Credit Agreement

Exhibit 10.2


CREDIT AGREEMENT

Dated as of April 30, 2007

among

HANDLEMAN COMPANY,

as Parent Guarantor, HANDLEMAN ENTERTAINMENT RESOURCES L.L.C.

and

CERTAIN OTHER DOMESTIC SUBSIDIARIES OF HANDLEMAN COMPANY,

as Borrowers,

HANDLEMAN COMPANY OF CANADA, LIMITED,

HANDLEMAN UK LIMITED AND CERTAIN OTHER

SUBSIDIARIES OF HANDLEMAN COMPANY SIGNATORY HERETO AS CREDIT PARTIES,

THE LENDERS SIGNATORY HERETO FROM TIME TO TIME,

as Lenders,

GENERAL ELECTRIC CAPITAL CORPORATION,

as Administrative Agent, Agent and Lender, and

GE CAPITAL MARKETS, INC., as Lead Arranger


TABLE OF CONTENTS

(continued)

Page 1. AMOUNT AND TERMS OF CREDIT 2 1.1. Credit Facilities 2 1.2. Letters of Credit 6 1.3. Prepayments 6 1.4. Use of Proceeds 9 1.5. Interest and Applicable Margins 9 1.6. Eligible Accounts 13 1.7. Eligible Inventory 15 1.8. Cash Management Systems 17 1.9. Fees 17 1.10. Receipt of Payments 18 1.11. Application and Allocation of Payments 18 1.12. Loan Account and Accounting 19 1.13. Indemnity 19 1.14. Access 20 1.15. Taxes 21 1.16. Capital Adequacy; Increased Costs; Illegality 22 1.17. Single Loan 23 2. CONDITIONS PRECEDENT 24 2.1. Conditions to the Initial Loans 24 2.2. Further Conditions to Each Loan 25 3. REPRESENTATIONS AND WARRANTIES 26 3.1. Organization; Requisite Power and Authority; Qualification 27 3.2. Capital Stock and Ownership 27 3.3. Due Authorization 27 3.4. No Conflict 27 3.5. Governmental Consents 28 3.6. Binding Obligation 28 3.7. Historical Financial Statements 28 3.8. Projections 28 3.9. No Material Adverse Change 29 3.10. No Restricted Junior Payments 29


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TABLE OF CONTENTS

(continued)

Page 3.11. Adverse Proceedings, etc 29 3.12. Payment of Taxes and Other Amounts 29 3.13. Properties 30 3.14. Environmental Matters 30 3.15. No Defaults 31 3.16. Material Contracts 31 3.17. Governmental Regulation 31 3.18. Margin Stock 31 3.19. Employee Matters 31 3.20. Employee Benefit Plans. 32 3.21. Certain Fees 33 3.22. Solvency 33 3.23. Term Loan Agreement 33 3.24. Compliance with Statutes, etc 33 3.25. Disclosure 34 3.26. Terrorism Laws 34 3.27. Insurance 34 3.28. Common Enterprise 34 3.29. Security Interest in Collateral 35 3.30. Affiliate Transactions 35 3.31. Intellectual Property 35 3.32. Permits, Etc 35 3.33. Customers and Suppliers 36 3.34. Flood Zone 36 3.35. Operating Lease Obligations 36 3.36. Business of Insignificant Subsidiaries 36 3.37. No Action for Winding-Up or Bankruptcy 36 3.38. Centre of Main Interests and Establishments 36 4. FINANCIAL STATEMENTS AND INFORMATION 37 4.1. Reports and Notices 37 4.2. Communication with Accountants 37 5. AFFIRMATIVE COVENANTS 37


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TABLE OF CONTENTS

(continued)

Page 5.1. Existence 37 5.2. Payment of Taxes and Claims 38 5.3. Maintenance of Properties 38 5.4. Insurance 38 5.5. Books and Records; Inspections 39 5.6. Lenders Meetings 39 5.7. Compliance with Laws 39 5.8. Environmental 40 5.9. Subsidiaries 42 5.10. Additional Material Real Estate Assets 43 5.11. Pensions 43 5.12. [Intentionally Omitted] 44 5.13. Further Assurances 44 5.14. Miscellaneous Business Covenants 44 5.15. Use of Proceeds 44 5.16. [Intentionally Omitted] 44 5.17. Financial Consultant 45 6. NEGATIVE COVENANTS 46 6.1. Indebtedness 46 6.2. Liens 48 6.3. No Further Negative Pledges 50 6.4. Restricted Junior Payments 50 6.5. Restrictions on Subsidiary Distributions 51 6.6. Investments 52 6.7. Financial Covenants 53 6.8. Fundamental Changes; Disposition of Assets; Acquisitions 53 6.9. Disposal of Subsidiary Interests 55 6.10. Sales and Lease Backs 55 6.11. Transactions with Shareholders and Affiliates 55 6.12. Conduct of Business 55 6.13. Permitted Activities of Holdings 55 6.14. Amendments or Waivers of Certain Contractual Obligations 56


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TABLE OF CONTENTS

(continued)

Page 6.15. Change in Auditors 56 6.16. Fiscal Year 56 6.17. Deposit Accounts 57 6.18. Amendments to Organizational Agreements 57 6.19. Prepayments of Certain Indebtedness 57 6.20. Issuance of Capital Stock 57 6.21. Term Loan Agreement 57 6.22. Insignificant Subsidiaries 58 7. TERM 58 7.1. Termination 58 7.2. Survival of Obligations Upon Termination of Financing Arrangements 58 8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES 58 8.1. Events of Default 58 8.2. Remedies 61 8.3. Waivers by Credit Parties 62 9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT 62 9.1. Assignment and Participations 62 9.2. Appointment of Agent 65 9.3. Agent' s Reliance, Etc 66 9.4. GE Capital and Affiliates 66 9.5. Lender Credit Decision 66 9.6. Indemnification 67 9.7. Successor Agent 67 9.8. Setoff and Sharing of Payments 68 9.9. Advances; Payments; Non-Funding Lenders; Information; Actions in Concert 68 10. SUCCESSORS AND ASSIGNS 71 10.1. Successors and Assigns 71 11. MISCELLANEOUS 71 11.1. Complete Agreement; Modification of Agreement 71 11.2. Amendments and Waivers 71 11.3. Fees and Expenses 73


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TABLE OF CONTENTS

(continued)

Page 11.4. No Waiver 75 11.5. Remedies 75 11.6. Severability 75 11.7. Conflict of Terms 75 11.8. Confidentiality 75 11.9. GOVERNING LAW 76 11.10. Notices 76 11.11. Section Titles 77 11.12. Counterparts 77 11.13. WAIVER OF JURY TRIAL 77 11.14. Press Releases and Related Matters 78 11.15. Reinstatement 78 11.16. Advice of Counsel 78 11.17. No Strict Construction 78 11.18. USA PATRIOT Act Notice 79 12. CROSS-GUARANTY 79 12.1. Cross-Guaranty 79 12.2. Waivers by Borrowers 79 12.3. Benefit of Guaranty 80 12.4. Waiver of Subrogation, Etc 80 12.5. Election of Remedies 80 12.6. Limitation 80 12.7. Contribution with Respect to Guaranty Obligations 81 12.8. Liability Cumulative 82 12.9. Foreign Currency 82 12.10. Immunity 83 12.11. Provisions Applicable to Canadian Credit Parties 83


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INDEX OF APPENDICES

Annex A (Recitals) - Definitions

Annex B ( Section 1.2 ) - Letters of Credit

Annex C ( Section 1.8 ) - Cash Management System

Annex D ( Section 2.1(a) ) - Closing Checklist

Annex E ( Section 4.1(a) ) - Financial Statements and Projections - Reporting

Annex F ( Section 4.1(b) ) - Collateral Reports

Annex G ( Section 6.10 ) - Financial Covenants

Annex H ( Section 9.9(a) ) - Lenders' Wire Transfer Information

Annex I ( Section 11.10 ) - Notice Addresses Annex J (from Annex A - Commitments definition) - Commitments as of Closing Date

Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance

Exhibit 1.1(a)(ii) - Form of Revolving Note

Exhibit 1.1(c)(ii) - Form of Swing Line Note

Exhibit 1.5(e) - Form of Notice of Conversion/Continuation

Exhibit 4.1(b) - Form of Borrowing Base Certificate

Exhibit 9.1(a) - Form of Assignment Agreement

Exhibit A-1 - Form of Canadian Guaranty

Exhibit A-2 - Form of Canadian Security Agreement

Exhibit A-3 - Form of Landlord Collateral Access Agreement

Exhibit A-4 - Form of U.K. Fixed and Floating Security Document

Exhibit A-5 - Form of U.K. Share Charge

Exhibit A-6 - Form of U.S. Pledge and Security Agreement

Exhibit B-1 - Application for Standby Letter of Credit

Schedule 1.1(a) - Insignificant Subsidiaries

Schedule 1.1(b) - Reorganization

Schedule 1.1(c) - Material Customers

Schedule 1.1(d) - Agent' s Representatives

Schedule 1.4 - Sources and Uses; Funds Flow Memorandum

Schedule 3.1 - Jurisdiction of Organization and Qualifications

Schedule 3.2 - Capital Stock and Ownership

Schedule 3.13 - Real Estate Assets

Schedule 3.16 - Material Contracts

Schedule 3.19 - Employee Matters

Schedule 3.20 - Employee Benefit Plans

Schedule 3.27 - Insurance

Schedule 3.30 - Affiliate Transactions

Schedule 3.31 - Intellectual Property

Schedule 3.35 - Operating Leases

Schedule 5.14 - Deposit and Securities Accounts


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Schedule 6.1 - Certain Indebtedness

Schedule 6.2 - Certain Liens

Schedule 6.6 - Certain Investments

This CREDIT AGREEMENT (this " Agreement" ), dated as of April 30, 2007 among HANDLEMAN COMPANY , a Michigan corporation (the " Holdings" ), HANDLEMAN ENTERTAINMENT RESOURCES L.L.C. , a Michigan limited liability company (" Handleman Entertainment" ), the other Subsidiaries of Holdings identified on the signature pages hereto as " Borrowers" (such Subsidiaries, together with Handleman Entertainment, are sometimes collectively referred to herein as the " Borrowers" and individually as a " Borrower" ); the other Credit Parties signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION , a Delaware corporation (in its individual capacity, " GE Capital" ), for itself, as Lender, and as Agent for Lenders, GE Capital Financial Inc., as an L/C Issuer (an " L/C Issuer" ) and the other Lenders signatory hereto from time to time.

RECITALS

WHEREAS, Borrowers have requested that Lenders extend a revolving credit facility to Borrowers of up to One Hundred Ten Million Dollars ($110,000,000) in the aggregate for the purpose of refinancing certain indebtedness of Holdings and its Subsidiaries and to provide (a) working capital financing for Holdings and its Subsidiaries, (b) funds to repay certain existing Indebtedness of Holdings and its Subsidiaries, (c) funds for other general corporate purposes of Holdings and its Subsidiaries, and (d) funds for other purposes permitted hereunder; and for these purposes, Lenders are willing to make certain loans and other extensions of credit to Borrowers of up to such amount upon the terms and conditions set forth herein; and

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

WHEREAS, each of Holdings and the other Credit Parties signatory hereto are willing to guarantee all of the obligations of Borrowers to Agent and Lenders under the Loan Documents and to grant to Agent, for the benefit of Agent and the Lenders, a security interest in and lien upon substantially all of their respective assets to secure such guaranty; and

WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in Annex A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Annex A shall govern. All Annexes, Disclosure Schedules, Exhibits and other attachments (collectively, " Appendices" ) hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together with this Agreement, shall constitute but a single agreement. These Recitals shall be construed as part of the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT

1.1. Credit Facilities .

(a) Revolving Credit Facility . (i) Subject to the terms and conditions hereof, each Revolving Lender agrees to make available to Borrowers from time to time until the Commitment Termination Date its Pro Rata Share of advances (each, a " Revolving Credit Advance" ). The Pro Rata Share of the Revolving Loan of any Revolving Lender shall not at any time exceed its separate Revolving Loan Commitment. The obligations of each Revolving Lender hereunder shall be several and not joint. Until the Commitment Termination Date, Borrowers may borrow, repay and reborrow under this Section 1.1(a)) ; provided that the amount of any Revolving Credit Advance to be made at any time shall not exceed Borrowing Availability at such time. Borrowing Availability may be reduced by Reserves (i) imposed by Agent in its reasonable credit judgment or (ii) as may be requested from time to time by the Term Loan Agent. Each Revolving Credit Advance shall be made on notice by Borrower Representative on behalf of the applicable Borrower to one of the representatives of Agent identified on Schedule 1.1(d) at the address specified therein. Any such notice must be given no later than (1) 12:00 p.m. (New York time) on the Business Day of the proposed Revolving Credit Advance, in the case of an Index Rate Loan, or (2) 12:00 p.m. (New York time) on the date which is three (3) Business Days prior to the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice (a " Notice of Revolving Credit Advance" ) must be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(a)(i) , and shall include the information required in such Exhibit and such other information as may be required by Agent. If any Borrower desires to have the Revolving Credit Advances bear interest by reference to a LIBOR Rate, Borrower Representative must comply with Section 1.5(e) .

(ii) Except as provided in Section 1.11 , each Borrower shall execute and deliver to each Revolving Lender a note to evidence the Revolving Loan Commitment of that Revolving Lender. Each note shall be in the principal amount of the Revolving Loan Commitment of the applicable Revolving Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(a)(ii) (each a " Revolving Note" and, collectively, the " Revolving Notes" ). Each Revolving Note shall represent the obligation of the applicable Borrower to pay the amount of the applicable Revolving Lender' s Revolving Loan Commitment or, if less, such Revolving Lender' s Pro Rata Share of the aggregate unpaid principal amount of all Revolving Credit Advances to such Borrower together with interest thereon as prescribed in Section 1.5 . The entire unpaid balance of the aggregate Revolving Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date.


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(iii) Anything in this Agreement to the contrary notwithstanding, at the request of Borrower Representative, in its discretion Agent may (but shall have absolutely no obligation to), make Revolving Credit Advances to Borrowers on behalf of Revolving Lenders in amounts that cause the outstanding balance of the aggregate Revolving Loan to exceed the Borrowing Base (less the Swing Line Loan) (any such excess Revolving Credit Advances are herein referred to collectively as " Overadvances" ); provided that (A) no such event or occurrence shall cause or constitute a waiver of Agent' s, Swing Line Lender' s or Revolving Lenders' right to refuse to make any further Overadvances, Swing Line Advances or Revolving Credit Advances, or incur any Letter of Credit Obligations, as the case may be, at any time that an Overadvance exists, and (B) no Overadvance shall result in a Default or Event of Default based on Borrowers' failure to comply with Section 1.1(a)(iii) for so long as Agent permits such Overadvance to be outstanding, but solely with respect to the amount of such Overadvance. In addition, Overadvances may be made even if the conditions to lending set forth in Section 2 have not been met. All Overadvances shall constitute Index Rate Loans, shall bear interest at the Default Rate and shall be payable on the earlier of demand or the Commitment Termination Date. Except as otherwise provided in Section 1.11(b) , the authority of Agent to make Overadvances is limited to an aggregate amount not to exceed the lesser of (i) $7,500,000 or (ii) the product of (A) the Borrowing Base times (B) 107.50%, at any time, shall not cause the aggregate Revolving Loan to exceed the Maximum Amount, and may be revoked prospectively by a written notice to Agent signed by Revolving Lenders holding more than 50% of the Revolving Loan Commitments.

(b) [ Intentionally Omitted ].

(c) Swing Line Facility . (i) Agent shall notify the Swing Line Lender upon Agent' s receipt of any Notice of Revolving Credit Advance. Subject to the terms and conditions hereof, the Swing Line Lender may, in its discretion, make available from time to time until the Commitment Termination Date advances (each, a " Swing Line Advance" ) in accordance with any such notice. The provisions of this Section 1.1(c) shall not relieve Revolving Lenders of their obligations to make Revolving Credit Advances under Section 1.1(a) ; provided that if the Swing Line Lender makes a Swing Line Advance pursuant to any such notice, such Swing Line Advance shall be in lieu of any Revolving Credit Advance that otherwise may be made by Revolving Credit Lenders pursuant to such notice. The aggregate amount of Swing Line Advances outstanding shall not exceed at any time the lesser of (A) the Swing Line Commitment and (B) the lesser of the Maximum Amount and (except for Overadvances) the Borrowing Base, in each case, less the outstanding balance of the Revolving Loan at such time (" Swing Line Availability" ). Until the Commitment Termination Date, Borrowers may from time to time borrow, repay and reborrow under this Section 1.1(c) . Each Swing Line Advance shall be made pursuant to a Notice of Revolving Credit Advance delivered to Agent by Borrower Representative on behalf of the applicable Borrower in accordance with


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Section 1.1(a) . Any such notice must be given no later than 12:00 p.m. (New York time) on the Business Day of the proposed Swing Line Advance. Unless the Swing Line Lender has received at least one Business Day' s prior written notice from Requisite Lenders instructing it not to make a Swing Line Advance, the Swing Line Lender shall, notwithstanding the failure of any condition precedent set forth in Section 2.2 , be entitled to fund that Swing Line Advance, and to have each Revolving Lender make Revolving Credit Advances in accordance with Section 1.1(c)(iii) or purchase participating interests in accordance with Section 1.1(c)(iv) . Notwithstanding any other provision of this Agreement or the other Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan. Borrowers shall repay the aggregate outstanding principal amount of the Swing Line Loan upon demand therefor by Agent.

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

(iii) The Swing Line Lender, at any time and from time to time no less frequently than once weekly shall on behalf of any Borrower (and each Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Revolving Lender (including the Swing Line Lender) to make a Revolving Credit Advance to each Borrower (which shall be an Index Rate Loan) in an amount equal to that Revolving Lender' s Pro Rata Share of the principal amount of the applicable Borrower' s Swing Line Loan (the " Refunded Swing Line Loan" ) outstanding on the date such notice is given. Unless any of the events described in Section 8.1(h) or 8.1(i) has occurred (in which event the procedures of Section 1.1(c)(iv) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender prior to 3:00 p.m. (New York time) in immediately available funds on the Business Day next succeeding the date that notice is given. The proceeds of those Revolving Credit Advances shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing Line Loan of the applicable Borrower.


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(iv) If, prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant to Section 1.1(c)(iii) , one of the events described in Section 8.1(h) or 8.1(i) has occurred, then, subject to the provisions of Section 1.1(c)(v) below, each Revolving Lender shall, on the date such Revolving Credit Advance was to have been made for the benefit of the applicable Borrower, purchase from the Swing Line Lender an undivided participation interest in the Swing Line Loan to such Borrower in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request, each Revolving Lender shall promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation interest. (v) Each Revolving Lender' s obligation to make Revolving Credit Advances in accordance with Section 1.1(c)(iii) and to purchase participation interests in accordance with Section 1.1(c)(iv) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right that such Revolving Lender may have against the Swing Line Lender, any Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of any Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement at any time or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Lender does not make available to Agent or the Swing Line Lender, as applicable, the amount required pursuant to Section 1.1(c)(iii) or 1.1(c)(iv) , as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Revolving Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two Business Days and at the Index Rate thereafter. (d) Reliance on Notices; Appointment of Borrower Representative . Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Revolving Credit Advance, Notice of Conversion/Continuation or similar notice believed by Agent to be genuine. Agent may assume that each Person executing and delivering any notice in accordance herewith was duly authorized, unless the responsible individual acting thereon for Agent has actual knowledge to the contrary. Each Borrower hereby designates Handleman Entertainment as its representative and agent on its behalf for the purposes of issuing Notices of Revolving Credit Advances and Notices of Conversion/Continuation, giving instructions with respect to the disbursement of the proceeds of the Loans, selecting interest rate options, requesting Letters of Credit, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) on behalf of any Borrower or Borrowers under the Loan Documents. Borrower Representative hereby accepts such appointment. Agent and each Lender may regard any notice or other communication pursuant to any Loan Document from Borrower Representative as a notice or communication from all Borrowers, and may give any notice or communication required or permitted to be given to any Borrower or Borrowers hereunder to Borrower Representative on behalf of such Borrower or Borrowers. Each Borrower agrees that each notice, election, representation and warranty, covenant,


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agreement and undertaking made on its behalf by Borrower Representative shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower.

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

1.3. Prepayments . (a) Voluntary Prepayments; Reductions in Revolving Loan Commitments . Borrowers may at any time on at least five (5) days' prior written notice by Borrower Representative to Agent permanently reduce (but not terminate) the Revolving Loan Commitment; provided that (A) any such prepayments or reductions shall be in a minimum amount of $5,000,000 and integral multiples of $250,000 in excess of such amount, (B) the Revolving Loan Commitment shall not be reduced to an amount less than $85,000,000, and (C) after giving effect to such reductions, Borrowers shall comply with Section 1.3(b)(i) . In addition, Borrowers may at any time on at least ten (10) days' prior written notice by Borrower Representative to Agent terminate the Revolving Loan Commitment; provided that upon such termination, all Loans and other Obligations shall be immediately due and payable in full and all Letter of Credit Obligations shall be cash collateralized or otherwise satisfied in accordance with Annex B . Any voluntary prepayment and any reduction or termination of the Revolving Loan Commitment must be accompanied by payment of any LIBOR funding breakage costs in accordance with Section 1.13(b) . Upon any such reduction or termination of the Revolving Loan Commitment, each Borrower' s right to request Revolving Credit Advances, or request that Letter of Credit Obligations be incurred on its behalf, or request Swing Line Advances, shall simultaneously be permanently reduced or terminated, as the case may be; provided that a permanent reduction of the Revolving Loan Commitment shall not require a corresponding pro rata reduction in the L/C Sublimit. Each notice of partial prepayment shall designate the Loans or other Obligations to which such prepayment is to be applied.

(b) Mandatory Prepayments . (i) If at any time the aggregate outstanding balances of the Revolving Loan and the Swing Line Loan exceed the lesser of (A) the Maximum Amount and (B) the Borrowing Base, Borrowers shall immediately repay the aggregate outstanding Revolving Credit Advances to the extent required to eliminate such excess. If any such excess remains after repayment in full of the aggregate outstanding Revolving Credit Advances, Borrowers shall provide cash collateral for the Letter of Credit Obligations in the manner set forth in Annex B to the extent required to eliminate such excess. Notwithstanding the foregoing, any Overadvance made pursuant to Section 1.1(a)(iii) shall be repaid in accordance with Section 1.1(a)(iii) .


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(ii) Asset Sales . No later than the first Business Day following the date of receipt by Holdings or any of its Subsidiaries of any Net Asset Sale Proceeds to the extent that the aggregate amount of Net Asset Sale Proceeds received by Holdings and all such Subsidiaries (and not applied as provided herein) shall exceed for all such Asset Sales $100,000 in any Fiscal Year, or $500,000 since the Closing Date, (A) from any ABL Priority Collateral (other than the sale or other disposition of the Stock of Air Eagle, LLC), the Borrowers shall prepay the Loans; (B) from any Term Priority Collateral (other than the sale or disposition of the Stock of Air Eagle, LLC and/or from any leases or sub-leases permitted by Section 6.8(g) ...