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


 

















 


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

  



 

















 


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

  



 

















 


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

  



 

















 


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


 

















 


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


 
















 


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.


 

















 


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.


 

















 


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.


 

















 


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 


 

















 


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



 

















 


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 


 

















 


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 


 

















 


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.


 

















 


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.


 
















 


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 


 

















 


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.


 

















 


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, 


 

















 


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.


 

















 


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.


 

















 


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.


 

















 


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.


 

















 


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.


 

















 


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 


 

















 


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 


 
















 


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 


 

















 


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 


 

















 


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 


 

















 


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.


 

















 


(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.


 

















 


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 


 

















 


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 


 

















 


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) 


 

















 


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.


 

















 


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.


 
















 


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



 

















 


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 


 

















 


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 


 

















 


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 


 

















 


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.


 

















 


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 


 

















 


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.


 

















 


(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.


 

















 


(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.


 

















 


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.


 
















 


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 


 

















 


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 


 

















 


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.


 

















 


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 


 

















 


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 


 

















 


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 


 

















 


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 


 

















 


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 


 

















 


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 


 

















 


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 


 
















 


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 


 

















 


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.


 

















 


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 


 

















 


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.


 

















 


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.


 

















 


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.


 

















 


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;


 

















 


(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.


 

















 


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 


 

















 


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 


 

















 


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.


 
















 


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,



 

















 


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 


 

















 


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 


 

















 


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 


 

















 


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.


 

















 


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, 


 

















 


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.


 

















 


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.


 

















 


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 


 

















 


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.


 


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signatures begin on following page]


 

















 


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