or
responsibility to any other holder of Subordinated Notes, either initially or on a continuing
basis, to make any such investigation or appraisal or to provide any credit or other information
with respect thereto. No holder of Subordinated Notes is acting as agent or in any other fiduciary
capacity on behalf of any other holder of Subordinated Notes.

     12S Directly or Indirectly. Where any provision in this Agreement refers to actions to be
taken by any Person, or which such Person is prohibited from taking, such provision shall be
applicable whether the action in question is taken directly or indirectly by such Person.

     12T Confidential Information. For the purposes of this paragraph 12T,
“Confidential Information” shall mean information delivered to any Purchaser or any other
holder of a Security by or on behalf of the Company or any Subsidiary in connection with the
transactions contemplated by or otherwise pursuant to this Agreement or any other Transaction
Document that is proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by such Purchaser or holder as being confidential information
of the Company or such Subsidiary, provided that such term does not include information that (i)
was publicly known or otherwise known to such Purchaser or such holder prior to the time of such
disclosure, (ii) subsequently becomes publicly known through no act or omission by such Purchaser
or such holder or any Person acting on such Purchaser’s or such holder’s behalf, (iii) otherwise
becomes known to such Purchaser or such holder other than through disclosure by the Company or any
Subsidiary or (iv) constitutes financial statements delivered to such Purchaser or such holder
under paragraph 5A that are otherwise publicly available. Each Purchaser and each other holder of a
Security will maintain the confidentiality of such Confidential Information in accordance with
procedures adopted by such Purchaser or such
holder in good faith to protect confidential information of third parties delivered to such
Purchaser or such holder, provided that such Purchaser or such holder may deliver or disclose
Confidential Information to (1) such Purchaser’s or such holder’s directors, trustees, officers,
employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by such Purchaser’s or such holder’s Securities),
(2) such Purchaser’s or such holder’s financial advisors and other professional advisors who agree
to hold confidential the Confidential Information substantially in accordance with the terms of
this

63

 

paragraph 12T, (3) any other holder of any Security, (4) any Institutional Investor to which
such Purchaser or such holder sells or offers to sell such Security or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this paragraph 12T), (5) any Person from
which such Purchaser or such holder offers to purchase any security of the Company (if such Person
has agreed in writing prior to its receipt of such Confidential Information to be bound by the
provisions of this paragraph 12T), (6) any federal or state regulatory authority having
jurisdiction over such Purchaser or such holder, (7) the National Association of Insurance
Commissioners or the Securities Valuation Office thereof or, in each case, or any similar
organization, or any nationally recognized rating agency that requires access to information about
such Purchaser’s or such holder’s investment portfolio or (8) any other Person to which such
delivery or disclosure may be necessary or appropriate (A) to effect compliance with any law, rule,
regulation or order applicable to such Purchaser or such holder, (B) in response to any subpoena or
other legal process, (C) in connection with any litigation to which such Purchaser or such holder
is a party or (D) if an Event of Default has occurred and is continuing, to the extent such
Purchaser or such holder may reasonably determine such delivery and disclosure to be necessary or
appropriate in the enforcement or for the protection of the rights and remedies under such
Purchaser’s or such holder’s Notes, this Agreement and the other Transaction Documents. Each holder
of a Security, by its acceptance of a Security, will be deemed to have agreed to be bound by and to
be entitled to the benefits of this paragraph 12T as though it were a party to this Agreement. On
reasonable request by the Company in connection with the delivery to any holder of a Security of
information required to be delivered to such holder under this Agreement or another Transaction
Document or requested by such holder (other than a holder that is a party to this Agreement or its
nominee), such holder will enter into an agreement with the Company embodying the provisions of
this paragraph 12T.

     12U. Original Issue Discount. The Company and the Purchasers hereby acknowledge and agree
that (i) the fair market value of the Warrants on their date of issuance is equal to an amount
which is less than the product of (a) one-quarter of one percent (0.25%) of the stated redemption
price at maturity (as such term is defined in the Code) of the Subordinated Notes and (b) the
number of complete years to maturity of the Subordinated Notes, (ii) a portion of the purchase
price of the Subordinated Notes which is less than the product described in clause (i), above, will
be allocable to the Warrants pursuant to Treas. Reg. 1.1273-2(h), with the balance of the purchase
price of the Subordinated Notes allocable to the Subordinated Notes, and (iii) pursuant to Treas.
Reg. 1.1273, the original issue discount on the Subordinated Notes shall be considered to be zero.
The foregoing agreement shall be applicable for all United States federal, state and local tax
purposes of the Company and the Purchasers.

     12V. Binding Agreement. When this Agreement is executed and delivered by the Company and each
of the Purchasers it shall become a binding agreement between the Company and each of the
Purchasers.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK. SIGNATURES ON
THE FOLLOWING PAGE.]

64

 

	 	 	 	 	 
	 	Very truly yours,

 	 
	 	By:  	/s/ Brian Smith
 	 
	 	 	Name:  	Brian Smith 	 
	 	 	Title:  	Chief Executive Officer and President 	 
	 

	 	 	 	 	 
	The foregoing Agreement is 
hereby accepted as of the 
date first above written.

PRUDENTIAL CAPITAL PARTNERS II, L.P.

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

 	 	 

	 	 	 	 	 
	By:  	/s/
[ILLEGIBLE]	 	 
	 	Vice President 	 	 
	 	 	 	 
	 

	 	 	 	 	 
	PRUDENTIAL CAPITAL PARTNERS MANAGEMENT FUND II, L.P.

By: Mulberry Street Holdings, LLC, its general partner

By: Prudential Investment Management, Inc., its managing member

 	 	 

	 	 	 	 	 
	By:  	/s/ [ILLEGIBLE]
 	 	 
	 	Vice President 	 	 
	 	 	 	 

	 	 	 	 	 
	PRUDENTIAL CAPITAL PARTNERS (PARALLEL FUND) II, L.P.

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

 	 	 

	 	 	 	 	 
	By:  	/s/ [ILLEGIBLE]
 	 	 
	 	Vice President 	 	 
	 	 	 	 
	 

65

 

PURCHASER SCHEDULE

	 	 	 	 	 

	SCHEDULE 6A

	 	—
	 	EXISTING LIENS
	SCHEDULE 6B

	 	—
	 	EXISTING INDEBTEDNESS
	SCHEDULE 6C

	 	—
	 	EXISTING INVESTMENTS
	SCHEDULE 6J(v)

	 	—
	 	MAXIMUM SALES SHORTFALL
	SCHEDULE 6J(vi)

	 	—
	 	MAXIMUM NET INCOME SHORTFALL
	SCHEDULE 6 K

	 	—
	 	RELATED PARTY TRANSACTIONS
	SCHEDULE 8A(1)

	 	—
	 	SUBSIDIARIES
	SCHEDULE 8A(2)

	 	—
	 	STOCKHOLDERS AND OUTSTANDING STOCK
	SCHEDULE 8G

	 	—
	 	LIST OF AGREEMENTS RESTRICTING INDEBTEDNESS
	SCHEDULE 8K

	 	—
	 	FILINGS
	SCHEDULE 8Q

	 	—
	 	COLLATERAL MATTERS
	SCHEDULE 8T

	 	—
	 	INVENTORY LOCATIONS
	 
	 	 	 	 
	EXHIBIT A

	 	—
	 	FORM OF SUBORDINATED NOTE
	EXHIBIT B

	 	—
	 	FORM OF WARRANT
	EXHIBIT C

	 	—
	 	FORM OF DISBURSEMENT DIRECTION LETTER
	EXHIBIT D

	 	—
	 	FORM OF AMENDED AND RESTATED INVESTOR RIGHTS

AGREEMENT
	EXHIBIT E

	 	—
	 	FORM OF AMENDED AND RESTATED STOCKHOLDERS

AGREEMENT
	EXHIBIT F

	 	—
	 	FORM OF SUBSIDIARY GUARANTY
	EXHIBIT G

	 	—
	 	FORM OF SECURITY AGREEMENT
	EXHIBIT H

	 	—
	 	FORM OF SUBSIDIARY SECURITY AGREEMENT
	EXHIBIT I

	 	—
	 	FORM OF IP SECURITY AGREEMENT
	EXHIBIT J

	 	—
	 	FORM OF EQUITYHOLDER AGREEMENT
	EXHIBIT K

	 	—
	 	FORM OF VCOC LETTER
	EXHIBIT L

	 	—
	 	FORM OF AGREEMENT TO SUBORDINATE
	EXHIBIT M

	 	—
	 	FORM OF COLLATERAL AGENCY AGREEMENT
	EXHIBIT N

	 	—
	 	FORM OF OPINION OF COMPANY’S COUNSEL
	EXHIBIT O

	 	—
	 	FORM OF THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

 

PURCHASER SCHEDULE

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Aggregate	 	 	 	 
	 	 	Principal	 	 	 	 
	 	 	Amount of	 	 	 	 
	 	 	Subordinated	 	Subordinat	 	 
	 	 	Notes	 	ed Note	 	 
	 	 	to be	 	Denominati	 	 
	 	 	Purchased	 	on(s)	 	Warrants
	PRUDENTIAL CAPITAL PARTNERS II, L.P.
	 	$	25,709,803	 	 	$	25,709,803	 	 	 	35,773,013	 

	(1)	 	For payment information with respect to any
structuring or other fee, see item 7 below. All
other
payments on account of Subordinated Notes held
by
such purchaser shall be made by wire transfer
of
immediately available funds for credit to:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: P86314 (please do not include spaces)

Account Name: Prudential Capital Partners II, L.P.
	 
	 	 	Each such wire transfer shall set forth the
name of the Company, a reference to “13.00%
Senior Subordinated Secured Notes due March 24,
2013,
Security No. INV                     , PPN                    ”, and the due
date and application (as among principal,
interest and Yield-Maintenance Amount or
premium) of the payment being made.
	 
	(2)	 	For payment information with respect to any
structuring or other fee, see item 7 below. All
other
payments on account of stock held by such
purchaser
shall be made by wire transfer of immediately
available funds for credit to:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: P86314 (please do not include spaces)

Account Name: Prudential Capital Partners II, L.P.
	 

1

 

	 	 	Each such wire transfer shall set forth the name of the
	 
	 	 	Company, a reference to “[stock description] Security
No. INV                      and PPN                     .”
	 
	(3)	 	Address for all notices relating to payments:
	 
	 	 	Prudential Capital Partners II, L.P.

c/o The Prudential Insurance Company of America

c/o Investment Operations Group

Gateway Center Two, 10th Floor

100 Mulberry Street

Newark, NJ 07102
	 
	 	 	Attention: Manager, Billings and Collections
	 
	 	 	Facsimile: (973) 802-8764
	 
	(4)	 	Address for all other communications and notices:
	 
	 	 	Prudential Capital Partners II, L.P. 
c/o Prudential
Capital Group 
Two Prudential Plaza, Suite 5600
 180 N.
Stetson Avenue 
Chicago, IL 60601
	 
	 	 	Attention: Managing Director
	 
	 	 	with a copy to:
	 
	 	 	Prudential Capital Partners II, L.P. 
c/o Prudential
Capital Group 
Two Prudential Plaza, Suite 5600 
180 North
Stetson Street
 Chicago, IL 60601-6716
	 
	 	 	Attention: Robert Scavone
	 
	(5)	 	Recipient of telephonic prepayment notices:
	 
	 	 	Attention: Capital Markets Unit
	 
	 	 	Telephone: (973) 802-4727
 Facsimile:
(973) 624-6432
	 
	(6)	 	Tax Identification No.: 47-0947714

2

 

	(7)	 	Wiring Instructions for Structuring and Other Fees:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: 304-244-325

Account Name: Stetson Street Partners, L.P.
	 
	(8)	 	Address for Delivery of Subordinated Notes:

	 	(a)	 	Send Physical Security by overnight delivery
to:
	 
	 	 	 	JPMorgan Chase Bank

4 New York Plaza — Ground Floor Window

New York, NY 10004

Attention: Receive Window
	 
	 	 	 	Please include in the cover letter
accompanying the Subordinated Notes a
reference to the Purchaser’s account
number (Account Name: Prudential Capital
Partners II, L.P.; Account Number:
P86314).
	 
	 	(b)	 	Send copy by
facsimile1 to:
	 
	 	 	 	Prudential Capital Group

Trade Management
 Gateway
Center 4
 100 Mulberry,
7th Floor
 Newark, NJ
07102
	 
	 	 	 	Attention: Custody Unit

Telephone: (973) 367-3141

Facsimile: (800) 224-2278

 

			
	1	 	Note that JPMorgan Chase will not accept the security deposits without written
authorization
from Trade Management. A copy of the cover letter and security must be sent a day in advance via
fax (800-224-2278) to Trade Management (attention: Custody Unit) in order that Trade Management
can authorize the deposit.

3

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Aggregate	 	 	 	 
	 	 	Principal	 	 	 	 
	 	 	Amount of	 	 	 	 
	 	 	Subordinated	 	Subordinat	 	 
	 	 	Notes	 	ed Note	 	 
	 	 	to be	 	Denominati	 	 
	 	 	Purchased	 	on(s)	 	Warrants
	PRUDENTIAL CAPITAL PARTNERS
MANAGEMENT FUND II, L.P.
	 	$	1,199,584	 	 	$	1,199,584	 	 	 	1,669,119	 

	(1)	 	For payment information with respect to any
structuring or other fee, see item 7 below. All
other
payments on account of Subordinated Notes held by
such purchaser shall be made by wire transfer of
immediately available funds for credit to:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: P86316 (please do not include spaces)

Account Name: Prudential Capital Partners

Management Fund II, L.P.
	 
	 	 	Each such wire transfer shall set forth the name of
the Company, a reference to “13.00% Senior
Subordinated Secured Notes due March 24, 2013,
Security No. INV ____, PPN ____” and the due
date and application (as among principal, interest
and Yield-Maintenance Amount or premium) of the
payment being made.
	 
	(2)	 	For payment information with respect to any
structuring or other fee, see item 7 below. All
other
payments on account of stock held by such purchaser
shall be made by wire transfer of immediately
available funds for credit to:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: P86316 (please do not include spaces)

Account Name: Prudential Capital Partners

Management Fund II, L.P.

4

 

	 	 	Each such wire transfer shall set forth the name of the
Company, a reference to “[stock description] Security
No. INV ____ and PPN ____.”
	 
	(3)	 	Address for all notices relating to payments:
	 
	 	 	Prudential Capital Partners Management Fund II,
L.P.

c/o The Prudential Insurance Company of America

c/o Investment Operations Group

Gateway Center Two, 10th Floor

100 Mulberry Street

Newark, NJ 07102
	 
	 	 	Attention: Manager, Billings and Collections
	 
	 	 	Facsimile: (973) 802-8764
	 
	(4)	 	Address for all other communications and notices:
	 
	 	 	Prudential Capital Partners Management Fund II,
L.P.

c/o Prudential Capital Group

Two Prudential Plaza, Suite 5600

180 N Stetson Avenue

Chicago, EL 60601
	 
	 	 	Attention: Managing Director
	 
	 	 	with a copy to:
	 
	 	 	Prudential Capital Partners Management Fund II,
L.P.

c/o Prudential Capital Group

Two Prudential Plaza, Suite 5600

180 North Stetson Street

Chicago, IL 60601-6716

	 
	 	 	Attention: Robert Scavone
	 
	(5)	 	Recipient of telephonic prepayment notices:
	 
	 	 	Attention: Capital Markets Unit
	 
	 	 	Telephone: (973) 802-4727

Facsimile: (973) 624-6432

5

 

	(6)	 	Tax Identification No.: 36-4570114
	 
	(7)	 	Wiring Instructions for Structuring and Other Fees:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: 304-244-325

Account Name: Stetson Street Partners, L.P.
	 
	(8)	 	Address for Delivery of Subordinated Notes:

	 	(a)	 	Send Physical Security by overnight delivery to:
	 
	 	 	 	JPMorgan Chase Bank

4 New York Plaza — Ground Floor Window

New York, NY 10004
	 
	 	 	 	Attention: Receive Window
	 
	 	 	 	Please include in the cover letter accompanying
the Subordinated Notes a reference to the
Purchaser’s account number (Account Name:
Prudential Capital Partners Management Fund II,
L.P.; Account Number: P86316).
	 
	 	(b)	 	Send copy by facsimile2 to:
	 
	 	 	 	Prudential Capital
Group
 Trade Management

Gateway Center 4 
100
Mulberry, 7th Floor

Newark, NJ 07102
	 
	 	 	 	Attention: Custody Unit

Telephone: (973) 367-3141

Facsimile: (800) 224-2278

 

			
	2	 	Note that JPMorgan Chase will not accept the security deposits without written
authorization
from Trade Management. A copy of the cover letter and security must be sent a day in advance via
fax (800-224-2278) to Trade Management (attention: Custody Unit) in order that Trade Management
can authorize the
deposit.

6

 

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Aggregate	 	 	 	 
	 	 	Principal	 	 	 	 
	 	 	Amount of	 	 	 	 
	 	 	Subordinated	 	Subordinat	 	 
	 	 	Notes	 	ed Note	 	 
	 	 	to be	 	Denominati	 	 
	 	 	Purchased	 	on(s)	 	Warrants
	PRUDENTIAL CAPITAL PARTNERS
(PARALLEL FUND) II, L.P.
	 	$	3,090,613	 	 	$	3,090,613	 	 	 	4,300,326	 

	(1)	 	For payment information with respect to any
structuring or other fee, see item 7 below. All
other
payments on account of Subordinated Notes held by
such purchaser shall be made by wire transfer of
immediately available funds for credit to:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: P86315 (please do not include spaces)

Account Name: Prudential Capital Partners (Parallel
Fund) II, L.P.
	 
	 	 	Each such wire transfer shall set forth the name of
the Company, a reference to “13.00% Senior
Subordinated Secured Notes due March 24, 2013,
Security No. INV ____, PPN ____”, and the due
date and application (as among principal, interest
and Yield-Maintenance Amount or premium) of the
payment being made.
	 
	(2)	 	For payment information with respect to any
structuring or other fee, see item 7 below. All
other
payments on account of stock held by such purchaser
shall be made by wire transfer of immediately
available funds for credit to:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: P86315 (please do not include spaces)

Account Name: Prudential Capital Partners (Parallel
Fund) II, L.P.

7

 

	 	 	Each such wire transfer shall set forth the name of the
Company, a reference to “[stock description] Security
No. INV ____ and PPN ____.”
	 
	(3)	 	Address for all notices relating to payments:
	 
	 	 	Prudential Capital Partners (Parallel Fund) II, L.P.
 c/o The Prudential Insurance Company
of America 
c/o Investment Operations Group
 Gateway Center Two, 10th Floor
 100 Mulberry
Street
 Newark, NJ 07102
	 
	 	 	Attention: Manager, Billings and Collections
	 
	 	 	Facsimile: (973) 802-8764
	 
	(4)	 	Address for all other communications and notices:
	 
	 	 	Prudential Capital Partners (Parallel Fund) II, L.P.
 c/o Prudential Capital Group
 Two
Prudential Plaza, Suite 5600
 180 N. Stetson Avenue
 Chicago, IL 60601
	 
	 	 	Attention: Managing Director
	 
	 	 	with a copy to:
	 
	 	 	Prudential Capital Partners (Parallel Fund) II, L.P.
 c/o Prudential Capital Group
 Two
Prudential Plaza, Suite 5600
 180 North Stetson Street
 Chicago, IL 60601-6716
	 
	 	 	Attention: Robert Scavone
	 
	(5)	 	Recipient of telephonic prepayment notices:
	 
	 	 	Attention: Capital Markets Unit
	 
	 	 	Telephone: (973) 802-4727
 Facsimile:
(973) 624-6432
	 
	(6)	 	Tax Identification No.: 43-2073265

8

 

	(7)	 	Wiring Instructions for Structuring and Other Fees:
	 
	 	 	JPMorgan Chase Bank

New York, NY

ABA No.: 021-000-021

Account No.: 304-244-325

Account Name: Stetson Street Partners, L.P.
	 
	(8)	 	Address for Delivery of Subordinated Notes:

	 	(a)	 	Send Physical Security by overnight delivery to:
	 
	 	 	 	JPMorgan Chase Bank

4 New York Plaza — Ground Floor Window

New York, NY 10004
	 
	 	 	 	Attention: Receive Window
	 
	 	 	 	Please include in the cover letter accompanying
the Subordinated Notes a reference to the
Purchaser’s account number (Account Name:
Prudential Capital Partners (Parallel Fund) II,
L.P; Account Number: P86315).
	 
	 	(b)	 	Send copy by
facsimile3 to:
	 
	 	 	 	Prudential Capital
Group
 Trade Management

Gateway Center 4
 100
Mulberry, 7th Floor

Newark, NJ 07102
	 
	 	 	 	Attention: Custody Unit

Telephone: (973) 367-3141

Facsimile: (800) 224-2278

 

			
	3	 	Note that JPMorgan Chase will not accept the security deposits without written
authorization
from Trade Management. A copy of the cover letter and security must be sent a day in advance via
fax (800-224-2278) to Trade Management (attention: Custody Unit) in order that Trade Management
can authorize the
deposit.

9

 

Liens Schedule 6A

	1.	 	Lien granted by Fingerhut Direct Marketing, Inc. to CIGPF I Corp. as Agent pursuant to
the Borrower’s Security Agreement and between CIGPF I Corp and Fingerhut Direct
Marketing, Inc. dated February 24, 2004 naming Fingerhut Direct Marketing, Inc. as
debtor and CIGPF I Corp as a secured party (the Company represents and warrants that
this will be amended and restated upon Closing to include CIT Group/ Business Credit,
Inc.).
	 
	2.	 	Lien granted by Fingerhut Fulfillment, Inc. and FDM-AR1, Inc. to CIGPF I Corp, as Agent
pursuant to the Subsidiary Security Agreement and between CIGPF I Corp. and Fingerhut
Direct Marketing, Inc. dated February 24, 2004 naming Fingerhut Direct Marketing, Inc. as
debtor and CIGPF I Corp. as a secured party (the Company represents and warrants that this
will be amended and restated upon Closing to include CIT Group/ Business Credit, Inc.).
	 
	3.	 	Liens granted by Fingerhut Direct Marketing, Inc. and Fingerhut Fulfillment, Inc. to CIGPF
I Corp, as Agent pursuant to the Security Agreement (Intellectual Property) (Grant of
Security Interest (Trademarks), (Patents), (Copyrights)) dated February 24, 2004 (the
Company represents and warrants that this will be amended and restated upon Closing to
include CIT Group/ Business Credit, Inc.).
	 
	4.	 	The Customer List, granted pursuant to the Agreement Regarding Customer List, by and
between FAC Acquisition, LLC and Fingerhut Direct Marketing, Inc. and CompuCredit
Corporation, dated October 25, 2002, is encumbered by certain terms contained therein; and
the Amendment to Agreement Regarding Customer List, by and between FAC Acquisition, LLC and
Fingerhut Direct Marketing, Inc. and CompuCredit Corporation, dated May, 2003, provides a
release of certain restrictions.
	 
	5.	 	CIT Bank, pursuant to the CIT Bank and Fingerhut Direct Marketing, Inc. Amended and
Restated Receivables Sale Agreement, dated February 17, 2004, provides for a Reserve Account
(as defined in the Receivables Sale Agreement) in an amount equal to ten percent (10%) of
the aggregate outstanding principal balance of the Receivables (as defined in the
Receivables Sale Agreement) owned by the bank at such time and CIT Bank has a security
interest in such Reserve Account.
	 
	6.	 	Lien granted by Fingerhut Direct Marketing, Inc. to Liberty Property Limited Partnership
pursuant to the lease by and between Liberty Property Limited Partnership and Fingerhut
Direct Marketing, Inc. dated March 1, 2006, for the security deposit on the leased property
for Company’s executive offices located at 7777 Golden Triangle, Eden Prairie, Minnesota.

 

 

	7.	 	Lien granted by Fingerhut Direct Marketing, Inc. to Petters Company, Inc., as
agent, pursuant to the Specified Obligations Security Agreement dated February 24,
2004.

2

 

Indebtedness Schedule 6B 

	 	1.	 	CIGPF I Corp pursuant to the Security Agreement and between CIGPF I Corp and FDM
dated February 24, 2004 naming FDM as debtor and CIGPF I Corp as a secured party;

 

 

Investments by Subsidiaries — Schedule 6C 

None

 

 

Sales Covenants Schedule 6J (v)

Twelve Month Periods:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Projected Net
	 	 	 	 	 	 	 	 	 	 	Sales Revenue
	March
	 	2005	 	through	 	February	 	2006	 	$	180,434,738	 
	April
	 	2005	 	through	 	March	 	2006	 	$	185,029,127	 
	May
	 	2005	 	through	 	April	 	2006	 	$	187,226,424	 
	June
	 	2005	 	through	 	May	 	2006	 	$	190,535,456	 
	July
	 	2005	 	through	 	June	 	2006	 	$	193,839,607	 
	August
	 	2005	 	through	 	July	 	2006	 	$	195,599,273	 
	September
	 	2005	 	through	 	August	 	2006	 	$	199,758,514	 
	October
	 	2005	 	through	 	September	 	2006	 	$	203,274,136	 
	November
	 	2005	 	through	 	October	 	2006	 	$	207,605,547	 
	December
	 	2005	 	through	 	November	 	2006	 	$	215,462,728	 
	January
	 	2006	 	through	 	December	 	2006	 	$	209,678,426	 
	February
	 	2006	 	through	 	January	 	2007	 	$	205,876,935	 
	March
	 	2006	 	through	 	February	 	2007	 	$	211,910,387	 

 

 

Maximum Net Income Shortfall Schedule 6J(vi) 

Twelve Month Periods:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Net
	 	 	 	 	 	 	 	 	 	 	Income/(Loss)
	 	 	 	 	 	 	 	 	 	 	Covenant
	March
	 	2005	 	through	 	February	 	2006	 	$	(3,998,122	)
	April
	 	2005	 	through	 	March	 	2006	 	$	(3,848,970	)
	May
	 	2005	 	through	 	April	 	2006	 	$	(9,201,373	)
	June
	 	2005	 	through	 	May	 	2006	 	$	(9,205,067	)
	July
	 	2005	 	through	 	June	 	2006	 	$	(8,207,120	)
	August
	 	2005	 	through	 	July	 	2006	 	$	(8,971,276	)
	September
	 	2005	 	through	 	August	 	2006	 	$	(7,769,135	)
	October
	 	2005	 	through	 	September	 	2006	 	$	(6,117,997	)
	November
	 	2005	 	through	 	October	 	2006	 	$	(6,142,305	)
	December
	 	2005	 	through	 	November	 	2006	 	$	(3,073,264	)
	January
	 	2006	 	through	 	December	 	2006	 	$	(4,028,353	)
	February
	 	2006	 	through	 	January	 	2007	 	$	(2,611,752	)
	March
	 	2006	 	through	 	February	 	2007	 	$	(1,641,031	)

 

 

Related Parties Schedule 6K 

	 	1.	 	Office Lease, 4400 Baker Road, Minnetonka, MN, by and between FAC Acquisition, LLC
and Fingerhut Direct Marketing, Inc., dated May 1, 2003 (the Company represents, warrants
and covenants that this lease will terminate on May 1, 2006) ;
	 
	 	2.	 	Building Lease, (St. Cloud West Campus/ Distribution Center) 6250 Ridgewood Road, St.
Cloud, MN, by and between FAC Acquisition, LLC and Fingerhut Direct Marketing, Inc., dated
November 26, 2003;
	 
	 	3.	 	Equipment Lease Agreement (St Cloud Equipment), by and between FAC Acquisition,
LLC and Fingerhut Direct Marketing, Inc., dated November 1, 2002;
	 
	 	4.	 	Lease Schedule Number 1 (Attached to Equipment Lease Agreement dated
November 1, 2002), by and between FAC Acquisition, LLC and Fingerhut Direct Marketing,
dated February 1, 2004;
	 
	 	5.	 	Lease Schedule Number 2 (Attached to Equipment Lease Agreement dated November 1,
2002), by and between FAC Acquisition, LLC and Fingerhut Direct Marketing, dated
February 1, 2004;
	 
	 	6.	 	Shared Resources Agreement, by and between Petters Group Worldwide, LLC and
Fingerhut Direct Marketing, Inc. January 1, 2003;
	 
	 	7.	 	Trademark Sale and Assignment Agreement (Master Craft), by and between
Fingerhut Direct Marketing, Inc. and Petters Group Worldwide, LLC, dated November 1,
2003;
	 
	 	8.	 	Licensing Agreement (Master Craft), by and between Fingerhut Direct Marketing, Inc.
and Petters Group Worldwide, LLC, dated November 1, 2003;
	 
	 	9.	 	Stock Purchase Agreement, by and between Fingerhut Direct Marketing, Inc.; Bain
Capital Venture Fund, L.P., Battery Ventures VI, L.P., Petters Company, Inc., Theodore
Deikel and Other Purchasers (as defined by the Stock Purchase Agreement), dated
February 17, 2004.;
	 
	 	10.	 	Investor Rights Agreement, by and between Fingerhut Direct Marketing, Inc., Bain Capital
Venture Fund, L.P., BCIP Associates III, LLC, BCIP Associates III-B, LLC, Bain Capital
Investors, LLC, Brookside Capital Partners Fund, L.P., RGIP, LLC, Battery Ventures VI, L.P.,
Battery Investment Partners VI, LLC, Petters Company, Inc., FAC Acquisitions, LLC, RTB
Holdings, LLC, Epsilon Global Equities Limited, CIGPF I CORP, Piper Jaffray & Co.,
Cherry Tree Securities, LLC, dated February 17, 2004 (the

 

 

	 	 	 	Company represents, warrants and covenants that this agreement will be amended
and restated upon Closing);;
	 
	 	11.	 	Stockholders’ Agreement, by and between Fingerhut Direct Marketing, Inc., Bain Capital Venture
Fund, L.P., BCIP Associates III, LLC, BCIP Associates III-B, LLC, Bain Capital Investors, LLC,
Brookside Capital Partners Fund, L.P., RGIP, LLC, Battery Ventures VI, L.P., Battery Investment
Partners VI, LLC, Petters Company, Inc., FAC Acquisitions, LLC, RTB Holdings, LLC, Epsilon Global
Equities Limited, CIGPF I CORP, Piper Jaffray & Co., Cherry Tree Securities, LLC, dated
February 17, 2004 (the Company represents, warrants and covenants that this agreement will be
amended and restated upon Closing);
	 
	 	12.	 	Guarantor Agreement, by and between Fingerhut Direct Marketing, Inc. Petters Company, Inc., FAC
Acquisitions, LLC, Bain Capital Venture Fund, L.P., Battery Ventures VI, L.P., dated February 17,
2004;
	 
	 	13.	 	Specified Obligations Security Agreement by and among the Company, Petters Company, Inc., FAC
Acquisition, LLC., Thomas Petters and Theodore Deikel.

Warehouse Fulfillment Agreements to provide warehousing services:

	 	14.	 	Fulfillment Services Agreement, by and between Petters Group Worldwide,
LLC;

 

 

Schedule 8A(1) — Subsidiaries

	 	 	 	 	 	 	 
	 	 	 	 	Percentage Ownership by
	 	 	 	 	Fingerhut Direct Marketing;
	Name	 	Jurisdiction of Organization	 	Inc.
	Fingerhut Fulfillment, Inc.
	 	Delaware	 	 	100	%

 

 

SCHEDULE 8A(2)—STOCKHOLDERS

Fingerhut Direct Marketing, Inc.

Pro-forma Capital Structure at February 3, 2006 including Prospective Prudential Series A Preferred Stock Warrant

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2005
NON-EMPLOYEE	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2003 EQUITY	 	DIRECTORS	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	ISSUED & OUTSTANDING	 	T. DEIKEL	 	INCENTIVE PLAN	 	STOCK OPTION PLAN	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Common stock Options	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Granted &Available	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Prospective	 	 
	 	 	Series A Convertible	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	for Additional Grant	 	Common Stock Options	 	Common Stock	 	Prudential Series A	 	 
	 	 	Preferred Stock	 	Common Stock	 	Common Stock Options	 	Pursuant to 10% Mgmt Pool	 	Granted & Available	 	Warrants Outstanding	 	Preferred Warrant	 	Total
	Name	 	Shares	 	%	 	Shares	 	%	 	Shares	 	%	 	Shares	 	%	 	Shares	 	%	 	Shares	 	%	 	Shares	 	%	 	Shares	 	%
	Bain
& Affiliates
	 	 	200,159,607	 	 	 	19.2	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	200,159,607	 	 	 	19.2	%
	Battery & Affiliates
	 	 	200,159,606	 	 	 	19.2	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	200,159,606	 	 	 	19.2	%
	Management & Other Employees
	 	 	3,695,254	 	 	 	0.4	%	 	 	53,916,475	 	 	 	5.2	%	 	 	—	 	 	 	—	 	 	 	69,502,576	 	 	 	6.7	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	127,114,305	 	 	 	12.2	%
	Patters Company, Inc.
	 	 	338,731,641	 	 	 	32.5	%	 	 	24,836,621	 	 	 	2.4	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	363,568,262	 	 	 	34.8	%
	FAC Acquisition, LLC
	 	 	—	 	 	 	—	 	 	 	28,850,862	 	 	 	2.8	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	28,850,862	 	 	 	2.8	%
	RTB Holdings, LLC
	 	 	—	 	 	 	—	 	 	 	1,321,552	 	 	 	0.1	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,321,552	 	 	 	0.1	%
	Non-Employee Directors
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,000,000	 	 	 	0.6	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	6,000,000	 	 	 	0.6	%
	T. Deikel
	 	 	—	 	 	 	—	 	 	 	16,103,658	 	 	 	1.5	%	 	 	3,983,333	 	 	 	0.4	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	20,086,991	 	 	 	1.9	%
	Common Stock Warrant Holders
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	49,991,158	 	 	 	4.8	%	 	 	—	 	 	 	—	 	 	 	49,991,158	 	 	 	4.8	%
	Prospective Prudential Series A Warrant
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	41,742,458	 	 	 	4.0	%	 	 	41,742,458	 	 	 	4.0	%
	CIGPF I
	 	 	4,566,645	 	 	 	0.4	%	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,566,645	 	 	 	0.4	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	747,312,753	 	 	 	71.6	%	 	 	125,029,168	 	 	 	12.0	%	 	 	3,983,333	 	 	 	0.4	%	 	 	69,502,576	 	 	 	6.7	%	 	 	6,000,000	 	 	 	0.6	%	 	 	49,991,158	 	 	 	4.8	%	 	 	41,742,458	 	 	 	4.0	%	 	 	1,043,561,446	 	 	 	100.0	%
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 

	Prudential Warrant Calculation:
	 	 	 	 	 	 	 	 
	Fully Diluted Shares
	 	 	1,043,561,446	 	 	 	 	 
	Less: Prudential 4% Warrant
	 	 	(41,742,458	)	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Subtotal ‘Fully Diluted’ Shares
	 	 	1,001,818,988	 	 	 	96.0	%
	4% Prudential Warrant
	 	 	41,742,458	 	 	 	4.0	%
	Grand Total ‘Fully Diluted’
	 	 	1,043,561,446	 	 	 	100.0	%

 

 

SCHEDULE 8G

LIST OF AGREEMENTS RESTRICTING INDEBTEDNESS

	1.	 	Amended and Restated Warehouse Agreement dated March 23, 2006 among the Company, the
Lenders Party thereto, The CIT Group/Business Credit, Inc., as Documentation Agent and CIGPF
I Corp., as Agent.

	2.	 	Third Amended and Restated Certificate of Incorporation of the Company filed March 24,
 2006 in the office of the Secretary of State of the State of Delaware.

	3.	 	Amended and Restated Investor Rights Agreement dated
March 24, 2006 among the Company and the
Investors listed as a party thereto.

	4.	 	Amended and Restated Stockholders Agreement dated March 24, 2006 among the Company and the
Stockholders.

 

 

SCHEDULE 8K

FILINGS

	1.	 	Security Agreement dated March 23, 2006 between the Company and Prudential Capital
Partners II, L.P., as collateral agent.

	2.	 	Subsidiary Security Agreement dated March 23, 2006 between Fingerhut Fulfillment, Inc. and
Prudential Capital Partners II, L.P., as collateral agent.

	3.	 	Security Agreement (Intellectual Property) dated
March 23, 2006 among the Company, Fingerhut
Fulfillment, Inc. and Prudential Capital Partners II, L.P., as collateral agent.

	4.	 	Guaranty Agreement dated March 23, 2006 given by Fingerhut Fulfillment, Inc. in favor of
Prudential Capital Partners II, L.P., as collateral agent.

 

 

Security
Interest Schedule 8Q (i) 

Location of chief executive office

	 	1.	 	4400 Baker Road, Minnetonka, MN 55343 (vacating May 1, 2006)
	 
	 	2.	 	7777 Golden Triangle Road, Eden Prairie, MN (as of
May 1, 2006)

 

 

Security Interest Schedule 8Q (ii) 

Owned/Leased property

	 	1.	 	Office Lease, 4400 Baker Road, Minnetonka, MN, by and between FAC
Acquisition, LLC and Fingerhut Direct Marketing, Inc., dated
May 1, 2003 (the Company
represents, warrants and covenants that this lease will be terminated on May 1, 2006)
and the chief executive office will be moving to 7777 Golden Triangle Road, Eden
Prairie, MN on May 1, 2006;
	 
	 	2.	 	Office Lease, 7777 Golden Triangle Drive, Eden Prairie, MN, by and between
Liberty Property Limited Partnership and Fingerhut Direct Marketing, Inc., dated
March 1, 2006, effective April 1, 2006;
	 
	 	3.	 	Building Lease, (St. Cloud Building 1) 11 McLeland Road, St. Cloud, MN, by and between
Sundance III, LTD and Fingerhut Direct Marketing, Inc., dated
November 15, 2005;
	 
	 	4.	 	Building Lease, (St. Cloud West Campus) 6250 Ridgewood Road, St. Cloud, MN, by and
between FAC Acquisition, LLC and Fingerhut Direct Marketing, Inc., dated November
26, 2003;
	 
	 	5.	 	Office Lease, 14005 13th Avenue North, Plymouth, MN, by and between James
Campbell Company LLC, and Fingerhut Direct Marketing, Inc., dated
November 14, 2003;
	 
	 	6.	 	Office Lease, (Eveleth Office) 1250 Industrial Park Road, Eveleth, MN, by and between
Dante A. Tini, John D & Donna Tini, dated August 15, 2003.

 

 

Security
Interest Schedule 8Q (iii)

Locations of business property/records

	 	1.	 	4400 Baker Road, Minnetonka, MN, (Corporate Offices) — Office equipment and supplies
	 
	 	2.	 	11 McLeland Road, St. Cloud, MN, (St. Cloud Building 1) — Office
equipment and supplies
	 
	 	3.	 	6250 Ridgewood Road, St. Cloud, MN, (St. Cloud West Campus) — Distribution
Center Equipment and Inventory
	 
	 	4.	 	14005 13th Avenue, Plymouth, MN — Merchandise Samples
	 
	 	5.	 	1250 Industrial Park Road, Eveleth, MN — Office equipment and supplies
	 
	 	6.	 	9450 West Bloomington Freeway, Bloomington, MN — Record Storage at Iron Mountain
	 
	 	7.	 	5480 Feltl Road, Minnetonka, MN Agreement — Time Warner Telecom Co-location data
center equipment and servers

 

 

Schedule 8Q(iv)(a)

Current Registered Trademarks/Service Marks

FINGERHUT DIRECT MARKETING INC. US TRADE/SERVICE MARKS 03/06/06

	 	 	 	 	 
	Trademark / Servicemark	 	Reg. No.
	ACCESS TO BETTER LIVING
	 	 	3,020,977	 
	AL AND DESIGN
	 	 	2,453,125	 
	BACKYARD LIVING
	 	 	2,274,991	 
	CAREFREE LIVING
	 	 	1,505,333	 
	CHEF’S MARK
	 	 	2,489,361	 
	CHEF’S MARK
	 	 	2,645,988	 
	CHEF’S MARK PREFERRED QUALITY & DESIGN
	 	 	2,497,159	 
	CHEF’S MARK PREFERRED QUALITY & DESIGN
	 	 	2,659,758	 
	CORNER SHOP
	 	 	1,401,719	 
	COUNTRY BEAR
	 	 	2,782,394	 
	Design Only (Bull’s Head in Chef’s Hat)
	 	 	1,393812	 
	DIGITAL ZONE
	 	 	2,398,630	 
	FALL BIG BOOK
	 	 	2,655,853	 
	Fashion Jewelry Bazaar
	 	 	2,352,633	 
	FINGERHUT
	 	 	999,881	 
	FINGERHUT
	 	 	973,080	 
	FINGERHUT HOME
	 	 	2,523,477	 
	GATE ONE (AND DESIGN)
	 	 	1,724,645	 
	GATE ONE LUGGAGE (AND DESIGN)
	 	 	1,722,969	 
	GOLD KEY
	 	 	2,368,354	 
	GOOD DEALS, GREAT BUYS
	 	 	2,503,225	 
	HOLIDAY BIG BOOK
	 	 	2,386,204	 
	HOME DEALS
	 	 	2,967,344	 
	In A Flash
	 	 	2,444,748	 
	Instant Fit
	 	 	2,333,507	 
	LIFE MAX
	 	 	2,411,462	 
	LIFE MAX
	 	 	2,099,973	 
	Life Max
	 	 	2,312,598	 
	OUTDOOR SPIRIT
	 	 	2,540,809	 
	OUTDOOR SPIRIT
	 	 	2,358,444	 
	OUTDOOR SPIRIT
	 	 	2,438,921	 
	OUTDOOR SPIRIT
	 	 	2,513,010	 
	OUTDOOR SPIRIT
	 	 	2,438,922	 
	OUTDOOR SPIRIT
	 	 	2,476,139	 
	OUTDOOR SPIRIT
	 	 	2,366,241	 
	OUTDOOR SPIRIT
	 	 	2,444,758	 
	OUTDOOR SPIRIT
	 	 	2,358,443	 
	Outdoor Spirit
	 	 	2,358,445	 
	QA Quality Assured & Design
	 	 	1,931,994	 
	ROOMS FOR LIVING
	 	 	1,693,689	 
	SENSOMA
	 	 	2,601,356	 
	Sports Central
	 	 	2,279,009	 
	SPRING BIG BOOK
	 	 	2,476,310	 
	ST. CROIX COLORS
	 	 	2,579,749	 
	ST. CROIX COLORS
	 	 	2,681,467	 
	ST. CROIX COLORS AND DESIGN
	 	 	2,530,650	 

 

 

	 	 	 	 	 
	Trademark / Servicemark	 	Reg. No.
	ST. CROIX COLORS AND DESIGN
	 	 	2,552,910	 
	SUITE LUXURIES
	 	 	2,496,775	 
	SUPER CHEF
	 	 	1,933,548	 
	Super Chef
	 	 	1,037,297	 
	Take Time For Kids
	 	 	2,329,075	 
	The Accent’s on Outerwear
	 	 	2,315,853	 
	THE COOK’S BOOK
	 	 	2,363,151	 
	THE COOK’S BOOK (STYLIZED)
	 	 	2,363,143	 
	TREASURE CREEK
	 	 	2,435,895	 

	 	 	 
	 	 	Registration
	Foreign Trademarks	 	Number
	Outdoor Spirit

	 	Mexico 215558
	Outdoor Spirit

	 	Mexico 712727
	Outdoor Spirit

	 	UK 2146029
	Outdoor Spirit

	 	France 93480387

	 	 	 	 	 
	Trademark Applications	 	Serial Number
	Baker Hill

	 	78/545829
	Country Bear

	 	78/552727
	Fingerhut

	 	78/533161

 

 

Schedule 8Q(iv)(b)—Patents 

Patents: 

     None Pending

	 	 	 	 	 
	Patent Applications	 	Application No.
	Prediction model creation, evaluation, and training
	 	 	9731188	 

 

 

Schedule 8Q(iv)(c)—Trade Names 

Fingerhut Direct Marketing, Inc

Fingerhut Fulfillment, Inc

Fingerhut

 

 

Organizational Identification Number Schedule 8Q(v) 

	 	 	 	 	 	 	 	 	 
	Organization	 	Federal Tax ID Number	 	State Tax ID Number
	Fingerhut Direct Marketing, Inc
	 	 	61-1525164	 	 	 	61-07171	 
	Fingerhut Fulfillment, Inc
	 	 	43-1975931	 	 	 	61-20156	 

 

 

Schedule 8Q(vi)—Names Under Which Company or Subsidiary Has Conducted Business 

Fingerhut Direct Marketing, Inc

Fingerhut Fulfillment, Inc

FDM-AR 1

 

 

Security Interest Schedule 8T 

Locations of Inventory

6250 Ridgewood Road, St. Cloud, MN, (St. Cloud West Campus) — Distribution Center and
Warehouse housing Inventory

 

 

EXHIBIT A

[FORM OF SUBORDINATED NOTE]

FINGERHUT DIRECT MARKETING, INC.

13.00% SENIOR SUBORDINATED SECURED NOTE DUE MARCH 24, 2013

			
	 	 	 
	No. ______
	 	[Date]
	$___________	 	 

     FOR VALUE RECEIVED, the undersigned, FINGERHUT DIRECT MARKETING, INC., a corporation
organized and existing under the laws of the State of Delaware (herein called

the “Company”), hereby promises to pay to
       , or registered assigns, the principal sum of
______________ DOLLARS on MARCH 24, 2013, with interest (computed on the
basis of a 360-day year--30-day month) (a) on the unpaid balance thereof at the rate of 13.00%
per annum (or, during any period when an Event of Default shall be in existence, at the election
of the Required Holder(s) at the Default Rate (as defined below)) from the date hereof, payable
quarterly on the 24th day of March, June, September and December in each year, commencing with
the March, June, September or December next succeeding the date hereof, until the principal
hereof shall have become due and payable, and (b) on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of Yield-Maintenance Amount, Prepayment Amount and
Specified Event Prepayment Amount and, to the extent permitted by applicable law, any overdue
payment of interest, payable quarterly as aforesaid (or, at the option of the registered holder
hereof, on demand), at a rate per annum from time to time equal to the Default Rate. The
“Default Rate” shall mean a rate per annum from time to time equal to the greater of (i) 23.00%
or (ii) 10.00% over the rate of interest publicly announced by JPMorgan Chase Bank, N.A., from
time to time in New York City as its Prime Rate; provided, that in no event shall the Default
Rate exceed the maximum rate of interest allowed under applicable law.

     Payments of principal of, interest on and any Yield-Maintenance Amount, Prepayment Amount
and Specified Event Prepayment Amount payable with respect to this Subordinated Note are to be
made at the main office of JPMorgan Chase Bank in New York City or at such other place as the
holder hereof shall designate to the Company in writing, in lawful money of the United States
of America.

     This Subordinated Note is one of a series of Senior Subordinated Notes (herein called the
“Subordinated Notes”) issued pursuant to a Securities Purchase Agreement, dated as of March 23,
2006 (herein called the “Agreement”), among the Company and the original purchasers of the
Subordinated Notes named in the Purchaser Schedule attached thereto and is entitled to the
benefits thereof.

     This Subordinated Note is a registered Subordinated Note and, as provided in the Agreement,
upon surrender of this Subordinated Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered holder hereof

A-1

 

or such holder’s attorney duly authorized in writing, a new Subordinated Note for a like principal
amount will be issued to, and registered in the name of, the transferee. Prior to due presentment
for registration of transfer, the Company may treat the person in whose name this Subordinated
Note is registered as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.

     This Subordinated Note is subject to optional prepayment, in whole or from time to time in
part, on the terms specified in the Agreement.

     This Subordinated Note is secured by, and entitled to the benefits of, the Security Documents
and is guaranteed pursuant to the Subsidiary Guaranty executed by certain guarantors. Reference is
made to the Security Documents for a statement concerning the terms and conditions governing the
collateral security for the obligations of the Company hereunder and reference is made to such
Subsidiary Guaranty for a statement concerning the terms and conditions governing such guarantee
of the obligations of the Company hereunder.

     In case an Event of Default shall occur and be continuing, the principal of this Subordinated
Note may be declared or otherwise become due and payable in the manner and with the effect
provided in the Agreement.

     The Company and any and all endorsers, guarantors and sureties severally waive grace, demand,
presentment for payment, notice of dishonor or default, notice of intent to accelerate, notice of
acceleration (except to the extent required in the Agreement), protest and diligence in collecting
in connection with this Subordinated Note, whether now or hereafter required by applicable law.

     Capitalized terms used herein which are defined in the Agreement and not otherwise defined
herein shall have the meanings as defined in the Agreement.

     THIS SUBORDINATED NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF ILLINOIS AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH STATE (EXCLUDING ANY CONFLICTS OF LAW
RULES WHICH WOULD OTHERWISE CAUSE THIS NOTE TO BE CONSTRUED OR ENFORCED IN ACCORDANCE WITH THE
LAWS OF ANY OTHER JURISDICTION).

	 	 	 	 	 	 	 	 	 

	 	 	FINGERHUT DIRECT MARKETING, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 

A-2

 

EXHIBIT B

[FORM OF WARRANT]

See Attached

 

 

NEITHER THIS WARRANT NOR THE SHARES OBTAINABLE UPON ITS EXERCISE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS (COLLECTIVELY, THE
“ACTS”), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER ALL APPLICABLE ACTS OR UNLESS AN OPINION OF
COUNSEL IS DELIVERED TO THE COMPANY (AS DEFINED BELOW) IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER ALL
APPLICABLE ACTS OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF THE ACT. THE RIGHT TO
VOTE AND THE SALE OR TRANSFER OF THIS WARRANT AND THE SHARES OBTAINABLE UPON ITS EXERCISE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
DATED MARCH _, 2006 BY AND AMONG THE HOLDER HEREOF AND OTHER STOCKHOLDERS OF THE COMPANY.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
COMPANY.

March       , 2006

FINGERHUT DIRECT MARKETING, INC.

SERIES A PREFERRED STOCK PURCHASE WARRANT

     THIS CERTIFIES THAT, for value received, Prudential Capital Partners II, L.P., or its
registered assigns (the “Holder”), is entitled to subscribe for and purchase from Fingerhut Direct
Marketing, Inc., a Delaware corporation (the “Company”), the Shares (as defined in Section
1 hereof) at the per share exercise price of $0.01 (the
“Exercise Price”) (as adjusted from time
to time pursuant to Section 4 hereof), at any time or from time to time prior to or upon the
Expiration Date (as defined in Section 13 hereof), subject to the provisions and upon the terms
and conditions hereinafter set forth.

     This Warrant is subject to the following terms and conditions:

	 	1.	 	Shares; When Exercisable.

     (a)
As used herein, the term “Shares” means up to an aggregate of 35,773,013 shares of
the Company’s Series A Convertible Preferred Stock, par value $0.00001 per share (the “Series
A Preferred Stock”), it being understood that the number of Shares issuable hereunder and the
Exercise Price are subject to adjustment from time to time pursuant to Section 4 hereof.

     (b) This Warrant shall be exercisable at any time (and from time to time) prior to the
Expiration Date.

	 	2.	 	Method of Exercise; Payment.

 

 

     (a) Cash Exercise. The purchase rights represented by this Warrant may be exercised by
the Holder, in whole or in part, at any time or from time to time, by the surrender of this Warrant
(together with a duly executed notice of exercise (the
“Notice of Exercise”) in the form attached
hereto as Exhibit A) at the Company’s offices at 4400 Baker Road, Minnetonka, Minnesota
55343 (as such address may be updated from time to time by means of written notice to the Holder
pursuant to Section 5(c) hereof), and by payment to the Company of an amount equal to the Exercise
Price multiplied by the number of the Shares being purchased, which amount may be paid, at the
election of the Holder, by (i) wire transfer or check payable to the order of the Company, (ii)
cancellation by the Holder of indebtedness or other obligations of the Company to the Holder
pursuant to a written agreement reasonably acceptable to the Company or (iii) any combination of
(i) and (ii). The Holder in whose name any certificate representing the Shares issuable upon any
exercise of this Warrant will be issued shall be deemed to have become the holder of record of, and
shall be treated for all purposes as the record holder of, the Shares represented thereby (and such
Shares shall be deemed to have been issued) immediately prior to the close of business on the date
or dates upon which such surrender and payment are made. Notwithstanding the foregoing, if an
exercise of all or any portion of this Warrant is being made in connection with a proposed Public
Offering or in connection with any proposed Sale of the Corporation (as defined in the Third
Amended and Restated Certificate of Incorporation of the Company (the “Certificate”)) or
any proposed sale of outstanding shares of Common Stock, then, at the election of the Holder, such
exercise may be conditioned solely upon the consummation of the Public Offering, Sale of the
Corporation or sale, in which case such exercise shall be effective immediately prior to the
consummation of the Public Offering, Sale of the Corporation or sale. As used in this Section 2,
the term “person” means any individual or any corporation, partnership, trust, limited liability
company or other entity or organization of any kind.

     (b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)
hereof, the Holder may elect to receive, without the payment of any additional consideration, a
number of Shares equal to the value (as determined below) of this Warrant (or the portion thereof
being exercised) by surrender of this Warrant at the Company’s address set forth in Section 2(a)
above together with a duly executed Notice of Exercise in which the appropriate alternative is
initialed by the Holder. In such event, the Company shall issue to the Holder the number of Shares
computed using the following formula:

Where X = the number of Shares to be issued to the Holder.

	 	 	 	 	 	 	 

	 

	 	Y
	 	=
	 	the number of Shares subject to this Warrant or, if only a portion of this
Warrant is being exercised, the portion of this Warrant being exercised (at the time of
such calculation).
	 
	 	 	 	 	 	 
	 

	 	A
	 	=
	 	the Fair Market Value of one Share (at the date of such calculation).

2

 

	 	 	 	 	 	 	 

	 

	 	B
	 	=
	 	the Exercise Price (as adjusted to the date of such calculation).

     (c) [Intentionally Omitted.]

     (d) Fair Market Value. For purposes of this Section 2, the Fair Market Value of one
Share shall equal:

     (i) the average of the closing sale prices of the Series A Preferred Stock quoted on the
Nasdaq Stock Market or in the Over-The-Counter Market Summary or the closing price quoted on
any national securities exchange on which such securities are listed, whichever is applicable,
as published in the Eastern Edition of The Wall Street Journal for the ten (10) consecutive
trading days immediately prior to the date of determination of Fair Market Value (or, if no
sales take place on any such trading day, the average of the closing bid and asked prices on
such trading day); or

     (ii) if the Series A Preferred Stock is not traded on the Nasdaq Stock Market or
Over-The-Counter or on a national securities exchange, the Fair Market Value shall be equal
to the value per share as determined in good faith by the Board of Directors of the Company;
provided, however, that:

     (A) if the Holder disagrees in its sole discretion with such determination, then
the Company and the Holder shall each retain at its own cost an Independent Accountant,
which two Accountants shall cooperate in determining the Fair Market Value of the
Shares;

     (B) if such Accountants cannot agree on a Fair Market Value within thirty (30) days
of referral of the matter, then the parties agree to submit the dispute to arbitration
administered by the American Arbitration Association under its Commercial Arbitration
Rules; such arbitration shall be tried by a single arbitrator selected by the
Accountants, and it is the intent of the parties that, barring extraordinary
circumstances, arbitration proceedings will be concluded within 60 days from the date
the arbitrator is appointed;

     (C) “Accountant” and shall mean any of Deloitte Touche Tohmatsu, Ernst & Young,
KPMG or PricewaterhouseCoopers; and

     (D) “Independent” shall mean with respect to any Accountant, who does not audit the
Company, the Holder or any of their respective Affiliates, who is (i) “independent” with
respect to such entity as contemplated by Rule 101 of the Code of Professional Conduct
of the American Institute of Certified Public Accountants and (ii) is or would be
recognized as “independent” with respect to such entity by the Securities and Exchange
Commission pursuant to Rule 2-01 of Regulation S-X

3

 

promulgated under the Securities Act of 1933 and the Securities Exchange Act of
1934.

     (e) Stock Certificates. In the event of any exercise of the rights represented by
this Warrant, as promptly as practicable on or after the date of exercise and in any event
within ten (10) days thereafter, the Company at its expense shall issue and deliver to the
Holder entitled to receive the same a certificate or certificates representing the number of
Shares issued upon such exercise. In the event this Warrant is exercised in part, as promptly
as practicable on or after the date of exercise and in any event within ten (10) days
thereafter, the Company at its sole expense will execute and deliver to the Holder a new
Warrant of like tenor exercisable for the number of Shares for which this Warrant may then be
exercised.

     (f) Taxes. The issuance of the Shares upon the exercise of this Warrant, and the
delivery of certificates or other instruments representing such Shares, shall be made without
charge to the Holder for any tax or other charge of whatever nature in respect of such
issuance (other than taxes, if any, based on the net income of the Holder) and the Company
shall bear any such taxes in respect of such issuance.

     (g) Common Stock. Upon the exercise of this Warrant in whole or in part, the
Company shall, at the option of the Holder and upon surrender of this Warrant as provided
above, deliver pursuant to Section 2(e) certificates or certificates for the Common Stock into
which the shares of Series A Preferred Stock otherwise issuable upon such exercise are
convertible in lieu of a certificate or certificates for Series A Preferred Stock.

     3. Stock Fully Paid; Reservation of Shares. All of the Shares issuable upon the
exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise
Price therefor, be fully paid and nonassessable, and the issuance of the Shares will be free from
all preemptive rights, rights of first refusal or first offer, taxes, liens and charges of whatever
nature. The Company will from time to time take all such action as may be required to assure that
the stated or par value per share of Series A Preferred Stock is at all times equal to or less than
the then effective Exercise Price per share of Series A Preferred Stock issuable upon exercise of
this Warrant. During the period within which the rights represented by this Warrant may be
exercised, the Company shall at all times have authorized and reserved for issuance a sufficient
number of shares of its Series A Preferred Stock to provide for the full exercise of the rights
represented by this Warrant and a sufficient number of shares of its Common Stock to provide for
the full conversion of such shares of Series A Preferred Stock. The Company shall take all steps
necessary to amend its certificate of incorporation and other organizational documents to provide
sufficient reserves of shares of Series A Preferred Stock issuable upon full exercise of this
Warrant and sufficient reserves of shares of Common Stock issuable upon full conversion of such
shares of Series A Preferred Stock. The Company hereby agrees that its issuance of this Warrant
shall constitute full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the proper certificates for Shares upon the full or each partial
exercise of this Warrant. The Company further covenants and agrees that if any shares of capital
stock to be reserved for the purpose of the issuance of shares of Series A Preferred Stock upon the
exercise of this Warrant or shares of Common Stock upon the

4

 

conversion of such shares of Series A Preferred Stock require approval of any governmental
authority under any Federal or state law before such shares may be validly issued or delivered
upon exercise or conversion, then the Company will in good faith and expeditiously as possible
endeavor to secure such approval. If and so long as the Series A Preferred Stock issuable upon the
exercise of the rights represented by this Warrant or shares of Common Stock issuable upon the
conversion of such shares of Series A Preferred Stock is listed on any national securities
exchange, the Company will, if permitted by the rules of such exchange, list and keep listed on
such exchange, upon official notice of issuance, all shares of such capital stock.

	4.	 	Adjustment of Exercise Price and Number of Shares. The number and kind of Shares
purchasable upon the exercise of this Warrant and the Exercise Price therefor shall be subject to
adjustment from time to time upon the occurrence of certain events, as follows:

     (a) Adjustment for Consolidation, Merger, Sale or Transfer. If while this
Warrant, or, any portion hereof, remains outstanding and unexpired, there shall be (i) a
merger or consolidation of the Company with or into another person in which the Company is
not the surviving entity, or a reverse merger in which the Company is the surviving entity
but the shares of the Company’s capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in the form of securities,
cash, or otherwise, or (ii) a sale or transfer of the Company’s properties and assets as, or
substantially as, an entirety to any other person in one transaction or a series of related
transactions, then, as a part of such merger, consolidation, sale or transfer, all necessary
or appropriate lawful provisions shall be made so that the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the greatest number of shares of stock or
other securities or property that a holder of the Shares deliverable upon exercise of this
Warrant would have been entitled to receive in such merger, consolidation, sale or transfer
if this Warrant had been exercised immediately prior to such merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 4. If the per Share
consideration payable to the Holder for Shares in connection with any such transaction is in
a form other than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company’s Board of Directors. The foregoing provisions of
this paragraph shall similarly apply to successive consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at the time
receivable upon the exercise of this Warrant. In all events, appropriate adjustment shall be
made in the application of the provisions of this Warrant (including adjustment of the
Exercise Price and number of Shares purchasable pursuant to the terms and conditions of this
Warrant) with respect to the rights and interests of the Holder after the transaction, to the
end that the provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable or issuable after
such merger, consolidation, sale or transfer upon exercise of this Warrant.

     (b) Adjustments for Split, Subdivision or Combination of Shares. If the Company
at any time while this Warrant, or any portion hereof, remains outstanding and unexpired
shall split or subdivide any class of securities as to which purchase rights under this
Warrant exist into a different number of securities of the same class, the number of

5

 

securities of such class issuable upon exercise of this Warrant immediately prior to such split or
subdivision shall be proportionately increased and the Exercise Price for such securities of such
class shall be proportionately decreased. If the Company at any time while this Warrant, or any
portion hereof, remains outstanding and unexpired shall combine any class of securities as to
which purchase rights under this Warrant exist into a different number of securities of the same
class, the number of securities of such class issuable upon exercise of this Warrant immediately
prior to such combination shall be proportionately decreased and the Exercise Price for such class
of securities shall be proportionately increased.

     (c) Adjustments for Dividends in Stock or Other Securities or Property. If while this
Warrant, or any portion hereof, remains outstanding and unexpired, the holders of any class of
securities as to which purchase rights under this Warrant exist at the time shall have received,
or, on or after the record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional stock or other securities
or property, including cash, (other than the regular dividend pursuant to Section 1.2 of the
Certificate at a rate of 8% per annum in accordance with the Certificate as in effect on the date
hereof (the “Regular 8% Dividend”) or any Common Stock issued in lieu of cash in respect of
the Regular 8% Dividend in accordance with the Certificate as in effect on the date hereof (the
Regular 8% Dividend and any such Common Stock issued in lieu of the Regular 8% Dividend, herein
called the “Excluded Dividend”)) of the Company by way of dividend, then and in each case,
this Warrant shall represent the right to acquire, in addition to the number of shares of such
class of securities receivable upon exercise of this Warrant, and without payment of any additional
consideration, therefor, the amount of such other or additional stock or other securities or
property (other than the Excluded Dividend) of the Company that such holder would hold on the date
of such exercise had it been the holder of record of the class of security receivable upon exercise
of this Warrant on the date hereof and had thereafter during the period from the date hereof to and
including the date of such exercise, retained such shares and/or all other additional stock
available to it as aforesaid during said period, giving effect to all adjustments called for during
such period by the provisions of this Section 4 (and unless and until such other additional stock
or other securities or property are paid to the holder of this Warrant upon such exercise, the
Company shall not pay any dividends or make any other distributions with respect to any shares of
any of its capital stock).

     (d) Antidilution Adjustments. The Exercise Price and number of Shares purchasable
pursuant to the terms and conditions of this Warrant shall be subject to adjustment from time to
time as follows:

     (i) If the Company shall, at any time or from time to time prior to the Expiration
Date, issue any shares of Series A Preferred Stock (or be deemed to have issued any shares
of Series A Preferred Stock pursuant to the terms of this Warrant), other than Excluded
Shares (as defined in Section 4(d)(iii)), without consideration or for a consideration per
share less than the Exercise Price in effect immediately prior to the issuance of Series A
Preferred Stock, the Exercise Price in effect immediately prior to such issuance shall
forthwith be lowered to a price

6

 

equal to the quotient obtained by dividing: (x) an amount equal to the sum of (1) the total number
of shares of Series A Preferred Stock outstanding (including any shares of Series A Preferred
Stock deemed to have been issued pursuant to Section 4(d)(ii)(D)(1)-(2)) immediately prior to such
issuance multiplied by the Exercise Price in effect immediately prior to such issuance, plus (2)
the consideration received by the Company upon such issuance, by (y) the total number of shares of
Series A Preferred Stock outstanding (including any shares of Series A Preferred Stock deemed to
have been issued pursuant to Section 4(d)(ii)(D)(1)-(2)) immediately after the issuance of such
Series A Preferred Stock. If the Company shall, at any time or from time to time prior to the
Expiration Date, issue any shares of Series A Preferred Stock as a stock dividend or upon any
stock split or other subdivision or combination of shares of Series A Preferred Stock, other than
the Regular 8% Dividend, the number of Shares issuable under this Warrant shall be increased by
such amount required so that the total number of Shares issuable under this Warrant, as a
percentage of the aggregate number of Fully Diluted Shares of the Company as of the date of (and
after giving effect to) such dividend, shall equal the same percentage of Fully Diluted Shares of
the Company as of immediately prior to such dividend.

     (ii) For the purposes of any adjustment of the Exercise Price pursuant to Section 4(d)(i), the
following provisions shall be applicable:

     (A) In the case of the issuance of Series A Preferred Stock for cash, the consideration
shall be deemed to be the amount of cash paid therefor before deducting therefrom any
discounts, commissions or other expenses allowed, paid or incurred by the Company for any
underwriting or otherwise in connection with the issuance and sale thereof.

     (B) In the case of the issuance of Series A Preferred Stock for a consideration in whole
or in part other than cash, the consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of Directors of the Company,
irrespective of any accounting treatment.

     (C) In the case of the issuance of Series A Preferred Stock without consideration, the
consideration shall be deemed to be $0.00001 per share.

     (D) In the case of the issuance of (x) options to purchase or rights to subscribe for
Series A Preferred Stock, (y) securities by their terms convertible into or exchangeable for
Series A Preferred Stock or (z) options to purchase rights to subscribe for such convertible
or exchangeable securities (collectively, the “Convertible
Securities”):

     (1) the shares of Series A Preferred Stock deliverable upon exercise of such options to
purchase or rights to subscribe for Series A Preferred Stock shall be deemed to have been
issued at the time such

7

 

options or rights were issued and for a consideration equal to the consideration (determined
in the manner provided in subdivisions (A), (B) and (C) above), if any, received by the
Company upon the issuance of such options or rights plus the minimum purchase price provided
in such options or rights for the Series A Preferred Stock covered thereby;

     (2) the shares of Series A Preferred Stock deliverable upon conversion of or in exchange
for any such convertible or exchangeable securities or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time such securities
were issued or such options or rights were issued and for a consideration equal to the
consideration received by the Company for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Company upon the conversion or
exchange of such securities or the exercise of any related options or rights (the
consideration in each case to be determined in the manner provided in subdivisions (A), (B)
and (C) above);

     (3) on any change in the exercise price of Series A Preferred Stock deliverable upon
exercise of any such options or rights or conversions of or exchanges for such securities,
other than a change resulting from the antidilution provisions thereof, the applicable
Exercise Price shall forthwith be readjusted to such Exercise Price as would have resulted had
the adjustment made upon the issuance of such options, rights or securities not converted
prior to such change (or options or rights related to such securities not converted prior to
such change) been made upon the basis of such change;
provided, however, that such
readjustment shall not result in an Exercise Price that is greater than the original Exercise
Price; and

     (4) on the expiration of all such options or rights, the termination of all such rights
to convert or exchange or the expiration of all options or rights related to such convertible
or exchangeable securities in each case having been issued by the Company for the same
consideration (as determined pursuant to subdivision (A), (B) and (C) above), the applicable
Exercise Price shall forthwith be readjusted to such Exercise Price as would have resulted had
the adjustment made upon the issuance of such options, rights, securities or options or rights
related to such securities not been made; provided, however, that such readjustment
shall not result in a Exercise Price that is greater that the original Exercise Price.

     (iii) For purposes of this Section 4(d), the term “Excluded Shares” shall mean all
shares of Series A Preferred Stock issued by the Company at anytime

8

 

upon exercise of or conversion of Convertible Securities outstanding as of the date of this
Warrant.

     (iv) Upon each adjustment of the Exercise Price pursuant to this Section 4(d), the
number of Shares issuable upon exercise of this Warrant shall be equal to (A) the product of
the number of Shares the Holder was entitled to purchase immediately before such adjustment
and the Exercise Price in effect immediately before such adjustment, divided by (B) the
Exercise Price in effect after giving effect to such adjustment.

     (e) Further Adjustments. In case at any time or from time to time the Company shall
take any action that affects the Series A Preferred Stock, other than an action described herein,
then, unless such action will have a materially adverse effect upon the rights of the Holder, the
number of Shares of into which this Warrant is exercisable shall be adjusted in such a manner and
at such time as shall be equitable in the circumstances;
provided, however, that such
adjustment shall not result in a reduction in the original number of Shares covered by this
Warrant.

     (f) Notice of Adjustments. Upon any adjustment of the Exercise Price and any increase
or decrease in the number of Shares purchasable upon the exercise of this Warrant, then, and in
each such case, the Company, within thirty (30) days thereafter, shall give written notice thereof
to the Holder at the address of such Holder as shown on the books of the Company which notice shall
state (i) the reason for such adjustment and (ii) the Exercise Price, as adjusted and, if
applicable, the increased or decreased number of Shares purchasable upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation of each.

     5. Notices.

     (a) In the event that the Company shall propose at any time:

     (i) to declare any dividend or distribution upon its Series A Preferred Stock or Common
Stock (or other stock or securities at the time receivable upon the exercise of this Warrant)
whether in cash, property, stock or other securities, whether or not a regular cash dividend
and whether or not out of earnings or earned surplus;

     (ii) to redeem or repurchase any class or series of its stock;

     (iii) to offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;

     (iv) to effect a capital reorganization, or merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or business, or
voluntarily liquidate, dissolve or wind up; or

9

 

     (v)
to effect its first firm commitment underwritten public offering (a
“Public
Offering”) of its Common Stock under the Securities Act of 1933, as amended (the
“Securities Act”); then, in connection with each such event, the Company shall
send to the Holder: (1) at least twenty (20) days prior written notice of the date on
which a record shall be taken for such dividend, distribution, redemption or
subscription rights (and specifying the date on which the holders of Common Stock shall
be entitled thereto) or for determining rights to vote, if any; and (2) at least twenty
(20) days prior written notice of the date when the same shall take place, and the date,
if any, to be fixed, on which the holders of record of Series A Preferred Stock or
Common Stock shall be entitled to exchange their Series A Preferred or Common Stock for
securities or other property deliverable upon the occurrence of such event.
Notwithstanding the above, the twenty (20) days notice requirement may be shortened or
waived upon the written consent of the Holder.

     (b) In the event the Holder is provided with notice pursuant to Section 5(a)(ii) of a
Redemption Request (as defined in the Certificate) with respect to the Series A Preferred
Stock, the Holder may elect to exercise this Warrant and have the Series A Preferred Stock
issued upon exercise redeemed by the Company at the same time as the Series A Preferred Stock
of the Company is redeemed pursuant to the Redemption Request. Holder must make the
irrevocable election in writing to the Company within fifteen (15) days of receipt of the
notice of the Redemption Request. Holder acknowledges that the Mandatory Redemption Price (as
defined in the Certificate) shall exclude the value of the Regular 8% Dividend accrued and
unpaid on shares of Series A Preferred Stock.

     (c) Any written notice by the Company required or permitted hereunder shall be given by
hand delivery or first class mail, postage prepaid, addressed to the Holder at the address
shown on the books of the Company for the Holder.

     6. Legend. Each certificate evidencing the Shares issued upon exercise of this
Warrant, or transfer of such Shares (other than a transfer registered under the Securities Act or
any subsequent transfer of shares so registered) shall be stamped or imprinted with a legend in
substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS (COLLECTIVELY, THE “ACTS”), AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER ALL
APPLICABLE ACTS OR UNLESS AN OPINION OF COUNSEL IS DELIVERED TO THE COMPANY IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER ALL APPLICABLE ACTS OR UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A OF
THE ACT. THE RIGHT TO VOTE AND THE SALE OR TRANSFER OF THIS WARRANT AND THE SHARES
OBTAINABLE UPON ITS EXERCISE IS SUBJECT TO THE TERMS AND

10

 

CONDITIONS OF A CERTAIN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED MARCH ____, 2006
BY AND AMONG THE HOLDER HEREOF AND OTHER STOCKHOLDERS OF THE COMPANY. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

THE RIGHT TO TRANSFER THE SECURITIES AND RECEIVE CERTAIN DIVIDENDS ON AND WITH RESPECT
TO THE SECURITIES IS SUBJECT TO THE TERMS AND CONDITIONS OF THE SERIES A PREFERRED
STOCK PURCHASE WARRANT DATED MARCH _, 2006 ISSUED BY THE COMPANY (THE “WARRANT”).
COPIES OF THE WARRANT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
COMPANY.

     7. Removal of Legend. Upon request of a holder of a certificate with the legend
required by Section 7 hereof, the Company shall issue to such holder a new certificate therefor
free of any transfer legend, if, with such request, the Company shall have received an opinion of
counsel (either external counsel or counsel employed by Holder or, its affiliate) reasonably
satisfactory to the Company in form and substance to the effect that any transfer by such holder of
the shares evidenced by such certificate will not violate the Securities Act and any applicable
state securities laws.

     8. Fractional Shares. No fractional shares will be issued in connection with any
exercise hereunder. Any fraction of a share resulting from any calculation will be rounded up to
the next whole share.

     9. Representations, Warranties and Covenants of the Company. The Company hereby
represents and warrants to the Holder as follows:

     (a) This Warrant has been duly authorized and executed by the Company and is a valid and
binding obligation of the Company enforceable in accordance with its terms.

     (b) Prior to the date that this Warrant becomes exercisable, the Shares, and the shares
of Common Stock issuable upon conversion of the Shares, will have been duly authorized and
reserved for issuance by the Company and, when issued in accordance with the terms hereof or
conversion of the Shares, as applicable, will be validly issued, fully paid and
nonassessable, and free from all preemptive rights, rights of first refusal or first offer,
taxes, liens and charges of whatever nature.

     (c) The execution and delivery of this Warrant are not, and the issuance of the Shares
upon exercise of this Warrant in accordance with the terms hereof, and of the shares of
Common Stock issuable upon the conversion of the Shares, will not be, inconsistent with the
Company’s certificate of incorporation, as then in effect, and its bylaws, as then in effect.

     (d) The Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and is in good standing as a

11

 

foreign corporation in each jurisdiction in which the nature of its business makes such
qualification necessary. The Company has all requisite legal and corporate power and authority to
carry out its business as presently conducted and as proposed to be conducted and to enter into
and discharge its obligations under this Warrant.

     (e) As of the date of original issuance of this Warrant, this Warrant does not (i) conflict
with, result in any breach of any terms or provisions of, or constitute (with or without notice or
lapse of time or both) a default under, the certificate of incorporation or bylaws of the Company,
or any material contract, agreement, indenture, loan agreement, receivables purchase agreement,
mortgage, deed of trust or other agreement or instrument to which the Company is a party or by
which it or any of its properties is bound, (ii) result in the creation or imposition of any lien,
adverse claim or other encumbrance upon any of the properties of the Company pursuant to the terms
of any such contract, agreement, indenture, loan agreement, receivables purchase agreement,
mortgage, deed of trust or other agreement or instrument, or (iii) violate any law or order, rule
or regulation applicable to the Company of any court or of any federal or state regulatory body,
administrative agency, or other governmental instrumentality having jurisdiction over the Company
or any of its properties.

     (f) As of the date of issuance of this Warrant, the number of Shares for which this Warrant is
or may become exercisable represents four percent (4%) of the Common Stock outstanding on the date
hereof after giving effect to the exercise, exchange or conversion of all outstanding securities,
rights, options, warrants (including this Warrant), calls, commitments or agreements of any nature
or character (whether debt or equity) that are, directly or indirectly, exercisable or exchangeable
for, or convertible into or otherwise represent the right to purchase or otherwise receive,
directly or indirectly, any such capital stock or other arrangement to acquire at any time or under
any circumstance, capital stock of the Company or any such other securities, and assuming that all
stock options and/or shares of capital stock reserved for grant or issuance to officers, directors,
employees and consultants under all agreements, plans or arrangements theretofore approved by the
Board of Directors of the Company have been so granted or issued (as the case may be), excluding,
however, shares of Common Stock which may be issued in respect of the Regular 8% Dividend hereto
(collectively, the “Fully Diluted Shares”).

     (g) The issuance of this Warrant or any Shares shall not require or result in the issuance of
any capital stock of the Company (other than the Shares) pursuant to the certificate of
incorporation or bylaws of the Company, or any contract, agreement, indenture, loan agreement,
receivables purchase agreement, mortgage, deed of trust or other agreement or instrument to which
the Company is a party or by which it or any of its properties is bound.

     (h) The Company has delivered to Holder’s counsel true and complete copies of (i) the
Certificate, (ii) the Company’s by-laws, (iii) each warrant the Company has issued, and (iv) each
stockholders’ agreement the Company has entered into, in each case as amended to the date of this
Warrant. Except as set forth in Schedule 9 hereto or in the Certificate, there are no
options, warrants, puts, calls, rights, convertible or exchange securities, commitments,
contracts, agreements, understandings, arrangements or

12

 

undertakings of any kind to which the Company is a party or by which it is bound (A)
obligating the Company to issue, deliver, transfer or sell, or cause to be issued, delivered,
transferred or sold, additional shares of capital stock or any other security of (including
any security convertible into or exercisable for or exchangeable into any capital stock or
other security of) the Company (whether or not such security has voting rights), (B)
obligating the Company to issue, grant, extend or enter into any such option, warrant, call,
right, security, commitment, contract, agreement, understanding, arrangement or undertaking,
or (C) otherwise relating to the Company’s capital stock (including, without limitation, any
rights of holders thereof).

     10. Dividends and Distributions. The Holder hereby irrevocably waives, for and on
behalf of itself and all transferees of this Warrant and all holders of shares of Series A
Preferred Stock issued pursuant to this Warrant, any demand for or the right to receive the Regular
8% Dividend, whether paid in cash or Common Stock and whenever payable, including without
limitation upon conversion or redemption of the Series A Preferred Stock and upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company (including a deemed liquidation,
dissolution or winding up of the Company upon a sale of the Corporation). Holder also hereby
irrevocably waives for and on behalf of itself and all transferees of this Warrant and all holders
of shares of Series A Preferred Stock issued pursuant to this Warrant any value of the Regular 8%
Dividend in respect of any Mandatory Redemption (as defined in the Certificate) and shall be
excluded from the Mandatory Redemption Price (as defined in the Certificate) with respect to the
shares of Series A Preferred Stock issued pursuant to this Warrant. As a condition to the transfer
of this Warrant or any shares of Series A Preferred Stock issued pursuant to this Warrant, the
transferee thereof shall execute and deliver to the Company such agreements, waivers or instruments
as the Company may reasonably require to evidence the transferee’s agreement to be bound by this
Section 10.

     11. Rights of Stockholders. Except as may be otherwise provided in this Warrant, the
Certificate or any other agreement to which the Company and any Holder may be a party, including,
without limitation, the Stockholders Agreement or the Investors Rights Agreement, as defined in the
Stockholders Agreement, no Holder, as such, shall be entitled to vote or receive dividends or be
deemed the holder of the Shares or any other securities of the Company that may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed
to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right
to vote for the election of directors or upon any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation,
merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become issuable, as provided herein.

     12. Information Required By Rule 144A. The Company will, upon the request of the
holder of this Warrant or of any shares of Series A Preferred Stock issued upon the exercise of
this Warrant or shares of Common Stock issuable upon the conversion of such shares of Series A
Preferred Stock, provide such holder, and any qualified institutional buyer designated by such
holder, such financial and other information as such holder may reasonably determine to be
necessary in order to permit compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of Warrants or such shares of Series A Preferred

13

 

Stock or Common Stock, except at such times as the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act. For the purpose of this Section 12, the
term “qualified institutional buyer” shall have the meaning specified in Rule 144A under the
Securities Act.

     13. Expiration of Warrant. This Warrant shall expire and shall no longer be
exercisable as of 5:00 p.m., Eastern Time, on March      , 2016.

     14. Stockholders Agreement. The Holder of this Warrant, by acceptance hereof, agrees
to become a party to the Amended and Restated Stockholders Agreement, dated as of
March      , 2006, by and among the Company and the Stockholders Party thereto (the
“Stockholders Agreement”) and thereby subjects this Warrant and any Series A Preferred
Stock issuable or issued upon exercise hereof and the shares of Common Stock issuable upon
conversion of such Series A Preferred Stock to the provisions of the Stockholders’ Agreement, as
amended from time to time.

     15. Miscellaneous.

     (a) This Warrant shall be governed by and construed for all purposes under and in
accordance with the laws of the State of New York without regard to principles of conflicts of
law.

     (b) The headings in this Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof.

     (c) The representations, warranties, covenants and conditions of the respective parties
contained herein or made pursuant to this Warrant shall survive the execution and delivery of
this

     (d) The terms of this Warrant shall be binding upon and shall inure to the benefit of any
successors or assigns of the Company and of the Holder or holders hereof and of the Shares
issued or issuable upon the exercise hereof.

     (e) This Warrant, together with all exhibits hereto, constitutes the full and entire
understanding and agreement between the parties with regard to the subjects hereof and
thereof.

     (f) The Company shall not, by amendment of its certificate of incorporation or bylaws, or
through any other means, directly or indirectly, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant and shall at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against impairment.

     (g) Upon the surrender of this Warrant, properly endorsed, for registration of transfer
or for exchange at the principal office of the Company, the Company at its expense will
execute and deliver to or upon the order of the Holder a new Warrant or Warrants of like
tenor, in the name of such Holder or as such Holder may direct, calling

14

 

in the aggregate on the face or faces thereof for the number of shares of Series A Preferred
Stock called for on the face or faces of the Warrant so surrendered. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this
Warrant and, in the case of any such loss, theft or destruction, upon delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case
of any such mutilation, upon surrender and cancellation of such Warrant, the Company, at its
expense, will execute and deliver to the Holder, in lieu thereof, a new Warrant of like date
and tenor. Any such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen or destroyed Warrant shall be at any time
enforceable by anyone.

     (h) This Warrant and any provision hereof may be amended, waived or terminated only by
an instrument in writing signed by the Company and the Holder.

     (i) If any action at law or equity is necessary to enforce or interpret the terms of
this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and
disbursements in addition to any other relief to which it may be entitled.

     (j) Each of the Company and the Holder hereby irrevocably submits to the jurisdiction of
any New York State or Federal court sitting in New York City in any action or proceeding
arising out of or relating to this Warrant, and each of the Company and the Holder hereby
irrevocably agrees that all claims in respect of such action or proceeding may be heard and
determined in such New York State court or in such Federal court. Each of the Company and the
Holder hereby irrevocably waives, to the fullest extent permitted under applicable law, the
defense of an inconvenient forum to the maintenance of such action or proceeding. Each of the
Company and the Holder hereby irrevocably consents, to the fullest extent permitted under
applicable law, to the service of any summons and complaint and any other process by the
mailing of copies of such process to them at their respective address specified in the Warrant
Agreement. Each of the Company and the Holder hereby agrees, to the fullest extent permitted
under applicable law, that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.

     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized
officer.

	 	 	 	 	 	 	 	 	 

	 	 	FINGERHUT DIRECT MARKETING, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:
	 	Brian Smith	 	 
	 

	 	 	 	Title:
	 	Chief Executive Officer and President
	 	 

15

 

EXHIBIT A

NOTICE OF EXERCISE

			
	TO:	 	Fingerhut Direct Marketing, Inc.

Attention: President

     1. The undersigned hereby elects to purchase ___________ (leave blank if you
choose Alternative No. 2 below) shares of Series A Preferred Stock of Fingerhut Direct Marketing,
Inc. (the “Company”) pursuant to the terms of the Series A Preferred Stock Purchase
Warrant dated as of March _, 2006, issued by the Company (the
“Warrant”), and tenders
herewith payment of the purchase price of such shares in full. (Initial here if the undersigned
elects this alternative).
        

     2. In lieu of exercising the Warrant for cash or check, the undersigned hereby elects to
effect the net issuance provision of Section 2(b) of the Warrant and receive
______ (leave blank if you choose Alternative No. 1 above) shares of Series A
Preferred Stock of the Company pursuant to the terms of the Warrant. (Initial here if the
undersigned elects this alternative). _____

     3. Please issue a certificate or certificates representing said shares of Series A Preferred
Stock in the name of the undersigned or in such other name as is specified below:

 

(Name)

 

 

(Address)

     4. The undersigned hereby represents and warrants that the aforesaid shares of Series A
Preferred Stock are being acquired for the account of the undersigned for investment and not for
resale or with a view to distribute such shares or any part thereof, and that the undersigned has
no present intention of distributing or reselling such shares, and that the undersigned is an
“accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended.

	 	 	 	 	 

	 

	 	 

(Signature and Date)
	 	 

16

 

EXHIBIT C

[FORM OF DISBURSEMENT DIRECTION LETTER]

[On
Company Letterhead - place on one page]

[Date]

Prudential Capital Partners II, L.P.

Prudential Capital Partners Management Fund II, L.P.

Prudential Capital Partners (Parallel Fund) II, L.P.

c/o Prudential Capital Group, L.P.

Two Prudential Plaza

Chicago, Illinois 60601

			
	     Re:	 	13.00% Senior Subordinated Secured Notes due March 24, 2013 (the “Subordinated Notes”)

Ladies and Gentlemen:

          Reference is made to that certain Securities Purchase Agreement (the “Securities Purchase
Agreement”) dated as of March 23, 2006, between Fingerhut Direct Marketing, Inc., a Delaware
corporation (the “Company”), and you. Capitalized terms used herein shall have the meanings
assigned to such terms in the Securities Purchase Agreement.

          You are hereby irrevocably authorized and directed to disburse the $30,000,000 purchase price
of the Subordinated Notes and Warrants by wire transfer of immediately available
funds as follows: to [bank name and address], ABA #                    , for credit to the account
of                    , account no.                     .

          Disbursement when so made shall constitute payment in full of the purchase price of the
Subordinated Notes and Warrants and shall be without liability of any kind whatsoever to you.

	 	 	 	 	 	 	 	 	 

	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	FINGERHUT DIRECT MARKETING, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 

C-1

 

EXHIBIT D

[FORM OF AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

See Attached

 

 

AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

     This Amended and Restated Investor Rights Agreement (the “Agreement”) is made as of March
24, 2006, by and among Fingerhut Direct Marketing, Inc., a Delaware corporation (the “Company”),
and the parties listed as Investors on Exhibit A hereto (the “Investors”).

     WHEREAS, pursuant to a Preferred Stock Purchase Agreement dated as of February 24, 2004 as
supplemented by Supplement No. 1 dated October 27, 2004 and Supplement No. 2 dated November 1, 2004
among the Company and certain of the Investors (the “Purchase Agreements”), the Company issued and
sold shares of Series A Preferred Stock (as defined below) to certain of the Investors;

     WHEREAS, in connection with the Purchase Agreements, the Company and the Investors entered
into that certain Investor Rights Agreement dated February 24, 2004 (the “February Agreement”);

     WHEREAS, pursuant to that certain Securities Purchase Agreement of date March 23, 2006 (the
“Subordinated Note Agreement”), the Company and Prudential Capital Partners, II, L.P., Prudential
Capital Partners Management Fund II, L.P. and Prudential Capital Partners (Parallel Fund) II, L.P.
(the “PCP Investor”) will be issued warrants to purchase Series A Preferred Stock (the “PCP
Warrants”); and

     WHEREAS, one of the conditions precedent to the obligations of the PCP Investors to purchase
certain subordinated notes of the Company pursuant to the Subordinated Note Agreement is that the
Company and the other Investors whose consent is required to amend the February Agreement enter
into this Agreement with the PCP Investor pursuant to which the PCP Investor becomes an “Investor”
under this Agreement; and

     WHEREAS, in connection with the transactions with the PCP Investor, the parties desire to
amend and restate the February Agreement in its entirety.

     NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the
parties hereto agree as follows:

1. Definitions.

     1.1 “Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act, and shall include, with respect to any Investor, any
managed account, investment fund or other vehicle for which such Investor or any Affiliate or such
Investor acts as an investment advisor or portfolio manager.

     1.2 “Bain Capital” means Bain Capital Venture Fund, L.P.

     1.3 “Battery Ventures” means Battery Ventures VI, L.P.

     1.4 “Commission” means the Securities and Exchange Commission or any other federal agency
at the time administering the Securities Act or the Exchange Act.

 

 

     1.5 “Common Stock” means the Common Stock, par value $0.00001 per share, of the Company.

     1.6 “Exchange Act” shall mean the Securities Exchange Act of 1934 and the rules and
regulations of the Commission thereunder, and any successor to such statute or such rules and
regulations.

     1.7 “Form S-1”, “Form S-3”, “Form S-4” and “Form S-8” mean respective forms under the
Securities Act and any successor registration forms to the form in question.

     1.8 “Fully Diluted Basis” means, for the purposes of determining the number of shares of
Common Stock outstanding, a basis of calculation which takes into account (a) shares of Common
Stock actually issued and outstanding at the time of such determination, and (b) that number of
shares of Common Stock that is then issuable upon conversion of all then outstanding shares of
Series A Preferred Stock upon exercise of any option, warrant or other right to acquire Common
Stock or upon conversion of any Series A Preferred Stock then issuable upon the exercise of any PCP
Warrant.

     1.9 “GAAP” means U.S. generally accepted accounting principles consistently applied.

     1.10 “Holder” means any person party to this Agreement owning the Registrable Securities
or any assignee thereof in accordance with Section 8 hereof.

     1.11 “Initial Public Offering” means the first registered offering of securities of the
Company under the Securities Act.

     1.12 “Investors” has the meaning assigned to it in the introductory paragraph of this
Agreement.

     1.13 “Majority Participating Holders” means, with respect to any registration of Registrable
Securities, the Holder or Holders at the relevant time of at least a majority of the Registrable
Securities to be included in the registration statement in question.

     1.14 “Permitted Transferee” has the meaning assigned to it in the Stockholders Agreement.

     1.15 “Qualified Public Offering” means an underwritten public offering of shares of Common
Stock in which the net aggregate proceeds to the Company equal or exceed $50 million and the public
offering price per share is not less than $0.31533 (as adjusted appropriately in the event of any
subdivision, combination, reorganization, recapitalization, reclassification, stock dividend or
similar event affecting the Common Stock) and after which the Common Stock is listed on the New
York Stock Exchange or the Nasdaq National Market.

     1.16 “Register”, “registered”, and “registration” refer to a registration effected by
preparing and filing a registration statement or similar document in compliance with the Securities
Act, and the automatic effectiveness or the declaration or ordering of effectiveness of such
registration statement or document.

2

 

     1.17 “Registrable Securities” means (i) any Common Stock issued or issuable upon conversion of
the Series A Preferred Stock held by a Holder, (ii) any Common Stock issuable upon conversion of
the Series A Preferred Stock issuable upon exercise of any Warrants held by a Holder, (iii) any
Common Stock issued or issuable upon exercise of any Warrants held by a Holder, and (iv) any Common
Stock or other securities issued or issuable with respect to any Registrable Securities by way of
stock dividend or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise, in each case held by any party to this
Agreement. Further, for purposes of Sections 2.2 and 3 only, Registrable Securities shall also
include all other shares of Common Stock held by a Holder. The Registrable Securities of any Holder
shall cease to be Registrable Securities when (i) a registration statement with respect to the sale
of such securities shall have become effective under the Securities Act and such securities shall
have been disposed of in accordance with such registration statement; (ii) such securities shall
have been distributed to the public pursuant to Rule 144; or (iii) such securities may be sold by
such Holder and all of its Affiliates without registration under the Securities Act pursuant to
Rule 144(k) under the Securities Act and such Holder and all of its Affiliates collectively own
less than 1% of the Company’s outstanding Common Stock; or (iv) such securities may be sold by such
Holder and all of its Affiliates without registration under the Securities Act pursuant to Rule 144
under the Securities Act and such Holder and all of its Affiliates collectively own less than 1% of
the Company’s outstanding Common Stock. For purposes of this Agreement, the number of shares of
Registrable Securities outstanding at any time shall be determined by adding the number of shares
of Common Stock or other securities outstanding that are the maximum number of shares of Common
Stock or other securities issuable pursuant to then convertible securities which upon issuance
would be, Registrable Securities and the maximum number of shares of Common Stock issuable upon the
conversion of any Series A Preferred Stock issuable upon the exercise of any then outstanding
Warrant, all of which shares of Common Stock shall be considered to be then outstanding for the
purposes hereof.

     1.18 “Registration Expenses” means all expenses incident to performance of or compliance with
Sections 2, 3 and 4 hereof by the Company, including without limitation all registration and filing
fees, all listing fees, all fees and expenses of complying with securities or blue sky laws, all
printing and automated document preparation expenses, all messenger and delivery expenses, the fees
and disbursements of counsel for the Company and of its independent public accountants, including
the expenses of any special audits required by or incident to such performance and compliance, and
the fees and disbursements of one counsel for the Holders on whose behalf Registrable Securities
are being registered, but excluding underwriting discounts and commissions and applicable transfer
taxes, if any, which shall be borne by the sellers of the Registrable Securities in all cases.

     1.19 “Rule 144” means Rule 144 promulgated under the Securities Act, and any successor rule or
regulation thereto, and in the case of any referenced section of such rule, any successor section
thereto, collectively and as from time to time amended and in effect.

     1.20 “Securities Act” means the Securities Act of 1933 or any successor federal statute, and
the rules and regulations of the Commission thereunder, and in the case of any referenced section
of any such statute, rule or regulation, any successor section thereto, collectively and as from
time to time amended and in effect.

3

 

     1.21 “Series A Preferred Stock” means the Series A Convertible Preferred Stock, par value
$0.00001 per share, of the Company.

     1.22 “Stockholders Agreement” means that certain Amended and Restated Stockholders Agreement,
dated as of March 24, 2006, to which the Company is a party, as the same may be amended from time
to time.

     1.23 “Subsidiary” means any corporation, association trust, limited liability company,
partnership, joint venture or other business association or entity (i) at least 50% of the
outstanding voting securities of which are at the time owned or controlled directly or indirectly
by the Company or (ii) with respect to which the Company possesses, directly or indirectly, the
power to direct or cause the direction of the affairs or management of such person.

     1.24 “Warrants” means any warrants to purchase Common Stock issued to Epsilon Global Equities
Limited, CIGPF I Corp., Piper Jaffray & Co. and Cherry Tree Securities, LLC and any PCP Warrant.

2. Request for Registration.

     2.1 Registrations on Form S-1. At any time after the earlier of (i) January 9, 2006 or
(ii) 120 days after the Initial Public Offering, the Holders of at least twenty percent (20%) of
the then outstanding Registrable Securities may, by written notice to the Company, request that the
Company effect the registration on Form S-1 of a number of Registrable Securities for which the
gross aggregate offering price is reasonably expected to be at least $10,000,000. If the Holders
initiating such registration intend to distribute the Registrable Securities in an underwritten
offering, they shall so state in their request. Promptly after receipt of such notice, the Company
will give written notice of such requested registration to all other Holders of Registrable
Securities. The Company will then as provided in Section 4 use all reasonable commercial efforts to
effect the registration under the Securities Act of the Registrable Securities which the Company
has been requested to register by such Holders, and all other Registrable Securities which the
Company has been requested to register by other Holders of such Registrable Securities by notice
delivered to the Company within ten (10) days after the giving of such notice by the Company.

     2.2 Registration on Form S-3. At any time after the Company becomes eligible to file a
Registration Statement on Form S-3, one or more Holders of at least ten percent (10%) of the then
outstanding Registrable Securities may by written notice to the Company, request that the Company
effect the registration on Form S-3 of a number of Registrable Shares for which the gross aggregate
offering price is reasonably expected to be at least $1,000,000. If the Holders initiating such
registration intend to distribute the Registrable Securities in an underwritten offering, they
shall so state in their request. Promptly after receipt of such notice, the Company will give
written notice of such requested registration to all other Holders of Registrable Securities. The
Company will then as provided in Section 4 use all reasonable commercial efforts to effect the
registration under the Securities Act of the Registrable Securities which the Company has been
requested to register by such Holders, and all other Registrable Securities which the Company has
been requested to register by other Holders of Registrable Securities by

4

 

notice delivered to the Company within ten (10) days after the giving of such notice by the
Company.

     2.3 Postponement. The Company may postpone for a period of up to 60 days the filing of
any registration required to be filed pursuant to this Section 2 if the Board of Directors of the
Company in good faith determines that such postponement is necessary in order to avoid premature
disclosure of a financing, acquisition, recapitalization, reorganization or other material
transaction, the disclosure of which would have a materially detrimental effect on the Company;
provided, however, that the Company may not exercise such right of postponement
within any period of 365 days (i) more frequently than twice or (ii) for more than an aggregate of
60 days for all postponements within any such 365-day period. If the Company elects to postpone the
filing of a registration statement pursuant to this Section 2.3, two-thirds of the Holders of
Registrable Securities who requested such registration statement may withdraw such request and upon
such withdrawal, such request shall be deemed not to have been made for any purpose of this
Agreement.

     2.4
Number of Requests; Form.

     2.4.1. Section 2.1 Registrations. The Company shall not be required to
effect more than two (2) registrations pursuant to Section 2.1. Each registration requested
pursuant to Section 2.1 shall be effected by the filing of a registration statement on Form
S-1 (or any other form which includes substantially the same information as would be required
to be included in a registration statement on such form as currently constituted), unless the
use of a different form has been agreed to in writing by the Majority Participating Holders.
No registration of Registrable Securities under Section 2.1 shall be deemed to be a
registration for any purpose of this Section 2.4.1(i) which shall not have become and
remained effective in accordance with the provisions of this Agreement, or (ii) pursuant to
which Holders of Registrable Securities are not able to include at least 75% of the
Registrable Securities which such Holders desired to include in such registration.

     2.4.2. Section 2.2 Registrations. The Company shall not be required to
effect more than two (2) registrations pursuant to Section 2.2 in any twelve (12) month
period. Each registration requested pursuant to Section 2.2 shall be effected by the filing of
a registration statement on Form S-3 (or any other form which includes substantially the same
information as would be required to be included in a registration statement on such form as
currently constituted), unless the use of a different form has been agreed to in writing by
the Majority Participating Holders, or unless the Form S-3 is not available as a result of
actions of or inaction by the Company in which case such registration shall be on Form S-1
without regard to the limitation on registrations on Form S-1 set forth on Section 2.4.1. No
registration of Registrable Securities under Section 2.2 shall be deemed to be a registration
for any purpose of this Section 2.4.2 (i) which shall not have become and remained effective
in accordance with the provisions of this Agreement, or (ii) pursuant to which Holders of such
Registrable Securities are not able to include at least 75% of the Registrable Securities
which such Holders desired to include in such registration.

5

 

     2.5 Payment of Expenses. The Company hereby agrees to pay all Registration Expenses in
connection with all registrations effected pursuant to
Sections 2.1 and 2.2; provided,
 however, that the Company shall not be required to pay for any expenses of such registration
proceeding if the registration request is withdrawn at any time at the request of the Majority
Participating Holders, and all participating Holders shall bear such expenses, unless the Majority
Participating Holders agree to treat such withdrawn registration as a registration which was
effected pursuant to Section 2.1 or 2.2, as the case may be, which agreement shall bind all Holders
of Registrable Securities. Notwithstanding the foregoing, if the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company from that known to the
Holders at the time the demand for registration was made or if there shall have occurred a material
adverse change in market conditions from those existing as such time in the good faith judgment of
the Majority Participating Holders makes it undesirable to proceed with the proposed offering, then
the Holders shall not be required to pay any of such expenses. The withdrawn registration shall not
count as a registration effected pursuant to Section 2.1 or 2.2, as the case may be.

3. Piggyback Registration. If the Company at any time proposes to register any of its
equity securities under the Securities Act, for its own account or for the account of any holder of
its securities other than Registrable Securities, on a form which would permit registration of
Registrable Securities for sale to the public under the Securities Act, or proposes to register any
securities in a so-called “unallocated” or “universal” shelf registration statement, the Company
will each such time give notice to all Holders of Registrable Securities of its intention to do so.
Such notice shall describe such securities and specify the form, manner and other relevant aspects
of such proposed registration. Any such Holder may, by written response delivered to the Company
within ten (10) days after the giving of any such notice by the Company, request that all or a
specified part of the Registrable Securities held by such Holder be included in such registration.
The Company thereupon will use its best efforts as a part of its filing of such form to cause to be
included in such registration under the Securities Act all Registrable Securities which the Company
has been so requested to register by the Holders of Registrable Securities, to the extent required
to permit the disposition (in accordance with the methods to be used by the Company or other
holders of securities in such registration) of the Registrable Securities to be so registered. The
Company shall be under no obligation to complete any offering of its securities it proposes to make
and shall incur no liability to any Holder for its failure to do so. No registration of Registrable
Securities effected under this Section 3 shall relieve the Company of any of its obligations to
effect registrations of Registrable Securities pursuant to Section 2.1 or 2.2 hereof.

     3.1 Excluded Transactions. The Company shall not be obligated to effect any
registration of Registrable Securities under this Section 3 incidental to the registration of any
of its securities in connection with mergers, acquisitions, exchange offers, dividend reinvestment
plans or stock option or other employee benefit plans.

     3.2 Payment of Expenses. The Company hereby agrees to pay all Registration Expenses in
connection with each registration of Registrable Securities requested
pursuant to this Section 3.

4. Registration Procedures.

6

 

     4.1 Company Obligations. If and whenever the Company is required to use all reasonable
commercial efforts to effect the registration of any Registrable Securities under the Securities
Act as provided in Sections 2 or 3 hereof, the Company will as expeditiously as reasonably
possible:

     4.1.1. Registration Statement. Prepare and (in the case of a registration
pursuant to Section 2 hereof, promptly and in any event within 45 days after a request for
registration is delivered to the Company under Section 2.1 or within 20 days after a request
for registration is delivered to the Company under Section 2.2) file with the Commission a
registration statement with respect to such Registrable Securities and use all reasonable
commercial efforts to cause such registration statement to become effective as soon as
possible thereafter. Such registration statement shall be for an offering to be made on a
continuous or delayed basis (a so-called “shelf registration statement”) if the Company is
eligible for the use thereof and the Majority Participating Holders have requested a shelf
registration statement.

     4.1.2. Amendments and Supplements to Registration Statement. Prepare and file
with the Commission such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities and other securities, if any, covered by such
registration statement until the later of(i) such time as all such Registrable Securities have
been disposed of by the seller or sellers thereof in accordance with the intended methods of
disposition set forth in such registration statement (but in no event for a period of more
than 180 days after such registration statement becomes effective) which 180 day period shall
be extended by the number of days that the sale of Registrable Securities is suspended as
described in Section 4.4 or (ii) the expiration of the time when a prospectus relating to such
registration is required to be delivered under the Securities Act.

     4.1.3. Cooperation. Use its best efforts to cooperate as may be reasonably
requested by the seller in the disposition of the Common Stock covered by such registration
statement, including without limitation in the case of an underwritten offering causing key
executives of the Company to participate under the direction of the managing underwriter in a
“road show” scheduled by such managing underwriter in such locations and of such duration as
in the reasonable judgment of such managing underwriter are appropriate for such underwritten
offering.

     4.1.4. Furnishing of Copies of Registration Statements and Other Documents.
Furnish to each seller of such Registrable Securities such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), each in
conformity with the requirements of the Securities Act, such documents incorporated by
reference in such registration statement or prospectus and such other documents as such seller
may reasonably request in order to facilitate the

7

 

disposition of the Registrable Securities of such seller covered by such registration
statement.

     4.1.5. State Securities Laws. Use its best efforts to register or qualify such
Registrable Securities under such securities or “blue sky” laws of such jurisdictions as the
sellers shall reasonably request, and do any and all other acts and things which may be necessary
or advisable to enable each seller to consummate the disposition in such jurisdictions of the
Registrable Securities of such seller covered by such registration
statement; provided,
 however, that the Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or subject the Company to taxation in any
jurisdiction in which it is not so qualified or would not otherwise be so subject.

     4.1.6.
Opinion of Counsel; Comfort Letter. Use its best efforts to obtain all legal
opinions, auditors consents and comfort letters and experts cooperation as may be required,
including furnishing to each underwriter of Registrable Securities on the date that the
registration statement with respect to such Registrable Securities becomes effective, (i) an
opinion, dated as of such date, of counsel for the Company and (ii) a “cold comfort” letter, dated
as of such date, signed by the independent public accountants of the Company, in each case in form
and substance as is customarily given to underwriters in an underwritten public offering and
addressed to holders of Registrable Securities.

     4.1.7. Notice of Prospectus Defects. Immediately notify each seller of Registrable
Securities covered by such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the circumstances then
existing, and at the request of any such seller prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the light of the
circumstances then existing.

     4.1.8. Stop Orders. In the event of the issuance of any stop order suspending the
effectiveness of such registration statement, or any order suspending or preventing the use of any
related prospectus or suspending the qualification of any Registrable Securities included in such
registration statement for sale in any jurisdiction, use its best efforts promptly to obtain the
withdrawal of such order.

     4.1.9.
General Compliance with Federal Securities Laws; Section 11(a) Earning
Statement. Otherwise use its best efforts to comply with the Securities Act, the Exchange Act
and all other applicable rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earning statement covering

8

 

the period of at least twelve (12) months after the effective date of such registration
statement, which earning statement shall satisfy Section 11(a) of the Securities Act and any
applicable regulations thereunder, including Rule 158.

     4.1.10.
Underwriting Agreement. In the event of any underwritten offering, enter
into and perform its obligations under an underwriting agreement, in usual and customary form,
with the managing underwriter of such offering.

     4.1.11. Exchange Listing. Use its best efforts to cause such Registrable
Securities to be listed on each securities exchange on which any equity security of the
Company is then listed or, if the Company does not have a class of equity securities listed on
a national securities exchange, apply for qualification and use its best efforts to qualify
such Registrable Securities for listing on the New York Stock Exchange or inclusion on the
Nasdaq National Market or comparable trading system.

     4.1.12. Due Diligence. Make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company’s officers, directors, employees and independent
accountants to supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement, in each case
subject to the requirement that recipients execute appropriate confidentiality agreements.

     4.1.13. Transfer Agent. Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration statement.

     4.1.14. Company Lockup. In the case of an underwritten offering, except as may
otherwise be agreed by the managing underwriter, will refrain, for a period from fifteen (15)
days before the effective date of the registration sale until up to 120 days after such
effective date, from directly or indirectly selling, offering to sell, granting any option for
the sale of or otherwise disposing of any Common Stock or securities convertible into Common
Stock other than (i) pursuant to Company employee equity plans, (ii) in connection with
acquisitions, or (iii) in any transaction involving the issuance of restricted securities if
in such case the recipient of such securities agrees in writing to be bound by the provisions
of this Section 4.1.14.

     4.2 Participation by Selling Holders. The Company may require each seller of
Registrable Securities as to which any registration is being effected to furnish the Company such
information regarding such seller and the distribution of such securities as the Company may from
time to time reasonably request in writing and which shall be required by the Securities Act (or
similar state laws) or by the Commission in connection therewith.

     4.3 Conversion only Upon Consummation of Offering. No Holder shall be required by this
Agreement to convert any Registrable Security into Common Stock except at the

9

 

applicable closing or closings of an underwritten registered offering and except upon the sale of
such Registrable Security in the case of other registered offerings.

     4.4 Discontinue Selling. Each seller of Registrable Securities agrees that, upon
written notice of the happening of any event as a result of which the Prospectus included in any
registration statement contains an untrue statement of a material fact or omits any material fact
necessary to make the statements therein not misleading, or upon the issuance of a stop order
suspending the effectiveness of any registration statement, such seller will use commercially
reasonable efforts to forthwith discontinue disposition of Registrable Securities until such seller
is advised in writing by the Company that the use of the prospectus may be resumed and if
applicable is furnished with a supplemented or amended prospectus as contemplated by Section 4.1.7
hereof. If the Company shall give any notice to suspend the disposition of Registrable Securities
pursuant to a prospectus, the Company shall extend the period of time during which the Company is
required to maintain the registration statement effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such notice to and including
the date such seller either is advised by the Company that the use of the prospectus may be resumed
or if applicable receives the copies of the supplemented or amended prospectus contemplated by
Section 4.1.7.

5.
Additional Procedures in Connection with Underwritten Offerings; Holder Lockups;
Cutbacks.

     5.1 Registrations Upon Request Pursuant to Section 2. In the case of a registration
pursuant to Section 2 hereof, whenever the Majority Participating Holders shall request that such
registration shall be effected pursuant to an underwritten offering, such registration shall be so
effected, and only securities which are to be distributed by the underwriters designated by such
Majority Participating Holders may be included in such registration. If requested by such
underwriters, the Company and each participating seller will enter into an underwriting agreement
with such underwriters for such offering containing such representations and warranties by the
Company and such participating sellers and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions, including, without
limitation, customary indemnity and contribution provisions;
provided, however that the
liability of each Holder in respect of any indemnification, contribution or other obligation of
such Holder arising under such underwriting agreement (i) shall be limited to losses arising out of
or based upon an untrue statement or alleged untrue statement or omission or alleged omission made
in such registration statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement, incorporated document or other such disclosure document or
other document or report, in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder expressly for inclusion therein and (ii) shall not in
any event exceed an amount equal to the net proceeds to such Holder (after deduction of all
underwriters’ discounts and commissions) from the disposition of the Registrable Securities
disposed of by such Holder pursuant to such registration.

     5.2 Piggyback Registrations Pursuant to Section 3. In connection with the exercise of
any registration rights granted to Holders of Registrable Securities pursuant to Section 3 hereof,
if the registration is to be effected by means of an underwritten offering of Common Stock on a
firm commitment basis, the Company may condition participation in such registration by such

10

 

Holders upon inclusion of the Registrable Securities being so registered in such underwriting. The
Holders of Registrable Securities participating in any registration pursuant to Section 3 shall be
parties to the underwriting agreement entered into by the Company and any other selling
stockholders in connection therewith containing such representations and warranties by the Company
and such participating sellers and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including, without limitation,
customary indemnity and contribution provisions; provided, however, that the
liability of each Holder in respect of any indemnification, contribution or other obligation of
such Holder arising under such underwriting agreement (i) shall be limited to losses arising out of
or based upon an untrue statement or alleged untrue statement or omission or alleged omission made
in such registration statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement, incorporated document or other such disclosure document or
other document or report, in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder expressly for inclusion therein and (ii) shall not in
any event exceed an amount equal to the net proceeds to such Holder (after deduction of all
underwriters’ discounts and commissions) from the disposition of the Registrable Securities
disposed of by such Holder pursuant to such registration.

     5.3 Selling Holder Lockups. In each registration pursuant to Section 2 or Section 3
effected on a firm commitment underwritten offering, each Holder agrees that, as a condition to the
inclusion of any of such Holder’s Registrable Securities in such offering, such Holder shall agree,
if reasonably requested by the managing underwriter, subject to any early release provisions that
apply generally to stockholders of the Company, for a period from 15 days prior to the effective
date of the registration statement until up to 120 days after such effective date, not to directly
or indirectly sell, offer to sell, grant any option for the sale of, or otherwise dispose of any
Common Stock or securities convertible into Common Stock except for (i) Registrable Securities sold
pursuant to such registration statement, (ii) transactions relating to Common Stock or other
securities acquired in open market transactions, (iii) transfers to Affiliates, partners, members
and stockholders of such Holder, each of whom shall have furnished to the Company and the managing
underwriter their written consent to be bound by this Agreement including this Section 5.3 and (iv)
transfers to charitable organizations, each of which shall have furnished to the Company and the
managing underwriter their written consent to be bound by this Agreement including this Section
5.3, provided that the Company’s officers, directors and all holders of other securities included
in such registration agree to enter into such lockup agreements for the same period and on the same
terms, and provided further that any waiver or termination of the prohibitions contained in this
Section 5.3 by the Company or any underwriter shall apply to each Holder.

     5.4 Cutbacks.

     5.4.1. Section 2 Cutbacks. If the managing underwriter advises the Company that
the number of shares to be included in a registration pursuant to Section 2 should be limited
due to market conditions or otherwise, (i) all shares other than Registrable Securities shall
first be excluded, and (ii) thereafter, if additional shares must be excluded from such
registration, all Holders of Registrable Securities shall share pro rata in the number of
shares of Registrable Securities to be excluded from such registration pursuant

11

 

to this clause (ii), such sharing to be based on the respective numbers of Registrable
Securities owned by such Holders.

     5.4.2. Section 3 Cutbacks. If the managing underwriter advises the Company that
the number of shares to be included in a registration pursuant to Section 3 should be limited
due to market conditions or otherwise,

	 	(a)	 	if the registration was initiated by the Company, (i) all shares of
securities held by shareholders of the Company other than Holders of Registrable
Securities shall first be excluded, (ii) next, if additional shares must be
excluded from such registration, all Holders of Registrable Securities shall share
pro rata in the number of shares of Registrable Securities to be excluded from such
registration pursuant to this clause (ii), such sharing to be based on the
respective numbers of Registrable Securities owned by such holders and (iii)
thereafter, if additional shares must be excluded from such registration, shares to
be issued by the Company shall be excluded; provided, however, that no exclusion
provided for herein shall reduce the amount of Registrable Securities to be
included in such registration to an amount that is less than twenty five (25)
percent of the total amount of shares to be included in such registration, unless
in connection with the Initial Public Offering;
	 
	 	(b)	 	if the registration was initiated by shareholders of the Company other
than Holders of Registrable Securities, (i) shares to be issued by the Company
shall first be excluded, (ii) next, if additional shares must be excluded from such
registration, all Holders of Registrable Securities shall share pro rata in the
number of shares of Registrable Securities to be excluded from such registration
pursuant to this clause (ii), such sharing to be based on the respective numbers of
Registrable Securities owned by such holders, and (iii) thereafter, if additional shares must be excluded from such registration, shares to be registered by
shareholders of the Company other than Holders of Registrable Securities shall be
excluded pro rata based on the number of shares to be determined or as agreed by
such other shareholders among themselves.

6. Indemnification and Contribution.

     6.1 Indemnities of the Company. In the event of any registration of any Registrable
Securities under the Securities Act pursuant to Section 2 or 3 hereof, and in connection with any
registration statement or any other disclosure document produced by or on behalf of the Company or
any of its subsidiaries including, without limitation, reports required by and other documents
filed under the Exchange Act, and other documents pursuant to which any debt or equity securities
of the Company or any of its subsidiaries are sold (whether or not for the account of the Company),
the Company will, and hereby does, indemnify and hold harmless each Investor and each holder or
seller of Registrable Securities, their respective direct and indirect partners, members,
stockholders, directors, advisory board members, officers, representatives on the Board of
Directors of the Company, and each other Person, if any, who

12

 

controls or is alleged to control any such Investor, holder or seller within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act (each such Person being referred to
herein as a “Covered Person”), against any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), joint or several, to which such Covered Person may be or become
subject under the Securities Act, the Exchange Act, any other securities or other law of any
jurisdiction, common law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement
or alleged untrue statement of any material fact contained or incorporated by reference in any
registration statement under the Securities Act, any preliminary prospectus or final prospectus
included therein, or any related summary prospectus, or any amendment or supplement thereto, or any
document incorporated by reference therein, or any other such disclosure document (including
without limitation reports and other documents filed under the Exchange Act and any document
incorporated by reference therein) or other document or report, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation of any federal,
state, foreign or common law rule or regulation applicable to the Company or any of its
subsidiaries and relating to action or inaction in connection with any such registration,
disclosure document or other document or report, and will reimburse such Covered Person for any
legal or any other expenses incurred by it in connection with investigating or defending any such
loss, claim, damage, liability, action or proceeding; provided, however, that the
Company shall not be liable to any Covered Person in any such case for any such loss, claim,
damage, liability, action or proceeding to the extent that it arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement, incorporated document or other such disclosure document or other document
or report, in reliance upon and in conformity with written information furnished to the Company or
any of its subsidiaries by or on behalf of such Covered Person expressly for inclusion therein. The
indemnities of the Company contained in this Section 6.1 shall remain in full force and effect
regardless of any investigation made by or on behalf of such Covered Person and shall survive any
transfer of Registrable Securities.

     6.2 Indemnities to the Company. In the event of any registration of Registrable
Securities pursuant to Section 2 or 3, each selling Holder will, and hereby does, indemnify and
hold harmless the Company, each director of the Company, each officer of the Company who shall sign
such registration statement and each other Person (other than such seller), if any, who controls
the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, with respect to any statement in or omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus included therein, or any amendment or supplement
thereto, or any document incorporated by reference therein, or any other such disclosure document
(including without limitation reports and other documents filed under the Exchange Act and any
document incorporated by reference therein) or other document or report, if such statement or
Omission was made in reliance upon and in conformity with written information furnished to the
Company by or on behalf of such seller expressly for inclusion therein. Such indemnity contained in
this Section 6.2 shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company or any such director, officer or controlling Person and shall survive any
transfer of Registrable Securities.

13

 

     6.3 Indemnification Procedures. Promptly after receipt by an indemnified party of
notice of the commencement of any action or proceeding involving a claim of the type referred to in
the foregoing provisions of this Section 6, such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, give written notice to each such indemnifying
party of the commencement of such action; provided, however, that the failure of any
indemnified party to give notice to such indemnifying party as provided herein shall not relieve
such indemnifying party of its obligations under the foregoing provisions of this Section 6, except
and solely to the extent that such indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party, each indemnifying
party will be entitled to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to such an indemnifying party), and after notice from an indemnifying party to
such indemnified party of its election so to assume the defense thereof, such indemnifying party
will not be liable to such indemnified party for any legal or other expenses subsequently incurred
by the latter in connection with the defense thereof;
provided, however, that (i) if the
indemnified party in good faith determines that there may be a conflict between the positions of
such indemnifying party and the indemnified party in conducting the defense of such action or that
there may be defenses available to such indemnified party different from or in addition to those
available to such indemnifying party, then counsel for the indemnified party shall conduct the
defense to the extent in good faith determined by such counsel to be necessary to protect the
interests of the indemnified party and such indemnifying party shall employ separate counsel for
its own defense, (ii) in any event, the indemnified party shall be entitled to have counsel chosen
by such indemnified party participate in, but not conduct, the defense and (iii) the indemnifying
party shall bear the legal expenses incurred in connection with the conduct of, and the
participation in, the defense as referred to in clauses (i) and (ii) above. If, within a reasonable
time after receipt of the notice, such indemnifying party shall not have elected to assume the
defense of the action, such indemnifying party shall be responsible for any legal or other expenses
incurred by such indemnified party in connection with the defense of the action, suit,
investigation, inquiry or proceeding. No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all liability in respect to
such claim or litigation.

     6.4 Contribution. If the indemnification provided for in Sections 6.1 or 6.2 hereof is
unavailable to a party that would have been an indemnified party under any such Section in respect
of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each party that would have been an indemnifying party thereunder shall,
in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault
of such indemnifying party on the one hand and such indemnified party on the other in connection
with the statements or omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information supplied by such
indemnifying party or such indemnified party and the parties’ relative intent, knowledge, access

14

 

to information and opportunity to correct or prevent such statement or omission. The parties agree
that it would not be just and equitable if contribution pursuant to this Section 6.4 were
determined by pro rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the preceding sentence. The amount paid or payable
by a contributing party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 6.4 shall include any legal or
other expenses reasonably incurred by such indemnified party in connection with investigating or
defending any such action or claim. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.

     6.5 Limitation on Liability of Holders of Registrable Securities. The liability of
each Holder in respect of any indemnification or contribution obligation of such Holder arising
under this Section 6 shall not in any event exceed an amount equal to the net proceeds to such
Holder (after deduction of all underwriters’ discounts and commissions) from the disposition of the
Registrable Securities disposed of by such Holder pursuant to such registration less any other
damages paid by such Holder with respect to claims relating to such registration.

7. Reports Under Securities Exchange Act of 1934. With a view to making available to the
Holders the benefits of Rule 144 and any other rule or regulation of the Commission that may at any
time permit a Holder to sell securities of the Company to the public without registration, and with
a view to making it possible for Holders to register the Registrable Securities pursuant to a
registration on Form S-3, the Company agrees to:

     (a) use its best efforts to make and keep public information available, as those terms
are understood and defined in Rule 144, at all times commencing after the effective date of
the registration statement for its Initial Public Offering;

     (b) take such action, including the voluntary registration of its Common Stock under
Section 12 of the Exchange Act, as will permit Holders to use Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable (but not later than 90
days) after the end of the fiscal year in which the registration statement for the Initial
Public Offering is declared effective;

     (c) use its best efforts to file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the Exchange Act; and

     (d) furnish to any Holder forthwith upon request (1) a written statement by the Company
as to its compliance with the reporting requirements of Rule 144 (at any time more than 90
days after the effective date of the registration statement for its Initial Public Offering),
the Securities Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), or as to its qualification as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (2) a copy of the most
recent annual or quarterly report of the Company and such other reports and documents so
filed by the Company, and (3) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the Commission

15

 

which permits the selling of any such securities without registration or pursuant to such
form.

8. Assignment of Registration Rights. The rights to cause the Company to register
Registrable Securities pursuant to Sections 2 and 3 may be assigned by any Holder to a transferee,
and by such transferee to a subsequent transferee, but only if such rights are transferred (a) to
an Affiliate or other Permitted Transferee of such Holder or (b) in connection with the sale or
other transfer of Registrable Securities having a value at the time of such transfer of not less
than an aggregate of $1,000,000 or some lesser amount, if such lesser amount represents the value
of all the Registrable Securities then held by such Holder. Any transferee to whom rights under
this Agreement are transferred shall (i) as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the obligations imposed upon
Holders under this Agreement to the same extent as if such transferee were a Holder under this
Agreement and (ii) be deemed to be a Holder hereunder.

9. Limitation on Subsequent Registration Rights. The Company shall not, without the prior
written consent of the Holders of at least seventy five percent (75%) of the then outstanding
Registrable Securities, enter into any agreement with any holder or prospective holder of any
securities of the Company that would allow such holder or prospective holder (i) to include
securities of the Company in any registration statement, unless under the terms of such agreement
such holder or prospective holder may include such securities in a registration statement only on
terms subordinate to the terms on which Holders of Registrable Securities may include shares in
such registration or (ii) to make a demand registration.

10. Future Changes in Registration Requirements. In the event that the registration
requirements under the Securities Act are amended or eliminated to accommodate a “Company
registration” or similar approach, this Agreement shall be deemed amended to the extent necessary
to reflect such changes and the intent of the parties hereto with respect to the benefits and
obligations of the parties, and in such connection, the Company shall use commercially reasonable
efforts to provide Holders of Registrable Securities equivalent benefits to those provided under
this Agreement.

11. Covenants of the Company. The Company agrees as follows:

     11.1 Information Rights.

     11.1.1. Access to Records. The Company shall, and shall cause each Subsidiary,
if any, to afford to Bain Capital, Battery Ventures, each PCP Investor, as long as the PCP
Investors or their Permitted Transferees hold (pursuant to the PCP Warrants, the Series A
Preferred Stock issuable upon exercise thereof and the Common Stock issuable upon conversion
of the Series A Preferred Stock) at least 75% of the shares of Common Stock, on a Fully
Diluted Basis, originally issuable upon exercise of the PCP Warrants, each Investor that,
together with its Affiliates, holds at least five percent (5%) of the Common Stock of the
Company on a Fully Diluted Basis, and CIGPF I Corp. as long as the Warrant it holds is
exercisable for or has been exercised for at least seventy five percent (75%) of the Common
Stock of the Company originally issuable upon exercise of its Warrant, and each of their
respective officers, employees, advisors, counsel and other

16

 

authorized representatives, reasonable access during normal business hours, upon reasonable
advance notice, to all of the books, records and properties of the Company and its Subsidiaries,
if any, and to all officers and employees of the Company and such Subsidiaries.

     11.1.2.
Financial Reports. The Company shall, and shall cause each Subsidiary, if
any, to provide to Bain Capital, Battery Ventures, each PCP Investor, as long as
the PCP Investors or their Permitted Transferees hold (pursuant to the PCP Warrants,
the Series A Preferred Stock issuable upon exercise thereof and the Common Stock issuable
upon conversion of the Series A Preferred Stock) at least 75% of the shares of Common Stock,
on a Fully Diluted Basis, originally issuable upon exercise of the PCP Warrants, each Investor
that, together with its Affiliates, holds at least five percent (5%) of the Common Stock of the
Company on a Fully Diluted Basis, and CIGPF I Corp. as long as the
Warrant it holds is exercisable
for or has been exercised for at least seventy five percent (75%) of the Common Stock of the Company
originally issuable upon exercise of its Warrant, the following:

     11.1.2.1
Monthly Reports. As soon as available, but not later than 20 days after the end of each
fiscal month beginning with the report for the month of January 2004, a consolidated balance sheet
of the Company as of the end of such period and consolidated statements of income and cash flows
of the Company for such period.

     11.1.2.2
Quarterly Reports. As soon as available, but not later than 20 days after the end of each
quarterly accounting period, a consolidated balance sheet of the Company as of the end of such period
and consolidated statements of income, cash flows and changes in stockholders’ equity for such quarterly
accounting period and for the period commencing at the end of the previous fiscal year and ending with
the end of such period, setting forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, and including comparisons to the budget or business
plan, all prepared in accordance with GAAP, subject to normal
year-end adjustments and the absence of footnote disclosure.

     11.1.2.3
Annual Audit. As soon as available, but not later than 180 days after the end of each fiscal
year of the Company commencing with the fiscal year ended January 31, 2004, audited consolidated financial
statements of the Company, which shall include statements of income, cash flows and changes in stockholders’
equity for such fiscal year and a balance sheet as of the last day thereof, each prepared in accordance with
GAAP, and accompanied by the report of a firm of independent certified public accountants selected by the
Company’s Board of Directors in accordance with Section 11.4 hereof (the “Accountants”). The Company and its
Subsidiaries, if any, shall maintain a system of accounting sufficient to enable its Accountants to render the
report referred to in this Section 11.1.2.3.

17

 

     11.1.2.4 Annual Budget and Operating Forecast. As soon as available,
but not later than 45 days prior to the beginning of each fiscal year commencing with the
fiscal year ended January 31, 2006, an annual budget and operating plan for such fiscal
year together with management’s written discussion and analysis of such budget. The budget
shall be accepted as the budget for the Company for such fiscal year when it has been
approved by the Board of Directors of the Company. Management shall review the budget
monthly and shall advise each Investor entitled to receive the annual budget at such time
and the Board of Directors of all material changes therein, and all material deviations
therefrom.

     11.1.3. Observer’s Rights. Each of Bain Capital and Battery Ventures, for so long as
such Investor, together with its Affiliates, owns at least thirty percent (30%) of the shares of
Series A Preferred Stock purchased by them (or Common Stock issued on conversion thereof) under
the Purchase Agreements shall have the right to have one (1) individual (each an “Observer”)
attend any meeting of the Board or any committee thereof at any time during which such Investor
does not have an executive thereof serving on the Board of Directors of the Company. No Observer
shall have the right to vote on any matter presented to the Board or any committee thereof. The
Company shall give each Observer written notice of each meeting thereof at the same time and in
the same manner as the members of the Board or such committee receive notice of such meetings,
and the Company shall permit each Observer to attend as an observer at all meetings thereof;
provided, that in the case of telephonic meetings, each Observer need receive only actual
notice thereof at the same time and in the same manner as notice is given to the directors; and
provided, further, that such Observer may be excluded from that portion of any
meeting reasonably required in order to preserve attorney-client privilege for communications
with the Company’s counsel. Each Observer shall be entitled to receive all written materials and
other information given to the directors in connection with such meetings at the same time such
materials and information are given to the directors. If the Company proposes to take any action
by written consent in lieu of a meeting of the Board, the Company shall give written notice
thereof to each Observer prior to the effective date of such consent describing the nature and
substance of such action. The Company shall pay all reasonable expenses including, without
limitation, airfare and hotel expenses in accordance with the Company’s then applicable travel
policies, but shall not pay any other compensation to an Observer, in connection with such
Observer’s attendance at meetings of the Board of Directors.

     11.1.4. Reportable Events. The Company shall provide notice to Bain Capital,
Battery Ventures, each PCP Investor, as long as the PCP Investors or their Permitted Transferees
hold (pursuant to the PCP Warrants, the Series A Preferred Stock issuable upon exercise thereof
and the Common Stock issuable upon conversion of the Series A Preferred Stock) at least 75% of
the shares of Common Stock, on a Fully Diluted Basis, originally issuable upon exercise of the
PCP Warrants, each Investor that, together with its Affiliates, holds at least five percent (5%)
of the Common Stock of the Company on a Fully Diluted Basis, and CIGPF I Corp. as long as the
Warrant it holds is exercisable for or has been exercised for at least seventy five percent
(75%) of the Common Stock of the Company originally issuable upon exercise of its Warrant, of a
Reportable Event (as

18

 

hereinafter defined) as soon as possible and in any event no later than five (5) days
following the occurrence of said event. The following events shall be “Reportable Events”:

     11.1.4.1 receipt by the Company of an offer to buy a controlling interest in the
capital stock of the Company or a significant amount of its assets;

     11.1.4.2 receipt by the Company or any Subsidiary of notice of the resignation or
serious illness of any of its officers;

     11.1.4.3 the commencement of any lawsuit involving the Company or any Subsidiary
in which, in the case of a lawsuit involving claims for damages, the aggregate of such
claims is in excess of $100,000;

     11.1.4.4 the receipt by the Company or any Subsidiary of a notice that the Company
or such Subsidiary is in default under any loan agreement to which it is a party; and

     11.1.4.5 the existence of any known material default by the Company under this
Agreement or any other Transaction Document.

     11.2 Subsequent Equity Issuances. The Company will grant the Investors that hold
Series A Preferred Stock any rights, preferences or privileges granted to subsequent purchasers of
any capital stock of the Company to the extent that any such rights, preferences, privileges or
other terms are superior, in the good faith judgment of the Board of Directors of the Company, to
any of the rights, preferences or privileges granted to the Investors in connection with the
issuance of the Series A Preferred Stock, whether in the Certificate or in any other agreement.

     11.3 Non-Compete and Confidentiality Agreements. The Company will require (i) each
member of the senior management of the Company and each of its Subsidiaries, prior to the
commencement of his or her employment, to sign a non-compete, confidentiality and proprietary and
invention agreement (in the form attached as Exhibit E to the Purchase Agreements or in a
form substantially similar thereto), and (ii) all key consultants, prior to the commencement of any
work on behalf of the Company or any Subsidiary, to sign confidentiality and proprietary and
invention agreements reasonably acceptable to the Investors holding 75% of the then outstanding
Series A Preferred Stock.

     11.4 Internal Accounting Controls. The Company will maintain a system of internal
accounting controls similar to those maintained by corporations of established reputation in the
same or similar business.

     11.5 Indemnification of the Board of Directors; Directors and Officers Insurance Policy;
Key Man Insurance Policy.

     11.5.1. The Company will reimburse all directors of the Company for all reasonable
out-of-pocket expenses, including without limitation, airfare and hotel expenses, in
connection with attending meetings of the Company’s Board of Directors and all committees
thereof and all reasonable out-of-pocket expenses otherwise incurred

19

 

in fulfilling their duties as directors, subject to compliance with the Company’s then
applicable travel and other expense reimbursement policies. To the extent provided by
Delaware law, the certificate of incorporation and by-laws of the Company shall at all times
require (i) the indemnification and reimbursement of expenses of all of the Company’s
directors against liability for actions and omissions to act in their capacity as directors
of the Company to the maximum extent that such individuals may lawfully be so indemnified by
the Company and (ii) the exculpation of the Company’s directors from liability to the Company
and its stockholders for monetary damages for breach of their fiduciary duties as directors.

     11.5.2. The Company will maintain in full force and effect a directors and officer
liability insurance policy issued by an insurer or insurers of recognized responsibility,
insuring its directors and officers against such losses and risks, and in such amounts, as
determined by the Board of Directors of the Company.

     11.5.3. The Company will maintain in full force and effect a “key man” insurance policy
issued by an insurer or insurers of recognized responsibility for the Chief Executive Officer
and the President in amounts and on other terms reasonably acceptable to Investors holding at
least seventy five percent (75%) of the then outstanding Series A Preferred Stock, subject to
the availability of such insurance on terms that such holders of the Series A Preferred Stock
deem to be cost-effective. The Company agrees to use commercially reasonable efforts to
obtain such insurance within 90 days after the date hereof.

     11.6 Third Amended and Restated Certificate of Incorporation.

     (a) In order to effect any amendment, modification, restatement or waiver of the Third Amended
and Restated Certificate of Incorporation (the “Certificate”) or By-laws of the Company (whether by
amendment to the Certificate or By-laws of the Corporation or by reclassification, merger,
consolidation, reorganization or otherwise) that alters, changes or repeals the rights, preferences
or privileges of the capital stock of the Company outstanding as of the date of this Agreement, in
addition to the approval and consent rights provided in the Certificate, (i) the written consent of
the Investor holding the Warrant issued to CIGPF I Corp. (the “Warrant Investor”), so as long as
such Warrant is held by CIGPF I Corp. or its Permitted Transferee, and is exercisable for at least
seventy five percent (75%) of the Common Stock originally issuable upon exercise of the Warrant is
required, provided, however, that consent of the Warrant Investor shall not be required for any
amendment, modification, restatement or waiver of the Certificate of Incorporation or By-laws of
the Company, unless such amendment or waiver affects the Warrant Investor or the Warrant Investor’s
Shares in a manner different than the Investors that were originally issued Series A Preferred
Stock or the Series A Preferred Stock and in a manner adverse to the interests of the Warrant
Investor as an equity investor in the Company, it being understood that no such consent shall be
required for an amendment or waiver that adversely affects the Warrant Investor and the Investors
that were originally issued Series A Preferred Stock in a similar manner given their relative and
different equity interests in the Company; and (ii) any consent required under Section 7.14 of the
Stockholders Agreement is required.

20

 

     (b) Notwithstanding anything in Section 16(a)(i) of this Agreement to the contrary and
notwithstanding the right of the Warrant Investor to consent to adverse amendments, modifications
and waivers as more specifically set forth herein, no Warrant Investor consent to any amendment,
modification, restatement or waiver is required for the Company to be entitled to authorize and
issue without the Warrant Investor’s consent additional series of equity securities that are either
(i) pari passu in preference and right or (ii) senior in preference and right to the Series A
Preferred Stock.

     11.7 Termination of Rights. The provisions of this Section 11 shall terminate upon the
closing of a Qualified Public Offering.

     12. Notices. All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be hand delivered or mailed postage prepaid by
registered or certified mail or by facsimile transmission to the Company at:

Fingerhut Direct Marketing, Inc.

4400 Baker Road

Minnetonka, MN 55343

Attention:       Edward Wozniak

Facsimile No.: (952) 294-2761

with a copy to:

Lindquist & Vennum P.L.L.P.

4200 IDS Center

80 South 8th Street

Minneapolis, MN 55402

Attention:       Charles P. Moorse

Facsimile No.: 612-371-3207

to each Investor at its address set forth on Exhibit A hereto, with a copy to:

Ropes & Gray LLP 

One International Place 

Boston, Massachusetts 02110 

Attention: Joel F. Freedman, Esq.

Facsimile No.: (617) 951-7050

or such other address as may be furnished in writing to the other parties hereto. Any notice,
request, consent and other communication shall for all purposes of this Agreement be treated as
being effective or having been given when delivered if delivered personally, upon receipt of
facsimile confirmation if transmitted by facsimile, or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the
deposit of United States mail, addressed and postage prepaid as aforesaid.

21

 

13. Entire Agreement. This Agreement constitutes the entire understanding of the
parties with respect to the subject matter hereof and supersedes any and all prior communications
or agreements, whether written or oral, with respect to such subject matter.

14. Amendments, Waivers and Consents.

     (a) Except as otherwise expressly provided herein, any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a particular instance and
either retroactively or prospectively), only by the written consent given (i) as to the Company,
only by the Company; (ii) as to the Holders, only by the Holders of seventy five percent (75%) of
the then outstanding Registrable Securities (with the Company to deliver copies of such written
consent to any Holders who did not execute the same); and (iii) as to the Investors, only by (x)
the holders of seventy five percent (75%) of the then outstanding Series A Preferred Stock, (y) the
Warrant Investor, so long as its Warrant is held by CIGPF I Corp. or its Permitted Transferee, and
is exercisable for at least seventy five percent (75%) of the Common Stock originally issuable upon
exercise of such Warrant, and (z) any consent required under Section 7.14 of the Stockholders
Agreement; provided, however, that consent of the Warrant Investor shall not be required for any
amendment or waiver of any provision of this Agreement unless such amendment or waiver affects the
Warrant Investor or the Warrant Investor’s Shares in a manner different than the Investors that
were originally issued Series A Preferred Stock or the Series A Preferred Stock and in a manner
adverse to the interests of the Warrant Investor as an equity investor in the Company, it being
understood that no such consent shall be required for an amendment or waiver that adversely affects
the Warrant Investor and the Investors that were originally issued Series A Preferred Stock in a
similar manner given their relative and different equity interests in the Company.

     (b) Notwithstanding Section 14(a)(ii)(y) to the contrary and notwithstanding the
right of the Warrant Investor to consent to adverse amendments, modifications and waivers as more
specifically set forth herein, no Warrant Investor consent is required for the Company to be
entitled to authorize and issue additional series of equity securities that are either (i) pari
passu in preference and right or (ii) senior in preference and right to the Series A
Preferred Stock (with the Company to deliver copies of such written consent to any Investors who
did not execute the same).

     (c) Notwithstanding anything in this Agreement to the contrary, (i) the right of Bain Capital
to an Observer pursuant to Section 11.1.3 may not be amended, modified or waived in any manner
without the prior written consent of Bain Capital and (ii) the right of Battery Ventures to an
Observer pursuant to Section 11.1.3 may not be amended, modified or waived in any manner without
the prior written consent of Battery Ventures.

15. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the
benefit of the personal representatives, successors and assigns of the respective parties hereto.
Notwithstanding the foregoing sentence, the Company shall not have the right to assign its
obligations hereunder or any interest herein without obtaining the prior written consent of the
Holders of a majority of the then outstanding Registrable Securities, provided in accordance with
Section 14.

22

 

16. General. The headings contained in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement. This Agreement
shall be governed by and construed in accordance with the laws of the State of New York.

17. Severability. If any provision of this Agreement shall be found by any court of
competent jurisdiction to be invalid or unenforceable, the parties hereby waive such provision to
the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum
extent allowable by law, be modified by such court so that it becomes enforceable, and, as
modified, shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.

18. Counterparts. This Agreement may be executed in counterparts, all of which
together shall constitute one and the same instrument.

19. Construction. The parties hereto have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent 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 of the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word “including” shall mean including
without limitation. The parties hereto intend that each representation, warranty, and covenant
contained herein shall have independent significance.

20. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT
BE WAIVED, THE INVESTORS AND THE COMPANY HEREBY WAIVE, AND COVENANT THAT NEITHER THE COMPANY NOR
THE INVESTORS WILL ASSERT, ANY RIGHT TO TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS
PLAINTIFF, DEFENDANT OR OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER AGREEMENT OR THE SUBJECT MATTER
HEREOF OR THEREOF OR IN ANY WAY CONNECTED WITH, RELATED OR
INCIDENTAL TO THE DEALINGS OF THE INVESTORS AND THE COMPANY HEREUNDER OR THEREUNDER, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company
acknowledges that it has been informed by the Investors that the provisions of this Section 20
constitute a material inducement upon which the Investors are relying and will rely in entering
into this Agreement. Any Investor or the Company may file an original counterpart or a copy of this
Section 20 with any court as written evidence of the consent of the Investors and the Company to
the waiver of its right to trial by jury.

21. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or m connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal or state court located in the State of New
York, and each of the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably
waives, to the fullest extent permitted by law, any objection which it may now or hereafter have

23

 

to the laying of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the jurisdiction of any such court. Without
limiting the foregoing, each party agrees that service of process on such party as provided in
Section 12 shall be deemed effective service of process on such party.

22. Non-Disclosure. Each Investor (other than a PCP Investor) agrees to use the same
degree of care as such Investor uses to protect its own confidential information to keep
confidential any proprietary or other information furnished to such Investor that the Company
maintains in confidence (so long as such information is not in the public domain), except that such
Investor may disclose such proprietary or confidential information (i) to any partner (limited or
otherwise), subsidiary or parent of such Investor for the purpose of evaluating its investment in
the Company as long as such partner, subsidiary or parent is advised of the confidentiality
provisions of this Section 22, (ii) at such time as the Company voluntarily discloses such
information to the public or such information otherwise enters the public domain through no fault
of such Investor, (iii) that is communicated to it free of any obligation of confidentiality, or
(iv) that is developed by Investor or its agents independently of and without reference to any
confidential information communicated by the Company. The PCP Investor agrees to be bound by the
non-disclosure agreements it has made in the Subordinated Note Agreement.
Notwithstanding the foregoing, the parties hereto may disclose to any and all persons, without
limitation of any kind, the tax treatment and the tax structure of this transaction, and all
materials of any kind related to such tax treatment and tax structure.

23. Amendment to February Agreement. By execution and delivery of this Agreement, the
Company and each of the undersigned Investors who were parties to the February Agreement hereby
approve and consent to this Agreement as an amendment of the February Agreement approved in
accordance with Section 14 of the February Agreement. This Agreement supersedes and replaces in its
entirety the February Agreement.

[The remainder of this page has been intentionally left blank]

24

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year
first above written.

	 	 	 	 	 
	 	THE COMPANY

FINGERHUT DIRECT MARKETING, INC.

 	 
	 	By:  	 	 
	 	Name:  	Brian Smith 	 
	 	Title:  	Chief Executive Officer and President 	 
	 

[Signature Pages — Investor Rights Agreement]

25

 

THE INVESTORS

	 	 	 	 	 	 	 	 	 	 	 
	BAIN CAPITAL VENTURE FUND, L.P.	 	 	 	BATTERY VENTURES VI, L.P.	 	 
	 
	By:

	 	Bain Capital Venture Partners, L.P
	 	 	 	By:
	 	Battery Partners, VI, LLC	 	 
	 

	 	its general partner.
	 	 	 	 	 	General Partner	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	Bain Capital Investors, LLC
	 	 	 	By:
	 	 
 

	 	 
	 

	 	its general partner
	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 
 

	 	 	 	 	 	 	 	 
	Name:	 	 	 	 	 	BATTERY INVESTMENT PARTNERS VI, LLC	 	 
	Title:

	 	 

Authorized Person
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	BCIP ASSOCIATES III, LLC	 	 	 	By:	 	 	 	 
	 
	By:

	 	BCIP Associates III
	 	 	 	Name:
	 	 

	 	 
	 

	 	its manager
	 	 	 	Title:
	 	Member Manager	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	BCIP ASSOCIATES III-B, LLC	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	By:	 	BCIP Associates III-B	 	 	 	Kermit L. Stofer	 	 
	 

	 	its manager	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	Bain Capital Investors, LLC	 	 	 	 	 	 	 	 
	 	 	their Managing Partner	 	 	 	PETTERS COMPANY, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 
 

	 	 	 	By:
	 	 
 

	 	 
	Name:

	 	 
	 	 	 	Name:	 	 	 	 
	Title:

	 	 

Authorized Person
	 	 	 	Title:
	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	BROOKSIDE CAPITAL PARTNERS FUND, L.P.	 	 	 	 	 	 	 	 
		 	 	 	 	 	FAC ACQUISITION, LLC	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By: 

Name:

	 	 
 

	 	 	 	By:

Name:
	 	 
 

	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	RGIP, LLC	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By: 

Name:

	 	 
 

	 	 	 	 	 	 	 	 
	Title:

	 	Managing Member	 	 	 	 	 	 	 	 
	 
	Signature Page to Investor Rights Agreement

26

 

THE INVESTORS (continued)

	 	 	 	 	 	 	 	 	 	 	 
	RTB HOLDINGS, LLC	 	 	 	CIGPF I CORP.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	 
	 	 	 	By:
	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Name:

	 	 	 	 	 	Name:	 	 	 	 
	Title:

	 	 	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	CHERRY TREE SECURITIES, LLC	 	 
	 	 	 	 	 	 	 	 	 
	Theodore Deikel	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	 
 

	 	 
	 

	 	 	 	 	 	Name:	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Brian Smith	 	 	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	PRUDENTIAL CAPITAL PARTNERS II, L.P.	 	 	 	PIPER JAFFRAY & CO	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

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

	 	 	 	 	 	By:
	 	 
 

	 	 
	By:

	 	 
	 	 	 	Name:	 	 	 	 
	 

	 	 

Vice President
	 	 	 	Title:
	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	PRUDENTIAL CAPITAL PARTNERS	 	 	 	EPSILON GLOBAL	 	 
	MANAGEMENT FUND II, L.P.	 	 	 	EQUITIES LIMITED	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	Mulberry Street Holdings, LLC, its general

partner
	 	 	 	By:

Name:
	 	 
 

	 	 
	 

	 	 	 	 	 	Title:	 	 	 	 
	By:

	 	Prudential Investment Management, Inc., its	 	 	 	 	 	 	 	 
	 

	 	managing member	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	  

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

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

	 	  

Vice
President
	 	 	 	 	 	 	 	 
	 
	Signature Page to Investor Rights Agreement

27

 

Exhibit A

NAMES AND ADDRESSES OF INVESTORS

	 	 	 
	BAIN CAPITAL VENTURE FUND, L.P.
	 	 
	BCIP ASSOCIATES III, LLC

	 	PETTERS COMPANY, INC.
	BCIP ASSOCIATES III-B, LLC

	 	FAC ACQUISITION, LLC
	c/o Bain Capital, LLC

	 	RTB HOLDINGS, LLC
	111 Huntington Avenue

	 	4400 Baker Road
	Boston, MA 02199

	 	Minnetonka, MN 55343
	Phone: 617-516-2000

	 	Phone: 952- 932-3161
	Fax: 617-516-2010

	 	Fax: 952-975-4047
	Attention: Michael Krupka

	 	Attention: David E. Baer
	 
	 	 
	BROOKSIDE CAPITAL PARTNERS

	 	Theodore Deikel
	FUND, L.P.

	 	4400 Baker Road
	c/o Bain Capital, LLC

	 	Minnetonka, MN 55343
	111 Huntington Avenue

	 	Phone: 952-
	Boston, MA 02199

	 	Fax: 952-
	Phone: 617-516-2000
	 	 
	Fax: 617-516-2010

	 	Brian Smith
	Attention: Dom Ferrante

	 	c/o Fingerhut Direct Marketing, Inc.
	 

	 	4400 Baker Road
	RGIP, LLC

	 	Minnetonka, MN 55343
	c/o Ropes & Gray LLP

	 	Phone:
	One International Place

	 	Fax:
	Boston, MA 02116

	 	Attn: Brian Smith
	Phone: 617-951-7000
	 	 
	Fax: 617-951-7050

	 	Kermit L. Stofer
	Attention: R. Bradford Malt

	 	c/o Strategic Partners
	 

	 	10 Post Office Sq., Suite 600
	BATTERY VENTURES VI, L.P.

	 	Boston, MA 02109
	BATTERY INVESTMENT PARTNERS

	 	Phone: 617-
	VI, LLC

	 	Fax: 617-
	c/o Battery Ventures
	 	 
	20 William Street, Suite 200

	 	CHERRY TREE SECURITIES, LLC
	Wellesley, MA 02481

	 	301 Carlson Parkway
	Phone: 781-577-1000

	 	Suite 103
	Fax: 781-577-1001

	 	Minnetonka, MN 55305
	Attention: Oliver Curme

	 	Phone: 952-893-9012
	 

	 	Fax: 952-893-9036
	 

	 	Attn: Gordon F. Stofer

 

 

EPSILON GLOBAL EQUITIES

LIMITED

c/o Oppenheimer Wolff & Donnelly LLP

Plaza VII, Suite 3300

45 South Seventh Street

Minneapolis, Minnesota 55402-1609

Phone: 612-607-7000

Fax: 612-607-7100

Attn: Michael D. Zalk

PIPER JAFFRAY & CO.

800 Nicollet Mall

Minneapolis, MN 55402-7020

Phone: 612-303-6000

Fax: 612-303-1354

Attn: Paul Jevnick

CIGPF I CORP.

c/o Citigroup Global Markets, Inc.

390 Greenwich Street

4th Floor

New York, NY 10013

Phone: 212-723-6270

Fax: 212-723-8855

Attn: Ari Rosenberg

[PCP INVESTOR]

[address]

[address]

[address]

29

 

EXHIBIT E

[FORM OF AMENDED AND RESTATED STOCKHOLDERS AGREEMENT]

See Attached

 

 

AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

Dated March 24, 2006

Among

Fingerhut Direct Marketing, Inc.

and the Stockholders

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	ARTICLE I DEFINITIONS
	 	 	1	 
	ARTICLE II VOTING AGREEMENT
	 	 	4	 
	2.1 Election of Directors
	 	 	4	 
	2.2 Committees; Subsidiaries
	 	 	5	 
	2.3 Organization of Board of Directors
	 	 	6	 
	2.4 Grant of Proxy
	 	 	6	 
	2.5 Prohibited Actions
	 	 	6	 
	ARTICLE III PURCHASE RIGHTS
	 	 	7	 
	3.1 Subsequent Offerings
	 	 	7	 
	3.2 Exercise of Rights
	 	 	7	 
	3.3 Issuance of Equity Securities to Other Persons
	 	 	7	 
	3.4 Termination and Waiver of Purchase Rights
	 	 	8	 
	3.5 Transfer of Purchase Rights
	 	 	8	 
	3.6 Excluded Securities
	 	 	8	 
	ARTICLE IV RIGHTS OF FIRST REFUSAL AND CO-SALE RIGHTS
	 	 	9	 
	4.1 Notice of Transfer
	 	 	9	 
	4.2 Right of First Refusal and Co-Sale Rights
	 	 	10	 
	4.3 Transfer Mechanics
	 	 	11	 
	ARTICLE V GENERAL PROVISIONS CONCERNING TRANSFERS
	 	 	12	 
	5.1 Exempt Transfers
	 	 	12	 
	5.2 FDM Option Agreement
	 	 	13	 
	5.3 FAC Acquisition, LLC
	 	 	13	 
	5.4 Transfers to Competitors
	 	 	13	 
	5.5 Stockholder Lockup Agreements in Connection with Initial Public Offering
	 	 	14	 
	5.6 Consequences of Prohibited Transfer
	 	 	14	 
	ARTICLE VI LEGEND
	 	 	14	 
	6.1 Certificate Legend
	 	 	14	 
	6.2 Transfer Restriction
	 	 	15	 
	ARTICLE VII MISCELLANEOUS
	 	 	15	 
	7.1 Governing Law
	 	 	15	 
	7.2 Amendment
	 	 	15	 
	7.3 Benefits of Agreement
	 	 	16	 
	7.4 Term
	 	 	16	 
	7.5 Ownership
	 	 	16	 
	7.6 Notices
	 	 	17	 
	7.7 Severability
	 	 	17	 
	7.8 Entire Agreement
	 	 	17	 
	7.9 Counterparts; Facsimile Signatures
	 	 	18	 
	7.10 Waiver of Jury Trial
	 	 	18	 
	7.11 Jurisdiction
	 	 	18	 
	7.12 Additional Stockholders
	 	 	18	 
	7.13 Amendment to February Agreement
	 	 	19	 
	7.14 PCP Investor Consent
	 	 	19	 

-i-

 

AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

     This Amended and Restated Stockholders Agreement (the “Agreement”) is made and entered into as
of March 24, 2006 by and among Fingerhut Direct Marketing, Inc., a Delaware corporation (the
“Company”), the parties listed as Investors on Exhibit A hereto (the “Investors”), and the
stockholders listed on Exhibit B hereto (such stockholders collectively, the “Common
Stockholders”).

RECITALS

     WHEREAS, pursuant to Preferred Stock Purchase Agreements dated as of February 24, 2004 as
supplemented by Supplement No. 1 dated October 27, 2004 and Supplement No. 2 dated November 1, 2004
among the Company and certain of the Investors (the “Purchase Agreements”), the Company issued and
sold to certain of the Investors shares of its Series A Preferred Stock (as defined below).

     WHEREAS, in connection with the Purchase Agreements, the Company, the Investors and the Common
Stockholders entered into that certain Stockholders Agreement dated February 24, 2004 (the “February
Agreement”).

     WHEREAS, pursuant to that certain Securities Purchase Agreement of date March 23, 2006 (the
“Subordinated Note Agreement”) among the Company and Prudential Capital Partners, II, L.P.,
Prudential Capital Partners Management Fund II, L.P. and Prudential Capital Partners (Parallel
Fund) II, L.P. (the “PCP Investor”) the PCP Investor will be issued warrants to purchase Series A
Preferred Stock (the “PCP Warrants”).

     WHEREAS, one of the conditions precedent to the obligations of the PCP Investor to purchase
certain subordinated notes of the Company under the Subordinated Note Agreement is that the
Company, the other Investors and the Common Stockholders whose consent is required to amend the
February Agreement enter into this Agreement with the PCP Investor under which the PCP Investor
will become an “Investor” as defined in this Agreement.

     WHEREAS, in connection therewith, the parties desire to amend and restate the February
Agreement in its entirety.

     NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the
parties hereto agree as follows:

ARTICLE I

DEFINITIONS

     “Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules
and Regulations under the Exchange Act, and shall include, with respect to any Investor, any
managed account, investment fund or other vehicle for which such Investor or any Affiliate or such
Investor acts as an investment advisor or portfolio manager.

-1-

 

     “Amended and Restated Certificate of Incorporation” shall mean the Third Amended and
Restated Certificate of Incorporation of the Company as filed with the Delaware Secretary of State
concurrently with the execution hereof and attached hereto as Exhibit A.

     “As-Converted Basis” shall mean, for the purpose of determining the number of shares of
Common Stock outstanding, a basis of calculation which takes into account (a) the number of shares
of Common Stock actually issued and outstanding at the time of such determination, and (b) the
number of shares of Common Stock that is then issuable upon the exercise or conversion of all
outstanding securities or rights convertible into or exercisable for Common Stock, including
without limitation, the Series A Preferred Stock and the Warrants, and the number of shares of
Common Stock that would be issuable upon the conversion of the Series A Preferred Stock then
issuable upon exercise of the PCP Warrants, but excluding stock options and any other warrants for
the purchase of any shares of Common Stock or Series A Preferred Stock.

     “Bain Capital” means Bain Capital Venture Fund, L.P.

     “Battery Ventures” means Battery Ventures VI, L.P.

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

     “Common Stockholders” has the meaning assigned to it in the introductory paragraph of this
Agreement.

     “Equity Securities” means (i) any Common Stock, preferred stock or other equity security of
the Company, (ii) any security convertible, with or without consideration, into any
Common Stock, preferred stock or other equity security (including any option to purchase such a
convertible security), (iii) any security carrying any warrant or right to subscribe to or
purchase any Common Stock, preferred stock or other equity security, or (iv) any such warrant or
right.

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

     “FAC LLC Agreement” means
the Amended and Restated Limited Liability Company Agreement of FAC Acquisition, LLC, effective as of September 15, 2002,
 by and among Petters
Company, Inc. (“PCI”), Thomas J. Petters and Theodore Deikel.

     “FDM Option Agreement” means
 the Agreement Regarding FDM and FAC, dated as of April 7,2003,
by and among Petters Company, Inc., Thomas J. Petters, Theodore Deikel, and FAC
Acquisition, LLC, as amended on February 24, 2004.

     “Investor Rights Agreement” means the Amended and Restated Investor Rights Agreement,
dated as of the date hereof, by and among the Company and the Investors.

     “Investors” has the meaning assigned to it in the introductory paragraph of this
Agreement.

     “Permitted Transferee” means any of the following Persons to whom or to which a Stockholder
Transfers any Shares: (a) an Affiliate of the Transferring Stockholder or any partner,

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member or other owner of the Transferring Stockholder; (b) a family member of the Transferring
Stockholder or a trust established for the benefit thereof; (c) a transferee of the Transferring
Stockholder by will or the laws of intestate succession; (d) the Company with respect to any Series
A Preferred Stock or Warrant held by CIGPF I Corp. or any PCP Investor, being redeemed pursuant to
a Redemption Request (as defined in the Amended and Restated Certificate of Incorporation); (e) in
the case of Theodore Deikel, (i) Thomas J. Petters or (ii) PCI, in each case solely on the terms
and subject to the conditions set forth in the FDM Option Agreement; and (f) in the case of Thomas
J. Petters or PCI, (i) Theodore Deikel, solely on the terms and subject to the conditions set forth
in the FDM Option Agreement and (ii) up to twenty-five (25) Persons who are employees of any
Affiliates of Petters Company, Inc. for an aggregate maximum number of Shares equal to fifteen (15)
percent of the shares of Common Stock owned by PCI on an As-Converted Basis; provided, however,
that in order to be deemed a Permitted Transferee, (A) each such employee receiving Shares shall be
required to execute (1) an irrevocable proxy coupled with an interest in favor of Thomas J.
Petters to vote his, her or its Shares and a limited irrevocable power-of-attorney coupled
with an interest in favor of Thomas J. Petters to execute in the name of such
transferee a written consent in lieu of a meeting of the Stockholders (such proxy and
power-of-attorney, the “Voting Documents”), and (2) an agreement to condition any subsequent
transfer of such Shares on the proposed transferee executing the Voting Documents prior to such
transfer, and (B) each certificate representing the Shares transferred to any such employee must be
endorsed with a legend containing the foregoing transfer restrictions.

     “Person” shall be construed broadly and shall include without limitation an individual, a
partnership, a corporation, an association, a joint stock corporation, a limited liability
corporation, a trust, a joint venture, an unincorporated organization and a governmental authority.

     “PCP Investor” has the meaning assigned to it in the recitals to this Agreement.

     “Pro Rata Share” means, in the case of each Investor, the ratio of (a) the number of shares of
Common Stock owned by such Investor on an As-Converted Basis immediately prior to the issuance of
any Equity Securities subject to Purchase Rights (as defined in Section 3.1 hereof) to (b) the
total number of shares of the Company’s Common Stock outstanding on an As-Converted Basis
immediately prior to the issuance of such Equity Securities.

     “Prospective Buyer” shall mean any Person proposing to purchase Shares from a Prospective
Selling Investor.

     “Qualified Public Offering” means an underwritten public offering of shares of Common Stock in
which the aggregate net proceeds to the Company equal or exceed $50 million and the public offering
price per share is not less than $0.31 533 (as adjusted appropriately in the event of any
subdivision, combination, reorganization, recapitalization, reclassification, stock dividend or
similar event affecting the Common Stock) and after which the Common Stock is listed on the New
York Stock Exchange or the Nasdaq National Market.

     “Sale of the Company” means (i) a sale of all or substantially all of the assets of the
Company, (ii) an acquisition of the Company by one or more persons or entities by means of any

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transaction or series of related transactions (including any reorganization, merger,
consolidation) where the voting securities of the Company outstanding immediately preceding such
transaction or the voting securities issued with respect to the voting securities of the Company
outstanding immediately preceding such transaction represent less than 50% of the voting securities
of the Company or surviving entity, as the case may be, following such transaction, or (iii) a
transaction or series of related transactions resulting in the transfer of shares representing more
than 50% of the voting securities of the Company. A sale (or multiple related sales) of one or more
subsidiaries of the Company (whether by way of merger, consolidation, reorganization or sale of all
or substantially all assets or securities) which constitutes all or substantially all of the
consolidated assets of the Company shall be deemed a sale of substantially all the assets of the
Company for purposes of the foregoing definition.

     “Series A Preferred Stock” means the Series A Convertible Preferred Stock, par value $0.00001
per share, of the Company.

     “Shares” shall mean shares of Common Stock and Series A Preferred Stock, and warrants for the
purchase of any shares of Common Stock and Series A Preferred Stock.

     “Stockholder” shall mean an Investor or Common Stockholder.

     “Transfer” shall mean any sale, assignment, encumbrance, hypothecation, pledge, conveyance in
trust, gift, transfer by bequest, devise or descent, or other transfer or disposition of any kind,
including, but not limited to, transfers to receivers, levying creditors, trustees or receivers in
bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by
operation of law, directly or indirectly, of any Shares.

     “Warrants” shall mean warrants to purchase Common Stock issued to Epsilon Global Equities
Limited, CIGPF I Corp., Piper Jaffray & Co. and Cherry Tree Securities, LLC and the PCP
Warrants.

ARTICLE II

VOTING AGREEMENT

2.1 Election of Directors

          (a) The Stockholders agree to vote all shares of Common Stock, Series A Preferred Stock
and any other shares of voting securities of the Company now owned or hereafter acquired or
controlled by them (collectively, the “Voting Securities”), attend all meetings whether in person
or by proxy, and otherwise to use their respective best efforts as stockholders or directors of the
Company, to cause and maintain the size of the Board of Directors to be eight (8) (except as
provided below), and to cause and maintain the election to the Board of Directors of the Company
of:

          (i) two (2) individuals designated by the holders of a majority of the outstanding
 shares of Series A Preferred Stock held by Bain Capital, Battery Ventures and their
Affiliates (collectively, the ‘Preferred Directors”); provided, that (A) for so long as

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Bain Capital and its Affiliates own any shares of Series A Preferred Stock (or Common
Stock issued on conversion thereof), Bain Capital shall be entitled to designate one
Preferred Director (the “Bain Director”), and (B) for so long as Battery Ventures and its
Affiliates own any shares of Series A Preferred Stock (or Common Stock issued on conversion
thereof), Battery Ventures shall be entitled to designate the other Preferred Director(the
“Battery Director”);

          (ii) for so long as Thomas J. Petters or any of his Affiliates owns any shares of the
Series A Preferred Stock or Common Stock issued on conversion thereof, two (2) individuals
designated by Thomas J. Petters (each, a “Petters Director,” and collectively, the ‘Petters
Directors”);

          (iii) the Chief Executive Officer of the Company, who shall initially be Brian Smith;
and

          (iv) three (3) individuals, each with relevant experience in the same industry as the
Company, designated by seventy five percent (75%) of the directors designated pursuant to
subsections (i) and (ii) of this Section 2.1(a), including both Preferred Directors, it
being understood that such individuals shall not otherwise be affiliated with the Company
or any of the Investors.

For so long as any shares of the Series A Preferred Stock remain outstanding, the directors
designated pursuant to Section 2.1(a)(i) shall be the “Series A Directors” as defined in the
Amended and Restated Certificate of Incorporation.

          (b) No party hereto shall vote to remove any member of the Board of Directors designated in
accordance with the procedures set forth in Section 2.1(a); provided, however that if the parties
originally designating a director as provided in Section 2.1(a) elect to remove such director, the
parties hereto agree to vote to remove such director from the Board of Directors of the Company.

          (c) Any vacancy on the Board of Directors created by the resignation, removal, incapacity or
death of any director designated under Section 2.1(a) shall be filled by another person designated
by the parties originally designating such director, so long as such originally designating parties
are entitled to make such designation pursuant to Section 2.1(a).

          (d) The Company shall promptly take any and all actions in its power necessary to cause the
election, appointment or removal of any person designated to the Board of Directors in accordance
with this Section 2.1.

2.2 Committees; Subsidiaries

          (a) Each Stockholder shall use all reasonable efforts to cause each director of the Company
originally nominated by such Stockholder to take, and the Company shall take, such corporate
actions as may be reasonably required to ensure that (i) the Board of Directors has at all times a
compensation committee and an audit committee, and (ii) both the Bain Director and the Battery
Director shall be appointed to each such committee and to any committee of the Board of Directors
existing on the date hereof or created in the future. The approval of the

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compensation committee shall be required for all increases in executive compensation,
executive bonuses and all option grants (including the vesting schedules with respect to such
option grants). The approval of the audit committee shall be required for the engagement of the
Company’s auditors and prior to the issuance of the audit each year.

          (b) The Company and each Stockholder shall take, and each Stockholder shall use all reasonable
efforts to cause each director of the Company originally nominated by such Stockholder to take,
such corporate actions as may be reasonably required to ensure that the composition of the board of
directors of all direct and indirect subsidiaries of the Company is identical to the composition of
the Board of Directors to the extent practicable.

2.3 Organization of Board of Directors. Unless the Investors holding seventy five percent
(75%) of the then outstanding Series A Preferred Stock otherwise agree, the Board of Directors of
the Company shall be organized and maintained such that Brian Smith shall be the Chief Executive
Officer of the Company. The Chief Executive Officer of the Company shall serve as a member of the
Board of Directors and shall be responsible for managing the operations of the Company and for
leading, coordinating, and organizing the agenda for, all meetings of the Board of Directors.

2.4 Grant of Proxy

          (a) Each Stockholder hereby grants to a Person designated from time to time by the holders of
a majority of the then outstanding Series A Preferred Stock held by Bain Capital, Battery Ventures
and their Affiliates, an irrevocable proxy coupled with an interest to vote his, her or its Voting
Securities, and limited irrevocable power-of-attorney, coupled with an interest, to execute in the
name of such Stockholder a written consent in lieu of a meeting of the Stockholders which proxy and
power-of-attorney shall be valid and remain in effect until the provisions of this Article II
expire pursuant to Section 7.5, for the sole purpose of electing or removing a Preferred Director
in accordance with the rights granted under Section 2.1(a)(i).

          (b) Each Stockholder hereby grants to a Person designated from time to time by Thomas
J. Petters, an irrevocable proxy coupled with an interest to vote his, her or its
Voting Securities, and limited irrevocable power-of-attorney, coupled with an interest, to execute
in the name of such Stockholder a written consent in lieu of a meeting of the Stockholders, which
proxy and power-of-attorney shall be valid and remain in effect until the provisions of this
Article II expire pursuant to Section 7.5, for the sole purpose of electing or removing a Petters
Director in accordance with the rights granted under Section 2.1(a)(ii).

2.5 Prohibited Actions. To the extent permitted by law, the Company agrees not to give effect to
any action by any Stockholder or any other Person that is in contravention of this Article II.

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ARTICLE III

PURCHASE RIGHTS

3.1 Subsequent Offerings. Each Investor shall have a right of first refusal (the “Purchase Rights”)
to purchase its Pro Rata Share of all Equity Securities, that the Company may, from time to time,
propose to sell and issue after the date of this Agreement, other than the Equity Securities
excluded by Section 3.6 hereof.

3.2 Exercise of Rights

          (a) If the Company proposes to issue any Equity Securities, it shall first give each Investor
written notice of its intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Investor shall have thirty (30)
days from the giving of such notice to agree to purchase its Pro Rata Share of the Equity
Securities for the price and upon the terms and conditions specified in the notice by giving
written notice to the Company (the “Company Notice”) and stating therein the quantity of Equity
Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to
offer or sell such Equity Securities to any Investor who would cause the Company to be in violation
of applicable federal securities laws by virtue of such offer or sale or to not qualify for an
exemption from the registration requirements of such securities laws on which the Company wishes to
rely.

          (b) If not all of the Investors elect to purchase their Pro Rata Share of the Equity
Securities, then the Company shall promptly notify in writing the Investors who do so elect and
shall offer such Investors (the “Purchasing Investors”) the right to acquire such unsubscribed
shares. Each Purchasing Investor shall have fifteen (15) days after receipt of such notice to
notify the Company (the “Purchasing Investor Notice”) of its election to purchase all or a portion
thereof of the unsubscribed shares. If the Purchasing Investors have, in the aggregate, elected to
purchase more than the number of unsubscribed shares being offered in such notice, then the
unsubscribed shares shall be allocated according to each Purchasing Investor’s Pro Rata Share up to
the number of unsubscribed shares set forth in the notice to the Purchasing Investors, provided
that for purposes of this Section 3.2(b). The denominator in clause (b) of the defined term “Pro
Rata Share” shall be the total number of shares of Common Stock owned by all the Purchasing
Investors on an As-Converted Basis. The Purchasing Investors shall then effect the purchase of the
Equity Securities at the closing of the issuance of Equity Securities described in the notice
delivered by the Company pursuant to Section 3.2(a). On the date of such closing, the Company shall
deliver to the Purchasing Investors the certificates representing the Equity Securities to be
purchased by the Purchasing Investors, each certificate to be properly endorsed for transfer, and
at such time, the Purchasing Investors shall pay the purchase price for the Equity Securities.

3.3 Issuance of Equity Securities to Other Persons. If the Investors fall to exercise in full
their Purchase Rights, the Company shall have sixty (60) days thereafter to sell the Equity
Securities in respect of which the Investors’ rights were not exercised, at a price and upon
general terms and conditions no more favorable to the purchasers thereof than specified in the
Company’s notice to the Investors pursuant to Section 3.2 hereof. If the Company has not sold

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such Equity Securities within sixty (60) days of the notice provided pursuant to Section 3.2,
the Company shall not thereafter issue or sell any Equity Securities without first again complying
with this Article III.

3.4 Termination and Waiver of Purchase Rights. The Purchase Rights established by this Article III
shall terminate immediately following the closing of a Qualified Public Offering. The Purchase
Rights established by this Article III may be amended, or any provision waived, with the written
consent of (i) the Investors holding at least seventy five percent (75%) of the then outstanding
Series A Preferred Stock; (ii) the Investor holding the Warrant issued to CIGPF I Corp. (the
“Warrant Investor”), as long as such Warrant is held by CIGPF I Corp. or its Permitted Transferee,
and is exercisable for at least seventy five percent (75%) of the Common Stock originally issuable
upon exercise of the Warrant, provided, however, that consent of the Warrant Investor shall not be
required for any amendment or waiver of any provision of Article III unless such amendment or
waiver affects the Warrant Investor or the Warrant Investor’s Shares in a manner different than the
Investors that were originally issued Series A Preferred Stock or the Series A Preferred Stock and
in a manner adverse to the interests of the Warrant Investor as an equity investor in the Company,
it being understood that no such consent shall be required for an amendment or waiver that
adversely affects the Warrant Investor and the Investors that were originally issued Series A
Preferred Stock in a similar manner given their relative and different equity interests in the
Company; and (iii) the PCP Investor, if required under Section 7.14.

3.5 Transfer of Purchase Rights. The Purchase Rights of each Investor under this Article III
may be transferred to any Affiliate of such Investor or in connection with a Transfer of Shares
made in compliance with the provisions of Article IV hereof; provided, that any such transferee
shall furnish the Company and the Investors with a written agreement, reasonably satisfactory to
the Investors, to be bound by and comply with all provisions of this Agreement as if such
transferee were an Investor.

3.6 Excluded Securities. The Purchase Rights established by this Article III shall have no
application to any of the following Equity Securities (collectively, the “Excluded Securities”):

          (a) shares of Common Stock issued in connection with any stock split, stock dividend or
recapitalization by the Company;

          (b) up to 115,497,051 shares of Common Stock (and/or options, warrants or other Common Stock
purchase rights issued pursuant to such options, warrants or other rights) issued to employees,
officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to
stock purchase or stock option plans or other arrangements that are approved by the Board of
Directors;

          (c) any Equity Securities issued pursuant to any rights or agreements outstanding as of the
date of this Agreement or upon the conversion of any Equity Security issued pursuant to any such
rights or agreements (including any Series A Preferred Stock issued upon the exercise of any
Warrant or any Common Stock issued upon the conversion of any such Series A Preferred Stock);
options and warrants (including the Warrants) outstanding as of the date of this Agreement and
stock issued pursuant to any such rights or agreements sold or

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granted after the date of this Agreement, provided, however, that the Purchase Rights
established by this Article III shall apply with respect to the initial sale or grant by the
Company of such rights or agreements;

          (d) any Equity Securities issued in connection with business acquisitions, mergers or
strategic partnerships approved by the Board of Directors and the Investors holding seventy five
percent (75%) of the Series A Preferred Stock;

          (e) any Common Stock issued upon conversion of the Series A Preferred Stock;

          (f) any Common Stock issued pursuant to an initial public offering (“IPO Common Stock”);
provided, however, that IPO Common Stock shall not be deemed to be Excluded Securities with respect
to the availability of the Investors’ Purchase Rights in this Article III unless the Investors and
their Affiliates are offered the right to purchase their pro rata share of up to five percent (5%)
of the shares of Common Stock offered in such offering at the offering price per share net of
underwriters’ commissions or discounts; or

          (g) any other Equity Securities designated as Excluded Securities by (i) the Investors holding
seventy five percent (75%) of the then outstanding Series A Preferred Stock; (ii) the Warrant
Investor, as long as such Warrant is held by CIGPF I Corp. or its Permitted Transferee, and is
exercisable for at least seventy five percent (75%) of the Common Stock originally issuable upon
exercise of the Warrant, provided, however, that consent of the Warrant Investor shall not be
required for the designation of Excluded Securities unless such designation affects the Warrant
Investor or the Warrant Investor’s Shares in a manner different than the Investors that were
originally issued Series A Preferred Stock or the Series A Preferred Stock and in a manner adverse
to the interests of the Warrant Investor as an equity investor in the Company, it being understood
that no such consent shall be required for a designation of Excluded Securities that adversely
affects the Warrant Investor and the Investors that were originally issued Series A Preferred Stock
in a similar manner given their relative and different equity interests in the Company; and (iii)
the PCP Investor, if required under Section 7.14.

ARTICLE IV

RIGHTS OF FIRST REFUSAL AND CO-SALE RIGHTS

4.1 Notice of Transfer. No Stockholder (a “Selling Stockholder”) may Transfer any
Shares other than as set forth in Section 5.1 hereof unless (i) such Selling Stockholder shall have
received a bona-fide arm’s length offer (an “Offer”) to purchase such Shares from a third party who
has agreed to become party to this Agreement and to be bound by all the terms and conditions hereof
and who the Selling Stockholder reasonably believes has the financial capacity to fund such
purchase, (ii) such Selling Stockholder gives written notice (the “Notice”) to each of the
Investors and the Company at least thirty (30) days prior to the closing of such proposed Transfer
as described below, and (iii) such Selling Stockholder otherwise complies with this Article IV. The
Notice shall describe in reasonable detail the proposed Transfer including, without limitation, the
number and class or series of Shares to be transferred (the “Offered

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Shares”), the nature of such Transfer, the consideration to be paid, and the name and
address of each prospective purchaser or transferee.

4.2 Right of First Refusal and Co-Sale Rights

          (a) For a period often (10) days following receipt of any Notice, the Company shall have
the right (the “Company Refusal Right”) upon written notice to the Selling Stockholder to elect to
purchase all or any part of the Offered Shares on the same terms and conditions set forth in the
Notice, and for a period of twenty (20) days following the receipt of the Notice, each Investor
shall have, upon written notice to the Selling Stockholder, either (a) the right (the “Right of
First Refusal”), subject to the Company Refusal Right, to elect to purchase all or any part of the
Offered Shares on the same terms and conditions as set forth in the Notice; or (b) except with
respect to a PCP Investor, CIGPF I Corp. or any Permitted Transferee thereof that is the Selling
Stockholder and that holds less than 5% of the Common Stock on an As-Converted Basis, the right
(the “Co-Sale Right”) to elect to sell on such terms all or any part of that number of Shares then
owned by such Investor (the “Co-Sale Shares”) equal to the product obtained by multiplying (i) the
aggregate number of Offered Shares by (ii) a fraction the numerator of which is the number of
shares of Common Stock owned by all of the Investors (on an As-Converted Basis) and the denominator
of which is the total number of shares of Common Stock owned by the Selling Stockholder and all of
the Investors (on an As-Converted Basis). Notwithstanding the foregoing, if the Selling Shareholder
is a PCP Investor, CIGPF I Corp. or a Permitted Transferee thereof and such Selling Shareholder
holds less than 5% of the Common Stock on an As-Converted Basis, the Company Refusal Right and the
Right of First Refusal shall be applicable to all, but not less than all, of the Offered Shares.

          (b) If the Company does not elect to purchase all of the Offered Shares within the ten (10)
day period specified above, the Selling Stockholders shall promptly give written notice to the
Investors setting forth the number of Offered Shares not purchased by the Company (the “Remaining
Shares”). The Remaining Shares shall be allocated among the Investors who have exercised the Right
of First Refusal (the “Participating Investors”) as follows: there shall first be allocated to each
Participating Investor a number of Remaining Shares equal to the lesser of (i) the number of
Remaining Shares which the Participating Investor has elected to purchase and (ii) such
Participating Investor’s Refusal Right Pro Rata Share (as defined below) of the Remaining Shares.
The balance of the Remaining Shares which the Participating Investors have elected to purchase
shall be allocated to the Participating Investors who have elected to purchase more than their
Refusal Right Pro Rata Share of the Remaining Shares pro rata based on the number of Remaining
Shares which each Participating Investor has elected to purchase in excess of such Participating
Investor’s Refusal Right Pro Rata Share of the Remaining Shares. Each Participating Investor’s
“Refusal Right Pro Rata Share” shall be equal to the fraction (i) the numerator of which is the
number of shares of Common Stock owned by such Participating Investor (on an As-Converted Basis)
and (ii) the denominator of which is the total number of shares of Common Stock owned
by all of the Participating Investors (on an As-Converted Basis). In the event the Company or the
Participating Investors do not elect to purchase all of the Offered Shares of a Selling Shareholder
that is a PCP Investor, CIGPF I Corp. or a Permitted Transferee thereof and who holds less than 5%
of the Common Stock on an As-Converted Basis, then none of the Offered Shares shall be subject to
any purchase rights of the Company or any Investor.

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          (c) Except
with respect to a Selling Shareholder that is a PCP Investor, CIGPF I Corp
or a Permitted Transferee thereof and that holds less than 5% of the Common Stock on an
As-Converted Basis, each Investor who has exercised the Co-Sale Right (a “Co-Sale Participant”)
shall be entitled to sell a number of Co-Sale Shares equal to the lesser of (a) the number of
Offered Shares which the Co-Sale Participant has elected to sell and (b) such Co-Sale Participant’s
Co-Sale Pro Rata Share of the Offered Shares which are not purchased by the Company pursuant to the
Company Refusal Right or by the Participating Investors pursuant to the Right of First Refusal (the
“Co-Sale Remaining Shares”). Each Participant’s “Co-Sale Pro Rata Share” shall be equal to: the
fraction (i) the numerator of which is the number of shares of Common Stock owned by such Co-Sale
Participant (on an As-Converted Basis) and (ii) the denominator of which is the total number of
shares of Common Stock owned by the Selling Stockholder and all of the Investors (on As-Converted
Basis).

          (d) Any proposed Transfer at a different price or on terms and conditions more favorable to
the transferee(s) than specified in the Notice, or not completed within the time specified in this
Section 4.2, as well as any subsequent proposed Transfer of any Shares by a Stockholder, shall
again be subject to the Company Refusal Right and the Right of First Refusal and Co-Sale Rights of
the Investors, and shall require compliance by the Selling Stockholder with the procedures
described in this Article IV.

          (e) The exercise or non-exercise of the Right of First Refusal or the Co-Sale Rights by the
Investors in respect of one or more Transfers of Shares made by any Selling Stockholder shall not
adversely affect their rights to participate in subsequent Transfers of Shares subject to this
Article IV.

4.3 Transfer Mechanics

          (a) If (i) the Company and/or the Participating Investors elect to purchase all of the Offered
Shares subject to the Notice or (ii) the Company and/or the Participating Investors elect to
purchase less than all the Offered Shares and the prospective purchaser identified in the Notice
does not agree to purchase any of the Offered Shares not so purchased, the following provisions
shall apply: The Company and/or Participating Investors shall effect the purchase of the Offered
Shares and/or Remaining Shares on a date specified by the Selling Stockholder by notice to the
Company and/or the Participating Investors not earlier than the later of (x) ten (10) days after
such notice or (y) thirty (30) days after the receipt of the Notice by the Investors. On the date
of such purchase, the Selling Stockholder shall deliver to the Company and/or the Participating
Investors, as applicable, the certificates representing the Shares to be purchased by the Company
and/or the Participating Investors, each certificate to be properly endorsed for transfer, in
exchange for payment by the Company and/or the Participating Investors, as applicable, of the
purchase price for the Shares.

          (b) If (i) the Company and the Participating Investors do not elect to purchase any of the
Offered Shares or (ii) the Company and/or the Participating Investors elect to purchase less than
all of the Offered Shares and the prospective purchaser agrees to purchase less than all of the
Offered Shares, the following provisions shall apply: The Selling Stockholder may, not later than
forty (40) days following delivery to the Company and each of the Investors of the Notice, enter
into an agreement providing for the closing of the Transfer to the third party

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purchaser(s) identified in the Notice of any Offered Shares with respect to which neither the
Company Refusal Right nor the Right of First Refusal has been exercised, together with the closing
of the purchase of any Shares to be sold by any Co-Sale Participant, such purchase to occur within
thirty (30) days of such agreement at a price and on terms and conditions no more favorable to the
transferee(s) thereof than specified in the Notice. Simultaneously with such purchase there shall
occur the purchase of any Shares with respect to which the Company Refusal Right or the Right of
First Refusal has been exercised. On the date of such purchase, each Co-Sale Participant shall be
paid that portion of the sale proceeds to which such Co-Sale Participant is entitled by reason of
its participation in such sale and the Company and/or each Participating Investor, as applicable,
shall pay the Selling Stockholder the purchase price to be paid by such Person for the Offered
Shares purchased by them. Upon receipt of such payment, each Co-Sale Participant shall promptly
deliver to the Selling Stockholder for Transfer to the prospective purchaser(s) and, if applicable,
the Selling Stockholder shall deliver to the Company and/or the Participating Investors, one or
more certificates properly endorsed for transfer which represent the Shares to be sold by each such
Person pursuant to this Article IV To the extent that any prospective purchaser or purchasers
prohibits such assignment or otherwise refuses to purchase Shares from a Co-Sale Participant
exercising its Co-Sale Rights hereunder, such Selling Stockholder shall not sell to such
prospective purchaser or purchasers any Shares unless and until, simultaneously with such sale,
such Selling Stockholder shall purchase such Shares from such Co-Sale Participant on the same terms
and conditions specified in the Notice.

          (c) If the consideration to be paid for the Shares by the third party purchaser shall be
other than cash, the Company or the Participating Investors, as applicable, exercising the Company
Refusal Right or the Right of First Refusal may in lieu of such consideration pay cash equal to the
fair market value of such consideration as mutually agreed between the Selling Stockholder and the
holders of a majority of the Shares as to which the Right of First Refusal and Company Refusal
Right have been exercised. If such mutual agreement cannot be reached, the Appraisal Procedure set
forth in the Company’s Amended and Restated Certificate of Incorporation shall be followed mutatis
mutandis and the time periods in Article 4.2 shall be extended by the time needed to determine such
fair value.

ARTICLE V

GENERAL PROVISIONS CONCERNING TRANSFERS

5.1 Exempt Transfers

          (a) A Stockholder may Transfer Shares without complying with the provisions of Article IV if
such Transfer is to any Permitted Transferee; provided that in the event of any Transfer made
pursuant to this Section 5.1, (A) the Transferring Stockholder shall inform the Company and the
Investors of such Transfer prior to effecting it, and (B) the transferee shall furnish the Company
with a written agreement, reasonably satisfactory to the Company, to be bound by and comply with
all provisions of this Agreement as if such transferee were a Common Stockholder or Investor, as
the case may be, based on the status of the Transferring Stockholder. Such Transferred Shares shall
remain Shares hereunder.

-12-

 

          (b) Notwithstanding the foregoing, the provisions of Article IV hereof shall not apply to
the sale of any Shares to the public pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under Securities Act of 1933, as amended (the
“Securities Act”).

5.2 FDM Option Agreement. Each of Petters Company, Inc., Thomas J. Petters,
Theodore Deikel and FAC Acquisition, LLC agrees not to amend or waive any provision of the FDM
Option Agreement without the prior written consent of (i) the Investors holding seventy five
percent (75%) of the Series A Preferred Stock owned by Investors other than the parties to the FDM
Option Agreement; (ii) the Warrant Investor, as long as such Warrant is held by CIGPF I Corp. or
its Permitted Transferee, and is exercisable for at least seventy five percent (75%) of the Common
Stock originally issuable upon exercise of the Warrant, provided, however, that consent of the
Warrant Investor shall not be required for any amendment or waiver of any provision of the FDM
Option Agreement unless such amendment or waiver affects the Warrant Investor or the Warrant
Investor’s Shares in a manner different than the Investors that were originally issued Series A
Preferred Stock or the Series A Preferred Stock and in a manner adverse to the interests of the
Warrant Investor as an equity investor in the Company, it being understood that no such consent
shall be required for an amendment or waiver that adversely affects the Warrant Investor and the
Investors that were originally issued Series A Preferred Stock in a similar manner given their
relative and different equity interests in the Company; and (iii) the PCP Investor, if required
under Section 7.14.

5.3 FAC Acquisition, LLC. Thomas J. Petters agrees that he shall remain the Manager (as defined in
the FAC LLC Agreement) of FAC Acquisition, LLC until and unless the appointment of a different
Manager is approved by the Investors holding seventy five percent (75%) of the Series A Preferred
Stock owned by Investors other than the parties to the FAC LLC Agreement, and each of Petters
Company, Inc., Thomas J. Petters, and Theodore Deikel agrees not to amend or waive any provision of
the FAC LLC Agreement affecting the economic or voting rights of the parties thereto, except with
respect to any real estate assets acquired by FAC Acquisition, LLC from Fingerhut Companies, Inc.,
without the consent of (i) the Investors holding seventy five percent (75%) of the Series A
Preferred Stock owned by Investors other than the parties to the FAC LLC Agreement; (ii) the
Warrant Investor, as long as such Warrant is held by CIGPF I Corp. or its Permitted Transferee, and
is exercisable for at least seventy five percent (75%) of the Common Stock originally issuable upon
exercise of the Warrant, provided, however, that consent of the Warrant Investor shall not be
required for any amendment or waiver of any provision of the FAC LLC Agreement unless such
amendment or waiver affects the Warrant Investor or the Warrant Investor’s Shares in a manner
different than the Investors that were originally issued Series A Preferred Stock or the Series A
Preferred Stock and in a manner adverse to the interests of the Warrant Investor as an equity
investor in the Company, it being understood that no such consent shall be required for an
amendment or waiver that adversely affects the Warrant Investor and the Investors that were
originally issued Series A Preferred Stock in a similar manner given their relative and different
equity interests in the Company; and (iii) the PCP Investor, if required under Section 7.14.

5.4 Transfers to Competitors. Any other provision of this Agreement to the contrary
notwithstanding, prior to a Qualified Public Offering, no Transfer of Shares may be made by any

-13-

 

Stockholder to a competitor of the Company or any person or entity that invests in any such
competitor, as determined in good faith by the Board of Directors of the Company.

5.5 Stockholder Lockup Agreements in Connection with Initial Public Offering. Each
Stockholder agrees that, subject to any early release provisions that apply generally to
stockholders of the Company, it will not, if reasonably requested by the managing underwriter, for
a period of up to 180 days following the effective date of the registration statement for an
initial public offering directly or indirectly sell, offer to sell, grant any option for the sale
of, or otherwise dispose of any Common Stock or securities convertible into Common Stock, except
for (i) Registrable Securities (as defined in the Investor Rights Agreement) sold pursuant to such
registration statement, (ii) transactions relating to Common Stock or other securities acquired in
open market transactions after the completion of the initial public offering, and (iii)
Transfers to Affiliates, partners, members and stockholders of such Stockholder (each of whom
shall have furnished to the Company and the managing underwriter their written consent to be bound
by this Agreement and the Investor Rights Agreement), provided that the Company’s officers,
directors and all holders of more than 1% of the shares of Common Stock (calculated for this
purpose as if all securities convertible into or exercisable for Common Stock, directly or
indirectly, are so converted or exercised) of the Company enter such lockup agreements for the same
period and on the same terms, and provided further that any waiver or termination of the
prohibitions contained in this Section 5.5 by the Company or any underwriter shall apply to each
Stockholder.

5.6 Consequences of Prohibited Transfer. Any attempt by a Stockholder to Transfer
Shares in violation of the terms of this Agreement shall be void, and the Company agrees that it
will not effect such a Transfer nor will it treat any alleged transferee as the holder of such
Shares.

ARTICLE VI

LEGEND

6.1 Certificate Legend. Each certificate representing the Shares subject to the terms of
this Agreement shall be endorsed with the following legend or legend(s) containing substantially
similar information (in addition to any legend required under applicable securities laws or
otherwise):

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD
PURSUANT TO RULE 144 OR RULE 144A OF SUCH ACT. THE RIGHT TO VOTE AND THE SALE OR TRANSFER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF
A CERTAIN AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED MARCH 24, 2006 BY AND AMONG THE
HOLDER HEREOF AND OTHER STOCKHOLDERS OF THE

-14-

 

COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO
THE SECRETARY OF THE COMPANY.

This legend shall be removed upon termination of this Agreement. Each party to this Agreement
consents to the Company making a notation on its records and giving instructions to any transfer
agent of the Company’s securities and capital stock in order to implement the restrictions on
transfer established in this Agreement.

6.2 Transfer Restriction. The Stockholders agree that the Company may instruct its transfer
agent to impose transfer restrictions on Shares represented by certificates bearing the legend
referred to in Section 6.1 above to enforce the provisions of this Agreement and the Company agrees
to promptly do so. The legend shall be removed upon termination of this Agreement.

ARTICLE VII

MISCELLANEOUS

7.1 Governing Law. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.

7.2 Amendment

          (a) Except as otherwise expressly provided, any provision of this Agreement may be amended and
the observance thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only by the written consent given (i) as to the Company, only by
the Company; (ii) as to the Investors, only by (x) the Investors holding seventy five percent (75%)
of the then outstanding Series A Preferred Stock, (y) the Warrant Investor, as long as such Warrant
is held by CIGPF I Corp. or its Permitted Transferee, and is exercisable for at least seventy five
percent (75%) of the Common Stock originally issuable upon exercise
of the Warrant, provided,
however, that consent of the Warrant Investor shall not be required for any amendment or waiver of
any provision of this Agreement unless such amendment or waiver affects the Warrant Investor or the
Warrant Investor’s Shares in a manner different than the Investors that were originally issued
Series A Preferred Stock or the Series A Preferred Stock and in a manner adverse to the interests
of the Warrant Investor as an equity investor in the Company, it being understood that no such
consent shall be required for an amendment or waiver that adversely affects the Warrant Investor
and the Investors that were originally issued Series A Preferred Stock in a similar manner given
their relative and different equity interests in the Company and (z) the PCP Investor, if required
under Section 7.14; and (iii) as to the Common Stockholders, by persons holding a majority of the
Common Stock then outstanding; provided, however, that no consent from the Common Stockholders
shall be required for any amendment or waiver of any provision of this Agreement unless such
amendment or waiver creates additional obligations for or materially diminishes the rights of the
Common Stockholders under this Agreement; and provided further, however, that no consent of any
Investor or Common Stockholder shall be necessary for any amendment and/or restatement which is
solely for the purpose of including holders of Common Stock of the Company as “Common Stockholders”
and parties hereto.

-15-

 

          (b) Notwithstanding Section 7.2(a)(ii)(y) above or any other right of the Warrant
Investor to consent to adverse amendments, modifications and waivers as more specifically set forth
herein, no consent shall be required of the Warrant Investor for actions by the Company to
authorize and issue additional series of equity securities that are either (i) pari passu in
preference and right or (ii) senior in preference and right to the Series A Preferred Stock (with
the Company to deliver copies of such written consent to any Investors who did not execute the
same).

          (c) Notwithstanding Section 7.2(a)(iii) above, no consent from the Common Stockholders shall
be required for any amendment or waiver of any provision of this Agreement unless such amendment or
waiver creates additional obligations for or materially diminishes the rights of the Common
Stockholders under this Agreement; and provided further, however, that no consent of any Investor
or Common Stockholder shall be necessary for any amendment and/or restatement which is solely for
the purpose of including holders of Common Stock of the Company as “Common Stockholders” and
parties hereto.

          (d) Notwithstanding Section 7.2(a) above, no consent of any Common Stockholder shall be
necessary for any amendment and/or restatement that is solely for the purpose of including holders
of Series A Preferred Stock or other preferred stock of the Company as “Investors” and parties
hereto.

          ( e) The rights of each of Bain Capital and Battery Ventures to designate a director pursuant
to Section 2.1(a)(i) and to have a designated director on each committee of the Board of Directors
pursuant to Section 2.2 may not be amended, modified or waived in any manner without the prior
written consent of such designating Investor.

          (f) The right of Thomas J. Petters to designate directors pursuant to Section 2.1(a)(ii) may
not be amended, modified or waived in any manner without the prior written consent of Thomas J.
Petters.

          (g) Any amendment or waiver effected in accordance with this Section 7.2 shall be binding upon
each Investor, its successors and assigns, the Company and the Common Stockholders.

7.3 Benefits of Agreement. This Agreement and the rights and obligations of the parties
hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns
and legal representatives.

7.4 Term. This Agreement shall continue in full force and effect from the date hereof
through the earliest of the following dates, on which date it shall terminate in its entirety:

          (a) the date of the closing of a Qualified Public Offering; and

          (b) the date of the consummation of a Sale of the Company.

7.5 Ownership. Each Common Stockholder represents and warrants that he is the sole legal and
beneficial owner of those Shares he currently holds subject to this Agreement and that no other
person has any interest in such Shares.

-16-

 

7.6 Notices. All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be hand delivered or mailed postage prepaid by
registered or certified mail or by facsimile transmission to the Company at:

Fingerhut Direct Marketing,
Inc. 
4400 Baker Road 
Minnetonka, MN
55343 
Attention: Edward Wozniak

Facsimile No.: 952-294-2761

with a copy to:

Lindquist &
Vennum P.L.L.P. 
4200 IDS
Center 
80 South 8th Street

Minneapolis, MN 55402 
Attention:
Charles P. Moorse 
Facsimile No.:
612-371-3207

to each Investor at its address set forth on Exhibit A hereto with a copy to:

Ropes & Gray LLP 
One
International Place 
Boston,
Massachusetts 02110 
Attention: Joel F.
Freedman, Esq. 
Facsimile No.:
617-951-7050

to each Common Stockholder at its address set forth on Exhibit B hereto, or at such other
address as the Company or the Stockholders each may specify by written notice to the other parties
hereto. Any notice, request, consent and other communication shall for all purposes of the
Agreement be treated as being effective or having been given when delivered if delivered
personally, upon receipt of facsimile confirmation if transmitted by facsimile, or, if sent by
mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed and postage prepaid as
aforesaid. All communications shall be sent to the party to be notified at the address as set forth
on the signature page hereof or at such other address as such party may designate by ten (10) days
advance written notice to the other parties hereto.

7.7
Severability. If any provision of this Agreement shall be found by any court of competent
jurisdiction to be invalid or unenforceable, the parties hereby waive such provision to the extent
that it is found to be invalid or unenforceable. Such provision shall, to the maximum extent
allowable by law, be modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, all the other provisions hereof continuing in full force
and effect.

7.8
Entire Agreement. This Agreement constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no party shall

-17-

 

be liable or bound to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.

7.9 Counterparts; Facsimile Signatures. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the same effect as if
all parties had signed the same document. All such counterparts shall be deemed an original, shall
be construed together and shall constitute one and the same instrument. This Agreement shall become
effective when each party hereto shall have received counterparts hereof signed by all of the other
parties hereto.

7.10 Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE
WAIVED, THE INVESTORS AND THE COMPANY HEREBY WAIVE, AND COVENANT THAT NEITHER THE COMPANY NOR THE
INVESTORS WILL ASSERT, ANY RIGHT TO TRIAL BY JURY ON ANY ISSUE IN ANY
PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER AGREEMENT
OR THE SUBJECT MATTER HEREOF OR THEREOF OR IN ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL TO THE
DEALINGS OF THE INVESTORS AND THE COMPANY HEREUNDER OR THEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN
TORT OR CONTRACT OR OTHERWISE. The Company and Common Stockholders acknowledge that they have been
informed by the Investors that the provisions of this Section 7.10 constitute a material inducement
upon which the Investors are relying and will rely in entering into this Agreement. Any Investor,
Common Stockholder or the Company may file an original counterpart or a copy of this Section 7.10
with any court as written evidence of the consent of the Investors, Common Stockholders and the
Company to the waiver of its right to trial by jury.

7.11 Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the transactions
contemplated hereby shall be brought in any federal or state court located in the State of New
York, and each of the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably
waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to
the laying of the venue of any such suit, action or proceeding in any such court or that any such
suit, action or proceeding which is brought in any such court has been brought in an inconvenient
forum. Process in any such suit, action or proceeding may be served on any party anywhere in the
world, whether within or without the jurisdiction of any such court. Without limiting the
foregoing, each party agrees that service of process on such party as provided in Section 7.6 shall
be deemed effective service of process on such party.

7.12 Additional Stockholders. Unless otherwise directed by the Investors holding seventy five
percent (75%) of the then outstanding Series A Preferred Stock, the Company shall require any
Person who acquires any shares of capital stock of the Company from the Company to become a party
to this Agreement as a Common Stockholder by executing and delivering a counterpart of this
Agreement, except for any officer, director or employee of, or consultant to, the Company or any
Subsidiary who receives restricted stock or other stock-based awards or

-18-

 

exercises any stock options, provided that the terms of such award or option have been
approved by the Investors holding seventy five percent (75%) of the then outstanding Series A
Preferred Stock (including, without limitation, based on such award or option or other agreement
containing provisions regarding rights of first refusal and co-sale with respect to the shares
subject thereto).

7.13 Amendment to February Agreement. By execution and delivery of this Agreement, the Company
and each of the undersigned Stockholders who were parties to the February Agreement hereby approve
and consent to this Agreement as an amendment of the February Agreement approved in accordance with
Section 7.2 of the February Agreement. This Agreement supersedes and replaces in its entirety the
February Agreement.

7.14 PCP Investor Consent. Notwithstanding any provision of this Agreement, the Investor
Rights Agreement or the Amended and Restated Certificate of Incorporation (collectively, the
“Investor Documents”), the Company and each Stockholder agree that, excluding any actions under
Article II of this Agreement, each amendment, modification or supplement to, restatement of, or
waiver, approval, consent, determination, direction, election, acceptance or other agreement under
any Investor Document (each an “Investor Approval”) which is required to be given or made by the
holders of seventy-five percent (75%) of the then outstanding Series A Preferred Stock (the
“Approving Investors”) to be effective shall not be effective unless consented to in writing by the
PCP Investor or its Permitted Transferees, so long as the PCP Investor or its Permitted Transferees
hold (pursuant to the PCP Warrant, the Series A Preferred Stock issuable upon exercise thereof or
the Common Stock issuable upon conversion of the Series A Preferred Stock) at least 75% of the
shares of Common Stock, on an As-Converted Basis, originally issuable upon exercise of the PCP
Warrant, if either (a) such Investor Approval relates to or is given in connection with any
transaction in which any Approving Investor or any Affiliate of any such Approving Investor
(excluding an arms’ length transaction with a portfolio company of Bain or Battery Ventures which
is consented to by the PCP Investor or its Permitted Transferee, which consent shall not be
unreasonably withheld) is participating, other than supporting or approving such transaction as a
holder of Shares of the Company or as an officer or director of the Company, and other than
participation as a Stockholder under this Agreement or as an “Investor” under the Investor Rights
Agreement, provided, however, no consent of the PCP Investor shall be required if the PCP Investor
has been provided the opportunity to participate in such transaction in a proportionate and
otherwise similar manner to such Investor or (b) such Investor Approval does not have a like effect
upon all holders of each class of the Company’s capital stock, as compared to each other holder of
such class of capital stock, on a proportionate basis in accordance with the number of shares of
such class of capital stock held by each and for the purposes of the foregoing, the PCP Warrants
shall be deemed to be part of the class of the Series A Preferred Stock. Notwithstanding and in
addition to the foregoing, the Certificate of the Company (i) may be amended to decrease the annual
dividend rate on the Series A Preferred Stock provided for in Section 1.2 thereof without the
consent of the PCP Investor, and (ii) may not be amended to increase such annual dividend rate
without the consent of the PCP Investor.

[The remainder of this page has been intentionally left blank]

-19-

 

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year
first above written.

	 	 	 	 	 	 	 

	 	 	THE COMPANY	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT DIRECT MARKETING, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

Brian Smith
	 	 
	 

	 	Title:
	 	Chief Executive Officer and President	 	 

-20-

 

THE INVESTORS

	 	 	 	 	 	 	 	 	 

	BAIN CAPITAL VENTURE	 	BATTERY VENTURES	 	 
	FUND, L.P.	 	VI, L.P.	 	 
	By:

	 	Bain Capital Venture Partners, L.P
	 	By:
	 	Battery Partners, VI, LLC	 	 
	 	 	its general partner.	 	 	 	General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	Bain Capital Investors, LLC
	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 

	 	its general partner
	 	Name:	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	Name:	 	 	 	BATTERY INVESTMENT	 	 
	 

	 	 

	 	 	 	 	 	 
	Title:	 	Authorized Person	 	PARTNERS VI, LLC	 	 
	 
	 	 	 	 	 	 	 	 
	BCIP ASSOCIATES III, LLC	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	By:

	 	BCIP Associates III
	 	Name:	 	 	 	 
	 

	 	its manager
	 	Title:
	 	Member Manager	 	 
	 
	 	 	 	 	 	 	 	 
	BCIP ASSOCIATES III-B, LLC	 	 	 	 	 	 
	By:	 	BCIP Associates III-B	 	Kermit L. Stofer	 	 
	 

	 	its manager	 	 	 	 	 	 
	 	 	 	 	PETTERS COMPANY, INC.	 	 
	By:

	 	Bain Capital Investors, LLC	 	 	 	 	 	 
	 

	 	their Managing Partner
	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	Name:	 	 	 	 
	By:

	 	 	 	Title:	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	Title:	 	Authorized Person	 	FAC ACQUISITION, LLC	 	 
	 
	 	 	 	 	 	 	 	 
	BROOKSIDE CAPITAL PARTNERS	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 
	FUND, L.P.	 	Name:	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 
	 	 	 	 	RTB HOLDINGS, LLC	 	 
	Title:
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	RGIP,

	 	LLC
	 	Name:	 	 	 	 
	 

	 	 	 	Title:	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 	 	 	 	   	 	 
	Name:	 	 	 	Theodore Deikel	 	 
	Title:
	 	 	 	 	 	 	 	 
	 	 	 	 	   	 	 
	 	 	 	 	Brian Smith	 	 

-21-

 

	 	 	 	 	 	 	 	 	 

	EPSILON GLOBAL	 	PRUDENTIAL CAPITAL	 	 
	EQUITIES LIMITED	 	PARTNERS II, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	By:
	 	Stetson Street Partners, L.P.,	 	 
	 

	 	 

	 	 	 	 	 	 
	Name:

	 	 	 	 	 	its general partner	 	 
	Title:
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

Vice President
	 	 
	 
	 	 	 	 	 	 	 	 
	CIGPF I CORP.	 	PRUDENTIAL CAPITAL PARTNERS	 	 
	 	 	 	 	MANAGEMENT FUND II, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	By:
	 	Mulberry Street Holdings, LLC,	 	 
	 

	 	 

	 	 	 	 	 	 
	Name:

	 	 	 	 	 	its general partner	 	 
	Title:
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	Prudential Investment Management,	 	 
	 

	 	 	 	 	 	Inc., its managing member	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

Vice President
	 	 
	 
	 	 	 	 	 	 	 	 
	CHERRY TREE SECURITIES, LLC	 	PRUDENTIAL CAPITAL PARTNERS	 	 
	 	 	 	 	(PARALLEL FUND) II, L.P.	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	 	 	By:
	 	Stetson Street Partners, L.P.,	 	 
	 

	 	 

	 	 	 	 	 	 
	Name:

	 	 	 	 	 	its general partner	 	 
	Title:
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:	 	 	 	 
	 

	 	 	 	 	 	 

Vice President
	 	 
	 
	 	 	 	 	 	 	 	 
	PIPER JAFFRAY & CO	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	Name:
	 	 	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 

-22-

 

THE COMMON STOCKHOLDERS

NONE

-23-

 

	 	 	Exhibit A

NAMES AND ADDRESSES OF INVESTORS

	 	 	 

	BAIN CAP IT AL VENTURE FUND, L.P.

	 	PETTERS COMPANY, INC.
	BCIP ASSOCIATES III, LLC

	 	FAC ACQUISITION, LLC
	BCIP ASSOCIATES III-B, LLC

	 	RTB HOLDINGS, LLC
	c/o Bain Capital, LLC

	 	4400 Baker Road
	111 Huntington Avenue

	 	Minnetonka, MN 55343
	Boston, MA 02199

	 	Phone: 952-932-3161
	Phone: 617-516-2000

	 	Fax: 952-975-4047
	Fax: 617-516-2010

	 	Attention: David E. Baer
	Attention: Michael Krupka
	 	 
	 

	 	Theodore Deikel
	BROOKSIDE CAPITAL PARTNERS FUND, L.P.

	 	4400 Baker Road
	c/o Bain Capital, LLG

	 	Minnetonka, MN 55343
	111 Huntington Avenue

	 	Phone: 952-932-3100
	Boston, MA 02199

	 	Fax: 952-
	Phone: 617-516-2000
	 	 
	Fax: 617-516-2010
	 	 
	Attention: Doni Ferrante
	 	 
	 
	 	 
	RGIP, LLC
	 	 
	c/o Ropes & Gray LLP
	 	 
	One International Place
	 	 
	Boston, MA 02116
	 	 
	Phone: 617-951-7000
	 	 
	Fax: 617-951-7050
	 	 
	Attention: R. Bradford Malt
	 	 
	 
	 	 
	BATTERY VENTURES VI, L.P.
	 	 
	BATTERY INVESTMENT PARTNERS VI, LLC
	 	 
	c/o Battery Ventures
	 	 
	20 William Street, Suite 200
	 	 
	Wellesley, MA 02481
	 	 
	Phone: 781-577-1000
	 	 
	Fax: 781-577-1001
	 	 
	Attention: Oliver Curme
	 	 

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Exhibit B

NAMES AND ADDRESSES OF COMMON STOCKHOLDERS

NONE

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EXHIBIT F

[FORM
OF SUBSIDIARY GUARANTY AGREEMENT]

     This GUARANTY AGREEMENT (this “Guaranty”), dated as of March 23, 2006, is made by each of the
Persons listed on the signature pages hereto and each of the other entities which becomes a party
hereto pursuant to Section 3.15 hereof (each a “Guarantor” and jointly and severally, the
“Guarantors”) in favor of Prudential Capital Partners II, L.P., as collateral agent for the Holders
referred to below (in such capacity, together with its successors in such capacity, the
“Subordinated Collateral Agent”).

     Fingerhut Direct Marketing, Inc. (the “Company”) has entered into that certain Securities
Purchase Agreement, dated concurrently herewith (as the same from time to time hereafter may be
amended, modified, supplemented or restated, the “Purchase Agreement”), by and among the Company
and the purchasers party thereto (collectively, the “Purchasers” and, together with any person who
becomes a holder of any Subordinated Note (as defined below) the “Holders”), pursuant to which the
Purchasers have agreed, among other things, to purchase $30,000,000 aggregate principal amount of
the 13.00% Senior Subordinated Secured Notes due March 24, 2013 (the “Subordinated Notes”) of the
Company for the purposes, and on the terms and subject to the conditions, set forth in the Purchase
Agreement.

     The Purchasers are willing to purchase the Subordinated Notes of the Company on the date of
the Purchase Agreement, but only upon the condition, among others, that each direct and indirect
Subsidiary of the Company shall have executed and delivered this Guaranty to the Subordinated
Collateral Agent for the benefit of it and the Holders.

     To induce the Purchasers to enter into, and to purchase the Subordinated Notes of the Company
under, the Purchase Agreement and the other Transaction Documents, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, each Guarantor has
agreed to jointly and severally guarantee the Guaranteed Obligations upon the terms and conditions
of this Guaranty. Accordingly, each Guarantor agrees with the Subordinated Collateral Agent as
follows:

     SECTION 1. DEFINITIONS.

          1.01. Definitions. Unless otherwise defined herein, all capitalized terms used in this
Guaranty that are defined in the Purchase Agreement (including those terms incorporated by
reference) shall have the respective meanings assigned to them in the Purchase Agreement. In
addition, the following terms shall have the following meanings under this Guaranty:

          “Bankruptcy Code” shall mean Title 11 of the United States Code, as amended.

          “Guaranteed Obligations” shall mean (a) any and all Obligations of the Company and any and all
other obligations of the Company for the performance of its agreements, covenants and undertakings
under or in respect of the Transaction Documents (excluding the Warrants, the Investor Rights
Agreement, the Stockholders Agreement, the Equityholder

 

 

Agreement and the VCOC Letter) and (b) any and all other obligations of the Company for the payment
of all amounts, Indebtedness (whether for principal, interest, reimbursement, fees, charges,
indemnification or otherwise) and other liabilities now or in the future owed to the Subordinated
Collateral Agent, the Holders or any such Person individually, and for the performance by the
Company of its agreements, covenants and undertakings, in each case under or in respect of any and
all of the Transaction Documents, it being acknowledged by each Guarantor that such other
obligations may arise or be created, incurred or assumed at any time and from time to time and in
such manner and such circumstances and with such terms and provisions as the Company, the
Subordinated Collateral Agent and the Holders or any such Person individually may agree without
notice or demand of any kind or nature whatsoever to any Guarantor.

          1.02. Interpretation. In this Guaranty, Unless otherwise indicated, the singular includes the
plural and plural the singular; words importing any gender include the other gender; references to
statutes or regulations are to be construed as including all statutory or regulatory provisions
consolidating, amending or replacing the statute or regulation referred to; references to “writing”
include printing, typing, lithography and other means of reproducing words in a tangible visible
form; the words “including,” “includes” and “include” shall be deemed to be followed by the words
“without limitation”; references to articles, sections (or subdivisions of sections), exhibits,
annexes or schedules without reference to another agreement are to this Guaranty; references to
agreements and other contractual instruments shall be deemed to include all subsequent amendments,
extensions and other modifications to such instruments (without, however, limiting any prohibition
on any such amendments, extensions or modifications by the terms of this Guaranty); and references
to Persons include their respective successors and permitted assigns and, in the case of
Governmental Authorities, Persons succeeding to their respective functions and capacities.

     SECTION 2. THE GUARANTEE.

          2.01. Guarantee. Subject to the limitation set forth in Section 2.09, each Guarantor hereby
jointly and severally guarantees to the Subordinated Collateral Agent and each Holder the timely
payment in full when due (whether at stated maturity, by acceleration or otherwise) and performance
of the Guaranteed Obligations in each case strictly in accordance with their terms. Each Guarantor
hereby further agrees that if the Company shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) all or any part of the Guaranteed Obligations, such
Guarantor will immediately pay the same, without the need for any demand or notice whatsoever, and
that in the case of any extension of time of payment or renewal of all or any part of the
Guaranteed Obligations, the same will be timely paid in full when due (whether at extended
maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.
This Guaranty is absolute, irrevocable and unconditional in nature and is made with respect to any
and all Guaranteed Obligations now existing or in the future arising. Each Guarantor’s liability
under this Guaranty shall continue until full satisfaction of all Guaranteed Obligations. This
Guaranty is a guarantee of due and punctual payment and performance and not of collectibility. The
Guaranteed Obligations shall be secured by the Subsidiary Security Agreement and the Intellectual
Property Security Agreement.

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          2.02. Acknowledgments, Waivers and Consents. Each Guarantor acknowledges that the obligations
undertaken by it under this Guaranty involve the guarantee of obligations of Persons other than
such Guarantor and that such obligations of such Guarantor are absolute, irrevocable and
unconditional under any and all circumstances. In full recognition and in furtherance
of the foregoing, each Guarantor agrees that:

               (a) Without affecting the enforceability or effectiveness of this Guaranty in accordance with
its terms, without affecting, limiting, reducing, discharging or terminating the liability of such
Guarantor, or the rights, remedies, powers and privileges of the Subordinated Collateral Agent and
the Holders under this Guaranty and without modifying the rights or obligations of the Company
under the Transaction Documents, the Subordinated Collateral Agent and the Holders may, at any time and from time to time and without notice or
demand of any kind or nature whatsoever:

                    (i) amend, supplement, modify, extend, renew, waive, accelerate or otherwise change
the time for payment or performance of, or the terms of, all or any part of the Guaranteed
Obligations (including any increase or decrease in the principal portion of, or rate or
rates of interest on, all or any part of the Guaranteed Obligations);

                    (ii) amend, supplement, modify, extend, renew, waive or otherwise change, or enter
into or give, any Transaction Document or any agreement, security document, guarantee,
approval, consent or other instrument with respect to all or any part of the Guaranteed
Obligations, any Transaction Document or any such other instrument or any term or
provision of the foregoing;

                    (iii) accept or enter into new or additional agreements, security documents,
guarantees (including letters of credit) or other instruments in addition to, in exchange
for or relative to any Transaction Document, all or any part of the Guaranteed Obligations
or any collateral now or in the future serving as security for the Guaranteed Obligations;

                    (iv) accept or receive (including from any other guarantor) partial payments or
performance on the Guaranteed Obligations (whether as a result of the exercise of any
right, remedy, power or privilege or otherwise);

                    (v) accept, receive and hold any additional collateral for all or any part of the
Guaranteed Obligations (including from any other guarantor);

                    (vi) release, reconvey  terminate, waive, abandon, allow to lapse or expire, fail to
perfect, subordinate, exchange, substitute, transfer, foreclose upon or enforce any
collateral, security documents or guarantees (including letters of credit or the
obligations of any other guarantor) for or relative to all or any part of the Guaranteed
Obligations;

                    (vii) apply any collateral or the proceeds of any collateral or guarantee (including
any letter of credit or the obligations of any other guarantor) to all or

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any part of the Guaranteed Obligations in such manner and extent as the Subordinated
Collateral Agent or any Holder may in its discretion determine;

                    (viii) release any Person (including any other guarantor) from any personal liability with
respect to all or any part of the Guaranteed Obligations;

                    (ix) settle, compromise, release, liquidate or enforce upon such terms and in such manner as
the Subordinated Collateral Agent or the Holders may determine or as applicable law may dictate
all or any part of the Guaranteed Obligations or any collateral on or guarantee of (including any
letter of credit issued with respect to) all or any part of the Guaranteed Obligations (including
with any other guarantor);

                    (x) consent to any merger or consolidation of, the sale of substantial assets by, or other
restructuring or termination of the existence of the Company or any other Person (including any
other guarantor);

                    (xi) proceed against the Company, such Guarantor or any other guarantor of (including any
issuer of any letter of credit issued with respect to) all or any part of the Guaranteed
Obligations or any collateral provided by any Person and exercise the rights, remedies, powers
and privileges of the Subordinated Collateral Agent and the Holders under the Transaction
Documents or otherwise in such order and such manner as the Subordinated Collateral Agent or any
Holder may, in its discretion, determine, without any necessity to proceed upon or against or
exhaust any collateral, right, remedy, power or privilege before proceeding to call upon or
otherwise enforce this Guaranty as to such Guarantor;

                    (xii) foreclose upon any deed of trust, mortgage or other instrument creating or granting
liens on any interest in real property by judicial or nonjudicial sale or by deed in lieu of
foreclosure, bid any amount or make no bid in any foreclosure sale or make any other election of
remedies with respect to such liens or exercise any right of set-off;

                    (xiii) obtain the appointment of a receiver with respect to any collateral for all or any
part of the Guaranteed Obligations and apply the proceeds of such receivership as the
Subordinated Collateral Agent or any Holder may in its discretion determine (it being agreed that
nothing in this clause (xiii) shall be deemed to make the Subordinated Collateral Agent or any
Holder a party in possession in contemplation of law, except at its option);

                    (xiv) amend, supplement, modify, alter or release the Intercreditor Agreement or any
subordination provisions relating to any junior or subordinated Indebtedness or any security
thereof;

                    (xv) enter into such other transactions or business dealings with the Company, any
Subsidiary or Affiliate of the Company or any other guarantor of all or any part of the
Guaranteed Obligations as the Subordinated Collateral Agent or any Holder may desire; and

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                    (xvi) do all or any combination of the actions set forth in this Section 2.02(a).

               (b) The enforceability and effectiveness of this Guaranty and the liability of each Guarantor,
and the rights, remedies, powers and privileges of the Subordinated Collateral Agent and the
Holders, under this Guaranty shall not be affected, limited, reduced, discharged or terminated, and
each Guarantor hereby expressly waives to the fullest extent not prohibited by applicable law any
defense now or in the future arising (other than that the Guaranteed Obligations have been paid in
full in cash), by reason of:

                    (i) the illegality, invalidity or unenforceability of all or any part of the
Guaranteed Obligations, any Transaction Document or any agreement, security document,
guarantee or other instrument relative to all or any part of the Guaranteed Obligations;

                    (ii) any disability or other defense with respect to all or any part of the Guaranteed
Obligations of the Company, or any other guarantor of all or any part of the Guaranteed
Obligations (including any issuer of any letters of credit), including the effect of any
statute of limitations that may bar the enforcement of all or any part of the Guaranteed
Obligations or the obligations of any such other guarantor;

                    (iii) the illegality, invalidity or unenforceability of any security or guarantee
(including any letter of credit) for all or any part of the Guaranteed Obligations or the
lack of perfection or continuing perfection or failure of the priority of any lien on any
collateral for all or any part of the Guaranteed Obligations;

                    (iv) the cessation, for any cause whatsoever, of the liability of the Company or any
other guarantor of all or any part of the Guaranteed Obligations (other than, subject to
Section 2.05, by reason of the full and indefeasible payment and performance of all
Guaranteed Obligations);

                    (v) any failure of the Subordinated Collateral Agent or any Holder to marshal assets
in favor of the Company or any other Person (including any other guarantor), to exhaust any
collateral for all or any part of the Guaranteed Obligations, to pursue or exhaust any
right, remedy, power or privilege it may have against the Company, any other guarantor of
all or any part of the Guaranteed Obligations or any other Person or to take any action
whatsoever to mitigate or reduce Guarantor’s liability under this Guaranty, neither the
Subordinated Collateral Agent nor any Holder being under any obligation to take any such
action notwithstanding the fact that all or any part of the Guaranteed Obligations may be
due and payable and that the Company may be in default of their obligations under any
Transaction Document;

                    (vi) any failure of the Subordinated Collateral Agent or any Holder to give notice of
sale or other disposition of any collateral (including any notice of any judicial or
nonjudicial foreclosure or sale of any interest in real property serving as collateral for
all or any part of the Guaranteed Obligations) for all or any part of the Guaranteed
Obligations to the Company, any Guarantor or any other Person or any defect

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in, or any failure by any Guarantor or any other Person to receive any notice that may be given
in connection with any sale or disposition of any collateral;

                    (vii) any failure of the Subordinated Collateral Agent or any Holder to comply with
applicable laws in connection with the sale or other disposition of any collateral for all or any
part of the Guaranteed Obligations;

                    (viii) any judicial or nonjudicial foreclosure or sale of, or other election of remedies
with respect to, any interest in real property or other collateral serving as security for all or
any part of the Guaranteed Obligations, even though such foreclosure, sale or election of
remedies may impair the subrogation rights of the Guarantors or may preclude the Guarantors from
obtaining reimbursement, contribution, indemnification or other recovery from the Company, any
other guarantor or any other Person and even though the Company may not, as a result of such
foreclosure, sale or election of remedies, be liable for any deficiency;

                    (ix) any act or omission of the Subordinated Collateral Agent, any Holder or any other
Person that directly or indirectly results in or aids the discharge or release of the Company or
any other guarantor of all or any part of the Guaranteed Obligations or any security or guarantee
for all or any part of the Guaranteed Obligations by operation of law or otherwise;

                    (x) any law which provides that the obligation of a surety or guarantor must neither be
larger in amount nor in other respects more burdensome than that of the principal or which
reduces a surety’s or guarantor’s obligation in proportion to the principal obligation;

                    (xi) the possibility that the obligations of the Company to the Subordinated Collateral
Agent and the Holders may at any time and from time to time exceed the aggregate liability of the
Guarantors under this Guaranty;

                    (xii) any counterclaim, set-off or other claim which the Company or any other guarantor has
or alleges to have with respect to all or any part of the Guaranteed Obligations;

                    (xiii) any failure of the Subordinated Collateral Agent or any Holder to file or enforce a
claim in any bankruptcy or other proceeding with respect to any Person.

                    (xiv) the election by the Subordinated Collateral Agent or any Holder in any bankruptcy
proceeding of any Person, of the application or nonapplication of Section 1111 (b )(2) of the
Bankruptcy Code;

                    (xv) any extension of credit or the grant of any Lien under Section 364 of the Bankruptcy
Code;

                    (xvi) any use of cash collateral under Section 363 of the Bankruptcy Code;

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                    (xvii) any agreement or stipulation with respect to the provision of adequate
protection in any bankruptcy proceeding of any Person;

                    (xviii) the avoidance of any Lien in favor of the Subordinated Collateral Agent or any
Holder for any reason;

                    (xix) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against any Person, including any
discharge of, or bar or stay against collecting, all or any part of the Guaranteed
Obligations (or any interest on all or any part of the Guaranteed Obligations) in or as a
result of any such proceeding;

                    (xx) any failure by the Subordinated Collateral Agent or any Holder to enforce the
subordination of any junior or subordinated Indebtedness or any security thereof;

                    (xxi) any action taken by the Subordinated Collateral Agent or any Holder, whether
similar or dissimilar to any of the foregoing, that is authorized by this Section 2.02 or
otherwise in this Guaranty or by any other provision of any Transaction Document or any
omission to take any such action; or

                    (xxii) any other circumstance whatsoever, whether similar or dissimilar to any of the
foregoing, that might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor.

               (c) [Reserved.]

               (d) Each Guarantor waives all rights and defenses arising out of an election of remedies by
the Subordinated Collateral Agent and the Holders, even though that election of remedies, such as a
nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed such
Guarantor’s rights of subrogation and reimbursement against the principal by the operation of law.

               ( e) Each Guarantor expressly waives, for the benefit of the Subordinated Collateral Agent and
the Holders, all set-offs and counterclaims and all presentments, demands for payment or
performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of
dishonor and all other notices or demands of any kind or nature whatsoever with respect to the
Guaranteed Obligations, and all notices of acceptance of this Guaranty or of the existence,
creation, incurring or assumption of new or additional Guaranteed Obligations. Each Guarantor
further expressly waives the benefit of any and all statutes of limitation and any and all laws
providing for the exemption of property from execution or for valuation and appraisal upon
foreclosure, to the maximum extent not prohibited by applicable law.

               (f) Each Guarantor represents and warrants to the Subordinated Collateral Agent and the
Holders that it has established adequate means of obtaining financial and other information
pertaining to the business, operations and condition (financial and otherwise) of the Company and
its properties on a continuing basis and that such Guarantor is

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now and will in the future remain fully familiar with the business, operations and condition
(financial and otherwise) of the Company and its properties. Each Guarantor further represents and
warrants that it has reviewed and approved each of the Transaction Documents and is fully familiar
with the transaction contemplated by the Transaction Documents and that it will in the future
remain fully familiar with such transaction and with any new Transaction Documents and the
transactions contemplated by such Transaction Documents. Each Guarantor hereby expressly waives and
relinquishes any duty on the part of the Subordinated Collateral Agent or the Holders (should any
such duty exist) to disclose to such or any other guarantor any matter of fact or other information
related to the business, operations or condition (financial or otherwise) of the Company or its
properties or to any Transaction Document or the transactions undertaken pursuant to, or
contemplated by, any such Transaction Document, whether now or in the future known by the
Subordinated Collateral Agent or any Holder.

               (g) Each Guarantor intends that its rights and obligations shall be those expressly set
forth in this Guaranty and that its obligations shall not be affected, limited, reduced, discharged
or terminated by reason of any principles or provisions of law which conflict with the terms of
this Guaranty.

               (h) Nothing in this Guaranty amends, modifies or otherwise affects any agreement between the
Company, the Subordinated Collateral Agent and the Holders regarding the amendment of, modification
of or supplement to any Transaction Document.

          2.03. Understanding With Respect to Waivers and Consents. Each Guarantor warrants and agrees
that each of the waivers and consents set forth in this Guaranty is made voluntarily and
unconditionally after consultation with outside legal counsel and with full knowledge of its
significance and consequences, with the understanding that events giving rise to any defense or
right waived may diminish, destroy or otherwise adversely affect rights which such or any other
guarantor otherwise may have against the Company, the Subordinated Collateral Agent, any Holder or
any other Person or against any collateral. If, notwithstanding the intent of the parties that the
terms of this Guaranty shall control in any and all circumstances, any such waivers or consents
are determined to be unenforceable under applicable law, such waivers and consents shall be
effective to the maximum extent not prohibited by law.

          2.04. Subrogation. Each Guarantor hereby agrees that, until the payment and satisfaction in
full of all of the Guaranteed Obligations and the expiration and termination of the commitments of
the Holders under the Purchase Agreement, it shall not exercise any right, remedy, power or
privilege, such as any right of subrogation, contribution or indemnity or related remedy, power or
privilege, arising (whether by contract or operation of law, including under the Bankruptcy Code)
against the Company or any other guarantor of all or any part of the Guaranteed Obligations or any
collateral for all or any part of the Guaranteed Obligations by reason of any payment or other
performance pursuant to the provisions of this Guaranty and, if any amount shall be paid to such
Guarantor on account of such rights, remedies, powers or privileges, it shall hold such amount in
trust for the benefit of, and pay the same over to, the Subordinated Collateral Agent (for the
benefit of the Holders) on account of the Guaranteed Obligations. Each Guarantor understands that
the exercise by the Subordinated Collateral Agent or any Holder of any right, remedy, power or
privilege that it may have under the Transaction Documents, any agreement, security document,
guarantee or other instrument relative to all or

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any part of the Guaranteed Obligations or otherwise may affect or eliminate such or any other
guarantor’s right of subrogation or similar recovery against the Company, any other guarantors or
any collateral and that such Guarantor may therefore incur partially or totally nonreimbursable
liability under this Guaranty. Nevertheless, each Guarantor hereby authorizes and empowers the
Subordinated Collateral Agent and the Holders to exercise, in its or their sole discretion, any
combination of such rights, remedies, powers and privileges.

          2.05. Reinstatement. To the extent permitted by law, the obligations of each Guarantor under
this Guaranty shall be automatically reinstated if and to the extent that for any reason any
payment by or on behalf of the Company, any other guarantor or any other Person or any other
application of funds (including the proceeds of any collateral for all or any part of the
Guaranteed Obligations) in respect of all or any part of the Guaranteed Obligations is rescinded or
must be otherwise restored by any holder of such Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy, reorganization or otherwise and each Guarantor jointly and severally
agrees that it will indemnify the Subordinated Collateral Agent and each Holder on demand for all
reasonable costs and expenses (including fees and expenses of counsel) incurred by the Subordinated
Collateral Agent or such Holder in connection with such rescission or restoration.

          2.06. Remedies. Each Guarantor hereby jointly and severally agrees that, between it and the
Holders, the obligations of the Company under the Purchase Agreement and the other Transaction
Documents may be declared to be forthwith (or may become automatically) due and payable as provided
in the Purchase Agreement for purposes of Section 2.01 notwithstanding any stay, injunction or
other prohibition preventing such declaration (or such obligations becoming due and payable as
against the Company) and that, in the event of such declaration (or such obligation being deemed
due and payable), such obligations (whether or not due and payable by the Company) shall forthwith
become due and payable for purposes of Section 2.01.

          2.07. Separate Action. The Subordinated Collateral Agent and each Holder may bring and
prosecute a separate action or actions against each Guarantor (or any of them) whether or not the
Company, any other guarantor or any other Person is joined in any such action or a separate action
or actions are brought against the Company, any other guarantor, any other Person, or any
collateral for all or any part of the Guaranteed Obligations. The obligations of each Guarantor
under, and the effectiveness of, this Guaranty are not conditioned upon the existence or
continuation of any other guarantee (including any letter of credit) of all or any part of the
Guaranteed Obligations.

          2.08. Subordination of Indebtedness of the Company. Each Guarantor agrees that any
Indebtedness of the Company now or in the future owed to such Guarantor is hereby subordinated to
the Guaranteed Obligations. If the Subordinated Collateral Agent so requests, any such Indebtedness
shall be collected, enforced and received by any Guarantor as trustee for the Subordinated
Collateral Agent on behalf of the Holders and shall be paid over to the Subordinated Collateral
Agent (for the benefit of the Holders) in kind on account of the Guaranteed Obligations. If, after
the Subordinated Collateral Agent’s request, any Guarantor fails to collect or enforce any such
Indebtedness or to pay the proceeds of such Indebtedness to the Subordinated Collateral Agent, the
Subordinated Collateral Agent as such Guarantor’s

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attorney-in-fact may do such acts and sign such documents in such Guarantor’s name and on the
Guarantor’s behalf as the Subordinated Collateral Agent considers necessary or desirable to effect
such collection, enforcement or payment, the Subordinated Collateral Agent being hereby appointed
each Guarantor’s attorney-in-fact for such purpose.

     2.09. Limitation on Guarantee. If under any applicable law (including without
limitation state and Federal fraudulent transfer laws) the obligations of any Guarantor under
Section 2.01 would otherwise be held or determined to be void, invalid or unenforceable or
if the claims of the Holders in respect of such obligations would be subordinated to the claims of
any other creditors on account of such Guarantor’s liability under Section 2.01, then,
notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability
shall, without any further action by the Guarantors, any Holder, the Subordinated Collateral Agent
or any other Person, be automatically limited and reduced to the highest amount which is valid and
enforceable and not subordinated to the claims of other creditors as determined in such action or
proceeding. Each Guarantor agrees and acknowledges that it has obtained and will continue to
obtain direct and indirect benefits as the result of the transactions contemplated by the Purchase
Agreement and the purchase of the Subordinated Notes thereunder, as the result of financial or
business support which will be provided to the Guarantors by Company.

     2.10. Revocation. To the fullest extent not prohibited by law, each Guarantor hereby
waives all right of revocation with respect to the Guaranteed Obligations. This Guaranty may be
terminated as to uncommitted future transactions only by written notice of such termination to the
Subordinated Collateral Agent and the Holders and such notice shall be deemed effective as of noon
of the next succeeding Business Day following receipt of such notice at the Subordinated Collateral
Agent’s address referenced in Section 3.02. No such notice shall release any Guarantor from
any liability as to any Guaranteed Obligations which may be owing or held by any Holder or the
Subordinated Collateral Agent or for which any Holder may have an interest or for which any Holder
may be obligated or committed at the time of receiving such notice, and all renewals, extensions
and modifications of any such Guaranteed Obligations.

     2.11. Joint and Several Liability. In addition and notwithstanding anything to the
contrary contained in this Guaranty or in any other document, instrument or agreement between or
among any of Subordinated Collateral Agent, the Holders, Guarantors or any third party, the
obligations of each Guarantor with respect to the Guaranteed Obligations shall be joint and several
with any other person or entity that now or hereafter executes a guaranty of any of the Guaranteed
Obligations separate from this Guaranty.

SECTION 3. MISCELLANEOUS PROVISIONS.

     3.01. Waiver. No failure or delay by the Subordinated Collateral Agent or any
Holder in exercising any remedy, right, power or privilege under this Guaranty or any other
Transaction Document shall operate as a waiver of such remedy, right, power or privilege, nor
shall any single or partial exercise of such remedy, right, power or privilege preclude any other
or further exercise of such remedy, right, power or privilege or the exercise of any other remedy,
right, power or privilege. The remedies, rights, powers and privileges provided by this Guaranty
are, to the extent permitted by law, cumulative and not exclusive of any remedies, rights, powers
or privileges provided by the other Transaction Documents or by law.

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     3.02. Notices. All notices, requests, demands, consents, instructions and other
communications to any of the Guarantors or the Subordinated Collateral Agent under this Guaranty
shall be given in the manner provided in paragraph 12I of the Purchase Agreement and in the
case of any notice to a Guarantor, to such Guarantor c/o the Company.

     3.03. Expenses, Etc. Each Guarantor jointly and severally agrees to pay or to
reimburse the Subordinated Collateral Agent and the Holders for actual all costs and expenses
(including fees and expenses of counsel) that may be incurred by the Subordinated Collateral Agent
or the Holders in any effort to enforce any of the obligations of the Guarantors under this
Guaranty, whether or not any lawsuit is filed, including all such costs and expenses (and
attorneys’ fees and expenses) incurred by the Subordinated Collateral Agent and the Holders in any
bankruptcy, reorganization, workout or similar proceeding. All amounts due under this Guaranty
(including under Section 2.01) and not paid when due shall bear interest until paid at the
Default Rate.

     3.04. Amendments, Etc. No amendment, modification, supplement, extension, termination
or waiver of any provision of this Guaranty, no approval or consent hereunder, and no consent to
any departure by any Guarantor therefrom, may in any event be effective unless in writing signed by
the Subordinated Collateral Agent (with the written approval or upon the instructions of the
Required Holder(s) or such other Persons whose approval may be required by the Purchase Agreement),
and then only in the specific instance and for the specific purpose given and any such amendment,
modification, supplement, extension, termination or waiver shall be binding upon the Subordinated
Collateral Agent, each holder of Guaranteed Obligations and each Guarantor.

     3.05. Successors and Assigns. This Guaranty shall be binding upon and inure to the
benefit of the Guarantors, the Subordinated Collateral Agent, the Holders and their respective
successors and assigns. No Guarantor may assign or transfer its rights or obligations under this
Guaranty without the prior written consent of the Subordinated Collateral Agent and each Holder.
Any attempted assignment or transfer in violation of this Section 3.05 shall be null and
void.

     3.06. Survival. All representations and warranties made in this Guaranty or in any
certificate or other document delivered pursuant to or in connection with this Guaranty shall
survive the execution and delivery of this Guaranty or such certificate or other document (as the
case may be) or any deemed repetition of any such representation or warranty.

     3.07. ENTIRE AGREEMENT. THIS GUARANTY REPRESENTS THE COMPLETE            AND            FINAL
AGREEMENT            AMONG            THE            GUARANTORS, THE SUBORDINATED COLLATERAL AGENT AND THE PURCHASERS
AND SUPERSEDES ALL PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, ON THE SUBJECT MATTER HEREOF AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE GUARANTORS, THE
SUBORDINATED            COLLATERAL            AGENT            AND            THE PURCHASERS.

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     3.08. Partial Invalidity. If at any time any provision of this Guaranty is or becomes
illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions of this Guaranty nor the legality,
validity or enforceability of such provision under the law of any other jurisdiction shall in any
way be affected or impaired thereby.

     3.09. Captions. The table of contents, captions and section headings appearing in this
Guaranty are included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Guaranty.

     3.10. Counterparts. This Guaranty may be executed in any number of
counterparts, all of which taken together shall constitute one and the same instrument and any of
the parties to this Guaranty may execute this Guaranty by signing any such counterpart.
Transmission by telecopier of an executed counterpart of this Guaranty shall be deemed to
constitute due and sufficient delivery of such counterpart.

     3.11. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS GUARANTY SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY CONFLICTS OF LAW RULES WHICH WOULD OTHERWISE
CAUSE THIS GUARANTY TO BE CONSTRUED OR ENFORCED IN ACCORDANCE WITH, OR THE RIGHTS OF THE
PARTIES TO BE GOVERNED BY, THE LAWS OF ANY OTHER JURISDICTION).

     3.12. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS IN COOK
COUNTY, ILLINOIS, OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS AND, BY EXECUTION
AND DELIVERY OF THIS GUARANTY, EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS, UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH GUARANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION 3.02 OR TO CT CORPORATION SYSTEM AT
208 S. LASALLE STREET, 8TH FLOOR, CHICAGO, ILLINOIS, 60604, SUCH SERVICE TO BECOME
EFFECTIVE UPON RECEIPT. EACH GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON SUCH
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST ANY GUARANTOR IN ANY OTHER JURISDICTION. EACH GUARANTOR HEREBY
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR

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THE OTHER TRANSACTION DOCUMENTS BROUGHT IN ANY OF THE AFORESAID COURTS AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
ANY GUARANTOR HAS OR MAY HEREAFTER ACQUIRE IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID
OF EXECUTION, EXECUTION OR OTHERWISE WITH RESPECT TO ITSELF OR ITS PROPERTY), SUCH GUARANTOR
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY. EACH
GUARANTOR AND EACH PURCHASER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED
THEREBY.

     3.13. [Reserved]

     3.14. Power of Attorney. Each Guarantor hereunder hereby grants to the Company an
irrevocable power of attorney to act as its attorney-in-fact with regard to matters relating to
this Guaranty and each other Transaction Document, including execution and delivery of any
amendments, supplements, waivers or other modifications hereto or thereto, receipt of any notices
hereunder or thereunder and receipt of service of process in connection herewith or therewith.
Each Guarantor hereby explicitly acknowledges that the Subordinated Collateral Agent has executed
and delivered this Guaranty and has entered into each Transaction Document to which it is a party,
and has performed its obligations under this Guaranty and each other Transaction Document to which
it is a party, in reliance upon the irrevocable grant of such power of attorney pursuant to this
Section 3.14.

     3.15. Additional Guarantors. If, pursuant to the terms and conditions of the
Purchase Agreement, the Company shall be required to cause any Subsidiary of Company that is not a
Guarantor to become a Guarantor hereunder, such Subsidiary shall execute and deliver to the
Subordinated Collateral Agent a Joinder Agreement in the form of Annex 1 and shall
thereafter for all purposes be a party hereto and have the same rights, benefits and obligations as
a Guarantor party hereto.

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     IN WITNESS WHEREOF, the undersigned have executed this Guaranty as of the date first above
written.

	 	 	 	 	 	 	 

	 	 	GUARANTOR:	 	 
	 	 	FINGERHUT FULFILLMENT, INC., 

a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 

	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 

	PRUDENTIAL CAPITAL PARTNERS II, L.P., 

     as Subordinated Collateral Agent	 	 
	 
	 	 	 	 
	By:
	 	 

	 	 
	Name:
	 	 

	 	 
	Title:
	 	 

	 	 

 

 

ANNEX 1

JOINDER AGREEMENT

     This
Joinder Agreement, dated as of ___, ___, is delivered pursuant to
Section 3.15 of the Guaranty Agreement dated as of March 23, 2006, among one or more
direct and indirect Subsidiaries of Fingerhut Direct Marketing, Inc. (“Company”) from time
to time party thereto as Guarantors in favor of Prudential Capital Partners II, L.P., as
Subordinated Collateral Agent (the “Guaranty Agreement”). Capitalized terms used herein
but not defined herein are used herein with the meaning given them in the Guaranty Agreement.

     By executing and delivering this Joinder Agreement, the undersigned, as provided in
Section 3.15 of the Guaranty Agreement, hereby becomes a party to the Guaranty Agreement as
a Guarantor thereunder with the same force and effect as if originally named as a Guarantor
therein.

     This Joinder Agreement shall be governed by, and construed in accordance with the laws of the
State of Illinois.

     In witness whereof, the undersigned has caused this Joinder Agreement to be duly
executed and delivered as of the date first above written.

	 	 	 	 	 	 	 

	 	 	[Additional Guarantor]	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 

	 	 
	 

	 	Name:	 	 

	 	 
	 

	 	Title:	 	 

	 	 

	 	 	 	 	 

	PRUDENTIAL CAPITAL PARTNERS II, L.P., as

     Subordinated Collateral Agent	 	 
	 
	 	 	 	 
	By:
	 	 

	 	 
	Name:
	 	 

	 	 
	Title:
	 	 

	 	 

 

 

EXHIBIT G

[FORM OF SECURITY AGREEMENT]

     THIS SECURITY AGREEMENT, dated as of March 23, 2006, is made by and between FINGERHUT DIRECT
MARKETING, INC. (the “the Company”), and PRUDENTIAL CAPITAL PARTNERS II, L.P., as
collateral agent for the Holders referenced below (in such capacity, “Subordinated Collateral
Agent”).

RECITALS

     A Pursuant to that certain Securities Purchase Agreement, dated concurrently herewith
(as the same from time to time hereafter may be amended, modified, supplemented or restated, the
“Purchase Agreement”), by and among the Company and the purchasers party thereto
(collectively, the “Purchasers” and, together with any person who becomes a holder of any
Subordinated Note (as defined below) the “Holders”), pursuant to which the Purchasers have
agreed, among other things, to purchase $30,000,000 aggregate principal amount of the 13.00%
Senior Subordinated Secured Notes due, March 24, 2013 (the “Subordinated Notes”) of the
Company for the purposes, and on the terms and subject to the conditions, set forth in the
Purchase Agreement.

     B. The Purchasers’ obligations to purchase the Subordinated Notes of the Company under the
Purchase Agreement are subject, among other conditions, to receipt by Subordinated Collateral
Agent of this Security Agreement, duly executed by the Company.

AGREEMENT

     NOW, THEREFORE, in consideration of the above recitals and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the Company hereby
agrees with Subordinated Collateral Agent as follows:

     SECTION 1. Definitions and Interpretation. Unless otherwise defined herein, all
capitalized terms used herein and defined in the Purchase Agreement shall have the respective
meanings given to those terms in the Purchase Agreement, and all terms defined in the UCC (as
hereinafter defined) shall have the respective meanings given to those terms in the UCC. When used
in this Security Agreement, the following terms shall have the following respective meanings:

     “Account Debtor” means any “account debtor,” as such term is defined in
Section 9-102(a)(3) of the UCC (or any other then applicable provision of the UCC).

     “Account” means any “account,” as such term is defined in Section 9-102(a)(2)
of the UCC (or any other then applicable provision of the UCC) and, in any event, shall include,
without limitation, all accounts receivable, book debts and other forms of obligations (other than
forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter
received or acquired by or belonging or owing to the Company (including, without limitation, under
any trade name, style or division thereof) whether arising out of goods sold or services rendered
by the Company or from any other transaction, whether or not the same involves the sale of goods or
services by the Company (including, without limitation, any such

 

 

obligation which may be characterized as an account or contract right under the UCC) and all of
the Company’s rights in, to and under all purchase orders or receipts now owned or hereafter
acquired by it for goods or services, and all of the Company’s rights to any goods represented by
any of the foregoing (including, without limitation, unpaid seller’s rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed
goods), and all monies due or to become due to the Company under all purchase orders and contracts
for the sale of goods or the performance of services or both by the Company (whether or not yet
earned by performance on the part of the Company or in connection with any other transaction), now
in existence or hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and guarantees of any
kind given by any Person with respect to any of the foregoing.

     “Chattel Paper” means any “chattel paper,” as such term is defined in Section
9-102(a)(11) of the UCC (or any other then applicable provision of the UCC), including, without
limitation, electronic chattel paper and tangible chattel paper.

     “Collateral” shall have the meaning assigned to such term in Section 2 of
this Security Agreement.

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

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

     “Deposit Account” means any “deposit account” as such term is defined in Section
9-102(a)(29) of the UCC (or any other then applicable provision of the UCC), and should include,
without limitation, any demand, time, savings passbook or like account, now or hereafter
maintained by or for the benefit of the Company, or in which the Company now holds or hereafter
acquires any interest, with a bank, savings and loan association, credit union or like
organization and all funds and amounts therein, whether or not restricted or designated for a
particular purpose.

     “Documents” means any “documents,” as such term is defined in Section 9-102(a)(30) of
the UCC (or any other then applicable provision of the UCC).

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

2

 

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

     “General Intangibles” means any “general intangibles,” as such term is defined in
Section 9-102(a)(42) of the UCC (or any other then applicable provision of the UCC) and, in any
event, shall include, without limitation, all right, title and interest which the Company may now
or hereafter have in or under any Contract, all customer lists, all proprietary or confidential
information, inventions (whether or not patented or patentable), interests in partnerships, joint
ventures and other business associations, permits, books and records, goodwill, claims in or under
insurance policies, including unearned premiums, Payment Intangibles, Software, uncertificated
securities, the Loan Accounts, the Loan Account Agreements, cash and other forms of money or
currency, rights to receive tax refunds and other payments and rights of indemnification.

     “Instruments” means any “instrument,” as such term is defined in Section 9-102(a)(47)
of the UCC (or any other then applicable provision of the UCC) including, without limitation, all
notes, certificated securities and all other evidences of indebtedness, other than instruments that
constitute, or are a part of a group of writings that constitute, Chattel Paper.

     “Intercreditor Agreement” means the Intercreditor Agreement, dated as of March 23,
2006, between the Subordinated Collateral Agent and the Bank Agent.

     “Inventory” means any “inventory,” as such term is defined in Section 9-102(a)(48) of
the UCC (or any other then applicable provision of the UCC), wherever located, now or hereafter
owned or acquired by the Company or in which the Company now holds or hereafter acquires any
interest, and, in any event, shall include, without limitation, all inventory, goods and other
personal property which are held by or on behalf of the Company for sale or lease or are furnished
or are to be furnished under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in the Company’s business, or the
processing, packaging, promotion, delivery or shipping of the same, and all finished goods whether
or not such inventory is listed on any schedules, assignments or reports furnished to Subordinated
Collateral Agent from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of the Company or is held by the Company
or by others for the Company’s account, including, without limitation, all goods covered by
purchase orders and contracts with suppliers and all goods billed and held by suppliers and all
inventory of the Company which may be located on the premises of the Company or of any carriers,
forwarding Subordinated Collateral Agents, truckers, warehousemen, vendors, selling Subordinated
Collateral Agents or other persons.

     “Investment Property” means any “investment property,” as such term is defined in
Section 9-102(a)(49) of the UCC (or any other then applicable provision of the UCC) and shall
include, without limitation, all certificated securities, uncertificated securities, security
entitlements, security accounts, commodity contracts and commodity accounts as each such term is
defined in the UCC.

3

 

     “Letter-of-Credit Right” means “letter-of-credit right,” as such term is defined in
Section 9-102(a)(51) of the UCC (or any other then applicable provision of the UCC).

     “Loan Account” means each “Loan” as defined in the Program Agreement.

     “Loan Account Agreement” means each “Purchase Agreement” as defined in the Program
Agreement.

     “Payment Intangible” means “payment intangible,” as such term is defined in Section
9-102(a)(61) of the UCC (or any other then applicable provision of the UCC).

     “Permitted Liens” shall mean (a) “Permitted Liens” as defined in the Purchase
Agreement and (b) Liens permitted by paragraph 6A(i) of the Purchase Agreement.

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

     “Program Agreement” means the Second Amended and Restated Revolving Loan Product
Program Agreement, dated as of February 11, 2004, between CIT Bank and the Company, as the same
may be amended, restated or supplemented from time to time.

     “Receivables Sale Agreement” means the Amended and Restated Receivables Sale
Agreement, dated as of February 11, 2004, between the Company and CIT Bank, as the same may be
amended, restated or supplemented from time to time.

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

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

     “Security Agreement” means this Security Agreement and all exhibits hereto, as the
same may from time to time be amended, modified, supplemented or restated.

4

 

     “Software” means “software,” as such term is defined in Section 9-102(a)(75) of the
UCC (or any other then applicable provision of the UCC).

     “Supporting Obligation” means “supporting obligation,” as such term is defined in
Section 9-102(a)(77) of the UCC (or any other then applicable provision of the UCC).

     “UCC” means the Uniform Commercial Code as the same may, from time to time, be in
effect in the State of Illinois; provided, however, in the event that, by reason of
mandatory provisions of law, any or all of the attachment, perfection or priority of Subordinated
Collateral Agent’s security interest in any collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of Illinois, the term “UCC” shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of definitions related
to such provisions.

     SECTION 2. Grant of Security Interest. As security for the Secured Obligations, and in
order to induce the Purchasers to enter into the Purchase Agreement and to purchase the
Subordinated Notes of the Company for the benefit of the Company upon the terms and subject to the
conditions thereof, the Company hereby grants, assigns, conveys, mortgages, pledges, hypothecates
and transfers to Subordinated Collateral Agent on behalf of the Holders a security interest in and
to all of the Company’s right, title and interest in, to and under each of the following, whether
now owned or hereafter acquired or in which the Company now holds or hereafter acquires any
interest (all of which being hereinafter collectively called the “Collateral”):

          (a) All Accounts;

          (b) All Chattel Paper;

          (c) All Commercial Tort Claims;

          (d) All Contracts;

          (e) All Deposit Accounts;

          (f) All Documents;

          (g) All Equipment;

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

          (i) All Instruments;

          (j) All Inventory;

          (k) All Investment Property;

          (l) All Letter-of-Credit Rights;

5

 

          (m) All Securities Accounts;

          (n) All Supporting Obligations;

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

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

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

     Notwithstanding the foregoing, the pledge of Investment Property in Subparagraph (k) above
shall be limited, with respect to the stock of any foreign Subsidiary of the Company (whether now
owned or hereafter acquired), to: (a) 65% (or, if less, the full percentage owned by such the
Company) of the issued and outstanding shares of each class of capital stock or other ownership
interests entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) (“Voting
Stock”) of such Subsidiary and (b) 100% (or, if less, the full percentage owned by such the
Company) of the issued and outstanding shares of each class of capital stock or other ownership
interests not entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2))
(“Non-Voting Stock‘”) of such Subsidiary.

     SECTION 3. Rights of Subordinated Collateral Agent; Collection of Accounts.

          (a) Notwithstanding anything contained in this Security Agreement to the contrary, the Company
expressly agrees that it shall not default under any of its material Contracts, it shall observe
and perform all the conditions and obligations to be observed and performed by it thereunder and
that it shall perform all of its duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such material Contract; provided,
however, that the Company may suspend performance of its obligations under any material
Contract in the event of a material breach of such material Contract by a third party. Neither
Subordinated Collateral Agent nor any Holder shall have any obligation or liability under any
Contract by reason of or arising out of this Security Agreement or the granting to Subordinated
Collateral Agent of a security interest therein or the receipt by Subordinated Collateral Agent or
any Holder of any payment relating to any Contract pursuant hereto, nor shall Subordinated
Collateral Agent nor any Holder be required or obligated in any manner to perform or fulfill any of
the obligations of the Company under or pursuant to any Contract, or to make any payment, or to
make any inquiry as to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any Contract, or to present or file any claim, or
to take any action to collect or enforce any performance or the

6

 

payment of any amounts which may have been assigned to it or to which it may be entitled at any
time or times.

          (b) Subordinated Collateral Agent hereby authorizes the Company to collect its Accounts,
provided, that Subordinated Collateral Agent may, upon the occurrence and during the
continuation of any Event of Default and without notice, limit or terminate said authority at any
time. If required by Subordinated Collateral Agent at any time during the continuation of any
Event of Default, any Proceeds, when first collected by the Company, received in payment of such
Account or in payment for any of its Inventory or on account of any of its Contracts shall be
promptly deposited by the Company in precisely the form received (with all necessary endorsements)
in a special bank account maintained by Subordinated Collateral Agent subject to withdrawal by
Subordinated Collateral Agent only, as hereinafter provided, and until so turned over shall be
deemed to be held in trust by the Company for and as Subordinated Collateral Agent’s property, and
shall not be commingled with the Company’s other funds or properties. Such Proceeds, when
deposited, shall continue to be collateral security for all of the Secured Obligations and shall
not constitute payment thereof until applied as hereinafter provided. Upon the occurrence and
during the continuation of any Event of Default, Subordinated Collateral Agent may, in its sole
discretion, apply all or a part of the funds on deposit in said special account to the principal of
or interest on or both in respect of any of the Secured Obligations in accordance with the
provisions of Section 7.1(g), below, and any part of such funds which Subordinated
Collateral Agent elects not to so apply and deems not required as collateral security for the
Secured Obligations shall be paid over from time to time by Subordinated Collateral Agent to the
Company. If an Event of Default has occurred and is continuing, at the request of Subordinated
Collateral Agent, the Company shall deliver to Subordinated Collateral Agent all original and other
documents evidencing, and relating to, the sale and delivery of such Inventory and the Company
shall deliver all original and other documents evidencing and relating to, the performance of labor
or service which created such Accounts, including, without limitation, all original orders,
invoices and shipping receipts.

          (c) Subordinated Collateral Agent may at any time, upon the occurrence and
during the continuation of any Event of Default, after first notifying the Company of its intention
to do so, notify Account Debtors of the Company, parties to the Contracts of the Company, obligors
in respect of Instruments of the Company and obligors in respect of Chattel Paper of the Company
that the Accounts and the right, title and interest of the Company in and under such Contracts,
Instruments, and Chattel Paper have been assigned to Subordinated Collateral Agent, and that
payments shall be made directly to Subordinated Collateral Agent. Upon the request of
Subordinated Collateral Agent, the Company shall so notify its Account Debtors, parties to such
Contracts, obligors in respect of such Instruments and obligors in respect of such Chattel Paper.
Upon the occurrence and during the continuation of an Event of Default, Subordinated Collateral
Agent may, in its name or in the name of others, communicate with such Account Debtors, parties to
such Contracts, obligors in respect of such Instruments and obligors in respect of such Chattel
Paper to verify with such parties, to Subordinated Collateral Agent’s satisfaction, the existence,
amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper.

7

 

     SECTION 4. Representations and Warranties.

     4.1 The Company hereby represents and warrants to Subordinated Collateral Agent
that:

          (a) The Company is the sole legal and equitable owner of each item of the Collateral in which
it purports to grant a security interest hereunder, having good and merchantable title or rights
thereto free and clear of any and all Liens, except for the Permitted Liens.

          (b) No effective security agreement, financing statement, equivalent security or lien
instrument or continuation statement covering all or any part of the Collateral exists, except such
as may have been filed by the Company in favor of Subordinated Collateral Agent pursuant to this
Security Agreement or such as relate to other Permitted Liens.

          (c) This Security Agreement creates a legal and valid security interest on and in all of the
Collateral in which the Company now has rights, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly taken. Accordingly,
Subordinated Collateral Agent has a perfected first priority security interest in all of the
Collateral in which the Company now has rights, subject only to the Permitted Liens. This Security
Agreement will create a legal and valid and perfected first priority security interest in the
Collateral in which the Company later acquires rights, when the Company acquires those rights,
subject only to the Permitted Liens.

          (d) The Company’s exact legal name is set forth on the signature page hereto above its
signature. The Company was formed and is presently organized as a corporation under the laws of the
State of Delaware. The Company’s chief executive office, principal place of business, and the
place where the Company maintains records concerning the Collateral are presently located at 4400
Baker Road, Minnetonka, Minnesota 55343 (which address, after April 1, 2006, shall be changed to
7777 Golden Triangle Drive, Eden Prairie, Minnesota 55344).

          (e) All Collateral with respect to which a security interest may be perfected by the secured
party’s taking possession thereof, including, without limitation, all Chattel Paper, Instruments
and certificated securities, is set forth on Schedule I. All action necessary to protect and
perfect such security interest in each item set forth on Schedule I, including, without limitation,
the delivery of all originals of such Collateral together with any necessary assignment in blank of
certificated securities to Bank Agent, has been duly taken, or shall have been taken as of the
Closing Date. All Letter-of-Credit Rights and Commercial Torts Claims of the Company are set forth
on Schedule II. The security interest of Subordinated Collateral Agent in the Collateral is prior
in right and interest to all other Liens, and is enforceable as such against creditors of and
purchasers from the Company, subject only to Permitted Liens. The Company shall amend Schedule II
from time to time within twenty (20) Business Days after obtaining any additional Letter-of-Credit
Rights or Commercial Tort Claims.

          (f) The amount represented by the Company to Subordinated Collateral Agent from
time to time as owing by each Account Debtor or by all Account Debtors

8

 

in respect of the Accounts of the Company shall at such time be the correct amount actually and
unconditionally owing by such Account Debtors thereunder.

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

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

          (i) The Company is the sole holder of record and the sole beneficial owner of all
certificated securities and uncertificated securities pledged to Subordinated Collateral Agent by
the Company under Section 2 of this Security Agreement, free and clear of any adverse
claim, as defined in Section 8-102(a)(1) of the UCC (or any other then applicable provision of the
UCC), except for the lien created in favor of Subordinated Collateral Agent by this Security
Agreement and the other Transaction Documents and the lien created in favor of the Bank Agent.

     4.2 Special Representations with Respect to Pledged Investment
Property

          (a) No authorization, approval or other action by, and no notice to or filing with, any
Governmental Authority or any other Person is required for the exercise by the Subordinated
Collateral Agent of the voting or other rights provided for in this Security Agreement, except in
connection with a disposition of the Investment Property as may be required by laws affecting the
offering and sale of securities generally.

          (b) The Company has delivered to Subordinated Collateral Agent, or so long as the Senior Debt
is outstanding, to the Bank Agent, together with all necessary stock powers, endorsements,
assignments and other necessary instruments of transfer, the originals of all stock certificates,
instruments, notes, other certificated securities, other Collateral and all certificates,
instruments and other writings evidencing the same.

          (c) All shares of the pledged Investment Property set forth on Schedule I and Schedule IV
are duly authorized and validly issued, fully paid, and non-assessable, and constitute all of the
issued and outstanding shares of capital stock of each issuer. Set forth in Schedule I and Schedule
IV hereto is a true, complete and accurate list of all shares of stock issued by the Company’s
direct Subsidiaries and all other securities owned by the Company

     SECTION
5. Covenants. The Company covenants and agrees with Subordinated Collateral
Agent that from and after the date of this Security Agreement and until the Secured Obligations
have been completely and finally paid in full:

9

 

     5.1 Further Assurances; Pledge of Instruments. At any time and from time to time, upon
the written request of Subordinated Collateral Agent, and at the sole expense of the Company, the
Company shall promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as Subordinated Collateral Agent may reasonably deem
desirable to obtain the full benefits of this Security Agreement and of the rights and powers
herein granted, including, without limitation, (a) using its commercially reasonable efforts to
secure all consents and approvals necessary or appropriate for the grant of a security interest to
Subordinated Collateral Agent in any Contract or license held by the Company or in which the
Company has any rights not heretofore assigned, (b) filing any financing statements, amendments or
continuation statements under the UCC with respect to the security interests granted hereby, (c)
filing or cooperating with Subordinated Collateral Agent in filing any forms or other documents
required to be filed with the United States Patent and Trademark Office, United States Copyright
Office, or any filings in any foreign jurisdiction or under any international treaty, required to
secure or protect Subordinated Collateral Agent’s interest in the Collateral, (d) transferring
Collateral to Subordinated Collateral Agent’s possession (if a security interest in such Collateral
can be perfected and free from an adverse claim only by possession), (e) filing financing
statements as consignor pursuant to Sections 9-505(a) and 9-324(b) of the UCC (or any other then
applicable provision of the UCC) in such jurisdictions as the Company maintains Inventory on
consignment, (f) if requested by Subordinated Collateral Agent, placing the interest of
Subordinated Collateral Agent as lienholder on the certificate of title (or other evidence of
ownership) of any vehicle owned by the Company or in or with respect to which the Company holds a
beneficial interest, (g) obtaining waivers of Liens from landlords and mortgagees as required
pursuant to the Purchase Agreement, (h) obtaining written acknowledgements from
consignees, warehouse and other bailees of the prior lien of Subordinated Collateral Agent
in and to the Collateral and that such third party is holding possession of the Collateral for the
benefit of Subordinated Collateral Agent, and (i) using its commercially reasonable efforts to
assist Subordinated Collateral Agent in obtaining control under the UCC with respect to any
Collateral consisting of Deposit Accounts (with a balance that currently exceeds or is at any time
expected to exceed $25,000), Securities Accounts (with investment or other assets that currently
exceed or are at any time expected to exceed $25,000), Investment Property, Letter-of-Credit Rights
and Electronic Chattel Paper. The Company also hereby authorizes Subordinated Collateral Agent,
to the extent permitted by applicable law, to file any such financing statement, amendment or
continuation statement (including consignment filings) without the signatures of the Company. If
any amount payable under or in connection with any of the Collateral is or shall become evidenced
by any Instrument, such Instrument, other than checks and notes received in the ordinary course of
the Company’s business, shall be duly endorsed in a manner satisfactory to Subordinated Collateral
Agent or Bank Agent and delivered to Subordinated Collateral Agent or Bank Agent promptly upon the
Company’s receipt thereof. The Company agrees to promptly deliver all certificated securities to
Subordinated Collateral Agent or Bank Agent in suitable form for transfer, together with all duly
executed instruments of transfer or assignments in blank.

     5.2 Continuous Pledge of Investment Property. The Company will, at all times, keep
pledged to Subordinated Collateral Agent pursuant hereto all Investment Property constituting
Collateral, all dividends and distributions with respect thereto, and all other Collateral and
other Securities, Instruments, Proceeds and rights from time to time received by or distributable
to the Company in respect of any Collateral.

10

 

     5.3 Maintenance of Records. The Company shall keep and maintain at the Company’s own
cost and expense satisfactory and complete records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with respect to the
Collateral and all other dealings with the Collateral. If requested by Subordinated Collateral
Agent, all Chattel Paper shall be marked with the following legend: “This writing and the
obligations evidenced or secured hereby are subject to the security interest of Prudential Capital
Partners II, L.P., as Subordinated Collateral Agent, created by that certain Security Agreement,
dated as of March 23, 2006, as the same may thereafter from time to time be amended, modified,
supplemented or restated.”

     5.4 Limitation on Liens on Collateral. The Company shall not create, permit or
suffer to exist, and shall defend the Collateral against and take such other action as is necessary
to remove, any Lien on the Collateral, except the Permitted Liens. The Company shall further defend
the right, title and interest of Subordinated Collateral Agent in and to any of the Company’s
rights under the Chattel Paper, Contracts, Documents, General Intangibles, Instruments
and Investment Property and to the Equipment and Inventory and in and to the Proceeds thereof
against the claims and demands of all Persons whomsoever.

     5.5 Limitations on Modifications of Accounts, Etc. Upon the occurrence and during
the continuation of any Event of Default, the Company shall not, without Bank Agent’s prior written
consent so long as the Credit Agreement is in effect and without Subordinated Collateral Agent’s
prior written consent any time thereafter, grant any extension of the time of payment of any of the
Accounts, Chattel Paper, Instruments or amounts due under any Contract or Document, compromise,
compound or settle the same for less than the full amount thereof, release, wholly or partly, any
Person liable for the payment thereof, or allow any credit or discount whatsoever thereon other
than trade discounts and rebates granted in the ordinary course of the Company’s business.

     5.6 Further Identification of Collateral. The Company shall, if so requested by
Subordinated Collateral Agent, furnish to Subordinated Collateral Agent, as often as Subordinated
Collateral Agent shall reasonably request, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the Collateral as Subordinated
Collateral Agent may reasonably request, all in reasonable detail.

     5.7 Notices. The Company shall advise Subordinated Collateral Agent promptly, in
reasonable detail, of (a) any material Lien, other than Permitted Liens, attaching to or asserted
against any of the Collateral, (b) any material change in the composition of the Collateral and (c)
the occurrence of any other event which might have or result in a Material Adverse Effect with
respect to the Collateral or on the security interest created hereunder.

     5.8 Continuous Perfection. The Company shall not change its name, identity or
corporate structure in any manner which might make any financing or continuation statement filed in
connection herewith seriously misleading within the meaning of Section 9-506 of the UCC (or any
other then applicable provision of the UCC) unless the Company shall have given Subordinated
Collateral Agent at least thirty (30) days’ prior written notice thereof and shall have taken all
action (or made arrangements to take such action substantially simultaneously with such change if
it is impossible to take such action in advance) necessary or reasonably

11

 

requested by Subordinated Collateral Agent to amend such financing statement or continuation
statement so that it is not seriously misleading. The Company shall not change such chief
executive office or principal place of business or remove or cause to be removed, except in the
ordinary course of the Company’s business, the Collateral or the records concerning the Collateral
from those premises except as permitted by the Purchase Agreement.

     5.9 Authorizations with Respect to Financing Statements, etc. The
Company hereby irrevocably authorizes Subordinated Collateral Agent at any time and from time
to time to file in any filing office in any UCC jurisdiction any initial financing statements and
amendments thereto that (i) indicate the Collateral (A) as “all assets” of the Company or words of
similar effect, regardless of whether any particular asset comprised in the Collateral falls within
the scope of Article 9 of the UCC of such jurisdiction, or (B) as being of an equal or lesser scope
or with greater detail, and (ii) contain any other information required by Chapter 5 of Article 9
of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment,
including (A) whether the Company is an organization, the type of organization and any organization
identification number issued to the Company, and (B) in the case of a financing statement filed as
a fixture filing or indicating any Collateral as as-extracted collateral or timber to be cut, a
sufficient description of the real property to which such Collateral relates. The Company agrees to
furnish any such information to Subordinated Collateral Agent promptly upon request. The Company
also ratifies its authorization for Subordinated Collateral Agent to have filed in any UCC
jurisdiction any initial financing statements or amendments thereto if filed prior to the date
hereof.

     5.10 No Reincorporation. The Company shall not reincorporate or reorganize itself
under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or
organized as of the date hereof except as permitted in the Purchase Agreement.

     5.11 Terminations and Amendments Not Authorized. The Company
acknowledges that it is not authorized to file any amendment or termination statement with
respect to any financing statement relating to any security interest granted hereunder without the
prior written consent of Subordinated Collateral Agent and agrees that it will not do so without
the prior written consent of Subordinated Collateral Agent, subject to the Company’s rights under
Section 9-509(d)(2) of the UCC.

     SECTION 6. Subordinated Collateral Agent’s Appointment as Attorney-in-Fact.

          (a) From and after the occurrence of an Event of Default, the Company hereby irrevocably
constitutes and appoints Subordinated Collateral Agent, and any officer or Subordinated Collateral
Agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Company and in the name of the
Company or in its own name, from time to time at Subordinated Collateral Agent’s discretion, for
the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate
action and to execute and deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement and, without limiting the
generality of the foregoing, hereby gives Subordinated Collateral Agent the power and right, on
behalf of the Company, without notice to or assent by the Company, to do the following:

12

 

               (i) to ask, demand, collect, receive and give acquittances and
receipts for any and all monies due or to become due under any Collateral and, in the name of the
Company, in its own name or otherwise to take possession of, endorse and collect any checks,
drafts, note, acceptances or other Instruments for the payment of monies due under any Collateral
and to file any claim or to take or commence any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by Subordinated Collateral Agent for the purpose of
collecting any and all such monies due under any Collateral whenever payable;

               (ii) to pay or discharge any Liens, including, without
limitation, any tax lien, levied or placed on or threatened against the Collateral, to effect any
repairs or any insurance called for by the terms of this Security Agreement and to pay all or any
part of the premiums therefor and the costs thereof, which actions shall be for the benefit of
Subordinated Collateral Agent and the Holders and not the Company; and

               (iii) to (1) direct any person liable for any payment under or in
respect of any of the Collateral to make payment of any and all monies due or to become due
thereunder directly to Subordinated Collateral Agent or as Subordinated Collateral Agent shall
direct, (2) receive payment of any and all monies, claims and other amounts due or to become due
at any time arising out of or in respect of any Collateral, (3) sign and endorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with Accounts and other Instruments and
Documents constituting or relating to the Collateral, (4) commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect of any Collateral, (5)
defend any suit, action or proceeding brought against the Company with respect to any Collateral,
(6) settle, compromise or adjust any suit, action or proceeding described above and, in connection
therewith, give such discharges or releases as Subordinated Collateral Agent may deem appropriate,
(7) sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Subordinated Collateral Agent were the absolute owner
thereof for all purposes, and to do, at Subordinated Collateral Agent’s option and the Company’s
expense, at any time, or from time to time, all acts and things which Subordinated Collateral
Agent may reasonably deem necessary to protect, preserve or realize upon the Collateral and
Subordinated Collateral Agent’s security interest therein in order to effect the intent of this
Security Agreement, all as fully and effectively as the Company might do.

          (b) the Company hereby authorizes and ratifies, to the extent permitted by law, all that
Subordinated Collateral Agent as said attorney in fact shall lawfully do or cause to be done by
virtue hereof. The power of attorney granted pursuant to this Section 6 is a power coupled
with an interest and shall be irrevocable until the Secured Obligations are completely and
indefeasibly paid and performed in full.

          (c) The powers conferred on Subordinated Collateral Agent and the Holders hereunder are solely
to protect Subordinated Collateral Agent’s and the Holders’ interests in the Collateral and shall
not impose any duty upon Subordinated Collateral Agent or the Holders to exercise any such powers.
Subordinated Collateral Agent shall have no duty as to any Collateral, including any responsibility
for (a) taking any necessary steps to preserve rights

13

 

against prior parties or any other rights pertaining to any Collateral or (b) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Investment Property, whether or not Subordinated Collateral Agent has or is deemed
to have knowledge of such matters. Subordinated Collateral Agent shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees, Subordinated Collateral Agents or representatives shall
be responsible to the Company for any act or failure to act, except for its own gross negligence
or willful misconduct.

          (d) the Company also authorizes Subordinated Collateral Agent, at any time and from time to
time upon the occurrence and during the continuation of any Event of Default, to (i) communicate in
its own name with any party to any Contract with regard to the assignment of the right, title and
interest of the Company in and under the Contracts hereunder and other matters relating thereto and
(ii) execute, in connection with the sale of Collateral provided for in Section 7, below,
any endorsements, assignments or other instruments of conveyance or transfer with respect to the
Collateral.

          (e) If the Company fails to perform or comply with any of its agreements contained herein and
Subordinated Collateral Agent, as provided for by the terms of this Security Agreement, shall
perform or comply, or otherwise cause performance or compliance, with such agreement, the
reasonable expenses, including reasonable attorneys’ fees and costs, of Subordinated Collateral
Agent incurred in connection with such performance or compliance, together with interest thereon at
a rate of interest equal to the per annum rate of interest charged on the Subordinated Notes, shall
be payable by the Company to Subordinated Collateral Agent within five (5) Business Days of demand
and shall constitute Secured Obligations secured hereby.

     SECTION 7. Rights and Remedies Upon Default.

          7.1 Generally.

               (a) If any Event of Default shall occur and be continuing, Subordinated Collateral Agent
may exercise, in addition to all other rights and remedies granted to it under this Security
Agreement, the Purchase Agreement, the other Transaction Documents and under any other instrument
or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies
of a secured party under the UCC. Without limiting the generality of the foregoing, the Company
expressly agrees that in any such event Subordinated Collateral Agent, without demand of
performance or other demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon the Company or any other person (all and
each of which demands, advertisements and notices are hereby expressly waived to the maximum extent
permitted by the UCC and other applicable law), may (i) reclaim, take possession, recover, store,
maintain, finish, repair, prepare for sale or lease, ship, advertise for sale or lease and sell or
lease (in the manner provided for herein) the Collateral, and in connection with liquidation of the
Collateral and collection of the accounts receivable pledged as Collateral, use any trademark,
trade name, trade style, copyright, or process used or owned by the Company; and (ii) forthwith
collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may
forthwith sell, lease, assign, give an

14

 

option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or private sale or
sales, at any exchange or broker’s board or at any of Subordinated Collateral Agent’s offices or
elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Company authorizes Subordinated Collateral Agent, on the terms
set forth in this Section 7, to enter the premises where the Collateral is located, to
take possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which, in the opinion of Subordinated Collateral Agent, appears
to be prior or superior to its security interest. Subordinated Collateral Agent shall have the
right upon any such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any
right or equity of redemption, which equity of redemption the Company hereby releases.
Subordinated Collateral Agent may sell the Collateral without giving any warranties as to the
Collateral and may specifically disclaim any warranties of title, which procedures shall not be
considered to adversely affect the commercial reasonableness of any sale of the Collateral. The
Company further agrees, at Subordinated Collateral Agent’s request, to assemble the Collateral and
make it available to Subordinated Collateral Agent at places which Subordinated Collateral Agent
shall reasonably select, whether at the Company’s premises or elsewhere. Subordinated Collateral
Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale as provided in Section 7.1(g), below, and only after so paying over
such net proceeds and after the payment by Subordinated Collateral Agent of any other amount
required by any provision of law, including Section 9-608(a)(1)(C) of the UCC (or any other then
applicable provision of the UCC), need Subordinated Collateral Agent account for the surplus, if
any, to the Company. To the maximum extent permitted by applicable law, the Company waives all
claims, damages, and demands against Subordinated Collateral Agent arising out of the
repossession, retention or sale of the Collateral except such as arise out of the gross negligence
or willful misconduct of Subordinated Collateral Agent. The Company agrees that Subordinated
Collateral Agent need not give more than ten (10) days’ prior written notice (which notification
shall be deemed given in accordance with the Purchase Agreement) of the time and place of any
public sale or of the time after which a private sale may take place and that such notice is
reasonable notification of such matters.

               (b) As to any Collateral constituting certificated securities or uncertificated securities,
if, at any time when Subordinated Collateral Agent shall determine to exercise its right to sell
the whole or any part of such Collateral hereunder, such Collateral or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under Securities Act of 1933, as
amended (as so amended the “Act”), Subordinated Collateral Agent may, in its discretion (subject
only to applicable requirements of law), sell such Collateral or part thereof by private sale in
such manner and under such circumstances as Subordinated Collateral Agent may deem necessary or
advisable, but subject to the other requirements of this Section 7.1(b), and shall not be
required to effect such registration or cause the same to be effected. Without limiting the
generality of the foregoing, in any such event Subordinated Collateral Agent may, in its sole
discretion, (i) in accordance with applicable securities laws, proceed to make such private sale
notwithstanding that a registration statement for the purpose of registering such Collateral or
part thereof could be or shall have been filed under the Act; (ii) approach and negotiate with a
single possible purchaser to effect such sale; and (iii) restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own

15

 

account, for investment, and not with a view to the distribution or sale of such Collateral or
part thereof. In addition to a private sale as provided above in this Section 7.1(b), if
any of such Collateral shall not be freely distributable to the public without registration under
the Act at the time of any proposed sale hereunder, then Subordinated Collateral Agent shall not
be required to effect such registration or cause the same to be effected but may, in its sole
discretion (subject only to applicable requirements of law), require that any sale hereunder
(including a sale at auction) be conducted subject to such restrictions as Subordinated Collateral
Agent may, in its sole discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with the Bankruptcy
Code and other laws affecting the enforcement of creditors’ rights and the Act and all applicable
state securities laws.

               (c) the Company agrees that in any sale of any of such Collateral, whether at a foreclosure
sale or otherwise, Subordinated Collateral Agent is hereby authorized to comply with any limitation
or restriction in connection with such sale as it may be advised by counsel is necessary in order
to avoid any violation of applicable law (including compliance with such procedures as may restrict
the number of prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications and restrict such prospective bidders and purchasers to
Persons who will represent and agree that they are purchasing for their own account for investment
and not with a view to the distribution or resale of such Collateral), or in order to obtain any
required approval of the sale or of the purchaser by any governmental authority, and the Company
further agrees that such compliance shall not result in such sale being considered or deemed not to
have been made in a commercially reasonable manner, nor shall Subordinated Collateral Agent be
liable nor accountable to the Company for any discount allowed by the reason of the fact that such
Collateral is sold in compliance with any such limitation or restriction.

               (d) the Company also agrees to pay all fees, costs and expenses of Subordinated Collateral
Agent, including, without limitation, attorneys’ fees and costs, incurred in connection with the
enforcement of any of its rights and remedies hereunder.

               (e) the Company hereby waives presentment, demand, protest or any notice (to the maximum
extent permitted by applicable law) of any kind in connection with this Security Agreement or any
Collateral.

               (f) the Company agrees that a breach of any covenants contained in this Section 7 will
cause irreparable injury to Subordinated Collateral Agent and the Holders, that in such event
Subordinated Collateral Agent and the Holders would have no adequate remedy at law in respect of
such breach and, as a consequence, agrees that in such event each and every covenant contained in
this Section 7 shall be specifically enforceable against the Company, and the Company
hereby waives and agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that the Secured Obligations are not then due and payable.

               (g) The proceeds of any sale, disposition or other realization upon all or any part of the
Collateral shall be applied by Subordinated Collateral Agent to the Secured Obligations in any
manner whatsoever as Subordinated Collateral Agent shall choose in its sole and absolute
discretion.

16

 

     7.2 Voting Rights; Dividends. The Company agrees that from and after the occurrence
of an Event of Default and the Company’s receipt of written notice from Subordinated Collateral
Agent that all voting and Distribution rights of the Company with respect to the Collateral are
terminated:

          (a) The Company shall deliver to the Subordinated Collateral Agent all dividends,
distributions, Securities, Instruments, Proceeds and all other cash payments or other rights
received by or distributable to the Company in respect of any Collateral;

          (b) Subordinated Collateral Agent may (but shall not be obligated to) exclusively exercise the
voting power and all other incidental rights of ownership with respect to any pledged Investment
Property and the Company hereby grants Subordinated Collateral Agent an irrevocable proxy,
exercisable under such circumstances to vote such pledged Collateral;

          (c) The Company shall promptly deliver to Subordinated Collateral Agent such additional
proxies and other documents as may be necessary to allow Subordinated Collateral Agent to exercise
such voting power; and

          (d) All dividends, distributions, Securities, Instruments, Proceeds and all other cash
payments or other rights which may be at any time or from time to time held by the the Company in
respect of any Collateral which the Company is obligated to deliver to Subordinated Collateral
Agent shall, until such delivery to Subordinated Collateral Agent, be held by the Company separate
from its other property in trust for Subordinated Collateral Agent.

     Notwithstanding the foregoing, prior to the occurrence of an Event of Default and the
Company’s receipt of the above referenced notice, the Company may exercise or refrain from
exercising any and all voting and other consensual rights pertaining to the Collateral or any part
thereof; provided, however, that the Company shall not exercise or refrain from exercising
any such rights where the consequence of such action or inaction would be (i) to impair any
Collateral, the Lien granted to Subordinated Collateral Agent on behalf of the Holders therein, the
first priority of such Lien or Subordinated Collateral Agent’s and the Holders’ rights and remedies
hereunder with respect to any Collateral or (ii) otherwise inconsistent with the terms of this
Security Agreement and the other Transaction Documents.

     SECTION 8. Limitation on Subordinated Collateral Agent’s Duty in Respect of
Collateral. Subordinated Collateral Agent shall be deemed to have acted reasonably in the
custody, preservation and disposition of any of the Collateral if it complies with the obligations
of a secured party under Section 9-207 of the UCC (or any other then applicable provision of the
UCC).

     SECTION 9. Reinstatement. To the extent permitted by law, this Security Agreement
shall remain in full force and effect and continue to be effective should any petition be filed by
or against the Company for liquidation or reorganization, should the Company become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee be appointed for
all or any significant part of the Company’s property and assets, and shall continue to be
effective or be reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in

17

 

amount, or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as
though such payment or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

     SECTION 10. Miscellaneous.

          10.1 Notices. Except as otherwise specified herein, all notices, requests, demands,
consents, instructions or other communications to or upon the Company or Subordinated Collateral
Agent under this Security Agreement shall be given as provided in paragraph 12I of the Purchase
Agreement.

          10.2 Partial Invalidity. If at any time any provision of this Security Agreement is or
becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither
the legality, validity or enforceability of the remaining provisions of this Security Agreement nor
the legality, validity or enforceability of such provision under the law of any other jurisdiction
shall in any way be affected or impaired thereby.

          10.3 Headings. The section headings and captions appearing in this Security Agreement
are included solely for convenience of reference and are not intended to affect the interpretation
of any provision of this Security Agreement.

          10.4 No Waiver; Cumulative Remedies.

               (a) Subordinated Collateral Agent shall not by any act, delay, omission or otherwise be deemed
to have waived any of its rights or remedies hereunder or under the Purchase Agreement or the other
Transaction Documents, nor shall any single or partial exercise of any right or remedy hereunder or
thereunder on any one or more occasions preclude the further exercise thereof or the exercise of any
other right or remedy under any of the Transaction Documents.

               (b) The rights and remedies hereunder provided or provided under the Purchase Agreement or the
other Transaction Documents are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights and remedies provided by law or by any of the other Transaction Documents.

               (c) None of the terms or provisions of this Security Agreement may be waived, altered,
modified or amended except by an instrument in writing, duly executed by the Company and
Subordinated Collateral Agent (with the written approval of the Required Holder(s) or such other
Person, if such approval is required under the Purchase Agreement).

          10.5 Time is of the Essence. Time is of the essence for the performance of each of the
terms and provisions of this Security Agreement.

          10.6 Termination of this Security Agreement. Subject to Section 9, above, this
Security Agreement shall terminate upon the full, complete and final payment of the Secured
Obligations and the termination of the commitments under the Purchase Agreement.

18

 

          10.7 Successors and Assigns. This Security Agreement and all obligations of the
Company hereunder shall be binding upon the successors and permitted assigns of the Company, and
shall, together with the rights and remedies of Subordinated Collateral Agent on behalf of the
Holders hereunder, inure to the benefit of Subordinated Collateral Agent, the Holders, any future
holder of the Notes and their respective successors and assigns. The Company may not assign or
transfer its rights or obligations under this Security Agreement without the prior written consent
of Subordinated Collateral Agent and each Holder. Any purported assignment or transfer in
contravention of the foregoing shall be null and void. No sales of participations, other than
sales, assignments, transfers or other dispositions of any agreement governing or instrument
evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner
affect the security interest created herein and granted to Subordinated Collateral Agent on behalf
of the Holders hereunder.

          10.8 Further Indemnification. The Company agrees to pay, and to save Subordinated
Collateral Agent and the Holders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the
Collateral or in connection with any
of the transactions contemplated by this Security Agreement.

          10.9 Governing Law. THIS SECURITY AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF
ILLINOIS (EXCLUDING ANY CONFLICTS OF LAW RULES WHICH WOULD OTHERWISE CAUSE THIS AGREEMENT TO BE
CONSTRUED OR ENFORCED IN ACCORDANCE WITH, OR THE RIGHTS OF THE PARTIES TO BE GOVERNED BY, THE LAWS
OF ANY OTHER JURISDICTION).

          10.10 Counterparts. This Security Agreement may be executed in any number of identical
counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a
complete, executed original for all purposes. Transmission by telecopier of an executed counterpart
of this Security Agreement shall be deemed to constitute due and sufficient delivery of such
counterpart.

          10.11 Intercreditor Agreement. The Liens created by this Security Agreement and the
exercise of any right or remedy hereunder are subject to the Intercreditor Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, the Company and Subordinated Collateral Agent have caused this Security
Agreement to be executed as of the day and year first above written.

	 	 	 	 	 	 	 

	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT DIRECT MARKETING, INC., a 

Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	SUBORDINATED COLLATERAL AGENT:	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

20

 

SCHEDULE I

COLLATERAL REQUIRING POSSESSION FOR PERFECTION 

SCHEDULE I

 

 

SCHEDULE II

LETTER-OF-CREDIT RIGHTS AND COMMERCIAL TORT CLAIMS

SCHEDULE II

 

 

SCHEDULE III

DEPOSIT ACCOUNTS

SCHEDULE III

 

 

SCHEDULE IV

SECURITIES ACCOUNTS

SCHEDULE IV

 

 

EXHIBIT H

[FORM OF SUBSIDIARY SECURITY AGREEMENT]

     THIS SUBSIDIARY SECURITY AGREEMENT, dated as of March 23, 2006, is made by and between each of
the Persons listed on the signature pages hereto (each a “Grantor” and collectively,
“Grantors”), and PRUDENTIAL CAPITAL PARTNERS II, L.P., as collateral agent for the Holders
referenced below (in such capacity, “Subordinated Collateral Agent”).

RECITALS 

     A. Pursuant to that certain Securities Purchase Agreement, dated concurrently herewith (as the
same from time to time hereafter may be amended, modified, supplemented or restated, the
“Purchase Agreement”), by and among Fingerhut Direct Marketing, Inc., a Delaware
corporation, (the “Company”) and the purchasers party thereto (collectively, the
“Purchasers” and, together with any person who becomes a holder of any Subordinated Note (as
defined below) the “Holders”), pursuant to which the Purchasers have agreed, among other
things, to purchase $30,000,000 aggregate principal amount of the 13.00% Senior Subordinated
Secured Notes due, March 24, 2013 (the “Subordinated Notes”) of the Company for the
purposes, and on the terms and subject to the conditions, set forth in the Purchase Agreement.

     B. Prior to the closing of the Purchase Agreement and the purchase of the Subordinated Notes
and Warrants of the Company, Subordinated Collateral Agent has required that Grantors enter into
that certain Guaranty Agreement dated concurrently herewith in favor of Subordinated Collateral
Agent on behalf of the Holders, guaranteeing the Obligations as defined in the Purchase Agreement
(the “Subsidiary Guaranty”).

     C. The Purchasers’ obligations to purchase Subordinated Notes of the Company under the
Purchase Agreement are subject, among other conditions, to receipt by Subordinated Collateral Agent
of this Security Agreement, duly executed by Grantors.

AGREEMENT

     NOW, THEREFORE, in consideration of the above recitals and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, Grantors hereby agree
with Subordinated Collateral Agent as follows:

     SECTION 1. Definitions and Interpretation. Unless otherwise defined herein, all
capitalized terms used herein and defined in the Purchase Agreement shall have the respective
meanings given to those terms in the Purchase Agreement, and all terms defined in the UCC (as
hereinafter defined) shall have the respective meanings given to those terms in the UCC. When used
in this Security Agreement, the following terms shall have the following respective meanings:

     “Account Debtor” means any “account debtor,” as such term is defined in
Section 9-102(a)(3) of the UCC (or any other then applicable provision of the UCC).

     “Account” means any “account,” as such term is defined in Section 9-102(a)(2) of the
UCC (or any other then applicable provision of the UCC) and, in any event, shall include,

 

 

without limitation, all accounts receivable, book debts and other forms of obligations (other than
forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter
received or acquired by or belonging or owing to any Grantor (including, without limitation, under
any trade name, style or division thereof) whether arising out of goods sold or services rendered
by such Grantor or from any other transaction, whether or not the same involves the sale of goods
or services by such Grantor (including, without limitation, any such obligation which may be
characterized as an account or contract right under the UCC) and all of Grantors’ rights in, to and
under all purchase orders or receipts now owned or hereafter acquired by it for goods or services,
and all of such Grantor’s rights to any goods represented by any of the foregoing (including,
without limitation, unpaid seller’s rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become
due to a Grantor under all purchase orders and contracts for the sale of goods or the performance
of services or both by such Grantor (whether or not yet earned by performance on the part of a
Grantor or in connection with any other transaction), now in existence or hereafter occurring,
including, without limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any Person with respect
to any of the foregoing.

     “Chattel Paper” means any “chattel paper,” as such term is defined in Section
9-102(a)(11) of the UCC (or any other then applicable provision of the UCC), including, without
limitation, electronic chattel paper and tangible chattel paper.

     “Collateral” shall have the meaning assigned to such term in Section 2 of this
Security Agreement.

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

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

     “Deposit Account” means any “deposit account” as such term is defined in Section
9-102(a)(29) of the UCC (or any other then applicable provision of the UCC), and should include,
without limitation, any demand, time, savings passbook or like account, now or hereafter maintained
by or for the benefit of a Grantor, or in which a Grantor now holds or hereafter acquires any
interest, with a bank, savings and loan association, credit union or like organization and all
funds and amounts therein, whether or not restricted or designated for a particular purpose.

     “Documents” means any “documents,” as such term is defined in Section 9-102(a)(30) of
the UCC (or any other then applicable provision of the UCC).

2

 

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

     “General Intangibles” means any “general intangibles,” as such term is defined in
Section 9-102(a)(42) of the UCC (or any other then applicable provision of the UCC) and, in any
event, shall include, without limitation, all right, title and interest which a Grantor may now or
hereafter have in or under any Contract, all customer lists, all proprietary or confidential
information, inventions (whether or not patented or patentable), interests in partnerships, joint
ventures and other business associations, permits, books and records, goodwill, claims in or under
insurance policies, including unearned premiums, Payment Intangibles, Software, uncertificated
securities, cash and other forms of money or currency, rights to receive tax refunds and other
payments and rights of indemnification.

     “Instruments” means any “instrument,” as such term is defined in Section
9-102(a)(47) of the UCC (or any other then applicable provision of the UCC) including, without
limitation, all notes, certificated securities and all other evidences of indebtedness, other than
instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper.

     “Intercreditor Agreement” means the Intercreditor Agreement, dated as of March 23,
2006, between the Subordinated Collateral Agent and the Bank Agent.

     “Inventory” means any “inventory,” as such term is defined in Section 9-102(a)(48) of
the UCC (or any other then applicable provision of the UCC), wherever located, now or hereafter
owned or acquired by a Grantor or in which a Grantor now holds or hereafter acquires any interest,
and, in any event, shall include, without limitation, all inventory, goods and other personal
property which are held by or on behalf of a Grantor for sale or lease or are furnished or are to
be furnished under a contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in a Grantor’s business, or the processing,
packaging, promotion, delivery or shipping of the same, and all finished goods whether or not such
inventory is listed on any schedules, assignments or reports furnished to Subordinated Collateral
Agent from time to time and whether or not the same is in transit or in the constructive, actual or
exclusive occupancy or possession of a Grantor or is held by a Grantor or by others for a Grantor’s
account, including, without limitation, all goods covered by purchase orders and contracts with
suppliers and all goods billed and held by suppliers and all inventory of a Grantor which may be
located on the premises of a Grantor or of any carriers, forwarding Subordinated Collateral Agents,
truckers, warehousemen, vendors, selling Subordinated Collateral Agents or other persons.

3

 

     “Investment Property” means any “investment property,” as such term is defined in
Section 9-102(a)(49) of the UCC (or any other then applicable provision of the UCC) and shall
include, without limitation, all certificated securities, uncertificated securities, security
entitlements, security accounts, commodity contracts and commodity accounts as each such term is
defined in the UCC.

     “Letter-of-Credit Right” means “letter-of-credit right,” as such term is defined in
Section 9-102(a)(51) of the UCC (or any other then applicable provision of the UCC).

     “Payment Intangible” means “payment intangible,” as such term is defined in Section
9-102(a)(61) of the UCC (or any other then applicable provision of the UCC).

     “Permitted Liens” shall mean (a) “Permitted Liens” as defined in the Purchase
Agreement and (b) Liens permitted by paragraph 6A(i) of the Purchase Agreement.

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

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

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

     “Security Agreement” means this Security Agreement and all exhibits hereto, as the
same may from time to time be amended, modified, supplemented or restated.

     “Software” means “software,” as such term is defined in Section 9-102(a)(75) of the
UCC (or any other then applicable provision of the UCC).

     “Supporting Obligation” means “supporting obligation,” as such term is defined in
Section 9-102(a)(77) of the UCC (or any other then applicable provision of the UCC).

4

 

     “UCC” means the Uniform Commercial Code as the same may, from time to time, be in
effect in the State of Illinois; provided, however, in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of Subordinated Collateral
Agent’s security interest in any collateral is governed by the Uniform Commercial Code as in effect
in a jurisdiction other than the State of Illinois, the term “UCC” shall mean the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority and for purposes of definitions related to such
provisions.

     SECTION 2. Grant of Security Interest. As security for the Secured Obligations, and in
order to induce the Purchasers to enter into the Purchase Agreement and to purchase the
Subordinated Notes of the Company for the benefit of the Company upon the terms and subject to the
conditions thereof, each Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates
and transfers to Subordinated Collateral Agent on behalf of the Holders a security interest in and
to all of such Grantor’s right, title and interest in, to and under each of the following, whether
now owned or hereafter acquired or in which such Grantor now holds or hereafter acquires any
interest (all of which being hereinafter collectively called the “Collateral”) :

               (a) All Accounts;

               (b) All Chattel Paper;

               (c) All Commercial Tort Claims;

               (d) All Contracts;

               (e) All Deposit Accounts;

               (f) All Documents;

               (g) All Equipment;

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

               (i) All Instruments;

               (j) All Inventory;

               (k) All Investment Property;

               (l) All Letter-of-Credit Rights;

               (m) All Securities Accounts;

               (n) All Supporting Obligations;

               (o) All property of such Grantor held by Subordinated Collateral Agent or any Holder,
including, without limitation, all property of every description now or

5

 

hereafter in the possession or custody of or in transit to Subordinated Collateral Agent or
any Holder for any purpose, including, without limitation, safekeeping, collection or pledge, for
the account of such Grantor, or as to which such Grantor may have any right or power;

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

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

     Notwithstanding the foregoing, the pledge of Investment Property in Subparagraph (k) above
shall be limited, with respect to the stock of any foreign Subsidiary of a Grantor (whether now
owned or hereafter acquired), to: (a) 65% (or, if less, the full percentage owned by such Grantor)
of the issued and outstanding shares of each class of capital stock or other ownership interests
entitled to vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) (“Voting Stock”) of such
Subsidiary and (b) 100% (or, if less, the full percentage owned by such Grantor) of the issued and
outstanding shares of each class of capital stock or other ownership interests not entitled to vote
(within the meaning of Treas. Reg. Section 1.956-2(c)(2)) (“Non-Voting Stock”) of such Subsidiary.

     SECTION 3. Rights of Subordinated Collateral Agent; Collection of Accounts.

               (a) Notwithstanding anything contained in this Security Agreement to the contrary, each
Grantor expressly agrees that it shall not default under any of its material Contracts, it shall
observe and perform all the conditions and obligations to be observed and performed by it
thereunder and that it shall perform all of its duties and obligations thereunder, all in
accordance with and pursuant to the terms and provisions of each such material Contract;
provided, however, that each Grantor may suspend performance of its obligations
under any material Contract in the event of a material breach of such material Contract by a third
party. Neither Subordinated Collateral Agent nor any Holder shall have any obligation or liability
under any Contract by reason of or arising out of this Security Agreement or the granting to
Subordinated Collateral Agent of a security interest therein or the receipt by Subordinated
Collateral Agent or any Holder of any payment relating to any Contract pursuant hereto, nor shall
Subordinated Collateral Agent nor any Holder be required or obligated in any manner to perform or
fulfill any of the obligations of any Grantor under or pursuant to any Contract, or to make any
payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it
or the sufficiency of any performance by any party under any Contract, or to present or file any
claim, or to take any action to collect or enforce any performance or the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time or times.

               (b) Subordinated Collateral Agent hereby authorizes each Grantor to collect its Accounts,
provided, that Subordinated Collateral Agent may, upon the occurrence and during the
continuation of any Event of Default and without notice, limit or terminate said authority at any
time. If required by Subordinated Collateral Agent at any time during the

6

 

continuation of any Event of Default, any Proceeds, when first collected by such Grantor,
received in payment of such Account or in payment for any of its Inventory or on account of any of
its Contracts shall be promptly deposited by such Grantor in precisely the form received (with all
necessary endorsements) in a special bank account maintained by Subordinated Collateral Agent
subject to withdrawal by Subordinated Collateral Agent only, as hereinafter provided, and until so
turned over shall be deemed to be held in trust by such Grantor for and as Subordinated Collateral
Agent’s property, and shall not be commingled with such Grantor’s other funds or properties. Such
Proceeds, when deposited, shall continue to be collateral security for all of the Secured
Obligations and shall not constitute payment thereof until applied as hereinafter provided. Upon
the occurrence and during the continuation of any Event of Default, Subordinated Collateral Agent
may, in its sole discretion, apply all or a part of the funds on deposit in said special account to
the principal of or interest on or both in respect of any of the Secured Obligations in accordance
with the provisions of Section 7.1(g), below, and any part of such funds which Subordinated
Collateral Agent elects not to so apply and deems not required as collateral security for the
Secured Obligations shall be paid over from time to time by Subordinated Collateral Agent to
Grantors. If an Event of Default has occurred and is continuing, at the request of Subordinated
Collateral Agent, Grantors shall deliver to Subordinated Collateral Agent all original and other
documents evidencing, and relating to, the sale and delivery of such Inventory and Grantors shall
deliver all original and other documents evidencing and relating to, the performance of labor or
service which created such Accounts, including, without limitation, all original orders, invoices
and shipping receipts.

     (c) Subordinated Collateral Agent may at any time, upon the occurrence and during the
continuation of any Event of Default, after first notifying Grantors of its intention to do so,
notify Account Debtors of Grantors, parties to the Contracts of Grantors, obligors in respect of
Instruments of Grantors and obligors in respect of Chattel Paper of Grantors that the Accounts and
the right, title and interest of Grantors in and under such Contracts, Instruments, and Chattel
Paper have been assigned to Subordinated Collateral Agent, and that payments shall be made directly
to Subordinated Collateral Agent. Upon the request of Subordinated Collateral Agent, Grantors shall
so notify its Account Debtors, parties to such Contracts, obligors in respect of such Instruments
and obligors in respect of such Chattel Paper. Upon the occurrence and during the continuation of
an Event of Default, Subordinated Collateral Agent may, in its name or in the name of others,
communicate with such Account Debtors, parties to such Contracts, obligors in respect of such
Instruments and obligors in respect of such Chattel Paper to verify with such parties, to
Subordinated Collateral Agent’s satisfaction, the existence, amount and terms of any such Accounts,
Contracts, Instruments or Chattel Paper.

     SECTION 4. Representations and Warranties.

          4.1 Each Grantor hereby represents and warrants to Subordinated Collateral Agent that:

               (a) Such Grantor is the sole legal and equitable owner of each item of the Collateral in
which it purports to grant a security interest hereunder, having good and merchantable title or
rights thereto free and clear of any and all Liens, except for the Permitted Liens.

7

 

               (b) No effective security agreement, financing statement, equivalent security or lien
instrument or continuation statement covering all or any part of the Collateral exists, except such
as may have been filed by such Grantor in favor of Subordinated Collateral Agent pursuant to this
Security Agreement or such as relate to other Permitted Liens.

               (c) This Security Agreement creates a legal and valid security interest on and in all of the
Collateral in which such Grantor now has rights, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been duly taken. Accordingly,
Subordinated Collateral Agent has a perfected first priority security interest in all of the
Collateral in which such Grantor now has rights, subject only to the Permitted Liens. This Security
Agreement will create a legal and valid and perfected first priority security interest in the
Collateral in which such Grantor later acquires rights, when such Grantor acquires those rights,
subject only to the Permitted Liens.

               (d) Each Grantor’s exact legal name is set forth on the signature page hereto above its
signature. Each Grantor was formed and is presently organized as a corporation under the laws of
the state set forth on the signature page hereto above its signature. Each Grantor’s chief
executive office, principal place of business, and the place where such Grantor maintains records
concerning the Collateral are presently located at the addresses set forth on Schedule V hereto.

               (e) All Collateral with respect to which a security interest may be perfected by the secured
party’s taking possession thereof, including, without limitation, all Chattel Paper, Instruments
and certificated securities, is set forth on Schedule I. All action necessary to protect and
perfect such security interest in each item set forth on Schedule I, including, without limitation,
the delivery of all originals of such Collateral together with any necessary assignment in blank of
certificated securities to Bank Agent, has been duly taken, or shall have been taken as of the
Closing Date. All Letter-of-Credit Rights and Commercial Torts Claims of Grantors are set forth on
Schedule II. The security interest of Subordinated Collateral Agent in the Collateral is prior in
right and interest to all other Liens, and is enforceable as such against creditors of and
purchasers from a Grantor, subject to Permitted Liens. Grantors shall amend Schedule II from time
to time within twenty (20) Business Days after obtaining any additional Letter-of-Credit Rights or
Commercial Tort Claims.

               (f) The amount represented by Grantors to Subordinated Collateral Agent from time to time as
owing by each Account Debtor or by all Account Debtors in respect of the Accounts of Grantors shall
at such time be the correct amount actually and unconditionally owing by such Account Debtors
thereunder.

               (g) The names and addresses of all financial institutions at which Grantors maintain their
respective Deposit Accounts and the account numbers and account names of such Deposit Accounts are
listed on Schedule III. Grantors shall amend Schedule III from time to time within twenty (20)
Business Days after opening any additional Deposit Account or closing or changing the account
number or account name on any existing Deposit Account.

8

 

               (h) The names and addresses of all institutions at which Grantors maintain their respective
Securities Accounts and the account numbers and account names of such Securities Accounts are
listed on Schedule IV. Grantors shall amend Schedule IV from time to time within twenty (20) Business
Days after opening any additional Securities Account or closing or changing the account number or
account name on any existing Securities Account.

               (i) Each Grantor is the sole holder of record and the sole beneficial owner of all
certificated securities and uncertificated securities pledged to Subordinated Collateral Agent by
such Grantor under Section 2 of this Security Agreement, free and clear of any adverse
claim, as defined in Section 8-102(a)(1) of the UCC (or any other then applicable provision of the
UCC), except for the lien created in favor of Subordinated Collateral Agent by this Security
Agreement and the other Transaction Documents and the lien created in favor of the Bank Agent.

          4.2 Special Representations with Respect to Pledged Investment Property 

               (a) No authorization, approval or other action by, and no notice to or filing with, any
Governmental Authority or any other Person is required for the exercise by the Subordinated
Collateral Agent of the voting or other rights provided for in this Security Agreement, except in
connection with a disposition of the Investment Property as may be required by laws affecting the
offering and sale of securities generally.

               (b) Each Grantor has delivered to Subordinated Collateral Agent, or so long as the Senior Debt
is outstanding, to the Bank Agent, together with all necessary stock powers, endorsements,
assignments and other necessary instruments of transfer, the originals of all stock certificates,
instruments, notes, other certificated securities, other Collateral and all certificates,
instruments and other writings evidencing the same.

               (c) All shares of the pledged Investment Property set forth on Schedule I and Schedule IV
are duly authorized and validly issued, fully paid, and non-assessable, and constitute all of the
issued and outstanding shares of capital stock of each issuer. Set forth in Schedule I and Schedule IV
hereto is a true, complete and accurate list of all shares of stock issued by a Grantor’s direct
Subsidiaries and all other securities owned by such Grantor

     SECTION 5. Covenants. Each Grantor covenants and agrees with Subordinated Collateral
Agent that from and after the date of this Security Agreement and until the Secured Obligations
have been completely and finally paid in full:

          5.1 Further Assurances; Pledge of Instruments. At any time and from time to time, upon
the written request of Subordinated Collateral Agent, and at the sole expense of a Grantor, such
Grantor shall promptly and duly execute and deliver any and all such further instruments and
documents and take such further action as Subordinated Collateral Agent may reasonably deem
desirable to obtain the full benefits of this Security Agreement and of the rights and powers
herein granted, including, without limitation, (a) using its commercially reasonable efforts to
secure all consents and approvals necessary or appropriate for the grant of a security interest to
Subordinated Collateral Agent in any Contract or license held by such Grantor or in which such
Grantor has any rights not heretofore assigned, (b) filing any financing statements,

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amendments or continuation statements under the UCC with respect to the security interests
granted hereby, (c) filing or cooperating with Subordinated Collateral Agent in filing any forms or
other documents required to be filed with the United States Patent and Trademark Office, United
States Copyright Office, or any filings in any foreign jurisdiction or under any international
treaty, required to secure or protect Subordinated Collateral Agent’s interest in the Collateral,
(d) transferring Collateral to Subordinated Collateral Agent’s possession (if a security interest
in such Collateral can be perfected and free from an adverse claim only by possession), (e) filing
financing statements as consignor pursuant to Sections 9-505(a) and 9-324(b) of the UCC (or any
other then applicable provision of the UCC) in such jurisdictions as such Grantor maintains
Inventory on consignment, (f) if requested by Subordinated Collateral Agent, placing the interest
of Subordinated Collateral Agent as lienholder on the certificate of title (or other evidence of
ownership) of any vehicle owned by such Grantor or in or with respect to which such Grantor holds a
beneficial interest, (g) obtaining waivers of Liens from landlords and mortgagees as required
pursuant to the Purchase Agreement, (h) obtaining written acknowledgements from consignees,
warehouse and other bailees of the prior lien of Subordinated Collateral Agent in and to the
Collateral and that such third party is holding possession of the Collateral for the benefit of
Subordinated Collateral Agent, and (i) using its commercially reasonable efforts to assist
Subordinated Collateral Agent in obtaining control under the UCC with respect to any Collateral
consisting of Deposit Accounts (with a balance that currently exceeds or is at any time expected to
exceed $25,000), Securities Accounts (with investment or other assets that currently exceed or are
at any time expected to exceed $25,000), Investment Property, Letter-of-Credit Rights and
Electronic Chattel Paper. Each Grantor also hereby authorizes Subordinated Collateral Agent, to the
extent permitted by applicable law, to file any such financing statement, amendment or continuation
statement (including consignment filings) without the signatures of such Grantor. If any amount
payable under or in connection with any of the Collateral is or shall become evidenced by any
Instrument, such Instrument, other than checks and notes received in the ordinary course of a
Grantor’s business, shall be duly endorsed in a manner satisfactory to Subordinated Collateral
Agent or Bank Agent and delivered to Subordinated Collateral Agent or Bank Agent promptly upon such
Grantor’s receipt thereof. Each Grantor agrees to promptly deliver all certificated securities to
Subordinated Collateral Agent or Bank Agent in suitable form for transfer, together with all duly
executed instruments of transfer or assignments in blank.

          5.2 Continuous Pledge of Investment Property. Each Grantor will, at all times, keep
pledged to Subordinated Collateral Agent pursuant hereto all Investment Property constituting
Collateral, all dividends and distributions with respect thereto, and all other Collateral and
other Securities, Instruments, Proceeds and rights from time to time received by or distributable
to such Grantor in respect of any Collateral.

          5.3 Maintenance of Records. Each Grantor shall keep and maintain at such Grantor’s own
cost and expense satisfactory and complete records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with respect to the
Collateral and all other dealings with the Collateral. If requested by Subordinated Collateral
Agent, all Chattel Paper shall be marked with the following legend: “This writing and the
obligations evidenced or secured hereby are subject to the security interest of Prudential Capital
Partners II, L.P., as Subordinated Collateral Agent, created by that certain Subsidiary Security

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Agreement, dated as of March 23, 2006, as the same may thereafter from time to time be amended,
modified, supplemented or restated.”

          5.4 Limitation on Liens on Collateral. No Grantor shall create, permit or suffer to
exist, and each Grantor shall defend the Collateral against and take such other action as is
necessary to remove, any Lien on the Collateral, except the Permitted Liens. Each Grantor shall
further defend the right, title and interest of Subordinated Collateral Agent in and to any of such
Grantor’s rights under the Chattel Paper, Contracts, Documents, General Intangibles, Instruments
and Investment Property and to the Equipment and Inventory and in and to the Proceeds thereof
against the claims and demands of all Persons whomsoever.

          5.5 Limitations on Modifications of Accounts, Etc. Upon the occurrence and during the
continuation of any Event of Default, no Grantor shall, without Bank Agent’s prior written consent
so long as the Credit Agreement is in effect and without Subordinated Collateral Agent’s prior
written consent any time thereafter, grant any extension of the time of payment of any of the
Accounts, Chattel Paper, Instruments or amounts due under any Contract or Document, compromise,
compound or settle the same for less than the full amount thereof, release, wholly or partly, any
Person liable for the payment thereof, or allow any credit or discount whatsoever thereon other
than trade discounts and rebates granted in the ordinary course of such Grantor’s business.

          5.6 Further Identification of Collateral. Each Grantor shall, if so requested by
Subordinated Collateral Agent, furnish to Subordinated Collateral Agent, as often as Subordinated
Collateral Agent shall reasonably request, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the Collateral as Subordinated
Collateral Agent may reasonably request, all in reasonable detail.

          5.7 Notices. Each Grantor shall advise Subordinated Collateral Agent promptly, in
reasonable detail, of (a) any material Lien, other than Permitted Liens, attaching to or asserted
against any of the Collateral, (b) any material change in the composition of the Collateral and (c)
the occurrence of any other event which might have or result in a Material Adverse Effect with
respect to the Collateral or on the security interest created hereunder.

          5.8 Continuous Perfection. No Grantor shall change its name, identity or corporate
structure in any manner which might make any financing or continuation statement filed in
connection herewith seriously misleading within the meaning of Section 9-506 of the UCC (or any
other then applicable provision of the UCC) unless such Grantor shall have given Subordinated
Collateral Agent at least thirty (30) days’ prior written notice thereof and shall have taken all
action (or made arrangements to take such action substantially simultaneously with such change if
it is impossible to take such action in advance) necessary or reasonably requested by Subordinated
Collateral Agent to amend such financing statement or continuation statement so that it is not
seriously misleading. No Grantor shall change such chief executive office or principal place of
business or remove or cause to be removed, except in the ordinary course of such Grantor’s
business, the Collateral or the records concerning the Collateral from those premises except as
permitted by the Purchase Agreement.

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          5.9 Authorizations with Respect to Financing Statements, etc. Each Grantor hereby
irrevocably authorizes Subordinated Collateral Agent at any time and from time to time to file in
any filing office in any UCC jurisdiction any initial financing statements and amendments thereto
that (i) indicate the Collateral (A) as “all assets” of a Grantor or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls within the scope of
Article 9 of the UCC of such jurisdiction, or (B) as being of an equal or lesser scope or with
greater detail, and (ii) contain any other information required by Chapter 5 of Article 9 of the
UCC for the sufficiency or filing office acceptance of any financing statement or amendment,
including (A) whether such Grantor is an organization, the type of organization and any
organization identification number issued to such Grantor, and (B) in the case of a financing
statement filed as a fixture filing or indicating any Collateral as as-extracted collateral or
timber to be cut, a sufficient description of the real property to which such Collateral relates.
Each Grantor agrees to furnish any such information to Subordinated Collateral Agent promptly upon
request. Each Grantor also ratifies its authorization for Subordinated Collateral Agent to have
filed in any UCC jurisdiction any initial financing statements or amendments thereto if filed prior
to the date hereof.

          5.10 No Reincorporation. No Grantor shall reincorporate or reorganize itself under the
laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of
the date hereof except as permitted in the Purchase Agreement.

          5.11 Terminations and Amendments Not Authorized. Each Grantor acknowledges that it is
not authorized to file any amendment or termination statement with respect to any financing
statement relating to any security interest granted hereunder without the prior written consent of
Subordinated Collateral Agent and agrees that it will not do so without the prior written consent
of Subordinated Collateral Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the
UCC.

     SECTION 6. Subordinated Collateral Agent’s Appointment as Attorney-in-Fact.

               (a) From and after the occurrence of an Event of Default, each Grantor hereby irrevocably
constitutes and appoints Subordinated Collateral Agent, and any officer or Subordinated Collateral
Agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor and in the name of such
Grantor or in its own name, from time to time at Subordinated Collateral Agent’s discretion, for
the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate
action and to execute and deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement and, without limiting the
generality of the foregoing, hereby gives Subordinated Collateral Agent the power and right, on
behalf of such Grantor, without notice to or assent by such Grantor, to do the following:

                    (i) to ask, demand, collect, receive and give acquittances and receipts for any and all monies
due or to become due under any Collateral and, in the name of such Grantor, in its own name or
otherwise to take possession of, endorse and collect any checks, drafts, note, acceptances or other
Instruments for the payment of monies due under any Collateral and to file any claim or to take or
commence any other action or proceeding in any

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court of law or equity or otherwise deemed appropriate by Subordinated Collateral Agent for
the purpose of collecting any and all such monies due under any Collateral whenever payable;

                    (ii) to pay or discharge any Liens, including, without limitation, any tax lien, levied or
placed on or threatened against the Collateral, to effect any repairs or any insurance called for
by the terms of this Security Agreement and to pay all or any part of the premiums therefor and the
costs thereof, which actions shall be for the benefit of Subordinated Collateral Agent and the
Holders and not such Grantor; and

                    (iii) to (1) direct any person liable for any payment under or in respect of any of the
Collateral to make payment of any and all monies due or to become due thereunder directly to
Subordinated Collateral Agent or as Subordinated Collateral Agent shall direct, (2) receive payment
of any and all monies, claims and other amounts due or to become due at any time arising out of or
in respect of any Collateral, (3) sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with Accounts and other Instruments and Documents constituting or relating to
the Collateral, (4) commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce
any other right in respect of any Collateral, (5) defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral, (6) settle, compromise or adjust any suit,
action or proceeding described above and, in connection therewith, give such discharges or releases
as Subordinated Collateral Agent may deem appropriate, (7) sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any of the Collateral as fully and completely as
though Subordinated Collateral Agent were the absolute owner thereof for all purposes, and to do,
at Subordinated Collateral Agent’s option and such Grantor’s expense, at any time, or from time to
time, all acts and things which Subordinated Collateral Agent may reasonably deem necessary to
protect, preserve or realize upon the Collateral and Subordinated Collateral Agent’s security
interest therein in order to effect the intent of this Security Agreement, all as fully and
effectively as such Grantor might do.

               (b) Each Grantor hereby authorizes and ratifies, to the extent permitted by law, all that
Subordinated Collateral Agent as said attorney in fact shall lawfully do or cause to be done by
virtue hereof. The power of attorney granted pursuant to this Section 6 is a power coupled with an
interest and shall be irrevocable until the Secured Obligations are completely and indefeasibly
paid and performed in full.

               (c) The powers conferred on Subordinated Collateral Agent and the Holders hereunder are solely
to protect Subordinated Collateral Agent’s and the Holders’ interests in the Collateral and shall
not impose any duty upon Subordinated Collateral Agent or the Holders to exercise any such powers.
Subordinated Collateral Agent shall have no duty as to any Collateral, including any responsibility
for (a) taking any necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral or (b) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any Investment Property,
whether or not Subordinated Collateral Agent has or is deemed to have knowledge of such matters.
Subordinated Collateral Agent shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers and neither it nor any of its officers, directors, employees,
Subordinated Collateral Agents or representatives shall be

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responsible to a Grantor for any act or failure to act, except for its own gross negligence or
willful misconduct.

               (d) Each Grantor also authorizes Subordinated Collateral Agent, at any time and from time to
time upon the occurrence and during the continuation of any Event of Default, to (i) communicate in
its own name with any party to any Contract with regard to the assignment of the right, title and
interest of such Grantor in and under the Contracts hereunder and other matters relating thereto
and (ii) execute, in connection with the sale of Collateral provided for in Section 7, below, any
endorsements, assignments or other instruments of conveyance or transfer with respect to the
Collateral.

               (e) If a Grantor fails to perform or comply with any of its agreements contained herein and
Subordinated Collateral Agent, as provided for by the terms of this Security Agreement, shall
perform or comply, or otherwise cause performance or compliance, with such agreement, the
reasonable expenses, including reasonable attorneys’ fees and costs, of Subordinated Collateral
Agent incurred in connection with such performance or compliance, together with interest thereon at
a rate of interest equal to the per annum rate of interest charged on the Subordinated Notes, shall
be payable by such Grantor to Subordinated Collateral Agent within five (5) Business Days of demand
and shall constitute Secured Obligations secured hereby.

     SECTION 7. Rights and Remedies Upon Default.

          7.1 Generally.

               (a) If any Event of Default shall occur and be continuing, Subordinated Collateral Agent may
exercise, in addition to all other rights and remedies granted to it under this Security Agreement,
the Purchase Agreement, the other Transaction Documents and under any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured
party under the UCC. Without limiting the generality of the foregoing, each Grantor expressly
agrees that in any such event Subordinated Collateral Agent, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon such Grantor or any other person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent permitted by the UCC
and other applicable law), may (i) reclaim, take possession, recover, store, maintain, finish,
repair, prepare for sale or lease, ship, advertise for sale or lease and sell or lease (in the
manner provided for herein) the Collateral, and in connection with liquidation of the Collateral
and collection of the accounts receivable pledged as Collateral, use any trademark, trade name,
trade style, copyright, or process used or owned by such Grantor; and (ii) forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell,
lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver
said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker’s board or at any of Subordinated Collateral
Agent’s offices or elsewhere at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Each Grantor authorizes Subordinated
Collateral Agent, on the terms set forth in this Section 7, to enter the premises where the
Collateral is located, to take possession of the

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Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which, in the opinion of Subordinated Collateral Agent, appears to be prior or
superior to its security interest. Subordinated Collateral Agent shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption such Grantor hereby releases. Subordinated Collateral Agent
may sell the Collateral without giving any warranties as to the Collateral and may specifically
disclaim any warranties of title, which procedures shall not be considered to adversely affect the
commercial reasonableness of any sale of the Collateral. Each Grantor further agrees, at
Subordinated Collateral Agent’s request, to assemble the Collateral and make it available to
Subordinated Collateral Agent at places which Subordinated Collateral Agent shall reasonably
select, whether at such Grantor’s premises or elsewhere. Subordinated Collateral Agent shall apply
the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as
provided in Section 7.1(g), below, and only after so paying over such net proceeds and
after the payment by Subordinated Collateral Agent of any other amount required by any provision of
law, including Section 9-608(a)(1)(C) of the UCC (or any other then applicable provision of the
UCC), need Subordinated Collateral Agent account for the surplus, if any, to a Grantor. To the
maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands
against Subordinated Collateral Agent arising out of the repossession, retention or sale of the
Collateral except such as arise out of the gross negligence or willful misconduct of Subordinated
Collateral Agent. Each Grantor agrees that Subordinated Collateral Agent need not give more than
ten (10) days’ prior written notice (which notification shall be deemed given in accordance with
the Purchase Agreement) of the time and place of any public sale or of the time after which a
private sale may take place and that such notice is reasonable notification of such matters.

               (b) As to any Collateral constituting certificated securities or uncertificated securities,
if, at any time when Subordinated Collateral Agent shall determine to exercise its right to sell
the whole or any part of such Collateral hereunder, such Collateral or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under Securities Act of 1933, as
amended (as so amended the “Act”), Subordinated Collateral Agent may, in its discretion (subject
only to applicable requirements of law), sell such Collateral or part thereof by private sale in
such manner and under such circumstances as Subordinated Collateral Agent may deem necessary or
advisable, but subject to the other requirements of this Section 7.1(b), and shall not be
required to effect such registration or cause the same to be effected. Without limiting the
generality of the foregoing, in any such event Subordinated Collateral Agent may, in its sole
discretion, (i) in accordance with applicable securities laws, proceed to make such private sale
notwithstanding that a registration statement for the purpose of registering such Collateral or
part thereof could be or shall have been filed under the Act; (ii) approach and negotiate with a
single possible purchaser to effect such sale; and (iii) restrict such sale to a purchaser who will
represent and agree that such purchaser is purchasing for its own account, for investment, and not
with a view to the distribution or sale of such Collateral or part thereof. In addition to a
private sale as provided above in this Section 7.1(b), if any of such Collateral shall not
be freely distributable to the public without registration under the Act at the time of any
proposed sale hereunder, then Subordinated Collateral Agent shall not be required to effect such
registration or cause the same to be effected but may, in its sole discretion (subject only to
applicable requirements of law), require that any sale hereunder (including a sale at

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auction) be conducted subject to such restrictions as Subordinated Collateral Agent may, in its
sole discretion, deem necessary or appropriate in order that such sale (notwithstanding any failure
so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the
enforcement of creditors’ rights and the Act and all applicable state securities laws.

               (c) Each Grantor agrees that in any sale of any of such Collateral, whether at a foreclosure
sale or otherwise, Subordinated Collateral Agent is hereby authorized to comply with any limitation
or restriction in connection with such sale as it may be advised by counsel is necessary in order
to avoid any violation of applicable law (including compliance with such procedures as may restrict
the number of prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications and restrict such prospective bidders and purchasers to
Persons who will represent and agree that they are purchasing for their own account for investment
and not with a view to the distribution or resale of such Collateral), or in order to obtain any
required approval of the sale or of the purchaser by any governmental authority, and such Grantor
further agrees that such compliance shall not result in such sale being considered or deemed not to
have been made in a commercially reasonable manner, nor shall Subordinated Collateral Agent be
liable nor accountable to Grantor for any discount allowed by the reason of the fact that such
Collateral is sold in compliance with any such limitation or restriction.

               (d) Each Grantor also agrees to pay all fees, costs and expenses of Subordinated Collateral
Agent, including, without limitation, attorneys’ fees and costs, incurred in connection with the
enforcement of any of its rights and remedies hereunder.

               (e) Each Grantor hereby waives presentment, demand, protest or any notice (to the maximum
extent permitted by applicable law) of any kind in connection with this Security Agreement or any
Collateral.

               (f) Each Grantor agrees that a breach of any covenants contained in this Section 7
will cause irreparable injury to Subordinated Collateral Agent and the Holders, that in such event
Subordinated Collateral Agent and the Holders would have no adequate remedy at law in respect of
such breach and, as a consequence, agrees that in such event each and every covenant contained in
this Section 7 shall be specifically enforceable against a Grantor, and each Grantor hereby
waives and agrees not to assert any defenses against an action for specific performance of such
covenants except for a defense that the Secured Obligations are not then due and payable.

               (g) The proceeds of any sale, disposition or other realization upon all or any part of the
Collateral shall be applied by Subordinated Collateral Agent to the Secured Obligations in any
manner whatsoever as Subordinated Collateral Agent shall choose in its sole and absolute
discretion.

     7.2 Voting Rights; Dividends. Each Grantor agrees that from and after the occurrence
of an Event of Default and a Grantor’s receipt of written notice from Subordinated Collateral Agent
that all voting and Distribution rights of Grantor with respect to the Collateral are terminated:

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               (a) Each Grantor shall deliver to the Subordinated Collateral Agent all dividends,
distributions, Securities, Instruments, Proceeds and all other cash payments or other rights
received by or distributable to the such Grantor in respect of any Collateral;

               (b) Subordinated Collateral Agent may (but shall not be obligated to) exclusively exercise the
voting power and all other incidental rights of ownership with respect to any pledged Investment
Property and such Grantor hereby grants Subordinated Collateral Agent an irrevocable proxy,
exercisable under such circumstances to vote such pledged Collateral;

               (c) Each Grantor shall promptly deliver to Subordinated Collateral Agent such additional
proxies and other documents as may be necessary to allow Subordinated Collateral Agent to exercise
such voting power; and

               (d) All dividends, distributions, Securities, Instruments, Proceeds and all other cash
payments or other rights which may be at any time or from time to time held by a Grantor in respect
of any Collateral which such Grantor is obligated to deliver to Subordinated Collateral Agent
shall, until such delivery to Subordinated Collateral Agent, be held by the such Grantor separate
from its other property in trust for Subordinated Collateral Agent.

     Notwithstanding the foregoing, prior to the occurrence of an Event of Default and any
Grantor’s receipt of the above referenced notice, such Grantor may exercise or refrain from
exercising any and all voting and other consensual rights pertaining to the Collateral or any part
thereof; provided, however, that such Grantor shall not exercise or refrain from
exercising any such rights where the consequence of such action or inaction would be (i) to impair
any Collateral, the Lien granted to Subordinated Collateral Agent on behalf of the Holders therein,
the first priority of such Lien or Subordinated Collateral Agent’s and the Holders’ rights and
remedies hereunder with respect to any Collateral or (ii) otherwise inconsistent with the terms of
this Security Agreement and the other Transaction Documents.

     SECTION 8. Limitation on Subordinated Collateral Agent’s Duty in Respect of
Collateral. Subordinated Collateral Agent shall be deemed to have acted reasonably in the
custody, preservation and disposition of any of the Collateral if it complies with the obligations
of a secured party under Section 9-207 of the UCC (or any other then applicable provision of the
UCC).

     SECTION 9. Reinstatement. To the extent permitted by law, this Security Agreement
shall remain in full force and effect and continue to be effective should any petition be filed by
or against a Grantor for liquidation or reorganization, should such Grantor become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee be appointed for
all or any significant part of such Grantor’s property and assets, and shall continue to be
effective or be reinstated, as the case may be, if at any time payment and performance of the
Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Secured Obligations,
whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed
reduced only by such amount paid and not so rescinded, reduced, restored or returned.

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     SECTION 10. Miscellaneous.

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

          10.2
Partial Invalidity. If at any time any provision of this Security Agreement is or
becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither
the legality, validity or enforceability of the remaining provisions of this Security Agreement nor
the legality, validity or enforceability of such provision under the law of any other jurisdiction
shall in any way be affected or impaired thereby.

          10.3 Headings. The section headings and captions appearing in this Security Agreement
are included solely for convenience of reference and are not intended to affect the interpretation
of any provision of this Security Agreement.

          10.4 No Waiver; Cumulative Remedies.

               (a) Subordinated Collateral Agent shall not by any act, delay, omission or otherwise be deemed
to have waived any of its rights or remedies hereunder or under the Purchase Agreement or the other
Transaction Documents, nor shall any single or partial exercise of any right or remedy hereunder or
thereunder on anyone or more occasions preclude the further exercise thereof or the exercise of any
other right or remedy under any of the Transaction Documents.

               (b) The rights and remedies hereunder provided or provided under the Purchase Agreement or the
other Transaction Documents are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights and remedies provided by law or by any of the other Transaction Documents.

               (c) None of the terms or provisions of this Security Agreement may be waived, altered,
modified or amended except by an instrument in writing, duly executed by a Grantor and Subordinated
Collateral Agent (with the written approval of the Required Holder(s) or such other Person, if such
approval is required under the Purchase Agreement).

          10.5 Time is of the Essence. Time is of the essence for the performance of each of the
terms and provisions of this Security Agreement.

          10.6 Termination of this Security Agreement. Subject to Section 9, above, this
Security Agreement shall terminate upon the full, complete and final payment of the Secured
Obligations and the termination of the commitments under the Purchase Agreement.

          10.7 Successors and Assigns. This Security Agreement and all obligations of Grantors
hereunder shall be binding upon the successors and permitted assigns of Grantors, and shall,
together with the rights and remedies of Subordinated Collateral Agent on behalf of the Holders
hereunder, inure to the benefit of Subordinated Collateral Agent, the Holders, any future holder of
the Notes and their respective successors and assigns. Grantors may not assign or

18

 

transfer its rights or obligations under this Security Agreement without the prior written consent
of Subordinated Collateral Agent and each Holder. Any purported assignment or transfer in
contravention of the foregoing shall be null and void. No sales of participations, other than
sales, assignments, transfers or other dispositions of any agreement governing or instrument
evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner
affect the security interest created herein and granted to Subordinated Collateral Agent on behalf
of the Holders hereunder.

          10.8 Further Indemnification. Each Grantor agrees to pay, and to save Subordinated
Collateral Agent and the Holders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the
Collateral or in connection with any
of the transactions contemplated by this Security Agreement.

          10.9 Governing Law. THIS SECURITY AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF
ILLINOIS (EXCLUDING ANY CONFLICTS OF LAW RULES WHICH WOULD OTHERWISE CAUSE THIS AGREEMENT TO BE
CONSTRUED OR ENFORCED IN ACCORDANCE WITH, OR THE RIGHTS OF THE PARTIES TO BE GOVERNED BY, THE LAWS
OF ANY OTHER JURISDICTION).

          10.10 Counterparts. This Security Agreement may be executed in any number of identical
counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a
complete, executed original for all purposes. Transmission by telecopier of an executed counterpart
of this Security Agreement shall be deemed to constitute due and sufficient delivery of such
counterpart.

          10.11 Additional Grantors. If, pursuant to the terms and conditions of the Purchase
Agreement, the Company shall be required to cause any Subsidiary of Company that is not a Grantor
to become a Grantor hereunder, such Subsidiary shall execute and deliver to the Subordinated
Collateral Agent a Joinder Agreement in the form of Annex 1 and shall thereafter for all purposes
be a party hereto and have the same rights, benefits and obligations as a Grantor party hereto.

          10.12 Joint and Several Liability. In addition and notwithstanding anything to the
contrary contained in this Subsidiary Security Agreement or in any other document, instrument or
agreement between or among any of Subordinated Collateral Agent, the Holders, Grantors or any third
party, the obligations of each Grantor with respect to the Secured Obligations shall be joint and
several with any other person or entity that now or hereafter executes a guaranty of any of the
Secured Obligations separate from this Subsidiary Security Agreement.

          10.13 Intercreditor Agreement. The Liens created by this Subsidiary Security Agreement
and the exercise of any right or remedy hereunder are subject to the Intercreditor Agreement.

19

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

20

 

     IN WITNESS WHEREOF, each Grantor and Subordinated Collateral Agent have caused this Security
Agreement to be executed as of the day and year first above written.

	 	 	 	 	 	 	 

	 	 	GRANTORS:	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT FULFILLMENT INC., 

a Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices:	 	 
	 
	 	 	 	 	 	 
	 	 	SUBORDINATED COLLATERAL AGENT:	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

21

 

SCHEDULE I

COLLATERAL REQUIRING POSSESSION FOR PERFECTION

SCHEDULE I

 

 

SCHEDULE II

LETTER-OF-CREDIT RIGHTS AND COMMERCIAL TORT CLAIMS

SCHEDULE II

 

 

SCHEDULE III

DEPOSIT ACCOUNTS

SCHEDULE III

 

 

SCHEDULE IV

SECURITIES ACCOUNTS

SCHEDULE IV

 

 

SCHEDULE V

ADDRESSES

SCHEDULE IV

 

 

ANNEX 1

JOINDER AGREEMENT

     This Joinder Agreement, dated as of _________, _____ , is delivered pursuant
to Section 10.11 of the Subsidiary Security Agreement dated as of March 23, 2006, among one or more direct and
indirect Subsidiaries of Fingerhut Direct Marketing, Inc. (“Company”) from time to time
party thereto as Grantors in favor of Prudential Capital Partners II, L.P., as Subordinated
Collateral Agent (the “Subsidiary Security Agreement”). Capitalized terms used herein but
not defined herein are used herein with the meaning given them in the Guaranty Agreement.

     By executing and delivering this Joinder Agreement, the undersigned, as provided in
Section 10.11 of the Subsidiary Security Agreement, hereby becomes a party to the
Subsidiary Security Agreement as a Grantor thereunder with the same force and effect as if
originally named as a Grantor therein.

     This Joinder Agreement shall be governed by, and construed in accordance with the laws of the
State of Illinois.

     In witness whereof, the undersigned has caused this Joinder Agreement to be duly executed and
delivered as of the date first above written.

	 	 	 	 	 
	 	[Additional Grantor]

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 	 	 

	ACKNOWLEDGED AND AGREED 

as of the date of this Joinder Agreement 

first above written.	 	 
	 
	 	 	 	 	 	 
	Prudential Capital Partners II, L.P., 

as Subordinated Collateral Agent	 	 
	 
	 	 	 	 	 	 
	By:
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

SCHEDULE IV

 

 

EXHIBIT I

[FORM OF SECURITY AGREEMENT (INTELLECTUAL PROPERTY)]

     THIS SECURITY AGREEMENT (this “Agreement”), dated as of March 23, 2006, is made by and
between FINGERHUT DIRECT MARKETING, INC. (the “Company”). FINGERHUT FULFILLMENT, INC. (together
with the Company, “Grantors”) and PRUDENTIAL CAPITAL PARTNERS II, L.P., as collateral agent for
the Holders referenced below (in such capacity, “Subordinated Collateral Agent”).

RECITALS

     A. Pursuant to that certain Securities Purchase Agreement, dated concurrently herewith
(as the same from time to time hereafter may be amended, modified, supplemented or restated, the
“Purchase Agreement”), by and among the Company and the purchasers party thereto (collectively, the
“Purchasers” and, together with any person who becomes a holder of any Subordinated Note (as
defined below) the “Holders”), pursuant to which the Purchasers have agreed, among other things, to
purchase $30,000,000 aggregate principal amount of the 13.00% Senior Subordinated Secured Notes
due, March 24, 2013 (the “Subordinated Notes”) of the Company for the purposes, and on the terms
and subject to the conditions, set forth in the Purchase Agreement.

     B. The Purchasers’ obligations to purchase the Subordinated Notes of the Company under the
Purchase Agreement are subject, among other conditions, to receipt by Subordinated Collateral Agent
of this Security Agreement, duly executed by the Grantors.

AGREEMENT

     NOW, THEREFORE, in consideration of the above recitals and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:

     1. Definitions and Interpretation. When used herein, the following terms shall have
the following respective meanings:

     “Collateral” shall have the meaning given to that term in Section 2 hereof.

     “Copyright Office” shall mean the United States Copyright Office or any
successor office or agency thereto.

     “Copyrights” shall have the meaning given to that term in Attachment 1
hereto.

     “Event of Default” means the occurrence of an Event of Default under and as
defined in the Purchase Agreement.

     “Grantors” shall have the meaning given to that term in the Recitals hereto.

     “Guaranty” shall mean the Subsidiary Guaranty, dated as of March 23, 2006, as such
agreement is amended from time to time.

 

 

     “Intercreditor Agreement” means the Intercreditor Agreement, dated as of March 23,
2006, between the Subordinated Collateral Agent and the Bank Agent.

     “Permitted Liens” shall mean (a) “Permitted Liens” as defined in the Purchase Agreement and
(b) Liens permitted by paragraph 6A(i) of the Purchase Agreement.

     “Mask Works” shall have the meaning given to that term in Attachment 1 hereto.

     “Patent and Trademark Office” shall mean the United States Patent and Trademark
Office or any successor office or agency thereto.

     “Patent Applications” shall mean all applications made by, or on behalf of, any
Grantor to the Patent and Trademark Office or to any similar office or agency of any foreign
country or political subdivision thereof for the registration of Patents.

     “Patent Registrations” shall mean all Patents registered with the Patent and
Trademark Office or with any similar office or agency of any foreign country or political
subdivision thereof and all Patent Applications.

     “Patents” shall have the meaning given to that term in Attachment 1 hereto.

     “Purchase Agreement” shall have the meaning given to that term in the Recitals
hereto.

     “Purchasers” shall have the meaning given to that term in the Recitals hereto.

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

     “Subordinated Collateral Agent” shall have the meaning given to that term in the
Recitals hereto.

     “Trade Secrets” shall have the meaning given to that term in Attachment 1 hereto.

      “Trademarks” shall have the meaning given to that term in Attachment 1 hereto.

     “UCC” means the Uniform Commercial Code as the same may, from time to time, be in effect in
the State of Illinois; provided, however, in the event that, by reason of mandatory
provisions of requirements of law, any or all of the attachment, perfection or priority of
Subordinated Collateral Agent’s security interest in any collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of Illinois, the term “UCC”
shall mean the Uniform Commercial Code as in effect

2

 

in such other jurisdiction for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to such
provisions.

Unless otherwise defined herein, all other capitalized terms used herein and defined in the
Purchase Agreement shall have the respective meanings given to those terms in the Purchase
Agreement, and all terms defined in the UCC shall have the respective meanings given to those terms
in the UCC.

     2. Grant of Security Interest. As security for the full, complete and final payment
when due (whether at stated maturity, by acceleration or otherwise), performance and observance of
all the Secured Obligations, each Grantor hereby pledges, assigns and grants to Subordinated
Collateral Agent on behalf of the Holders a security interest in all right, title and interest of
Grantors in and to the property described in Attachment 1 hereto, whether now owned or
hereafter acquired (collectively and severally, the “Collateral”), which Attachment
1 is incorporated herein by this reference.

     3. Representations, Warranties and Covenants. Each Grantor represents,
warrants and covenants to Subordinated Collateral Agent on behalf of the Holders as follows:

     (a) Grantor is the owner of its Collateral (or, in the case of after-acquired
Collateral, at the time any Grantor acquires rights in the Collateral, will be the owner
thereof). No other Person has (or, in the case of after-acquired Collateral, at the time a
Grantor acquires rights therein, will have) any right, title, claim or interest (by way of
Lien, purchase option or otherwise) in, against or to the Collateral, other than Permitted
Liens and licenses as set forth in the Purchase Agreement.

     (b) Subordinated Collateral Agent has (or in the case of after-acquired Collateral, at
the time a Grantor acquires rights therein, will have) a first priority perfected security
interest in the Collateral, subject to Permitted Liens.

     (c) Each Grantor has the sole and full right, title and interest in and to (i) each of
the Trademarks described in Schedule A to Attachment 1 hereto for the goods and
services covered by the registrations thereof, (ii) each of the Patents described in
Schedule B to Attachment 1 hereto, (iii) each of the Copyrights described in
Schedule C to Attachment 1 hereto and (iv) each of the Mask Works described in
Schedule D to Attachment 1 hereto. The registrations for such Trademarks and
Patents are valid and enforceable and in full force and effect and none of the Patents has
been abandoned or dedicated. According to the records of the Copyright Office, such
Copyrights and Mask Works are valid and enforceable and in full force and effect.

     (d) No Grantor owns any Patents, Trademarks, Copyrights or Mask Works registered in, or
the subject of pending applications in, the Patent and Trademark Office or the Copyright
Office other than those described in Schedules A, B, C and D to Attachment 1 hereto.

3

 

     (e) No claim has been made by any third party that any of the Patents, Trademarks, Copyrights
or Mask Works is invalid and unenforceable or violates or may violate the rights of any Person.

     (f) Set forth in Schedule E to Attachment 1 hereto is a complete list of all licenses
of Patents, Trademarks, Copyrights, Mask Works and Trade Secrets that each Grantor has granted to
any Person.

     (g) Set forth in Schedule F to Attachment 1 hereto is a complete list of all licenses
of Patents, Trademarks, Copyrights, Mask Works and Trade Secrets that any Person has granted to
each Grantor.

     (h) Each Grantor has obtained from each of its employees, officers, directors and consultants
who may be considered the inventor of patentable inventions (invented within the scope of such
Person’s relationship with such Grantor) an assignment to such Grantor of all rights to such
inventions, including Patents.

     (i) Each Grantor has taken all commercially reasonable steps to protect the secrecy and the
validity under applicable requirements of law of all material Trade Secrets.

     4. Covenants. Each Grantor hereby agrees as follows:

     (a) Each Grantor, at its expense, shall promptly procure, execute and deliver to Subordinated
Collateral Agent all documents, instruments and agreements and perform all acts that are necessary,
or which Subordinated Collateral Agent may reasonably request, to establish, maintain, preserve,
protect and perfect the Collateral, the Lien granted to Subordinated Collateral Agent therein and
the first priority of such Lien (subject to Permitted Liens) or to enable Subordinated Collateral
Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the preceding sentence, each Grantor shall (i) execute all
notices of security interest for each relevant type of intellectual property in forms suitable for
filing with the Patent and Trademark Office or the Copyright Office, as applicable,
substantially in the forms of Attachments 2 and 3 hereto or other forms acceptable to
Subordinated Collateral Agent and (ii) take all commercially reasonable steps in any proceeding
before the Patent and Trademark Office, the Copyright Office or any similar office or agency in any
other country or any political subdivision thereof, to diligently prosecute or maintain, as
applicable, each application and registration of the Patents, Trademarks, Copyrights and Mask
Works, including filing of renewals, affidavits of use, affidavits of incontestability and
opposition, interference and cancellation proceedings (except to the extent that dedication,
abandonment or invalidation is expressly permitted hereunder).

     (b) No Grantor shall use any Collateral or permit any Collateral to be used in violation of
(i) any provision of the Purchase Agreement or any other Transaction Document, (ii) any applicable
Requirement of Law or contractual obligation, or (iii) any policy of insurance covering the
Collateral.

4

 

     (c) Each Grantor shall pay promptly when due all taxes and other governmental
charges, all Liens and all other charges (except to the extent constituting Permitted Liens) now or
hereafter imposed upon, relating to or affecting any Collateral.

     (d) Each Grantor shall appear in and defend any action or proceeding which may affect its
title to or Subordinated Collateral Agent’s security interest in the Collateral.

     (e) Each Grantor shall keep separate, accurate and complete records of the Collateral and
shall permit Subordinated Collateral Agent to examine and make copies of such records and provide
such reports and information relating to the Collateral as Subordinated Collateral Agent may
reasonably request from time to time.

     (f) Except as expressly permitted by the Purchase Agreement, no Grantor shall, except in the
ordinary course of business, sell, lease, rent, option, license or otherwise dispose of or transfer
any Collateral or right or interest therein without the prior written consent of Subordinated
Collateral Agent and if required by the Purchase Agreement, the Holders, and each Grantor shall
keep the Collateral free of all Liens except Permitted Liens.

     (g) Each Grantor (either directly or through licensees) will continue to use the Trademarks in
connection with each and every trademark class of goods or services applicable to its current line
of products or services as reflected in its current catalogs, brochures, price lists or similar
materials in order to maintain the Trademarks in full force and effect free from any claim of
abandonment for nonuse unless such Grantor, in the ordinary course of business and in the exercise
of its prudent business judgment, deems any such Trademark not to have any significant commercial
value, and no Grantor will (and will not permit any licensee thereof to) do any act or knowingly
omit to do any act whereby any Trademark may become invalidated. No Grantor will do any act, or
omit to do any act, whereby the Patents or Patent Registrations may become abandoned or dedicated
or the remedies available against potential infringers weakened unless such Grantor, in the
exercise of its prudent business judgment, deems any such Patent or Patent Registration not to have
any significant commercial value, and shall notify Subordinated Collateral Agent immediately if it
knows of any reason or has reason to know that any such Patent Registration may become abandoned or
dedicated. No Grantor will do any act or omit to do any act, whereby the Copyrights or Mask
Works may become abandoned or dedicated or the remedies available against potential infringers
weakened unless such Grantor, in the exercise of its prudent business judgment, deems any such
Copyright or Mask Work not to have any significant commercial value, and shall notify Subordinated
Collateral Agent immediately if it knows of any reason or has reason to know that any such
Copyright or Mask Work may become abandoned or dedicated.

     (h) Each Grantor will promptly notify Subordinated Collateral Agent upon the filing, either by
such Grantor or any employee, licensee or designee, of (i) an application for the registration of
any Patent, Trademark, Copyright or Mask Work with the Patent and Trademark Office or the Copyright
Office or any similar office or agency in any

5

 

other country or any political subdivision thereof, (ii) any assignment of any Patent or
Trademark, which such Grantor may acquire from a third party, with the Patent and Trademark Office
or any similar office or agency in any other country or any political subdivision thereof, or
(iii) any assignment of any Copyright or Mask Work, which such Grantor may acquire from a third
party, with the Copyright Office or any similar office or agency in any other country or any
political subdivision thereof.

     (i) Each Grantor shall make application to (i) the Patent and Trademark Office to register
any material unpatented but patentable inventions developed by a Grantor or its employees or
consultants (within the scope of their employment or consulting relationship), unless such
Grantor, in the exercise of its prudent business judgment, deems any such Patent not to have any
significant commercial value, (ii) the Patent and Trademark Office to register any registerable
but unregistered material Trademarks used by a Grantor in connection with its products or services
unless such Grantor, in the exercise of its prudent business judgment, deems any such Trademark
not to have any significant commercial value, and (iii) the Copyright Office to register any
material unregistered Copyright or Mask Work to which any Grantor has rights unless such Grantor,
in the exercise of its prudent business judgment, deems any such Copyright or Mask Work not to
have any significant commercial value.

     (j) Each Grantor shall and shall cause its employees and licensees to (i) use proper statutory
notice in connection with its use of the Patents, Trademarks, Copyrights and Mask Works, (ii)
maintain consistent standards of quality in its manufacture of products sold under the Trademarks
or provision of services in connection with the Trademarks, and (iii) take all commercially
reasonable steps necessary to protect the secrecy and the validity under applicable requirements of
law of all material Trade Secrets.

     (k) If any Grantor learns of any use by any Person of any term or design likely to infringe
or cause confusion with any Trademark, such Grantor shall promptly notify Subordinated Collateral
Agent of such use and of all steps taken and to be taken to remedy any infringement of such
Trademark.

     (1) Each Grantor shall maintain with each employee, consultant or other Persons who may have
access to the Trade Secrets of Grantors an agreement by which such employee, consultant or other
Person agrees not to disclose such Trade Secrets and with each employee or consultant who may be
the inventor of patentable inventions (invented within the scope of their employment or consultant
relationship) an invention assignment agreement requiring such employee or consultant to assign all
rights to such inventions, including, patents and patent applications, to the applicable Grantor
and further requiring such employee or consultant to cooperate fully with such Grantor, its
successors in interest, including Subordinated Collateral Agent, and their counsel, in the
prosecution of any patent or copyright application or in any litigation involving the invention,
whether such cooperation is required during or after the termination of the relationship with such
employee or consultant.

6

 

     (m) Each Grantor agrees to cause Subordinated Collateral Agent to be named as an
additional insured with respect to any policy of insurance held by such Grantor from time
to time covering product liability or intellectual property infringement risk.

     5. Authorized Action by Subordinated Collateral Agent. Each Grantor hereby
irrevocably appoints Subordinated Collateral Agent as its attorney-in-fact and agrees that
Subordinated Collateral Agent may perform (but shall not be obligated to and shall incur no
liability to such Grantor or any third party for failure so to do) any act which a Grantor is
obligated by this Agreement to perform, and to exercise such rights and powers as such Grantor
might exercise with respect to the Collateral, including, without limitation, the right to (a)
collect by legal proceedings or otherwise and endorse, receive and receipt for all royalties,
payments, proceeds and other sums and Property now or hereafter payable on or on account of the
Collateral; (b) insure, process, preserve and enforce the Collateral; (c) make any compromise or
settlement, and take any action it deems advisable, with respect to the Collateral; (d) pay any
Indebtedness of a Grantor relating to the Collateral; and (e) execute or file UCC financing
statements and other documents, instruments and agreements required hereunder; provided,
however, that Subordinated Collateral Agent shall exercise such powers other than the filing of
UCC financing statements only after the occurrence and during the continuance of an Event of
Default. Each Grantor agrees to reimburse Subordinated Collateral Agent upon demand for all costs
and expenses, including attorneys’ fees, Subordinated Collateral Agent may incur while acting as
such Grantor’s attorney-in-fact hereunder, all of which costs and expenses are included in the
Secured Obligations. Each Grantor agrees that such care as Subordinated Collateral Agent gives to
the safekeeping of its own property of like kind shall constitute reasonable care of the Collateral
when in Subordinated Collateral Agent’s possession; provided, however, that
Subordinated Collateral Agent shall not be required to make any presentment, demand or protest, or
give any notice and need not take any action to preserve any rights against any prior party or any
other Person in connection with the Secured Obligations or with respect to the Collateral.

     6. Default and Remedies. Each Grantor shall be deemed in default under this
Agreement upon the occurrence and during the continuance of an Event of Default. In addition to all
other rights and remedies granted to Subordinated Collateral Agent on behalf of the Holders by this
Agreement, the Guaranty, the Purchase Agreement, any other Transaction Document, the UCC and other
applicable requirements of law, Subordinated Collateral Agent may, upon the occurrence and during
the continuance of any Event of Default, exercise any one or more of the following rights and
remedies: (a) collect, receive, appropriate or realize upon the Collateral or otherwise foreclose
or enforce Subordinated Collateral Agent’s security interests in any or all Collateral in any
manner permitted by applicable requirements of law or in this Agreement; (b) notify any or all
licensees to make payments owed to a Grantor directly to Subordinated Collateral Agent; (c) sell or
otherwise dispose of any or all Collateral at one or more public or private sales, whether or not
such Collateral is present at the place of sale, for cash or credit or future delivery, on such
commercially reasonable terms and in such commercially reasonable manner as Subordinated
Collateral Agent may determine; (d) upon five (5) Business Days’ prior notice to a Grantor, direct
such Grantor not to make any further use of the Patents, the Trademarks (or any mark similar
thereto), the Copyrights (or any work deriving therefrom), or the Mask Works for any purpose; (e)
upon five (5) Business Days’ prior notice to a Grantor, license, whether general, special or
otherwise, and whether on an exclusive or nonexclusive basis, any of the Patents, Trademarks,
Copyrights or Mask Works, throughout the

7

 

world for such term or terms, on such conditions, and in such manner, as Subordinated Collateral
Agent shall in its sole discretion determine; (f) enforce (and upon notice to a Grantor have the
exclusive right to enforce) against any licensee or sublicensee all rights and remedies of such
Grantor in, to and under any one or more license agreements with respect to the Collateral
(without assuming any obligations or liability thereunder), and take or refrain from taking any
action under any thereof; and (g) in addition to the foregoing, in order to implement the
assignment, sale or other disposal of any of the Collateral, pursuant to the authority granted in
Section 5 hereof, execute and deliver on behalf of a Grantor, upon ten (10) Business Days’
prior notice to such Grantor, one or more instruments of assignment of the Patents, Trademarks,
Copyrights or Mask Works (or any application or registration thereof), in form suitable for
filing, recording or registration in any country.

     7. Application of Proceeds. The proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be applied by Subordinated Collateral
Agent to the Secured Obligations in any manner whatsoever as Subordinated Collateral Agent shall
choose in its sole and absolute discretion, provided that within five (5) Business Days following
the payment in full of all Obligations and the final termination of all Commitments, any excess
proceeds shall be paid to Grantors or other Person legally entitled thereto.

     8. Indemnification and Release.

     (a) Each Grantor assumes all responsibility and liability arising from the use of
the Patents, Trademarks, Copyrights and Mask Works, and each Grantor hereby indemnifies and
holds Subordinated Collateral Agent, the Holders and each of their respective directors,
officers, employees and Affiliates (“Indemnitees”) harmless from and against any claim,
suit, loss, damage or expense (including attorneys’ fees and expenses) arising out of or in
connection with any alleged infringement of any patent, trademark, service mark, trade name,
trade secret, copyright, mask work or other rights of a third party or alleged defect in any
product manufactured, promoted, licensed or sold by such Grantor (or any Affiliate of such
Grantor) in connection with any Patent, Trademark, Copyright or Mask Work or out of the
manufacture, promotion, labeling, sale or advertisement of any product or service by a
Grantor (or any Affiliate of such Grantor). Each Grantor agrees that the Indemnitees do
not assume, and shall have no responsibility for, the payment of any sums due or to become
due under any agreement or contract included in the Collateral or the performance of any
obligations to be performed under or with respect to any such agreement or contract by a
Grantor, and each Grantor hereby agrees to indemnify and hold each Indemnitee harmless with
respect to any and all claims by any party to any such contract or agreement relating
thereto.

     (b) Each Grantor agrees to indemnify and hold the Indemnitees harmless from and against
any claim, suit, loss, damage or expense (including attorneys’ fees and expenses) arising
out of or in connection with any action taken or omitted to be taken by Subordinated
Collateral Agent hereunder with respect to any license agreement of such Grantor.

     (c) Each Grantor agrees to indemnify and hold the Indemnitees harmless from and against
any claim, suit, loss, damage or expense (including reasonable attorneys’ fees

8

 

and expenses) arising out of or in connection with any claim, suit or proceeding instituted by a
Grantor or in which such Grantor participates relating to the Collateral.

     (d) Each Grantor hereby releases the Indemnitees from any claims, causes of action and demands
at any time arising out of or with respect to any actions taken or omitted to be taken by
Subordinated Collateral Agent under the powers of attorney granted in Section 5 hereof.

     (e) Nothing contained in this Section 8 shall, however, be deemed to require any
Grantor to indemnify or hold harmless any Indemnitee from any losses, costs, claims or damages
arising from or relating to such Indemnitee’s gross negligence or willful misconduct (as determined
in a final non-appealable judgment of a court of competent jurisdiction).

     9. Miscellaneous.

     (a) Notices. Except as otherwise specified herein, all notices, requests, demands,
consents, instructions or other communications to or upon a Grantor or Subordinated Collateral
Agent under this Agreement shall be given as provided in paragraph 121 of the Purchase Agreement to
the address set forth in such Purchase Agreement and, in the case of any notice to a Grantor, to
such Grantor c/o the Company.

     (b) Waivers; Amendments. Any term, covenant, agreement or condition of this
Agreement may be amended or waived only as provided in the Purchase Agreement. No failure or delay
by Subordinated Collateral Agent in exercising any right hereunder shall operate as a waiver
thereof or of any other right nor shall any single or partial exercise of any such right preclude
any other further exercise thereof or of any other right. Unless otherwise specified in any such
waiver or consent, a waiver or consent given hereunder shall be effective only in the specific
instance and for the specific purpose for which given.

     (c) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of Grantors, Subordinated Collateral Agent and their respective successors and assigns;
provided, however, no Grantor may assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of the Subordinated Collateral Agent and each
Holder. Any purported assignment or transfer in contravention of the foregoing shall be null and
void.

     (d) Partial Invalidity. If at any time any provision of this Agreement is or becomes
illegal, invalid or unenforceable in any respect under the requirements of law of any jurisdiction,
neither the legality, validity or enforceability of the remaining provisions of this Agreement nor
the legality, validity or enforceability of such provision under the requirements of law of any
other jurisdiction shall in any way be affected or impaired thereby.

     (e) Cumulative Rights, etc. The rights, powers and remedies of Subordinated Collateral
Agent under this Agreement shall be in addition to all rights, powers and remedies given to
Subordinated Collateral Agent by virtue of any applicable Requirement

9

 

of Law, the Purchase Agreement or any other Transaction Document, all of which rights, powers and
remedies shall be cumulative and may be exercised successively or concurrently without impairing
Subordinated Collateral Agent’s rights hereunder. Each Grantor waives any right to require
Subordinated Collateral Agent to proceed against any Person or to exhaust any Collateral or to
pursue any remedy in Subordinated Collateral Agent’s power.

     (f) Grantors’ Continuing Liability. Notwithstanding any provision of this Agreement
or any other Transaction Document or any exercise by Subordinated Collateral Agent of any of its
rights hereunder or thereunder (including, without limitation, any right to collect or enforce any
Collateral), (i) each Grantor shall remain liable to perform its obligations and duties in
connection with the Collateral and (ii) Subordinated Collateral Agent shall not assume or be
considered to have assumed any liability to perform such obligations and duties or to enforce any
of Grantors’ rights in connection with the Collateral.

     (g) Attorneys’ Fees. In the event of any legal action, including any judicial
proceeding, arbitration or other proceeding, to enforce or interpret any provision of this
Agreement, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and
other costs incurred from the losing party.

     (h) Governing Law. This Agreement shall be governed by, construed and enforced in
accordance with, the internal law of the State of Illinois except to the extent that mandatory
provisions of requirements of law regarding perfection, the effect of perfection or nonperfection
and the priority of security interests require the application of the law of another jurisdiction.

     (i) Counterparts. This Agreement may be executed in any number of identical
counterparts, any set of which signed by all the parties hereto shall be deemed to constitute a
complete, executed original for all purposes. Transmission by telecopier of an executed counterpart
of this Agreement shall be deemed to constitute due and sufficient delivery of such counterpart.

     (j) Intercreditor Agreement. The Liens created by this Agreement and the exercise of
any right or remedy hereunder are subject to the Intercreditor Agreement.

10

 

     IN WITNESS WHEREOF, Grantors and Subordinated Collateral Agent have caused this Agreement to
be executed as of the day and year first above written.

	 	 	 	 	 	 	 

	 	 	FINGERHUT DIRECT MARKETING, INC., a	 	 
	 	 	Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT FULFILLMENT, INC., a	 	 
	 	 	Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS II, L.P.,	 	 
	 	 	as Subordinated Collateral Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 

 

 

	 	 	 

	STATE OF                     

	 	) 
	 

	 	) SS.
	COUNTY OF                     

	 	) 

          I, the undersigned, a Notary Public in and for said State and County, do hereby
certify that                                         , personally known to me to be the                      of
Fingerhut Direct Marketing, Inc., a Delaware corporation (the “Company”), and personally known to
me to be the same person whose name is subscribed to the foregoing Security Agreement
(Intellectual Property), appeared before me this day and acknowledged that he/she signed and
delivered said agreement as an officer of the Company and caused the seal of the Company to be
affixed thereto, pursuant to authority given by the board of directors of the Company, as his/her
free and voluntary act and as the free and voluntary act and deed of the Company, for the uses and
purposes therein set forth.

          GIVEN under my hand
 and official seal as of the __ day of March, 2006.

(NOTARIAL SEAL)

	 	 	 	 	 

	 

	 	 

Notary Public
	 	 
	 
	 	 	 	 
	 

	 	My Commission Expires:                                         	 	 

 

 

	 	 	 

	STATE OF                     

	 	) 
	 

	 	) SS.
	COUNTY OF                     

	 	) 

          I, the undersigned, a Notary Public in and for said State and County, do hereby
certify that                                         , personally known to me to be the                      of
Fingerhut Fulfillment, Inc., a Delaware corporation (the “Company”), and personally known to me to
be the same person whose name is subscribed to the foregoing Security Agreement (Intellectual
Property), appeared before me this day and acknowledged that he/she signed and delivered said
agreement as an officer of the Company and caused the seal of the Company to be affixed thereto,
pursuant to authority given by the board of directors of the Company, as his/her free and
voluntary act and as the free and voluntary act and deed of the Company, for the uses and purposes
therein set forth.

          GIVEN under my hand and official seal as of the 3rd day of March, 2006.

(NOTARIAL SEAL)

	 	 	 	 	 

	 

	 	 

Notary Public
	 	 
	 
	 	 	 	 
	 

	 	My Commission Expires:                                         	 	 

 

 

ATTACHMENT 1

TO SECURITY AGREEMENT

     All right, title and interest of Grantors, whether now owned or hereafter acquired, in
and to the following property (collectively, the “Collateral”):

     (a) All trademarks, trade names, trade styles and service marks, and all prints and labels on
which said trademarks, trade names, trade styles and service marks have appeared or appear, and all
designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all
right, title and interest therein and thereto, all registrations and recordings thereof, including
(i) all applications, registrations and recordings in the Patent and Trademark Office or in any
similar office or agency of the United States, any state thereof or any foreign country or any
political subdivision thereof, all whether now owned or hereafter acquired by any Grantor,
including those described in Schedule A to this Attachment 1, which Schedule A is
incorporated herein by this reference, and (ii) all reissues, extensions or renewals thereof and
all licenses thereof (collectively, the “Trademarks”);

     (b) All patentable inventions, patent rights, shop rights, letters patent of the United States
or any foreign country, all right, title and interest therein and thereto, and all registrations
and recordings thereof, including (i) all Patent Registrations and recordings in the Patent and
Trademark Office or in any similar office or agency of the United States, any state thereof or any
foreign country or political subdivision thereof, all whether now owned or hereafter acquired by a
Grantor, including those described in Schedule B to this Attachment 1, which Schedule
B is incorporated herein by this reference, and (ii) all reissues, continuations,
continuations-in-part or extensions thereof and all licenses thereof (collectively, the “Patents”);

     (c) All registered copyrights, including (i) all original works of authorship fixed in any
tangible medium of expression, all right, title and interest therein and thereto, and all
registrations and recordings thereof, including all applications, registrations and recordings in
the Copyright Office or in any similar office or agency of the United States, any state thereof or
any foreign country or any political subdivision thereof, all whether now owned or hereafter
acquired by a Grantor, including those described on Schedule C to this Attachment 1, which
Schedule C is incorporated herein by this reference, and (ii) all extensions or renewals
thereof and all licenses thereof (collectively, the “Copyrights”);

     (d) All mask works including all series of related images, however fixed or encoded, in final
or intermediate form, having or representing the predetermined, three dimensional pattern of
metallic, insulating or semiconductor material present or removed from the layers of a
semiconductor chip product, in which series the relation of the images to one another is that each
image has the pattern of the surface of one form of the semiconductor chip product, and all right,
title and interest therein and thereto, and all registrations and recordings thereof, including all
applications, registrations and recordings in the Copyright Office or in any similar office or
agency of the United States, any state thereof or any foreign country or any political subdivision
thereof, all whether now owned or hereafter acquired by a Grantor, including those described on
Schedule D to this Attachment 1, which Schedule D is incorporated herein by this
reference, and (ii) all extensions or renewals thereof and all licenses thereof (collectively, the
“Mask Works”);

 

 

     (e) All goodwill of each Grantor’s business symbolized by the Trademarks and all customer
lists and other records of such Grantor relating to the distribution of products or provision of
services bearing or covered by the Trademarks;

     (f) All proprietary information, including formulas, patterns, compilations, programs,
devices, methods, techniques or processes, that derives independent economic value, actual or
potential, from not being generally known to, and not being readily ascertainable by proper means
by other Persons who can obtain economic value from its disclosure or use, all whether now owned or
hereafter acquired by a Grantor (collectively, the “Trade Secrets”);

     (g) All claims by each Grantor against any Person for past, present or future infringement of
the Patents, Trademarks, Copyrights, Mask Works or Trade Secrets; and

     (h) All proceeds of the foregoing (including whatever is receivable or received when
Collateral or proceeds is (are) sold, collected, exchanged, licensed or otherwise disposed of,
whether such disposition is voluntary or involuntary, including rights to payment and return
premiums and insurance proceeds under insurance with respect to any Collateral, and all rights to
payment with respect to any cause of action affecting or relating to the Collateral).

 

 

SCHEDULE A

TO ATTACHMENT 1

TO SECURITY AGREEMENT

TRADEMARKS AND TRADEMARK APPLICATIONS

	 	 	 	 	 	 	 
	Trademark	 	Serial Number	 	Date Filed	 	Status
	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 
	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 

 

 

SCHEDULE B

TO ATTACHMENT 1

TO SECURITY AGREEMENT

PATENTS AND PATENT APPLICATIONS

	 	 	 	 	 	 	 
	Device	 	Status	 	Patent Number	 	Comment
	 	 	 	 	 	 	 
	 
	 	 
	 	 
	 	 

 

 

SCHEDULE C

TO ATTACHMENT 1

TO SECURITY AGREEMENT

COPYRIGHTS

	 	 	 	 	 
	Registration No.	 	Jurisdiction	 	Date
	 	 	 	 	 

 

 

SCHEDULE D

TO ATTACHMENT 1

TO SECURITY AGREEMENT

MASK WORKS

	 	 	 	 	 

	Registration No.
	 	Jurisdiction
	 	Date
	 
	 	 
	 	 

 

 

SCHEDULE E

TO ATTACHMENT 1

TO SECURITY AGREEMENT

LICENSES GRANTED BY GRANTORS TO THIRD PARTIES

 

 

SCHEDULE F

TO ATTACHMENT 1

TO SECURITY AGREEMENT

LICENSES GRANTED BY THIRD PARTIES TO GRANTORS

 

 

ATTACHMENT 2

TO SECURITY AGREEMENT

[SEPARATE INSTRUMENT FOR

EACH FORM OF COLLATERAL]

GRANT OF SECURITY INTEREST

[TRADEMARKS][COPYRIGHTS][MASK WORKS]

     THIS GRANT OF SECURITY INTEREST, dated as of March _, 2006, is executed by Fingerhut Direct
Marketing, Inc., a Delaware corporation (“Company”) and Fingerhut Fulfillment, Inc. (collectively,
“Grantors”), in favor of Prudential Capital Partners II, L.P., as subordinated collateral agent
for the Holders referenced below (“Subordinated Collateral Agent”).

     A. Pursuant to that certain Securities Purchase Agreement, dated concurrently herewith (as the
same from time to time hereafter may be amended, modified, supplemented or restated, the “Purchase
Agreement”), by and among the Company and the purchasers party thereto (collectively, the
“Purchasers” and, together with any person who becomes a holder of any Subordinated Note (as
defined below) the “Holders”), pursuant to which the Purchasers have agreed to purchase $30,000,000
aggregate principal amount of the 13.00% Senior Subordinated Secured Notes due, March 24, 2013 (the
“Subordinated Notes”) of the Company for the purposes, and on the terms and subject to the
conditions, set forth in the Purchase Agreement.

     B. The Purchasers’ obligations to purchase the Subordinated Notes of the Company under the
Purchase Agreement are subject, among other conditions, to receipt by Subordinated Collateral Agent
of this Security Agreement, duly executed by the Grantors.

     C. Each Grantor has adopted, used and is using the trademarks, more particularly described on
Schedules 1-A and 1-B annexed hereto and made a part hereof, which trademarks are
registered or subject to an application for registration in the United States Patent and Trademark
Office (collectively, the “Trademarks”).]

     [D. Each Grantor owns the copyrights registered in the United States Copyright Office, more
particularly described on Schedule 1-A annexed hereto and made a part hereof
(collectively, the “Copyrights”).]

     [D. Each Grantor owns the mask works registered in the United States Copyright Office, more
particularly described on Schedule 1-A annexed hereto and made a part hereof (collectively,
the “Mask Works”).]

     E. Each Grantor has entered into a Security Agreement (Intellectual Property) dated as of the
date hereof (the “IP Security Agreement”) with Subordinated Collateral Agent on behalf of the
Holders.

     [F. Pursuant to the IP Security Agreement, each Grantor has granted to Subordinated
Collateral Agent on behalf of the Holders a security interest in all right, title and interest of
such

Attachment 2-1

 

 

Grantor in and to the Trademarks, together with the goodwill of the business symbolized by the
Trademarks and the customer lists and records related to the Trademarks and the applications and
registrations thereof, and all proceeds thereof, including any and all causes of action which may
exist by reason of infringement thereof (the “Collateral”), to secure the payment, performance and
observance of the Secured Obligations, as defined in the IP Security Agreement.]

     [F. Pursuant to the IP Security Agreement, each Grantor has granted to Subordinated
Collateral Agent on behalf of the Holders a security interest in all right, title and interest of
such Grantor in and to the Copyrights and the registrations thereof, together with any renewals or
extensions thereof, and all proceeds thereof, including any and all causes of action which may
exist by reason of infringement thereof for the full term of the Copyrights (the “Collateral”), to
secure the prompt payment, performance and observance of the Secured Obligations, as defined in
the IP Security Agreement.]

     [F. Pursuant to the IP Security Agreement, each Grantor has granted to Subordinated
Collateral Agent on behalf of the Holders a security interest in all right, title and interest of
such Grantor in and to the Mask Works and the registrations thereof, together with any renewals or
extensions thereof, and all proceeds thereof, including any and all causes of action which may
exist by reason of infringement thereof for the full term of the Mask Works (the “Collateral”), to
secure the prompt payment, performance and observance of the Secured Obligations, as defined in
the IP Security Agreement.]

     NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged,
each Grantor does hereby further grant to the Subordinated Collateral Agent on behalf of the
Holders a security interest in the Collateral to secure the prompt payment, performance and
observance of the Secured Obligations.

     Each Grantor does hereby further acknowledge and affirm that the rights and remedies of
Subordinated Collateral Agent with respect to the security interest in the Collateral granted
hereby are more fully set forth in the IP Security Agreement, the terms and provisions of which are
hereby incorporated herein by reference as if fully set forth herein.

Subordinated Collateral Agent’s address is:

Prudential Capital Partners II, L.P.

c/o The Prudential Insurance Company of America

c/o Investment Operations Group

Gateway Center Two, 10th Floor

100 Mulberry Street

Newark, NJ 07102

Attachment 2-2

 

 

     IN WITNESS WHEREOF, each Grantor has caused this Grant of Security Interest to be executed as
of the day and year first above written.

	 	 	 	 	 	 	 

	 	 	FINGERHUT DIRECT MARKETING, INC., a	 	 
	 	 	Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT FULFILLMENT, INC., a	 	 
	 	 	Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 

Attachment 2-3

 

 

SCHEDULE 1-A TO GRANT OF SECURITY INTEREST

TRADEMARKS

SCHEDULE 1-B TO GRANT OF SECURITY INTEREST

TRADEMARK APPLICATIONS

	 	 	 	 	 

	Mark
	 	Application Date
	 	Application No.
	 
	 	 
	 	 

Attachment 2-5

 

 

SCHEDULE 1-A TO GRANT OF SECURITY INTEREST

COPYRIGHTS

	 	 	 	 	 

	Description
	 	Registration Date
	 	Registration No.
	 
	 	 
	 	 

SCHEDULE 1-A TO GRANT OF SECURITY INTEREST

MASK WORKS

	 	 	 	 	 

	Description
	 	Registration Date
	 	Registration No.
	 
	 	 
	 	 

Attachment 2-6

 

 

ATTACHMENT 3

TO SECURITY AGREEMENT

GRANT OF SECURITY INTEREST

(PATENTS)

     THIS GRANT OF SECURITY INTEREST, dated as of March _, 2006, is executed by Fingerhut Direct
Marketing, Inc., a Delaware corporation (“Company”) and Fingerhut Fulfillment, Inc.
(collectively, “Grantors”), in favor of Prudential Capital Partners II, L.P., as
subordinated collateral agent for the Holders referenced below (“Subordinated Collateral
Agent”).

     A. Pursuant to that certain Securities Purchase Agreement, dated concurrently herewith (as
the same from time to time hereafter may be amended, modified, supplemented or restated, the
“Purchase Agreement”), by and among the Company and the purchasers party thereto
(collectively, the “Purchasers” and, together with any person who becomes a holder of any
Subordinated Note (as defined below) the “Holders”), pursuant to which the Purchasers have
agreed to purchase $30,000,000 aggregate principal amount of the 13.00% Senior Subordinated Secured
Notes due, March 24, 2013 (the “Subordinated Notes”) of the Company for the purposes, and
on the terms and subject to the conditions, set forth in the Purchase Agreement.

     B. The Purchasers’ obligations to purchase the Subordinated Notes of the Company under the
Purchase Agreement are subject, among other conditions, to receipt by Subordinated Collateral Agent
of this Security Agreement, duly executed by the Grantors.

     C. Company owns the letters patent, and/or applications for letters patent, of the United
States and certain foreign countries, more particularly described on Schedules 1-A and 1-B
annexed hereto and made a part hereof (collectively, the “Patents”).

     D. Grantors have entered into a Agreement dated as of the date hereof (the “IP Security
Agreement”) with Subordinated Collateral Agent.

     E. Pursuant to the IP Security Agreement, each Grantor has assigned and granted to
Subordinated Collateral Agent on behalf of the Holders a security interest in all right, title and
interest of each Grantor in and to the Patents, together with any reissue, continuation,
continuation-in-part or extension thereof, and all proceeds thereof, including any and all causes
of action which may exist by reason of infringement thereof (the “Collateral”), to secure the
prompt payment, performance and observance of the Secured Obligations (as defined in the IP
Security Agreement).

     NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged,
each Grantor does hereby further assign, transfer and convey unto Subordinated Collateral Agent on
behalf of the Holders and grant to Subordinated Collateral Agent on behalf of the Holders a
security interest in the Collateral to secure the prompt payment, performance and observance of the
Secured Obligations.

Attachment 3-1

 

 

     Each Grantor does hereby further acknowledges and affirms that the rights and remedies of
Subordinated Collateral Agent with respect to the assignment of and security interest in the
Collateral made and granted hereby are more fully set forth in the IP Security Agreement, the terms
and provisions of which are hereby incorporated herein by reference as if fully set forth herein.

Prudential Capital Partners II, L.P.

c/o The Prudential Insurance Company of America

c/o Investment Operations Group

Gateway Center Two, 10th Floor

100 Mulberry Street

Newark, NJ 07102

Attachment 3-2

 

 

     IN WITNESS WHEREOF, each Grantor has caused this Grant of Security Interest to be executed as
of the day and year first above written.

	 	 	 	 	 	 	 

	 	 	FINGERHUT DIRECT MARKETING, INC., a	 	 
	 	 	Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT FULFILLMENT, INC., a	 	 
	 	 	Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 

Attachment 3-3

 

 

SCHEDULE 1-A TO GRANT OF SECURITY INTEREST

PATENTS

SCHEDULE 1-B TO GRANT OF SECURITY INTEREST

PATENT APPLICATIONS

	 	 	 	 	 	 	 

	Title
	 	Jurisdiction
	 	Application Date
	 	Application No.
	 
	 	 
	 	 
	 	 

Attachment 3-4

 

 

ATTACHMENT 4

TO SECURITY AGREEMENT

SPECIAL POWER OF ATTORNEY

	 	 	 	 	 

	STATE OF MINNESOTA

	 	 	)	 
	 

	 	 	)	 
	COUNTY OF HENNEPIN

	 	 	)	 

     KNOW ALL PERSONS BY THESE PRESENTS, THAT Fingerhut Direct Marketing, Inc., a Delaware
corporation (“Company”) and Fingerhut Fulfillment, Inc. (each, a “Grantor” and
collectively, the “Grantors”), pursuant to a Security Agreement (Intellectual Property),
dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the
“Security Agreement”), among the Grantors and Prudential Capital Partners II, L.P., as
subordinated collateral agent (in such capacity, the “Subordinated Collateral Agent”) for
the Holders (as defined below) which are parties to that certain Securities Purchase Agreement,
dated concurrently herewith (as the same from time to time hereafter may be amended, modified,
supplemented or restated, the “Purchase Agreement”), by and among Company and the
Purchasers (collectively, the “Purchasers” and, together with any person who becomes a
holder of any Subordinated Note (as defined below) the “Holders”), pursuant to which the
Purchasers have agreed to purchase $30,000,000 aggregate principal amount of the 13.00% Senior
Subordinated Secured Notes due, March 24, 2013 (the “Subordinated Notes”) hereby appoints
and constitutes the Subordinated Collateral Agent its true and lawful attorney in fact, with full
power of substitution, and with full power and authority to perform the following acts on behalf
of the Grantors:

     1. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title
and interest of the Grantors in and to any letters patent of the United States or any other country
or political subdivision thereof, and all registrations, recordings, reissues, continuations,
continuations-in-part and extensions thereof, and all pending applications therefor, and for the
purpose of the recording, registering and filing of, or accomplishing any other formality with
respect to, the foregoing, to execute and deliver any and all agreements, documents, instruments of
assignment or other papers necessary or advisable to effect such purpose;

     2. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title
and interest of the Grantors in and to any trademarks, trade names, trade styles and service marks,
and all registrations, recordings, reissues, extensions and renewals thereof, and all pending
applications therefor, and for the purpose of the recording, registering and filing of, or
accomplishing any other formality with respect to, the foregoing, to execute and deliver any and
all agreements, documents, instruments of assignment or other papers necessary or advisable to
effect such purpose;

     3. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title
and interest of the Grantors in and to any copyrights, and all registrations,

Attachment 4-1

 

 

recordings, reissues, extensions and renewals thereof, and all pending applications therefor, and
for the purpose of the recording, registering and filing of, or accomplishing any other formality
with respect to, the foregoing, to execute and deliver any and all agreements, documents,
instruments of assignment or other papers necessary or advisable to effect such purpose;

     4. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title
and interest of the Grantors in and to any mask works, and all registrations, recordings, reissues,
extensions and renewals thereof, and all pending applications therefor, and for the purpose of the
recording, registering and filing of, or accomplishing any other formality with respect to, the
foregoing, to execute and deliver any and all agreements, documents, instruments of assignment or
other papers necessary or advisable to effect such purpose;

     5. For the purpose of evidencing and perfecting the Subordinated Collateral Agent’s interest
in any patent, trademark, copyright or mask work not previously assigned to the Subordinated
Collateral Agent as security, or in any patent, trademark, copyright or mask work, which the
Grantors may acquire from a third party, and for the purpose of the recording, registering and
filing of, or accomplishing any other formality with respect to, the foregoing, to execute and
deliver any and all agreements, documents, instruments of assignment or other papers necessary or
advisable to effect such purpose.

     6. To execute any and all documents, statements, certificates or other papers necessary or
advisable in order to obtain the purposes described above as the Subordinated Collateral Agent may
in its sole discretion determine.

Attachment 4-2

 

 

     This power of attorney is made pursuant to the Security Agreement and takes effect solely for
the purposes of thereof and is subject to the conditions thereof and may not be revoked until
termination of the Security Agreement as provided therein.

Dated: March     , 2006

	 	 	 	 	 	 	 

	 	 	FINGERHUT DIRECT MARKETING, INC., a

Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT FULFILLMENT, INC., a

Delaware corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 

Attachment 4-3

 

 

EXHIBIT J

[FORM OF EQUITYHOLDER AGREEMENT]

See Attached

 

 

Execution Copy

AGREEMENT TO TURNOVER

RESTRICTED PAYMENTS

          This AGREEMENT TO TURNOVER RESTRICTED PAYMENTS, dated as of March 24, 2006 (as amended,
supplemented or otherwise modified from time to time, the “Agreement”), is among Fingerhut
Direct Marketing, Inc., a Delaware corporation (the “Company”) and each other person from
time to time party hereto (each an “Investor” and, collectively, the
“Inverstors”).

W I T N E S S E T H

          WHEREAS, the Company is entering into an Amended and Restated Warehouse Loan Agreement, dated
as of March 23, 2006 (as amended, supplemented or otherwise modified from time to time, the
“Loan Agreement”) with the lenders party thereto from time to time (the “Lenders”) and
CIGPF I Corp., as Agent;

          WHEREAS, Section 9.07(a) of the Loan Agreement prohibits the Company from making Restricted
Payments (as defined in Exhibit A attached hereto) to the Investors;

          WHEREAS, it is a condition precedent to the execution and delivery of the Loan Agreement by
the Lenders and the Agent that the Company and the Investors execute and deliver this Agreement to
provide for the return by each Investor to the Company of any Restricted Payments it may receive
from time to time;

          WHEREAS, the Company is entering into a Securities Purchase Agreement, dated as of March 23,
2006 (as amended, supplemented or otherwise modified from time to time the “Securities
Purchase Agreement”) with the Purchaser’s named in the Purchaser Schedule attached thereto
(the “Purchasers”) under which, subject to the terms and conditions thereof, the
Purchasers have agreed to purchase the Company’s 13.00% Senior Subordinated Secured Notes due 2013
(the “Subordinated Notes”);

          WHEREAS, paragraph 6F of the Securities Purchase Agreement prohibits the Company from making
Restricted Payments to the Investors;

          WHEREAS, it is a condition precedent to the obligation of the Purchasers to purchase the
Subordinated Notes that the Company and the Investors execute and deliver this Agreement to
provide for the return by each Investor to the Company of any Restricted Payments it may receive
from time to time.

          NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration received by the Company and the Investors as a consequence of the

 

 

execution, delivery and performance of the Loan Agreement and the making of Loans thereunder (as
defined therein) and of the execution, delivery and performance of the Securities Purchase
Agreement and the purchase and sale of the Subordinated Notes thereunder, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

          1. Turnover of Restricted Payments. Until such time as all Obligations (as defined in
the Loan Agreement, as in effect on the date hereof) have been paid in full in cash and the Loan
Agreement has been terminated, and all Obligations (as defined in the Securities Purchase
Agreement, as in effect on the date hereof) have been paid in full in cash (such time being called
the “Discharge of all Obligations”), each Investor agrees that should it receive a Restricted
Payment (other than a Restricted Payment permitted to be paid by the Company under the Loan
Agreement and the Securities Purchase Agreement, if any), it shall promptly return such Restricted
Payment to the Company in the same form received (together with any necessary endorsements). Until
all Obligations (as defined in the Loan Agreement, as in effect on the date hereof), have been paid
in full in cash and the Loan Agreement has been terminated, any Investor returning a Restricted
Payment to the Company shall do so by remitting such Restricted Payment to the Lockbox Account (as
defined in the Loan Agreement, as in effect on the date hereof), the wire instructions for which
are set forth on the acknowledgment page hereto, and, thereafter, by remitting such Restricted
Payment to such account of the Company as the Subordinated Collateral Agent (as defined in the
Securities Purchase Agreement, as in effect on the date hereof) may direct. The Company agrees
that it will not make any Restricted Payment to any Investor (other than a Restricted Payment
permitted to be paid by the Company under the Loan Account and the Securities Purchase Agreement),
provided that the Company shall have no obligation to pay any monetary damages to any Investor, in
its capacity as such, as a result of any failure by it to comply with the foregoing agreement.

          2. Assignment of Equity Interests. Until the Discharge of all Obligations, no Investor
may, nor may the Company, sell, assign, pledge or otherwise dispose or transfer any Equity Interest
(as defined in Exhibit A attached hereto) in the Company or any subsidiary of the Company to any
person or entity unless such person or entity executes and delivers to the Agent and the
Subordinated Collateral Agent, a signature page hereto evidencing such person or entity’s agreement
to be bound by this Agreement or otherwise agrees in a writing (acceptable to the Agent and the
Subordinated Collateral Agent) to be bound by this Agreement.

          3. Amendments; Etc. This Agreement may not be modified, supplemented, amended or
terminated, without the prior written consent of each party hereto, the Agent and the Subordinated
Collateral Agent, and no consent, waiver or other departure from the terms hereof shall be
effective without the prior written consent of each party hereto, the Agent and the Subordinated
Collateral Agent. Notwithstanding the foregoing, this Agreement shall terminate automatically upon
(i) payment in full in cash of all Obligations (as defined in the Loan Agreement, as in effect on
the date hereof), (ii) termination of the Loan Agreement, and (iii) payment in full in cash of all
Obligations (as defined in the Securities Purchase Agreement, as in effect on the date hereof).

          4. Representation and Warranty. Each of the Company and each Investor represents and
warrants to the Agent and the Subordinated Collateral Agent that this Agreement constitutes its
legal, valid and binding obligation enforceable against it in accordance with its

2

 

terms.

          5. Counterparts. This Agreement may be executed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which when so executed and
delivered (including by way of facsimile or electronic transmission) shall be deemed an original,
and all of which taken together shall constitute one and the same agreement.

          6. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).

          7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING DIRECTLY OR INDIRECTLY UNDER OR IN CONNECTION WITH THIS AGREEMENT.

          8. Third-Party Beneficiary. The Agent, the Lenders, the Subordinated Collateral
Agent, the Purchasers and any other holder of a Subordinated Note are expressly intended to be
third-party beneficiaries of this Agreement.

          9. Amendments to Loan Agreement. Nothing contained herein shall be construed as a
limitation upon the ability of the Company, any Lender, any Purchaser, the Agent or the
Subordinated Collateral Agent to amend, supplement or otherwise modify the Loan Agreement or the
Securities Purchase Agreement in any respect.

[Signature Pages Follow]

3

 

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

	 	 	 	 	 
	 	COMPANY

FINGERHUT DIRECT MARKETING, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	Brian Smith 	 
	 	 	Title:  	Chief Executive Officer and President 	 
	 

[Signature Page to Turnover Agreement]

 

 

	 	 	 	 	 	 	 

	 	 	BROOKSIDE CAPITAL PARTNERS FUND, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	BATTERY VENTURES VI, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Battery Ventures VI, LLC,	 	 
	 

	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	BATTERY INVESTMENT PARTNERS VI, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	PETTERS COMPANY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title: 	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	BRIAN SMITH	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	KERMIT L. STOFER	 	 
	 
	 	 	 	 	 	 
	 	 	[OTHER INVESTORS]	 	 

[Signature Page to Turnover Agreement]

 

 

	 	 	 	 	 	 	 

	 	 	INVESTOR	 	 
	 
	 	 	 	 	 	 
	 	 	CIGPF I CORP.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Stetson Street Partners, L.P.	 	 
	 

	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS	 	 
	 	 	MANAGEMENT FUND II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Mulberry Street Holdings, LLC,,	 	 
	 

	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Prudential Investment Management, Inc.,	 	 
	 

	 	 	 	its managing member	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS	 	 
	 	 	(PARALLEL FUND) II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Stetson Street Partners, L.P.,	 	 
	 

	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 

[Signature Page to Turnover Agreement]

 

 

	 	 	 	 	 	 	 

	 	 	BAIN CAPITAL VENTURE FUND, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Bain Capital Venture Partners, L.P.,	 	 
	 

	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Bain Capital Investors, LLC,	 	 
	 

	 	 	 	its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	BCIP Associates III-B, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	BCIP Associates III-B,	 	 
	 

	 	 	 	its manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name
	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	BCIP Associates III, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	BCIP Associates III,	 	 
	 

	 	 	 	its manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	RGIP, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 

[Signature Page to Turnover Agreement]

 

 

	 	 	 	 	 

	 

	 	 

THEODORE DEIKEL
	 	 

[Signature Page to Turnover Agreement]

 

 

	 	 	 	 	 

	ACKNOWLEDGED AND AGREED:	 	 
	 
	CIGPF I CORP.,	 	 
	 

	 	as Agent	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 

	 	 	 	 	 

	Address:	 	CIGPF I Corp.
	 	 	c/o Citigroup Global Markets, Inc.
	 	 	390 Greenwich Street 
	 	 	4th Floor 
	 	 	New York, New York 10013
	 

	 	Telephone:
	 	(212)723-6270
	 

	 	Fax:
	 	(212)723-8855
	 

	 	Attention:
	 	Ari Rosenberg
	Lockbox
	 	 	 	 
	Account
	 	 	 	 
	Wire
	 	 	 	 
	Instructions:	 	Huntington National Bank
	 

	 	ABA #:
	 	044-000-024
	 

	 	Acct #:
	 	0166-1780221
	 

	 	Reference:
	 	[______]

	 	 	 	 	 

	Prudential Capital Partners II, L.P., 

as Subordinated Collateral Agent	 	 
	 
	 	 	 	 
	By:

	 	Stetson Street Partners, L.P.,	 	 
	 

	 	its general partner	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 

c/o The Prudential Insurance Company of America

c/o Investment Operations Group

Gateway Center Two, 10th Floor

100 Mulberry Street

Newark, NJ 07102

[Signature Page to Turnover Agreement]

 

 

	 	 	 	 	 

	Prudential Capital Partners II, L.P.,	 	 
	as Subordinated Collateral Agent	 	 
	 
	 	 	 	 
	By:

	 	Stetson Street Partners, L.P.,	 	 
	 

	 	its general partner	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Vice President
	 	 

c/o The Prudential Insurance Company of America

c/o Investment Operations Group

Gateway Center Two, 10th Floor

100 Mulberry Street

Newark, NJ 07102

[Agreement to Turnover Restricted Payments]

 

 

Exhibit A

to

Agreement to Turnover Restricted Payments

DEFINITIONS

“Equity Interests” means shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or other equity interests
in any person, or any obligations convertible into or exchangeable for, or giving any person a
right, option or warrant to acquire such equity interests or such convertible or exchangeable
obligations.

“Restricted Payment” means any dividend or other distribution (whether in cash, or other
property) with respect to any Equity Interests in the Company or any of its subsidiaries, or any
payment (whether in cash or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or termination of any
Equity Interests in the Company or any of its subsidiaries or any option, warrant or other right to
acquire any Equity Interests in the Company or any of its Subsidiaries, provided however that such
dividends, distributions or payment in the form of shares of capital stock in the Company or its
subsidiary, as applicable, shall not be considered Restricted Payments. Notwithstanding the
foregoing the payment of reasonable fees for serving as a director of the Company and the
reimbursement of reasonable expenses for attending meetings of the board of directors of the
Company, in each case in accordance with past practice, shall not be considered to be the payment
of a “Restricted Payment”.

 

 

EXHIBIT K

[FORM OF VCOC LETTER]

See Attached

 

 

[VCOC Letter]

Fingerhut Direct Marketing, Inc.

4400 Baker Road

Minnetonka, Minnesota 55343

March 24, 2006

PRUDENTIAL CAPITAL PARTNERS II, L.P.

c/o Stetson Street Partners, L.P.

Two Prudential Plaza

180 North Stetson Street

Chicago, IL 60601

			
	Re:	 	Certain Rights of Prudential Capital Partners II, L.P. (the “Purchaser”)

Ladies and Gentlemen:

	 	 	Fingerhut Direct Marketing, Inc. (the “Company”) hereby agrees with the Purchaser as
follows:
	 
	1.	 	The Company shall provide the Purchaser and its designated representatives with (a) the right
to inspect the books and records of the Company and its subsidiaries upon reasonable advance
notice, (b) copies of all audited financial statements of the Company and its subsidiaries and
(c) copies of all materials provided to the Company’s and each subsidiary’s board of directors
or other governing body (each, a “Board of Directors”) in connection with meetings of such
Board of Directors;
	 
	2.	 	The Company shall make appropriate officers and/or directors of the Company and its
subsidiaries available periodically for consultation with the Purchaser and its designated
representatives with respect to matters relating to the business, affairs and operation of the
Company and its subsidiaries including, without limitation, significant changes in management
personnel and compensation of employees, introduction of new products or new lines of
business, important acquisitions or dispositions of plants and equipment, significant
research and development programs, the purchasing or selling of important trademarks,
licenses or concessions or the proposed commencement or compromise of significant
litigation;
	 
	3.	 	The Company shall inform the Purchaser in advance with respect to any significant Company
actions, including, without limitation, extraordinary dividends or
distributions, mergers, acquisitions or significant dispositions of assets, issuances of
significant amounts of debt or equity and material amendments to the certificates of
incorporation or by-laws or other applicable organizational documents of the Company and its
subsidiaries, and provide the Purchaser and its designated representatives with the right to
consult with the Company and its subsidiaries with respect to such actions;
	 
	4.	 	The Company shall provide the Purchaser and its designated representatives with notice of
meetings of the Board of Directors of the Company and copies of the agenda for, and any
minutes from, such meetings and copies of any materials provided to the members of the Board
of Directors in connection with such meetings. The Company’s failure to provide any of the
foregoing items shall not in any way affect the validity of any meeting of any Board of
Directors or any action taken at any such meeting;
	 
	5.	 	The Company shall provide the Purchaser and its designated representatives with such other
rights of consultation as may reasonably be determined by the Purchaser to be necessary to
qualify its investment in the Company or any subsidiary as a “venture capital investment” for
purposes of the

 

 

	 	 	United States Department of Labor Regulation published at 29 C.F.R. Section
2510.3-101(d)(3)(i) (together with any successor thereto, the “Plan Asset Regulation”);
	 
	6.	 	Notwithstanding the above, the Company need not provide any materials or information and may
exclude the Purchaser from access to information if the Company believes, upon advice of
counsel, any such exclusion is necessary to preserve the attorney-client privilege or such
information relates to a contemplated transaction with Purchaser or its affiliates or a
transaction which creates a conflict of interest between the Purchaser or its affiliates, on
the one hand, and the Company or its affiliates, on the other hand; and
	 
	7.	 	The use or disclosure of any confidential information provided to or learned by the Purchaser
or any of its representatives in connection with this letter agreement shall be subject to the
confidentiality provisions contained in that certain Securities Purchase Agreement (the “Note
Agreement”) of even date herewith, which provisions shall survive termination of the Note
Agreement.

The Company agrees to consider, in good faith, any recommendations of the Purchaser or its
designated representatives in connection with the matters on which it is consulted as described
above, recognizing that the ultimate discretion with respect to all such matters shall be retained
by the Company and its subsidiaries.

In the event the Purchaser transfers all or any portion of its investment in the Company or
any subsidiary to an affiliated entity that is intended to qualify as a venture capital operating
company under the Plan Asset Regulation, the Company agrees that such transferee shall be afforded
the same rights with respect to the Company and its subsidiaries afforded to the Purchaser
hereunder and shall be treated, for such purposes, as a third-party beneficiary hereunder,
provided such transferee agrees in writing to be subject to the terms and conditions of this
letter agreement and the confidentiality obligations set forth in the Note Agreement.

This letter agreement shall terminate upon the earlier of (a) the date that the Purchaser,
any of its affiliates and all transferees which are third party beneficiaries of this Agreement in
accordance with the preceding paragraph, cease to hold securities of the Company; (b) of the date
upon which the Company consummates the sale of its securities pursuant to a registration statement
filed by the Company under the Securities Act of 1933, as amended, in connection with the firm
commitment underwritten offering of the Company’s securities to the general public; or (c) when
the Company becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of
the Securities Exchange Act of 1934, as amended.

Kindly acknowledge your agreement with the foregoing by executing this letter agreement where
indicated below.

	 	 	 	 	 	 	 

	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	FINGERHUT DIRECT MARKETING, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name: Brian Smith
	 	 
	 

	 	 	 	Title: Chief Executive Officer and President	 	 

PRUDENTIAL CAPITAL PARTNERS II, L.P.

By: Stetson Street Partners, L.P., its General Partner

	 	 	 	 	 

	By:
	 	 	 	 
	 

	 	 

Vice President
	 	 

 

 

EXHIBIT L

[FORM OF AGREEMENT TO SUBORDINATE]

March     , 2006

TO THE SENIOR LENDERS IDENTIFIED

ON EXHIBIT A ATTACHED HERETO

          Re: Agreement to Subordinate

Gentlemen:

          Reference is made to the Senior Agent, Senior Lenders and Senior Financing Agreement
identified in Exhibit A or defined in Exhibit B attached hereto with respect to financing
facilities provided for the benefit of Fingerhut Direct Marketing, Inc., as borrower (the
“Borrower”).

          Unless otherwise defined herein, capitalized terms used in this letter agreement shall have
the respective meanings set forth in Exhibit B attached hereto and incorporated herein in its
entirety.

          In order to induce the Senior Agent and the Senior Lenders to enter into the Senior Loan
Documents and to purchase the Notes under the Senior Financing Agreement, and in consideration of
the benefits inuring to each of the undersigned from such purchase of the Notes, each of the
undersigned hereby agrees as follows:

	 	1.	 	Lien Priority. Notwithstanding the order or time of
attachment, or the order, time, or manner of perfection, or the order or time
of filing or recordation of any document or instrument, or other method of
perfecting a Lien in favor of the Senior Agent in any Collateral and
notwithstanding any conflicting terms or conditions which may be contained in
any Senior Loan Document or any Subordinate Creditor Loan Document, the Liens
of the Senior Agent in the Collateral shall have priority over the Liens of
each Subordinate Creditor in the Collateral, and the Liens of each
Subordinate Creditor in the Collateral are and shall be, in all respects,
subject and subordinate to the Liens of the Senior Agent therein to the full
extent of the respective Senior Obligations outstanding from time to time.

1

 

	 	2.	 	Subordination. Until Discharge of the Senior Obligations and except with
respect to the Permitted Subordinate Payments:

	 	a.	 	Payment of each of the Subordinate Obligations (except with
respect to Permitted Subordinate Payments), all rights and remedies of each
Subordinate Creditor under the Subordinate Creditor Loan Documents to receive
payments thereunder, and all rights of each Subordinate Creditor to receive the
proceeds from any assets of the Obligors thereunder, in each case shall be
postponed and such Subordinate Obligations shall rank subsequent and
subordinate in all respects to the Senior Obligations and the Senior Loan
Documents.
	 
	 	b.	 	In furtherance of the foregoing, Borrower shall not make, and
shall not permit any other Obligor to make, and each Subordinate Creditor shall
not accept, receive or retain from any Obligor, any direct or indirect payment
(in cash, property, or securities or by set-off or otherwise) upon or in
respect of the Subordinate Obligations in respect of any acceleration,
demand, suit for collection, action or enforcement of the Subordinate
Obligations or in respect of any prepayment, redemption, retirement, purchase
or other acquisition of the Subordinate Obligations until all the Senior
Obligations shall have been indefeasibly paid in full in cash.

	 	 	 	The foregoing shall not limit the right of any Subordinate Creditor to enforce through
any equitable remedies available to it any non-monetary Subordinate Obligations.
	 
	 	3.	 	Acknowledgement. Without limiting the effect of any other provision of this
letter agreement, each Subordinate Creditor acknowledges and agrees that, regardless of
the time of loans, advances or extensions of credit made by Senior Lenders or the Subordinate
Creditors, or the relative times or order of attachment or creation of any security interest
and liens securing the Senior Obligations or the Subordinate Obligations, as the case may be,
or the actual possession of any Collateral or other assets of the Obligors, or the order of
filing or recording of financing statements, mortgages or other documents, if any, or any
defect, deficiency or omission contained in the Senior Loan Documents, or anything to the
contrary in the Subordinate Creditor Loan Documents, as among the Senior Lenders and the
Subordinate Creditors, the ranking of security interests shall be as provided in this letter
agreement. The Lien priorities provided in this agreement shall not be altered or otherwise
affected by any amendment, modification,

2

 

	 	 	 	supplement, extension, renewal or restatement of any of the Obligations (or the documents
evidencing or securing the same), nor by any action or inaction that the Senior Agent, any
Senior Lender or Subordinate Creditor may take or fail to take in respect of any
Collateral.
	 
	 	4.	 	Payment Blocks. In the event of the occurrence and during the Continuation of any
Senior Payment Default or any Senior Performance Default, then no payment shall be made by or
on behalf of any Obligor or shall be received by any Subordinate Creditor on account of any
Subordinate Obligation from the date on which such Senior Default occurred, provided
that Borrower and each Subordinate Creditor shall have received, from the Senior Agent, a
Senior Payment Bar Notice given pursuant to this letter agreement and continuing to the date,
if any, on which such Senior Default shall have been cured by Borrower or other Obligor or
waived by the Senior Agent or the related Senior Lenders or shall have otherwise ceased to
exist, as acknowledged by such Senior Agent in writing;
provided, however, that:

	 	a.	 	with respect to Permitted Subordinate Payments consisting of
taxes and insurance premiums payable with or as rental obligations, the Senior
Payment Bar shall not apply;
	 
	 	b.	 	with respect to Permitted Subordinate Payments consisting of
other rental obligations, the Senior Payment Bar shall terminate:

	 	i.	 	not later than three (3) months after
commencement of the Senior Payment Bar if (A) the Senior Payment
Bar Notice is issued with respect to a Senior Performance Default
and (B) the Senior Lenders have been paid all past due and owing
Senior Obligations owing to them, and all Senior Obligations then
due and payable to them at the time such Permitted Subordinate
Payment is sought to be made; and
	 
	 	ii.	 	not later than 365 days after commencement
of the Senior Payment Bar if the Senior Payment Bar Notice is issued
with respect to a Senior Payment Default.

During the Continuation of any Senior Payment Bar, each Subordinate Creditor shall
refrain, and shall cause each of such Subordinate Creditor’s Controlled Persons to
refrain, from exercising all rights or taking any enforcement action against the

3

 

Borrower and its Subsidiaries in respect of any Lien it may have against the Borrower or
any of its Subsidiaries; provided, however, that, notwithstanding the absence of
any Senior Payment Bar, no such enforcement action shall be taken unless each of the
following has occurred:

	 	a.	 	the Subordinate Creditor seeking to exercise its rights or take enforcement
action shall provide the Senior Agent with no less than twenty (20) Business Days’
advance written notice of such intent;
	 
	 	b.	 	The Senior Agent has been provided with the opportunity to pay any
Obligations consisting of monthly rent payments owing to any Subordinate Creditor and
currently scheduled to become due within the next thirty (30) days following the date
of such notice; and
	 
	 	c.	 	The Senior Agent has declined to pay such currently scheduled rent
payments;

it being understood, however, that the Senior Agent shall be under no obligation to pay any
Obligation (including any rent payments) that become due and payable prior to the date of such
notice.

	 	5.	 	Controlled Persons. For purposes of this letter agreement, “Control” shall mean the
power, whether direct or indirect (x) to vote 50% or more of the Equity Interests of or in any
Person or (y) to direct or cause the direction of the management or policies of any Person,
(or to control the conduct of any Person that is an individual) whether by contract, through
the ownership of Equity Interests or otherwise. Without limiting the generality of the
foregoing, an individual shall be deemed to “Control” his spouse, parents, children, siblings,
mother-in-law, father-in-law, brothers-in-law, sisters-in-law, sons-in-law, daughters-in-law
and anyone else who resides in his home. With respect to each Subordinate Creditor, a
“Controlled Person” means a Person under the Control of such Subordinate Creditor.
	 
	 	6.	 	Standstill. Each Subordinate Creditor represents and warrants (as to itself) that,
as of the Closing Date (after giving effect to the transactions contemplated in the Senior
Financing Agreement and the application of the proceeds from the issuance of the Notes
thereunder), such Subordinate Creditor does not have, and no other Controlled Person of such
Subordinate Creditor has, a Lien on or other adverse claim against the Borrower or any of its
Subsidiaries or any of their respective properties or assets, other than Liens securing
Permitted Subordinate Payments. Until such time as the Obligations have been repaid in full
and the Senior Financing

4

 

	 	 	 	Agreement has been terminated, each Subordinate Creditor covenants and agrees not to
acquire or accept, and not to permit any Controlled Person of such Subordinate Creditor to
acquire or accept, any other Lien on or other adverse claim against the Borrower or any of
its Subsidiaries or any of their respective properties or assets.
	 
	 	7.	 	Agent’s Rights to Leases. FAC Acquisition, LLC
(“Landlord”) shall promptly notify
the Senior Agent of any default by the Borrower under any Lease and of any act or omission of
the Borrower which would give Landlord the right to cancel or terminate such Lease or to
claim a partial or total eviction, In the event of a default by the Borrower under a Lease
which would give Landlord the right, immediately or after the lapse of a period of time, to
cancel or terminate such Lease or to claim a partial or total eviction, or in the event of any
other act or omission of the Borrower which would give Landlord the right to cancel or
terminate such Lease, Landlord shall not exercise such right (i) until Landlord has given
written notice of such default, act or omission to the Senior Agent and (ii) unless the Senior
Agent has not cured or remedied the default, act or omission, within sixty (60) days after the
Senior Agent receives such notice, provided that the Senior Agent shall with due diligence
give Landlord written notice of its intention to and shall commence and continue to, remedy
such default, act or omission. If the Discharge of the Warehouse Loan Obligations has occurred
and the Senior Agent cannot reasonably remedy a default, act or omission of the Borrower until
after such Senior Agent obtains possession of the related premises, Landlord may not terminate
or cancel such Lease or claim a partial or total eviction by reason of such default, act or
omission until the expiration of a reasonable period necessary for the remedy after the Agent
secures possession of such premises, but not more than such sixty (60) day period.
Performance by the Senior Agent shall satisfy any conditions of such Lease requiring
performance by the Borrower.
	 
	 	8.	 	Amendments. No Subordinate Creditor shall enter into renewals or extensions of,
amendments to, or waivers under, the Subordinate Creditor Loan Documents without the prior
written consent of the Senior Agent.
	 
	 	9.	 	Payments Over. Should any payment on account of or any Collateral for any part of
the Subordinate Obligations be received by any Subordinate Creditor in violation of this
letter agreement, such payment or collateral shall be delivered forthwith (i) until the
Discharge of the Warehouse Loan Obligations, to the Collecting Agent by the recipient for
application to the Warehouse Loan

5

 

	 	 	 	Obligations, in the form received (with any necessary endorsements), and (ii) after the
Discharge of the Warehouse Loan Obligations, to the Senior Agent by the recipient for
application to the Senior Obligations, in the form received (with any necessary
endorsements). The Senior Agent is irrevocably authorized to supply any required
endorsement or assignment which may have been omitted. Until so delivered, any such
payment or collateral shall be held by the Subordinate Creditor, as applicable, in trust
for the Collecting Agent or the Senior Agent and the Senior Lenders, as applicable, and
shall not be commingled with other funds or property of such Subordinate Creditor.
	 
	 	10.	 	Legends. Each Subordinate Creditor shall affix to any security document granting
such Subordinate Creditor a Lien, and to any UCC-1 or other financing statement perfecting
such Lien, in any of the Collateral a legend, satisfactory to the Senior Agent, reflecting
that payment of the Subordinate Obligations is subordinate to payment of the Senior
Obligations.
	 
	 	11.	 	Insolvency. No Subordinate Creditor will commence or join with any other creditor or
creditors of any Obligor in commencing any Insolvency Proceeding against any Obligor
without the prior written consent of the Senior Agent. At any general meeting of creditors
of an Obligor or in the event of any Insolvency Proceeding by or against an Obligor for
position or extension, or otherwise, if all the Senior Obligations have not been paid and
satisfied in full in cash at the time, the Senior Agent is hereby irrevocably authorized at
any such meeting or in any such proceeding to take all acts it deems in its sole discretion to
be necessary or appropriate to protect the interests of the Senior Lenders and to enforce the
subordination provisions of this letter agreement. Each Subordinate Creditor hereby
covenants and agrees not to take any action in or with respect to any such Insolvency
Proceeding (i) until the Discharge of the Warehouse Loan Obligations, without the prior
written consent of the Collecting Agent and (ii) after the Discharge of the Warehouse
Loan Obligations, without the prior written consent of the Senior Agent.
	 
	 	12.	 	Reinstatement. To the extent permitted by law, the obligations hereunder of each
Subordinate Creditor shall be automatically reinstated if for any reason any payment by or on
behalf of the Borrower or any other application of funds (including the proceeds of any
collateral for all or part of the Obligations) in respect of all or any part of the
Obligations is rescinded or must be otherwise restored by any holder of such Obligations,
whether as a result of any proceedings in bankruptcy, reorganization or otherwise.

6

 

	 	13.	 	Effect of Disposition of Collateral on Junior Liens. After the Discharge of
the Warehouse Loan Obligations, to the extent reasonably requested by the Senior
Agent, each Subordinate Creditor will cooperate in providing any necessary or
appropriate releases with respect to any Collateral to permit a collection, sale or other
disposition of such collateral by the Senior Agent free and clear of the Subordinate
Creditor’s junior priority Lien. In the event of a sale or other disposition of
Collateral by the Borrower or any of its Subsidiaries with the consent of the Senior Agent,
and if the Senior Agent is releasing its senior priority Lien in connection therewith, each
Subordinate Creditor, upon request of the Senior Agent, shall release the same so as to
facilitate such sale or other disposition.
	 
	 	14.	 	Enforceability. Each Subordinate Creditor represents and warrants that this letter
agreement constitutes its (or his) legal, valid and binding obligation enforceable against it
(or him) in accordance with its terms.
	 
	 	15.	 	Amendments, Etc. No amendment, modification, supplement termination or
waiver of any provision of this letter agreement and no consent to any departure from the
terms hereof shall be effective unless in writing and signed by the Senior Agent and, if such
amendment, modification, supplement, or wavier would adversely effect any provision benefiting
the Collecting Agent prior to the Discharge of the Warehouse Loan Obligations, the Collecting
Agent.
	 
	 	16.	 	Counterparts; Effectiveness. This letter agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each of which when
so executed or delivered shall be deemed to be an original and all of which shall together
constitute one and the same instrument. This letter agreement shall be effective as of the
Closing Date, as to each party hereto, upon the due execution of a counterpart hereof by such
party.
	 
	 	17.	 	GOVERNING LAW. THIS LETTER AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND BE
GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL
OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES).
	 
	 	18.	 	Conflicts with Other Intercreditor Agreements. To the extent that any provision of
this Agreement conflicts with any intercreditor agreement or subordination agreement between
the Senior Agent

7

 

and the Collecting Agent, then the terms of such other intercreditor agreement or subordination
agreement shall govern.

[Signature Page Follows]

8

 

          IN WITNESS WHEREOF, each of the undersigned has executed this letter agreement as of the date
first above written.

	 	 	 	 	 	 	 

	 	 	THOMAS J. PETTERS	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	FAC ACQUISITION, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Name:
	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	PETTERS COMPANY, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	 	 	 	 
	 	 	PETTERS GROUP WORLDWIDE, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name:	 	 
	 

	 	 	 	Title:	 	 
	 
	 	 	THEODORE DEIKEL	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 

[Signature Page to Petters Subordination Agreement]

 

 

Acknowledged and Agreed:

PRUDENTIAL CAPITAL PARTNERS II, L.P.,

as Senior Agent and as a Senior Lender

	 	 	 	 	 

	By:

	 	Stetson Street Partners, L.P.,	 	 
	 

	 	its general partner	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Vice President
	 	 
	 
	 	 	 	 
	Fingerhut Direct Marketing, Inc.	 	 
	as Borrower	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 

[Signature Page to Petters Subordination Agreement]

 

 

EXHIBIT A

SENIOR LENDERS

Each of Prudential Capital Partners II, L.P., Prudential Capital Partners (Parallel Fund)
II, L.P. and Prudential Capital Partners Management Fund II, L.P., as
purchasers of the Borrower’s 13.00% Senior Subordination Secured Notes due 2013 (the “Notes”)
under that certain Securities Purchase Agreement, dated as of March 23, 2006, among Fingerhut
Direct Marketing, Inc. and such Note purchasers (as amended, supplemented, restated and modified
from time to time, the “Senior Financing Agreement”), and their respective successors and assigns.

[Signature Page to Petters Subordination Agreement]

 

 

EXHIBIT B

DEFINITIONS

          “Closing
Date” means the “date of closing”, as defined in the Senior Financing Agreement.

          “Collateral” means, collectively, any collateral of the Borrower or any other Obligor in which
the Senior Agent, Senior Lender or Subordinate Creditor is granted a Lien.

          “Collecting Agent” means the “Collecting Agent”, as defined in the Existing
Agreement to Subordinate.

          “Continuing”
or “and during the Continuation of” means, in respect of a Senior Default,
that the Senior Default (to the extent, and only to the extent, expressly curable under the Senior
Loan Documents) has not been cured in accordance therewith or waived in writing by Senior Agent or
the Senior Lenders.

          “Credit Documents” means the Subordinate Creditor Loan Documents and the Senior Loan
Documents.

          “Discharge of the Senior Obligations” means (a) payment in full in cash of the
principal of and interest on all Notes, (b) payment in full in cash of all other Senior Obligations
then due and payable, and (c) adequate provision is made for any contingent or unliquidated Senior
Obligations related to claims, causes of action or liabilities which have been asserted or
threatened against the Senior Agent or any Senior Lender or which otherwise can be reasonably
identified based on the then known facts and circumstances.

          “Discharge of the Warehouse Loan Obligations” means the “Discharge of the Senior
Obligations”, as defined in the Existing Agreement to Subordinate.

          “Existing Agreement to Subordinate” means the Agreement to Subordinate, dated February
24, 2004, between the Subordinate Creditors and the Senior Agents, as defined therein, as amended,
supplemented, restated and modified from time to time.

          “Insolvency Proceeding” means (i) any case or proceeding with respect to an Obligor
under the U.S. Bankruptcy Code or any other federal or state bankruptcy, insolvency, reorganization
or other law affecting creditors’ rights or any other or similar proceedings seeking any stay,
reorganization, arrangement, composition or readjustment of the obligations and indebtedness of
such Obligor, (ii) any proceeding seeking the appointment of any trustee, receiver, liquidator,
custodian or other insolvency official with similar powers with respect to an Obligor or any of its
assets, (iii) any proceeding for liquidation, dissolution or other winding up of an Obligor or its
business, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy,
or (iv) any assignment for the benefit of creditors or any other marshalling of assets and
liabilities of an Obligor.

 

 

          “Leases” means each lease identified on Exhibit C attached hereto.

          “Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), right of offset or recoupment, charge, or preference,
priority or other lien or preferential arrangement of any kind or nature whatsoever (including any
conditional sale or other title retention agreement, and any financing lease having substantially
the same economic effect as any of the foregoing).

          “Notes” is defined in Exhibit A to this Agreement.

          “Obligations” means, collectively, the Subordinate Obligations and the Senior Obligations.

          “Obligors” means the Borrower, each Subsidiary and any other Person that now or hereafter
guarantees or grants a Lien in any of its assets to secure any of the Obligations.

          “Permitted Subordinate Payments” means rent payments by the Borrower that are made
only when and as due to FAC Acquisition, LLC under the Leases, as such Leases are in effect as of
the date hereof, and payments due to Petters Group Worldwide, LLC or its affiliates under the
Shared Resources Agreement.

          “Person” means any legal person, including any individual, corporation, partnership, joint
venture, association, limited liability company, joint stock company, trust, bank, trust company,
estate (including any beneficiaries thereof), unincorporated organization or government or any
agency or political subdivision thereof.

          “Senior
Agent” means Prudential Capital Partners II, L.P., in its capacity as agent for the
holders of the Notes.

          “Senior
Default” means either a Senior Payment Default or a Senior Performance Default, as
applicable.

          “Senior
Financing Agreement” is defined in Exhibit A to this
Agreement.

          “Senior
Lenders” means each purchaser or holder of a Note.

          “Senior Loan Documents” means the “Transaction Documents” or similarly defined
group of loan documents and instruments as defined in the Senior Financing Agreement and
includes the Senior Financing Agreement.

          “Senior Obligations” means all obligations, liabilities and indebtedness of any kind,
nature and description owing by any Obligor to the Senior Agent or the Senior Lenders evidenced by
or arising under the Notes or any Senior Loan Document,

 

 

including all present and future Obligations (as defined in the Senior Financing Agreement) whether
direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, including principal, interest, charges, fees, costs, indemnities and
reasonable expenses, however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether now existing or hereafter arising, whether arising before, during or after the
commencement of any Insolvency Proceeding (and including, without limitation, the payment of
interest which would accrue and become due but for the commencement of such Insolvency Proceeding,
whether or not such interest is allowed or allowable in whole or in part in any such Insolvency
Proceeding.

          “Senior Payment Bar” means any day on which a Senior Payment Bar Notice is outstanding
and has not been rescinded in writing by the Senior Agent.

          “Senior Payment Bar Notice” means a written notice delivered by the Senior Agent
to the Subordinate Creditors that a Senior Default has occurred.

          “Senior Payment Default” means the occurrence and Continuation of any default in the
payment of principal, interest or any other Senior Obligation beyond any applicable grace period
with respect thereto, if any.

          “Senior Performance Default” means the occurrence and Continuation of any default or
event of default, other than a Senior Payment Default, arising under the Senior Loan Documents that
would permit the Senior Agent or the Senior Lenders to accelerate the due date for payment of the
Senior Obligations.

          “Shared Resources Agreement” means that certain Shared Resources Agreement, dated as
of January 1, 2003, by and between Petters Group Worldwide, LLC and Fingerhut Direct Marketing,
Inc.

          “Subordinate Creditor” means each of Thomas Petters, FAC Acquisition, LLC, Petters
Company, Inc., Petters Group Worldwide, LLC and Theodore Deikel.

          “Subordinate Creditor Loan Documents” means, with respect to each Subordinate
Creditor, any document related to any extension of credit to Company by such Subordinate Creditor
or related to any monetary obligation, whether due and owing, vested or contingent, that is or has
been secured by the grant of a security interest in Collateral of Borrower or any other Obligor at
any time.

          “Subordinate Obligations” means all monetary obligations, liabilities and indebtedness
of any kind, nature and description owing by any Obligor to a Subordinate Creditor, including all
present and future obligations whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated, including principal,
interest, charges, fees, costs, indemnities and reasonable expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, whether now existing or hereafter arising,
whether arising before,

 

 

during or after the commencement of any Insolvency Proceeding (and including, without limitation,
the payment of interest which would accrue and become due but for the commencement of such
Insolvency Proceeding, whether or not such interest is allowed or allowable in whole or in part in
any such Insolvency Proceeding. Subordinate Obligations does not include any non-monetary
obligations owed by any Obligor to a Subordinate Creditor.

          “Subsidiary” means, with respect to any Person, any corporation, limited liability company,
partnership, trust or other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having such power only by
reason of the happening of a contingency) to elect a majority of the board of directors, members or
other managers of such corporation, limited liability company, partnership or other entity (or to
direct operation of a trust) are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both, by such Person.

          “Warehouse Loan Obligations” mean the “Senior Obligations”, as defined in the Existing
Agreement to Subordinate.

 

 

EXHIBIT C

SCHEDULE OF LEASES AND LOCATIONS

	1.	 	Office Lease, 4400 Baker Road, Minnetonka, MN, by and between FAC Acquisition, LLC and
Fingerhut Direct Marketing, Inc., dated May 1, 2003;
	 
	2.	 	Building Lease, (St. Cloud West Campus) 6250 Ridgewood Road, St. Cloud, MN, by and between
FAC Acquisition, LLC and Fingerhut Direct Marketing, Inc., dated November 26, 2003;
	 
	3.	 	Equipment Lease Agreement (St Cloud Equipment), by and between FAC Acquisition, LLC and
Fingerhut Direct Marketing, Inc., dated November 1, 2002;
	 
	4.	 	Lease Schedule Number 1 (Attached to Equipment Lease Agreement dated November 1, 2002), by
and between FAC Acquisition, LLC and Fingerhut Direct Marketing, dated February 1, 2004;

 

 

EXHIBIT M

[FORM OF COLLATERAL AGENCY AGREEMENT]

     THIS COLLATERAL AGENCY AGREEMENT (“Agreement”), dated as of March 23, 2006, is entered
into by Prudential Capital Partners II, L.P. (“PCP”), Prudential Capital Partners Management Fund
II, L.P., Prudential Capital Partners (Parallel Fund) II L.P. (collectively with PCP and
Prudential Capital Partners Management Fund II, L.P., the “Purchasers” and the Purchasers,
collectively with any person that becomes the holder of any Subordinated Note (as defined below),
the “Holders”) under the Securities Purchase Agreement described below with Prudential Capital
Partners II, L.P. acting in its capacity as the collateral agent appointed hereunder for the
Holders (together with its successors and assigns in that capacity, the “Subordinated Collateral
Agent”).

WITNESSETH

     WHEREAS, Fingerhut Direct Marketing, Inc., a Delaware corporation (the “Company”), and
the Purchasers have entered into that certain Securities Purchase Agreement dated as of March 23,
2006 (as amended, restated, supplemented or otherwise modified, the “Purchase Agreement”) under
which the Company, among other things, issued and sold its 13.00% Senior Subordinated Secured
Notes due March 24, 2013 (the “Subordinated Notes”) and, in connection therewith, issued its
Series A Preferred Stock Warrants;

     WHEREAS, the Company and the Subordinated Collateral Agent have entered into that certain
Security Agreement dated as of March 23, 2006 (as amended, restated, supplemented or otherwise
modified, the “Security Agreement”);

     WHEREAS, certain Subsidiaries of the Company and the Subordinated Collateral Agent have
entered into that certain Subsidiary Security Agreement dated as of March 23, 2006 (as amended,
restated, supplemented or otherwise modified, the “Subsidiary Security Agreement”);

     WHEREAS, the Company and Fingerhut Fulfillment, Inc., a Delaware corporation, and the
Subordinated Collateral Agent have entered into that certain Security Agreement (Intellectual
Property) dated as of March 23, 2006 (as amended, restated, supplemented or otherwise modified,
the “IP Security Agreement”);

     WHEREAS, certain Subsidiaries of the Company and the Subordinated Collateral Agent have
entered into that certain Guaranty Agreement dated as of March 23, 2006 (as amended, restated,
supplemented or otherwise modified, the “Guaranty Agreement” and collectively with the Security
Agreement, the Subsidiary Security Agreement, the Agreement to Subordinate, the Agreement to
Turnover Restricted Payment, the IP Security Agreement and any other agreement, document or
instrument in effect on the date of closing or executed by the Company or any Subsidiary after the
date of closing under which the Company or such Subsidiary has granted a lien upon or security
interest in any property or assets to the Subordinated Collateral Agent to secure all or any part
of the obligations of the Company under this Agreement or the Subordinated Notes or of any
Subsidiary Guarantor under the Subsidiary Guaranty, and all financing statements, certificates,
documents and instruments relating thereto

 

 

or executed or provided in connection therewith, each as amended, restated, supplemented or
otherwise modified from time to time, the “Collateral Documents”);

     WHEREAS, all obligations of the Company under the Purchase Agreement, the Subordinated Notes
and the other Transaction Documents are and will remain secured as set forth in the Collateral
Documents; and

     WHEREAS, the Purchase Agreement requires the execution and delivery of this Agreement;

     NOW, THEREFORE, for and in consideration of the premises and mutual covenants herein
contained, and for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto, intending to be legally bound, do hereby covenant and
agree as follows:

     Section 1. Definitions; Rules of Construction.

     (a) Capitalized terms used but not defined herein shall have the meanings given to such
terms in paragraph 11 of the Purchase Agreement, which paragraph 11 is incorporated by reference
herein as though set forth fully herein. Unless otherwise defined herein or in the Purchase
Agreement, all terms defined in Article 9 of the UCC as in effect from time to time in the State of
Illinois which are used herein shall have the respective meanings given to those terms in the
Uniform Commercial Code as in effect from time to time in the State of Illinois.

     (b) Unless otherwise stated, any agreement, contract or document defined or referred to herein
shall mean such agreement, contract or document and all schedules, exhibits and attachments thereto
as in effect as of the date hereof, as the same may thereafter be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof and of the Transaction
Documents.

     (c) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this
Agreement shall, unless otherwise expressly specified, refer to this Agreement as a whole and not
to any particular provision of this Agreement and all references to Sections or Schedules shall be
references to Sections or Schedules of this Agreement unless otherwise expressly specified.

     (d) Any reference to any Person shall include its permitted successors and assigns, and in the
case of any governmental authority, any Person succeeding to its functions and capacities.

     (e) Defined terms in this Agreement shall include in the singular number the plural and in the
plural number the singular.

     Section 2. Appointment and Duties of Subordinated Collateral Agent. (a)
Subject in all respects to the terms and provisions of this Agreement, the Holders hereby
designate and appoint PCP to execute and deliver the Collateral Documents and the Intercreditor
Agreement on behalf of the Holders and to act as the Subordinated Collateral Agent under this

2

 

Agreement, the Intercreditor Agreement and the other Collateral Documents for the benefit of the
Holders with respect to the Liens upon and the security interests in the Collateral and the rights
and remedies granted under and pursuant to this Agreement and the other Collateral Documents, and
PCP hereby accepts such appointment and agrees to act as such agent.

     (b) Subject to the Subordinated Collateral Agent having been directed to take such action in
accordance with this Agreement, each of the Holders hereby authorizes PCP, as the Subordinated
Collateral Agent, to take such actions on its behalf under the provisions of this Agreement, the
Purchase Agreement, the Intercreditor Agreement and the other Collateral Documents, and to exercise
such powers and perform such duties as are expressly delegated to the Subordinated Collateral Agent
by the terms of this Agreement, the Purchase Agreement, the Intercreditor Agreement and the other
Collateral Documents, together with such other powers as are reasonably incidental thereto.
Subject to the provisions of Section 9(b) hereof, the Subordinated Collateral Agent is
hereby irrevocably authorized to take all actions on behalf of the Holders to enforce the rights
and remedies of the Subordinated Collateral Agent and the Holders provided for in the Purchase
Agreement or the Collateral Documents or by applicable law with respect to the liens upon and
security interests in the Collateral granted to secure the Obligations or in the Intercreditor
Agreement; provided, however, that, notwithstanding any provision to the contrary in the
Collateral Documents, the Purchase Agreement or the Intercreditor Agreement, (i) the Subordinated
Collateral Agent shall take discretionary actions solely at and in accordance with the written
direction of the Required Holder(s), (ii) the Subordinated Collateral Agent shall not, without the
written consent of the Required Holder(s), release or terminate by affirmative action or consent
any Lien upon or security interest in any Collateral granted under the Collateral Documents (except
upon disposition of such Collateral after an Event of Default pursuant to direction given under
clause (i) hereof or upon the disposition of such Collateral as permitted under the terms of the
Purchase Agreement) and (iii) the Subordinated Collateral Agent shall not accept any Obligations
in whole or partial consideration for the disposition of any Collateral without the written
consent of all Holders. The Subordinated Collateral Agent agrees to make such demands and give such
notices under the Collateral Documents and the Intercreditor Agreement as may be requested by, and
to take such action to enforce the Collateral Documents or the Intercreditor Agreement and to
foreclose upon, collect and dispose of the Collateral or any portion thereof as may be directed by,
the Required Holder(s); provided, however, that the Subordinated Collateral Agent shall not
be required to take any action that is contrary to law or the terms of the Collateral Documents,
the Purchase Agreement, the Intercreditor Agreement or this Agreement. Once a direction to take
any action has been given by the Required Holder(s) to the Subordinated Collateral Agent, and
subject to any other directions which may be given from time to time by the Required Holder(s),
decisions regarding the manner in which any such action is to be implemented and conducted (with
the exception of any decision to settle, compromise or dismiss any legal proceeding, with or
without prejudice) shall be made by the Subordinated Collateral Agent, with the assistance and upon
the advice of its counsel.

     (c) Notwithstanding any provision to the contrary elsewhere in this Agreement,
the Purchase Agreement, the Intercreditor Agreement or the Collateral Documents, the Subordinated
Collateral Agent shall not have any duties or responsibilities, except those expressly set forth in
this Agreement, the Purchase Agreement, the Intercreditor Agreement and the Collateral Documents,
or any fiduciary relationship with any Holders, and no implied

3

 

covenants, functions or responsibilities shall be read into this Agreement, the Purchase
Agreement, the Intercreditor Agreement or the Collateral Documents, or otherwise exist against the
Subordinated Collateral Agent. The Subordinated Collateral Agent shall not be responsible for
determining whether any insurance policy delivered to it under any Collateral Document complies
with the requirements therefor contained in the Collateral Documents.

     (d) Notwithstanding anything to the contrary in this Agreement, the Purchase Agreement, the
Intercreditor Agreement or any Collateral Document, the Subordinated Collateral Agent shall not
exercise any rights or remedies under this Agreement, the Purchase Agreement, the Intercreditor
Agreement or any Collateral Document or give any consent under this Agreement, the Purchase
Agreement, the Intercreditor Agreement or any Collateral Document or enter into any agreement
amending, modifying, supplementing or waiving any provision of this Agreement, the Purchase
Agreement, the Intercreditor Agreement or any Collateral Document unless it shall have been
directed to do so in writing by the Required Holder(s).

     Section 3. Priority of Security Interests. (a) Each Holder agrees that the security interest
of each Holder in any Collateral ranks and will rank equally in priority with the security
interest of the other Holders in the same Collateral.

     (b) Notwithstanding anything to the contrary in clause (a), the priorities specified in this
Agreement with respect to the Collateral and all Proceeds of the Collateral are applicable
irrespective of any statement to the contrary in any other Collateral Document or any other
agreement, the time or order or method of attachment or perfection of Liens, the time or order of
the filing of financing statements, or the giving or failure to give notice of the acquisition or
expected acquisition of purchase money or other security interests, and to the extent not provided
for in this Agreement, the rights and priorities of the Holders shall be determined in accordance
with applicable law.

     Section 4. Exercise of Rights. So long as any Obligations remain outstanding, each of the
Holders hereby acknowledges and agrees as follows:

     (a) The Subordinated Collateral Agent shall administer the Collateral in the manner
contemplated by the Collateral Documents, the Intercreditor Agreement and this Agreement, and
exercise, only upon the written instruction of, and on behalf of, the Required Holder(s) in
accordance with Sections 4 and 5 hereof, such rights and remedies with respect to
the Collateral as are granted to it under this Agreement, the Collateral Documents and applicable
law.

     (b) Upon the request of the Subordinated Collateral Agent, such Holder will provide the
Subordinated Collateral Agent (i) notice of the amount of outstanding Obligations owed by the
Company to such Holder under the Transaction Documents and (ii) any other information that the
Subordinated Collateral Agent may reasonably request.

     Section 5. Exercise of Remedies and Application of Proceeds. So long as any Obligations
remain outstanding, the following provisions shall apply:

     (a) Upon the written request of the Required Holder(s), the Subordinated Collateral Agent
shall be authorized to take any and all actions and to exercise any and all rights,

4

 

remedies and options which it may have under the Purchase Agreement, the Collateral Documents or
the Intercreditor Agreement and which the Required Holder(s) direct it to take under this
Agreement, including realization and foreclosure on the Collateral.

     (b) The proceeds of any sale, disposition or other realization or foreclosure by the
Subordinated Collateral Agent upon the Collateral or any portion thereof pursuant to the
Collateral Documents shall be governed by this Section 5(b). Any non-cash proceeds
resulting from such liquidation of the Collateral shall be held by the Subordinated Collateral
Agent for the benefit of the Holders until later sold or otherwise converted into cash, at which
time the Subordinated Collateral Agent shall apply such cash in accordance with the next sentence
of this Section 5(b). The Subordinated Collateral Agent shall distribute any cash proceeds
net of expenses resulting from liquidation of the Collateral first to the payment of any amounts
owed to the Subordinated Collateral Agent by the Company or the Holders pursuant to Section 7(e),
9(a) or 10 hereof, and second to the Holders, promptly after receipt thereof, on a pro rata basis
in accordance with the respective outstanding amounts of the Obligations owed to each.
Notwithstanding any other provision hereof, in the event of any conflict between the terms of this
Section 5(b) and the other Collateral Documents, the provisions of this Section
5(b) shall control.

     Section 6. Receipt of Money or Proceeds. The Holders hereby agree that if, after an
acceleration of the Subordinated Notes, any Holder receives any payment or distribution of assets
of the Company of any kind or character, whether monies or cash proceeds resulting from
liquidation of the Collateral, other than in accordance with the terms of this Agreement, such
Holder shall hold such payment or distribution in trust for the benefit of the Holders and shall
immediately remit such payment or distribution to the Subordinated Collateral Agent for
application or distribution, as the case may be, in accordance with the terms of the Intercreditor
Agreement or this Agreement.

     Section 7. Rights of Subordinated Collateral Agent. (a) The Subordinated Collateral Agent may
execute any of its duties under this Agreement, the Purchase Agreement, the Intercreditor
Agreement or any Collateral Document by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.

     (b) Neither the Subordinated Collateral Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates shall (i) be liable for any action lawfully taken or omitted
to be taken by it under or in connection with this Agreement, the Purchase Agreement, the
Intercreditor Agreement or any other Collateral Document or in connection with the Collateral
(except for such action taken or omitted with gross negligence or willful misconduct) or (ii) be
responsible in any manner to any of the Holders for any recitals, statements, representations or
warranties made by the Company, any Guarantor, the Bank Agent or any Bank or any representative
thereof contained in this Agreement, the Purchase Agreement, the Intercreditor Agreement or any
other Transaction Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Subordinated Collateral Agent under or in connection with,
this Agreement, the Purchase Agreement, the Intercreditor Agreement or any other Transaction
Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement, the Purchase Agreement, the Intercreditor Agreement or any other Transaction
Document or for any failure of

5

 

the Company, the Bank Agent or any Bank to perform its obligations thereunder. The Subordinated
Collateral Agent shall not be under any obligation to any other Holder to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or conditions of, this
Agreement, the Purchase Agreement, the Intercreditor Agreement or any other Transaction Document,
or to inspect the properties, books or records of the Company or any Guarantor.

     (c) The Subordinated Collateral Agent shall be entitled to rely, and shall be fully protected
in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or
conversation reasonably believed by it in good faith to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and statements of legal
counsel (including, without limitation, counsel to the Company, the Bank Agent or any Bank),
independent accountants and other experts selected by the Subordinated Collateral Agent. In
connection with any request of the Required Holder(s), the Subordinated Collateral Agent shall be
entitled to rely and shall be fully protected in relying on a certificate of any Person, signed by
an authorized representative of such Person, setting forth the amount and type of Obligations held
by such Person as of the date of such certificate, which certificate shall state that the Person
signing such certificate is an authorized representative of such Person and shall state
specifically the Collateral Document or the Intercreditor Agreement, as the case may be, and
provision thereof pursuant to which the Subordinated Collateral Agent is being directed to act.
The Subordinated Collateral Agent shall be fully justified in failing or refusing to take any
action under this Agreement, the Purchase Agreement, the Intercreditor Agreement or any Collateral
Document (i) if such action would, in the reasonable opinion of the Subordinated Collateral Agent,
be contrary to law or the terms of this Agreement, the Purchase Agreement, the Intercreditor
Agreement or the Collateral Documents or (ii) if such action is not specifically provided for in
this Agreement, the Purchase Agreement, the Intercreditor Agreement or the Collateral Document it
shall not have received any such advice or concurrence of the Required Holder(s) as it deems
appropriate. The Subordinated Collateral Agent shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement, the Purchase Agreement, the Intercreditor
Agreement or any Collateral Document in accordance with a request of the Required Holder(s) and
such request and any action taken or failure to act pursuant thereto shall be binding upon all of
the Holders.

     (d) The Subordinated Collateral Agent shall not be deemed to have actual, constructive, direct
or indirect knowledge or notice of the occurrence of any Default or Event of Default unless and
until an officer of the Subordinated Collateral Agent responsible for the administration of this
Agreement has received a written notice or a certificate from a Holder stating that a Default or
Event of Default has occurred. The Subordinated Collateral Agent shall have no obligation
whatsoever either prior to or after receiving such notice or certificate to inquire whether a
Default or Event of Default has in fact occurred and shall be entitled to rely conclusively, and
shall be fully protected in so relying, on any such notice or certificate so furnished to it. In
the event that the Subordinated Collateral Agent receives a notice of or certificate regarding the
occurrence of any Default or Event of Default, the Subordinated Collateral Agent shall give notice
thereof to the Holders. The Subordinated Collateral Agent shall take such action with respect to
such Default or Event of Default as so requested pursuant to Section 4 hereof.

6

 

     (e) The Company will pay to the Subordinated Collateral Agent upon demand the amount of any
and all out-of-pocket expenses, including the fees and expenses of its counsel (and any local
counsel) and of any experts and agents, which the Subordinated Collateral Agent may incur in
connection with (i) the administration of and performance under this Agreement, the Purchase
Agreement, the Intercreditor Agreement and the Collateral Documents, (ii) the custody or
preservation of, or the sale of, collection from or other realization upon, any of the Collateral,
(iii) the exercise or enforcement (whether through negotiations, legal proceedings or otherwise) of
any of the rights of the Subordinated Collateral Agent or the Holders hereunder or under the
Purchase Agreement, the Intercreditor Agreement or the other Collateral Documents or (iv) the
failure by the Company to perform or observe any of the provisions hereof or of any of the
Collateral Documents.

     (f) At any time when PCP or any Affiliate of PCP is not the Holder of all of the Subordinated
Notes, the Company agrees to pay a reasonable, monthly fee to the Subordinated Collateral
Agent.

     Section 8. Lack of Reliance on the Subordinated Collateral Agent. Each of the Holders
expressly acknowledges that neither the Subordinated Collateral Agent nor any of its officers,
directors, employees, agents or attorneys-in-fact has made any representations or warranties to it
and that no act by the Subordinated Collateral Agent hereinafter taken, including, without
limitation, any review of the affairs of the Company or any Guarantor, shall be deemed to
constitute any representation or warranty by the Subordinated Collateral Agent to any Holder. Each
Holder represents to the Subordinated Collateral Agent that it has, independently and without
reliance upon the Subordinated Collateral Agent or any other Holder, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, financial and other condition and creditworthiness of the Company
and any Guarantors. Each Holder also represents that it will, independently and without reliance
upon the Subordinated Collateral Agent or any other Holder, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Company and any Guarantors. Except for
notices, reports and other documents expressly required to be furnished to the Holders by the
Subordinated Collateral Agent hereunder, the Subordinated Collateral Agent shall not have any duty
or responsibility to provide any Holder with any credit or other information concerning the
business, operations, property, financial and other condition or creditworthiness of the Company
or any Guarantors which may come into the possession of the Subordinated Collateral Agent or any
of its officers, directors, employees, agents or attorneys-in-fact.

     Section 9. Indemnification; Bankruptcy. (a) The Company, by its consent hereto, hereby agrees
to indemnify the Subordinated Collateral Agent and each Holder and, in their capacity as such,
their officers, directors, shareholders, controlling persons, employees, agents and servants (each
“Indemnified Party”) from and against any and all claims, damages, losses, liabilities,
obligations, penalties, actions, causes of action, judgments, suits, costs, expenses or
disbursements (including, without limitation, reasonable attorneys’ and consultants’ fees and
expenses) (collectively “Damages”) of any kind or nature whatsoever which may at any

7

 

time be imposed on, incurred by or asserted against any Indemnified Party (or which may be claimed
against any Indemnified Party by any Person) by reason of, in connection with or in any way
relating to or arising out of, the Purchase Agreement, the Intercreditor Agreement, any
Transaction Document, any Collateral or any other documents or transactions in connection with or
relating thereto, unless due to the gross negligence or willful misconduct of such Indemnified
Party. The Company further shall, upon demand by any Indemnified Party, pay to such Indemnified
Party all costs and expenses incurred by such Indemnified Party in enforcing any rights under the
Intercreditor Agreement or the Transaction Documents, including fees and expenses of counsel. If
the Company fails to indemnify the Subordinated Collateral Agent for any Damages for which the
Company is obligated to indemnify the Subordinated Collateral Agent under this Section
9(a), promptly after demand therefor, each Holder, severally and not jointly, agrees to pay to
the Subordinated Collateral Agent its pro rata share, in accordance with the respective
outstanding amounts of the Obligations owed to it, of the amount of such Damages that have not
been paid by the Company. The agreements in this Section 9(a) shall survive the payment or
satisfaction in full of the Obligations and the resignation or removal of the Subordinated
Collateral Agent or the termination of this Agreement.

     (b) Nothing contained herein shall limit or restrict the independent right of any Holder to
initiate an action or actions in any bankruptcy, reorganization, compromise, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar proceeding in its
individual capacity and to appear or be heard on any matter before the bankruptcy or other
applicable court in any such proceeding, including, without limitation, with respect to any
question concerning post-petition financing arrangements. The Subordinated Collateral Agent is not
entitled to initiate such actions on behalf of any Holder or to appear and be heard on any matter
before the bankruptcy or other applicable court in any such proceeding as the representative of
any Holder. The Subordinated Collateral Agent is not authorized in any such proceeding to enter
into any agreement for, or give any authorization or consent with respect to, the post-petition
usage of Collateral, unless such agreement, authorization or consent has been approved in writing
by the Required Holder(s). This Agreement shall survive the commencement of any such bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar proceeding.

     Section 10. Resignation and Removal of the Subordinated Collateral Agent. The Subordinated
Collateral Agent may resign as Subordinated Collateral Agent upon thirty (30) days’ notice to the
Holders and may be removed at any time upon the written request of the Required Holder(s), with any
such resignation or removal to become effective only upon the appointment of a successor
Subordinated Collateral Agent under this Section 10. If the Subordinated Collateral Agent
shall resign or be removed as Subordinated Collateral Agent by the Required Holder(s), then the
Required Holder(s) shall (and if no such successor shall have been appointed within thirty (30)
days of the Subordinated Collateral Agent’s resignation or removal, the Subordinated Collateral
Agent may) appoint a successor collateral agent for the Holders, whereupon such successor
collateral agent shall succeed to the rights, powers and duties of the “Subordinated Collateral
Agent,” and the term “Subordinated Collateral Agent” shall mean such successor agent effective upon
its appointment, and except as provided in Sections 9(a) and 9(b) above, the former
Subordinated Collateral Agent’s rights, powers and duties as Subordinated Collateral Agent shall be
terminated without any other or further act or deed on the part of such former Subordinated
Collateral Agent (except that the resigning Subordinated

8

 

Collateral Agent shall deliver all Collateral then in its possession to the successor Subordinated
Collateral Agent) or any of the other Holders. Any successor Subordinated Collateral Agent shall
be either a Holder or a bank, trust company or insurance company, having capital and surplus of at
least $250 million. After any retiring Subordinated Collateral Agent’s resignation or removal
hereunder as Subordinated Collateral Agent, the provisions of this Agreement shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Subordinated Collateral
Agent.

     Section 11. Agreement for Benefit of Parties Hereto. Nothing in this Agreement, express or
implied, is intended or shall be construed to confer upon, or to give to, any Person other than
the parties hereto and their respective successors and assigns and Persons for whom the parties
hereto are acting as agents or representatives, any right, remedy or claim under or by reason of
this Agreement or any covenant, condition or stipulation hereof, and the covenants, stipulations
and agreements contained in this Agreement are and shall be for the sole and exclusive benefit of
the parties hereto and their respective successors and assigns and Persons for whom the parties
hereto are acting as agents or representatives.

     Section 12. Severability. In case any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way be affected
and/or impaired thereby.

     Section 13. Notices. All notices, demands, certificates or other communications hereunder
shall be in writing and shall be deemed sufficiently given or served for all purposes when
delivered personally, when sent by certified or registered mail, postage prepaid, return receipt
requested, or by private courier service, or, if followed and confirmed by mail or courier service
notice, when telecopied, in each case, with the proper address as indicated below. Each party may,
by written notice given to the other parties, designate any other address or addresses to which
notices, certificates or other communications to them shall be sent as contemplated by this
Agreement. Notices shall be deemed to have been given if and when received by an officer, manager
or supervisor in the department of the addressee specified for attention (unless the addressee
refuses to accept delivery, in which case such notices shall be deemed to have been given when
first presented to the addressee for acceptance), and notices so delivered to the Subordinated
Collateral Agent shall be deemed received by an officer of the Subordinated Collateral Agent
responsible for administering this Agreement. Until otherwise so provided by the respective
parties, all notices, certificates and communications to each of them shall be addressed as
follows:

	 	 	 	 	 

	 

	 	Holders:
	 	Prudential Capital Partners II, L.P.
	 

	 	 	 	Prudential Capital Partners Management Fund II, L.P.
	 

	 	 	 	Prudential Capital Partners (Parallel Fund) II, L.P.
	 

	 	 	 	c/o Prudential Capital Group
	 

	 	 	 	Two Prudential Plaza, Suite 5600
	 

	 	 	 	180 North Stetson Street
	 

	 	 	 	Chicago, Illinois 60601
	 

	 	 	 	Attention: Managing Director
	 

	 	 	 	With a duplicate copy to the attention of Robert Scavone

9

 

     Subordinated

					

	 

	 	Collateral Agent:
	 	Prudential Capital Partners II, L.P.
	 

	 	 	 	c/o Prudential Capital Group
	 

	 	 	 	Two Prudential Plaza, Suite 5600
	 

	 	 	 	180 North Stetson Street
	 

	 	 	 	Chicago, Illinois 60601
	 

	 	 	 	Attention: Managing Director
	 

	 	 	 	With a duplicate copy to the attention of Robert Scavone
	 
	 	 	 	 
	    Company:
	 	Fingerhut Direct Marketing, Inc.
	 

	 	 	 	4400 Baker Road
	 

	 	 	 	Minnetonka, Minnesota 55343
	 

	 	 	 	Attention: President
	 

	 	 	 	Telecopier No.: (952) 975-4078
	 

	 	 	 	Telephone No.: (952) 936-5389)
	 

	 	 	 	                    or
	 

	 	 	 	Chief Financial Officer
	 

	 	 	 	Telecopier No.: (952) 975-     
	 

	 	 	 	Telephone No.: (952) 936-     
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 

	 	 	 	Attention: General Counsel
	 

	 	 	 	Telecopier No.: (952)975-4078
	 

	 	 	 	Telephone No.: (952) 936-5577)
	 
	 	 	 	 
	 

	 	 	 	After April 1, 2006 the Company’s address shall be changed
to
	 

	 	 	 	7777 Golden Triangle Drive
	 

	 	 	 	Eden Prairie, Minnesota 55344

     Section 14. Successors and Assigns. Whenever in this Agreement any of the parties hereto
is named or referred to, the successors and assigns of such party shall be deemed to be included
and all covenants, promises and agreements in this Agreement by or on behalf of the respective
parties hereto shall bind and inure to the benefit of the respective successors and assigns of
such parties, whether so expressed or not.

     Section 15. Counterparts. This Agreement may be executed in any number of counterparts, each
executed counterpart constituting an original but all counterparts together constituting only one
instrument.

     Section 16. Governing Law. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY CONFLICTS OF LAW RULES WHICH WOULD OTHERWISE CAUSE THIS
AGREEMENT TO BE CONSTRUED OR ENFORCED IN ACCORDANCE WITH, OR THE RIGHTS OF THE PARTIES TO BE
GOVERNED BY, THE LAWS OF ANY OTHER JURISDICTION).

10

 

     Section 17. Consent To Jurisdiction. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS IN COOK COUNTY, ILLINOIS, OR OF
THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE SUBORDINATED COLLATERAL AGENT, THE HOLDERS AND THE COMPANY HEREBY IRREVOCABLY
ACCEPT, UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION
OR PROCEEDING. THE SUBORDINATED COLLATERAL AGENT, THE HOLDERS AND THE COMPANY FURTHER IRREVOCABLY
CONSENT TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
IT AT ITS ADDRESS PROVIDED IN SECTION 13, SUCH SERVICE TO BECOME EFFECTIVE UPON RECEIPT. THE
SUBORDINATED COLLATERAL AGENT, THE HOLDERS AND THE COMPANY HEREBY IRREVOCABLY WAIVE ANY OBJECTION
WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN ANY OF THE AFORESAID
COURTS AND HEREBY FURTHER IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

     Section 18. No Impairments of Other Rights. Nothing in this Agreement is intended or shall be
construed to impair, diminish or otherwise adversely affect any other rights the Holders may have
or may obtain against the Company.

     Section 19. Amendment; Waiver. No consent, amendment or waiver of any provision of this
Agreement shall be effective unless the same shall be in writing and signed by the Required
Holders and the Subordinated Collateral Agent, and, in the case of an
amendment to Sections 7(e), 7(f), or 9(a) of this Agreement, also signed by the Company; provided
that (a) an amendment that decreases the percentage of the Holders which is required to provide
any direction to the Subordinated Collateral Agent or changes the provisions for application of
proceeds under Section 5(b) hereof shall not be effective unless consented to in writing by all of
the Holders and (b) any such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No delay on the part of any Holder in the exercise
of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial
waiver by such Holder of any right, power or remedy preclude any further exercise thereof, or the
exercise of any other right, power or remedy.

     Section 20. Headings. Headings herein are for convenience only and shall not be relied upon
in interpreting or enforcing this Agreement.

     Section 21. Termination. This Agreement shall remain in full force and effect until
indefeasible payment in full of all of the Obligations. Following such date, Section 9(a)
of this Agreement shall continue in full force and effect.

11

 

     Section 22. Entire Agreement. This Agreement, including the documents referred to herein,
embodies the entire agreement and understanding of the parties hereto, and supersedes all prior
agreements and understandings of the parties hereto, relating to the subject matter herein
contained.

     Section 23. Consequential Damages. In no event (other than in respect of its gross negligence
or willful misconduct) shall the Subordinated Collateral Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not limited to lost profits),
even if the Subordinated Collateral Agent has been advised of the likelihood of such loss or damage
and regardless of the form of action.

* * * *

12

 

     IN WITNESS WHEREOF, the undersigned have caused this Collateral Agency Agreement to be
duly executed by their duly authorized officers, all as of the date first written above.

	 	 	 	 	 	 	 

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

	 	By:	 	 	 	 
	 

	 	 	 	 

Vice President
	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS	 	 
	 	 	MANAGEMENT FUND II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Mulberry Street Holdings, LLC,	 	 
	 

	 	 	 	   its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Prudential Investment Management, Inc.,	 	 
	 

	 	 	 	   its managing member	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Vice President
	 	 
	 
	 	 	 	 	 	 
	 	 	PRUDENTIAL CAPITAL PARTNERS (PARALLEL	 	 
	 	 	FUND) II, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Stetson Street Partners, L.P.,	 	 
	 

	 	 	 	   its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Vice President
	 	 

 

 

ACKNOWLEDGMENT OF AND CONSENT AND AGREEMENT TO

COLLATERAL AGENCY AGREEMENT

     The Company, as described in the Collateral Agency Agreement set forth above, acknowledges
and, to the extent required, consents to the terms and conditions thereof. The undersigned Company
does hereby further acknowledge and agree to its agreements under Sections 7(e), 7(f) or
9(a) of the Collateral Agency Agreement and acknowledges and agrees that it is not a
third-party beneficiary of, and has no rights under, the Collateral Agency Agreement.

     IN WITNESS WHEREOF, the Company has caused this Acknowledgment of and Consent and Agreement to
Collateral Agency Agreement to be executed by their duly authorized
officers as of March      , 2006.

FINGERHUT DIRECT MARKETING, INC.

	 	 	 	 	 

	By:
	 	 	 	 
	Name:

	 	 

	 	 
	Title:

	 	 

	 	 
	 

	 	 

	 	 

 

 

EXHIBIT N

[FORM OF OPINION OF COMPANY’S COUNSEL]

[Date of Closing]

Prudential Capital Partners II, L.P.

Prudential Capital Partners Management Fund II, L.P.

Prudential Capital Partners (Parallel Fund) II, L.P. 
c/o
Prudential Capital Group, L.P.

Two Prudential Plaza

Chicago, Illinois 60601

Ladies and Gentlemen:

     We have acted as special counsel for Fingerhut Direct Marketing, Inc. (the “Company”) and its
sole Subsidiary, Fingerhut Fulfillment, Inc., (the “Subsidiary”) in connection with the Securities
Purchase Agreement, dated as of March 23, 2006, among the Company and you (the “Securities Purchase
Agreement”), pursuant to which the Company has issued to you today the 13.00% Senior Subordinated
Secured Notes due March 24, 2013 of the Company in the aggregate principal amount of $30,000,000.
Pursuant to the terms of the Guaranty Agreement, dated as of March 23, 2006, between the Subsidiary
and Prudential Capital Partners II, L.P., as Subordinated Collateral Agent, the Subsidiary has
guaranteed the Company’s obligations under the Transaction Documents (as defined in the Securities
Purchase Agreement).

     All terms used herein that are defined in the Securities Purchase Agreement have the
respective meanings specified in the Securities Purchase Agreement. This letter is being delivered
to you in satisfaction of the condition set forth in paragraph 3C of the Securities Purchase
Agreement and with the understanding that you are purchasing the Subordinated Notes in reliance on
the opinions expressed herein.

     In this connection, we have examined such certificates of public officials, certificates of
officers of the Company and Subsidiary and copies certified to our satisfaction of corporate
documents and records of the Company and Subsidiary and of other papers, and have made such other
investigations, as we have deemed relevant and necessary as a basis for our opinion hereinafter set
forth. We have relied upon such certificates of public officials and of officers of the Company and
Subsidiary with respect to the accuracy of material factual matters contained therein which were
not independently established; nothing, however, has come to our attention to cause us to believe
that any such factual matters are untrue.

     We have assumed, among other things, the genuineness of all signatures and authenticity of all
documents submitted to us as originals and the conformity to original documents of all

N-1

 

documents submitted to us as copies. In examining documents executed by parties other than the
Company and Subsidiary, we have assumed that such parties have all necessary power to enter into
and perform all of their obligations thereunder and have also assumed the due authorization by all
requisite action of the execution, delivery and performance of such documents by such parties and
that such documents are legal, valid and binding on such parties in accordance with their
respective terms. We have also assumed that each natural person executing any of the documents
referenced herein has the capacity and is legally competent to do so.

     Based on the foregoing, it is our opinion that:

          1. The Company and Subsidiary are each corporations duly organized and validly existing in
good standing under the laws of the State of Delaware. The Company and Subsidiary are each duly
qualified to transact business and in good standing as foreign corporations under the laws of the
State of Minnesota. The Company and Subsidiary have all requisite corporate power to conduct their
respective businesses as currently conducted by them

          2. The Company and Subsidiary have all requisite corporate power to execute, deliver and
perform their respective obligations under the Securities Purchase Agreement, the Subordinated
Notes, the Warrants, the Subsidiary Guaranty and the other Transaction Documents to which either of
them is a party. The Securities Purchase Agreement, the Subordinated Notes, the Warrants, the
Subsidiary Guaranty and other Transaction Documents have been duly authorized by all requisite
corporate action on the part of the Company and Subsidiary and duly executed and delivered by
authorized officers of the Company and Subsidiary, and are valid obligations of the Company and
Subsidiary, legally binding upon and enforceable against the Company Subsidiary in accordance with
their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors’ rights generally and
(b) general principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The Stockholders Waiver Consent and Amendment is effective to
cause (1) the Stockholders Agreement dated as of February 24, 2004 referred to therein to be
amended and restated as the Amended and Restated Stockholders Agreement dated as of March 24, 2006
in the form attached as Exhibit E to the Securities Purchase Agreement and (2) the Investor Rights
Agreement dated as of February 24, 2004 referred to therein to be amended and restated as the
Amended and Restated Investor Rights Agreement dated as of March 24, 2006 in the form attached as
Exhibit D to the Securities Purchase Agreement.

          3. Assuming the accuracy of the representations and warranties of
the
Purchasers set forth in paragraph 9 of the Securities Purchase Agreement, including, without
limitation, reliance on the Purchasers’ representation and warranty that each of them is an
“accredited investor” (as such term is defined in Regulation D promulgated under the Securities
Act), it is not necessary in connection with the offering, issuance, sale and delivery of the
Subordinated Notes and the issuance and delivery of the Warrants under the circumstances
contemplated by the Securities Purchase Agreement to register the Subordinated Notes or the
Warrants under the Securities Act or to qualify an indenture in respect of the Subordinated Notes
under the Trust Indenture Act of 1939, as amended.

N-2

 

          4. Assuming that the Company applies the proceeds of sale of the
Subordinated Notes in accordance with paragraph 81 of the Securities Purchase Agreement, the
extension, arranging and obtaining of the credit represented by the Subordinated Notes do not
result in any violation of Regulation T, U or X of the Board of Governors of the Federal Reserve
System.

          5. The execution and delivery of the Securities Purchase
Agreement, the
Subordinated Notes, the Warrants, the Subsidiary Guaranty and the other Transaction Documents,
the offering, issuance and sale of the Subordinated Notes and the Warrants and fulfillment of and
compliance with the respective provisions of the Securities Purchase Agreement, the Subordinated
Notes, the Warrants and the other Transaction Documents do not conflict with, or result in a breach
of the terms, conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any Lien (other than the Liens in the Collateral under
the Security Documents) upon any of the properties or assets of the Company or Subsidiary pursuant
to, or require any authorization, consent, approval, exemption or other action by or notice to or
filing with any court, administrative or governmental body or other Person (other than routine
filings after the date hereof with the Securities and Exchange Commission and/or state Blue Sky
authorities and other than the filings and recordings to perfect the Liens in the Collateral
intended to be created by the Security Documents) pursuant to, the charter or by-laws of the
Company or any of its Subsidiaries, any applicable law (including any securities or Blue Sky law),
statute, rule or regulation or (insofar as is known to us after having made due inquiry with
respect thereto) any agreement (including, without limitation, any agreement listed in Schedule 8G
to the Securities Purchase Agreement), instrument, order, judgment or decree to which the Company
or any of its Subsidiaries is a party or otherwise subject.

          6. Neither the Company nor Subsidiary 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, as amended (the “ICA”). The sale of
the Subordinated Notes, the application of the proceeds thereof by the Company as provided in
paragraph 81 of the Securities Purchase Agreement and the consummation of the transactions
contemplated by the Securities Purchase Agreement will not result in any violation by the Company
of any provision of the ICA or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.

          7. Upon (a) the filing and/or recording of the Uniform Commercial Code financing statements
attached hereto as Exhibit A with the Secretary of State of the State of Delaware, (b) possession
by the Subordinated Collateral Agent or its agent (upon appropriate notification) of certain of the
Collateral by which perfection is obtained only by possession, (c) control by Subordinated
Collateral Agent or its agent of certain of the Collateral by which perfection is obtained only by
control, and (d) notation of Subordinated Collateral Agent’s interest upon and recording of the
appropriate and/or required certificates of title, each of the Security Agreement and the
Subsidiary Security Agreement will create perfected, continuing and enforceable (assuming
appropriate continuation statements are filed) security interests in and liens against the
Collateral, except as such enforceability may be limited by (1) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors’ rights generally and
(2) general principles of equity (regardless of whether such enforceability is

N-3

 

considered in a proceeding in equity or at law). For the purposes of rendering our opinion in
this paragraph 7 with respect to other than the Uniform Commercial Code as in effect in the State
of Minnesota, we have, with your permission, reviewed and relied solely upon (i) the Uniform
Commercial Code of the State of Illinois as reported in the Secured Transactions Guide, Commerce
Clearing House, as updated through March 7, 2006 (the “Illinois UCC’), without reference to case
law or other interpretations of the Illinois UCC or any other laws of Illinois and (ii) the Uniform
Commercial Code of the State of Delaware as reported in the Secured Transactions Guide, Commerce
Clearing House, as updated through March 7, 2006 (the “Delaware UCC’), without reference to case
law or other interpretations of the Delaware UCC or any other laws of Delaware. To the extent we
render opinions that relate to matters that may ultimately be determined under the Illinois UCC or
the Delaware UCC, our opinions are based on our reasoned belief that the Uniform Commercial Code of
the State of Minnesota is not materially different.

          8. In reliance upon an opinion of the Company’s counsel addressed to us, a true and correct
copy of which is attached hereto as Exhibit B, we are of the opinion that on the date of closing,
immediately after giving effect to the transactions contemplated by the Transaction Documents:

     (a) the authorized and issued Equity Interests of the Company will consist of (i)
1,255,114,166 shares of authorized Common Stock, 125,029,168 shares of which will be issued
and outstanding and 789,055,211 shares of which will be reserved for issuance upon
conversion of the Preferred Stock and upon conversion of the Preferred Stock issuable upon
exercise of the Warrants and that upon such conversion, such shares will be duly authorized
and issued, fully paid and non-assessable, and (ii) 789,055,211 shares of authorized
Preferred Stock, 747,312,753 shares of which will be issued and outstanding and 41,742,458
shares of which will be reserved for issuance upon the exercise of the Warrants and that
upon such exercise and payment of the purchase price therefor pursuant to the Warrants, such
shares will be duly authorized and issued, fully paid and non-assessable;

     (b) other than (i) the Warrants, (ii) the Preferred Stock, (iii) outstanding warrants
to purchase 49,991,158 shares of Common Stock, (iv) shares of Common Stock issuable upon
exercise of outstanding options or available for additional awards under the 2003 Equity
Incentive Plan and the 2005 Non-Employee Directors Plan in the aggregate amount of
79,485,909 shares and (v) issuance of Common Stock, in lieu of cash, in payment of the 8%
dividend on the Preferred Stock when declared by the Board of Directors and upon written
election of the holders of at least 75% of the then outstanding Preferred Stock, there are
no other options for, rights to acquire, agreements to issue, or securities exercisable for
or convertible into shares of the Company’s Equity Interests.

          9. To our knowledge, there are no actions, suits or proceedings pending or threatened against
or affecting the Company or any of its Subsidiaries or any property of the Company or any of its
Subsidiaries in any court or before any arbitrator of any kind or before or by any governmental
authority either (i) with respect to the Securities Purchase Agreement, the Subordinated Notes, or
Warrants or the other Transaction Documents or (ii) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.

N-4

 

Notwithstanding the foregoing, we advise that, attached as Exhibit C, is a disclosure of
litigation hereby made to you and previously made to the Bank Agent. We express no opinion —
express or implied — as to whether such litigation, individually or taken as a whole, will have a
Material Adverse Effect on the Company or any of its Subsidiaries.

          10. The choice of laws provision contained in the Securities Purchase Agreement, Security
Agreement, Subsidiary Guaranty and other Transaction Documents is enforceable and such agreements
shall be governed by the laws of the State of Illinois.

          We are members of the bar of the State of Minnesota and we therefore express no opinion with
respect to any matter (including, without limitation, enforceability, conflict of laws and choice
of law issues) which may be governed by the laws of any jurisdiction other than the State of
Minnesota, the corporate laws of the State of Delaware and applicable laws of the United States of
America. We note that the certain of the Transaction Documents state that they are to be governed
by the internal laws of states other than the State of Minnesota. To the extent our opinions in
paragraphs 2 and 7 above relate to a Transaction Document which states that it is to be governed by
the internal laws of a state other than the State of Minnesota, such opinion is given as though
such Transaction Document stated that it was to be governed by the internal laws of the State of
Minnesota.

          Our opinion is qualified by reference to (a) the fact that certain remedial provisions in the
Securities Purchase Agreement and other Transaction Documents may be rendered invalid or
unenforceable by applicable laws, which laws, however, do not in our opinion make the remedies
provided in such documents inadequate for the realization of the benefits and security intended to
be provided thereby and (b) the effect upon the enforceability of the Securities Purchase Agreement
and other Transaction Documents of bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting generally the enforcement of creditors’ rights. Further, the use of the term
“enforceable” does not imply any opinion as to the availability of any equitable remedy.

          For purposes of this opinion, the term “knowledge” means the conscious awareness of facts or
other information by lawyers in our firm responsible for representation of the Company and
Subsidiary.

          We acknowledge that the Company and Subsidiary have requested that this opinion letter be
rendered to each of you and to any Transferee, that this opinion letter is rendered with the
intention that each of you and any Transferee may rely on this opinion letter, and that each of you
and any Transferee may rely on this opinion letter. Subject to the foregoing, this opinion letter
may be relied upon by you and such Transferees only in connection with the financing arrangements
and other transactions contemplated by the Securities Purchase Agreement and the other Transaction
Documents and may not be used or relied upon by you, such Transferees or any other Person for any
other purpose whatsoever, without in each instance our prior written consent, except as may be
required by any court or other governmental or regulatory authority or in connection with any
litigation or other proceeding to which this opinion letter may be relevant.

N-5

 

          This opinion is limited to the matters expressly set forth herein and no opinion is implied or
may be inferred beyond the matters expressly set forth herein. This opinion is given as of the date
hereof and we undertake no obligation to update this opinion for matters or events occurring after
the date hereof.

Very truly yours,

LINDQUIST & VENNUM p.l.l.p.

N-6

 

EXHIBIT O

[FORM OF THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION]

See Attached

 

 

THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

FINGERHUT DIRECT MARKETING, INC.

     The undersigned, Brian Smith, certifies that he is the President and Chief Executive Officer
of Fingerhut Direct Marketing, Inc., a corporation organized and existing under the laws of the
State of Delaware and does hereby further certify as follows:

     1. The name of the Corporation is FINGERHUT DIRECT MARKETING, INC.
The Certificate of Incorporation of the Corporation was originally filed with the Secretary of
State of the State of Delaware on September 11, 2002.

     2. This Third Amended and Restated Certificate of Incorporation of the Corporation has been
duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware and written notice of the adoption of this Third Amended
and Restated Certificate of Incorporation has been given as provided by Section 228 of the General
Corporation Law of the State of Delaware to the stockholders entitled to such notice.

     3. The text of the Certificate of Incorporation of the Corporation, as previously amended and
restated, is hereby amended and restated to read in its entirety as follows:

     FIRST. The name of the Corporation is FINGERHUT DIRECT MARKETING, INC. (the
“Corporation”).

     SECOND. The address of the Corporation’s registered office in the State of Delaware is 160
Greentree Drive, Suite 101, Dover, DE 19904, in the County of Kent. The name of its registered
agent at such address is National Registered Agents, Inc.

     THIRD. The purpose of the Corporation is to engage in any lawful act or activity for which
corporations maybe organized under the General Corporation Law of the State of Delaware.

     FOURTH. The authorized capital stock of the Corporation shall consist of 2,044,169,377 shares
of capital stock consisting of:

     (i) 1,255,114,166 shares designated as Common Stock, $0.00001 par value per share (“Common
Stock”) and

     (ii) 789,055,211 shares of Preferred Stock, $0.00001 par value per share (the “Preferred
Stock”), all of which shall be designated Series A Convertible Preferred Stock (the “Series A
Preferred Stock”).

 

 

     The rights, preferences and limitations granted to and imposed on the Common Stock and the
Preferred Stock shall be as set forth below in this Article FOURTH. All sectional cross references
in this Article FOURTH shall be to Sections of this Article FOURTH unless the context otherwise
clearly requires. Certain capitalized terms used in this Article FOURTH are defined in Section 8.

     1. Dividends and Distributions.

     1.1. Common Stock Dividends. Subject to the provisions of law and this Third Amended
and Restated Certificate of Incorporation, the holders of Common Stock shall be entitled to
receive out of funds legally available therefor, dividends at such times and in such amounts
as the Board of Directors in its sole discretion may determine.

     1.2. Series A Preferred Stock Dividends. Subject to the provisions of law and this
Certificate of Incorporation, holders of the Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of funds legally available
therefor, cumulative cash dividends at the annual rate of 8% on the Series A Purchase Price,
prior and in preference to any declaration or payment of any dividend to the holders of
shares of Common Stock. Dividends on the Series A Preferred Stock shall be cumulative and
shall accrue daily but shall be payable and compound annually on each anniversary after the
date of original issuance of each share of Series A Preferred Stock, whether or not earned
or declared, and whether or not there are earnings or profit, surplus or other funds or
assets of the Corporation legally available for the payment of dividends; provided,
however, that accrued dividends payable pursuant to this Section 1.2 shall be
reduced by any dividend payments made by the Corporation in respect of the Series A
Preferred Stock pursuant to this Section 1. With respect to dividends declared by the Board
of Directors, upon the written election of the holders of at least seventy five percent
(75%) of the then outstanding Series A Preferred Stock, in lieu of a cash dividend, the
Company shall issue to the holders of the Series A Preferred Stock the number of shares of
Common Stock per share of Series A Preferred Stock equal to the accrued and unpaid dividends
on the Series A Preferred Stock (or any portion thereof as designated by the holders of
Series A Preferred Stock making such election) divided by the fair market value of a share
of Common Stock as mutually agreed by the Board of Directors of the Corporation and the
holders of at least seventy-five percent (75%) of the then outstanding Series A Preferred
Stock; provided, however, that if such mutual agreement cannot be reached,
such fair market value shall be determined by following the procedures set forth in the
definition of Appraisal Procedure.

     1.3. Participating Dividends. In the event that the Board of Directors of the
Corporation shall declare a dividend payable upon the then outstanding shares of Common
Stock (other than a stock dividend on the Common Stock payable solely in the form of
additional shares of Common Stock), the holders of Series A Preferred Stock shall be
entitled, in addition to any cumulative dividends to which they may be entitled under
Section 1.2, to receive the amount of dividends per share of Series A Preferred Stock that
would be payable on the number of whole shares of the Common Stock into which each share of
Series A Preferred Stock held by each holder could be converted pursuant to the provisions
of Section 4 hereof, such number to be determined as of the

2

 

record date for the determination of holders of Common Stock entitled to receive such
dividend. However, this Section 1.3 shall not apply to any dividends payable in connection
with any event as to which Section 2 hereof applies.

     1.4. Record Date for Dividends. The Board of Directors of the Corporation may fix a record
date for the determination of holders of shares of Common Stock or Series A Preferred Stock
entitled to receive payment of a dividend declared thereon, which record date shall be no more
than 60 days and no less than 10 days prior to the date fixed for the payment thereof.

     1.5. Dividends on Conversion. In the event that the Corporation shall have cumulative
accrued and unpaid dividends outstanding on the Series A Preferred Stock immediately prior, to a
conversion of any shares of Series A Preferred Stock as provided in Section 4 hereof; upon such
conversion, the Corporation shall, at the option of the Corporation, pay in cash to the holder
thereof the full amount of any such dividends or allow such dividends to be converted into a
number of shares of Common Stock equal to (i) the accrued and unpaid dividends on the Series A
Preferred Stock divided by, as applicable: (a) the price per share of the Common Stock net of
underwriting commissions in the case of a public offering, (b) the value of the Common Stock in
the transaction in question in the case of a conversion in connection with a Sale of the
Corporation or (c) the fair market value of a share of Common Stock as mutually agreed by the
Board of Directors of the Corporation and the holders of at least seventy-five percent (75%) of
the then outstanding Series A Preferred Stock; provided, however, that if such mutual agreement
cannot be reached, such fair market value shall be determined by following the procedures set
forth in the definition of Appraisal Procedure.

     2. Liquidation, Dissolution or Winding-Up.

     2.1. Series A Preferred Stock Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment
of all debts and liabilities of the Corporation, the holders of shares of the Series A Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders before any payment shall be made to the holders of
the Common Stock by reason of their ownership thereof, an amount per share equal to the greater
of (A) the sum of (i) the Series A Purchase Price (as adjusted for stock dividends, combinations,
recapitalizations or other similar events affecting the Series A Preferred Stock) and (ii) an
amount equal to all accrued or declared but unpaid dividends thereon, or (B) the amount that
would be payable to such holders if the Series A Preferred Stock had been converted into Common
Stock immediately prior to such liquidation, dissolution or winding-up of the Corporation. If
upon such liquidation, distribution or winding-up of the Company, whether voluntary or
involuntary, the assets to be distributed are insufficient to permit payment in full to the
holders of the Series A Preferred Stock, then the entire assets of the Corporation to be
distributed, shall be distributed ratably among the holders of the Series A Preferred Stock in
accordance with the number of shares of Series A Preferred Stock held by such holders.

3

 

     2.2. Treatment of Mergers, Consolidations, and Sales of Assets, Unless the holders of
seventy five percent (75%) of the then outstanding Series A Preferred Stock agree in writing
otherwise, a Sale of the Corporation shall be deemed to be a liquidation, dissolution, or
winding-up of the Corporation for purposes of this Section 2. The term “Sale of the
Corporation” shall mean (i) a sale of all or substantially all of the assets of the
Corporation, (ii) an acquisition of the Corporation by one or more persons or entities by means
of any transaction or series of related transactions (including any reorganization, merger,
consolidation) where the voting securities of the Corporation outstanding immediately preceding
such transaction or series of transactions or the voting securities issued with respect to the
voting securities of the Corporation outstanding immediately preceding such transaction or
series of transactions represent less than 50% of the voting securities of the Corporation or
surviving entity, as the case may be, following such transaction or series of transactions, or
(iii) a transaction or series of related transactions resulting in the transfer of shares
representing more than 50% of the voting securities of the Corporation, other than any transfer
solely (A) of the Series A Preferred Stock or (B) to any Affiliate of the transferring
stockholder. A sale (or multiple related sales) of one or more Subsidiaries of the Corporation
(whether by way of merger, consolidation, reorganization or sale of all or substantially all
assets or securities) which constitutes all or substantially all of the consolidated assets of
the Corporation shall be deemed a sale of substantially all the assets of the Corporation for
purposes of the foregoing definition.

     2.3. Distributions Other Than Cash. Unless the holders of seventy five percent (75%) of the
then outstanding Series A Preferred Stock determine otherwise, all payments made pursuant to this
Section 2 shall be made in cash. If the amount to be distributed to the holders of the Series A
Preferred Stock upon any liquidation, dissolution, or winding-up (including any transaction
treated as such pursuant to Section 2.2) shall be other than cash, the fair market value of the
property, rights, or securities distributed to such holders shall be mutually agreed by the Board
of Directors of the Corporation and the holders of seventy five percent (75%) of the then
outstanding Series A Preferred Stock; provided, however, that if such mutual
agreement cannot be reached, such fair market value shall be determined by following the
procedures set forth in the definition of Appraisal Procedure.

     3. Voting Rights.

     3.1. Single Class. Except as otherwise required by law or as set forth herein, the
holders of the Series A Preferred Stock shall be entitled to notice of any meeting of
stockholders and to vote together with the holders of Common Stock as a single class upon any
matter submitted to the stockholders for a vote on the following basis:

     3.1.1. holders of Common Stock shall have one vote per share; and

     3.1.2. holders of Series A Preferred Stock shall have that number of votes per share
as is equal to the number of shares of Common Stock (including fractions of a share) into
which the Series A Preferred Stock could be converted

4

 

pursuant to Section 4.1 hereof on the date for the determination of stockholders
entitled to vote on such matter.

     3.2. Separate Class. In any case where under provisions of applicable law or as set forth
herein, the Common Stock or Series Preferred Stock are entitled to vote as a separate class,
holders of Common Stock shall have one vote per share and holders of the Series A Preferred Stock
shall have one vote per share.

     3.3. Series A Preferred Stock Special Voting Right. Except as expressly provided herein or as
required by law, so long as any shares of Series A Preferred Stock remain outstanding, the
Corporation shall not, and shall not permit any Subsidiary to, take any of the actions set forth in
Sections 3.3.1 through 3.3.15 below, without the approval, by vote or written consent, of the
holders of at least seventy five percent (75%) of the then outstanding Series A Preferred Stock:

     3.3.1. create or issue, or obligate itself to create or issue, whether by amendment
to the Certificate of Incorporation or by reclassification, merger, consolidation,
reorganization or otherwise) any shares of capital stock of the Corporation, or debt
securities convertible into shares of capital stock of the Corporation, with rights,
preferences or privileges that are equal or superior to the Series A Preferred Stock;

     3.3.2. effect any alteration or waiver of the Certificate of Incorporation or By-laws
of the Corporation (whether by amendment to the Certificate of Incorporation or By-laws of
the Corporation or by reclassification, merger, consolidation, reorganization or
otherwise) that alters, changes or repeals the rights, preferences or privileges of the
Series A Preferred Stock or that adversely affects the holders of the Series A Preferred
Stock as a class;

     3.3.3. increase or, except as specifically provided herein, decrease the
authorized number of shares of Common Stock or Preferred Stock;

     3.3.4. authorize, pay or declare, or permit any Subsidiary to authorize, pay or
declare, a dividend (other than dividends on the Common Stock payable solely in Common
Stock or dividends payable to the Company from a wholly owned Subsidiary) on any shares of
the capital stock of the Corporation other than the authorization and payment of dividends
on the Series A Preferred Stock pursuant to Section 1.2;

     3.3.5. redeem, purchase or otherwise acquire, or permit any Subsidiary to redeem,
purchase or otherwise acquire, for value any share or shares of the capital stock of the
Corporation, except for (A) repurchases from an employee or his or her heirs pursuant to
contractual call rights or rights of first refusal in which all of the Common Stock held
by such employee is repurchased, or (B) redemption of the Series A Preferred Stock
pursuant to Section 5 hereof;

     3.3.6. effect, or obligate itself to effect, any sale, lease, assignment,
transfer or other conveyance of all or substantially all of the assets of the

5

 

Corporation or any Subsidiary thereto or any consolidation or merger involving
the Corporation or any Subsidiary thereof with or into one or more other corporations,
partnerships, limited liability companies or partnerships, or other entities, or any
dissolution, liquidation or winding up of the Corporation, except for the merger into
the Corporation or transfer of assets to the Corporation from any wholly owned
Subsidiary;

     3.3.7. enter into any material transaction (whether by merger, consolidation,
reorganization or otherwise) providing for the acquisition of or investment in any
other Person;

     3.3.8. sell, assign, license, or otherwise dispose of (each a “Sale”), or enter
into any transaction or series of transactions that would result in the Sale of, more
than 25% of the fair market value of the Corporation’s assets as determined on a
consolidated basis;

     3.3.9. enter into any transaction with Senior Management or any Affiliate;

     3.3.10. enter into any transaction (other than third-party working capital loans,
equipment leases and similar transactions in the ordinary course of business) (x) in
which the Corporation incurs indebtedness for borrowed money exceeding $10 million or
(y) in which the Corporation becomes obligated under a lease or similar agreement
pursuant to which the Corporation is required to make payments exceeding $10 million in
the aggregate;

     3.3.11. change the authorized number of directors on the Board of Directors
of the Corporation;

     3.3.12. make any material change in the nature of the business of the
Corporation or any Subsidiary;

     3.3.13. hire, terminate, replace or reassign any member of Senior
Management;

     3.3.14. approve the Corporation’s or any Subsidiary’s budget or authorize any
alteration thereof; or

     3.3.15. issue any shares of capital stock of the Corporation or grant any Options
or Convertible Securities including to any employees, officers, directors or
consultants of or to the Company or its Subsidiaries pursuant to any stock option plan.

     3.4. Election of Directors.

     3.4.1. Series A Directors. The holders of seventy five percent (75%) of the
outstanding shares of Series A Preferred Stock shall have the right to the exclusion of
all other classes or series of the Corporation’s capital stock, voting at

6

 

a meeting of stockholders called for the purpose or by written consent, separately
from the Common Stock, to elect two (2) directors to serve on the Board of Directors of
the Corporation. Such directors shall comprise a separate class of directors and be
referred to as “Series A Directors.” Each Series A Director so elected shall serve until
such Person’s successor is duly elected by holders of the Series A Preferred Stock, the
holders of the Series A Preferred Stock being the only Persons entitled to remove a
Series A Director. No reason need be given by the holders of the Series A Preferred
Stock for the removal by the holders of the Series A Preferred Stock of a Series A
Director. If holders of the Series A Preferred Stock for any reason fail to elect anyone
to fill any such directorship, the position shall remain vacant until such time as
holders of the Series A Preferred Stock elect a Series A Director to fill the position,
and it shall not be filled by resolution or vote of the Corporation’s Board of Directors
or its other shareholders, All directors other than the Series A Directors shall be
elected by the holders of the Series A Preferred Stock and the holders of the Common
Stock voting as a single class in accordance with Section 3.1.

     3.4.2. Election of Directors Upon Redemption Default. In the event that the
Corporation shall fail to pay the full Mandatory Redemption Price in respect of all shares of Series A Preferred Stock required to be redeemed on any Mandatory Redemption
Date pursuant to Section 5 hereof and such failure continues for a period of ninety (90)
days following delivery of written notice of such failure by the holders of the Series A
Preferred Stock (a “Redemption Default”), then immediately upon the occurrence of such
Redemption Default and continuing until such time as the Redemption Default is cured, the
authorized number of directors on the Board of Directors of the Corporation shall be
increased by the number of directors necessary for the Series A Directors and such
additional directors to constitute a majority of the Board of Directors, and the holders
of the Series A Preferred Stock, voting as a separate class, shall be entitled to elect
such additional directors to serve on the Board of Directors. A vacancy in any
directorship elected solely by the holders of the Series A Preferred Stock pursuant to
this Section 3.4.2 shall be filled only by vote or written consent in lieu of a meeting
of the holders of the Series A Preferred Stock or by any remaining directors elected
solely by the holders of the Series A Preferred Stock pursuant to this Section 3.4.

4. Conversion of Preferred Stock. The holders of the Series A Preferred Stock shall have
conversion rights as follows:

     4.1. Optional Conversion. Each issued and outstanding share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the date of
issuance thereof and without the payment of any additional consideration therefor, into that
number of fully paid and nonassessable shares of Common Stock as is determined by dividing the
Series A Purchase Price (as adjusted for stock dividends, stock splits, combinations,
recapitalizations or other similar events affecting the Series A Preferred Stock) by the
Conversion Price in effect at the time of conversion. The

7

 

“Conversion Price” shall initially be equal to the Series A Purchase Price. The
initial Conversion Price shall be subject to adjustment as hereinafter provided.

     4.2. Conversion Upon Certain Events.

     4.2.1. Underwritten Public Offerings. All outstanding shares of Series A
Preferred Stock shall be automatically converted into the number of shares of Common
Stock into which the Series A Preferred Stock is convertible pursuant to Section 4.1,
immediately upon the closing of an underwritten public offering (a “Qualified Public
Offering”) pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock for the account of the
Corporation in which the aggregate net proceeds to the Corporation equal or exceed
$50,000,000 and the price per share to the public is not less than $0.31533 (such amount
to be equitably adjusted upon the occurrence of any of the events described in Section
4.5.4) and after which the Common Stock is listed on the New York Stock Exchange or the
Nasdaq National Market, without any further action by the holders of such shares.

     4.2.2. Voluntary Conversion of Series A Preferred Stock. All
outstanding shares of Series A Preferred Stock shall, upon the vote or written consent
of the holders of at least seventy-five percent (75%) of the then outstanding Series A
Preferred Stock, be automatically converted into the number of shares of Common Stock
into which such Series A Preferred Stock is convertible pursuant to Section
4.1 without any further action by the holders of such shares. The effective date of
conversion hereunder shall be the date specified in the vote causing conversion, or if
no such date is specified, the date the vote is taken. Notice thereof shall be given by
the Corporation to the holders of the Series A Preferred Stock at least ten (10) days
prior to the effective date of such conversion, unless the effective date is the date
the vote is taken, in which case the Corporation shall give such notice to the holders
of the Series A Preferred Stock within three (3) days of such vote or consent.

     4.2.3. Surrender. On or after the date of occurrence of any conversion
of Series A Preferred Stock pursuant to Section 4.2.1 or Section 4.2.2, and in any event
within ten (10) days after receipt of notice by mail, postage prepaid, from the
Corporation of the occurrence of such event, each holder of record of shares of Series A
Preferred Stock being converted shall surrender such holder’s certificates evidencing
such shares at the principal office of the Corporation or at such other place as the
Corporation shall designate, and shall thereupon be entitled to receive certificates
evidencing the number of shares of Common Stock into which such shares of Series A
Preferred Stock are converted and cash as provided in Section 4.3 in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion. On the date
of the occurrence of any conversion of Series A Preferred Stock pursuant to Section
4.2.1 or Section 4.2.2, each holder of record of shares of Series A Preferred Stock
shall be deemed to be the holder of record of the Common Stock issuable upon such
conversion, notwithstanding that the certificates representing such shares of Series A

8

 

Preferred Stock shall not have been surrendered at the office of the
Corporation, that notice the Corporation shall not have been received by any holder of
record of shares of Series A Preferred Stock, or that the certificates evidencing such
shares of Common Stock shall not then be actually delivered to such holder.

     4.2.4. Cancellation. All certificates evidencing shares of Series A Preferred Stock
that are required to be surrendered for conversion in accordance with the provisions
hereof, from and after the date such certificates are so required to be surrendered shall
be deemed to have been retired and canceled. The Corporation from time to time thereafter
shall take appropriate action to reduce the number of authorized shares of Series A
Preferred Stock and Preferred Stock accordingly.

     4.3. Fractional Shares. No fractional shares of Common Stock shall be issued upon
conversion of the Series A Preferred Stock. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Corporation shall pay cash equal to the product of such
fraction multiplied by the fair market value of a share of Common Stock as determined in good
faith by the Board of Directors of the Corporation.

     4.4. Reservation of Shares. The Corporation shall at all times when the Series A Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but unissued
stock, for the purpose of effecting the conversion of the Series A Preferred Stock, such number
of its duly authorized shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all of the outstanding Series A Preferred Stock. Before taking any
action that would cause an adjustment reducing the Conversion Price below the then-existing par
value of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
the Corporation shall take any corporate action that may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Conversion Price.

     4.5. Adjustments to Preferred Stock Conversion Price for Diluting Issues:

     4.5.1. Adjustment of Conversion Price Upon Issuance of Additional Shares of Common
Stock. Unless the holders of at least seventy five percent (75%) of the then outstanding
Series A Preferred Stock determine otherwise, if after the Series A Original Issue Date
the Corporation shall issue (or pursuant to Section 4.5.2 be deemed to have issued)
Additional Shares of Common Stock, without consideration or for a consideration per
share less than the Conversion Price in effect on the date of and immediately prior to
such issue, then and in each such event, such Conversion Price shall be reduced to the
price determined by dividing (x) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issuance or sale
on a Fully Diluted Basis multiplied by the Conversion Price as in effect immediately
prior to such issuance or sale and (2) the consideration, if any, received by the
Corporation upon such issue or sale, by (y) the total number of shares of Common Stock
outstanding on a Fully Diluted Basis immediately after such issue or sale.

9

 

     4.5.2. Options and Convertible Securities. In the event the Corporation at any time
shall issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such Options
or Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date shall
have been fixed, as of the close of business on such record date, provided that in any
such case in which Additional Shares of Common Stock are deemed to be issued:

4.5.2.1. no further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;

4.5.2.2. if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon,
shall upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options or the rights of conversion or exchange under such
Convertible Securities;

4.5.2.3. upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:

(a) in the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon
the exercise of such Options or the conversion or exchange of
such Convertible Securities and the consideration received
therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not
exercised, plus the

10

 

consideration actually received by the Corporation upon such
exercise, or for the issue of all such Convertible Securities
which were actually converted or exchanged, the additional
consideration, if any, actually received by the Corporation upon
such conversion or exchange; and

(b) in the case of Options for Convertible Securities only
the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for
the Additional Shares of Common Stock deemed to have been then
issued was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4.5.2) upon the issue of the
Convertible Securities with respect to which such Options were
actually exercised;

4.5.2.4. no readjustment pursuant to Section 4.5.2.2 or 4.5.2.3 above
shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;

4.5.2.5. if such record date shall have been fixed and such Options or
Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price which became
effective on such record date shall be cancelled as of the close of
business on such record date, and thereafter the Conversion Price shall
be adjusted pursuant to this Section 4.5.2 as of the actual date of
their issuance.

     4.5.3. Determination of Consideration. For purposes of Section 4.5, the
consideration received by the Corporation for the issuance (or deemed issuance) of any
Additional Shares of Common Stock shall be computed as follows:

4.5.3.1. Cash and Property: Such consideration shall: (i) insofar as it
consists of cash, be computed as the aggregate of cash received by the
Corporation, excluding amounts paid or payable for accrued interest or
accrued dividends; (ii) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors, or if the
holders of seventy five percent (75%) of then outstanding Series A
Preferred Stock request, as

11

 

determined by independent accountants of recognized standing promptly
selected by the Corporation to value such property, whereupon such value
shall be given to such consideration and shall be recorded on the books
of the Corporation with respect to the receipt of such property; and
(iii) in the event Additional Shares of Common Stock are issued together
with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such consideration
received for the Additional Shares of Common Stock, computed as provided
in the foregoing clauses (i) and (ii), as determined in good faith by
the Board of Directors.

4.5.3.2. Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 4.5.2, relating to Options
and Convertible Securities, shall be determined by dividing (x) the total
amount, if any, received by the Corporation as consideration for the
issue of such Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities,
by (y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities.

     4.5.4. Adjustment for Stock Splits, Stock Dividends, Subdivisions, Combinations or
Consolidation of Common Stock. In the event that the Corporation at any time
shall declare or pay, without consideration, any dividend on the Common Stock payable in
Common Stock or in any right to acquire Common Stock for no consideration, or shall
effect a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by payment of
a dividend in Common Stock or in any right to acquire Common Stock), or in the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock, the
Conversion Price then in effect immediately prior to such event shall, concurrently with
the effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that the Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to

12

 

acquire Common Stock for no consideration, then the Corporation shall be deemed
to have made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock,

     4.5.5. Adjustments for Reclassification and Reorganization. If the Common Stock
issuable upon conversion of the Series A Preferred Stock shall be changed into the same
or a different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification or otherwise (other than a subdivision or
combination of shares provided for in Section 4,5.4 or a merger or other reorganization
referred to in Section 2.2 above), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series A Preferred Stock shall be convertible into,
in lieu of the number of shares of Common Stock which the holders would otherwise have
been entitled to received, a number of shares of such other class or classes of stock
equivalent to the number of shares of such stock that would have been subject to receipt
by the holders of the Series A Preferred Stock as if such holder had converted into
Common Stock immediately before that change.

     4.5.6. If any event occurs of the type contemplated by the provisions of this
Section 4 but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or other
rights with equity features), then the Corporation’s Board of Directors shall make an
appropriate reduction in the Conversion Price so as to protect the rights of the holders
of the Series A Preferred Stock.

     4.6. Consolidation or Merger. If at any time or from time to time there shall be a merger
or consolidation of the Corporation with or into another corporation, other than a consolidation
or merger which is treated as a liquidation pursuant to Section 2.2, then, as a part of such
consolidation or merger, provision shall be made so that the holders of the Series A Preferred
Stock shall thereafter be entitled to receive upon conversion of the Series A Preferred Stock,
the number of shares of stock or other securities or property of the Corporation, or of the
successor corporation resulting from such consolidation or merger, to which a holder of Common
Stock issuable upon such conversion would have been entitled on such consolidation or merger. In
any such case, appropriate adjustment (including an adjustment of the Conversion Price then in
effect to the price of the Common Stock reflected in the merger or consolidation if the price is
less than the Conversion Price then in effect) shall be made in the application of the
provisions of this Section 4 with respect to the rights and interests thereafter of the holders
of the Series A Preferred Stock after the consolidation or merger to the end that the provisions
of this Section 4 and the number of shares acquirable upon conversion of the Series A Preferred
Stock shall be applicable after the consolidation or merger in as nearly equivalent a manner as
may be practicable as before the consolidation or merger. So long as any Series A Preferred
Stock is outstanding, the Corporation shall preserve the rights of the Series A
Preferred Stock, including without limitation the rights set forth in Sections 1, 2,

13

 

3, 4 and 5. The actions taken pursuant to this Section 4.6 shall be satisfactory in form and
substance to the holders of seventy five percent (75%) of the Series A Preferred Stock.

     4.7. Certificate as to Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of the Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at anytime of any holder
of the Series A Preferred Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price then
in effect, and (iii) the number of shares of Common Stuck and the amount, if any, of other
property that then would be received upon the conversion of the Series A Preferred Stock. All
adjustments made pursuant to this Section 4 shall be made to the nearest one hundredth of a
cent.

     4.8. No Impairment. The Corporation will not, without the consent of the holders
of at least seventy-five percent (75%) of the then outstanding Series A Preferred Stock, by
amendment of this Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be observed or
performed under this Section 4 by the Corporation for the benefit of the holders of the Series A
Preferred Stock but will at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Series A Preferred Stock in this
Section 4 against impairment.

     4.9. Taxes on Conversion. The Corporation will pay any and all original
issuance, transfer, stamp and other similar taxes that maybe payable in respect of the issue
or delivery of shares of Common Stock on conversion of the Series A Preferred Stock pursuant
hereto.

     4.10. Notice of Record Date. In the event that there occurs any of
the following events:

     4.10.1. the Corporation declares a dividend (or any other distribution) on its
Common Stock payable in cash, Common Stock, other securities of the Corporation or
otherwise;

     4.10.2. the Corporation subdivides or combines its outstanding shares of Common
Stock;

     4.10.3. there occurs or is proposed to occur any reclassification of the
Common Stock of the Corporation;

     4.10.4. the Corporation issues any Common Stock, Convertible Securities or Options;

14

 

     4.10.5. a Sale of the Corporation or any other consolidation or merger of the
Corporation into or with another corporation; or

     4.10.6. the involuntary or voluntary liquidation, dissolution, or winding-up of the
Corporation;

then the Corporation shall cause to be filed at its principal office or at the office of
the transfer agent of the Series A Preferred Stock, and shall cause to be mailed to the
holders of the Series A Preferred Stock at their addresses as shown on the records of the
Corporation or such transfer agent, at least ten (10) days prior to the record date
specified in (a) below or twenty (20) days before the date specified in (a) below, a
notice describing in reasonable detail the event in question and the proposed timing
thereof, and if applicable, stating the following information:

(a) the record date of such dividend,distribution,
subdivision or combination, or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision, or
combination are to be determined, or

(b) the date on which such reclassification, consolidation,
merger, sale, liquidation, dissolution, or winding-up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification,
consolidation, merger, sale, liquidation, dissolution, or
winding-up.

5. Redemption.

     5.1. Redemption of Series A Preferred Stock. The Company shall be required to redeem the
Series A Preferred Stock as follows:

(a) In the event that a Qualified Public Offering has not
been consummated on or prior to the fifth anniversary of the
Series A Original Issue Date, upon receipt at any time on or
after the thirtieth (30th) day prior to the fifth
anniversary of the Series A Original Issue Date of written
request(s) for redemption from the holders of seventy five
percent (75%) of the then outstanding Series A Preferred Stock
(the “Series A Redemption Request”), the Corporation will redeem
for cash from each holder of shares of Series A Preferred Stock,
subject to the conditions set forth below, in two annual
installments commencing on the date that is thirty (30) days
after receipt by the Corporation of the Series A Redemption
Request (the date of each such installment being referred to
hereinafter as a

15

 

“Series A Mandatory Redemption Date”), that
number of shares of Series A Preferred Stock determined by
dividing (i) the total number of shares of Series A
Preferred Stock held by such holder by (ii) the number of
remaining Series A Mandatory Redemption Dates (including
the Series A Mandatory Redemption Date to which such
calculation applies).

(b) In the event that a Qualified Public Offering has
not been consummated on or prior to the seventh anniversary
of the Series A Original Issue Date, upon receipt at any
time on or after the thirtieth (30th)
day prior to the seventh anniversary of the Series A
Original Issue Date of written request(s) for redemption
from the holders of a majority of the then outstanding
Series A Preferred Stock (the “Institutional Investor
Redemption Request”), the Corporation will redeem for cash
from each holder of shares of Series A Preferred Stock,
subject to the conditions set forth below, in two annual
installments commencing on the date that is thirty (30)
days after receipt by the Corporation of the Institutional
Investor Redemption Request (the date of each such
installment being referred to hereinafter as an
“Institutional Investor Mandatory Redemption Date”), that
number of shares of Series A Preferred Stock determined by
dividing (i) the total number of shares of Series A
Preferred Stock held by such holder by (ii) the number of
remaining Institutional Investor Mandatory Redemption Dates
(including the Institutional Investor Mandatory Redemption
Date to which such calculation applies).

     Each of the Series A Redemption Request and the Institutional Investor Redemption Request is
referred to hereinafter as a “Redemption Request,” and each Series A Mandatory Redemption Date and
Institutional Investor Mandatory Redemption Date is referred to hereinafter as a “Mandatory
Redemption Date”.

     On each Mandatory Redemption Date, the Corporation shall redeem the applicable shares of
Series A Preferred Stock at a price per share (the “Mandatory Redemption Price”) equal to the
greater of (x) the sum of the Series A Purchase Price plus an amount equal to all accrued and
unpaid dividends on each share of Series A Preferred Stock, and (y) the fair market value of each
share of Series A Preferred Stock on the date that the Redemption Request is made, as mutually
agreed by the Board of Directors of the Corporation and the holders of at least seventy five
percent (75%) of the then outstanding Series A Preferred Stock; provided, however, that if such
mutual agreement cannot be reached, such fair market value shall be determined by following the
procedures set forth in the definition of Appraisal Procedure.

16

 

     The Corporation shall provide notice of the Redemption Request, specifying the time and place
of redemption and the Mandatory Redemption Price, by first class or registered mail, postage
prepaid, to each holder of record of Series A Preferred Stock at the address for such holder last
shown on the records of the transfer agent therefor (or the records of the Corporation, if it
serves as its own transfer agent), not less than fifteen (15) days prior to the Mandatory
Redemption Date.

     The Corporation shall use its best efforts and shall take all reasonable action necessary to
pay the Mandatory Redemption Price as provided in this Section 5.1, including obtaining financing
or effectuating a recapitalization so as to create a surplus.

     5.2. Insufficient Funds. If the funds of the Corporation legally available
for redemption of the Series A Preferred Stock on any Mandatory Redemption Date are
insufficient to redeem the full number of shares of Series A Preferred Stock required under
this Section 5 to be redeemed on such date, those funds which are legally available will be
used to redeem the maximum possible number of shares of the Series A Preferred Stock being
redeemed, such redemption to be made pro rata among the holders of the Series A Preferred
Stock on the basis of the number of outstanding shares of Series A Preferred Stock held by
such holders. At any time thereafter when additional funds of the Corporation become
legally available for the redemption of the Series A Preferred Stock, such funds will be
used to redeem the balance of the shares which the Corporation was theretofore obligated to
redeem as provided in this Section 5.2. Any shares of Series A Preferred Stock which are
not redeemed as a result of the circumstances described in this Section 5.2 or are not
otherwise redeemed as required by Section 5.1 hereof shall remain outstanding, and interest
at the rate of 15% per annum shall accrue on the Mandatory Redemption Price payable in
respect of such unredeemed shares of Series A Preferred Stock, such interest to be payable
quarterly in arrears until such shares are redeemed.

     5.3. Rights Terminated. Upon (i) presentation and surrender of the
certificate or certificates representing the shares of Series A Preferred Stock being
redeemed pursuant to this Section 5 and receipt of the Mandatory Redemption Price therefor,
or (ii) irrevocable deposit in trust by the Corporation for holders of the Series A
Preferred Stock being redeemed pursuant to this Section 5 of an amount equal to the
Mandatory Redemption Price therefor, each holder of shares of Series A Preferred Stock will
cease to have all rights as a stockholder of the Corporation by reason of the ownership of
such redeemed shares of Series A Preferred Stock (except for the right to receive the
Mandatory Redemption Price therefor upon the surrender of the certificate or certificates
representing the redeemed shares if such certificate or certificates have not been
surrendered), and such redeemed shares of Series A Preferred Stock will not from and after
the date of payment in full of the Mandatory Redemption Price therefor be deemed to be
outstanding.

6. Reacquired Shares. Any shares of Preferred Stock converted, redeemed, purchased, or
otherwise acquired by the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof, and shall not be reissued and the
Corporation from time to time shall take such action as may be necessary to reduce the
authorized Preferred Stock accordingly.

17

 

7. Waivers. The holders of seventy five percent (75%) of the then outstanding Series
A Preferred Stock may waive, by delivery of written notice to the Company, any of the rights,
preferences or privileges relating to the Preferred Stock hereunder, either prospectively or
retrospectively. In addition, by delivery of written notice to the Company, any holder of
Series A Preferred Stock may waive, solely with respect to such holder, any of the rights,
preferences or privileges relating to the Preferred Stock hereunder, either prospectively or
retrospectively.

8. Definitions. The following terms shall have the following respective meanings:

     “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or
pursuant to Section 4.5.2 deemed to have been issued) by the Corporation at any time, other
than the Excluded Shares.

     “Affiliate” shall mean any Person that, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with, another Person.
The term “control” includes, without limitation, the possession, directly or indirectly, of the
power to direct the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.

     “Appraisal Procedure” shall mean the following procedure to determine fair market value of
any security or other property (in either case, the “valuation amount”). If the holders of
seventy five percent (75%) of the then outstanding Series A Preferred Stock and the Board of
Directors are not able to agree on the valuation amount within a reasonable period of time (not
to exceed twenty (20) days), the valuation amount shall be determined by an investment banking
firm of national recognition, which firm shall be reasonably acceptable to the Board of
Directors and the holders of seventy five percent (75%) of the then outstanding Series A
Preferred Stock. If the Board of Directors and the holders of seventy five percent (75%) of the
then outstanding Series A Preferred Stock are unable to agree upon an acceptable investment
banking firm within ten (10) days after the date either party proposed that one be selected,
the investment banking firm will be selected by an arbitrator located in New York City, New
York, selected by the American Arbitration Association (or if such organization ceases to
exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator
shall select the investment banking firm (within ten (10) days of his appointment) from a list,
jointly prepared by the holders of seventy five percent (75%) of the then outstanding Series A
Preferred Stock and the Board of Directors, of not more than six investment banking firms of
national standing in the United States, of which no more than three may be named by the Board
of Directors and no more than three may be named by the holders of seventy five percent (75%)
of the then outstanding Series A Preferred Stock. The arbitrator may consider, within the
ten-day period allotted, arguments from the parties regarding which investment banking firm to
choose, but the selection by the arbitrator shall be made in its sole discretion from the list
of six. The Board of Directors and the holders of seventy five percent (75%) of the then
outstanding Series A Preferred Stock shall submit their respective valuations and other
relevant data to the investment banking firm, and the investment banking firm shall as soon as
practicable thereafter make its own determination of the valuation amount, The final valuation
amount for purposes hereof shall be the average two valuation amounts closest together, as
determined by the investment banking firm, from among the valuation amounts submitted by the Company and the
holders of seventy five percent

18

 

(75%) of the then outstanding Series A Preferred Stock and the valuation amount
calculated by the investment banking firm. The determination of the final valuation amount by
such investment banking firm shall be final and binding upon the parties. The Company shall pay
the fees and expenses of the investment banking firm and arbitrator (if any) used to determine
the valuation amount. If required by any such investment banking firm or arbitrator, the
Company shall execute a retainer and engagement letter containing reasonable terms and
conditions, including, without limitation, customary provisions concerning the rights of
indemnification and contribution by the Company in favor of such investment banking firm or
arbitrator and its officers, directors, partners, employees, agents and Affiliates. If the
valuation amount is for Common Stock of the Company, the valuation amount shall not include a
discount for minority ownership or illiquidity or a control premium.

     “Conversion Price” has the meaning set forth in Section 4.1.

     “Convertible Securities” shall mean any evidences of indebtedness, shares (other than
Common Stock), or other securities directly or indirectly convertible into or exchangeable for
Common Stock.

     “Excluded Shares” shall mean all shares of Common Stock issued (or pursuant to Section
4.5.2 deemed to have been issued) by the Corporation at any time (A) upon conversion of, or as a
dividend with respect to, any shares of Series A Preferred Stock, (B) to officers, directors,
employees of or consultants to the Corporation or its Subsidiaries pursuant to any award
approved by the Board of Directors not in excess in the aggregate of 115,497,051 shares of
Common Stock (including Options to purchase Common Stock), (C) upon exercise of Options or
conversion of Convertible Securities outstanding on the Series A Original Issue Date, (D) upon
exercise of Options or conversion of Convertible Securities outstanding as of the date of filing
of this Third Amended and Restated Certificate of Incorporation with the Delaware Secretary of
State, or upon the conversion of any Series A Preferred Stock issued pursuant to the exercise of
any such Option or conversion of any such Convertible Security (including any Series A Preferred
Stock issued to any PCP Investor or upon the conversion of any such Series A Preferred Stock),
or (E) the issuance of Common Stock in events described in Section 4.5.4.

     “Fully Diluted Basis” shall mean, for the purposes of determining the number of shares of
Common Stock outstanding, a basis of calculation which takes into account (a) shares of Common
Stock actually issued and outstanding at the time of such determination, and (b) that number of
shares of Common Stock that is then issuable upon the exercise, exchange or conversion of all
then outstanding shares of Series A Preferred Stock and all Options and Convertible Securities
issued and outstanding at the time of such determination that are exercisable or exchangeable
for, or convertible into, shares of Common Stock.

     “Mandatory Redemption Date” has the meaning set forth in Section 5.1.

     “Mandatory Redemption Price” has the meaning set forth in Section 5.1.

     “Option” shall mean any right option or warrant to subscribe for, purchase or
otherwise acquire Common Stock or Convertible Securities.

19

 

     “PCP Investor” shall mean Prudential Capital Partners II, L.P.,
Prudential Capital Partners Management Fund II, L.P. and Prudential Capital
Partners (Parallel Fund) II, L.P.

     “Person” shall mean without limitation an individual, a partnership, a corporation, an
association, a joint stock corporation, a limited liability corporation, a trust, a joint
venture, an incorporated organization and a governmental authority.

     “Purchase Agreement” means that certain Stock Purchase Agreement dated as of February 24,
2004 as supplemented by Supplement No. 1 dated October 27, 2004 and Supplement No. 2 dated
November 1, 2004, to which the Corporation is a party, as the same may be amended from time to
time.

     “Qualified Public Offering” has the meaning set forth in Section 4.2.1.

     “Redemption Default” has the meaning set forth in Section 3.4.2.

     “Redemption
Request” has the meaning set forth in Section 5.1.

     “Sale” has the meaning
set forth in Section 3.3.7.

     “Sale of the Corporation” has the meaning set forth in Section 2.2.

     “Senior Management” shall mean the Corporation’s Chairman, Chief Executive Officer, Chief
Financial Officer and those employees that report directly to the Corporation’s Board of
Directors or the Chief Executive Officer

     “Series A Director” has the meaning set forth in Section 3.4.1.

     “Series A Original Issue Date” shall mean February 18, 2004.

     “Series A Purchase Price” shall mean $0.10511 per share.

     “Subsidiary” shall mean any corporation, association trust, limited liability company,
partnership, joint venture or other business association or entity (i) at least 50% of the
outstanding voting securities of which are at the time owned or controlled directly or indirectly
by the Corporation or (ii) with respect to which the Corporation possesses, directly or
indirectly, the power to direct or cause the direction of the affairs or management of such
person.

     FIFTH. The Corporation is to have perpetual existence.

     SIXTH. In furtherance and not in limitation of the power conferred upon the Board of
Directors by law, the Board of Directors shall have power to make, adopt, alter, amend and
repeal from time to time the By-laws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to alter and repeal the By-laws made by the
Board of Directors.

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     SEVENTH. Meetings of Stockholders may be held within or without the State of
Delaware, as the By-laws may provide. The books of the Corporation may be kept outside the State
of Delaware at such place or places as may be designated from time to time by the Board of
Directors or in the By-laws of the Corporation. Elections of Directors need not be by written
ballot unless the By-laws of the Corporation shall so provide.

     EIGHTH. To the maximum extent permitted from time to time under the law of the State of
Delaware, the Corporation renounces any interest or expectancy of the Corporation in, or in
being offered an opportunity to participate in, business opportunities that are from time to
time presented to its officers, directors or stockholders, other than those officers, directors
or stockholders who are employees of the Corporation. No amendment or repeal of this Article
EIGHTH shall apply to or have any effect on the liability or alleged liability of any officer,
director or stockholder of the Corporation for or with respect to any opportunities of which
such officer, director, or stockholder becomes aware prior to such amendment or repeal.

     NINTH. A director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director, except to the
extent that exculpation from liability is not permitted under the General Corporation Law of
the State of Delaware as in effect at the time such liability is determined. No amendment or
repeal of this Article NINTH shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.

     TENTH. The Corporation shall, to the maximum extent permitted from time to time under the
law of the State of Delaware, indemnify and upon request shall advance expenses to any person
who is or was a party or is threatened to be made a party to any threatened, pending or
completed action, suit, proceeding or claim, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was or has agreed to be a director
or officer of the Corporation or while a director or officer is or was serving at the request of
the Corporation as a director, officer, partner, trustee, employee or agent of any corporation,
partnership, joint venture, trust or otter enterprise, including service with respect to
employee benefit plans, against expenses (including attorneys fees and expenses), judgments,
fines, penalties and amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim; provided, however,
that the foregoing shall not require the Corporation to indemnify or advance expenses to any
person in connection with any action, suit, proceeding or claim initiated by or on behalf of
such person or any counterclaim against the Corporation initiated by or on behalf of such
person. Such indemnification shall not be exclusive of other indemnification rights arising
under any bylaw, agreement, vote of directors or stockholders or otherwise and shall inure to
the benefit of the heirs and legal representatives of such person. Any person seeking
indemnification under this Article TENTH shall be deemed to have met the standard of conduct
required for such indemnification unless the contrary shall be established. Any repeal or
modification of the foregoing provisions of this Article TENTH shall not adversely affect any
right or protection of a director or officer of the Corporation with respect to any acts or
omissions of such director or officer occurring prior to such repeal or modification.

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     ELEVENTH. If at any time the Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long as such class is
so registered, any action by the stockholders of such class must be taken at an annual or
special meeting of stockholders and may not be taken by written consent.

     TWELFTH. The Corporation shall not be governed by Section 203 of the General Corporation
Law of the State of Delaware.

     THIRTEENTH. Except as otherwise provided in the provisions establishing a class of
stock, the number of authorized shares of Common Stock may be increased or decreased (but not
below the number of shares of Common Stock then outstanding) by the affirmative vote of the
holders of a majority of the voting power of the Corporation entitled to vote irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware.

     FOURTEENTH. The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation, in the manner
now or thereafter prescribed by statute, and all rights conferred upon stockholders herein
are granted subject to this reservation.

     IN WITNESS WHEREOF, the Corporation has caused this Third Amended and Restated
Certificate of Incorporation to be signed by its President as of this                      day of March, 2006.

	 	 	 	 	 
	 	 	 
	 	
 	 
	 	Brian Smith 	 
	 	President and Chief Executive Officer 	 
	 

Attest:

	 	 	 

	 

Lisa Bilcik, Secretary

	 	 

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