Exhibit 10.1

 

ARCTIC CAT INC.

 

AND CERTAIN OF ITS SUBSIDIARIES,

 

as Borrowers

 

 

 

 

LOAN AND SECURITY AGREEMENT

 

Dated as of November 10, 2009

 

$60,000,000.00

 

 

 

 

 

CERTAIN FINANCIAL INSTITUTIONS,

 

as Lenders

 

and

 

BANK OF AMERICA, N.A.,

 

as Agent

 

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TABLE OF CONTENTS

 

 

 

 

Page

SECTION 1.

 

DEFINITIONS; RULES OF CONSTRUCTION

1

 

 

 

 

1.1.

Definitions

1

 

 

 

1.2.

Accounting Terms

20

 

 

 

1.3.

Uniform Commercial Code

20

 

 

 

1.4.

Certain Matters of Construction

20

 

 

 

 

SECTION 2.

 

CREDIT FACILITIES

21

 

 

 

 

2.1.

Revolver Commitment

21

 

 

 

2.2.

Letter of Credit Facility

22

 

 

 

 

SECTION 3.

 

INTEREST, FEES AND CHARGES

24

 

 

 

 

3.1.

Interest

24

 

 

 

3.2.

Fees

26

 

 

 

3.3.

Computation of Interest, Fees, Yield Protection

26

 

 

 

3.4.

Reimbursement Obligations

26

 

 

 

3.5.

Illegality

27

 

 

 

3.6.

Inability to Determine Rates

27

 

 

 

3.7.

Increased Costs; Capital Adequacy

27

 

 

 

3.8.

Mitigation

28

 

 

 

3.9.

Funding Losses

28

 

 

 

3.10.

Maximum Interest

29

 

 

 

SECTION 4.

 

LOAN ADMINISTRATION

29

 

 

 

 

4.1.

Manner of Borrowing and Funding Revolver Loans

29

 

 

 

4.2.

Defaulting Lender

31

 

 

 

4.3.

Number and Amount of LIBOR Loans; Determination of Rate

31

 

 

 

4.4.

Borrower Agent

31

 

 

 

4.5.

One Obligation

31

 

 

 

4.6.

Effect of Termination

31

 

 

 

 

SECTION 5.

 

PAYMENTS

32

 

 

 

 

5.1.

General Payment Provisions

32

 

 

 

5.2.

Repayment of Revolver Loans

32

 

 

 

5.3.

Payment of Other Obligations

32

 

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TABLE OF CONTENTS

 

(continued)

 

 

 

 

Page

 

 

 

 

5.4.

Marshaling; Payments Set Aside

32

 

 

 

5.5.

Post-Default Allocation of Payments

33

 

 

 

5.6.

Application of Payments

33

 

 

 

5.7.

Loan Account; Account Stated

34

 

 

 

5.8.

Taxes

34

 

 

 

5.9.

Foreign Lenders

34

 

 

 

5.10.

Nature and Extent of Each Borrower’s Liability

35

 

 

 

 

SECTION 6.

 

CONDITIONS PRECEDENT

37

 

 

 

 

6.1.

Conditions Precedent to Initial Loans

37

 

 

 

6.2.

Conditions Precedent to All Credit Extensions

39

 

 

 

6.3.

Limited Waiver of Conditions Precedent

39

 

 

 

 

SECTION 7.

 

COLLATERAL

40

 

 

 

 

7.1.

Grant of Security Interest

40

 

 

 

7.2.

Lien on Deposit Accounts; Cash Collateral

40

 

 

 

7.3.

Real Estate Collateral

41

 

 

 

7.4.

Other Collateral

41

 

 

 

7.5.

No Assumption of Liability

41

 

 

 

7.6.

Further Assurances

41

 

 

 

7.7.

Foreign Subsidiary Stock

42

 

 

 

SECTION 8.

 

COLLATERAL ADMINISTRATION

42

 

 

 

 

8.1.

Borrowing Base Certificates

42

 

 

 

8.2.

Administration of Accounts

42

 

 

 

8.3.

Administration of Inventory

43

 

 

 

8.4.

Administration of Equipment

44

 

 

 

8.5.

Administration of Deposit Accounts

44

 

 

 

8.6.

General Provisions

44

 

 

 

8.7.

Power of Attorney

45

 

 

 

 

SECTION 9.

 

REPRESENTATIONS AND WARRANTIES

46

 

 

 

 

9.1.

General Representations and Warranties

46

 

 

 

9.2.

Complete Disclosure

51

 

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TABLE OF CONTENTS

 

(continued)

 

 

 

 

Page

 

 

 

 

SECTION 10.

 

COVENANTS AND CONTINUING AGREEMENTS

51

 

 

 

 

10.1.

Affirmative Covenants

51

 

 

 

10.2.

Negative Covenants

54

 

 

 

10.3.

Financial Covenants

57

 

 

 

 

SECTION 11.

 

EVENTS OF DEFAULT; REMEDIES ON DEFAULT

57

 

 

 

 

11.1.

Events of Default

57

 

 

 

11.2.

Remedies upon Default

59

 

 

 

11.3.

License

59

 

 

 

11.4.

Setoff

59

 

 

 

11.5.

Remedies Cumulative; No Waiver

60

 

 

 

 

SECTION 12.

 

AGENT

60

 

 

 

 

12.1.

Appointment, Authority and Duties of Agent

60

 

 

 

12.2.

Agreements Regarding Collateral and Field Examination Reports

61

 

 

 

12.3.

Reliance By Agent

62

 

 

 

12.4.

Action Upon Default

62

 

 

 

12.5.

Ratable Sharing

62

 

 

 

12.6.

Indemnification of Agent Indemnitees

62

 

 

 

12.7.

Limitation on Responsibilities of Agent

63

 

 

 

12.8.

Successor Agent and Co-Agents

63

 

 

 

12.9.

Due Diligence and Non-Reliance

64

 

 

 

12.10.

Replacement of Certain Lenders

64

 

 

 

12.11.

Remittance of Payments and Collections

64

 

 

 

12.12.

Agent in its Individual Capacity

65

 

 

 

12.13.

Agent Titles

65

 

 

 

12.14.

No Third Party Beneficiaries

65

 

 

 

 

SECTION 13.

 

BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS

65

 

 

 

 

13.1.

Successors and Assigns

65

 

 

 

13.2.

Participations

65

 

 

 

13.3.

Assignments

66

 

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TABLE OF CONTENTS

 

(continued)

 

 

 

 

Page

 

 

 

 

SECTION 14.

 

MISCELLANEOUS

67

 

 

 

 

14.1.

Consents, Amendments and Waivers

67

 

 

 

14.2.

Indemnity

67

 

 

 

14.3.

Notices and Communications

68

 

 

 

14.4.

Performance of Borrowers’ Obligations

68

 

 

 

14.5.

Credit Inquiries

68

 

 

 

14.6.

Severability

69

 

 

 

14.7.

Cumulative Effect; Conflict of Terms

69

 

 

 

14.8.

Counterparts

69

 

 

 

14.9.

Entire Agreement

69

 

 

 

14.10.

Relationship with Lenders

69

 

 

 

14.11.

No Advisory or Fiduciary Responsibility

69

 

 

 

14.12.

Confidentiality

70

 

 

 

14.13.

GOVERNING LAW

70

 

 

 

14.14.

Consent to Forum

70

 

 

 

14.15.

Waivers by Borrowers

70

 

 

 

14.16.

Patriot Act Notice

71

 

 

 

14.17.

Syndication

71

 

ATTACHMENTS TO LOAN AND SECURITY AGREEMENT:

 

EXHIBIT A — FORM OF REVOLVER NOTE

 

EXHIBIT B — FORM OF ASSIGNMENT AND ACCEPTANCE

 

EXHIBIT C — FORM OF ASSIGNMENT NOTICE

 

SCHEDULE 1.1(A) — FOREIGN ACCOUNT DEBTORS

 

SCHEDULE 1.1(B) — REVOLVER COMMITMENTS OF LENDERS

 

SCHEDULE 8.5 — DEPOSIT ACCOUNTS

 

SCHEDULE 8.6.1 — BUSINESS LOCATIONS

 

SCHEDULE 9.1.4 — NAMES AND CAPITAL STRUCTURE

 

SCHEDULE 9.1.5 — FORMER NAMES AND COMPANIES

 

SCHEDULE 9.1.11 — BROKERS

 

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SCHEDULE 9.1.12 — PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES

 

SCHEDULE 9.1.15 — ENVIRONMENTAL MATTERS

 

SCHEDULE 9.1.16 — RESTRICTIVE AGREEMENTS

 

SCHEDULE 9.1.17 — LITIGATION

 

SCHEDULE 9.1.19 — PENSION PLAN DISCLOSURES

 

SCHEDULE 9.1.21 — LABOR CONTRACTS

 

SCHEDULE 10.2.1 — EXISTING DEBT

 

SCHEDULE 10.2.2 — EXISTING LIENS

 

SCHEDULE 10.2.16 — EXISTING AFFILIATE TRANSACTIONS

 

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LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT is dated as of November 10, 2009, among ARCTIC
CAT INC. (“Arctic Cat”) and the Subsidiaries of Arctic Cat identified on the
signature pages hereto, as borrowers (collectively, the “Borrowers”), the
financial institutions party to this Agreement from time to time as lenders
(collectively, “Lenders”), and BANK OF AMERICA, N.A., a national banking
association, as agent for the Lenders (“Agent”).

 

R E C I T A L S:

 

Borrowers have requested that Lenders provide a credit facility to Borrowers to
finance their mutual and collective business enterprise.  Lenders are willing to
provide the credit facility on the terms and conditions set forth in this
Agreement.

 

NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties
agree as follows:

 

SECTION 1.  DEFINITIONS; RULES OF CONSTRUCTION

 

1.1.         Definitions.  As used herein, the following terms have the meanings
set forth below:

 

Account: as defined in the UCC, including all rights to payment for goods sold
or leased, or for services rendered.

 

Account Debtor: a Person who is obligated under an Account, Chattel Paper or
General Intangible.

 

Accounts Formula Amount: 80% of the Value of Eligible Accounts.

 

Affiliate: with respect to any Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified.  “Control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise.  “Controlling” and
“Controlled” have correlative meanings.

 

Agent Indemnitees: Agent and its officers, directors, employees, Affiliates,
agents and attorneys.

 

Agent Professionals: attorneys, accountants, appraisers, auditors, business
valuation experts, environmental engineers or consultants, turnaround
consultants, and other professionals and experts retained by Agent.

 

Allocable Amount: as defined in Section 5.10.3.

 

Anti-Terrorism Laws: any laws relating to terrorism or money laundering,
including the Patriot Act.

 

Applicable Law: all laws, rules, regulations and governmental guidelines
applicable to the Person, conduct, transaction, agreement or matter in question,
including all applicable statutory law, common law and equitable principles, and
all provisions of constitutions, treaties, statutes, rules, regulations, orders
and decrees of Governmental Authorities.

 

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Applicable Margin: with respect to any Type of Revolver Loan, the margin set
forth below, as determined by the Fixed Charge Coverage Ratio as of the last day
of the immediately preceding Fiscal Quarter measured on a trailing twelve-month
basis:

 

Level

 

Ratio

 

Base Rate Loans

 

LIBOR
Revolver Loans

 

I

 

> 3.00:1.00

 

1.75

%

3.25

%

II

 

> 1.50:1.00 and < 3.00:1.00

 

2.00

%

3.50

%

III

 

< 1.50:1.00

 

2.25

%

3.75

%

 

Until the first day of the calendar month immediately following Agent’s receipt
of audited financial statements for the fiscal year ending March 31, 2010 (as
required pursuant to Section 10.1.2), margins shall be determined as if Level II
were applicable.  Thereafter, the margins shall be subject to increase or
decrease upon receipt by Agent pursuant to Section 10.1.2 of the financial
statements and corresponding Compliance Certificate for the last Fiscal Quarter,
which change shall be effective on the first day of the calendar month following
receipt.  If, by the first day of a month, any financial statements and
Compliance Certificate due in the preceding month have not been received, then,
at the option of Agent, the margins shall be determined as if Level III were
applicable, from such day until the first day of the calendar month following
actual receipt.

 

Approved Fund: any Person (other than a natural person) that is engaged in
making, purchasing, holding or otherwise investing in commercial loans and
similar extensions of credit in its ordinary course of activities, and is
administered or managed by a Lender, an entity that administers or manages a
Lender, or an Affiliate of either.

 

Asset Disposition: a sale, lease, license, consignment, transfer or other
disposition of Property of an Obligor, including a disposition of Property in
connection with a sale-leaseback transaction or synthetic lease.

 

Assignment and Acceptance: an assignment agreement between a Lender and Eligible
Assignee, in the form of Exhibit B.

 

Availability: the Borrowing Base minus the principal balance of all Revolver
Loans.

 

Availability Reserve: the sum (without duplication) of (a) the Inventory
Reserve; (b) the Rent and Charges Reserve; (c) the LC Reserve; (d) the Bank
Product Reserve; (e) the aggregate amount of liabilities secured by Liens upon
Collateral that are senior to Agent’s Liens (but imposition of any such reserve
shall not waive an Event of Default arising therefrom); and (f) such additional
reserves, in such amounts and with respect to such matters, as Agent in its
reasonable discretion may elect to impose from time to time (including reserves
relating to any negative mark-to-market arising out of or relating to any
Hedging Agreements).

 

Bank of America: Bank of America, N.A., a national banking association, and its
successors and assigns.

 

Bank of America Indemnitees: Bank of America and its officers, directors,
employees, Affiliates, agents and attorneys.

 

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Bank Product: any of the following products, services or facilities extended to
any Borrower or Subsidiary by any Lender or any of its Affiliates: (a) Cash
Management Services; (b) products under Hedging Agreements; (c) commercial
credit card and merchant card services; and (d) other banking products or
services as may be requested by any Borrower or Subsidiary, other than Letters
of Credit; provided, however, that for any of the foregoing to be included as an
“Obligation” for purposes of a distribution under Section 5.5.1, the applicable
Secured Party and Obligor must have previously provided written notice to Agent
of (i) the existence of such Bank Product, (ii) the maximum dollar amount of
obligations arising thereunder to be included as a Bank Product Reserve (“Bank
Product Amount”), and (iii) the methodology to be used by such parties in
determining the Bank Product Debt owing from time to time.  The Bank Product
Amount may be changed from time to time upon written notice to Agent by the
Secured Party and Obligor.

 

Bank Product Amount: as defined in the definition of Bank Product.

 

Bank Product Debt: Debt and other obligations of an Obligor relating to Bank
Products.

 

Bank Product Reserve: the aggregate amount of reserves established by Agent from
time to time in its discretion in respect of Bank Product Debt.

 

Bankruptcy Code: Title 11 of the United States Code.

 

Base Rate: for any day, a per annum rate equal to the greatest of (a) the Prime
Rate for such day; (b) the Federal Funds Rate for such day, plus 0.50%; or (c)
LIBOR for a 30 day interest period as determined on such day, plus 1.0%.

 

Base Rate Loan: any Revolver Loan that bears interest based on the Base Rate.

 

Board of Governors: the Board of Governors of the Federal Reserve System.

 

Borrowed Money: with respect to any Obligor, without duplication, its (a) Debt
that (i) arises from the lending of money by any Person to such Obligor, (ii) is
evidenced by notes, drafts, bonds, debentures, credit documents or similar
instruments, (iii) accrues interest or is a type upon which interest charges are
customarily paid (excluding trade payables owing in the Ordinary Course of
Business), or (iv) was issued or assumed as full or partial payment for
Property; (b) Capital Leases; (c) reimbursement obligations with respect to
letters of credit; and (d) guaranties of any Debt of the foregoing types owing
by another Person.

 

Borrower Agent: as defined in Section 4.4.

 

Borrowing: a group of Revolver Loans of one Type that are made on the same day
or are converted into Revolver Loans of one Type on the same day.

 

Borrowing Base: on any date of determination, an amount equal to the lesser of
(a) (i) for the months of June through November of each calendar year, the
aggregate amount of Revolver Commitments, minus the LC Reserve or (ii) for the
months of January, February, March, April, May, and December of each calendar
year, $35,000,000 minus the LC Reserve; or (b) the sum of the Accounts Formula
Amount, plus the Inventory Formula Amount, minus the Availability Reserve.

 

Borrowing Base Certificate: a certificate, in form and substance satisfactory to
Agent, by which Borrowers certify calculation of the Borrowing Base.

 

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Business Day: any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the laws of, or are in fact
closed in, North Carolina and Chicago, Illinois, and if such day relates to a
LIBOR Loan, any such day on which dealings in Dollar deposits are conducted
between banks in the London interbank Eurodollar market.

 

Capital Expenditures: all liabilities incurred, expenditures made or payments
due (whether or not made) by a Borrower or Subsidiary for the acquisition of any
fixed assets or tooling, or any improvements, replacements, substitutions or
additions thereto with a useful life of more than one year, including the
principal portion of Capital Leases.

 

Capital Lease: any lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

 

Cash Collateral: cash, and any interest or other income earned thereon, that is
delivered to Agent to Cash Collateralize any Obligations.

 

Cash Collateral Account: a demand deposit, money market or other account
established by Agent at such financial institution as Agent may select in its
discretion, which account shall be subject to Agent’s Liens for the benefit of
Secured Parties.

 

Cash Collateralize: the delivery of cash to Agent, as security for the payment
of Obligations, in an amount equal to (a) with respect to LC Obligations, 105%
of the aggregate LC Obligations, and (b) with respect to any inchoate,
contingent or other Obligations (including Obligations arising under Bank
Products), Agent’s good faith estimate of the amount due or to become due,
including all fees and other amounts relating to such Obligations.  “Cash
Collateralization” has a correlative meaning.

 

Cash Equivalents: (a) marketable obligations issued or unconditionally
guaranteed by, and backed by the full faith and credit of, the United States
government, maturing within 12 months of the date of acquisition; (b)
certificates of deposit, time deposits and bankers’ acceptances maturing within
12 months of the date of acquisition, and overnight bank deposits, in each case
which are issued by a commercial bank organized under the laws of the United
States or any state or district thereof, rated A-1 (or better) by S&P or P-1 (or
better) by Moody’s at the time of acquisition, and (unless issued by a Lender)
not subject to offset rights; (c) repurchase obligations with a term of not more
than 30 days for underlying investments of the types described in clauses (a)
and (b) entered into with any bank meeting the qualifications specified in
clause (b); (d) commercial paper rated A-1 (or better) by S&P or P-1 (or better)
by Moody’s, and maturing within nine months of the date of acquisition; and (e)
shares of any money market fund that has substantially all of its assets
invested continuously in the types of investments referred to above, has net
assets of at least $500,000,000 and has the highest rating obtainable from
either Moody’s or S&P.

 

Cash Management Services: any services provided from time to time by Bank of
America or any of its Affiliates to any Borrower or Subsidiary in connection
with operating, collections, payroll, trust, or other depository or disbursement
accounts, including automated clearinghouse, e-payable, electronic funds
transfer, wire transfer, controlled disbursement, overdraft, depository,
information reporting, lockbox and stop payment services.

 

CERCLA: the Comprehensive Environmental Response Compensation and Liability Act
(42 U.S.C. § 9601 et seq.).

 

Change in Law: the occurrence, after the date hereof, of (a) the adoption or
taking effect of any law, rule, regulation or treaty; (b) any change in any law,
rule, regulation or treaty or in the

 

--------------------------------------------------------------------------------

 

administration, interpretation or application thereof by any Governmental
Authority; or (c) the making or issuance of any request, guideline or directive
(whether or not having the force of law) by any Governmental Authority.

 

Change of Control: (a) any Person or group (within the meaning of the Securities
Exchange Act of 1934, as amended) shall own and control, beneficially and of
record, at least 40% of the Equity Interests of Arctic Cat; (b) Arctic Cat
ceases to own and control, beneficially and of record, directly or indirectly,
all of the Equity Interests in each other Borrower; (c) a change in the majority
of directors of Arctic Cat, unless approved by the then majority of directors;
or (d) all or substantially all of a Borrower’s assets are sold or transferred,
other than sale or transfer to another Borrower.

 

Claims: all liabilities, obligations, losses, damages, penalties, judgments,
proceedings, interest, costs and expenses of any kind (including remedial
response costs, reasonable attorneys’ fees and Extraordinary Expenses) at any
time (including after Full Payment of the Obligations, resignation or
replacement of Agent, or replacement of any Lender) incurred by or asserted
against any Indemnitee in any way relating to (a) any Revolver Loans, Letters of
Credit, Loan Documents, or the use thereof or transactions relating thereto, (b)
any action taken or omitted to be taken by any Indemnitee in connection with any
Loan Documents, (c) the existence or perfection of any Liens, or realization
upon any Collateral, (d) exercise of any rights or remedies under any Loan
Documents or Applicable Law, or (e) failure by any Obligor to perform or observe
any terms of any Loan Document, in each case including all costs and expenses
relating to any investigation, litigation, arbitration or other proceeding
(including an Insolvency Proceeding or appellate proceedings), whether or not
the applicable Indemnitee is a party thereto.

 

Clean Down Payment: as defined in Section 5.2.2.

 

Closing Date: as defined in Section 6.1.

 

Code: the Internal Revenue Code of 1986.

 

Collateral: all Property described in Section 7.1, all Property described in any
Security Documents as security for any Obligations, and all other Property that
now or hereafter secures (or is intended to secure) any Obligations.

 

Commitment Termination Date: the earliest to occur of (a) the Termination Date;
(b) the date on which Borrowers terminate the Revolver Commitments pursuant to
Section 2.1.4; or (c) the date on which the Revolver Commitments are terminated
pursuant to Section 11.2.

 

Compliance Certificate: a certificate, in form and substance satisfactory to
Agent, by which Borrowers certify compliance with Sections 10.2.3 and 10.3 and
calculate the applicable Level for the Applicable Margin.

 

Contingent Obligation: any obligation of a Person arising from a guaranty,
indemnity or other assurance of payment or performance of any Debt, lease,
dividend or other obligation (“primary obligations”) of another obligor
(“primary obligor”) in any manner, whether directly or indirectly, including any
obligation of such Person under any (a) guaranty, endorsement, co-making or sale
with recourse of an obligation of a primary obligor; (b) obligation to make
take-or-pay or similar payments regardless of nonperformance by any other party
to an agreement; and (c) arrangement (i) to purchase any primary obligation or
security therefor, (ii) to supply funds for the purchase or payment of any
primary obligation, (iii) to maintain or assure working capital, equity capital,
net worth or solvency of the primary obligor, (iv) to purchase Property or
services for the purpose of assuring the ability of the primary obligor to
perform a primary obligation, or (v) otherwise to assure or hold harmless the
holder of any primary

 

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obligation against loss in respect thereof.  The amount of any Contingent
Obligation shall be deemed to be the stated or determinable amount of the
primary obligation (or, if less, the maximum amount for which such Person may be
liable under the instrument evidencing the Contingent Obligation) or, if not
stated or determinable, the maximum reasonably anticipated liability with
respect thereto.

 

CWA: the Clean Water Act (33 U.S.C. §§ 1251 et seq.).

 

Dealer Finance Agreements: (i) the Program Agreement dated January 20, 2003,
between Arctic Cat Sales Inc. and Textron Financial Corporation, (ii) the
Program Agreement dated May 1, 2007, between Arctic Cat Sales Inc. and Textron
Financial Canada Limited, and (iii) the Vendor Agreement dated as of October 14,
2009, among Arctic Cat, Arctic Cat Sales Inc. and GE Commercial Distribution
Finance Corporation, together with any amendments, restatements or replacements
of the foregoing, provided, however, that no such amendment to, restatement of,
or replacement of such agreements shall be entered into without the prior
written consent of the Required Lenders if such amendment, restatement, or
refinancing would change the nature of the obligations of any Borrower or any
Subsidiary thereunder in a manner adverse to such Borrower or Subsidiary.

 

Dealer Floorplan Finance Receivables: amounts owing to any Borrower under all
Dealer Finance Agreements.

 

Dealer Contras: means the amount that any Borrower or any Subsidiary may be
obligated to pay to its dealers on account of sales incentives in accordance
with its dealer sales incentive program, including but not limited to any
accounts payable of the Borrowers, dealer deposits, co-op advertising, special
discount programs, marketing programs, and other similar items treated as dealer
contras in accordance with GAAP.

 

Debt: as applied to any Person, without duplication, (a) all items that would be
included as liabilities on a balance sheet in accordance with GAAP, including
Capital Leases, but excluding trade payables incurred and being paid in the
Ordinary Course of Business; (b) all Contingent Obligations; (c) all
reimbursement obligations in connection with letters of credit issued for the
account of such Person; and (d) in the case of a Borrower, the Obligations.  The
Debt of a Person shall include any recourse Debt of any partnership in which
such Person is a general partner or joint venturer.

 

Default: an event or condition that, with the lapse of time or giving of notice,
would constitute an Event of Default.

 

Default Rate: for any Obligation (including, to the extent permitted by law,
interest not paid when due), 2% plus the interest rate otherwise applicable
thereto.

 

Defaulting Lender:  any Lender that (a) fails to make any payment or provide
funds to Agent or any Borrower as required hereunder or fails otherwise to
perform its obligations under any Loan Document, and such failure is not cured
within one Business Day, or (b) is the subject of any Insolvency Proceeding.

 

Deposit Account Control Agreements: the Deposit Account control agreements to be
executed by each institution maintaining a Deposit Account for a Borrower, in
favor of Agent, for the benefit of Secured Parties, as security for the
Obligations.

 

Distribution: any declaration or payment of a distribution, interest or dividend
on any Equity Interest (other than payment-in-kind); any distribution, advance
or repayment of Debt to a holder of

 

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Equity Interests; or any purchase, redemption, or other acquisition or
retirement for value of any Equity Interest.

 

Dollars: lawful money of the United States.

 

Dominion Account: a special account established by Borrowers at Bank of America
or another bank acceptable to Agent, over which Agent has exclusive control for
withdrawal purposes.

 

EBITDA: determined on a consolidated basis for Borrowers and Subsidiaries, net
income, calculated before interest expense, provision for income taxes,
depreciation and amortization expense, gains or losses arising from the sale of
capital assets, gains arising from the write-up of assets, non-cash stock
options, and any extraordinary gains (in each case, to the extent included in
determining net income).

 

Eligible Account: an Account owing to a Borrower that arises in the Ordinary
Course of Business from the sale of goods or rendition of services and is
payable in Dollars, net of (without duplication) any applied or unapplied
credits or other allowance (with any such unapplied credits or other allowances
being applied to the most current accounts receivable owed to such Borrower) and
any Dealer Contras, in each case meeting the following requirements: (a) it is a
foreign Account owing from one of the Account Debtors listed on Schedule 1.1(A)
and backed by a letter of credit for the benefit of a Borrower and acceptable to
Agent in its sole discretion; (b) it conforms with all covenants and
representations herein; (c) no Insolvency Proceeding has been commenced by or
against the Account Debtor; and the Account Debtor has not failed, has not
suspended or ceased doing business, is not liquidating, dissolving or winding up
its affairs; (d) it is subject to a duly perfected, first priority Lien in favor
of Agent, and is not subject to any other Lien; (e) the goods giving rise to it
have been delivered to and accepted by the Account Debtor, the services giving
rise to it have been accepted by the Account Debtor, or it otherwise represents
a final sale; (f) it is not evidenced by Chattel Paper or an Instrument of any
kind, and has not been reduced to judgment; and (g) it is otherwise deemed by
Agent, in its reasonable discretion, to be an Eligible Account.

 

Eligible Assignee: a Person that is (a) a Lender, U.S.-based Affiliate of a
Lender or Approved Fund; (b) any other financial institution approved by Agent
and Borrower Agent (which approval by Borrower Agent shall not be unreasonably
withheld or delayed, and shall be deemed given if no objection is made within
two Business Days after notice of the proposed assignment), that is organized
under the laws of the United States or any state or district thereof, has total
assets in excess of $5 billion, extends asset-based lending facilities in its
ordinary course of business and whose becoming an assignee would not constitute
a prohibited transaction under Section 4975 of the Code or any other Applicable
Law; and (c) during any Event of Default, any Person acceptable to Agent in its
discretion.

 

Eligible Inventory: Inventory owned by a Borrower that meets the following
requirements: it (a) is finished goods or raw materials, and not
work-in-process, packaging or shipping materials, decals, personal watercraft
parts, labels, samples, prototype inventory, display items, bags, or
manufacturing supplies; (b) is not held on consignment, nor subject to any
deposit or downpayment; (c) is in new or saleable condition and is not damaged,
defective, or otherwise unfit for sale; (d) is not obsolete or unmerchantable;
(e) meets all standards imposed by any Governmental Authority, and does not
constitute hazardous materials under any Environmental Law; (f) conforms with
the covenants and representations herein; (g) is subject to Agent’s duly
perfected, first priority Lien, and no other Lien; (h) is within the continental
United States or Canada, is not in transit except between locations of
Borrowers, and is not consigned to any Person; (i) is not subject to any
warehouse receipt or negotiable Document; (j) is not subject to any License or
other arrangement that restricts such Borrower’s or Agent’s right to dispose of
such Inventory, unless Agent has received an appropriate Lien Waiver; (k) is not
located on leased

 

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premises or in the possession of a warehouseman, processor, repairman, mechanic,
shipper, freight forwarder or other Person, unless the lessor or such Person has
delivered a Lien Waiver or an appropriate Rent and Charges Reserve has been
established; (l) is reflected in the details of a current perpetual inventory
report; and (m) is otherwise deemed by Agent, in its reasonable discretion, to
be Eligible Inventory.

 

Enforcement Action: any action to enforce any Obligations or Loan Documents or
to realize upon any Collateral (whether by judicial action, self-help,
notification of Account Debtors, exercise of setoff or recoupment, or
otherwise).

 

Environmental Laws: all Applicable Laws (including all programs, permits and
guidance promulgated by regulatory agencies), relating to public health (but
excluding occupational safety and health, to the extent regulated by OSHA) or
the protection or pollution of the environment, including CERCLA, RCRA and CWA.

 

Environmental Notice: a notice (whether written or oral) from any Governmental
Authority or other Person of any possible noncompliance with, investigation of a
possible violation of, litigation relating to, or potential fine or liability
under any Environmental Law, or with respect to any Environmental Release,
environmental pollution or hazardous materials, including any complaint,
summons, citation, order, claim, demand or request for correction, remediation
or otherwise.

 

Environmental Release: a release as defined in CERCLA or under any other
Environmental Law.

 

Equity Interest: the interest of any (a) shareholder in a corporation; (b)
partner in a partnership (whether general, limited, limited liability or joint
venture); (c) member in a limited liability company; or (d) other Person having
any other form of equity security or ownership interest.

 

ERISA: the Employee Retirement Income Security Act of 1974.

 

ERISA Affiliate: any trade or business (whether or not incorporated) under
common control with an Obligor within the meaning of Section 414(b) or (c) of
the Code (and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).

 

ERISA Event: (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by any Obligor or ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by any Obligor or ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate, the treatment of a Plan amendment as a
termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e)
the failure by any Obligor or ERISA Affiliate to meet any funding obligations
with respect to any Pension Plan or Multiemployer Plan; (f) an event or
condition which constitutes grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan
or Multiemployer Plan; or (g) the imposition of any liability under Title IV of
ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon any Obligor or ERISA Affiliate.

 

Event of Default: as defined in Section 11.

 

Excluded Tax: with respect to Agent, any Lender, Issuing Bank or any other
recipient of a payment to be made by or on account of any Obligation, (a) taxes
imposed on or measured by its overall

 

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net income (however denominated), and franchise taxes imposed on it (in lieu of
net income taxes), by the jurisdiction (or any political subdivision thereof)
under the laws of which such recipient is organized or in which its principal
office is located or, in the case of any Lender, in which its applicable Lending
Office is located; and (b) in the case of a Foreign Lender, any withholding tax
attributable to such Foreign Lender’s failure or inability (other than as a
result of a Change in Law) to comply with Section 5.9, except to the extent that
such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new Lending Office (or assignment), to receive additional
amounts from the Borrower with respect to such withholding tax.

 

Extraordinary Expenses: all costs, expenses or advances that Agent may incur
during a Default or Event of Default, or during the pendency of an Insolvency
Proceeding of an Obligor, including those relating to (a) any audit, inspection,
repossession, storage, repair, appraisal, insurance, manufacture, preparation or
advertising for sale, sale, collection, or other preservation of or realization
upon any Collateral; (b) any action, arbitration or other proceeding (whether
instituted by or against Agent, any Lender, any Obligor, any representative of
creditors of an Obligor or any other Person) in any way relating to any
Collateral (including the validity, perfection, priority or avoidability of
Agent’s Liens with respect to any Collateral), Loan Documents, Letters of Credit
or Obligations, including any lender liability or other Claims; (c) the
exercise, protection or enforcement of any rights or remedies of Agent in, or
the monitoring of, any Insolvency Proceeding; (d) settlement or satisfaction of
any taxes, charges or Liens with respect to any Collateral; (e) any Enforcement
Action; (f) negotiation and documentation of any modification, waiver, workout,
restructuring or forbearance with respect to any Loan Documents or Obligations;
and (g) Protective Advances.  Such costs, expenses and advances include transfer
fees, Other Taxes, storage fees, insurance costs, permit fees, utility
reservation and standby fees, legal fees, appraisal fees, brokers’ fees and
commissions, auctioneers’ fees and commissions, accountants’ fees, environmental
study fees, wages and salaries paid to employees of any Obligor or independent
contractors in liquidating any Collateral, and travel expenses.

 

Federal Funds Rate: (a) the weighted average of interest rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers on the applicable Business Day (or on the preceding
Business Day, if the applicable day is not a Business Day), as published by the
Federal Reserve Bank of New York on the next Business Day; or (b) if no such
rate is published on the next Business Day, the average rate (rounded up, if
necessary, to the nearest 1/8 of 1%) charged to Bank of America on the
applicable day on such transactions, as determined by Agent.

 

Fee Letter: the fee letter agreement between Agent and Borrowers dated as of
October 19, 2009.

 

Fiscal Quarter: each period of three months comprising a Fiscal Year, with the
first Fiscal Quarter of any Fiscal Year commencing on the first day of such
Fiscal Year.

 

Fiscal Year: the fiscal year of Borrowers and Subsidiaries for accounting and
tax purposes, ending on March 31 of each year.

 

Fixed Charge Coverage Ratio: the ratio, determined on a consolidated basis for
Borrowers and Subsidiaries for any period, of (a) EBITDA minus Capital
Expenditures (except those financed with Borrowed Money other than Revolver
Loans), cash taxes paid, and stock repurchases and Distributions made in cash to
(b) Fixed Charges.

 

Fixed Charges: the sum of interest expense (other than payment-in-kind) and
principal payments made on Borrowed Money (other than Revolver Loans).

 

FLSA: the Fair Labor Standards Act of 1938.

 

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Foreign Lender: any Lender that is organized under the laws of a jurisdiction
other than the laws of the United States, or any state or district thereof.

 

Foreign Plan: any employee benefit plan or arrangement (a) maintained or
contributed to by any Obligor or Subsidiary that is not subject to the laws of
the United States; or (b) mandated by a government other than the United States
for employees of any Obligor or Subsidiary.

 

Foreign Subsidiary: a Subsidiary that is a “controlled foreign corporation”
under Section 957 of the Code, such that a guaranty by such Subsidiary of the
Obligations or a Lien on the assets of such Subsidiary to secure the Obligations
would result in material tax liability to Borrowers.

 

Full Payment: with respect to any Obligations, (a) the full and indefeasible
cash payment thereof, including any interest, fees and other charges accruing
during an Insolvency Proceeding (whether or not allowed in the proceeding); (b)
if such Obligations are LC Obligations or inchoate or contingent in nature, Cash
Collateralization thereof (or delivery of a standby letter of credit acceptable
to Agent in its discretion, in the amount of required Cash Collateral); and (c)
a release of any Claims of Obligors against Agent, Lenders and Issuing Bank
arising on or before the payment date.  No Revolver Loans shall be deemed to
have been paid in full until all Revolver Commitments related to such Revolver
Loans have expired or been terminated.

 

GAAP: generally accepted accounting principles in effect in the United States
from time to time.

 

Governmental Approvals: all authorizations, consents, approvals, licenses and
exemptions of, registrations and filings with, and required reports to, all
Governmental Authorities.

 

Governmental Authority: any federal, state, municipal, foreign or other
governmental department, agency, commission, board, bureau, court, tribunal,
instrumentality, political subdivision, or other entity or officer exercising
executive, legislative, judicial, regulatory or administrative functions for or
pertaining to any government or court, in each case whether associated with the
United States, a state, district or territory thereof, or a foreign entity or
government.

 

Guarantor Payment: as defined in Section 5.10.3.

 

Guarantors: each Person who guarantees payment or performance of any
Obligations.

 

Guaranty: each guaranty agreement executed by a Guarantor in favor of Agent.

 

Hedging Agreement: an agreement relating to any swap, cap, floor, collar,
option, forward, cross right or obligation, or combination thereof or similar
transaction, with respect to interest rate, foreign exchange, currency,
commodity, credit or equity risk.

 

Indemnified Taxes: Taxes other than Excluded Taxes.

 

Indemnitees: Agent Indemnitees, Lender Indemnitees, Issuing Bank Indemnitees and
Bank of America Indemnitees.

 

Insolvency Proceeding: any case or proceeding commenced by or against a Person
under any state, federal or foreign law for, or any agreement of such Person to,
(a) the entry of an order for relief under the Bankruptcy Code, or any other
insolvency, debtor relief or debt adjustment law; (b) the appointment of a
receiver, trustee, liquidator, administrator, conservator or other custodian for
such Person or any part of its Property; or (c) an assignment or trust mortgage
for the benefit of creditors.

 

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Insurance Assignment: each collateral assignment of insurance pursuant to which
an Obligor assigns to Agent, for the benefit of Secured Parties, such Obligor’s
rights under key-man life, business interruption or other insurance policies as
Agent deems appropriate, as security for the Obligations.

 

Intellectual Property: all intellectual and similar Property of a Person,
including inventions, designs, patents, copyrights, trademarks, service marks,
trade names, trade secrets, confidential or proprietary information, customer
lists, know-how, software and databases; all embodiments or fixations thereof
and all related documentation, applications, registrations and franchises; all
licenses or other rights to use any of the foregoing; and all books and records
relating to the foregoing.

 

Intellectual Property Claim: any claim or assertion (whether in writing, by suit
or otherwise) that a Borrower’s or Subsidiary’s ownership, use, marketing, sale
or distribution of any Inventory, Equipment, Intellectual Property or other
Property violates another Person’s Intellectual Property.

 

Interest Period: as defined in Section 3.1.3.

 

Inventory: as defined in the UCC, including all goods intended for sale, lease,
display or demonstration; all work in process; and all raw materials, and other
materials and supplies of any kind that are or could be used in connection with
the manufacture, printing, packing, shipping, advertising, sale, lease or
furnishing of such goods, or otherwise used or consumed in a Borrower’s business
(but excluding Equipment).

 

Inventory Formula Amount: the lesser of (a) 65% of the Value of Eligible
Inventory; or (b) 85% of the NOLV Percentage of the Value of Eligible Inventory,
provided, however, that from June 1 through November 30 of each calendar year,
Eligible Inventory consisting of finished snowmobiles will be limited to the
lesser of (i) 75% of the Value of Eligible Inventory consisting of finished
snowmobiles or (b) 85% of the NOLV Percentage of the Value of Eligible Inventory
consisting of finished snowmobiles.

 

Inventory Reserve: reserves established by Agent to reflect factors that may
negatively impact the Value of Inventory, including change in salability,
obsolescence, seasonality, theft, shrinkage, imbalance, change in composition or
mix, markdowns and vendor chargebacks.

 

Investment: any acquisition of all or substantially all assets of a Person; any
acquisition of record or beneficial ownership of any Equity Interests of a
Person; or any advance or capital contribution to or other investment in a
Person.

 

IRS: the United States Internal Revenue Service.

 

Issuing Bank: Bank of America or an Affiliate of Bank of America.

 

Issuing Bank Indemnitees: Issuing Bank and its officers, directors, employees,
Affiliates, agents and attorneys.

 

LC Application: an application by Borrower Agent to Issuing Bank for issuance of
a Letter of Credit, in form and substance satisfactory to Issuing Bank.

 

LC Conditions: the following conditions necessary for issuance of a Letter of
Credit: (a) each of the conditions set forth in Section 6; (b) after giving
effect to such issuance, total LC Obligations do not exceed the Letter of Credit
Subline and no Overadvance exists and, if no Revolver Loans are outstanding, the
Borrowing Base is greater than or equal to zero; (c) the expiration date of such
Letter of Credit is (i) no more than 365 days from issuance, in the case of
standby Letters of Credit, (ii) no more than 120 days

 

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from issuance, in the case of documentary Letters of Credit, and (iii) at least
20 Business Days prior to the Termination Date; (d) the Letter of Credit and
payments thereunder are denominated in Dollars; and (e) the purpose and form of
the proposed Letter of Credit is satisfactory to Agent and Issuing Bank in their
discretion.

 

LC Documents: all documents, instruments and agreements (including LC Requests
and LC Applications) delivered by Borrowers or any other Person to Issuing Bank
or Agent in connection with issuance, amendment or renewal of, or payment under,
any Letter of Credit.

 

LC Obligations: the sum (without duplication) of (a) all amounts owing by
Borrowers for any drawings under Letters of Credit; (b) the stated amount of all
outstanding Letters of Credit; and (c) all fees and other amounts owing with
respect to Letters of Credit.

 

LC Request: a request for issuance of a Letter of Credit, to be provided by
Borrower Agent to Issuing Bank, in form satisfactory to Agent and Issuing Bank.

 

LC Reserve: the aggregate of all LC Obligations, other than (a) those that have
been Cash Collateralized; and (b) if no Default or Event of Default exists,
those constituting charges owing to the Issuing Bank.

 

Lender Indemnitees: Lenders and their officers, directors, employees,
Affiliates, agents and attorneys.

 

Lenders: as defined in the preamble to this Agreement, including Agent in its
capacity as a provider of Swingline Loans and any other Person who hereafter
becomes a “Lender” pursuant to an Assignment and Acceptance.

 

Lending Office: the office designated as such by the applicable Lender at the
time it becomes party to this Agreement or thereafter by notice to Agent and
Borrower Agent.

 

Letter of Credit: any standby or documentary letter of credit issued by Issuing
Bank for the account of a Borrower, or any indemnity, guarantee, exposure
transmittal memorandum or similar form of credit support issued by Agent or
Issuing Bank for the benefit of a Borrower.

 

Letter of Credit Subline: $30,000,000.00.

 

LIBOR: for any Interest Period with respect to a LIBOR Loan, the per annum rate
of interest (rounded upward, if necessary, to the nearest 1/8th of 1%),
determined by Agent at approximately 11:00 a.m. (London time) two Business Days
prior to commencement of such Interest Period, for a term comparable to such
Interest Period, equal to (a) the British Bankers Association LIBOR Rate (“BBA
LIBOR”), as published by Reuters (or other commercially available source
designated by Agent); or (b) if BBA LIBOR is not available for any reason, the
interest rate at which Dollar deposits in the approximate amount of the LIBOR
Loan would be offered by Bank of America’s London branch to major banks in the
London interbank Eurodollar market.  If the Board of Governors imposes a Reserve
Percentage with respect to LIBOR deposits, then LIBOR shall be the foregoing
rate, divided by 1 minus the Reserve Percentage.

 

LIBOR Loan: any Revolver Loan that bears interest based on the LIBOR Rate.

 

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License: any license or agreement under which an Obligor is authorized to use
Intellectual Property in connection with any manufacture, marketing,
distribution or disposition of Collateral, any use of Property or any other
conduct of its business.

 

Licensor: any Person from whom an Obligor obtains the right to use any
Intellectual Property.

 

Lien: any Person’s interest in Property securing an obligation owed to, or a
claim by, such Person, whether such interest is based on common law, statute or
contract, including liens, security interests, pledges, hypothecations,
statutory trusts, reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Property.

 

Lien Waiver: an agreement, in form and substance satisfactory to Agent, by which
(a) for any material Collateral located on leased premises, the lessor waives or
subordinates any Lien it may have on the Collateral, and agrees to permit Agent
to enter upon the premises and remove the Collateral or to use the premises to
store or dispose of the Collateral; (b) for any Collateral held by a
warehouseman, processor, shipper, customs broker or freight forwarder, such
Person waives or subordinates any Lien it may have on the Collateral, agrees to
hold any Documents in its possession relating to the Collateral as agent for
Agent, and agrees to deliver the Collateral to Agent upon request; (c) for any
Collateral held by a repairman, mechanic or bailee, such Person acknowledges
Agent’s Lien, waives or subordinates any Lien it may have on the Collateral, and
agrees to deliver the Collateral to Agent upon request; and (d) for any
Collateral subject to a Licensor’s Intellectual Property rights, the Licensor
grants to Agent the right, vis-à-vis such Licensor, to enforce Agent’s Liens
with respect to the Collateral, including the right to dispose of it with the
benefit of the Intellectual Property, whether or not a default exists under any
applicable License.

 

Loan: a Revolver Loan.

 

Loan Account: the loan account established by each Lender on its books pursuant
to Section 5.7.

 

Loan Documents: this Agreement, Other Agreements and Security Documents.

 

Loan Year: each 12 month period commencing on the Closing Date and on each
anniversary of the Closing Date.

 

Margin Stock: as defined in Regulation U of the Board of Governors.

 

Material Adverse Effect: the effect of any event or circumstance that, taken
alone or in conjunction with other events or circumstances, (a) has or could be
reasonably expected to have a material adverse effect on the assets, business,
liabilities, operations, Properties, prospects or condition (financial or
otherwise) of Arctic Cat individually, of Arctic Cat Sales Inc. individually, or
of all Obligors taken as a whole, on the value of any material Collateral, on
the enforceability of any Loan Documents, or on the validity or priority of
Agent’s Liens on any Collateral; (b) impairs the ability of any Obligor to
perform any obligations under the Loan Documents, including repayment of any
Obligations; or (c) otherwise impairs the ability of Agent or any Lender to
enforce or collect any Obligations or to realize upon any Collateral.

 

Material Contract: any agreement or arrangement to which a Borrower or
Subsidiary is party (other than the Loan Documents) (a) that is deemed to be a
material contract under any securities law applicable to such Obligor, including
the Securities Act of 1933; (b) for which breach, termination,

 

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nonperformance or failure to renew could reasonably be expected to have a
Material Adverse Effect; or (c) that relates to Subordinated Debt, or Debt in an
aggregate amount of $5,000,000 or more.

 

Moody’s: Moody’s Investors Service, Inc., and its successors.

 

Mortgage: each mortgage, deed of trust or deed to secure debt pursuant to which
a Borrower grants to Agent, for the benefit of Secured Parties, Liens upon the
Real Estate owned by such Borrower, as security for the Obligations.

 

Multiemployer Plan: any employee benefit plan of the type described in Section
4001(a)(3) of ERISA, to which any Obligor or ERISA Affiliate makes or is
obligated to make contributions, or during the preceding five plan years, has
made or been obligated to make contributions.

 

Net Proceeds: with respect to an Asset Disposition, proceeds (including, when
received, any deferred or escrowed payments) received by a Borrower or
Subsidiary in cash from such disposition, net of (a) reasonable and customary
costs and expenses actually incurred in connection therewith, including legal
fees and sales commissions; (b) amounts applied to repayment of Debt secured by
a Permitted Lien senior to Agent’s Liens on Collateral sold; (c) transfer or
similar taxes; and (d) reserves for indemnities, until such reserves are no
longer needed.

 

NOLV Percentage: the net orderly liquidation value of Inventory, expressed as a
percentage, expected to be realized at an orderly, negotiated sale held within a
reasonable period of time, net of all liquidation expenses, as determined from
the most recent appraisal of Borrowers’ Inventory performed by an appraiser and
on terms satisfactory to Agent.

 

Notes: each Revolver Note or other promissory note executed by a Borrower to
evidence any Obligations.

 

Notice of Borrowing: a Notice of Borrowing to be provided by Borrower Agent to
request a Borrowing of Revolver Loans, in form satisfactory to Agent.

 

Notice of Conversion/Continuation: a Notice of Conversion/Continuation to be
provided by Borrower Agent to request a conversion or continuation of any
Revolver Loans as LIBOR Loans, in form satisfactory to Agent.

 

Obligations: all (a) principal of and premium, if any, on the Revolver Loans,
(b) LC Obligations and other obligations of Obligors with respect to Letters of
Credit, (c) interest, expenses, fees and other sums payable by Obligors under
Loan Documents, (d) obligations of Obligors under any indemnity for Claims, (e)
Extraordinary Expenses, (f) Bank Product Debt, and (g) other Debts, obligations
and liabilities of any kind owing by Obligors pursuant to the Loan Documents,
whether now existing or hereafter arising, whether evidenced by a note or other
writing, whether allowed in any Insolvency Proceeding, whether arising from an
extension of credit, issuance of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, and whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary, or joint or several.

 

Obligor: each Borrower, Guarantor, or other Person that is liable for payment of
any Obligations or that has granted a Lien in favor of Agent on its assets to
secure any Obligations.

 

Ordinary Course of Business: the ordinary course of business of any Borrower or
Subsidiary, consistent with past practices and undertaken in good faith.

 

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Organic Documents: with respect to any Person, its charter, certificate or
articles of incorporation, bylaws, articles of organization, limited liability
agreement, operating agreement, members agreement, shareholders agreement,
partnership agreement, certificate of partnership, certificate of formation,
voting trust agreement, or similar agreement or instrument governing the
formation or operation of such Person.

 

OSHA: the Occupational Safety and Hazard Act of 1970.

 

Other Agreement: each Note; LC Document; Fee Letter; Lien Waiver; Real Estate
Related Document; Borrowing Base Certificate, Compliance Certificate, financial
statement or report delivered hereunder; or other document, instrument or
agreement (other than this Agreement or a Security Document) now or hereafter
delivered by an Obligor or other Person to Agent or a Lender in connection with
any transactions relating hereto.

 

Other Taxes: all present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies arising from any payment
made under any Loan Document or from the execution, delivery or enforcement of,
or otherwise with respect to, any Loan Document.

 

Overadvance: as defined in Section 2.1.5.

 

Overadvance Loan: a Base Rate Loan made when an Overadvance exists or is caused
by the funding thereof.

 

Participant: as defined in Section 13.2.

 

Patent Assignment: each patent collateral assignment agreement pursuant to which
an Obligor assigns to Agent, for the benefit of Secured Parties, such Obligor’s
interests in its patents, as security for the Obligations.

 

Patriot Act: the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No.
107-56, 115 Stat. 272 (2001).

 

Payment Item: each check, draft or other item of payment payable to a Borrower,
including those constituting proceeds of any Collateral.

 

PBGC: the Pension Benefit Guaranty Corporation.

 

Pension Plan: any employee pension benefit plan (as such term is defined in
Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to
Title IV of ERISA and is sponsored or maintained by any Obligor or ERISA
Affiliate or to which the Obligor or ERISA Affiliate contributes or has an
obligation to contribute, or in the case of a multiple employer or other plan
described in Section 4064(a) of ERISA, has made contributions at any time during
the preceding five plan years.

 

Permitted Asset Disposition: as long as no Default or Event of Default exists
and all Net Proceeds are remitted to Agent, an Asset Disposition that is (a) a
sale of Inventory in the Ordinary Course of Business; (b) a disposition of
Equipment no longer used or useful in the Borrowers’ business that, in the
aggregate during any 12 month period, has a fair market or book value (whichever
is more) of $1,000,000 or less; (c) a disposition of Inventory that is obsolete,
unmerchantable or otherwise unsalable in the Ordinary Course of Business; (d)
termination of a lease of real or personal Property that is not necessary for
the Ordinary Course of Business, could not reasonably be expected to have a
Material Adverse Effect and does not result from an Obligor’s default; or (e)
approved in writing by Agent and Required Lenders.

 

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Permitted Contingent Obligations: Contingent Obligations (a) arising from
endorsements of Payment Items for collection or deposit in the Ordinary Course
of Business; (b) existing on the Closing Date and identified on Schedule 10.2.1,
and any extension or renewal thereof that does not increase the amount of such
Contingent Obligation when extended or renewed; (c) incurred in the Ordinary
Course of Business with respect to surety, appeal or performance bonds, or other
similar obligations; (d) arising from customary indemnification obligations in
favor of purchasers in connection with dispositions of Equipment permitted
hereunder; (e) arising under the Loan Documents; or (f) in an aggregate amount
of $1,000,000 or less at any time.

 

Permitted Lien: as defined in Section 10.2.2.

 

Permitted Purchase Money Debt: Purchase Money Debt of Borrowers and Subsidiaries
that is unsecured or secured only by a Purchase Money Lien, as long as the
aggregate amount with respect to all Borrowers does not exceed $6,000,000 at any
time and its incurrence does not violate Section 10.2.3.

 

Person: any individual, corporation, limited liability company, partnership,
joint venture, joint stock company, land trust, business trust, unincorporated
organization, Governmental Authority or other entity.

 

Plan: any employee benefit plan (as such term is defined in Section 3(3) of
ERISA) established by an Obligor or, with respect to any such plan that is
subject to Section 412 of the Code or Title IV of ERISA, an ERISA Affiliate.

 

Pledge Agreement: each equity pledge agreement pursuant to which an Obligor
grants to Agent, for the benefit of Secured Parties, a Lien on such Obligor’s
equity interests in each of its domestic and foreign Subsidiaries, as security
for the Obligations.

 

Prime Rate: the rate of interest announced by Bank of America from time to time
as its prime rate.  Such rate is set by Bank of America on the basis of various
factors, including its costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans, which
may be priced at, above or below such rate.  Any change in such rate announced
by Bank of America shall take effect at the opening of business on the day
specified in the public announcement of such change.

 

Pro Rata: with respect to any Lender, a percentage (carried out to the ninth
decimal place) determined (a) while Revolver Commitments are outstanding, by
dividing the amount of such Lender’s Revolver Commitment by the aggregate amount
of all Revolver Commitments; and (b) at any other time, by dividing the amount
of such Lender’s Revolver Loans and LC Obligations by the aggregate amount of
all outstanding Revolver Loans and LC Obligations.

 

Properly Contested: with respect to any obligation of an Obligor, (a) the
obligation is subject to a bona fide dispute regarding amount or the Obligor’s
liability to pay; (b) the obligation is being properly contested in good faith
by appropriate proceedings promptly instituted and diligently pursued; (c)
appropriate reserves have been established in accordance with GAAP; (d)
non-payment could not have a Material Adverse Effect, nor result in forfeiture
or sale of any assets of the Obligor; (e) no Lien is imposed on assets of the
Obligor, unless bonded and stayed to the satisfaction of Agent; and (f) if the
obligation results from entry of a judgment or other order, such judgment or
order is stayed pending appeal or other judicial review.

 

Property: any interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible.

 

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Protective Advances: as defined in Section 2.1.6.

 

Purchase Money Debt: (a) Debt (other than the Obligations) for payment of any of
the purchase price of fixed assets; (b) Debt (other than the Obligations)
incurred within 10 days before or after acquisition of any fixed assets, for the
purpose of financing any of the purchase price thereof; and (c) any renewals,
extensions or refinancings (but not increases) thereof.

 

Purchase Money Lien: a Lien that secures Purchase Money Debt, encumbering only
the fixed assets acquired with such Debt and constituting a Capital Lease or a
purchase money security interest under the UCC.

 

RCRA: the Resource Conservation and Recovery Act (42 U.S.C. §§ 6991-6991i).

 

Real Estate: all right, title and interest (whether as owner, lessor or lessee)
in any real Property or any buildings, structures, parking areas or other
improvements thereon.

 

Real Estate Related Documents: with respect to any Real Estate subject to a
Mortgage, the following, in form and substance satisfactory to Agent:  (a) a
mortgagee title policy (or binder therefor) covering Agent’s interest under the
Mortgage, in a form and amount and by an insurer acceptable to Agent, which must
be fully paid on such effective date; (b) such assignments of leases, estoppel
letters, attornment agreements, consents, waivers and releases as Agent may
require with respect to other Persons having an interest in the Real Estate; (c)
flood insurance in an amount, with endorsements and by an insurer acceptable to
Agent, if the Real Estate is within a flood plain; and (d) such other documents,
instruments or agreements as Agent may reasonably require with respect to any
environmental risks regarding the Real Estate.

 

Refinancing Conditions: the following conditions for Refinancing Debt:  (a) it
is in an aggregate principal amount that does not exceed the principal amount of
the Debt being extended, renewed or refinanced; (b) it has a final maturity no
sooner than, a weighted average life no less than, and an interest rate no
greater than, the Debt being extended, renewed or refinanced; (c) it is
subordinated to the Obligations at least to the same extent as the Debt being
extended, renewed or refinanced; (d) the representations, covenants and defaults
applicable to it are no less favorable to Borrowers than those applicable to the
Debt being extended, renewed or refinanced; (e) no additional Lien is granted to
secure it; (f) no additional Person is obligated on such Debt; and (g) upon
giving effect to it, no Default or Event of Default exists.

 

Refinancing Debt: Borrowed Money that is the result of an extension, renewal or
refinancing of Debt permitted under Section 10.2.1(b), (d) or (f).

 

Reimbursement Date: as defined in Section 2.2.2.

 

Rent and Charges Reserve: the aggregate of (a) all past due rent and other
amounts owing by an Obligor to any landlord, warehouseman, processor, repairman,
mechanic, shipper, freight forwarder, broker or other Person who possesses any
Collateral or could assert a Lien on any Collateral; and (b) a reserve at least
equal to three months rent and other charges that could be payable to any such
Person, unless it has executed a Lien Waiver.

 

Report: as defined in Section 12.2.3.

 

Reportable Event: any of the events set forth in Section 4043(c) of ERISA, other
than events for which the 30 day notice period has been waived.

 

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Required Lenders: Lenders (subject to Section 4.2) having (a) Revolver
Commitments in excess of 65% of the aggregate Revolver Commitments; and (b) if
the Revolver Commitments have terminated, Revolver Loans in excess of 65% of all
outstanding Revolver Loans.

 

Reserve Percentage: the reserve percentage (expressed as a decimal, rounded
upward to the nearest 1/8th of 1%) applicable to member banks under regulations
issued from time to time by the Board of Governors for determining the maximum
reserve requirement (including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding (currently referred to
as “Eurocurrency liabilities”).

 

Restricted Investment: any Investment by a Borrower or Subsidiary, other than
(a) Investments in Subsidiaries to the extent existing on the Closing Date; (b)
Cash Equivalents that are subject to Agent’s Lien and control, pursuant to
documentation in form and substance satisfactory to Agent; and (c) loans and
advances permitted under Section 10.2.7.

 

Restrictive Agreement: an agreement (other than a Loan Document) that conditions
or restricts the right of any Borrower, Subsidiary or other Obligor to incur or
repay Borrowed Money, to grant Liens on any assets, to declare or make
Distributions, to modify, extend or renew any agreement evidencing Borrowed
Money, or to repay any intercompany Debt.

 

Revolver Commitment: for any Lender, its obligation to make Revolver Loans and
to participate in LC Obligations up to the maximum principal amount shown on
Schedule 1.1(B), or as hereafter determined pursuant to each Assignment and
Acceptance to which it is a party.  “Revolver Commitments” means the aggregate
amount of such Revolver Commitments of all Lenders.

 

Revolver Loan: a loan made pursuant to Section 2.1, and any Swingline Loan,
Overadvance Loan or Protective Advance.

 

Revolver Note: a promissory note to be executed by Borrowers in favor of a
Lender in the form of Exhibit A, which shall be in the amount of such Lender’s
Revolver Commitment and shall evidence the Revolver Loans made by such Lender.

 

Royalties: all royalties, fees, expense reimbursement and other amounts payable
by a Borrower under a License.

 

S&P: Standard & Poor’s Ratings Services, a division of The McGraw-Hill
Companies, Inc., and its successors.

 

Secured Parties: Agent, Issuing Bank, Lenders and providers of Bank Products.

 

Security Documents: the Guaranties, Mortgages, Patent Assignments, Pledge
Agreements, Trademark Security Agreements, Insurance Assignments, Deposit
Account Control Agreements, and all other documents, instruments and agreements
now or hereafter securing (or given with the intent to secure) any Obligations.

 

Senior Officer: the chairman of the board, president, chief executive officer or
chief financial officer of a Borrower or, if the context requires, an Obligor.

 

Settlement Report: a report delivered by Agent to Lenders summarizing the
Revolver Loans and participations in LC Obligations outstanding as of a given
settlement date, allocated to Lenders on a Pro Rata basis in accordance with
their Revolver Commitments.

 

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Solvent: as to any Person, such Person (a) owns Property whose fair salable
value is greater than the amount required to pay all of its debts (including
contingent, subordinated, unmatured and unliquidated liabilities); (b) owns
Property whose present fair salable value (as defined below) is greater than the
probable total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of such Person as they become absolute and matured;
(c) is able to pay all of its debts as they mature; (d) has capital that is not
unreasonably small for its business and is sufficient to carry on its business
and transactions and all business and transactions in which it is about to
engage; (e) is not “insolvent” within the meaning of Section 101(32) of the
Bankruptcy Code; and (f) has not incurred (by way of assumption or otherwise)
any obligations or liabilities (contingent or otherwise) under any Loan
Documents, or made any conveyance in connection therewith, with actual intent to
hinder, delay or defraud either present or future creditors of such Person or
any of its Affiliates.  “Fair salable value” means the amount that could be
obtained for assets within a reasonable time, either through collection or
through sale under ordinary selling conditions by a capable and diligent seller
to an interested buyer who is willing (but under no compulsion) to purchase.

 

Subordinated Debt: Debt incurred by a Borrower that is expressly subordinate and
junior in right of payment to Full Payment of all Obligations in a manner, and
is otherwise on terms (including maturity, interest, fees, repayment, and
covenants), satisfactory to Agent.

 

Subsidiary: any entity at least 50% of whose voting securities or Equity
Interests is owned by a Borrower or any combination of Borrowers (including
indirect ownership by a Borrower through other entities in which the Borrower
directly or indirectly owns 50% of the voting securities or Equity Interests).

 

Swingline Loan: any Borrowing of Base Rate Loans funded with Agent’s funds,
until such Borrowing is settled among Lenders pursuant to Section 4.1.3.

 

Taxes: all present or future taxes, levies, imposts, duties, deductions,
withholdings, assessments, fees or other charges imposed by any Governmental
Authority, including any interest, additions to tax or penalties applicable
thereto.

 

Termination Date: the earlier of (a) November 10, 2012 or (b) 90 days prior to
the termination date or maturity date of any Dealer Finance Agreement, if not
sooner replaced by a dealer floor plan financing that is acceptable to Agent in
its sole discretion.

 

Trademark Security Agreement: each trademark security agreement pursuant to
which an Obligor grants to Agent, for the benefit of Secured Parties, a Lien on
such Obligor’s interests in trademarks, as security for the Obligations.

 

Transferee: any actual or potential Eligible Assignee, Participant or other
Person acquiring an interest in any Obligations.

 

Type: any type of a Revolver Loan (i.e., Base Rate Loan or LIBOR Loan) that has
the same interest option and, in the case of LIBOR Loans, the same Interest
Period.

 

UCC: the Uniform Commercial Code as in effect in the State of Illinois or, when
the laws of any other jurisdiction govern the perfection or enforcement of any
Lien, the Uniform Commercial Code of such jurisdiction.

 

Unfunded Pension Liability: the excess of a Pension Plan’s benefit liabilities
under Section 4001(a)(16) of ERISA, over the current value of that Pension
Plan’s assets, determined in accordance

 

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with the assumptions used for funding the Pension Plan pursuant to Section 412
of the Code for the applicable plan year.

 

Upstream Payment: a Distribution by a Subsidiary of a Borrower to such Borrower.

 

Value: (a) for Inventory, its value determined on the basis of the lower of cost
or market, calculated on a first-in, first-out basis, and excluding any portion
of cost attributable to intercompany profit among Borrowers and their
Affiliates; and (b) for an Account, its face amount, net of any returns,
rebates, discounts (calculated on the shortest terms), credits, allowances or
Taxes (including sales, excise or other taxes) that have been or could be
claimed by the Account Debtor or any other Person.

 

1.2.         Accounting Terms.  Under the Loan Documents (except as otherwise
specified herein), all accounting terms shall be interpreted, all accounting
determinations shall be made, and all financial statements shall be prepared, in
accordance with GAAP applied on a basis consistent with the most recent audited
financial statements of Borrowers delivered to Agent before the Closing Date and
using the same inventory valuation method as used in such financial statements,
except for any change required or permitted by GAAP if Borrowers’ certified
public accountants concur in such change, the change is disclosed to Agent, and
Section 10.3 is amended in a manner satisfactory to Required Lenders to take
into account the effects of the change.

 

1.3.         Uniform Commercial Code.  As used herein, the following terms are
defined in accordance with the UCC in effect in the State of Illinois from time
to time:  “Chattel Paper,” “Commercial Tort Claim,” “Deposit Account,”
“Document,” “Equipment,” “General Intangibles,” “Goods,” “Instrument,”
“Investment Property,” “Letter-of-Credit Right” and “Supporting Obligation.”

 

1.4.         Certain Matters of Construction.  The terms “herein,” “hereof,”
“hereunder” and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision.  Any pronoun used
shall be deemed to cover all genders.  In the computation of periods of time
from a specified date to a later specified date, “from” means “from and
including,” and “to” and “until” each mean “to but excluding.”  The terms
“including” and “include” shall mean “including, without limitation” and, for
purposes of each Loan Document, the parties agree that the rule of ejusdem
generis shall not be applicable to limit any provision.  Section titles appear
as a matter of convenience only and shall not affect the interpretation of any
Loan Document.  All references to (a) laws or statutes include all related
rules, regulations, interpretations, amendments and successor provisions; (b)
any document, instrument or agreement include any amendments, waivers and other
modifications, extensions or renewals (to the extent permitted by the Loan
Documents); (c) any section mean, unless the context otherwise requires, a
section of this Agreement; (d) any exhibits or schedules mean, unless the
context otherwise requires, exhibits and schedules attached hereto, which are
hereby incorporated by reference; (e) any Person include successors and assigns;
(f) time of day mean time of day at Agent’s notice address under Section 14.3.1;
or (g) discretion of Agent, Issuing Bank or any Lender mean the sole and
absolute discretion of such Person.  All calculations of Value, fundings of
Revolver Loans, issuances of Letters of Credit and payments of Obligations shall
be in Dollars and, unless the context otherwise requires, all determinations
(including calculations of Borrowing Base and financial covenants) made from
time to time under the Loan Documents shall be made in light of the
circumstances existing at such time.  Borrowing Base calculations shall be
consistent with historical methods of valuation and calculation, and otherwise
satisfactory to Agent (and not necessarily calculated in accordance with GAAP). 
Borrowers shall have the burden of establishing any alleged negligence,
misconduct or lack of good faith by Agent, Issuing Bank or any Lender under any
Loan Documents.  No provision of any Loan Documents shall be construed against
any party by reason of such party having, or being deemed to have, drafted the
provision.  Whenever the phrase “to the best of Borrowers’ knowledge” or words
of similar import are used in any Loan Documents, it means actual knowledge of a
Senior Officer, or knowledge that a Senior

 

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Officer would have obtained if he or she had engaged in good faith and diligent
performance of his or her duties, including reasonably specific inquiries of
employees or agents and a good faith attempt to ascertain the matter to which
such phrase relates.

 

SECTION 2.  CREDIT FACILITIES

 

2.1.         Revolver Commitment.

 

2.1.1.          Revolver Loans.  Each Lender agrees, severally on a Pro Rata
basis up to its Revolver Commitment, on the terms set forth herein, to make
Revolver Loans to Borrowers from time to time through the Commitment Termination
Date.  The Revolver Loans may be repaid and reborrowed as provided herein.  In
no event shall Lenders have any obligation to honor a request for a Revolver
Loan if the unpaid balance of Revolver Loans outstanding at such time (including
the requested Loan) would exceed the Borrowing Base.

 

2.1.2.          Revolver Notes.  The Revolver Loans made by each Lender and
interest accruing thereon shall be evidenced by the records of Agent and such
Lender.  At the request of any Lender, Borrowers shall deliver a Revolver Note
to such Lender.

 

2.1.3.          Use of Proceeds.  The proceeds of the Revolver Commitments shall
be used by Borrowers solely (a) to satisfy existing Debt; (b) to issue standby
or commercial letters of credit, (c) to enter into foreign exchange hedges, (d)
to pay fees and transaction expenses associated with the closing of this credit
facility; (e) to pay Obligations in accordance with this Agreement; and (f) for
working capital and other lawful corporate purposes of Borrowers.

 

2.1.4.          Voluntary Reduction or Termination of Revolver Commitments.

 

(a)           The Revolver Commitments shall terminate on the Termination Date,
unless sooner terminated in accordance with this Agreement.  Upon at least 90
days prior written notice to Agent at any time after the first Loan Year,
Borrowers may, at their option, terminate the Revolver Commitments and this
credit facility.  Any notice of termination given by Borrowers shall be
irrevocable.  On the termination date, Borrowers shall make Full Payment of all
Obligations.

 

(b)           Borrowers may permanently reduce the Revolver Commitments, on a
Pro Rata basis for each Lender, upon at least 90 days prior written notice to
Agent delivered at any time after the First Loan Year, which notice shall
specify the amount of the reduction and shall be irrevocable once given.  Each
reduction shall be in a minimum amount of $5,000,000, or an increment of
$1,000,000 in excess thereof; provided, however, that Borrowers may not reduce
the Revolver Commitments below $10,000,000 unless Borrowers fully reduce the
Revolver Commitments to $0.

 

2.1.5.          Overadvances.  If the aggregate Revolver Loans exceed the
Borrowing Base (“Overadvance”), the aggregate Revolver Commitments at any time
during the months from June through November of each calendar year, or
$35,000,000 at any time during the months of January, February, March, April,
May and December of each calendar year, the excess amount shall be payable by
Borrowers on demand by Agent, but all such Revolver Loans shall nevertheless
constitute Obligations secured by the Collateral and entitled to all benefits of
the Loan Documents.  Unless its authority has been revoked in writing by
Required Lenders, Agent may require Lenders to honor requests for Overadvance
Loans and to forbear from requiring Borrowers to cure an Overadvance, (a) when
no other Event of Default is known to Agent, as long as (i) the Overadvance does
not continue for more than 30 consecutive days (and no Overadvance may exist for
at least five consecutive days thereafter before further Overadvance Loans are
required), and (ii) the Overadvance is not known by Agent to exceed 10% of the

 

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Borrowing Base; and (b) regardless of whether an Event of Default exists, if
Agent discovers an Overadvance not previously known by it to exist, as long as
from the date of such discovery the Overadvance (i) is not increased by more
than $6,000,000, and (ii) does not continue for more than 30 consecutive days. 
In no event shall Overadvance Loans be required that would cause the outstanding
Revolver Loans and LC Obligations to exceed the aggregate Revolver Commitments. 
Any funding of an Overadvance Loan or sufferance of an Overadvance shall not
constitute a waiver by Agent or Lenders of the Event of Default caused thereby. 
In no event shall any Borrower or other Obligor be deemed a beneficiary of this
Section nor authorized to enforce any of its terms.

 

2.1.6.          Protective Advances.  Agent shall be authorized, in its
discretion, at any time that any conditions in Section 6 are not satisfied, and
without regard to the aggregate Revolver Commitments, to make Base Rate Loans
(“Protective Advances”) (a) up to an aggregate amount of $6,000,000 outstanding
at any time, if Agent deems such Loans necessary or desirable to preserve or
protect Collateral, or to enhance the collectibility or repayment of
Obligations; or (b) to pay any other amounts chargeable to Obligors under any
Loan Documents, including costs, fees and expenses.  Each Lender shall
participate in each Protective Advance on a Pro Rata basis.  Required Lenders
may at any time revoke Agent’s authority to make further Protective Advances by
written notice to Agent.  Absent such revocation, Agent’s determination that
funding of a Protective Advance is appropriate shall be conclusive.

 

2.2.         Letter of Credit Facility.

 

2.2.1.          Issuance of Letters of Credit.  Issuing Bank agrees to issue
Letters of Credit from time to time until 30 days prior to the Termination Date
(or until the Commitment Termination Date, if earlier), on the terms set forth
herein, including the following:

 

(a)           Each Borrower acknowledges that Issuing Bank’s willingness to
issue any Letter of Credit is conditioned upon Issuing Bank’s receipt of a LC
Application with respect to the requested Letter of Credit, as well as such
other instruments and agreements as Issuing Bank may customarily require for
issuance of a letter of credit of similar type and amount.  Issuing Bank shall
have no obligation to issue any Letter of Credit unless (i) Issuing Bank
receives a LC Request and LC Application at least three Business Days prior to
the requested date of issuance; (ii) each LC Condition is satisfied; and (iii)
if a Defaulting Lender exists, such Lender or Borrowers have entered into
arrangements satisfactory to Agent and Issuing Bank to eliminate any funding
risk associated with the Defaulting Lender.  If Issuing Bank receives written
notice from a Lender at least five Business Days before issuance of a Letter of
Credit that any LC Condition has not been satisfied, Issuing Bank shall have no
obligation to issue the requested Letter of Credit (or any other) until such
notice is withdrawn in writing by that Lender or until Required Lenders have
waived such condition in accordance with this Agreement.  Prior to receipt of
any such notice, Issuing Bank shall not be deemed to have knowledge of any
failure of LC Conditions.

 

(b)           Letters of Credit may be requested by Borrower Agent only (i) to
support obligations of a Borrower incurred in the Ordinary Course of Business;
or (ii) for other purposes as Agent and Lenders may approve from time to time in
writing.  The renewal or extension of any Letter of Credit shall be treated as
the issuance of a new Letter of Credit, except that delivery of a new LC
Application shall be required at the discretion of Issuing Bank.

 

(c)           Borrowers assume all risks of the acts, omissions or misuses of
any Letter of Credit by the beneficiary.  In connection with issuance of any
Letter of Credit, none of Agent, Issuing Bank or any Lender shall be responsible
for the existence, character, quality, quantity, condition, packing, value or
delivery of any goods purported to be represented by any Documents; any
differences or variation in the character, quality, quantity, condition,
packing, value or delivery of any goods from that

 

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expressed in any Documents; the form, validity, sufficiency, accuracy,
genuineness or legal effect of any Documents or of any endorsements thereon; the
time, place, manner or order in which shipment of goods is made; partial or
incomplete shipment of, or failure to ship, any goods referred to in a Letter of
Credit or Documents; any deviation from instructions, delay, default or fraud by
any shipper or other Person in connection with any goods, shipment or delivery;
any breach of contract between a shipper or vendor and a Borrower; errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex, telecopy, e-mail, telephone or otherwise;
errors in interpretation of technical terms; the misapplication by a beneficiary
of any Letter of Credit or the proceeds thereof; or any consequences arising
from causes beyond the control of Issuing Bank, Agent or any Lender, including
any act or omission of a Governmental Authority.  The rights and remedies of
Issuing Bank under the Loan Documents shall be cumulative.  Issuing Bank shall
be fully subrogated to the rights and remedies of each beneficiary whose claims
against Borrowers are discharged with proceeds of any Letter of Credit.

 

(d)           In connection with its administration of and enforcement of rights
or remedies under any Letters of Credit or LC Documents, Issuing Bank shall be
entitled to act, and shall be fully protected in acting, upon any certification,
documentation or communication in whatever form believed by Issuing Bank, in
good faith, to be genuine and correct and to have been signed, sent or made by a
proper Person.  Issuing Bank may consult with and employ legal counsel,
accountants and other experts to advise it concerning its obligations, rights
and remedies, and shall be entitled to act upon, and shall be fully protected in
any action taken in good faith reliance upon, any advice given by such experts. 
Issuing Bank may employ agents and attorneys-in-fact in connection with any
matter relating to Letters of Credit or LC Documents, and shall not be liable
for the negligence or misconduct of agents and attorneys-in-fact selected with
reasonable care.

 

2.2.2.          Reimbursement; Participations.

 

(a)           If Issuing Bank honors any request for payment under a Letter of
Credit, Borrowers shall pay to Issuing Bank, on the same day (“Reimbursement
Date”), the amount paid by Issuing Bank under such Letter of Credit, together
with interest at the interest rate for Base Rate Loans from the Reimbursement
Date until payment by Borrowers.  The obligation of Borrowers to reimburse
Issuing Bank for any payment made under a Letter of Credit shall be absolute,
unconditional, irrevocable, and joint and several, and shall be paid without
regard to any lack of validity or enforceability of any Letter of Credit or the
existence of any claim, setoff, defense or other right that Borrowers may have
at any time against the beneficiary.  Whether or not Borrower Agent submits a
Notice of Borrowing, Borrowers shall be deemed to have requested a Borrowing of
Base Rate Loans in an amount necessary to pay all amounts due Issuing Bank on
any Reimbursement Date and each Lender agrees to fund its Pro Rata share of such
Borrowing whether or not the Revolver Commitments have terminated, an
Overadvance exists or is created thereby, or the conditions in Section 6 are
satisfied.

 

(b)           Upon issuance of a Letter of Credit, each Lender shall be deemed
to have irrevocably and unconditionally purchased from Issuing Bank, without
recourse or warranty, an undivided Pro Rata interest and participation in all LC
Obligations relating to the Letter of Credit.  If Issuing Bank makes any payment
under a Letter of Credit and Borrowers do not reimburse such payment on the
Reimbursement Date, Agent shall promptly notify Lenders and each Lender shall
promptly (within one Business Day) and unconditionally pay to Agent, for the
benefit of Issuing Bank, the Lender’s Pro Rata share of such payment.  Upon
request by a Lender, Issuing Bank shall furnish copies of any Letters of Credit
and LC Documents in its possession at such time.

 

(c)           The obligation of each Lender to make payments to Agent for the
account of Issuing Bank in connection with Issuing Bank’s payment under a Letter
of Credit shall be absolute, unconditional and irrevocable, not subject to any
counterclaim, setoff, qualification or exception

 

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whatsoever, and shall be made in accordance with this Agreement under all
circumstances, irrespective of any lack of validity or unenforceability of any
Loan Documents; any draft, certificate or other document presented under a
Letter of Credit having been determined to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect; or the existence of any setoff or defense that any Obligor may
have with respect to any Obligations.  Issuing Bank does not assume any
responsibility for any failure or delay in performance or any breach by any
Borrower or other Person of any obligations under any LC Documents.  Issuing
Bank does not make to Lenders any express or implied warranty, representation or
guaranty with respect to the Collateral, LC Documents or any Obligor.  Issuing
Bank shall not be responsible to any Lender for any recitals, statements,
information, representations or warranties contained in, or for the execution,
validity, genuineness, effectiveness or enforceability of any LC Documents; the
validity, genuineness, enforceability, collectibility, value or sufficiency of
any Collateral or the perfection of any Lien therein; or the assets,
liabilities, financial condition, results of operations, business,
creditworthiness or legal status of any Obligor.

 

(d)           No Issuing Bank Indemnitee shall be liable to any Lender or other
Person for any action taken or omitted to be taken in connection with any LC
Documents except as a result of its actual gross negligence or willful
misconduct.  Issuing Bank shall not have any liability to any Lender if Issuing
Bank refrains from any action under any Letter of Credit or LC Documents until
it receives written instructions from Required Lenders.

 

2.2.3.          Cash Collateral.  If any LC Obligations, whether or not then due
or payable, shall for any reason be outstanding at any time (a) that an Event of
Default exists, (b) that Availability is less than zero, (c) after the
Commitment Termination Date, or (d) within 20 Business Days prior to the
Termination Date, then Borrowers shall, at Issuing Bank’s or Agent’s request,
Cash Collateralize the undrawn amount of all outstanding Letters of Credit and
pay to Issuing Bank the amount of all other LC Obligations.  Borrowers shall, on
demand by Issuing Bank or Agent from time to time, Cash Collateralize the LC
Obligations of any Defaulting Lender.  If Borrowers fail to provide Cash
Collateral as required herein, Lenders may (and shall upon direction of Agent)
advance, as Revolver Loans, the amount of the Cash Collateral required (whether
or not the Revolver Commitments have terminated, an Overadvance exists or the
conditions in Section 6 are satisfied).

 

SECTION 3.  INTEREST, FEES AND CHARGES

 

3.1.         Interest.

 

3.1.1.          Rates and Payment of Interest.

 

(a)           The Obligations shall bear interest (i) if a Base Rate Loan, at
the Base Rate in effect from time to time, plus the Applicable Margin; (ii) if a
LIBOR Loan, at LIBOR for the applicable Interest Period, plus the Applicable
Margin; and (iii) if any other Obligation (including, to the extent permitted by
law, interest not paid when due), at the Base Rate in effect from time to time,
plus the Applicable Margin for Base Rate Loans.  Interest shall accrue from the
date the Loan is advanced or the Obligation is incurred or payable, until paid
by Borrowers.  If a Loan is repaid on the same day made, one day’s interest
shall accrue.

 

(b)           During an Insolvency Proceeding with respect to any Borrower, or
during any other Event of Default if Agent or Required Lenders in their
discretion so elect, Obligations shall bear interest at the Default Rate
(whether before or after any judgment).  Each Borrower acknowledges that the
cost and expense to Agent and Lenders due to an Event of Default are difficult
to ascertain and that the Default Rate is a fair and reasonable estimate to
compensate Agent and Lenders for this.

 

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(c)           Interest accrued on the Loans shall be due and payable in arrears,
(i) on the first day of each month and, for any LIBOR Loan, the last day of its
Interest Period; (ii) on any date of prepayment, with respect to the principal
amount of Loans being prepaid; and (iii) on the Commitment Termination Date
(and, if later, on the Termination Date).  Interest accrued on any other
Obligations shall be due and payable as provided in the Loan Documents and, if
no payment date is specified, shall be due and payable on demand. 
Notwithstanding the foregoing, interest accrued at the Default Rate shall be due
and payable on demand.

 

3.1.2.          Application of LIBOR to Outstanding Revolver Loans.

 

(a)           Borrowers may on any Business Day, subject to delivery of a Notice
of Conversion/Continuation, elect to convert any portion of the Base Rate Loans
to, or to continue any LIBOR Loan at the end of its Interest Period as, a LIBOR
Loan.  During any Default or Event of Default, Agent may (and shall at the
direction of Required Lenders) declare that no Loan may be made, converted or
continued as a LIBOR Loan.  In addition, until Agent notifies Borrowers that
syndication of the credit facility hereunder is complete, no Loan may be made as
or converted into a LIBOR Loan.

 

(b)           Whenever Borrowers desire to convert or continue Loans as LIBOR
Loans, Borrower Agent shall give Agent a Notice of Conversion/Continuation, no
later than 11:00 a.m. at least three Business Days before the requested
conversion or continuation date.  Promptly after receiving any such notice,
Agent shall notify each Lender thereof.  Each Notice of Conversion/Continuation
shall be irrevocable, and shall specify the amount of Loans to be converted or
continued, the conversion or continuation date (which shall be a Business Day),
and the duration of the Interest Period (which shall be deemed to be 30 days if
not specified).  If, upon the expiration of any Interest Period in respect of
any LIBOR Loans, Borrowers shall have failed to deliver a Notice of
Conversion/Continuation, they shall be deemed to have elected to convert such
Loans into Base Rate Loans.

 

3.1.3.          Interest Periods.  In connection with the making, conversion or
continuation of any LIBOR Loans, Borrowers shall select an interest period
(“Interest Period”) to apply, which interest period shall be 14, 30, 60,or 90
days; provided, however, that:

 

(a)           the Interest Period shall commence on the date the Loan is made or
continued as, or converted into, a LIBOR Loan, and shall expire on the
numerically corresponding day in the calendar month at its end;

 

(b)           if any Interest Period (other than a 14-day Interest Period)
commences on a day for which there is no corresponding day in the calendar month
at its end or if such corresponding day falls after the last Business Day of
such month, then such Interest Period shall expire on the last Business Day of
such month; and if any Interest Period would expire on a day that is not a
Business Day, the period shall expire on the next Business Day; and

 

(c)           no Interest Period shall extend beyond the Termination Date.

 

3.1.4.          Interest Rate Not Ascertainable.  If Agent shall determine that
on any date for determining LIBOR, due to any circumstance affecting the London
interbank market, adequate and fair means do not exist for ascertaining such
rate on the basis provided herein, then Agent shall immediately notify Borrowers
of such determination.  Until Agent notifies Borrowers that such circumstance no
longer exists, the obligation of Lenders to make LIBOR Loans shall be suspended,
and no further Loans may be converted into or continued as LIBOR Loans.

 

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3.2.         Fees.

 

3.2.1.          Unused Line Fee.  During the months of June through November of
each calendar year, Borrowers shall pay to Agent, for the Pro Rata benefit of
Lenders, a fee equal to 0.50% per annum times the amount by which the Revolver
Commitments exceed the average daily balance of Revolver Loans and stated amount
of Letters of Credit during such month.  During the months of January, February,
March, April, May, and December of each calendar year, Borrowers shall pay to
Agent, for the Pro Rata benefit of Lenders, a fee equal to 0.50% per annum times
the amount by which $35,000,000 exceeds the average daily balance of Revolver
Loans and stated amount of Letters of Credit during such month.  Such fees shall
be payable in arrears, on the first day of each month and on the Commitment
Termination Date.

 

3.2.2.          LC Facility Fees.  Borrowers shall pay (a) to Agent, for the Pro
Rata benefit of Lenders, a fee equal to the Applicable Margin in effect for
LIBOR Loans times the average daily stated amount of Letters of Credit, which
fee shall be payable monthly in arrears, on the first day of each month; (b) to
Agent, for its own account, a fronting fee equal to 0.125% per annum on the
stated amount of each Letter of Credit, which fee shall be payable monthly in
arrears, on the first day of each month; and (c) to Issuing Bank, for its own
account, all customary charges associated with the issuance, amending,
negotiating, payment, processing, transfer and administration of Letters of
Credit, which charges shall be paid as and when incurred.  During an Event of
Default, the fee payable under clause (a) shall be increased by 2% per annum.

 

3.2.3.          Underwriting Fee.  Borrowers shall pay to Agent, as compensation
for underwriting the Revolver Commitments, an underwriting fee as described in
the Fee Letter, which shall be paid concurrently with the funding of the initial
Loans hereunder.

 

3.2.4.          Agent Fees; Other Fees.  In consideration of Agent’s syndication
of the Revolver Commitments and service as Agent hereunder, Borrowers shall pay
to Agent, for its own account, the fees described in the Fee Letter.  Borrowers
shall also pay to Agent and Lenders all other fees set forth in the Fee Letter.

 

3.3.         Computation of Interest, Fees, Yield Protection.  All computations
of fees and interest shall be made on the basis of a 360-day year and actual
days elapsed (which results in more fees or interest, as applicable, being paid
than if computed on the basis of a 365-day year).    Each determination by Agent
of any interest, fees or interest rate hereunder shall be final, conclusive and
binding for all purposes, absent manifest error.  All fees shall be fully earned
when due and shall not be subject to rebate, refund or proration.  All fees
payable under Section 3.2 are compensation for services and are not, and shall
not be deemed to be, interest or any other charge for the use, forbearance or
detention of money.  A certificate as to amounts payable by Borrowers under
Section 3.4, 3.6, 3.7, 3.9 or 5.8, submitted to Borrower Agent by Agent or the
affected Lender, as applicable, shall be final, conclusive and binding for all
purposes, absent manifest error, and Borrowers shall pay such amounts to the
appropriate party within 10 days following receipt of the certificate.

 

3.4.         Reimbursement Obligations.  Borrowers shall reimburse Agent for all
Extraordinary Expenses.  Borrowers shall also reimburse Agent for all legal,
accounting, appraisal, consulting, and other fees, costs and expenses incurred
by it in connection with (a) negotiation, preparation and enforcement of and any
due diligence relating to any Loan Documents, including any amendment or other
modification thereof; (b) administration of and actions relating to any
Collateral, Loan Documents and transactions contemplated thereby, including any
actions taken to perfect or maintain priority of Agent’s Liens on any
Collateral, to maintain any insurance required hereunder or to verify
Collateral; (c) syndication and administration of the Loan Documents and
Obligations thereunder; and (d) subject to the limits of Section

 

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10.1.1(b), each inspection, field examination, audit or appraisal with respect
to any Obligor or Collateral, whether prepared by Agent’s personnel or a third
party (including Agent’s standard charges for field examinations and per diem
charges and out-of-pocket expenses for Agent’s employees performing such field
examinations).  All legal, accounting and consulting fees shall be charged to
Borrowers by Agent’s professionals at their full hourly rates, regardless of any
reduced or alternative fee billing arrangements that Agent, any Lender or any of
their Affiliates may have with such professionals with respect to this or any
other transaction.  If, for any reason (including inaccurate reporting on
financial statements or a Compliance Certificate), it is determined that a
higher Applicable Margin should have applied to a period than was actually
applied, then the proper margin shall be applied retroactively and Borrowers
shall immediately pay to Agent, for the Pro Rata benefit of Lenders, an amount
equal to the difference between the amount of interest and fees that would have
accrued using the proper margin and the amount actually paid.  All amounts
payable by Borrowers under this Section shall be due on demand.

 

3.5.         Illegality.  If any Lender determines that any Applicable Law has
made it unlawful, or that any Governmental Authority has asserted that it is
unlawful, for any Lender or its applicable Lending Office to make, maintain or
fund LIBOR Loans, or to determine or charge interest rates based upon LIBOR, or
any Governmental Authority has imposed material restrictions on the authority of
such Lender to purchase or sell, or to take deposits of, Dollars in the London
interbank market, then, on notice thereof by such Lender to Agent, any
obligation of such Lender to make or continue LIBOR Loans or to convert Base
Rate Loans to LIBOR Loans shall be suspended until such Lender notifies Agent
that the circumstances giving rise to such determination no longer exist.  Upon
delivery of such notice, Borrowers shall prepay or, if applicable, convert all
LIBOR Loans of such Lender to Base Rate Loans, either on the last day of the
Interest Period therefor, if such Lender may lawfully continue to maintain such
LIBOR Loans to such day, or immediately, if such Lender may not lawfully
continue to maintain such LIBOR Loans.  Upon any such prepayment or conversion,
Borrowers shall also pay accrued interest on the amount so prepaid or converted.

 

3.6.         Inability to Determine Rates.  If Required Lenders notify Agent for
any reason in connection with a request for a Borrowing of, or conversion to or
continuation of, a LIBOR Loan that (a) Dollar deposits are not being offered to
banks in the London interbank Eurodollar market for the applicable amount and
Interest Period of such Loan, (b) adequate and reasonable means do not exist for
determining LIBOR for the requested Interest Period, or (c) LIBOR for the
requested Interest Period does not adequately and fairly reflect the cost to
such Lenders of funding such Loan, then Agent will promptly so notify Borrower
Agent and each Lender.  Thereafter, the obligation of Lenders to make or
maintain LIBOR Loans shall be suspended until Agent (upon instruction by
Required Lenders) revokes such notice.  Upon receipt of such notice, Borrower
Agent may revoke any pending request for a Borrowing of, conversion to or
continuation of a LIBOR Loan or, failing that, will be deemed to have submitted
a request for a Base Rate Loan.

 

3.7.         Increased Costs; Capital Adequacy.

 

3.7.1.          Change in Law.  If any Change in Law shall:

 

(a)           impose modify or deem applicable any reserve, special deposit,
compulsory loan, insurance charge or similar requirement against assets of,
deposits with or for the account of, or credit extended or participated in by,
any Lender (except any reserve requirement reflected in LIBOR) or Issuing Bank;

 

(b)           subject any Lender or Issuing Bank to any Tax with respect to any
Loan, Loan Document, Letter of Credit or participation in LC Obligations, or
change the basis of taxation of payments to such Lender or Issuing Bank in
respect thereof (except for Indemnified Taxes or Other Taxes

 

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covered by Section 5.8 and the imposition of, or any change in the rate of, any
Excluded Tax payable by such Lender or Issuing Bank); or

 

(c)           impose on any Lender or Issuing Bank or the London interbank
market any other condition, cost or expense affecting any Loan, Loan Document,
Letter of Credit or participation in LC Obligations;

 

and the result thereof shall be to increase the cost to such Lender of making or
maintaining any LIBOR Loan (or of maintaining its obligation to make any such
Loan), or to increase the cost to such Lender or Issuing Bank of participating
in, issuing or maintaining any Letter of Credit (or of maintaining its
obligation to participate in or to issue any Letter of Credit), or to reduce the
amount of any sum received or receivable by such Lender or Issuing Bank
hereunder (whether of principal, interest or any other amount) then, upon
request of such Lender or Issuing Bank, Borrowers will pay to such Lender or
Issuing Bank, as applicable, such additional amount or amounts as will
compensate such Lender or Issuing Bank, as applicable, for such additional costs
incurred or reduction suffered.

 

3.7.2.          Capital Adequacy.  If any Lender or Issuing Bank determines that
any Change in Law affecting such Lender or Issuing Bank or any Lending Office of
such Lender or such Lender’s or Issuing Bank’s holding company, if any,
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender’s, Issuing Bank’s or holding company’s capital as a
consequence of this Agreement, or such Lender’s or Issuing Bank’s Revolver
Commitments, Revolver Loans, Letters of Credit or participations in LC
Obligations, to a level below that which such Lender, Issuing Bank or holding
company could have achieved but for such Change in Law (taking into
consideration such Lender’s, Issuing Bank’s and holding company’s policies with
respect to capital adequacy), then from time to time Borrowers will pay to such
Lender or Issuing Bank, as the case may be, such additional amount or amounts as
will compensate it or its holding company for any such reduction suffered.

 

3.7.3.          Compensation.  Failure or delay on the part of any Lender or
Issuing Bank to demand compensation pursuant to this Section shall not
constitute a waiver of its right to demand such compensation, but Borrowers
shall not be required to compensate a Lender or Issuing Bank for any increased
costs incurred or reductions suffered more than nine months prior to the date
that the Lender or Issuing Bank notifies Borrower Agent of the Change in Law
giving rise to such increased costs or reductions and of such Lender’s or
Issuing Bank’s intention to claim compensation therefor (except that, if the
Change in Law giving rise to such increased costs or reductions is retroactive,
then the nine-month period referred to above shall be extended to include the
period of retroactive effect thereof).

 

3.8.         Mitigation.  If any Lender gives a notice under Section 3.5 or
requests compensation under Section 3.7, or if Borrowers are required to pay
additional amounts with respect to a Lender under Section 5.8, then such Lender
shall use reasonable efforts to designate a different Lending Office or to
assign its rights and obligations hereunder to another of its offices, branches
or Affiliates, if, in the judgment of such Lender, such designation or
assignment (a) would eliminate the need for such notice or reduce amounts
payable in the future, as applicable; and (b) in each case, would not subject
such Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender.  Borrowers agree to pay all reasonable costs and
expenses incurred by any Lender in connection with any such designation or
assignment.

 

3.9.         Funding Losses.  If for any reason (other than default by a Lender)
(a) any Borrowing of, or conversion to or continuation of, a LIBOR Loan does not
occur on the date specified therefor in a Notice of Borrowing or Notice of
Conversion/Continuation (whether or not withdrawn), (b) any repayment or
conversion of a LIBOR Loan occurs on a day other than the end of its Interest
Period, or (c)

 

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Borrowers fail to repay a LIBOR Loan when required hereunder, then Borrowers
shall pay to Agent its customary administrative charge and to each Lender all
losses and expenses that it sustains as a consequence thereof, including loss of
anticipated profits and any loss or expense arising from liquidation or
redeployment of funds or from fees payable to terminate deposits of matching
funds.  Lenders shall not be required to purchase Dollar deposits in the London
interbank market or any other offshore Dollar market to fund any LIBOR Loan, but
the provisions hereof shall be deemed to apply as if each Lender had purchased
such deposits to fund its LIBOR Loans.

 

3.10.       Maximum Interest.  Notwithstanding anything to the contrary
contained in any Loan Document, the interest paid or agreed to be paid under the
Loan Documents shall not exceed the maximum rate of non-usurious interest
permitted by Applicable Law (“maximum rate”).  If Agent or any Lender shall
receive interest in an amount that exceeds the maximum rate, the excess interest
shall be applied to the principal of the Obligations or, if it exceeds such
unpaid principal, refunded to Borrowers.  In determining whether the interest
contracted for, charged or received by Agent or a Lender exceeds the maximum
rate, such Person may, to the extent permitted by Applicable Law, (a)
characterize any payment that is not principal as an expense, fee or premium
rather than interest; (b) exclude voluntary prepayments and the effects thereof;
and (c) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the contemplated term of the Obligations
hereunder.

 

SECTION 4.  LOAN ADMINISTRATION

 

4.1.         Manner of Borrowing and Funding Revolver Loans.

 

4.1.1.          Notice of Borrowing.

 

(a)           Whenever Borrowers desire funding of a Borrowing of Revolver
Loans, Borrower Agent shall give Agent a Notice of Borrowing.  Such notice must
be received by Agent no later than 11:00 a.m. (i) on the Business Day of the
requested funding date, in the case of Base Rate Loans, and (ii) at least three
Business Days prior to the requested funding date, in the case of LIBOR Loans. 
Notices received after 11:00 a.m. shall be deemed received on the next Business
Day.  Each Notice of Borrowing shall be irrevocable and shall specify (A) the
amount of the Borrowing, (B) the requested funding date (which must be a
Business Day), (C) whether the Borrowing is to be made as Base Rate Loans or
LIBOR Loans, and (D) in the case of LIBOR Loans, the duration of the applicable
Interest Period (which shall be deemed to be 30 days if not specified).

 

(b)           Unless payment is otherwise timely made by Borrowers, the becoming
due of any Obligations (whether principal, interest, fees or other charges,
including Extraordinary Expenses, LC Obligations, Cash Collateral and Bank
Product Debt) shall be deemed to be a request for Base Rate Loans on the due
date, in the amount of such Obligations.  The proceeds of such Revolver Loans
shall be disbursed as direct payment of the relevant Obligation.  In addition,
Agent may, at its option, charge such Obligations against any operating,
investment or other account of a Borrower maintained with Agent or any of its
Affiliates.

 

(c)           If Borrowers establish a controlled disbursement account with
Agent or any Affiliate of Agent, then the presentation for payment of any check
or other item of payment drawn on such account at a time when there are
insufficient funds to cover it shall be deemed to be a request for Base Rate
Loans on the date of such presentation, in the amount of the check and items
presented for payment.  The proceeds of such Revolver Loans may be disbursed
directly to the controlled disbursement account or other appropriate account.

 

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4.1.2.          Fundings by Lenders.  Each Lender shall timely honor its
Revolver Commitment by funding its Pro Rata share of each Borrowing of Revolver
Loans that is properly requested hereunder.  Except for Borrowings to be made as
Swingline Loans, Agent shall endeavor to notify Lenders of each Notice of
Borrowing (or deemed request for a Borrowing) by 12:00 noon on the proposed
funding date for Base Rate Loans or by 3:00 p.m. at least two Business Days
before any proposed funding of LIBOR Loans.  Each Lender shall fund to Agent
such Lender’s Pro Rata share of the Borrowing to the account specified by Agent
in immediately available funds not later than 2:00 p.m. on the requested funding
date, unless Agent’s notice is received after the times provided above, in which
event Lender shall fund its Pro Rata share by 11:00 a.m. on the next Business
Day.  Subject to its receipt of such amounts from Lenders, Agent shall disburse
the proceeds of the Revolver Loans as directed by Borrower Agent.  Unless Agent
shall have received (in sufficient time to act) written notice from a Lender
that it does not intend to fund its Pro Rata share of a Borrowing, Agent may
assume that such Lender has deposited or promptly will deposit its share with
Agent, and Agent may disburse a corresponding amount to Borrowers.  If a
Lender’s share of any Borrowing is not in fact received by Agent, then Borrowers
agree to repay to Agent on demand the amount of such share, together with
interest thereon from the date disbursed until repaid, at the rate applicable to
such Borrowing.

 

4.1.3.          Swingline Loans; Settlement.

 

(a)           Agent may, but shall not be obligated to, advance Swingline Loans
to Borrowers, up to an aggregate outstanding amount of $10,000,000, unless the
funding is specifically required to be made by all Lenders hereunder.  Each
Swingline Loan shall constitute a Revolver Loan for all purposes, except that
payments thereon shall be made to Agent for its own account.  The obligation of
Borrowers to repay Swingline Loans shall be evidenced by the records of Agent
and need not be evidenced by any promissory note.

 

(b)           To facilitate administration of the Revolver Loans, Lenders and
Agent agree (which agreement is solely among them, and not for the benefit of or
enforceable by any Borrower) that settlement among them with respect to
Swingline Loans and other Revolver Loans may take place periodically on a date
determined from time to time by Agent, which shall occur at least once each
week.  On each settlement date, settlement shall be made with each Lender in
accordance with the Settlement Report delivered by Agent to Lenders.  Between
settlement dates, Agent may in its discretion apply payments on Revolver Loans
to Swingline Loans, regardless of any designation by Borrower or any provision
herein to the contrary.  Each Lender’s obligation to make settlements with Agent
is absolute and unconditional, without offset, counterclaim or other defense,
and whether or not the Revolver Commitments have terminated, an Overadvance
exists or the conditions in Section 6 are satisfied.  If, due to an Insolvency
Proceeding with respect to a Borrower or otherwise, any Swingline Loan may not
be settled among Lenders hereunder, then each Lender shall be deemed to have
purchased from Agent a Pro Rata participation in each unpaid Swingline Loan and
shall transfer the amount of such participation to Agent, in immediately
available funds, within one Business Day after Agent’s request therefor.

 

4.1.4.          Notices.  Each Borrower authorizes Agent and Lenders to extend,
convert or continue Loans, effect selections of interest rates, and transfer
funds to or on behalf of Borrowers based on telephonic or e-mailed
instructions.  Borrowers shall confirm each such request by prompt delivery to
Agent of a Notice of Borrowing or Notice of Conversion/Continuation, if
applicable, but if it differs in any material respect from the action taken by
Agent or Lenders, the records of Agent and Lenders shall govern.  Neither Agent
nor any Lender shall have any liability for any loss suffered by a Borrower as a
result of Agent or any Lender acting upon its understanding of telephonic or
e-mailed instructions from a person believed in good faith by Agent or any
Lender to be a person authorized to give such instructions on a Borrower’s
behalf.

 

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4.2.         Defaulting Lender.  Agent may (but shall not be required to), in
its discretion, retain any payments or other funds received by Agent that are to
be provided to a Defaulting Lender hereunder, and may apply such funds to such
Lender’s defaulted obligations or readvance the funds to Borrowers in accordance
with this Agreement.  The failure of any Lender to fund a Loan, to make any
payment in respect of LC Obligations, or otherwise perform its obligations
hereunder shall not relieve any other Lender of its obligations, and no Lender
shall be responsible for default by another Lender.  Lenders and Agent agree
(which agreement is solely among them, and not for the benefit of or enforceable
by any Borrower or any other Obligor) that, solely for purposes of determining a
Defaulting Lender’s right to vote on matters relating to the Loan Documents and
to share in payments, fees and Collateral proceeds thereunder, a Defaulting
Lender shall not be deemed to be a “Lender” until all its defaulted obligations
have been cured.

 

4.3.         Number and Amount of LIBOR Loans; Determination of Rate.  For ease
of administration, all LIBOR Loans having the same length and beginning date of
their Interest Periods shall be aggregated together, and such Borrowings shall
be allocated among Lenders on a Pro Rata basis.  No more than four
(4) Borrowings of LIBOR Loans may be outstanding at any time, and each Borrowing
of LIBOR Loans when made shall be in a minimum amount of $2,000,000, or an
increment of $1,000,000 in excess thereof.  Upon determining LIBOR for any
Interest Period requested by Borrowers, Agent shall promptly notify Borrower
Agent thereof by telephone or electronically and, if requested by Borrower
Agent, shall confirm any telephonic notice in writing.

 

4.4.         Borrower Agent.  Each Borrower hereby designates Arctic Cat
(“Borrower Agent”) as its representative and agent for all purposes under the
Loan Documents, including requests for Loans and Letters of Credit, designation
of interest rates, delivery or receipt of communications, preparation and
delivery of Borrowing Base and financial reports, receipt and payment of
Obligations, requests for waivers, amendments or other accommodations, actions
under the Loan Documents (including in respect of compliance with covenants),
and all other dealings with Agent, Issuing Bank or any Lender.  Borrower Agent
hereby accepts such appointment.  Agent and Lenders shall be entitled to rely
upon, and shall be fully protected in relying upon, any notice or communication
(including any notice of borrowing) delivered by Borrower Agent on behalf of any
Borrower.  Agent and Lenders may give any notice or communication with a
Borrower hereunder to Borrower Agent on behalf of such Borrower.  Each of Agent,
Issuing Bank and Lenders shall have the right, in its discretion, to deal
exclusively with Borrower Agent for any or all purposes under the Loan
Documents.  Each Borrower agrees that any notice, election, communication,
representation, agreement or undertaking made on its behalf by Borrower Agent
shall be binding upon and enforceable against it.

 

4.5.         One Obligation.  The Loans, LC Obligations and other Obligations
shall constitute one general obligation of Borrowers and (unless otherwise
expressly provided in any Loan Document) shall be secured by Agent’s Lien upon
all Collateral; provided, however, that Agent and each Lender shall be deemed to
be a creditor of, and the holder of a separate claim against, each Borrower to
the extent of any Obligations jointly or severally owed by such Borrower.

 

4.6.         Effect of Termination.  On the effective date of any termination of
the Revolver Commitments, all Obligations shall be immediately due and payable,
and any Lender may terminate its and its Affiliates’ Bank Products (including,
only with the consent of Agent, any Cash Management Services).  All undertakings
of Borrowers contained in the Loan Documents shall survive any termination, and
Agent shall retain its Liens in the Collateral and all of its rights and
remedies under the Loan Documents until Full Payment of the Obligations. 
Notwithstanding Full Payment of the Obligations, Agent shall not be required to
terminate its Liens in any Collateral unless, with respect to any damages Agent
may incur as a result of the dishonor or return of Payment Items applied to
Obligations, Agent receives (a) a written agreement, executed by Borrowers and
any Person whose advances are used

 

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in whole or in part to satisfy the Obligations, indemnifying Agent and Lenders
from any such damages; or (b) such Cash Collateral as Agent, in its discretion,
deems necessary to protect against any such damages.  The provisions of Sections
2.2, 3.4, 3.6, 3.7, 3.9, 5.4, 5.8, 12, 14.2 and this Section, and the obligation
of each Obligor and Lender with respect to each indemnity given by it in any
Loan Document, shall survive Full Payment of the Obligations and any release
relating to this credit facility.

 

SECTION 5.  PAYMENTS

 

5.1.         General Payment Provisions.  All payments of Obligations shall be
made in Dollars, without offset, counterclaim or defense of any kind, free of
(and without deduction for) any Taxes, and in immediately available funds, not
later than 12:00 noon on the due date.  Any payment after such time shall be
deemed made on the next Business Day.  If any payment under the Loan Documents
shall be stated to be due on a day other than a Business Day, the due date shall
be extended to the next Business Day and such extension of time shall be
included in any computation of interest and fees.  Any payment of a LIBOR Loan
prior to the end of its Interest Period shall be accompanied by all amounts due
under Section 3.9.  Any prepayment of Loans shall be applied first to Base Rate
Loans and then to LIBOR Loans; provided, however, that as long as no Event of
Default exists, prepayments of LIBOR Loans may, at the option of Borrowers and
Agent, be held by Agent as Cash Collateral and applied to such Loans at the end
of their Interest Periods.

 

5.2.         Repayment of Revolver Loans.

 

5.2.1.          Revolver Loans shall be due and payable in full on the
Termination Date, unless payment is sooner required hereunder.  Revolver Loans
may be prepaid from time to time, without penalty or premium.  If any Asset
Disposition includes the disposition of Accounts or Inventory, then Net Proceeds
equal to the greater of (a) the net book value of such Accounts and Inventory,
or (b) the reduction in the Borrowing Base upon giving effect to such
disposition, shall be applied to the Revolver Loans.  Notwithstanding anything
herein to the contrary, if an Overadvance exists, Borrowers shall, on the sooner
of Agent’s demand or the first Business Day after any Borrower has knowledge
thereof, repay the outstanding Revolver Loans in an amount sufficient to reduce
the principal balance of Revolver Loans to the Borrowing Base.

 

5.2.2.          In addition to the foregoing, the Borrower shall make an annual
mandatory prepayment (the “Clean Down Payment”) on any Business Day which is on
or after February 1 of each calendar year, but before April 1 of each calendar
year.  The Clean Down Payment shall be in an amount equal to the then aggregate
principal amount of all Revolver Loans outstanding and shall be subject to the
payment of any additional fees and payments required pursuant to Section 3
(including, without limitation Section 3.9 contained therein) and other
applicable provisions contained herein.  After the date of the Clean Down
Payment, no Revolver Loan shall be made for a period of thirty (30) days.

 

5.3.         Payment of Other Obligations.  Obligations other than Loans,
including LC Obligations and Extraordinary Expenses, shall be paid by Borrowers
as provided in the Loan Documents or, if no payment date is specified, on
demand.

 

5.4.         Marshaling; Payments Set Aside.  None of Agent or Lenders shall be
under any obligation to marshal any assets in favor of any Obligor or against
any Obligations.  If any payment by or on behalf of Borrowers is made to Agent,
Issuing Bank or any Lender, or Agent, Issuing Bank or any Lender exercises a
right of setoff, and such payment or the proceeds of such setoff or any part
thereof is subsequently invalidated, declared to be fraudulent or preferential,
set aside or required (including pursuant to any settlement entered into by
Agent, Issuing Bank or such Lender in its discretion) to be repaid to a trustee,
receiver or any other Person, then to the extent of such recovery, the
Obligation

 

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originally intended to be satisfied, and all Liens, rights and remedies relating
thereto, shall be revived and continued in full force and effect as if such
payment had not been made or such setoff had not occurred.

 

5.5.         Post-Default Allocation of Payments.

 

5.5.1.          Allocation.  Notwithstanding anything herein to the contrary,
during an Event of Default, monies to be applied to the Obligations, whether
arising from payments by Obligors, realization on Collateral, setoff or
otherwise, shall be allocated as follows:

 

(a)           first, to all costs and expenses, including Extraordinary
Expenses, owing to Agent;

 

(b)           second, to all amounts owing to Agent on Swingline Loans;

 

(c)           third, to all amounts owing to Issuing Bank on LC Obligations;

 

(d)           fourth, to all Obligations constituting fees (excluding amounts
relating to Bank Products);

 

(e)           fifth, to all Obligations constituting interest (excluding amounts
relating to Bank Products);

 

(f)            sixth, to provide Cash Collateral for outstanding Letters of
Credit;

 

(g)           seventh, to all other Obligations, other than Bank Product Debt;
and

 

(h)           last, to Bank Product Debt.

 

Amounts shall be applied to each category of Obligations set forth above until
Full Payment thereof and then to the next category.  If amounts are insufficient
to satisfy a category, they shall be applied on a pro rata basis among the
Obligations in the category.  Amounts distributed with respect to any Bank
Product Debt shall be the lesser of the applicable Bank Product Amount last
reported to Agent or the actual Bank Product Debt as calculated by the
methodology reported to Agent for determining the amount due.  Agent shall have
no obligation to calculate the amount to be distributed with respect to any Bank
Product Debt, but may rely upon written notice of the amount (setting forth a
reasonably detailed calculation) from the Secured Party.  In the absence of such
notice, Agent may assume the amount to be distributed is the Bank Product Amount
last reported to it.  The allocations set forth in this Section are solely to
determine the rights and priorities of Agent and Lenders as among themselves,
and may be changed by agreement among them without the consent of any Obligor. 
This Section is not for the benefit of or enforceable by any Borrower or any
other Obligor.

 

5.5.2.          Erroneous Application.  Agent shall not be liable for any
application of amounts made by it in good faith and, if any such application is
subsequently determined to have been made in error, the sole recourse of any
Lender or other Person to which such amount should have been made shall be to
recover the amount from the Person that actually received it (and, if such
amount was received by any Lender, such Lender hereby agrees to return it).

 

5.6.         Application of Payments.  The ledger balance in the main Dominion
Account as of the end of a Business Day shall be applied to the Obligations at
the beginning of the next Business Day.  If, as a result of such application, a
credit balance exists, the balance shall not accrue interest in favor of
Borrowers and shall be made available to Borrowers in its operating account as
long as no Default or

 

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Event of Default exists and no Revolver Loans are outstanding.  Each Borrower
irrevocably waives the right to direct the application of any payments or
Collateral proceeds, and agrees that Agent shall have the continuing, exclusive
right to apply and reapply same against the Obligations, in such manner as Agent
deems advisable, notwithstanding any entry by Agent in its records.

 

5.7.         Loan Account; Account Stated.

 

5.7.1.          Loan Account.  Agent shall maintain in accordance with its usual
and customary practices an account or accounts (“Loan Account”) evidencing the
Debt of Borrowers resulting from each Loan or issuance of a Letter of Credit
from time to time.  Any failure of Agent to record anything in the Loan Account,
or any error in doing so, shall not limit or otherwise affect the obligation of
Borrowers to pay any amount owing hereunder.  Agent may maintain a single Loan
Account in the name of Borrower Agent, and each Borrower confirms that such
arrangement shall have no effect on the joint and several character of its
liability for the Obligations.

 

5.7.2.          Entries Binding.  Entries made in the Loan Account shall
constitute presumptive evidence of the information contained therein.  If any
information contained in the Loan Account is provided to or inspected by any
Person, then such information shall be conclusive and binding on such Person for
all purposes absent manifest error, except to the extent such Person notifies
Agent in writing within 30 days after receipt or inspection that specific
information is subject to dispute.

 

5.8.         Taxes.

 

5.8.1.          Payments Free of Taxes.  Any and all payments by any Obligor on
account of any Obligations shall be made free and clear of and without reduction
or withholding for any Indemnified Taxes or Other Taxes, provided that if an
Obligor shall be required by Applicable Law to deduct any Indemnified Taxes
(including any Other Taxes) from such payments, then (a) the sum payable shall
be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
Agent, Lender or Issuing Bank, as the case may be, receives an amount equal to
the sum it would have received had no such deductions been made; (b) the Obligor
shall make such deductions; and (c) Borrowers shall timely pay the full amount
deducted to the relevant Governmental Authority in accordance with Applicable
Law.  Without limiting the foregoing, Borrowers shall timely pay all Other Taxes
to the relevant Governmental Authorities.

 

5.8.2.          Payment.  Borrowers shall indemnify, hold harmless and reimburse
Agent, Lenders and Issuing Bank, within 10 days after demand therefor, for the
full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable under
this Section) paid by Agent, any Lender or Issuing Bank with respect to any
Obligations, Letters of Credit or Loan Documents, and any penalties, interest
and reasonable expenses arising therefrom or with respect thereto, whether or
not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority.  A certificate as to the amount
of such payment or liability delivered to Borrower Agent by a Lender or Issuing
Bank (with a copy to Agent), or by Agent, shall be conclusive absent manifest
error.  As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by a Borrower, Borrower Agent shall deliver to Agent a receipt issued by
the Governmental Authority evidencing such payment or other evidence of payment
satisfactory to Agent.

 

5.9.         Foreign Lenders.

 

5.9.1.          Exemption.  Any Foreign Lender that is entitled to an exemption
from or reduction of withholding tax under the law of the jurisdiction in which
an Obligor is resident for tax

 

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purposes, or any treaty to which such jurisdiction is a party, with respect to
payments under any Loan Document shall deliver to Agent and Borrower Agent, at
the time or times prescribed by Applicable Law or reasonably requested by Agent
or Borrower Agent, such properly completed and executed documentation prescribed
by Applicable Law as will permit such payments to be made without withholding or
at a reduced rate of withholding.  In addition, any Lender, if requested by
Agent or Borrower Agent, shall deliver such other documentation prescribed by
Applicable Law or reasonably requested by Agent or Borrower Agent as will enable
Agent and Borrower Agent to determine whether or not such Lender is subject to
backup withholding or information reporting requirements.

 

5.9.2.          Documentation.  Without limiting the generality of the
foregoing, if a Borrower is resident for tax purposes in the United States, a
Foreign Lender shall deliver to Agent and Borrower Agent (in such number of
copies as shall be requested by the recipient) on or prior to the date on which
such Foreign Lender becomes a Lender hereunder (and from time to time thereafter
upon the request of Agent or Borrower Agent, but only if such Foreign Lender is
legally entitled to do so), (a) duly completed copies of IRS Form W-8BEN
claiming eligibility for benefits of an income tax treaty to which the United
States is a party; (b) duly completed copies of IRS Form W-8ECI; (c) in the case
of a Foreign Lender claiming the benefits of the exemption for portfolio
interest under section 881(c) of the Code, (i) a certificate to the effect that
such Foreign Lender is not (A) a “bank” within the meaning of section
881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of any Obligor within
the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled foreign
corporation” described in section 881(c)(3)(C) of the Code, and (ii) duly
completed copies of IRS Form W-8BEN; or (d) any other form prescribed by
Applicable Law as a basis for claiming exemption from or a reduction in United
States federal withholding tax, duly completed together with such supplementary
documentation as may be prescribed by Applicable Law to permit Borrowers to
determine the withholding or deduction required to be made.

 

5.10.       Nature and Extent of Each Borrower’s Liability.

 

5.10.1.        Joint and Several Liability.  Each Borrower agrees that it is
jointly and severally liable for, and absolutely and unconditionally guarantees
to Agent and Lenders the prompt payment and performance of, all Obligations and
all other agreements of the Borrowers under the Loan Documents.  Each Borrower
agrees that its guaranty obligations hereunder constitute a continuing guaranty
of payment and not of collection, that such obligations shall not be discharged
until Full Payment of the Obligations, and that such obligations are absolute
and unconditional, irrespective of (a) the genuineness, validity, regularity,
enforceability, subordination or any future modification of, or change in, any
Obligations or Loan Document, or any other document, instrument or agreement to
which any Obligor is or may become a party or be bound; (b) the absence of any
action to enforce this Agreement (including this Section) or any other Loan
Document, or any waiver, consent or indulgence of any kind by Agent or any
Lender with respect thereto; (c) the existence, value or condition of, or
failure to perfect a Lien or to preserve rights against, any security or
guaranty for the Obligations or any action, or the absence of any action, by
Agent or any Lender in respect thereof (including the release of any security or
guaranty); (d) the insolvency of any Obligor; (e) any election by Agent or any
Lender in an Insolvency Proceeding for the application of Section 1111(b)(2) of
the Bankruptcy Code; (f) any borrowing or grant of a Lien by any other Borrower,
as debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise;
(g) the disallowance of any claims of Agent or any Lender against any Obligor
for the repayment of any Obligations under Section 502 of the Bankruptcy Code or
otherwise; or (h) any other action or circumstances that might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
except Full Payment of all Obligations.

 

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5.10.2.        Waivers.

 

(a)           Each Borrower expressly waives all rights that it may have now or
in the future under any statute, at common law, in equity or otherwise, to
compel Agent or Lenders to marshal assets or to proceed against any Obligor,
other Person or security for the payment or performance of any Obligations
before, or as a condition to, proceeding against such Borrower.  Each Borrower
waives all defenses available to a surety, guarantor or accommodation co-obligor
other than Full Payment of all Obligations.  It is agreed among each Borrower,
Agent and Lenders that the provisions of this Section 5.10 are of the essence of
the transaction contemplated by the Loan Documents and that, but for such
provisions, Agent and Lenders would decline to make Loans and issue Letters of
Credit.  Each Borrower acknowledges that its guaranty pursuant to this
Section is necessary to the conduct and promotion of its business, and can be
expected to benefit such business.

 

(b)           Agent and Lenders may, in their discretion, pursue such rights and
remedies as they deem appropriate, including realization upon Collateral or any
Real Estate by judicial foreclosure or non-judicial sale or enforcement, without
affecting any rights and remedies under this Section 5.10.  If, in taking any
action in connection with the exercise of any rights or remedies, Agent or any
Lender shall forfeit any other rights or remedies, including the right to enter
a deficiency judgment against any Borrower or other Person, whether because of
any Applicable Laws pertaining to “election of remedies” or otherwise, each
Borrower consents to such action and waives any claim based upon it, even if the
action may result in loss of any rights of subrogation that any Borrower might
otherwise have had.  Any election of remedies that results in denial or
impairment of the right of Agent or any Lender to seek a deficiency judgment
against any Borrower shall not impair any other Borrower’s obligation to pay the
full amount of the Obligations.  Each Borrower waives all rights and defenses
arising out of an election of remedies, such as nonjudicial foreclosure with
respect to any security for the Obligations, even though that election of
remedies destroys such Borrower’s rights of subrogation against any other
Person.  Agent may bid all or a portion of the Obligations at any foreclosure or
trustee’s sale or at any private sale, and the amount of such bid need not be
paid by Agent but shall be credited against the Obligations.  The amount of the
successful bid at any such sale, whether Agent or any other Person is the
successful bidder, shall be conclusively deemed to be the fair market value of
the Collateral, and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations guaranteed under this Section 5.10, notwithstanding that any present
or future law or court decision may have the effect of reducing the amount of
any deficiency claim to which Agent or any Lender might otherwise be entitled
but for such bidding at any such sale.

 

5.10.3.        Extent of Liability; Contribution.

 

(a)           Notwithstanding anything herein to the contrary, each Borrower’s
liability under this Section 5.10 shall be limited to the greater of (i) all
amounts for which such Borrower is primarily liable, as described below, and
(ii) such Borrower’s Allocable Amount.

 

(b)           If any Borrower makes a payment under this Section 5.10 of any
Obligations (other than amounts for which such Borrower is primarily liable) (a
“Guarantor Payment”) that, taking into account all other Guarantor Payments
previously or concurrently made by any other Borrower, exceeds the amount that
such Borrower would otherwise have paid if each Borrower had paid the aggregate
Obligations satisfied by such Guarantor Payments in the same proportion that
such Borrower’s Allocable Amount bore to the total Allocable Amounts of all
Borrowers, then such Borrower shall be entitled to receive contribution and
indemnification payments from, and to be reimbursed by, each other Borrower for
the amount of such excess, pro rata based upon their respective Allocable
Amounts in effect immediately prior to such Guarantor Payment.  The “Allocable
Amount” for any Borrower shall be the maximum amount that could then be
recovered from such Borrower under this Section 5.10 without

 

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rendering such payment voidable under Section 548 of the Bankruptcy Code or
under any applicable state fraudulent transfer or conveyance act, or similar
statute or common law.

 

(c)           Nothing contained in this Section 5.10 shall limit the liability
of any Borrower to pay Loans made directly or indirectly to that Borrower
(including Loans advanced to any other Borrower and then re-loaned or otherwise
transferred to, or for the benefit of, such Borrower), LC Obligations relating
to Letters of Credit issued to support such Borrower’s business, and all accrued
interest, fees, expenses and other related Obligations with respect thereto, for
which such Borrower shall be primarily liable for all purposes hereunder.  Agent
and Lenders shall have the right, at any time in their discretion, to condition
Loans and Letters of Credit upon a separate calculation of borrowing
availability for each Borrower and to restrict the disbursement and use of such
Loans and Letters of Credit to such Borrower.

 

5.10.4.        Joint Enterprise.  Each Borrower has requested that Agent and
Lenders make this credit facility available to Borrowers on a combined basis, in
order to finance Borrowers’ business most efficiently and economically. 
Borrowers’ business is a mutual and collective enterprise, and Borrowers believe
that consolidation of their credit facility will enhance the borrowing power of
each Borrower and ease the administration of their relationship with Lenders,
all to the mutual advantage of Borrowers.  Borrowers acknowledge and agree that
Agent’s and Lenders’ willingness to extend credit to Borrowers and to administer
the Collateral on a combined basis, as set forth herein, is done solely as an
accommodation to Borrowers and at Borrowers’ request.

 

5.10.5.        Subordination.  Each Borrower hereby subordinates any claims,
including any rights at law or in equity to payment, subrogation, reimbursement,
exoneration, contribution, indemnification or set off, that it may have at any
time against any other Obligor, howsoever arising, to the Full Payment of all
Obligations.

 

SECTION 6.  CONDITIONS PRECEDENT

 

6.1.         Conditions Precedent to Initial Loans.  In addition to the
conditions set forth in Section 6.2, Agent, Issuing Bank and Lenders shall not
be required to fund any Loans, issue or arrange for issuance of any Letters of
Credit, or otherwise extend credit or grant any other accommodation to or for
the benefit of Borrowers, until the date (“Closing Date”) that each of the
following conditions has been satisfied:

 

(a)           Notes shall have been executed by Borrowers and delivered to each
Lender that requests issuance of a Note.  Each other Loan Document shall have
been duly executed and delivered to Agent by each of the signatories thereto,
and each Obligor shall be in compliance with all terms thereof.

 

(b)           Agent shall have received acknowledgments of all filings or
recordations necessary to perfect its Liens in the Collateral, as well as UCC
and Lien searches and other evidence satisfactory to Agent that such Liens are
the only Liens upon the Collateral, except Permitted Liens.

 

(c)           Agent shall have received the Real Estate Related Documents for
all Real Estate subject to a Mortgage, landlord agreements for the Borrowers’
office located in Plymouth, Minnesota, and bailee or warehouseman agreements for
each of the Borrowers’ leased locations in the United States and Canada, each in
form and substance satisfactory to Agent.

 

(d)           Agent shall have received duly executed agreements establishing
each Dominion Account and related lockbox, in form and substance, and with
financial institutions, satisfactory to Agent.

 

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(e)           Agent shall have received duly executed account control agreements
establishing Agent’s control over each of the Borrowers’ accounts at banking and
financial institutions other than Bank of America, each in form and substance
satisfactory to Agent.

 

(f)            Agent shall have received certificates, in form and substance
satisfactory to it, from a knowledgeable Senior Officer of Borrower Agent
certifying that, after giving effect to the initial Loans and transactions
hereunder, (i) each Borrower is Solvent; (ii) no Default or Event of Default
exists; (iii) the representations and warranties set forth in Section 9, in the
Fee Letter and in all other documents previously delivered by one or more
Borrowers to Agent are true and correct; (iv) each Borrower has complied with
all agreements and conditions to be satisfied by it under the Loan Documents and
has obtained all governmental and third party consents and approvals as may be
appropriate or required in connection with the Loan Documents; and (v) to the
best of Borrowers’ knowledge, the Dealer Finance Agreements are sufficient in
all materials respects for the financing needs of the Borrowers’ dealers.

 

(g)           Agent shall have received a certificate of a duly authorized
officer of each Obligor, certifying (i) that attached copies of such Obligor’s
Organic Documents are true and complete, and in full force and effect, without
amendment except as shown; (ii) that an attached copy of resolutions authorizing
execution and delivery of the Loan Documents is true and complete, and that such
resolutions are in full force and effect, were duly adopted, have not been
amended, modified or revoked, and constitute all resolutions adopted with
respect to this credit facility; and (iii) to the title, name and signature of
each Person authorized to sign the Loan Documents.  Agent may conclusively rely
on this certificate until it is otherwise notified by the applicable Obligor in
writing.

 

(h)           Agent shall have received a written opinion of Robins, Kaplan,
Miller & Ciresi L.L.P., as well as any local counsel to Borrowers or Agent, in
form and substance satisfactory to Agent.

 

(i)            Agent shall have received copies of the charter documents of each
Obligor, certified by the Secretary of State or other appropriate official of
such Obligor’s jurisdiction of organization.  Agent shall have received good
standing certificates for each Obligor, issued by the Secretary of State or
other appropriate official of such Obligor’s jurisdiction of organization and
each jurisdiction where such Obligor’s conduct of business or ownership of
Property necessitates qualification.

 

(j)            Agent shall have received copies of policies or certificates of
insurance for the insurance policies carried by Borrowers (including
certificates naming Agent as loss payee or additional insured, as applicable),
all in compliance with the Loan Documents.

 

(k)           Agent shall have completed its business, financial and legal due
diligence of Obligors, including a roll-forward of its previous field
examination and a review of the Borrowers’ capital structure and indebtedness,
with results satisfactory to Agent.  No material adverse change in the financial
condition of any Obligor or in the quality, quantity or value of any Collateral
shall have occurred since March 31, 2009, and no change, occurrence or
development shall have occurred or become known to Agent since March 31, 2009,
that would reasonably be expected to have a Material Adverse Effect on the
Borrowers and their subsidiaries, taken as a whole.

 

(l)            Borrowers shall have paid all fees and expenses to be paid to
Agent and Lenders on the Closing Date.

 

(m)          Agent shall have received a Borrowing Base Certificate prepared as
of October 30, 2009.  Upon giving effect to the initial funding of Loans and
issuance of Letters of Credit, and the payment by Borrowers of all fees and
expenses incurred in connection herewith as well as any payables stretched
beyond their customary payment practices, Availability shall be at least
$10,000,000.

 

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(n)           Agent shall have received, in form and substance satisfactory to
it, interim financial statements for the Borrowers for the periods ending
August 31, 2009, and September 30, 2009, in each case with results that are
materially consistent with the results provided by the Borrowers to Agent on
October 6, 2009.

 

(o)           Arctic Cat shall have committed to and entered into a new Dealer
Finance Agreement for its U.S. dealers in a principal amount of at least
$300,000,000.

 

(p)           Borrowers and Agent shall have received a payoff letter from Wells
Fargo with respect to the Borrowers’ preexisting credit facility, which payoff
letter shall be in form and substance satisfactory to Agent.

 

(q)           There shall have been an absence of any material disruption or any
material adverse change in the conditions of the financial, banking and credit
markets that Agent, in its sole discretion, deems material in connection with
the syndication of the Obligations hereunder.

 

6.2.         Conditions Precedent to All Credit Extensions.  Agent, Issuing Bank
and Lenders shall not be required to fund any Loans, arrange for issuance of any
Letters of Credit or grant any other accommodation to or for the benefit of
Borrowers, unless the following conditions are satisfied:

 

(a)           No Default or Event of Default shall exist at the time of, or
result from, such funding, issuance or grant;

 

(b)           The representations and warranties of each Obligor in the Loan
Documents shall be true and correct on the date of, and upon giving effect to,
such funding, issuance or grant (except for representations and warranties that
expressly relate to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date);

 

(c)           All conditions precedent in any other Loan Document shall be
satisfied;

 

(d)           No event shall have occurred or circumstance exist that has or
could reasonably be expected to have a Material Adverse Effect; and

 

(e)           With respect to issuance of a Letter of Credit, the LC Conditions
shall be satisfied.

 

Each request (or deemed request) by Borrowers for funding of a Loan, issuance of
a Letter of Credit or grant of an accommodation shall constitute a
representation by Borrowers that the foregoing conditions are satisfied on the
date of such request and on the date of such funding, issuance or grant.  As an
additional condition to any funding, issuance or grant, Agent shall have
received such other information, documents, instruments and agreements as it
deems appropriate in connection therewith.

 

6.3.         Limited Waiver of Conditions Precedent.  If Agent, Issuing Bank or
Lenders fund any Loans, arrange for issuance of any Letters of Credit or grant
any other accommodation when any conditions precedent are not satisfied
(regardless of whether the lack of satisfaction was known or unknown at the
time), it shall not operate as a waiver of (a) the right of Agent, Issuing Bank
and Lenders to insist upon satisfaction of all conditions precedent with respect
to any subsequent funding, issuance or grant; nor (b) any Default or Event of
Default due to such failure of conditions or otherwise.

 

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SECTION 7.  COLLATERAL

 

7.1.         Grant of Security Interest.  To secure the prompt payment and
performance of all Obligations, each Borrower hereby grants to Agent, for the
benefit of Secured Parties, a continuing security interest in and Lien upon all
personal Property of such Borrower, including all of the following Property,
whether now owned or hereafter acquired, and wherever located:

 

(a)           all Accounts;

 

(b)           all Chattel Paper, including electronic chattel paper;

 

(c)           all Commercial Tort Claims;

 

(d)           all Deposit Accounts;

 

(e)           all Documents;

 

(f)            all General Intangibles, including Intellectual Property;

 

(g)           all Goods, including Inventory, Equipment and fixtures;

 

(h)           all Instruments;

 

(i)            all Investment Property;

 

(j)            all Letter-of-Credit Rights;

 

(k)           all Supporting Obligations;

 

(l)            all monies, whether or not in the possession or under the control
of Agent, a Lender, or a bailee or Affiliate of Agent or a Lender, including any
Cash Collateral;

 

(m)          all accessions to, substitutions for, and all replacements,
products, and cash and non-cash proceeds of the foregoing, including proceeds of
and unearned premiums with respect to insurance policies, and claims against any
Person for loss, damage or destruction of any Collateral; and

 

(n)           all books and records (including customer lists, files,
correspondence, tapes, computer programs, print-outs and computer records)
pertaining to the foregoing.

 

7.2.         Lien on Deposit Accounts; Cash Collateral.

 

7.2.1.          Deposit Accounts.  To further secure the prompt payment and
performance of all Obligations, each Borrower hereby grants to Agent, for the
benefit of Secured Parties, a continuing security interest in and Lien upon all
amounts credited to any Deposit Account of such Borrower, including any sums in
any blocked or lockbox accounts or in any accounts into which such sums are
swept.  Each Borrower authorizes and directs each bank or other depository to
deliver to Agent, on a daily basis, all balances in each Deposit Account
maintained by such Borrower with such depository for application to the
Obligations then outstanding.  Each Borrower irrevocably appoints Agent as such
Borrower’s attorney-in-fact to collect such balances to the extent any such
delivery is not so made.

 

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7.2.2.          Cash Collateral.  Any Cash Collateral may be invested, at
Agent’s discretion, in Cash Equivalents, but Agent shall have no duty to do so,
regardless of any agreement or course of dealing with any Borrower, and shall
have no responsibility for any investment or loss.  Each Borrower hereby grants
to Agent, for the benefit of Secured Parties, a security interest in all Cash
Collateral held from time to time and all proceeds thereof, as security for the
Obligations, whether such Cash Collateral is held in a Cash Collateral Account
or elsewhere.  Agent may apply Cash Collateral to the payment of any
Obligations, in such order as Agent may elect, as they become due and payable. 
Each Cash Collateral Account and all Cash Collateral shall be under the sole
dominion and control of Agent.  No Borrower or other Person claiming through or
on behalf of any Borrower shall have any right to any Cash Collateral, until
Full Payment of all Obligations.

 

7.3.         Real Estate Collateral.

 

7.3.1.          Lien on Real Estate.  The Obligations shall also be secured by
Mortgages upon all Real Estate owned by Borrowers, including all owned Real
Estate located in Thief River Falls, Minnesota; St. Cloud, Minnesota; Island
Park, Idaho; and Bucyrus, Ohio.  The Mortgages shall be duly recorded, at
Borrowers’ expense, in each office where such recording is required to
constitute a fully perfected Lien on the Real Estate covered thereby.  If any
Borrower acquires Real Estate hereafter, Borrowers shall, within 30 days,
execute, deliver and record a Mortgage sufficient to create a first priority
Lien in favor of Agent on such Real Estate, and shall deliver all Real Estate
Related Documents.

 

7.3.2.          Collateral Assignment of Leases.  To further secure the prompt
payment and performance of all Obligations, each Borrower hereby transfers and
assigns to Agent, for the benefit of Secured Parties, all of such Borrower’s
right, title and interest in, to and under all now or hereafter existing leases
of real Property to which such Borrower is a party, whether as lessor or lessee,
and all extensions, renewals, modifications and proceeds thereof.

 

7.4.         Other Collateral.

 

7.4.1.          Commercial Tort Claims.  Borrowers shall promptly notify Agent
in writing if any Borrower has a Commercial Tort Claim (other than, as long as
no Default or Event of Default exists, a Commercial Tort Claim for less than
$100,000) and, upon Agent’s request, shall promptly take such actions as Agent
deems appropriate to confer upon Agent (for the benefit of Secured Parties) a
duly perfected, first priority Lien upon such claim.

 

7.4.2.          Certain After-Acquired Collateral.  Borrowers shall promptly
notify Agent in writing if, after the Closing Date, any Borrower obtains any
interest in any Collateral consisting of Deposit Accounts, Chattel Paper,
Documents, Instruments, Intellectual Property, Investment Property or
Letter-of-Credit Rights and, upon Agent’s request, shall promptly take such
actions as Agent deems appropriate to effect Agent’s duly perfected, first
priority Lien upon such Collateral, including obtaining any appropriate
possession, control agreement or Lien Waiver.  If any Collateral is in the
possession of a third party, at Agent’s request, Borrowers shall obtain an
acknowledgment that such third party holds the Collateral for the benefit of
Agent.

 

7.5.         No Assumption of Liability.  The Lien on Collateral granted
hereunder is given as security only and shall not subject Agent or any Lender
to, or in any way modify, any obligation or liability of Borrowers relating to
any Collateral.

 

7.6.         Further Assurances.  Promptly upon request, Borrowers shall deliver
such instruments, assignments, title certificates, or other documents or
agreements, and shall take such actions, as Agent deems appropriate under
Applicable Law to evidence or perfect its Lien on any Collateral, or otherwise
to

 

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give effect to the intent of this Agreement.  Each Borrower authorizes Agent to
file any financing statement that indicates the Collateral as “all assets” or
“all personal property” of such Borrower, or words to similar effect, and
ratifies any action taken by Agent before the Closing Date to effect or perfect
its Lien on any Collateral.

 

7.7.         Foreign Subsidiary Stock.  Notwithstanding Section 7.1, the
Collateral shall include only 65% of the voting stock of Arctic Cat ACE Holding
GmbH.

 

SECTION 8.  COLLATERAL ADMINISTRATION

 

8.1.         Borrowing Base Certificates.  By the 15th day of each month and at
such other times as Agent may request, Borrowers shall deliver to Agent (and
Agent shall promptly deliver same to Lenders) a Borrowing Base Certificate
prepared as of the close of business of the previous month or calendar week (as
applicable).  By Tuesday of each calendar week from June 1 through November 30
of each year, Borrowers shall also deliver to Agent (and Agent shall promptly
deliver same to Lenders) a Borrowing Base Certificate prepared as of the close
of business of the previous calendar week, provided, however that such weekly
Borrowing Base Certificates shall be required only when (a) Availability is at
any time during such calendar week less than $25,000,000 or (b) Availability has
been greater than $25,000,000 for less than 30 consecutive days.  All
calculations of Availability in any Borrowing Base Certificate shall originally
be made by Borrowers and certified by a Senior Officer, provided that Agent may
from time to time review and adjust any such calculation (a) to reflect its
reasonable estimate of declines in value of any Collateral, due to collections
received in the Dominion Account or otherwise; (b) to adjust advance rates to
reflect changes in dilution, quality, mix and other factors affecting
Collateral; and (c) to the extent the calculation is not made in accordance with
this Agreement or does not accurately reflect the Availability Reserve.

 

8.2.         Administration of Accounts.

 

8.2.1.          Records and Schedules of Accounts.  Each Borrower shall keep
accurate and complete records of its Accounts, including all payments and
collections thereon, and shall submit to Agent sales, collection, reconciliation
and other reports in form satisfactory to Agent, on such periodic basis as Agent
may request.  Each Borrower shall also provide to Agent, on or before the 15th
day of each month, a detailed aged trial balance of all Accounts as of the end
of the preceding month, specifying each Account’s Account Debtor name and
address, amount, invoice date and due date, showing any discount, allowance,
credit, authorized return or dispute, and copies of all new, replacement, or
renewal letters of credit relating to such Accounts (provided, however, that
Borrowers shall not be required to deliver copies of letters of credit to the
extent that such letters of credit have been previously delivered to Agent).  At
Agent’s request, each Borrower shall also provide to Agent, on or before the
15th day of each month for each Account, proof of delivery, copies of invoices
and invoice registers, copies of related documents, repayment histories, status
reports and other information as Agent may reasonably request.  If Accounts in
an aggregate face amount of $500,000 or more cease to be Eligible Accounts,
Borrowers shall notify Agent of such occurrence promptly (and in any event
within one Business Day) after any Borrower has knowledge thereof.

 

8.2.2.          Taxes.  If an Account of any Borrower includes a charge for any
Taxes, Agent is authorized, in its discretion, to pay the amount thereof to the
proper taxing authority for the account of such Borrower and to charge Borrowers
therefor; provided, however, that neither Agent nor Lenders shall be liable for
any Taxes that may be due from Borrowers or with respect to any Collateral.

 

8.2.3.          Account Verification.  Whether or not a Default or Event of
Default exists, Agent shall have the right at any time, in the name of Agent,
any designee of Agent or any Borrower, to

 

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verify the validity, amount or any other matter relating to any Accounts of
Borrowers by mail, telephone or otherwise.  Borrowers shall cooperate fully with
Agent in an effort to facilitate and promptly conclude any such verification
process.

 

8.2.4.          Maintenance of Dominion Account.  Borrowers shall maintain
Dominion Accounts in the United States and in Canada with Bank of America
pursuant to lockbox or other arrangements acceptable to Agent.  Borrowers shall
obtain an agreement (in form and substance satisfactory to Agent) from each
lockbox servicer and Dominion Account bank, establishing Agent’s control over
and Lien in the lockbox or Dominion Account, requiring immediate deposit of all
remittances received in the lockbox to a Dominion Account, and waiving offset
rights of such servicer or bank, except for customary administrative charges.
Neither Agent nor Lenders assume any responsibility to Borrowers for any lockbox
arrangement or Dominion Account, including any claim of accord and satisfaction
or release with respect to any Payment Items accepted by any bank.

 

8.2.5.          Proceeds of Collateral.  Borrowers shall request in writing and
otherwise take all necessary steps to ensure that all payments on Accounts or
otherwise relating to Collateral are made directly to a Dominion Account (or a
lockbox relating to a Dominion Account).  If any Borrower or Subsidiary receives
cash or Payment Items with respect to any Collateral, it shall hold same in
trust for Agent and promptly (not later than the next Business Day) deposit same
into a Dominion Account.

 

8.3.         Administration of Inventory.

 

8.3.1.          Records and Reports of Inventory.  Each Borrower shall keep
accurate and complete records of its Inventory, including costs and daily
withdrawals and additions, and shall submit to Agent inventory and
reconciliation reports in form satisfactory to Agent, on such periodic basis as
Agent may request.  Each Borrower shall either conduct a full physical inventory
or a full cycle count of inventory at least once per calendar year (and on a
more frequent basis if requested by Agent when an Event of Default exists) and
periodic cycle counts consistent with historical practices, and shall provide to
Agent a report based on each such inventory and count promptly upon completion
thereof, together with such supporting information as Agent may request.  Agent
may participate in and observe each physical count.

 

8.3.2.          Returns of Inventory.  No Borrower shall return any Inventory to
a supplier, vendor or other Person, whether for cash, credit or otherwise,
unless (a) such return is in the Ordinary Course of Business; (b) no Default,
Event of Default or Overadvance exists or would result therefrom; (c) Agent is
promptly notified if the aggregate Value of all Inventory returned in any month
exceeds $1,000,000; and (d) any payment received by a Borrower for a return is
promptly remitted to Agent for application to the Obligations.

 

8.3.3.          Acquisition, Sale and Maintenance.  No Borrower shall acquire or
accept any Inventory on consignment or approval, and shall take all steps to
assure that all Inventory is produced in accordance with Applicable Law,
including the FLSA.  No Borrower shall sell any Inventory on consignment or
approval or any other basis under which the customer may return or require a
Borrower to repurchase such Inventory.  Borrowers shall use, store and maintain
all Inventory with reasonable care and caution, in accordance with applicable
standards of any insurance and in conformity with all Applicable Law, and shall
make current rent payments (within applicable grace periods provided for in
leases) at all locations where any Collateral is located.

 

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8.4.         Administration of Equipment.

 

8.4.1.          Records and Schedules of Equipment.  Each Borrower shall keep
accurate and complete records of its Equipment, including kind, quantity, cost,
acquisitions and dispositions thereof, and shall submit to Agent, on such
periodic basis as Agent may request, a current schedule thereof, in form
satisfactory to Agent.  Promptly upon request, Borrowers shall deliver to Agent
evidence of their ownership or interests in any Equipment.

 

8.4.2.          Dispositions of Equipment.  No Borrower shall sell, lease or
otherwise dispose of any Equipment, without the prior written consent of Agent,
other than (a) a Permitted Asset Disposition; and (b) replacement of Equipment
that is worn, damaged or obsolete with Equipment of like function and value, if
the replacement Equipment is acquired substantially contemporaneously with such
disposition and is free of Liens.

 

8.4.3.          Condition of Equipment.  The Equipment is in good operating
condition and repair, and all necessary replacements and repairs have been made
so that the value and operating efficiency of the Equipment is preserved at all
times, reasonable wear and tear excepted.  Each Borrower shall ensure that the
Equipment is mechanically and structurally sound, and capable of performing the
functions for which it was designed, in accordance with manufacturer
specifications.  No Borrower shall permit any Equipment to become affixed to
real Property unless any landlord or mortgagee delivers a Lien Waiver.

 

8.5.         Administration of Deposit Accounts.  Schedule 8.5 sets forth all
Deposit Accounts maintained by Borrowers, including all Dominion Accounts.  Each
Borrower shall take all actions necessary to establish Agent’s control of each
such Deposit Account (other than an account exclusively used for payroll,
payroll taxes or employee benefits, or an account containing not more that
$10,000 at any time).  Each Borrower shall be the sole account holder of each
Deposit Account and shall not allow any other Person (other than Agent) to have
control over a Deposit Account or any Property deposited therein.  Each Borrower
shall promptly notify Agent of any opening or closing of a Deposit Account and,
with the consent of Agent, will amend Schedule 8.5 to reflect same.

 

8.6.         General Provisions.

 

8.6.1.          Location of Collateral.  All tangible items of Collateral, other
than Inventory in transit, shall at all times be kept by Borrowers at the
business locations set forth in Schedule 8.6.1, except that Borrowers may
(a) make sales or other dispositions of Collateral in accordance with
Section 10.2.5; and (b) move Collateral to another location in the United
States, upon 30 Business Days prior written notice to Agent.

 

8.6.2.          Insurance of Collateral; Condemnation Proceeds.

 

(a)           Each Borrower shall maintain insurance with respect to the
Collateral, covering casualty, hazard, public liability, theft, malicious
mischief, flood and other risks, in amounts, with endorsements and with insurers
(with a Best Rating of at least A7, unless otherwise approved by Agent)
satisfactory to Agent.  All proceeds under each policy shall be payable to
Agent.  From time to time upon request, Borrowers shall deliver to Agent the
originals or certified copies of its insurance policies and updated flood plain
searches.  Unless Agent shall agree otherwise, each policy shall include
satisfactory endorsements (i) showing Agent as sole loss payee or additional
insured, as appropriate; (ii) requiring 30 days prior written notice to Agent in
the event of cancellation of the policy for any reason whatsoever; and
(iii) specifying that the interest of Agent shall not be impaired or invalidated
by any act or neglect of any Borrower or the owner of the Property, nor by the
occupation of the premises for purposes more

 

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hazardous than are permitted by the policy.  If any Borrower fails to provide
and pay for any insurance, Agent may, at its option, but shall not be required
to, procure the insurance and charge Borrowers therefor.  Each Borrower agrees
to deliver to Agent, promptly as rendered, copies of all reports made to
insurance companies.  While no Event of Default exists, Borrowers may settle,
adjust or compromise any insurance claim, as long as the proceeds are delivered
to Agent.  If an Event of Default exists, only Agent shall be authorized to
settle, adjust and compromise such claims.

 

(b)           Any proceeds of insurance (other than proceeds from workers’
compensation or D&O insurance) and any awards arising from condemnation of any
Collateral shall be paid to Agent and, subject to clause (c) below, shall be
applied to payment of the Revolver Loans, and then to any other Obligations
outstanding.

 

(c)           If requested by Borrowers in writing within 15 days after Agent’s
receipt of any insurance proceeds or condemnation awards relating to any loss or
destruction of Equipment or Real Estate, Borrowers may use such proceeds or
awards to repair or replace such Equipment or Real Estate (and until so used,
the proceeds shall be held by Agent as Cash Collateral) as long as (i) no
Default or Event of Default exists; (ii) such repair or replacement is promptly
undertaken and concluded, in accordance with plans satisfactory to Agent;
(iii) replacement buildings are constructed on the sites of the original
casualties and are of comparable size, quality and utility to the destroyed
buildings; (iv) the repaired or replaced Property is free of Liens, other than
Permitted Liens that are not Purchase Money Liens; (v) Borrowers comply with
disbursement procedures for such repair or replacement as Agent may reasonably
require; and (vi) the aggregate amount of such proceeds or awards from any
single casualty or condemnation does not exceed $5,000,000.

 

8.6.3.          Protection of Collateral.  All expenses of protecting, storing,
warehousing, insuring, handling, maintaining and shipping any Collateral, all
Taxes payable with respect to any Collateral (including any sale thereof), and
all other payments required to be made by Agent to any Person to realize upon
any Collateral, shall be borne and paid by Borrowers.  Agent shall not be liable
or responsible in any way for the safekeeping of any Collateral, for any loss or
damage thereto (except for reasonable care in its custody while Collateral is in
Agent’s actual possession), for any diminution in the value thereof, or for any
act or default of any warehouseman, carrier, forwarding agency or other Person
whatsoever, but the same shall be at Borrowers’ sole risk.

 

8.6.4.          Defense of Title to Collateral.  Each Borrower shall at all
times defend its title to Collateral and Agent’s Liens therein against all
Persons, claims and demands whatsoever, except Permitted Liens.

 

8.7.         Power of Attorney.  Each Borrower hereby irrevocably constitutes
and appoints Agent (and all Persons designated by Agent) as such Borrower’s true
and lawful attorney (and agent-in-fact) for the purposes provided in this
Section.  Agent, or Agent’s designee, may, without notice and in either its or a
Borrower’s name, but at the cost and expense of Borrowers:

 

(a)           Endorse a Borrower’s name on any Payment Item or other proceeds of
Collateral (including proceeds of insurance) that come into Agent’s possession
or control; and

 

(b)           During an Event of Default, (i) notify any Account Debtors of the
assignment of their Accounts, demand and enforce payment of Accounts, by legal
proceedings or otherwise, and generally exercise any rights and remedies with
respect to Accounts; (ii) settle, adjust, modify, compromise, discharge or
release any Accounts or other Collateral, or any legal proceedings brought to
collect Accounts or Collateral; (iii) sell or assign any Accounts and other
Collateral upon such terms, for such amounts and at such times as Agent deems
advisable; (iv) take control, in any manner, of any

 

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proceeds of Collateral; (v) prepare, file and sign a Borrower’s name to a proof
of claim or other document in a bankruptcy of an Account Debtor, or to any
notice, assignment or satisfaction of Lien or similar document; (vi) receive,
open and dispose of mail addressed to a Borrower, and notify postal authorities
to change the address for delivery thereof to such address as Agent may
designate; (vii) endorse any Chattel Paper, Document, Instrument, invoice,
freight bill, bill of lading, or similar document or agreement relating to any
Accounts, Inventory or other Collateral; (viii) use a Borrower’s stationery and
sign its name to verifications of Accounts and notices to Account Debtors;
(ix) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to any Collateral;
(x) make and adjust claims under policies of insurance; (xi) take any action as
may be necessary or appropriate to obtain payment under any letter of credit or
banker’s acceptance for which a Borrower is a beneficiary; and (xii) take all
other actions as Agent deems appropriate to fulfill any Borrower’s obligations
under the Loan Documents.

 

SECTION 9.  REPRESENTATIONS AND WARRANTIES

 

9.1.         General Representations and Warranties.  To induce Agent and
Lenders to enter into this Agreement and to make available the Revolver
Commitments, Revolver Loans and Letters of Credit, each Borrower represents and
warrants that:

 

9.1.1.          Organization and Qualification.  Each Borrower and Subsidiary is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.  Each Borrower and Subsidiary is duly
qualified, authorized to do business and in good standing as a foreign
corporation in each jurisdiction where failure to be so qualified could
reasonably be expected to have a Material Adverse Effect.

 

9.1.2.          Power and Authority.  Each Obligor is duly authorized to
execute, deliver and perform its Loan Documents.  The execution, delivery and
performance of the Loan Documents have been duly authorized by all necessary
action, and do not (a) require any consent or approval of any holders of Equity
Interests of any Obligor, other than those already obtained; (b) contravene the
Organic Documents of any Obligor; (c) violate or cause a default under any
Applicable Law or Material Contract; or (d) result in or require the imposition
of any Lien (other than Permitted Liens) on any Property of any Obligor.

 

9.1.3.          Enforceability.  Each Loan Document is a legal, valid and
binding obligation of each Obligor party thereto, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors’ rights generally.

 

9.1.4.          Capital Structure.  Schedule 9.1.4 shows, for each Borrower and
Subsidiary, its name, its jurisdiction of organization, its authorized and
issued Equity Interests, the holders of its Equity Interests, and all agreements
binding on such holders with respect to their Equity Interests.  Each Borrower
has good title to its Equity Interests in its Subsidiaries, subject only to
Agent’s Lien, and all such Equity Interests are duly issued, fully paid and
non-assessable.  There are no outstanding options to purchase, warrants,
subscription rights, agreements to issue or sell, convertible interests, phantom
rights or powers of attorney relating to any Equity Interests of any Borrower or
Subsidiary.

 

9.1.5.          Corporate Names; Locations.  During the five years preceding the
Closing Date, except as shown on Schedule 9.1.5, no Borrower or Subsidiary has
been known as or used any corporate, fictitious or trade names, has been the
surviving corporation of a merger or combination, or has acquired any
substantial part of the assets of any Person.  The chief executive offices and
other places of business of Borrowers and Subsidiaries that are Obligors are
shown on Schedule 8.6.1.  During the five

 

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years preceding the Closing Date, no Borrower or Subsidiary that is an Obligor
has had any other office or place of business.

 

9.1.6.          Title to Properties; Priority of Liens.  Each Borrower and
Subsidiary has good and marketable title to (or valid leasehold interests in)
all of its Real Estate, and good title to all of its personal Property,
including all Property reflected in any financial statements delivered to Agent
or Lenders, in each case free of Liens except Permitted Liens.  Each Borrower
and Subsidiary has paid and discharged all lawful claims that, if unpaid, could
become a Lien on its Properties, other than Permitted Liens.  All Liens of Agent
in the Collateral are duly perfected, first priority Liens, subject only to
Permitted Liens that are expressly allowed to have priority over Agent’s Liens.

 

9.1.7.          Accounts.  Agent may rely, in determining which Accounts are
Eligible Accounts, on all statements and representations made by Borrowers with
respect thereto.  Borrowers warrant, with respect to each Account at the time it
is shown as an Eligible Account in a Borrowing Base Certificate, that:

 

(a)           it is genuine and in all respects what it purports to be, and is
not evidenced by a judgment;

 

(b)           it arises out of a completed, bona fide sale and delivery of goods
or rendition of services in the Ordinary Course of Business, and substantially
in accordance with any purchase order, contract or other document relating
thereto;

 

(c)           it is for a sum certain, maturing as stated in the invoice
covering such sale or rendition of services, a copy of which has been furnished
or is available to Agent on request;

 

(d)           it is not subject to any offset, Lien (other than Agent’s Lien),
deduction, defense, dispute, counterclaim or other adverse condition except as
arising in the Ordinary Course of Business and disclosed to Agent; and it is
absolutely owing by the Account Debtor, without contingency in any respect;

 

(e)           no purchase order, agreement, document or Applicable Law restricts
assignment of the Account to Agent (regardless of whether, under the UCC, the
restriction is ineffective), and the applicable Borrower is the sole payee or
remittance party shown on the invoice;

 

(f)            no extension, compromise, settlement, modification, credit,
deduction or return has been authorized with respect to the Account, except
discounts or allowances granted in the Ordinary Course of Business for prompt
payment that are reflected on the face of the invoice related thereto and in the
reports submitted to Agent hereunder; and

 

(g)           to the best of Borrowers’ knowledge, (i) there are no facts or
circumstances that are reasonably likely to impair the enforceability or
collectibility of such Account; (ii) the Account Debtor had the capacity to
contract when the Account arose, continues to meet the applicable Borrower’s
customary credit standards, is not contemplating or subject to an Insolvency
Proceeding, and has not failed, or suspended or ceased doing business; and
(iii) there are no proceedings or actions threatened or pending against any
Account Debtor that could reasonably be expected to have a material adverse
effect on the Account Debtor’s financial condition.

 

9.1.8.          Financial Statements.  The consolidated and consolidating
balance sheets, and related statements of income, cash flow and shareholder’s
equity, of Borrowers and Subsidiaries that have been and are hereafter delivered
to Agent and Lenders, are prepared in accordance with GAAP, and fairly present
the financial positions and results of operations of Borrowers and Subsidiaries
at the dates and for

 

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the periods indicated.  All projections delivered from time to time to Agent and
Lenders have been prepared in good faith, based on reasonable assumptions in
light of the circumstances at such time.  Since March 31, 2009, there has been
no change in the condition, financial or otherwise, of any Borrower or
Subsidiary that could reasonably be expected to have a Material Adverse Effect. 
No financial statement delivered to Agent or Lenders at any time contains any
untrue statement of a material fact, nor fails to disclose any material fact
necessary to make such statement not materially misleading.  Each Borrower and
Subsidiary is Solvent.

 

9.1.9.          Surety Obligations.  No Borrower or Subsidiary is obligated as
surety or indemnitor under any bond or other contract that assures payment or
performance of any obligation of any Person, except as permitted hereunder.

 

9.1.10.        Taxes.  Each Borrower and Subsidiary has filed all federal, state
and local tax returns and other reports that it is required by law to file, and
has paid, or made provision for the payment of, all Taxes upon it, its income
and its Properties that are due and payable, except to the extent being Properly
Contested.  The provision for Taxes on the books of each Borrower and Subsidiary
is adequate for all years not closed by applicable statutes, and for its current
Fiscal Year.

 

9.1.11.        Brokers.  Except as shown on Schedule 9.1.11, there are no
brokerage commissions, finder’s fees or investment banking fees payable in
connection with any transactions contemplated by the Loan Documents.

 

9.1.12.        Intellectual Property. Each Borrower and Subsidiary owns or has
the lawful right to use all Intellectual Property necessary for the conduct of
its business, without conflict with any rights of others.  There is no pending
or, to any Borrower’s knowledge, threatened Intellectual Property Claim with
respect to any Borrower, any Subsidiary or any of their Property (including any
Intellectual Property).  Except as disclosed on Schedule 9.1.12, no Borrower or
Subsidiary pays or owes any Royalty or other compensation to any Person with
respect to any Intellectual Property.  All Intellectual Property owned, used or
licensed by, or otherwise subject to any interests of, any Borrower or
Subsidiary is shown on Schedule 9.1.12.

 

9.1.13.        Governmental Approvals.  Each Borrower and Subsidiary has, is in
compliance with, and is in good standing with respect to, all Governmental
Approvals necessary to conduct its business and to own, lease and operate its
Properties.  All necessary import, export or other licenses, permits or
certificates for the import or handling of any goods or other Collateral have
been procured and are in effect, and Borrowers and Subsidiaries have complied
with all foreign and domestic laws with respect to the shipment and importation
of any goods or Collateral, except where noncompliance could not reasonably be
expected to have a Material Adverse Effect.

 

9.1.14.        Compliance with Laws.  Each Borrower and Subsidiary has duly
complied, and its Properties and business operations are in compliance, in all
material respects with all Applicable Law, except where noncompliance could not
reasonably be expected to have a Material Adverse Effect.  There have been no
citations, notices or orders of material noncompliance issued to any Borrower or
Subsidiary under any Applicable Law.  No Inventory has been produced in
violation of the FLSA.

 

9.1.15.        Compliance with Environmental Laws.  Except as disclosed on
Schedule 9.1.15, no Borrower’s or Subsidiary’s past or present operations, Real
Estate or other Properties are subject to any federal, state or local
investigation to determine whether any remedial action is needed to address any
environmental pollution, hazardous material or environmental clean-up.  No
Borrower or Subsidiary has received any Environmental Notice.  No Borrower or
Subsidiary has any contingent

 

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liability with respect to any Environmental Release, environmental pollution or
hazardous material on any Real Estate now or previously owned, leased or
operated by it.

 

9.1.16.        Burdensome Contracts.  No Borrower or Subsidiary is a party or
subject to any contract, agreement or charter restriction that could reasonably
be expected to have a Material Adverse Effect.  No Borrower or Subsidiary is
party or subject to any Restrictive Agreement, except as shown on Schedule
9.1.16, none of which prohibit the execution or delivery of any Loan Documents
by an Obligor nor the performance by an Obligor of any obligations thereunder.

 

9.1.17.        Litigation.  Except as shown on Schedule 9.1.17, there are no
proceedings or investigations pending or, to any Borrower’s knowledge,
threatened against any Borrower or Subsidiary, or any of their businesses,
operations, Properties, prospects or conditions, that (a) relate to any Loan
Documents or transactions contemplated thereby; or (b) could reasonably be
expected to have a Material Adverse Effect if determined adversely.  No Borrower
or Subsidiary is in default with respect to any order, injunction or judgment of
any Governmental Authority.

 

9.1.18.        No Defaults.  No event or circumstance has occurred or exists
that constitutes a Default or Event of Default.  No Borrower or Subsidiary is in
default, and no event or circumstance has occurred or exists that with the
passage of time or giving of notice would constitute a default, under any
Material Contract or in the payment of any Borrowed Money.  There is no basis
upon which any party (other than a Borrower or Subsidiary) could terminate a
Material Contract prior to its scheduled termination date.

 

9.1.19.        ERISA.  Except as disclosed on Schedule 9.1.19:

 

(a)           Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and other federal and state laws. 
Each Plan that is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS or an application for
such a letter is currently being processed by the IRS with respect thereto and,
to the knowledge of Borrowers, nothing has occurred which would prevent, or
cause the loss of, such qualification.  Each Obligor and ERISA Affiliate has
made all required contributions to each Plan subject to Section 412 of the Code,
and no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect to any
Plan.

 

(b)           There are no pending or, to the knowledge of Borrowers, threatened
claims, actions or lawsuits, or action by any Governmental Authority, with
respect to any Plan that could reasonably be expected to have a Material Adverse
Effect.  There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan that has resulted in or could
reasonably be expected to have a Material Adverse Effect.

 

(c)           (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) no Obligor
or ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than premiums
due and not delinquent under Section 4007 of ERISA); (iv) no Obligor or ERISA
Affiliate has incurred, or reasonably expects to incur, any liability (and no
event has occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Section 4201 or 4243 of ERISA with respect
to a Multiemployer Plan; and (v) no Obligor or ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.

 

(d)           With respect to any Foreign Plan relating to Canada or employees
therein, (i) all employer and employee contributions required by law or by the
terms of the Foreign Plan have been

 

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made, or, if applicable, accrued, in accordance with normal accounting
practices; (ii) the fair market value of the assets of each funded Foreign Plan,
the liability of each insurer for any Foreign Plan funded through insurance, or
the book reserve established for any Foreign Plan, together with any accrued
contributions, is sufficient to procure or provide for the accrued benefit
obligations with respect to all current and former participants in such Foreign
Plan according to the actuarial assumptions and valuations most recently used to
account for such obligations in accordance with applicable generally accepted
accounting principles (provided that this clause (ii) shall be to the knowledge
of Borrowers with respect to any defined benefit Foreign Plans); and (iii) it
has been registered as required and has been maintained in good standing with
applicable regulatory authorities.  With respect to any Foreign Plan relating to
any country other than Canada or employees located therein, (i) such Foreign
Plan is in compliance in all material respects with all applicable laws and
terms of applicable plan documents and (ii) to the knowledge of Borrowers, the
fair market value of the assets of any funded Foreign Plan (if any), the
liability of each insurer for any Foreign Plan funded through insurance, or the
book reserve established for any Foreign Plan, together with any accrued
contributions, is sufficient to procure or provide for the accrued benefit
obligations with respect to all current and former participants in such Foreign
Plan according to the actuarial assumptions and valuations most recently used to
account for such obligations in accordance with applicable generally accepted
accounting principles.

 

9.1.20.        Trade Relations.  There exists no actual or threatened
termination, limitation or modification of any business relationship between
Arctic Cat, Arctic Cat Sales Inc., or the Borrowers and Subsidiaries taken as a
whole, on one hand, and any customer or supplier, or any group of customers or
suppliers, on the other hand, who individually or in the aggregate are material
to the business of Arctic Cat, Arctic Cat Sales Inc., or the Borrowers and
Subsidiaries taken as a whole.  There exists no condition or circumstance that
could reasonably be expected to impair the ability of any Borrower or Subsidiary
to conduct its business at any time hereafter in substantially the same manner
as conducted on the Closing Date.

 

9.1.21.        Labor Relations.  Except as described on Schedule 9.1.21, no
Borrower or Subsidiary is party to or bound by any collective bargaining
agreement, management agreement or material consulting agreement.  There are no
material grievances, disputes or controversies with any union or other
organization of any of Arctic Cat’s employees, Arctic Cat Sales Inc.’s
employees, or the employees of Borrowers and Subsidiaries as a whole, or, to any
Borrower’s knowledge, any asserted or threatened strikes, work stoppages or
demands for collective bargaining.

 

9.1.22.        Payable Practices.  Each Borrower and Subsidiary has made no
material change in its historical accounts payable practices from those in
effect on the Closing Date.

 

9.1.23.        Not a Regulated Entity.  No Obligor is (a) an “investment
company” or a “person directly or indirectly controlled by or acting on behalf
of an investment company” within the meaning of the Investment Company Act of
1940; or (b) subject to regulation under the Federal Power Act, the Interstate
Commerce Act, any public utilities code or any other Applicable Law regarding
its authority to incur Debt.

 

9.1.24.        Margin Stock.  No Borrower or Subsidiary is engaged, principally
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying any Margin Stock.  No Loan proceeds or
Letters of Credit will be used by Borrowers to purchase or carry, or to reduce
or refinance any Debt incurred to purchase or carry, any Margin Stock or for any
related purpose governed by Regulations T, U or X of the Board of Governors.

 

9.1.25.        GE Facility.  Assuming the consummation of the transactions
contemplated hereunder, GE Commercial Distribution Finance Corporation shall be
obligated to begin funding pursuant

 

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to the terms of the Vendor Agreement dated as of October 14, 2009, among Arctic
Cat, Arctic Cat Sales Inc. and GE Commercial Distribution Finance Corporation no
later than January 20, 2010.

 

9.2.         Complete Disclosure.  No Loan Document contains any untrue
statement of a material fact, nor fails to disclose any material fact necessary
to make the statements contained therein not materially misleading.  There is no
fact or circumstance that any Obligor has failed to disclose to Agent in writing
that could reasonably be expected to have a Material Adverse Effect.

 

SECTION 10.  COVENANTS AND CONTINUING AGREEMENTS

 

10.1.       Affirmative Covenants.  As long as any Revolver Commitments or
Obligations are outstanding, each Borrower shall, and shall cause each
Subsidiary to:

 

10.1.1.        Inspections; Appraisals.

 

(a)           Permit Agent from time to time, subject (except when a Default or
Event of Default exists) to reasonable notice and normal business hours, to
visit and inspect the Properties of any Borrower or Subsidiary, inspect, audit
and make extracts from any Borrower’s or Subsidiary’s books and records, and
discuss with its officers, employees, agents, advisors and independent
accountants such Borrower’s or Subsidiary’s business, financial condition,
assets, prospects and results of operations.  Lenders may participate in any
such visit or inspection, at their own expense.  Neither Agent nor any Lender
shall have any duty to any Borrower to make any inspection, nor to share any
results of any inspection, appraisal or report with any Borrower.  Borrowers
acknowledge that all inspections, appraisals and reports are prepared by Agent
and Lenders for their purposes, and Borrowers shall not be entitled to rely upon
them.

 

(b)           Reimburse Agent for all charges, costs and expenses of Agent in
connection with (i) examinations of any Obligor’s books and records or any other
financial or Collateral matters as Agent deems appropriate; and (ii) appraisals
of Inventory and, if requested, appraisals of Equipment and Real Estate. 
Subject to and without limiting the foregoing, Borrowers specifically agree to
pay Agent’s then standard charges for each day that an employee of Agent or its
Affiliates is engaged in any examination activities, and shall pay the standard
charges of Agent’s internal appraisal group.  This Section shall not be
construed to limit Agent’s right to conduct examinations or to obtain appraisals
at any time in its discretion, nor to use third parties for such purposes.

 

10.1.2.        Financial and Other Information.  Keep adequate records and books
of account with respect to its business activities, in which proper entries are
made in accordance with GAAP reflecting all financial transactions; and furnish
to Agent and Lenders:

 

(a)           as soon as available, and in any event within 90 days after the
close of each Fiscal Year, balance sheets as of the end of such Fiscal Year and
the related statements of income, cash flow and shareholders’ equity for such
Fiscal Year, on consolidated and (upon request by Agent) consolidating bases for
Borrowers and Subsidiaries, which consolidated statements shall be audited and
certified (without qualification as to scope, “going concern” or similar items)
by a firm of independent certified public accountants of recognized standing
selected by Borrowers and acceptable to Agent, and shall set forth in
comparative form corresponding figures for the preceding Fiscal Year and other
information acceptable to Agent (provided, however, that any financial
statements required to be delivered pursuant to this Section 10.1.2(a) (to the
extent such statements are included in materials otherwise filed with the
Securities and Exchange Commission) may be delivered electronically and, if so
delivered, shall be deemed to have been delivered on the date on which the
Borrowers post such documents on www.sec.gov, or provide a link thereto on the
Borrowers’ website at

 

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www.arcticcatinc.com, so long as, concurrent therewith, the Borrowers provide
each Lender and Agent with notice alerting them to such posting, together with
any additional materials required to be delivered therewith, including but not
limited to any Compliance Certificate required to be provided at such time;
provided that the Borrowers shall deliver paper copies of such documents to any
Lender that requests the Borrowers to deliver such paper copies);

 

(b)           as soon as available, and in any event within 30 days after the
end of each month (but within 60 days after the last month in a Fiscal Year),
unaudited balance sheets as of the end of such month and the related statements
of income and cash flow for such month and for the portion of the Fiscal Year
then elapsed, on consolidated and (upon request by Agent) consolidating bases
for Borrowers and Subsidiaries, setting forth in comparative form corresponding
figures for the preceding Fiscal Year and certified by the chief financial
officer of Borrower Agent as prepared in accordance with GAAP and fairly
presenting the financial position and results of operations for such month and
period, subject to normal year-end adjustments and the absence of footnotes;

 

(c)           concurrently with delivery of financial statements under clauses
(a) and (b) above, or more frequently if requested by Agent while a Default or
Event of Default exists, a Compliance Certificate executed by the chief
financial officer of Borrower Agent;

 

(d)           concurrently with delivery of financial statements under clause
(a) above, copies of all management letters and other material reports submitted
to Borrowers by their accountants in connection with such financial statements;

 

(e)           not later than 30 days after the beginning of each Fiscal Year,
projections of Borrowers’ consolidated balance sheets, results of operations,
cash flow and Availability for the next Fiscal Year, month by month;

 

(f)            at Agent’s request, a listing of each Borrower’s trade payables,
specifying the trade creditor and balance due, and a detailed trade payable
aging, all in form satisfactory to Agent;

 

(g)           promptly after the sending or filing thereof, copies of any proxy
statements, financial statements or reports that any Borrower has made generally
available to its shareholders; copies of any regular, periodic and special
reports or registration statements or prospectuses that any Borrower files with
the Securities and Exchange Commission or any other Governmental Authority, or
any securities exchange; and copies of any press releases or other statements
made available by a Borrower to the public concerning material changes to or
developments in the business of such Borrower;

 

(h)           promptly after the sending or filing thereof, copies of any annual
report to be filed in connection with each Plan or Foreign Plan;

 

(i)            promptly upon entering any amendment to or modification of any
Dealer Finance Agreement, a copy of such amendment or modification;

 

(j)            as soon as available, and in any event within 90 days after the
close of each Fiscal Year, financial statements for each Guarantor, in form and
substance satisfactory to Agent; and

 

(k)           such other reports and information (financial or otherwise) as
Agent may request from time to time in connection with any Collateral or any
Borrower’s, Subsidiary’s or other Obligor’s financial condition or business.

 

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10.1.3.        Notices.  Notify Agent and Lenders in writing, promptly after a
Borrower’s obtaining knowledge thereof, of any of the following that affects an
Obligor:  (a) the threat or commencement of any proceeding or investigation,
whether or not covered by insurance, if an adverse determination could have a
Material Adverse Effect; (b) any pending or threatened labor dispute, strike or
walkout, or the expiration of any material labor contract; (c) any default under
or termination of a Material Contract; (d) the existence of any Default or Event
of Default; (e) any judgment in an amount exceeding $2,000,000; (f) the
assertion of any Intellectual Property Claim, if an adverse resolution could
have a Material Adverse Effect; (g) any violation or asserted violation of any
Applicable Law (including ERISA, OSHA, FLSA, or any Environmental Laws), if an
adverse resolution could have a Material Adverse Effect; (h) any Environmental
Release by an Obligor or on any Property owned, leased or occupied by an
Obligor; or receipt of any Environmental Notice; (i) the occurrence of any ERISA
Event; (j) the discharge of or any withdrawal or resignation by Borrowers’
independent accountants; or (k) any opening of a new office or place of
business, at least 30 days prior to such opening.

 

10.1.4.        Landlord and Storage Agreements.  Upon request, provide Agent
with copies of all existing agreements, and promptly after execution thereof
provide Agent with copies of all future agreements, between an Obligor and any
landlord, warehouseman, processor, shipper, bailee or other Person that owns any
premises at which any Collateral may be kept or that otherwise may possess or
handle any Collateral.

 

10.1.5.        Compliance with Laws.  Comply with all Applicable Laws, including
ERISA, Environmental Laws, FLSA, OSHA, Anti-Terrorism Laws, and laws regarding
collection and payment of Taxes, and maintain all Governmental Approvals
necessary to the ownership of its Properties or conduct of its business, unless
failure to comply (other than failure to comply with Anti-Terrorism Laws) or
maintain could not reasonably be expected to have a Material Adverse Effect. 
Without limiting the generality of the foregoing, if any Environmental Release
occurs at or on any Properties of any Borrower or Subsidiary, it shall act
promptly and diligently to investigate and report to Agent and all appropriate
Governmental Authorities the extent of, and to make appropriate remedial action
to eliminate, such Environmental Release, whether or not directed to do so by
any Governmental Authority.

 

10.1.6.        Taxes.  Pay and discharge all Taxes prior to the date on which
they become delinquent or penalties attach, unless such Taxes are being Properly
Contested.

 

10.1.7.        Insurance.  In addition to the insurance required hereunder with
respect to Collateral, maintain insurance with insurers (with a Best Rating of
at least A7, unless otherwise approved by Agent) satisfactory to Agent, (a) with
respect to the Properties and business of Borrowers and Subsidiaries of such
type (including product liability, workers’ compensation, larceny, embezzlement,
or other criminal misappropriation insurance), in such amounts, and with such
coverages, endorsements, and deductibles as are customary for companies
similarly situated and otherwise acceptable to Agent; and (b) business
interruption insurance in an amount not less than $100,000,000, with deductibles
and subject to an Insurance Assignment satisfactory to Agent.

 

10.1.8.        Licenses.  Keep each License affecting any Collateral (including
the manufacture, distribution or disposition of Inventory) or any other material
Property of Borrowers and Subsidiaries in full force and effect; promptly notify
Agent of any proposed modification to any such License, or entry into any new
License, in each case at least 30 days prior to its effective date; pay all
Royalties when due; and notify Agent of any default or breach asserted by any
Person to have occurred under any License.

 

10.1.9.        Future Subsidiaries.  Promptly notify Agent upon any Person
becoming a Subsidiary and, if such Person is not a Foreign Subsidiary, cause it
to become a Borrower hereunder or to

 

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guaranty the Obligations, in Agent’s discretion in a manner satisfactory to
Agent, and to execute and deliver such documents, instruments and agreements and
to take such other actions as Agent shall require to evidence and perfect a Lien
in favor of Agent (for the benefit of Secured Parties) on all assets of such
Person, including delivery of such legal opinions, in form and substance
satisfactory to Agent, as it shall deem appropriate.

 

10.1.10.      Bank Accounts.  No later than 60 days after the date hereof,
maintain all operating, administrative, cash management,  funds transfer,
collection or lockbox activity and other deposit accounts and all other bank
products (including information reporting services and other treasury management
services) for the conduct of the Borrowers’ business with Bank of America.

 

10.1.11.      GE Facility.  GE Commercial Distribution Finance Corporation shall
begin funding pursuant to the terms of the Vendor Agreement dated as of
October 14, 2009, among Arctic Cat, Arctic Cat Sales Inc. and GE Commercial
Distribution Finance Corporation no later than January 20, 2010.

 

10.2.       Negative Covenants.  As long as any Revolver Commitments or
Obligations are outstanding, each Borrower shall not, and shall cause each
Subsidiary not to:

 

10.2.1.        Permitted Debt.  Create, incur, guarantee or suffer to exist any
Debt, except:

 

(a)           the Obligations;

 

(b)           Subordinated Debt;

 

(c)           Permitted Purchase Money Debt;

 

(d)           Borrowed Money (other than the Obligations, Subordinated Debt and
Permitted Purchase Money Debt), but only to the extent outstanding on the
Closing Date and not satisfied with proceeds of the initial Loans (including,
without limitation, Borrowed Money from the City of St. Cloud, Minnesota;
provided, however, that the amount of such Borrowed Money shall not be increased
without the consent of Agent);

 

(e)           Bank Product Debt, as long as the aggregate negative
mark-to-market obligations outstanding under Hedging Agreements do not exceed
$10,000,000 at any time;

 

(f)            Debt that is in existence when a Person becomes a Subsidiary or
that is secured by an asset when acquired by a Borrower or Subsidiary, as long
as such Debt was not incurred in contemplation of such Person becoming a
Subsidiary or such acquisition, and does not exceed $1,000,000 in the aggregate
at any time;

 

(g)           Permitted Contingent Obligations;

 

(h)           Refinancing Debt as long as each Refinancing Condition is
satisfied;

 

(i)            Obligations of the Borrowers under the Dealer Finance Agreements;
and

 

(j)            Debt that is not included in any of the preceding clauses of this
Section, is not secured by a Lien and does not exceed $5,000,000 in the
aggregate at any time.

 

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10.2.2.        Permitted Liens.  Create or suffer to exist any Lien upon any of
its Property, except the following (collectively, “Permitted Liens”):

 

(a)           Liens in favor of Agent;

 

(b)           Purchase Money Liens securing Permitted Purchase Money Debt;

 

(c)           Liens for Taxes not yet due or being Properly Contested;

 

(d)           statutory Liens (other than Liens for Taxes or imposed under
ERISA) arising in the Ordinary Course of Business, but only if (i) payment of
the obligations secured thereby is not yet due or is being Properly Contested,
and (ii) such Liens do not materially impair the value or use of the Property or
materially impair operation of the business of any Borrower or Subsidiary;

 

(e)           Liens incurred or deposits made in the Ordinary Course of Business
to secure the performance of tenders, bids, leases, contracts (except those
relating to Borrowed Money), statutory obligations and other similar
obligations, or arising as a result of progress payments under government
contracts, as long as such Liens are at all times junior to Agent’s Liens;

 

(f)            Liens arising in the Ordinary Course of Business that are subject
to Lien Waivers;

 

(g)           Liens arising by virtue of a judgment or judicial order against
any Borrower or Subsidiary, or any Property of a Borrower or Subsidiary, as long
as such Liens are (i) in existence for less than 20 consecutive days or being
Properly Contested, and (ii) at all times junior to Agent’s Liens;

 

(h)           easements, rights-of-way, restrictions, covenants or other
agreements of record, and other similar charges or encumbrances on Real Estate,
that do not secure any monetary obligation and do not interfere with the
Ordinary Course of Business;

 

(i)            normal and customary rights of setoff upon deposits in favor of
depository institutions, and Liens of a collecting bank on Payment Items in the
course of collection; and

 

(j)            Liens existing on the Closing Date and shown on Schedule 10.2.2.

 

10.2.3.        Distributions; Upstream Payments.  Declare or make any
Distributions, except Upstream Payments; or create or suffer to exist any
encumbrance or restriction on the ability of a Subsidiary to make any Upstream
Payment, except for restrictions under the Loan Documents, under Applicable Law
or in effect on the Closing Date as shown on Schedule 9.1.16.

 

10.2.4.        Restricted Investments.  Make any Restricted Investment.

 

10.2.5.        Disposition of Assets.  Make any Asset Disposition, except a
Permitted Asset Disposition, a disposition of Equipment under Section 8.4.2, or
a transfer of Property by a Subsidiary or Obligor to a Borrower.

 

10.2.6.        Loans.  Make any loans or other advances of money to any Person,
except (a) advances to an officer or employee for salary, travel expenses,
commissions and similar items in the Ordinary Course of Business; (b) prepaid
expenses and extensions of trade credit made in the Ordinary Course of Business;
(c) deposits with financial institutions permitted hereunder; and (d) as long as
no Default or Event of Default exists, intercompany loans by a Borrower to
another Borrower.

 

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10.2.7.        Restrictions on Payment of Certain Debt.  Make any payments
(whether voluntary or mandatory, or a prepayment, redemption, retirement,
defeasance or acquisition) with respect to any (a) Subordinated Debt, except
regularly scheduled payments of principal, interest and fees, but only to the
extent permitted under any subordination agreement relating to such Debt (and a
Senior Officer of Borrower Agent shall certify to Agent, not less than five
Business Days prior to the date of payment, that all conditions under such
agreement have been satisfied); or (b) Borrowed Money (other than the
Obligations and Subordinated Debt) prior to its due date under the agreements
evidencing such Debt as in effect on the Closing Date (or as amended thereafter
with the consent of Agent).

 

10.2.8.        Fundamental Changes.  Merge, combine or consolidate with any
Person, or liquidate, wind up its affairs or dissolve itself, in each case
whether in a single transaction or in a series of related transactions, except
for mergers or consolidations of a wholly-owned Subsidiary with another
wholly-owned Subsidiary or into a Borrower; change its name or conduct business
under any fictitious name; change its tax, charter or other organizational
identification number; or change its form or state of organization.

 

10.2.9.        Subsidiaries.  Form or acquire any Subsidiary after the Closing
Date, except in accordance with Sections 10.1.9 and 10.2.4 shares.

 

10.2.10.      Organic Documents.  Amend, modify or otherwise change any of its
Organic Documents as in effect on the Closing Date.

 

10.2.11.      Tax Consolidation.  File or consent to the filing of any
consolidated income tax return with any Person other than Borrowers and
Subsidiaries.

 

10.2.12.      Accounting Changes.  Make any material change in accounting
treatment or reporting practices, except as required by GAAP and in accordance
with Section 1.2; or change its Fiscal Year.

 

10.2.13.      Restrictive Agreements.  Become a party to any Restrictive
Agreement, except (a) a Restrictive Agreement as in effect on the Closing Date
and shown on Schedule 9.1.16; (b) a Restrictive Agreement relating to secured
Debt permitted hereunder, if such restrictions apply only to the collateral for
such Debt; and (c) customary provisions in leases and other contracts
restricting assignment thereof.

 

10.2.14.      Hedging Agreements.  Enter into any Hedging Agreement, except to
hedge risks arising in the Ordinary Course of Business and not for speculative
purposes; provided, however, that no Hedging Agreements may result or create any
new or additional credit exposure for any Lender hereunder without consent from
such Lender.

 

10.2.15.      Conduct of Business.  Engage in any business, other than its
business as conducted on the Closing Date and any activities incidental thereto.

 

10.2.16.      Affiliate Transactions.  Enter into or be party to any transaction
with an Affiliate, except (a) transactions contemplated by the Loan Documents;
(b) payment of reasonable compensation to officers and employees for services
actually rendered, and loans and advances permitted by Section 10.2.7;
(c) payment of customary directors’ fees and indemnities; (d) transactions
solely among Borrowers; (e) transactions with Affiliates that were consummated
prior to the Closing Date, as shown on Schedule 10.2.16; and (f) transactions
with Affiliates in the Ordinary Course of Business, upon fair and reasonable
terms fully disclosed to Agent and no less favorable than would be obtained in a
comparable arm’s-length transaction with a non-Affiliate.

 

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10.2.17.      Plans.  Become party to any Multiemployer Plan or Foreign Plan,
other than any in existence on the Closing Date.

 

10.2.18.      Amendments to Subordinated Debt and Dealer Finance Agreements. 
Amend, supplement or otherwise modify any document, instrument or agreement
relating to any Subordinated Debt or the Dealer Finance Agreements, if such
modification (a) increases the principal balance of such Debt, or increases any
required payment of principal or interest; (b) accelerates the date on which any
installment of principal or any interest is due, or adds any additional
redemption, put or prepayment provisions; (c) shortens the final maturity date
or otherwise accelerates amortization; (d) increases the interest rate;
(e) increases or adds any fees or charges; (f) modifies any covenant in a manner
or adds any representation, covenant or default that is more onerous or
restrictive in any material respect for any Borrower or Subsidiary, or that is
otherwise materially adverse to any Borrower, any Subsidiary or Lenders; or
(g) in the case of Subordinated Debt, results in the Obligations not being fully
benefited by the subordination provisions applicable thereto.

 

10.2.19.      Payments Under Dealer Finance Agreements.  Make any payments on
account of repurchase or similar obligations or liabilities under Dealer Finance
Agreements, after deducting any payments received during such month on account
of returned and repossessed goods that have been the subject of such obligations
or liabilities, in an aggregate amount for all Borrowers in excess of $8,000,000
in any single calendar month.

 

10.3.       Financial Covenants.  As long as any Revolver Commitments or
Obligations are outstanding, Borrowers shall:

 

10.3.1.        Fixed Charge Coverage Ratio.  Maintain a Fixed Charge Coverage
Ratio of at least 1.10 to 1.0 for each period of twelve months ending on the
last day of each month commencing December 31, 2009.

 

SECTION 11.  EVENTS OF DEFAULT; REMEDIES ON DEFAULT

 

11.1.       Events of Default.  Each of the following shall be an “Event of
Default” hereunder, if the same shall occur for any reason whatsoever, whether
voluntary or involuntary, by operation of law or otherwise:

 

(a)           A Borrower fails to pay any Obligations when due (whether at
stated maturity, on demand, upon acceleration or otherwise);

 

(b)           Any representation, warranty or other written statement of an
Obligor made in connection with any Loan Documents or transactions contemplated
thereby is incorrect or misleading in any material respect when given;

 

(c)           A Borrower breaches or fail to perform any covenant contained in
Section 7.2, 7.3, 7.4, 7.6, 8.1, 8.2.4, 8.2.5, 8.6.2, 10.1.1, 10.1.2, 10.2 or
10.3;

 

(d)           An Obligor breaches or fails to perform any other covenant
contained in any Loan Documents, and such breach or failure is not cured within
30 days after a Senior Officer of such Obligor has knowledge thereof or receives
notice thereof from Agent, whichever is sooner; provided, however, that such
notice and opportunity to cure shall not apply if the breach or failure to
perform is not capable of being cured within such period or is a willful breach
by an Obligor;

 

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(e)           A Guarantor repudiates, revokes or attempts to revoke its
Guaranty; an Obligor denies or contests the validity or enforceability of any
Loan Documents or Obligations, or the perfection or priority of any Lien granted
to Agent; or any Loan Document ceases to be in full force or effect for any
reason (other than a waiver or release by Agent and Lenders);

 

(f)            Any breach or default of an Obligor occurs under any document,
instrument or agreement to which it is a party or by which it or any of its
Properties is bound, relating to any Debt (other than the Obligations) in excess
of $1,000,000 (including, without limitation, all Dealer Financing Agreements),
if the maturity of or any payment with respect to such Debt may be accelerated
or demanded due to such breach;

 

(g)           Any judgment or order for the payment of money is entered against
an Obligor in an amount that exceeds, individually or cumulatively with all
unsatisfied judgments or orders against all Obligors, $3,500,000 (net of any
insurance coverage therefor acknowledged in writing by the insurer), unless a
stay of enforcement of such judgment or order is in effect, by reason of a
pending appeal or otherwise;

 

(h)           A loss, theft, damage or destruction occurs with respect to any
Collateral if the amount not covered by insurance exceeds $5,000,000;

 

(i)            An Obligor is enjoined, restrained or in any way prevented by any
Governmental Authority from conducting any material part of its business; an
Obligor suffers the loss, revocation or termination of any material license,
permit, lease or agreement necessary to its business; there is a cessation of
any material part of an Obligor’s business for a material period of time; any
material Collateral or Property of an Obligor is taken or impaired through
condemnation; an Obligor agrees to or commences any liquidation, dissolution or
winding up of its affairs; or an Obligor ceases to be Solvent;

 

(j)            An Insolvency Proceeding is commenced by an Obligor; an Obligor
makes an offer of settlement, extension or composition to its unsecured
creditors generally; a trustee is appointed to take possession of any
substantial Property of or to operate any of the business of an Obligor; or an
Insolvency Proceeding is commenced against an Obligor and:  the Obligor consents
to institution of the proceeding, the petition commencing the proceeding is not
timely controverted by the Obligor, the petition is not dismissed within 30 days
after filing, or an order for relief is entered in the proceeding;

 

(k)           An ERISA Event occurs with respect to a Pension Plan or
Multiemployer Plan that has resulted or could reasonably be expected to result
in liability of an Obligor to a Pension Plan, Multiemployer Plan or PBGC, or
that constitutes grounds for appointment of a trustee for or termination by the
PBGC of any Pension Plan or Multiemployer Plan; an Obligor or ERISA Affiliate
fails to pay when due any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan; or any event
similar to the foregoing occurs or exists with respect to a Foreign Plan;

 

(l)            An Obligor or any of its Senior Officers is criminally indicted
or convicted for (i) a felony committed in the conduct of the Obligor’s
business, or (ii) violating any state or federal law (including the Controlled
Substances Act, Money Laundering Control Act of 1986 and Illegal Exportation of
War Materials Act) that could lead to forfeiture of any material Property or any
Collateral; or

 

(m)          A Change of Control occurs; or any event occurs or condition exists
that has a Material Adverse Effect.

 

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11.2.       Remedies upon Default.  If an Event of Default described in
Section 11.1(j) occurs with respect to any Borrower, then to the extent
permitted by Applicable Law, all Obligations shall become automatically due and
payable and all Revolver Commitments shall terminate, without any action by
Agent or notice of any kind.  In addition, or if any other Event of Default
exists, Agent may in its discretion (and shall upon written direction of
Required Lenders) do any one or more of the following from time to time:

 

(a)           declare any Obligations immediately due and payable, whereupon
they shall be due and payable without diligence, presentment, demand, protest or
notice of any kind, all of which are hereby waived by Borrowers to the fullest
extent permitted by law;

 

(b)           terminate, reduce or condition any Revolver Commitment, or make
any adjustment to the Borrowing Base;

 

(c)           require Obligors to Cash Collateralize LC Obligations, Bank
Product Debt and other Obligations that are contingent or not yet due and
payable, and, if Obligors fail promptly to deposit such Cash Collateral, Agent
may (and shall upon the direction of Required Lenders) advance the required Cash
Collateral as Revolver Loans (whether or not an Overadvance exists or is created
thereby, or the conditions in Section 6 are satisfied); and

 

(d)           exercise any other rights or remedies afforded under any
agreement, by law, at equity or otherwise, including the rights and remedies of
a secured party under the UCC.  Such rights and remedies include the rights to
(i) take possession of any Collateral; (ii) require Borrowers to assemble
Collateral, at Borrowers’ expense, and make it available to Agent at a place
designated by Agent; (iii) enter any premises where Collateral is located and
store Collateral on such premises until sold (and if the premises are owned or
leased by a Borrower, Borrowers agree not to charge for such storage); and
(iv) sell or otherwise dispose of any Collateral in its then condition, or after
any further manufacturing or processing thereof, at public or private sale, with
such notice as may be required by Applicable Law, in lots or in bulk, at such
locations, all as Agent, in its discretion, deems advisable.  Each Borrower
agrees that 10 days notice of any proposed sale or other disposition of
Collateral by Agent shall be reasonable.  Agent shall have the right to conduct
such sales on any Obligor’s premises, without charge, and such sales may be
adjourned from time to time in accordance with Applicable Law.  Agent shall have
the right to sell, lease or otherwise dispose of any Collateral for cash, credit
or any combination thereof, and Agent may purchase any Collateral at public or,
if permitted by law, private sale and, in lieu of actual payment of the purchase
price, may set off the amount of such price against the Obligations.

 

11.3.       License.  Agent is hereby granted an irrevocable, non-exclusive
license or other right to use, license or sub-license (without payment of
royalty or other compensation to any Person) any or all Intellectual Property of
Borrowers, computer hardware and software, trade secrets, brochures, customer
lists, promotional and advertising materials, labels, packaging materials and
other Property, in advertising for sale, marketing, selling, collecting,
completing manufacture of, or otherwise exercising any rights or remedies with
respect to, any Collateral.  Each Borrower’s rights and interests under
Intellectual Property shall inure to Agent’s benefit.

 

11.4.       Setoff.  At any time during an Event of Default, Agent, Issuing
Bank, Lenders, and any of their Affiliates are authorized, to the fullest extent
permitted by Applicable Law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final, in whatever currency) at any
time held and other obligations (in whatever currency) at any time owing by
Agent, Issuing Bank, such Lender or such Affiliate to or for the credit or the
account of an Obligor against any Obligations, irrespective of whether or not
Agent, Issuing Bank, such Lender or such Affiliate shall have made any demand
under this Agreement or any other Loan Document and although such Obligations
may be

 

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contingent or unmatured or are owed to a branch or office of Agent, Issuing
Bank, such Lender or such Affiliate different from the branch or office holding
such deposit or obligated on such indebtedness.  The rights of Agent, Issuing
Bank, each Lender and each such Affiliate under this Section are in addition to
other rights and remedies (including other rights of setoff) that such Person
may have.

 

11.5.       Remedies Cumulative; No Waiver.

 

11.5.1.        Cumulative Rights.  All covenants, conditions, provisions,
warranties, guaranties, indemnities and other undertakings of Borrowers
contained in the Loan Documents are cumulative and not in derogation or
substitution of each other.  In particular, the rights and remedies of Agent and
Lenders are cumulative, may be exercised at any time and from time to time,
concurrently or in any order, and shall not be exclusive of any other rights or
remedies that Agent and Lenders may have, whether under any agreement, by law,
at equity or otherwise.

 

11.5.2.        Waivers.  The failure or delay of Agent or any Lender to require
strict performance by Borrowers with any terms of the Loan Documents, or to
exercise any rights or remedies with respect to Collateral or otherwise, shall
not operate as a waiver thereof nor as establishment of a course of dealing. 
All rights and remedies shall continue in full force and effect until Full
Payment of all Obligations.  No modification of any terms of any Loan Documents
(including any waiver thereof) shall be effective, unless such modification is
specifically provided in a writing directed to Borrowers and executed by Agent
or the requisite Lenders, and such modification shall be applicable only to the
matter specified.  No waiver of any Default or Event of Default shall constitute
a waiver of any other Default or Event of Default that may exist at such time,
unless expressly stated.  If Agent or any Lender accepts performance by any
Obligor under any Loan Documents in a manner other than that specified therein,
or during any Default or Event of Default, or if Agent or any Lender shall delay
or exercise any right or remedy under any Loan Documents, such acceptance, delay
or exercise shall not operate to waive any Default or Event of Default nor to
preclude exercise of any other right or remedy.  It is expressly acknowledged by
Borrowers that any failure to satisfy a financial covenant on a measurement date
shall not be cured or remedied by satisfaction of such covenant on a subsequent
date.

 

SECTION 12.  AGENT

 

12.1.       Appointment, Authority and Duties of Agent.

 

12.1.1.        Appointment and Authority.  Each Lender appoints and designates
Bank of America as Agent hereunder.  Agent may, and each Lender authorizes Agent
to, enter into all Loan Documents to which Agent is intended to be a party and
accept all Security Documents, for Agent’s benefit and the Pro Rata benefit of
Lenders.  Each Lender agrees that any action taken by Agent or Required Lenders
in accordance with the provisions of the Loan Documents, and the exercise by
Agent or Required Lenders of any rights or remedies set forth therein, together
with all other powers reasonably incidental thereto, shall be authorized by and
binding upon all Lenders.  Without limiting the generality of the foregoing,
Agent shall have the sole and exclusive authority to (a) act as the disbursing
and collecting agent for Lenders with respect to all payments and collections
arising in connection with the Loan Documents; (b) execute and deliver as Agent
each Loan Document, including any intercreditor or subordination agreement, and
accept delivery of each Loan Document from any Obligor or other Person; (c) act
as collateral agent for Secured Parties for purposes of perfecting and
administering Liens under the Loan Documents, and for all other purposes stated
therein; (d) manage, supervise or otherwise deal with Collateral; and (e) take
any Enforcement Action or otherwise exercise any rights or remedies with respect
to any Collateral under the Loan Documents, Applicable Law or otherwise.  The
duties of Agent shall be ministerial and administrative in nature, and Agent
shall not have a fiduciary relationship with any Lender, Secured Party,
Participant or other Person, by reason of any Loan Document or any transaction

 

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relating thereto.  Agent alone shall be authorized to determine whether any
Accounts or Inventory constitute Eligible Accounts or Eligible Inventory, or
whether to impose or release any reserve, which determinations and judgments, if
exercised in good faith, shall exonerate Agent from liability to any Lender or
other Person for any error in judgment.

 

12.1.2.        Duties.  Agent shall not have any duties except those expressly
set forth in the Loan Documents.  The conferral upon Agent of any right shall
not imply a duty on Agent’s part to exercise such right, unless instructed to do
so by Required Lenders in accordance with this Agreement.

 

12.1.3.        Agent Professionals.  Agent may perform its duties through agents
and employees.  Agent may consult with and employ Agent Professionals, and shall
be entitled to act upon, and shall be fully protected in any action taken in
good faith reliance upon, any advice given by an Agent Professional.  Agent
shall not be responsible for the negligence or misconduct of any agents,
employees or Agent Professionals selected by it with reasonable care.

 

12.1.4.        Instructions of Required Lenders.  The rights and remedies
conferred upon Agent under the Loan Documents may be exercised without the
necessity of joinder of any other party, unless required by Applicable Law. 
Agent may request instructions from Required Lenders with respect to any act
(including the failure to act) in connection with any Loan Documents, and may
seek assurances to its satisfaction from Lenders of their indemnification
obligations under Section 12.6 against all Claims that could be incurred by
Agent in connection with any act.  Agent shall be entitled to refrain from any
act until it has received such instructions or assurances, and Agent shall not
incur liability to any Person by reason of so refraining.  Instructions of
Required Lenders shall be binding upon all Lenders, and no Lender shall have any
right of action whatsoever against Agent as a result of Agent acting or
refraining from acting in accordance with the instructions of Required Lenders. 
Notwithstanding the foregoing, instructions by and consent of all Lenders shall
be required in the circumstances described in Section 14.1.1, and in no event
shall Required Lenders, without the prior written consent of each Lender, direct
Agent to accelerate and demand payment of Loans held by one Lender without
accelerating and demanding payment of all other Loans, nor to terminate the
Revolver Commitments of one Lender without terminating the Revolver Commitments
of all Lenders.  In no event shall Agent be required to take any action that, in
its opinion, is contrary to Applicable Law or any Loan Documents or could
subject any Agent Indemnitee to personal liability.

 

12.2.       Agreements Regarding Collateral and Field Examination Reports.

 

12.2.1.        Lien Releases; Care of Collateral.  Lenders authorize Agent to
release any Lien with respect to any Collateral (a) upon Full Payment of the
Obligations; (b) that is the subject of an Asset Disposition which Borrower
Agent certifies in writing to Agent is a Permitted Asset Disposition or a Lien
which Borrower Agent certifies is a Permitted Lien entitled to priority over
Agent’s Liens (and Agent may rely conclusively on any such certificate without
further inquiry); (c) that does not constitute a material part of the
Collateral; or (d) with the written consent of all Lenders.  Agent shall have no
obligation whatsoever to any Lenders to assure that any Collateral exists or is
owned by a Borrower, or is cared for, protected, insured or encumbered, nor to
assure that Agent’s Liens have been properly created, perfected or enforced, or
are entitled to any particular priority, nor to exercise any duty of care with
respect to any Collateral.

 

12.2.2.        Possession of Collateral.  Agent and Lenders appoint each other
Lender as agent (for the benefit of Secured Parties) for the purpose of
perfecting Liens in any Collateral held by such Lender, to the extent such Liens
are perfected by possession.  If any Lender obtains possession of any
Collateral, it shall notify Agent thereof and, promptly upon Agent’s request,
deliver such Collateral to Agent or otherwise deal with it in accordance with
Agent’s instructions.

 

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12.2.3.        Reports.  Agent shall promptly, upon receipt thereof, forward to
each Lender copies of the results of any field audit, examination or appraisal
prepared by or on behalf of Agent with respect to any Obligor or Collateral
(“Report”).  Each Lender agrees (a) that neither Bank of America nor Agent makes
any representation or warranty as to the accuracy or completeness of any Report,
and shall not be liable for any information contained in or omitted from any
Report; (b) that the Reports are not intended to be comprehensive audits or
examinations, and that Agent or any other Person performing any audit or
examination will inspect only specific information regarding Obligations or the
Collateral and will rely significantly upon Borrowers’ books and records as well
as upon representations of Borrowers’ officers and employees; and (c) to keep
all Reports confidential and strictly for such Lender’s internal use, and not to
distribute any Report (or the contents thereof) to any Person (except to such
Lender’s Participants, attorneys and accountants) or use any Report in any
manner other than administration of the Loans and other Obligations.  Each
Lender agrees to indemnify and hold harmless Agent and any other Person
preparing a Report from any action such Lender may take as a result of or any
conclusion it may draw from any Report, as well as any Claims arising in
connection with any third parties that obtain any part or contents of a Report
through such Lender.

 

12.3.       Reliance By Agent.  Agent shall be entitled to rely, and shall be
fully protected in relying, upon any certification, notice or other
communication (including those by telephone, telex, telegram, telecopy or
e-mail) believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person, and upon the advice and statements of Agent
Professionals.

 

12.4.       Action Upon Default.  Agent shall not be deemed to have knowledge of
any Default or Event of Default unless it has received written notice from a
Lender or Borrower specifying the occurrence and nature thereof.  If any Lender
acquires knowledge of a Default or Event of Default, it shall promptly notify
Agent and the other Lenders thereof in writing.  Each Lender agrees that, except
as otherwise provided in any Loan Documents or with the written consent of Agent
and Required Lenders, it will not take any Enforcement Action, accelerate
Obligations under any Loan Documents, or exercise any right that it might
otherwise have under Applicable Law to credit bid at foreclosure sales, UCC
sales or other similar dispositions of Collateral.  Notwithstanding the
foregoing, however, a Lender may take action to preserve or enforce its rights
against an Obligor where a deadline or limitation period is applicable that
would, absent such action, bar enforcement of Obligations held by such Lender,
including the filing of proofs of claim in an Insolvency Proceeding.

 

12.5.       Ratable Sharing.  If any Lender shall obtain any payment or
reduction of any Obligation, whether through set-off or otherwise, in excess of
its share of such Obligation, determined on a Pro Rata basis or in accordance
with Section 5.5.1, as applicable, such Lender shall forthwith purchase from
Agent, Issuing Bank and the other Lenders such participations in the affected
Obligation as are necessary to cause the purchasing Lender to share the excess
payment or reduction on a Pro Rata basis or in accordance with Section 5.5.1, as
applicable.  If any of such payment or reduction is thereafter recovered from
the purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest.  No Lender shall
set off against any Dominion Account without the prior consent of Agent.

 

12.6.       Indemnification of Agent Indemnitees.  EACH LENDER SHALL INDEMNIFY
AND HOLD HARMLESS AGENT INDEMNITEES, TO THE EXTENT NOT REIMBURSED BY OBLIGORS
(BUT WITHOUT LIMITING THE INDEMNIFICATION OBLIGATIONS OF OBLIGORS UNDER ANY LOAN
DOCUMENTS), ON A PRO RATA BASIS, AGAINST ALL CLAIMS THAT MAY BE INCURRED BY OR
ASSERTED AGAINST ANY AGENT INDEMNITEE, PROVIDED THE CLAIM RELATES TO OR ARISES
FROM AN AGENT INDEMNITEE ACTING AS OR FOR AGENT (IN ITS CAPACITY AS AGENT).  In
Agent’s discretion, it may reserve for any such Claims made against an Agent
Indemnitee, and may satisfy any judgment, order or settlement relating thereto,

 

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from proceeds of Collateral prior to making any distribution of Collateral
proceeds to Lenders.  If Agent is sued by any receiver, bankruptcy trustee,
debtor-in-possession or other Person for any alleged preference or fraudulent
transfer, then any monies paid by Agent in settlement or satisfaction of such
proceeding, together with all interest, costs and expenses (including attorneys’
fees) incurred in the defense of same, shall be promptly reimbursed to Agent by
each Lender to the extent of its Pro Rata share.

 

12.7.       Limitation on Responsibilities of Agent.  Agent shall not be liable
to Lenders for any action taken or omitted to be taken under the Loan Documents,
except for losses directly and solely caused by Agent’s gross negligence or
willful misconduct.  Agent does not assume any responsibility for any failure or
delay in performance or any breach by any Obligor or Lender of any obligations
under the Loan Documents.  Agent does not make to Lenders any express or implied
warranty, representation or guarantee with respect to any Obligations,
Collateral, Loan Documents or Obligor.  No Agent Indemnitee shall be responsible
to Lenders for any recitals, statements, information, representations or
warranties contained in any Loan Documents; the execution, validity,
genuineness, effectiveness or enforceability of any Loan Documents; the
genuineness, enforceability, collectibility, value, sufficiency, location or
existence of any Collateral, or the validity, extent, perfection or priority of
any Lien therein; the validity, enforceability or collectibility of any
Obligations; or the assets, liabilities, financial condition, results of
operations, business, creditworthiness or legal status of any Obligor or Account
Debtor.  No Agent Indemnitee shall have any obligation to any Lender to
ascertain or inquire into the existence of any Default or Event of Default, the
observance or performance by any Obligor of any terms of the Loan Documents, or
the satisfaction of any conditions precedent contained in any Loan Documents.

 

12.8.       Successor Agent and Co-Agents.

 

12.8.1.        Resignation; Successor Agent.  Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any time
by giving at least 30 days written notice thereof to Lenders and Borrowers. 
Upon receipt of such notice, Required Lenders shall have the right to appoint a
successor Agent which shall be (a) a Lender or an Affiliate of a Lender; or
(b) a commercial bank that is organized under the laws of the United States or
any state or district thereof, has a combined capital surplus of at least
$200,000,000 and (provided no Default or Event of Default exists) is reasonably
acceptable to Borrowers.  If no successor agent is appointed prior to the
effective date of the resignation of Agent, then Agent may appoint a successor
agent from among Lenders.  Upon acceptance by a successor Agent of an
appointment to serve as Agent hereunder, such successor Agent shall thereupon
succeed to and become vested with all the powers and duties of the retiring
Agent without further act, and the retiring Agent shall be discharged from its
duties and obligations hereunder but shall continue to have the benefits of the
indemnification set forth in Sections 12.6 and 14.2.  Notwithstanding any
Agent’s resignation, the provisions of this Section 12 shall continue in effect
for its benefit with respect to any actions taken or omitted to be taken by it
while Agent.  Any successor to Bank of America by merger or acquisition of stock
or this loan shall continue to be Agent hereunder without further act on the
part of the parties hereto, unless such successor resigns as provided above.

 

12.8.2.        Separate Collateral Agent.  It is the intent of the parties that
there shall be no violation of any Applicable Law denying or restricting the
right of financial institutions to transact business in any jurisdiction.  If
Agent believes that it may be limited in the exercise of any rights or remedies
under the Loan Documents due to any Applicable Law, Agent may appoint an
additional Person who is not so limited, as a separate collateral agent or
co-collateral agent.  If Agent so appoints a collateral agent or co-collateral
agent, each right and remedy intended to be available to Agent under the Loan
Documents shall also be vested in such separate agent.  Every covenant and
obligation necessary to the exercise thereof by such agent shall run to and be
enforceable by it as well as Agent.  Lenders shall execute and deliver such
documents as Agent deems appropriate to vest any rights or remedies in such

 

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agent.  If any collateral agent or co-collateral agent shall die or dissolve,
become incapable of acting, resign or be removed, then all the rights and
remedies of such agent, to the extent permitted by Applicable Law, shall vest in
and be exercised by Agent until appointment of a new agent.

 

12.9.       Due Diligence and Non-Reliance.  Each Lender acknowledges and agrees
that it has, independently and without reliance upon Agent or any other Lenders,
and based upon such documents, information and analyses as it has deemed
appropriate, made its own credit analysis of each Obligor and its own decision
to enter into this Agreement and to fund Loans and participate in LC Obligations
hereunder.  Each Lender has made such inquiries concerning the Loan Documents,
the Collateral and each Obligor as such Lender feels necessary.  Each Lender
further acknowledges and agrees that the other Lenders and Agent have made no
representations or warranties concerning any Obligor, any Collateral or the
legality, validity, sufficiency or enforceability of any Loan Documents or
Obligations.  Each Lender will, independently and without reliance upon the
other Lenders or Agent, and based upon such financial statements, documents and
information as it deems appropriate at the time, continue to make and rely upon
its own credit decisions in making Loans and participating in LC Obligations,
and in taking or refraining from any action under any Loan Documents.  Except
for notices, reports and other information expressly requested by a Lender,
Agent shall have no duty or responsibility to provide any Lender with any
notices, reports or certificates furnished to Agent by any Obligor or any credit
or other information concerning the affairs, financial condition, business or
Properties of any Obligor (or any of its Affiliates) which may come into
possession of Agent or any of Agent’s Affiliates.

 

12.10.     Replacement of Certain Lenders.  If a Lender (a) is a Defaulting
Lender, or (b) fails to give its consent to any amendment, waiver or action for
which consent of all Lenders was required and Required Lenders consented, then,
in addition to any other rights and remedies that any Person may have, Agent
may, by notice to such Lender within 120 days after such event, require such
Lender to assign all of its rights and obligations under the Loan Documents to
Eligible Assignee(s) specified by Agent, pursuant to appropriate Assignment and
Acceptance(s) and within 20 days after Agent’s notice.  Agent is irrevocably
appointed as attorney-in-fact to execute any such Assignment and Acceptance if
the Lender fails to execute same.  Such Lender shall be entitled to receive, in
cash, concurrently with such assignment, all amounts owed to it under the Loan
Documents, including all principal, interest and fees through the date of
assignment (but excluding any prepayment charge).

 

12.11.     Remittance of Payments and Collections.

 

12.11.1.      Remittances Generally.  All payments by any Lender to Agent shall
be made by the time and on the day set forth in this Agreement, in immediately
available funds.  If no time for payment is specified or if payment is due on
demand by Agent and request for payment is made by Agent by 11:00 a.m. on a
Business Day, payment shall be made by Lender not later than 2:00 p.m. on such
day, and if request is made after 11:00 a.m., then payment shall be made by
11:00 a.m. on the next Business Day.  Payment by Agent to any Lender shall be
made by wire transfer, in the type of funds received by Agent.  Any such payment
shall be subject to Agent’s right of offset for any amounts due from such Lender
under the Loan Documents.

 

12.11.2.      Failure to Pay.  If any Lender fails to pay any amount when due by
it to Agent pursuant to the terms hereof, such amount shall bear interest from
the due date until paid at the rate determined by Agent as customary in the
banking industry for interbank compensation.  In no event shall Borrowers be
entitled to receive credit for any interest paid by a Lender to Agent, nor shall
any Defaulting Lender be entitled to interest on any held by Agent pursuant to
Section 4.2.

 

12.11.3.      Recovery of Payments.  If Agent pays any amount to a Lender in the
expectation that a related payment will be received by Agent from an Obligor and
such related payment is

 

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not received, then Agent may recover such amount from each Lender that received
it.  If Agent determines at any time that an amount received under any Loan
Document must be returned to an Obligor or paid to any other Person pursuant to
Applicable Law or otherwise, then, notwithstanding any other term of any Loan
Document, Agent shall not be required to distribute such amount to any Lender. 
If any amounts received and applied by Agent to any Obligations are later
required to be returned by Agent pursuant to Applicable Law, each Lender shall
pay to Agent, on demand, such Lender’s Pro Rata share of the amounts required to
be returned.

 

12.12.     Agent in its Individual Capacity.  As a Lender, Bank of America shall
have the same rights and remedies under the other Loan Documents as any other
Lender, and the terms “Lenders,” “Required Lenders” or any similar term shall
include Bank of America in its capacity as a Lender.  Each of Bank of America
and its Affiliates may accept deposits from, maintain deposits or credit
balances for, invest in, lend money to, provide Bank Products to, act as trustee
under indentures of, serve as financial or other advisor to, and generally
engage in any kind of business with, Obligors and their Affiliates, as if Bank
of America were any other bank, without any duty to account therefor (including
any fees or other consideration received in connection therewith) to the other
Lenders.  In their individual capacity, Bank of America and its Affiliates may
receive information regarding Obligors, their Affiliates and their Account
Debtors (including information subject to confidentiality obligations), and each
Lender agrees that Bank of America and its Affiliates shall be under no
obligation to provide such information to Lenders, if acquired in such
individual capacity and not as Agent hereunder.

 

12.13.     Agent Titles.  Each Lender, other than Bank of America, that is
designated (on the cover page of this Agreement or otherwise) by Bank of America
as an “Agent” or “Arranger” of any type shall not have any right, power,
responsibility or duty under any Loan Documents other than those applicable to
all Lenders, and shall in no event be deemed to have any fiduciary relationship
with any other Lender.

 

12.14.     No Third Party Beneficiaries.  This Section 12 is an agreement solely
among Lenders and Agent, and shall survive Full Payment of the Obligations. 
This Section 12 does not confer any rights or benefits upon Borrowers or any
other Person.  As between Borrowers and Agent, any action that Agent may take
under any Loan Documents or with respect to any Obligations shall be
conclusively presumed to have been authorized and directed by Lenders.

 

SECTION 13.  BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS

 

13.1.       Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of Borrowers, Agent, Lenders, and their respective
successors and assigns, except that (a) no Borrower shall have the right to
assign its rights or delegate its obligations under any Loan Documents; and
(b) any assignment by a Lender must be made in compliance with Section 13.3. 
Agent may treat the Person which made any Loan as the owner thereof for all
purposes until such Person makes an assignment in accordance with Section 13.3. 
Any authorization or consent of a Lender shall be conclusive and binding on any
subsequent transferee or assignee of such Lender.

 

13.2.       Participations.

 

13.2.1.        Permitted Participants; Effect.  Any Lender may, in the ordinary
course of its business and in accordance with Applicable Law, at any time sell
to a financial institution (“Participant”) a participating interest in the
rights and obligations of such Lender under any Loan Documents.  Despite any
sale by a Lender of participating interests to a Participant, such Lender’s
obligations under the Loan Documents shall remain unchanged, such Lender shall
remain solely responsible to the other parties hereto for performance of such
obligations, such Lender shall remain the holder of its Revolver Loans and
Revolver Commitments for all purposes, all amounts payable by Borrowers shall be
determined as if such

 

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Lender had not sold such participating interests, and Borrowers and Agent shall
continue to deal solely and directly with such Lender in connection with the
Loan Documents.  Each Lender shall be solely responsible for notifying its
Participants of any matters under the Loan Documents, and Agent and the other
Lenders shall not have any obligation or liability to any such Participant.  A
Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 5.8 unless Borrowers agree otherwise in
writing.

 

13.2.2.        Voting Rights.  Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, waiver or other
modification of any Loan Documents other than that which forgives principal,
interest or fees, reduces the stated interest rate or fees payable with respect
to any Revolver Loan or Revolver Commitment in which such Participant has an
interest, postpones the Commitment Termination Date or any date fixed for any
regularly scheduled payment of principal, interest or fees on such Loan or
Revolver Commitment, or releases any Borrower, Guarantor or substantial portion
of the Collateral.

 

13.2.3.        Benefit of Set-Off.  Borrowers agree that each Participant shall
have a right of set-off in respect of its participating interest to the same
extent as if such interest were owing directly to a Lender, and each Lender
shall also retain the right of set-off with respect to any participating
interests sold by it.  By exercising any right of set-off, a Participant agrees
to share with Lenders all amounts received through its set-off, in accordance
with Section 12.5 as if such Participant were a Lender.

 

13.3.       Assignments.

 

13.3.1.        Permitted Assignments.  A Lender may assign to an Eligible
Assignee any of its rights and obligations under the Loan Documents, as long as
(a) each assignment is of a constant, and not a varying, percentage of the
transferor Lender’s rights and obligations under the Loan Documents and, in the
case of a partial assignment, is in a minimum principal amount of $10,000,000
(unless otherwise agreed by Agent in its discretion) and integral multiples of
$1,000,000 in excess of that amount; (b) except in the case of an assignment in
whole of a Lender’s rights and obligations, the aggregate amount of the Revolver
Commitments retained by the transferor Lender is at least $10,000,000 (unless
otherwise agreed by Agent in its discretion); and (c) the parties to each such
assignment shall execute and deliver to Agent, for its acceptance and recording,
an Assignment and Acceptance.  Nothing herein shall limit the right of a Lender
to pledge or assign any rights under the Loan Documents to (i) any Federal
Reserve Bank or the United States Treasury as collateral security pursuant to
Regulation A of the Board of Governors and any Operating Circular issued by such
Federal Reserve Bank, or (ii) counterparties to swap agreements relating to any
Loans; provided, however, that any payment by Borrowers to the assigning Lender
in respect of any Obligations assigned as described in this sentence shall
satisfy Borrowers’ obligations hereunder to the extent of such payment, and no
such assignment shall release the assigning Lender from its obligations
hereunder.

 

13.3.2.        Effect; Effective Date.  Upon delivery to Agent of an assignment
notice in the form of Exhibit C and a processing fee of $3,500 (unless otherwise
agreed by Agent in its discretion), the assignment shall become effective as
specified in the notice, if it complies with this Section 13.3.  From such
effective date, the Eligible Assignee shall for all purposes be a Lender under
the Loan Documents, and shall have all rights and obligations of a Lender
thereunder.  Upon consummation of an assignment, the transferor Lender, Agent
and Borrowers shall make appropriate arrangements for issuance of replacement
and/or new Notes, as applicable.  The transferee Lender shall comply with
Section 5.8 and deliver, upon request, an administrative questionnaire
satisfactory to Agent.

 

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SECTION 14.  MISCELLANEOUS

 

14.1.       Consents, Amendments and Waivers.

 

14.1.1.        Amendment.  No modification of any Loan Document, including any
extension or amendment of a Loan Document or any waiver of a Default or Event of
Default, shall be effective without the prior written agreement of Agent (with
the consent of Required Lenders) and each Obligor party to such Loan Document;
provided, however, that

 

(a)           without the prior written consent of Agent, no modification shall
be effective with respect to any provision in a Loan Document that relates to
any rights, duties or discretion of Agent;

 

(b)           without the prior written consent of Issuing Bank, no modification
shall be effective with respect to any LC Obligations or Section 2.2;

 

(c)           without the prior written consent of each affected Lender, no
modification shall be effective that would (i) increase the Revolver Commitment
of such Lender; or (ii) reduce the amount of, or waive or delay payment of, any
principal, interest or fees payable to such Lender; and

 

(d)           without the prior written consent of all Lenders (except a
Defaulting Lender as provided in Section 4.2), no modification shall be
effective that would (i) extend the Termination Date; (ii) alter Section 5.5,
7.1 (except to add Collateral) or 14.1.1; (iii) amend the definitions of
Borrowing Base (and the defined terms used in such definition), Pro Rata or
Required Lenders; (iv) increase any advance rate or increase total Revolver
Commitments; (vi) release Collateral with a book value greater than $2,500,000
during any calendar year, except as currently contemplated by the Loan
Documents; or (vii) release any Obligor from liability for any Obligations, if
such Obligor is Solvent at the time of the release.

 

14.1.2.        Limitations.  The agreement of Borrowers shall not be necessary
to the effectiveness of any modification of a Loan Document that deals solely
with the rights and duties of Lenders, Agent and/or Issuing Bank as among
themselves.  Only the consent of the parties to the Fee Letter or any agreement
relating to a Bank Product shall be required for any modification of such
agreement, and no Affiliate of a Lender that is party to a Bank Product
agreement shall have any other right to consent to or participate in any manner
in modification of any other Loan Document.  The making of any Loans during the
existence of a Default or Event of Default shall not be deemed to constitute a
waiver of such Default or Event of Default, nor to establish a course of
dealing.  Any waiver or consent granted by Lenders hereunder shall be effective
only if in writing, and then only in the specific instance and for the specific
purpose for which it is given.

 

14.1.3.        Payment for Consents.  No Borrower will, directly or indirectly,
pay any remuneration or other thing of value, whether by way of additional
interest, fee or otherwise, to any Lender (in its capacity as a Lender
hereunder) as consideration for agreement by such Lender with any modification
of any Loan Documents, unless such remuneration or value is concurrently paid,
on the same terms, on a Pro Rata basis to all Lenders providing their consent.

 

14.2.       Indemnity.  EACH BORROWER SHALL INDEMNIFY AND HOLD HARMLESS THE
INDEMNITEES AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY
INDEMNITEE, INCLUDING CLAIMS ARISING FROM THE NEGLIGENCE OF AN INDEMNITEE.  In
no event shall any party to a Loan Document have any obligation thereunder to
indemnify or hold harmless an Indemnitee with respect to a Claim that is
determined in a final,

 

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non-appealable judgment by a court of competent jurisdiction to result from the
gross negligence or willful misconduct of such Indemnitee.

 

14.3.       Notices and Communications.

 

14.3.1.        Notice Address.  Subject to Section 4.1.4, all notices and other
communications by or to a party hereto shall be in writing and shall be given to
any Borrower, at Borrower Agent’s address shown on the signature pages hereof,
and to any other Person at its address shown on the signature pages hereof (or,
in the case of a Person who becomes a Lender after the Closing Date, at the
address shown on its Assignment and Acceptance), or at such other address as a
party may hereafter specify by notice in accordance with this Section 14.3. 
Each such notice or other communication shall be effective only (a) if given by
facsimile transmission, when transmitted to the applicable facsimile number, if
confirmation of receipt is received; (b) if given by mail, three Business Days
after deposit in the U.S. mail, with first-class postage pre-paid, addressed to
the applicable address or one Business Day after deposit with a reputable
overnight courier with all charges prepaid, in either case; or (c) if given by
personal delivery, when duly delivered to the notice address with receipt
acknowledged.  Notwithstanding the foregoing, no notice to Agent pursuant to
Section 2.1.4, 2.2, 3.1.2, or 4.1.1 shall be effective until actually received
by the individual to whose attention at Agent such notice is required to be
sent.  Any written notice or other communication that is not sent in conformity
with the foregoing provisions shall nevertheless be effective on the date
actually received by the noticed party.  Any notice received by Borrower Agent
shall be deemed received by all Borrowers.

 

14.3.2.        Electronic Communications; Voice Mail.  Electronic mail and
internet websites may be used only for routine communications, such as financial
statements, Borrowing Base Certificates and other information required by
Section 10.1.2, administrative matters, distribution of Loan Documents for
execution, and matters permitted under Section 4.1.4.  Agent and Lenders make no
assurances as to the privacy and security of electronic communications. 
Electronic and voice mail may not be used as effective notice under the Loan
Documents.

 

14.3.3.        Non-Conforming Communications.  Agent and Lenders may rely upon
any notices purportedly given by or on behalf of any Borrower even if such
notices were not made in a manner specified herein, were incomplete or were not
confirmed, or if the terms thereof, as understood by the recipient, varied from
a later confirmation.  Each Borrower shall indemnify and hold harmless each
Indemnitee from any liabilities, losses, costs and expenses arising from any
telephonic communication purportedly given by or on behalf of a Borrower.

 

14.4.       Performance of Borrowers’ Obligations.  Agent may, in its discretion
at any time and from time to time, at Borrowers’ expense, pay any amount or do
any act required of a Borrower under any Loan Documents or otherwise lawfully
requested by Agent to (a) enforce any Loan Documents or collect any Obligations;
(b) protect, insure, maintain or realize upon any Collateral; or (c) defend or
maintain the validity or priority of Agent’s Liens in any Collateral, including
any payment of a judgment, insurance premium, warehouse charge, finishing or
processing charge, or landlord claim, or any discharge of a Lien.  All payments,
costs and expenses (including Extraordinary Expenses) of Agent under this
Section shall be reimbursed to Agent by Borrowers, on demand, with interest from
the date incurred to the date of payment thereof at the Default Rate applicable
to Base Rate Loans.  Any payment made or action taken by Agent under this
Section shall be without prejudice to any right to assert an Event of Default or
to exercise any other rights or remedies under the Loan Documents.

 

14.5.       Credit Inquiries.  Each Borrower hereby authorizes Agent and Lenders
(but they shall have no obligation) to respond to usual and customary credit
inquiries from third parties concerning any Borrower or Subsidiary.

 

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14.6.       Severability.  Wherever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be valid under Applicable
Law.  If any provision is found to be invalid under Applicable Law, it shall be
ineffective only to the extent of such invalidity and the remaining provisions
of the Loan Documents shall remain in full force and effect.

 

14.7.       Cumulative Effect; Conflict of Terms.  The provisions of the Loan
Documents are cumulative.  The parties acknowledge that the Loan Documents may
use several limitations, tests or measurements to regulate similar matters, and
they agree that these are cumulative and that each must be performed as
provided.  Except as otherwise provided in another Loan Document (by specific
reference to the applicable provision of this Agreement), if any provision
contained herein is in direct conflict with any provision in another Loan
Document, the provision herein shall govern and control.

 

14.8.       Counterparts.  Any Loan Document may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract.  This Agreement shall become effective when
Agent has received counterparts bearing the signatures of all parties hereto. 
Delivery of a signature page of any Loan Document by telecopy shall be effective
as delivery of a manually executed counterpart of such agreement.

 

14.9.       Entire Agreement.  Time is of the essence of the Loan Documents. 
The Loan Documents constitute the entire contract among the parties relating to
the subject matter hereof, and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof.

 

14.10.     Relationship with Lenders.  The obligations of each Lender hereunder
are several, and no Lender shall be responsible for the obligations or Revolver
Commitments of any other Lender.  Amounts payable hereunder to each Lender shall
be a separate and independent debt, and each Lender shall be entitled, to the
extent not otherwise restricted hereunder, to protect and enforce its rights
arising out of the Loan Documents.  It shall not be necessary for Agent or any
other Lender to be joined as an additional party in any proceeding for such
purposes.  Nothing in this Agreement and no action of Agent or Lenders pursuant
to the Loan Documents shall be deemed to constitute Agent and Lenders to be a
partnership, association, joint venture or any other kind of entity, nor to
constitute control of any Borrower.

 

14.11.     No Advisory or Fiduciary Responsibility.  In connection with all
aspects of each transaction contemplated by any Loan Document, Borrowers
acknowledge and agree that (a)(i) this credit facility and any related arranging
or other services by Agent, any Lender, any of their Affiliates or any arranger
are arm’s-length commercial transactions between Borrowers and such Person;
(ii) Borrowers have consulted their own legal, accounting, regulatory and tax
advisors to the extent they have deemed appropriate; and (iii) Borrowers are
capable of evaluating and understanding, and do understand and accept, the
terms, risks and conditions of the transactions contemplated by the Loan
Documents; (b) each of Agent, Lenders, their Affiliates and any arranger is and
has been acting solely as a principal in connection with this credit facility,
is not the financial advisor, agent or fiduciary for Borrowers, any of their
Affiliates or any other Person, and has no obligation with respect to the
transactions contemplated by the Loan Documents except as expressly set forth
therein; and (c) Agent, Lenders, their Affiliates and any arranger may be
engaged in a broad range of transactions that involve interests that differ from
Borrowers and their Affiliates, and have no obligation to disclose any of such
interests to Borrowers or their Affiliates.  To the fullest extent permitted by
Applicable Law, each Borrower hereby waives and releases any claims that it may
have against Agent, Lenders, their Affiliates and any arranger with respect to
any breach or alleged breach of agency or fiduciary duty in connection with any
aspect of any transaction contemplated by a Loan Document.

 

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14.12.     Confidentiality.  Each of Agent, Lenders and Issuing Bank agrees to
maintain the confidentiality of all Information (as defined below), except that
Information may be disclosed (a) to its Affiliates and to its and its
Affiliates’ respective partners, directors, officers, employees, agents,
advisors and representatives (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential); (b) to the
extent requested by any regulatory authority purporting to have jurisdiction
over it (including any self-regulatory authority, such as the National
Association of Insurance Commissioners); (c) to the extent required by
Applicable Law or by any subpoena or similar legal process; (d) to any other
party hereto; (e) in connection with the exercise of any remedies, the
enforcement of any rights, or any action or proceeding relating to any Loan
Documents; (f) subject to an agreement containing provisions substantially the
same as those of this Section, to any Transferee or any actual or prospective
party (or its advisors) to any Bank Product; (g) with the consent of the
Borrower; or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section or (ii) becomes available to
Agent, any Lender, Issuing Bank or any of their Affiliates on a nonconfidential
basis from a source other than Borrowers.  Notwithstanding the foregoing, Agent
and Lenders may issue and disseminate to the public general information
describing this credit facility, including the names and addresses of Borrowers
and a general description of Borrowers’ businesses, and may use Borrowers’ names
in advertising and other promotional materials.  For purposes of this Section,
“Information” means all information received from an Obligor or Subsidiary
relating to it or its business, other than any information that is available to
Agent, any Lender or Issuing Bank on a nonconfidential basis prior to disclosure
by the Obligor or Subsidiary, provided that, in the case of information received
from an Obligor or Subsidiary after the date hereof, such information is clearly
identified at the time of delivery as confidential.  Any Person required to
maintain the confidentiality of Information pursuant to this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information. 
Each of Agent, Lenders and Issuing Bank acknowledges that (i) Information may
include material non-public information concerning an Obligor or Subsidiary;
(ii) it has developed compliance procedures regarding the use of material
non-public information; and (iii) it will handle such material non-public
information in accordance with Applicable Law, including federal and state
securities laws.

 

14.13.     GOVERNING LAW.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS
OTHERWISE SPECIFIED, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS,
WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT GIVING EFFECT TO
FEDERAL LAWS RELATING TO NATIONAL BANKS).

 

14.14.     Consent to Forum.  EACH BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER
THE STATE OF ILLINOIS, IN ANY PROCEEDING OR DISPUTE RELATING IN ANY WAY TO ANY
LOAN DOCUMENTS, AND AGREES THAT ANY SUCH PROCEEDING SHALL BE BROUGHT BY IT
SOLELY IN ANY SUCH COURT.  EACH BORROWER IRREVOCABLY WAIVES ALL CLAIMS,
OBJECTIONS AND DEFENSES THAT IT MAY HAVE REGARDING SUCH COURT’S PERSONAL OR
SUBJECT MATTER JURISDICTION, VENUE OR INCONVENIENT FORUM.  EACH PARTY HERETO
IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN
SECTION 14.3.1.  Nothing herein shall limit the right of Agent or any Lender to
bring proceedings against any Obligor in any other court, nor limit the right of
any party to serve process in any other manner permitted by Applicable Law. 
Nothing in this Agreement shall be deemed to preclude enforcement by Agent of
any judgment or order obtained in any forum or jurisdiction.

 

14.15.     Waivers by Borrowers.  To the fullest extent permitted by Applicable
Law, each Borrower waives (a) the right to trial by jury (which Agent and each
Lender hereby also waives) in

 

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any proceeding or dispute of any kind relating in any way to any Loan Documents,
Obligations or Collateral; (b) presentment, demand, protest, notice of
presentment, default, non-payment, maturity, release, compromise, settlement,
extension or renewal of any commercial paper, accounts, documents, instruments,
chattel paper and guaranties at any time held by Agent on which a Borrower may
in any way be liable, and hereby ratifies anything Agent may do in this regard;
(c) notice prior to taking possession or control of any Collateral; (d) any bond
or security that might be required by a court prior to allowing Agent to
exercise any rights or remedies; (e) the benefit of all valuation, appraisement
and exemption laws; (f) any claim against Agent or any Lender, on any theory of
liability, for special, indirect, consequential, exemplary or punitive damages
(as opposed to direct or actual damages) in any way relating to any Enforcement
Action, Obligations, Loan Documents or transactions relating thereto; and
(g) notice of acceptance hereof.  Each Borrower acknowledges that the foregoing
waivers are a material inducement to Agent and Lenders entering into this
Agreement and that Agent and Lenders are relying upon the foregoing in their
dealings with Borrowers.  Each Borrower has reviewed the foregoing waivers with
its legal counsel and has knowingly and voluntarily waived its jury trial and
other rights following consultation with legal counsel.  In the event of
litigation, this Agreement may be filed as a written consent to a trial by the
court.

 

14.16.     Patriot Act Notice.  Agent and Lenders hereby notify Borrowers that
pursuant to the requirements of the Patriot Act, Agent and Lenders are required
to obtain, verify and record information that identifies each Borrower,
including its legal name, address, tax ID number and other information that will
allow Agent and Lenders to identify it in accordance with the Patriot Act. 
Agent and Lenders will also require information regarding each personal
guarantor, if any, and may require information regarding Borrowers’ management
and owners, such as legal name, address, social security number and date of
birth.

 

14.17.     Syndication.  In the event that Bank of America is not able to reduce
its underwriting exposure with respect to the Revolver Commitment to (or below)
a target aggregate hold level of $35,000,000 through Agent’s syndication efforts
within 90 days after the Closing Date, the parties hereto agree that they will,
at Agent’s request, enter into amendments of the Agreement and the other Loan
Documents (as applicable) to reflect one or more the following: (a) increases in
the margins set forth in the definition of the term “Applicable Margin” and the
elimination of any margin or rate adjustments based on the Borrowers’ Fixed
Charge Coverage Ratio, (b) changes in any advance rates, any eligibility
criteria, the Availability Reserve, and other provisions relating to the
Borrowing Base and the calculation of Availability hereunder, and (c) other
changes or additions with respect to financial covenants or other covenants
relating to the Obligors, provided that such amendments are otherwise subject to
terms and conditions reasonably acceptable to Agent.  To the extent that Agent
requests amendments to any Loan Document in connection with such syndication
efforts, each Obligor agrees to cooperate with and execute such amendments,
provided that such amendments constitute clarification changes, corrective
changes, or other changes to the Loan Documents consistent with the intent of
the parties hereto.

 

[Remainder of page intentionally left blank; signatures begin on following page]

 

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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the
date set forth above.

 

 

 

BORROWERS:

 

 

 

 

 

 

ARCTIC CAT INC., a Minnesota corporation

 

 

 

 

 

 

 

 

 

By:

/s/ TIMOTHY C. DELMORE

 

 

Name: 

Timothy C. Delmore

 

 

Title:

Chief Financial Officer

 

 

Address:

505 Waterford Park, Suite 1000

 

 

 

505 N. Highway 169

 

 

 

Plymouth, MN 55441

 

 

 

Attn: 

 

 

 

 

Telecopy: 

 

 

 

 

 

 

 

ARCTIC CAT SALES INC., a Minnesota corporation

 

 

 

 

 

 

 

 

 

By:

/s/ TIMOTHY C. DELMORE

 

 

Name: 

Timothy C. Delmore

 

 

Title:

Chief Financial Officer

 

 

 

 

 

 

ARCTIC CAT PRODUCTION LLC, a Minnesota limited liability company

 

 

 

 

 

 

 

 

 

By:

/s/ TIMOTHY C. DELMORE

 

 

Name:

Timothy C. Delmore

 

 

Title:

Chief Financial Officer

 

 

 

 

 

 

ARCTIC CAT PRODUCTION SUPPORT LLC, a Minnesota limited liability company

 

 

 

 

 

 

 

 

 

By:

/s/ TIMOTHY C. DELMORE

 

 

Name:

Timothy C. Delmore

 

 

Title:

Chief Financial Officer

 

 

 

 

 

 

ARCTIC CAT SHARED SERVICES LLC, a Minnesota limited liability company

 

 

 

 

 

 

 

 

 

By:

/s/ TIMOTHY C. DELMORE

 

 

Name: 

Timothy C. Delmore

 

 

Title:

Chief Financial Officer

 

--------------------------------------------------------------------------------

 

 

 

AGENT:

 

 

 

 

 

 

BANK OF AMERICA, N.A.,

 

 

as Agent and Lender

 

 

 

 

 

 

By:

/s/ BRIAN CONOLE

 

 

Name:

Brian Conole

 

 

Title:

Senior Vice President

 

 

Address:

Bank of America Business Capital

 

 

 

20975 Swenson Drive, Suite 200

 

 

 

Waukesha, WI 53186

 

 

Telecopy:

262.207.3347

 

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