SECOND AMENDMENT TO CREDIT AGREEMENT
EXECUTION VERSION
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), is effective as of the
30th day of June 2007, by NAVARRE CORPORATION, a Minnesota corporation
(“Borrower”), the Credit Parties signatory hereto, MONROE CAPITAL ADVISORS, LLC, a Delaware
limited liability company, as agent (the “Agent”) for itself and the Lenders under and as
defined in the Credit Agreement (as hereinafter defined), and the Lenders. Unless otherwise
specified herein, capitalized terms used in this Amendment shall have the meanings ascribed to them
by the Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Credit Parties, the Agent and the Lenders have entered into the
Credit Agreement, dated as of March 22, 2007 (as amended, supplemented, restated or otherwise
modified from time to time, the “Credit Agreement”); and
WHEREAS, the Borrower, the Credit Parties, the Agent and the Lenders have agreed to amend
certain provisions of the Credit Agreement as herein set forth; and
WHEREAS, to induce the Agent and the Lenders to agree to the amendments set forth herein, the
Borrower has agreed to prepay a portion of the Term Loan.
NOW THEREFORE, in consideration of the foregoing recitals, the mutual agreements contained
herein and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Borrower, the Credit Parties, the Agent, and the Lenders hereby agree as
follows:
SECTION 1. Amendments.
(a) The definition of “EBITDA” set forth in Annex A to the Credit Agreement is
hereby amended and restated to read in its entirety as follows:
“EBITDA” means, with respect to any Person for any fiscal period, without
duplication, an amount equal to (a) consolidated net income of such Person for such period,
determined in accordance with GAAP, minus (b) the sum of (i) income tax credits,
(ii) interest income, (iii) gain from extraordinary items for such period, (iv) any
aggregate net gain (but not any aggregate net loss) during such period arising from the
sale, exchange or other disposition of capital assets by such Person (including any fixed
assets, whether tangible or intangible, all inventory sold in conjunction with the
disposition of fixed assets and all securities), (v) any other non-cash gains that have been
added in determining consolidated net income, in each case to the extent included in the
calculation of net income of such Person for such period in accordance with GAAP, but
without duplication and (vi) amounts paid on behalf of or for the benefit of Goldhil Media,
Tower Records or any trust, trustee or fund relating thereto or successor to any of the
foregoing, plus (c) the sum of (i) any provision for income taxes, (ii) Interest
Expense, (iii) loss from extraordinary items for such period, (iv) depreciation and
amortization for such period (other than amortization with respect to Vendor Advances), (v)
amortized debt discount for such period, (vi) the amount of any deduction to
consolidated net income as the result of any grant to any members of the management of
such Person of any Stock, (vii) write-offs of Accounts owing to Borrower from (x) Goldhil
Media in the aggregate amount not to exceed $2,100,000 and (y) Tower Records in the
aggregate amount not to exceed $1,900,000 and (viii) losses arising from the operations of
Navarre Entertainment in an aggregate amount not to exceed (w) $1,865,000 with respect to
the 12 month period ending on June 30, 2007, (x) $2,275,000 with respect to the 12 month
period ending on September 30, 2007, (y) $3,038,000 with respect to the 12 month period
ending on December 31, 2007 and (z) $3,233,000 with respect to the 12 month period ending on
March 31, 2008, in each case to the extent included in the calculation of consolidated net
income of such Person for such period in accordance with GAAP, but without duplication. For
purposes of this definition, the following items shall be excluded in determining
consolidated net income of a Person: (1) the income (or deficit) of any other Person accrued
prior to the date it became a Subsidiary of, or was merged or consolidated into, such Person
or any of such Person’s Subsidiaries; (2) the income (or deficit) of any other Person (other
than a Subsidiary) in which such Person has an ownership interest, except to the extent any
such income has actually been received by such Person in the form of cash dividends or
distributions; (3) the undistributed earnings of any Subsidiary of such Person to the extent
that the declaration or payment of dividends or similar distributions by such Subsidiary is
not at the time permitted by the terms of any contractual obligation or requirement of law
applicable to such Subsidiary; (4) any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was made out of income accrued during
such period; (5) any write-up of any asset; (6) any net gain from the collection of the
proceeds of life insurance policies; (7) any net gain arising from the acquisition of any
securities, or the extinguishment, under GAAP, of any Indebtedness, of such Person, (8) in
the case of a successor to such Person by consolidation or merger or as a transferee of its
assets, any earnings of such successor prior to such consolidation, merger or transfer of
assets, and (9) any deferred credit representing the excess of equity in any Subsidiary of
such Person at the date of acquisition of such Subsidiary over the cost to such Person of
the investment in such Subsidiary.”
(b) Clause (a) of Annex F to the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
“(a) Maximum Capital Expenditures. Borrower and its Subsidiaries on a
consolidated basis shall not make Capital Expenditures during the following periods that
exceed in the aggregate the amounts set forth opposite each of such periods:
| Period | Maximum Capital Expenditures per Period | |
Fiscal Year ending on or about March 31, 2008
|
$11,300,000 | |
Fiscal Year ending on or about March 31, 2009
|
$3,500,000 plus an amount equal to an amount of Capital Expenditures not to exceed $1,000,000 incurred in connection with the installation of the ERP computer system during such Fiscal Year | |
Fiscal Year ending on or about March 31, 2010
and each Fiscal Year ending thereafter”
|
$3,500,000 |
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(c) Clause (b) of Annex F to the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
“(b) Minimum Fixed Charge Coverage Ratio. Borrower and its Subsidiaries shall
have on a consolidated basis, as of the last day of the Fiscal Quarter ending on June 30,
2007 and as of the last day of each Fiscal Quarter thereafter, for the 12 month period then
ended, a ratio (the “Fixed Charge Coverage Ratio”) of (A) the sum of (i) EBITDA
plus (ii) the aggregate of all Vendor Advance Expenses for such period, plus
(iii) interest income received during such period minus (iii) Capital Expenditures
during such period (other than Capital Expenditures financed other than with the proceeds of
Loans), minus (iv) income taxes paid in cash during such period, minus (v)
the aggregate of all Vendor Advances made during such period to (B) the sum of, without
duplication, (i) the aggregate of all Interest Expense paid or accrued during such period,
plus (ii) scheduled payments of principal with respect to Indebtedness during such
period (other than scheduled principal payments made by Borrower during such period with
respect to Term Loan B (as defined and under the Existing Credit Agreement) pursuant to the
Existing Credit Agreement), plus, (iii) all Restricted Payments made by a Credit
Party during such period (other than Restricted Payments (a) made to another Credit Party or
(b) which have caused EBITDA to be reduced for such period) of at least the ratio set forth
below opposite such Fiscal Quarter:
| Fiscal Quarter Ending | Ratio | |||
June 30, 2007 |
0.90 :1 | |||
September 30, 2007 |
0.80 :1 | |||
December 31, 2007 |
0.80 :1 | |||
March 31, 2008 |
1.20:1 | |||
June 30, 2008 |
1.20:1 | |||
September 30, 2008 |
1.20:1 | |||
December 31, 2008 |
1.20:1 | |||
March 31, 2009 |
1.30:1 | |||
June 30, 2009 |
1.30:1 | |||
September 30, 2009 |
1.30:1 | |||
December 31, 2009 |
1.30:1 | |||
March 31, 2010 and each Fiscal Quarter ending thereafter” |
1.40:1 | |||
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(d) Clause (d) of Annex F to the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
“(d) Minimum EBITDA. Borrower and its Subsidiaries shall have on a
consolidated basis, as of the last day of the Fiscal Quarter ending on June 30, 2007 and as
of the last day of each Fiscal Quarter thereafter, for the 12 month period then ended,
EBITDA of at least the amount set forth below opposite such Fiscal Quarter:
| Fiscal Quarter Ending | Amount | |||
June 30, 2007 |
$ | 32,000,000 | ||
September 30, 2007 |
$ | 26,000,000 | ||
December 31, 2007 |
$ | 27,000,000 | ||
March 31, 2008 |
$ | 29,000,000 | ||
June 30, 2008 |
$ | 31,000,000 | ||
September 30, 2008 |
$ | 31,000,000 | ||
December 31, 2008 |
$ | 31,000,000 | ||
March 31, 2009 |
$ | 32,000,000 | ||
June 30, 2009 |
$ | 34,000,000 | ||
September 30, 2009 and each Fiscal Quarter ending thereafter” |
$ | 35,000,000 | ||
SECTION 2. Prepayment.
(a) The Borrower hereby agrees to make a prepayment of the Term Loan in the amount of
$3,000,000 (the “Prepayment Amount”), pursuant to Section 1.3(b) of the Credit Agreement
(the “Prepayment”).
(b) The Agent and the Lenders hereby waive the provisions of Section 1.9(b) of the Credit
Agreement to the extent, and solely to the extent, necessary to permit the Borrower to make the
Prepayment without liability for any prepayment fee set forth in such Section 1.9(b).
SECTION 3. Conditions to Effectiveness. The effectiveness of this Amendment is subject to
the satisfaction of each the following conditions precedent:
(a) the Borrower shall have paid the Prepayment Amount to the Agent in immediately available
funds and in accordance with Section 1.10 of the Credit Agreement;
(b) this Amendment shall have been duly executed and delivered by the Borrower, the Credit
Parties, the Agent and each Lender;
(c) the Borrower shall have executed and delivered to Agent the Amendment Fee Letter, dated as
of the date hereof, between Agent and the Borrower; and
(d) the Agent shall have received a certified copy of the fully executed copy of (i) a Second
Amendment to the First Lien Credit Agreement and (ii) a letter agreement between the
Agent and General Electric Capital Corporation, as first lien agent, in each case in form and
substance satisfactory to Agent.
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SECTION 4. Representations and Warranties. In order to induce the Agent and each Lender to
enter into this Amendment, each Credit Party hereby represents and warrants to the Agent and each
Lender, which representations and warranties shall survive the execution and delivery of this
Amendment, that:
(a) all of the representations and warranties contained in the Credit Agreement and in each
Loan Document are true and correct as of the date hereof after giving effect to this Amendment,
except to the extent that any such representations and warranties expressly relate to an earlier
date;
(b) the execution, delivery and performance by such Credit Party of this Amendment has been
duly authorized by all necessary corporate, limited liability company or partnership action
required on its part and this Amendment, and the Credit Agreement is the legal, valid and binding
obligation of such Credit Party enforceable against such Credit Party in accordance with its terms,
except as its enforceability may be affected by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect relating to or
affecting the rights or remedies of creditors generally;
(c) neither the execution, delivery and performance of this Amendment by such Credit Party,
the performance by such Credit Party of the Credit Agreement nor the consummation of the
transactions contemplated hereby does or shall contravene, result in a breach of, or violate (i)
any provision of any Credit Party’s certificate or articles of incorporation or bylaws or other
similar documents, or agreements, (ii) any law or regulation, or any order or decree of any court
or government instrumentality, or (iii) any indenture, mortgage, deed of trust, lease, agreement or
other instrument to which any Credit Party or any of its Subsidiaries is a party or by which any
Credit Party or any of its Subsidiaries or any of their property is bound, except in any such case
to the extent such conflict or breach has been waived herein or by a written waiver document, a
copy of which has been delivered to Agent on or before the date hereof; and
(d) no Default or Event of Default has occurred and is continuing.
SECTION 5. Reference to and Effect Upon the Credit Agreement.
(a) Except as specifically set forth above, the Credit Agreement and the other Loan Documents
shall remain in full force and effect and are hereby ratified and confirmed; and
(b) The amendments set forth herein are effective solely for the purposes set forth herein and
shall be limited precisely as written, and shall not be deemed to (i) be a consent to any
amendment, waiver or modification of any other term or condition of the Credit Agreement or any
other Loan Document, (ii) operate as a waiver or otherwise prejudice any right, power or remedy
that the Agent or the Lenders may now have or may have in the future under or in connection with
the Credit Agreement or any other Loan Document or (iii) constitute an amendment or waiver of any
provision of the Credit Agreement or any Loan Document, except as specifically set forth herein.
Upon the effectiveness of this
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Amendment,
each reference in the Credit Agreement to “this Agreement”, “herein”, “hereof” and words of like import and each
reference in the Credit Agreement and the Loan Documents to the Credit Agreement shall mean the
Credit Agreement as amended hereby. This Amendment shall be construed in connection with and as
part of the Credit Agreement.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
SECTION 7. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute part of this Amendment for any other
purposes.
SECTION 8. Counterparts. This Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed an original, but all such counterparts shall
constitute one and the same instrument.
(signature pages follow)
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the
date first written above.
| BORROWER: | ||||||
| NAVARRE CORPORATION | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| AGENT: | ||||||
| MONROE CAPITAL ADVISORS, LLC, as Agent | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Second Amendment to Credit Agreement]
S-1
IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first written above
by below Persons in their capacity as Credit Parties not as Borrower.
| ENCORE SOFTWARE, INC., as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| BCI ECLIPSE COMPANY, LLC, as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| FUNIMATION PRODUCTIONS LTD., as Credit Party | ||||||
| By: Xxxxxxx XX, LLC, its General Partner | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| ANIMEONLINE, LTD (F/K/A THE FUNIMATION STORE LTD.), as Credit Party | ||||||
| By: Xxxxxxx XX, LLC, its General Partner | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| XXXXXXX XX, LLC, as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Second Amendment to Credit Agreement]
S-2
EXECUTION VERSION
| NAVARRE CLP, LLC, as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| XXXXXXX XX, LLC, as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| NAVARRE LOGISTICAL SERVICES, INC., as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| NAVARRE DIGITAL SERVICES, INC., as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| NAVARRE ONLINE FULFILLMENT SERVICES, INC., as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| NAVARRE DISTRIBUTION SERVICES, INC., as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Second Amendment to Credit Agreement]
S-3
EXECUTION VERSION
| FUNIMATION CHANNEL, INC., as Credit Party | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
[Signature Page to Second Amendment To Fourth Amended and Restated Credit Agreement]
S-4
