Exhibit 10.3


 


AMENDED AND
RESTATED SECURITY AGREEMENT


 


THIS AMENDED AND RESTATED SECURITY AGREEMENT (this “Security Agreement”), dated as of
February 25, 2004, is by and between CHEROKEE
INTERNATIONAL CORPORATION, a Delaware corporation and successor by
merger to Cherokee International, LLC (“Grantor”),
and GENERAL ELECTRIC CAPITAL CORPORATION,
a Delaware corporation, in its capacity as Agent for Lenders.


 


W I T N E S S E T
H:


 


WHEREAS, pursuant to that certain Amended and Restated
Credit Agreement dated as of the date hereof (including all annexes, exhibits
and schedules thereto, as from time to time amended, restated, supplemented or
otherwise modified, the “Credit Agreement”)
by and among Grantor, Agent and Lenders, the Lenders have agreed to make Loans
and to issue Letters of Credit on behalf of Grantor;


 


WHEREAS, the Credit Agreement amends and restates that certain Amended
and Restated Credit Agreement dated November 27, 2002 (as the same
has been amended, supplemented or otherwise modified from time to time, the “Original Credit Agreement”) by and among Grantor, Heller
Financial, Inc., as agent thereunder (the ”Original
Agent”), and the financial institutions party thereto as lenders
(the ”Original Lenders”) which Original
Credit Agreement in turn amended and restated that certain Credit Agreement
dated April 30, 1999, in each case without effecting a novation of the
indebtedness and obligations existing thereunder;


 


WHEREAS, the Obligations of Grantor under the Original Credit Agreement
are secured by Liens granted by Grantor pursuant to that certain Security
Agreement dated as of April 30, 1999, as amended and restated by that
certain Amended and Restated Security Agreement dated as of November 27,
2002 (the ”Original Security
Agreement”) in favor of the Original Agent;


 


WHEREAS, Original Agent has resigned as agent under
the Original Credit Agreement and the Original Lenders have assigned, and
General Electric Capital Corporation has accepted and assumed, all of such
Original Lenders’ rights, title and interest thereunder (including all Loans
and all commitments) and has appointed itself as Agent as aforesaid; and


 


WHEREAS, Grantor has agreed to amend and restate, in
its entirety and without constituting a novation thereof, the Original Security
Agreement in order to ensure continuing security for the payment and
performance of its Obligations under and as defined in the Credit Agreement.


 


NOW, THEREFORE, in consideration of the premises and
mutual covenants herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree to amend and restate the Original Security Agreement
in its entirety as follows, without effecting a novation thereof or otherwise
disturbing the Liens created thereunder:


 

















 


1.                                       Defined
Terms.


 


(a)                                  All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the Credit Agreement or in Annex A thereto.  All other terms contained in this Security
Agreement, unless the context indicates otherwise, have the meanings provided
for by the Code to the extent the same are used or defined therein.


 


(b)                                 “Uniform Commercial Code jurisdiction” means
any jurisdiction that has adopted all or substantially all of Article 9 as
contained in the 2000 Official Text of the Uniform Commercial Code, as
recommended by the National Conference of Commissioners on Uniform State Laws
and the American Law Institute, together with any subsequent amendments or
modifications to the Official Text.


 


2.                                       Reaffirmation
and Grant of Lien.


 


(a)                                  To
secure the payment, performance and observance of all of the Obligations and
all renewals, extensions, restructurings and refinancings thereof, Grantor
hereby confirms and reaffirms the grant of the security interests heretofore
granted by it under the Original Security Agreement, agrees that such Liens
continue to secure the Obligations under the Credit Agreement and, for the
avoidance of doubt but without in any manner limiting, qualifying, prejudicing
or otherwise affecting the previous grant by Grantor under the Original
Security Agreement as aforesaid, hereby grants a continuing security interest
in, right of setoff against and an assignment to Agent of all Grantor’s
personal property and rights to personal property, and other assets, in each
case whether now owned by or owing to, or hereafter acquired by or arising in
favor of Grantor (including under any trade names, styles or derivations
thereof), and whether owned or consigned by or to, or leased from or to, Grantor,
and regardless of where located (all of which being hereinafter
collectively referred to as the “Collateral”),
including:


 


(i)                                     all
Accounts;


 


(ii)                                  all
Chattel Paper;


 


(iii)                               all
Documents;


 


(iv)                              all
General Intangibles (including payment intangibles and Software);


 


(v)                                 all
Goods (including Inventory, Equipment and Fixtures);


 


(vi)                              all
Instruments;


 


(vii)                           all
Investment Property;


 


(viii)                        all
Deposit Accounts (as such term is defined in the Code) of Grantor,
including Blocked Accounts (as defined in Section 6 below),
Concentration Accounts (as defined in Section 6 below),
Disbursement Accounts, and all other bank accounts and all deposits therein;


 


(ix)                                all
money, cash or cash equivalents of Grantor;


 


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(x)                                   all
Supporting Obligations and Letter-of-Credit Rights of Grantor; and


 


(xi)                                to
the extent not otherwise included, all Proceeds, tort claims, insurance claims
and other rights to payment not otherwise included in the foregoing and
products of the foregoing and all accessions to, substitutions and replacements
for, and rents and profits of, each of the foregoing.


 


(b)                                 In
addition, to secure the prompt and complete payment, performance and observance
of the Obligations and in order to induce Agent and Lenders as aforesaid,
Grantor has granted to Agent and, for the avoidance of doubt but without
limiting or qualifying the previous grant by Grantor under the Original
Security Agreement, does hereby grant and confirm and reaffirm its grant under
the Original Security Agreement to Agent, for the benefit of Agent and the
Lenders, a right of setoff against the property of Grantor held by Agent or any
Lender, consisting of property described above in Section 2(a) now
or hereafter in the possession or custody of or in transit to Agent or any
Lender, for any purpose, including safekeeping, collection or pledge, for the
account of Grantor, or as to which Grantor may have any right or power.


 


(c)                                  Notwithstanding
anything herein to the contrary, in no event shall the security interest
granted hereunder attach to (i) any lease, license, contract, property rights
or agreement to which Grantor is a party or any of its rights or interests
thereunder if and for so long as the grant of such security interest shall
constitute or result in (A) the abandonment, invalidation or unenforceability
of any right, title or interest of Grantor therein or (B) in a breach or
termination pursuant to the terms of, or a default under, any such lease,
license, contract, property rights or agreement (other than to the extent any
such term would be rendered ineffective by the UCC or any other applicable law
(including the Bankruptcy Code) or principles of equity), provided, however,
that such security interest shall attach immediately at such time as the
condition causing such abandonment, invalidation or unenforceability shall be
remedied and, to the extent severable, shall attach immediately to any portion
of such lease, license contract, property right or agreement that does not
result in any of the consequences specified in clauses (A) or (B); or (ii) any
of the outstanding capital stock of an entity formed in a jurisdiction outside
of the United States (each such entity, a “Foreign
Subsidiary”) in excess of 65% of the voting power of all classes of
capital stock of such Foreign Subsidiary entitled to vote, provided
that, upon an amendment to the IRC to allow a pledge of a greater percentage of
the voting power of capital stock in a Foreign Subsidiary without adverse tax
consequences to Grantor, as reasonably determined by Grantor with respect to
Federal income taxes, the Collateral shall include, and the security interest
granted by the Grantor shall attach to, such greater percentage of capital
stock of each Foreign Subsidiary.


 


(d)                                 Notwithstanding
anything herein to the contrary, so long as no Event of Default has occurred
and is continuing, Grantor shall have the exclusive, non-transferable right and
license to use the Intellectual Property and the exclusive right to grant to
other Persons licenses and sublicenses with respect to the Intellectual
Property.


 


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3.                                       Agent’s
and Lenders’ Rights; Limitations on Agent’s and Lenders’ Obligations.


 


(a)                                  It
is expressly agreed by Grantor that, anything herein or in any other Loan
Document to the contrary notwithstanding, Grantor shall remain liable under
each of its Contractual Obligations, including all Licenses, to observe and
perform all the conditions and obligations to be observed and performed by it thereunder.  Neither Agent nor any Lender shall have any
obligation or liability under any Contractual Obligation by reason of or
arising out of this Security Agreement or any other Loan Document or the
granting herein of a Lien thereon or the receipt by Agent or any Lender of any
payment relating to any Contractual Obligation pursuant hereto.  Neither Agent nor any Lender shall be
required or obligated in any manner to perform or fulfill any of the
obligations of Grantor under or pursuant to any Contractual Obligation, or to
make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party
under any Contractual Obligation, or to present or file any claims, or to take any
action to collect or enforce any performance or the payment of any amounts
which may have been assigned to it or to which it may be entitled at any time
or times.  Neither Agent nor any Lender
shall have any liability in contract or tort for Grantor’s act or omissions.


 


(b)                                 At
any time after an Event of Default has occurred and is continuing with one (1)
Business Day’s prior notice to Grantor, Agent may (i) notify Account Debtors
and other Persons obligated on any of the Collateral that Agent has a security
interest therein, and that payments shall be made directly to Agent, for itself
and the benefit of Lenders.  Upon the
request of Agent, Grantor shall so notify Account Debtors and other Persons
obligated on Collateral.  Once any such
notice has been given to any Account Debtor or other Person obligated on
Collateral, Grantor shall not give any contrary instructions to such Account
Debtor or other Person without Agent’s prior written consent, (ii) exercise the
rights of Grantor with respect to the obligation of the Account Debtor to make
payment or otherwise render performance to Grantor and with respect to any
property that secures the obligations of the Account Debtor or any other Person
obligated on the Collateral; and (iii) adjust, settle or compromise the amount
or payment of such Accounts.  After the
occurrence and during the continuance of an Event of Default (i) all amounts
and Proceeds received by Grantor with respect to the Accounts shall be received
in trust for the benefit of Agent (on behalf of Lenders), shall be
segregated from other funds of Grantor and shall be forthwith paid over to
Agent in the same form as so received (with any necessary endorsement) to be
held in the Deposit Account pursuant to Section 6 or applied
pursuant to the relevant provisions of the Credit Agreement.  Grantor shall not adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly
any customer or obligor thereof, or allow any credit or discount thereon (other
than adjustments, credits, discounts, and other non-material compromises, in
each case, in the ordinary course of business and in amounts which are not
material to Grantor) without the prior consent of Agent.


 


(c)                                  Agent
may at any time, in Agent’s reasonable discretion, in Agent’s own name, in the
name of a nominee of Agent or in the name of Grantor communicate (by mail,
telephone, facsimile or otherwise) with Account Debtors, parties to Contractual
Obligations and obligors in respect of Instruments to verify with such Persons,
to Agent’s satisfaction, the existence, amount, terms of, and any other matter
relating to, Accounts, Instruments, Chattel Paper and/or payment
intangibles.  If a Default or Event of
Default shall have occurred and be continuing, Grantor, at its own expense,
shall cause the independent certified public accountants then engaged by


 


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Grantor to prepare and deliver to Agent and each Lender at any time and
from time to time promptly upon Agent’s request the following reports with
respect to Grantor: (i) a reconciliation of all Accounts; (ii) an aging of all
Accounts; (iii) trial balances; and (iv) a test verification of such Accounts
as Agent may request.  Grantor, at its
own expense, shall deliver to Agent the results of each physical verification,
if any, which Grantor may in its discretion have made, or caused any other
Person to have made on its behalf, of all or any portion of its Inventory.


 


4.                                       Representations
and Warranties.  Grantor represents
and warrants that:


 


(a)                                  Grantor
has rights in and the power to transfer each item of the Collateral upon which
it purports to grant a Lien hereunder free and clear of any and all Liens other
than Permitted Encumbrances.


 


(b)                                 No
effective security agreement, financing statement, equivalent security or Lien
instrument or continuation statement covering all or any part of the Collateral
is on file or of record in any public office, except such as may have been
filed (i) by Grantor in favor of Agent pursuant to this Security Agreement or
the other Loan Documents, and (ii)  in
connection with any other Permitted Encumbrances.


 


(c)                                  This
Security Agreement is effective to create a valid and continuing Lien on and,
upon the filing of the appropriate financing statements listed on Schedule I
hereto, a perfected Lien in favor of Agent, for itself and the benefit of
Lenders, on the Collateral with respect to which a Lien may be perfected by
filing pursuant to the Code.  Such Lien
is prior to all other Liens, except Permitted Encumbrances that would be prior
to Liens in favor of Agent for the benefit of Agent and Lenders as a matter of
law, and is enforceable as such as against any and all creditors of and
purchasers from Grantor (other than purchasers and lessees of Inventory in the
ordinary course of business and non-exclusive licensees of General Intangibles
in the ordinary course of business). 
Except as set forth in Sections 4(d) and 4(h) hereof, all action by
Grantor necessary or desirable to protect and perfect such Lien on each item of
the Collateral has been duly taken.  No
authorization, approval or consent is required to be obtained from any
Governmental Authority or other Person for the grant of the security interest
herein, the perfection thereof or the exercise by Agent of its rights and
remedies hereunder.


 


(d)                                 Schedule II
hereto lists all Stock, material Instruments, Documents, Letter of Credit
Rights and Chattel Paper in which Grantor has an interest as of the date
hereof.  All action by Grantor necessary
or desirable to protect and perfect the Lien of Agent on each item set forth on
Schedule II (including the delivery of all originals thereof to
Agent and the legending of all material Chattel Paper as required by Section 5(b)
hereof) has been duly taken.  The Lien
of Agent, for the benefit of Agent and Lenders, on the Collateral listed on Schedule II
hereto is prior to all other Liens, except Permitted Encumbrances that would be
prior to the Liens in favor of Agent as a matter of law, and is enforceable as
such against any and all creditors of and purchasers from Grantor.


 


(e)                                  Grantor’s
name as it appears in official filings in the state of its incorporation or
other organization, all prior names of Grantor, as they appeared from time to
time in official filings in the state of its incorporation or other
organization, the type of entity of Grantor (including corporation,
partnership, limited partnership or limited liability company), organizational


 


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identification number issued by Grantor’s state of incorporation or
organization or a statement that no such number has been issued, Grantor’s
state of organization or incorporation, the location of Grantor’s chief
executive office, principal place of business, other offices, all warehouses,
consignees and processors with whom Inventory is stored or located and other
premises where Collateral is stored or located, and the locations of its books
and records concerning the Collateral are set forth on Schedule III
hereto.  Schedule III hereto
also sets forth the name as it appears in official filings in the state of its
incorporation or other organization of any Person from whom Grantor has
acquired assets during the past five (5) years, other than assets acquired in
the ordinary course of Grantor’s business. 
Grantor has only one state of incorporation or organization.


 


(f)                                    With
respect to the Accounts, except as specifically disclosed on the most recent
Borrowing Base Certificate or other collateral report delivered to Agent (i) they
represent bona fide sales or leases of Inventory or rendering of services to
Account Debtors in the ordinary course of Grantor’s business and are not
evidenced by a judgment, Instrument or Chattel Paper; (ii) there are no
setoffs, claims or disputes existing or asserted with respect thereto and
Grantor has not made any agreement with any Account Debtor for any extension of
time for the payment thereof, any compromise or settlement for less than the
full amount thereof, any release of any Account Debtor from liability therefor,
or any deduction therefrom except a discount or allowance allowed by Grantor in
the ordinary course of its business for prompt payment and disclosed to Agent,
if material; (iii) to Grantor’s knowledge, there are no facts, events or
occurrences which in any way impair the validity or enforceability thereof or
could reasonably be expected to reduce the amount payable thereunder as shown
on Grantor’s books and records and any invoices, statements and Borrowing Base
Certificate, subject to Section 6.1(d) of the Credit Agreement or other
collateral report delivered to Agent and Lenders with respect thereto; (iv)
Grantor has not received any notice of proceedings or actions which are
threatened or pending against any Account Debtor which might result in any
adverse change in such Account Debtor’s financial condition; (v) Grantor has no
knowledge that any Account Debtor is unable generally to pay its debts as they
become due; (vi) they constitute the legally valid and binding obligation of the
applicable Account Debtors; (vii) the amounts shown on all invoices,
statements, Borrowing Base Certificates and collateral reports which may be
delivered to Agent with respect thereto are actually and absolutely owing to
Grantor as indicated thereon and are not in any way contingent; (viii) no
payments have been or shall be made thereon except payments immediately
delivered to the Blocked Accounts (as defined in Section 6
below) or Agent; and (ix) to Grantor’s knowledge, all Account Debtors have the
capacity to contract; provided, that with respect to clauses (ii)
through (ix) hereof, subject to the parenthetical contained in
Section 6.1(d) of the Credit Agreement.


 


(g)                                 With
respect to any Inventory scheduled or listed on the most recent Borrowing Base
Certificate or other collateral report delivered to Agent pursuant to the terms
of this Security Agreement or the Credit Agreement (i) except for the sale of
Inventory in the ordinary course of business and dispositions expressly
permitted in the Credit Agreement, any material portion of such Inventory is
located at one of the locations set forth on Schedule III hereto,
(ii) if Inventory with an aggregate book value in excess of $500,000 is now, or
shall at any time or times hereafter be stored at such other location, Grantor
will execute and deliver such instruments, documents and notices (including,
but not limited to landlord waivers, bailee or warehouseman letters) and take
such actions as Agent deems reasonably necessary to create,


 


6

















 


perfect and protect the security interests in such Inventory, (iii)
Grantor has good and marketable title to such Inventory and such Inventory is
not subject to any Lien or security interest or document whatsoever except for the
Lien granted to Agent, for the benefit of Agent and Lenders, and except for
Permitted Encumbrances, and (iv) except as specifically disclosed in the most
recent Borrowing Base Certificate or other collateral report delivered to
Agent, such Inventory is Eligible Inventory of good and merchantable quality,
free from any material defects, (v) such Inventory is not subject to any
licensing, patent, royalty, trademark, trade name or copyright agreements with
any third parties which would require any consent of any third party upon sale
or other disposition of that Inventory or the payment of any monies to any
third party upon such sale or other disposition.


 


(h)                                 Grantor
does not have any ownership interest in, or title to, any Patent, Trademark or
Copyright except as set forth in Schedule 5.6 of the Credit
Agreement.  This Security Agreement is
effective to create a valid and continuing Lien on and, upon filing of the
Copyright Security Agreements with the United States Copyright Office and
filing of the Patent Security Agreements and the Trademark Security Agreements
with the United States Patent and Trademark Office, perfected Liens in favor of
Agent on Grantor’s federally registered Patents, Trademarks  and Copyrights and such perfected Liens are
enforceable as such as against any and all creditors of and purchasers from
Grantor.  Upon filing of the Copyright
Security Agreements with the United States Copyright Office and filing of the
Patent Security Agreements and the Trademark Security Agreements with the United
States Patent and Trademark Office and the filing of appropriate financing
statements listed on Schedule I hereto, all action necessary or
desirable to protect and perfect Agent’s Lien on Grantor’s federally registered
Patents, Trademarks or Copyrights shall have been duly taken.


 


(i)                                     All
motor vehicles (other than motor vehicles not having a market value in excess
of $50,000 in the aggregate) owned by Grantor as of the date hereof are listed
on Schedule IV hereto, by model, model year and vehicle identification
number (“VIN”).  If reasonably requested by Agent (other than
with respect to the vehicle listed on Schedule IV as of the date
hereof), Grantor shall deliver to Agent motor vehicle title certificates for
all motor vehicles having a market value in excess of $50,000 in the aggregate
from time to time owned by it and shall cause those title certificates to be
filed (with Agent’s Lien noted thereon) in the appropriate state motor vehicle
filing office.


 


(j)                                     Except as set forth on Schedule II
hereto, Grantor has no interest in any Commercial Tort Claims.


 


5.                                       Covenants.  Without limiting Grantor’s covenants and
agreements contained in the Credit Agreement and the other Loan Documents,
Grantor covenants and agrees with Agent, for the benefit of Agent and Lenders,
that from and after the date of this Security Agreement and until the
Termination Date:


 


(a)                                  Further
Assurances; Pledge of Instruments; Chattel Paper.


 


(i)                                     At
any time and from time to time, upon the written request of Agent and at the
sole expense of Grantor, Grantor shall promptly and duly execute and deliver
any and all such further instruments and documents and take such further
actions as Agent


 


7

















 


may reasonably
deem desirable to obtain the full benefits of this Security Agreement and of
the rights and powers herein granted, including (A) using its best efforts
to secure all consents and approvals necessary or appropriate for the
assignment to or for the benefit of Agent to enforce the security interests
granted hereunder; and (B) filing any financing or continuation statements
under the Code with respect to the Liens granted hereunder or under any other
Loan Document.


 


(ii)                                  Unless
Agent shall otherwise consent in writing (which consent may be revoked),
Grantor shall deliver to Agent all Collateral consisting of negotiable
Documents, certificated Stock, Chattel Paper and Instruments having a value in
excess of $250,000, individually or in the aggregate, (in each case,
accompanied by stock powers, allonges or other instruments of transfer executed
in blank) promptly after such Credit Party receives the same.  Upon acquiring any negotiable Document,
certificated Stock, Chattel Paper or Instrument, in each such case having a
value in excess of $250,000, individually or in the aggregate, Grantor will
provide prompt written notice thereof to Agent.


 


(iii)                               Grantor
shall, to the extent required by the Credit Agreement, obtain waivers or
subordinations of Liens from landlords, bailees and mortgagees, and Grantor
shall in all instances obtain signed acknowledgements of Agent’s Liens from
bailees having possession of Grantor’s Goods that they hold for the benefit of
Agent.


 


(iv)                              Grantor
shall obtain authenticated letters of control from each issuer of uncertificated
securities, securities intermediary, or commodities intermediary issuing or
holding any financial assets or commodities to or for Grantor.


 


(v)                                 As
required by this Security Agreement, Grantor shall obtain a blocked account,
lockbox or similar agreement with each bank or financial institution holding a
Deposit Account for Grantor.


 


(vi)                              If
Grantor is or becomes the beneficiary of a letter of credit, Grantor shall
promptly, and in any event promptly after becoming a beneficiary, notify Agent
thereof and enter into a tri-party agreement with Agent and the issuer and/or
confirmation bank with respect to Letter-of-Credit Rights assigning such
Letter-of-Credit Rights to Agent and directing all payments thereunder to a
Deposit Account subject to a Bank Agency and Control Agreement (as defined
in Section 6 below), all in form and substance reasonably
satisfactory to Agent.  Grantor will
take any and all actions necessary (or reasonably required or requested by
Agent), from time to time reasonably requested by Agent, to cause Agent to
obtain exclusive Control of any Letter-of-Credit Rights owned by Grantor in a
manner reasonably acceptable to Agent.


 


(vii)                           Grantor
shall take all steps necessary to grant Agent control of all electronic Chattel
Paper in accordance with the Code and all “transferable records” as defined in
each of the Uniform Electronic Transactions Act and the Electronic Signatures
in Global and National Commerce Act.


 


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(viii)                        Grantor
hereby irrevocably authorizes Agent at any time and from time to time to file
in any filing office in any Uniform Commercial Code jurisdiction any initial
financing statements and amendments thereto that (a) indicate the Collateral
(i) as “all assets” of Grantor or words of similar effect, regardless of
whether any particular asset comprised in the Collateral falls within the scope
of Article 9 of the Code or such jurisdiction, or (ii) as being of an
equal or lesser scope or with greater detail, and (b) contain any other
information required by part 5 of Article 9 of the Code for the
sufficiency or filing office acceptance of any financing statement or
amendment, including (i) whether Grantor is an organization, the type of
organization and any organization identification number issued to Grantor, and
(ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates.  Grantor agrees to furnish any such
information to the Agent promptly upon request.  Grantor also ratifies its authorization for the Agent to have
filed in any Uniform Commercial Code jurisdiction any initial financing statements
or amendments thereto if filed prior to the date hereof.


 


(ix)                                Grantor
shall notify Agent promptly upon Grantor becoming aware that it holds any
commercial tort claim the value of which is in excess of $100,000.  With respect to any new commercial tort
claims, Grantor will execute and deliver such documents as Agent deems
reasonably necessary to create, perfect and protect Agent’s security interest
in such commercial tort claim.


 


(b)                                 Maintenance
of Records.  Grantor shall keep and
maintain, at its own cost and expense, satisfactory and complete records of the
Collateral, including a record of any and all payments received and any and all
credits granted with respect to the Collateral and all other dealings with the
Collateral, all in reasonable detail. 
Grantor shall mark its books and records pertaining to the Collateral to
evidence this Security Agreement and the Liens granted hereby.  If Grantor retains possession of any Chattel
Paper or Instruments having a value in excess of $250,000, individually or in
the aggregate, with Agent’s consent, such Chattel Paper and Instruments shall
be marked with the following legend: 
“This writing and the obligations evidenced or secured hereby are
subject to the security interest of General Electric Capital Corporation, as
Agent, for the benefit of Agent and certain Lenders.”


 


(c)                                  Covenants
Regarding Patent, Trademark and Copyright Collateral.


 


(i)                                     Grantor
shall notify Agent promptly if it knows or has reason to know that any
application or registration relating to any Patent, Trademark or Copyright (now
or hereafter existing) may become abandoned or dedicated, or of any adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court) regarding
Grantor’s ownership of any Patent, Trademark or Copyright, its right to
register the same, or to keep and maintain the same.


 


(ii)                                  If,
before the Obligations are paid in full, Grantor acquires or becomes entitled
to any new or additional ownership rights in Patents, Trademarks or federally
registered Copyrights, or rights thereto, Grantor shall give to Agent prompt
written notice


 


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thereof, and
Grantor shall execute and deliver any and all Patent Security Agreements,
Copyright Security Agreements or Trademark Security Agreements as Agent may
request to evidence Agent’s Lien on such Patent, Trademark or Copyright, and
the General Intangibles of Grantor relating thereto or represented thereby.


 


(iii)                               Grantor
shall take all actions necessary or reasonably requested by Agent to maintain
and pursue (and not abandon) each application, to obtain the relevant
registration and to maintain the registration of each of the Patents,
Trademarks and Copyrights (now or hereafter existing), including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability
and opposition and interference and cancellation proceedings, unless Grantor
shall determine that such Patent, Trademark or Copyright is not material to the
conduct of its business.


 


(iv)                              In
the event that any of the Patent, Trademark or Copyright Collateral is
infringed upon, or misappropriated or diluted by a third party, Grantor shall
comply with Section 5(a)(ix) of this Security Agreement.  Grantor shall, unless it shall reasonably
determine that such Patent, Trademark or Copyright Collateral is in no way
material to the conduct of its business or operations, promptly sue for
infringement, misappropriation or dilution and to recover any and all damages
for such infringement, misappropriation or dilution, and shall take such other
actions as Agent shall deem appropriate under the circumstances to protect such
Patent, Trademark or Copyright Collateral.


 


(d)                                 Compliance
with Terms of Accounts, etc.  In all
material respects, Grantor will perform and comply with all obligations in
respect of the Collateral and all other agreements to which it is a party or by
which it is bound relating to the Collateral.


 


(e)                                  Limitation
on Liens on Collateral.  Grantor
will not create, permit or suffer to exist, and will defend the Collateral
against, and take such other action as is necessary to remove, any Lien on any
of the Collateral except Permitted Encumbrances, and will defend the right,
title and interest of Agent and Lenders in and to any of Grantor’s rights under
the Collateral against the claims and demands of all Persons whomsoever.


 


(f)                                    Further
Identification of Collateral. 
Grantor will furnish to Agent, from time to time upon request by Agent,
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Agent may reasonably
request, all in reasonable detail. 
Grantor shall promptly notify Agent in writing upon acquiring any
interest hereafter in property that is of a type where a security interest or
lien must be or may be registered, recorded or filed under, or notice thereof
given under, any federal statute or regulation.


 


(g)                                 Notices.  Grantor will advise Agent promptly, in
reasonable detail, (i) of any Lien (other than Permitted Encumbrances) or
claim made or asserted against any material portion of the Collateral, and
(ii) of the occurrence of any other event which could reasonably be
expected to have a Material Adverse Effect on the aggregate value of the
Collateral or on the Liens created hereunder or under any other Loan Document.


 


10

















 


(h)                                 Good
Standing Certificates.  If and
whenever reasonably requested by Agent, Grantor shall provide to Agent a
certificate of good standing from its state of incorporation or organization.


 


(i)                                     Organizational/Collateral
Location Changes; No Reincorporation. 
Grantor will give Agent at least five (5) Business Days’ prior written
notice of any change required to be made to Schedule III hereto, to
the extent needed to make said Schedule III up to date and
accurate.  Without limiting the
prohibitions on mergers involving the Grantor contained in the Credit
Agreement, Grantor shall not reincorporate or reorganize itself under the laws
of any jurisdiction other than the jurisdiction in which it is incorporated or
organized as of the date hereof without at least five (5) Business Day’s prior
written notice to Agent and provided such action could not, in the reasonable
judgment of Agent, result in a Material Adverse Effect.


 


(j)                                     Terminations;
Amendments Not Authorized.  Grantor
acknowledges that it is not authorized to file any financing statement or amendment
or termination statement with respect to any financing statement filed in favor
of Agent without the prior written consent of Agent and agrees that it will not
do so without the prior written consent of Agent, subject to Grantor’s rights
under Section 9-509(d)(2) of the Code.


 


(k)                                  Authorized
Terminations.  Following the
Termination Date, Agent will promptly deliver to Grantor for filing or
authorize Grantor to prepare and file termination statements and releases in
accordance with Section 9-513(c) of the Code.


 


(l)                                     Use
of Collateral.  Grantor will do
nothing to impair the rights of Agent in any of the Collateral.  Grantor will not use or permit any
Collateral to be used unlawfully or in violation of any provision of applicable
law, or any insurance policy covering any of the Collateral.  Without limiting the foregoing, Grantor will
not permit the production of Inventory in violation of any provision of the
Fair Labor Standards Act and Grantor will not adjust, settle or compromise the
amount or payment of any Account, or release wholly or partly any Account
Debtor thereof or allow any credit or discount thereon (other than credits and
discounts in the ordinary course of business).


 


(m)                               Federal
Claims.  Grantor shall notify Agent
promptly of any Collateral which constitutes a claim against the United States
government or any instrumentality or agent thereof, the assignment of which
claim is restricted by federal law. 
Upon the request of Agent, Grantor shall take such steps as may be
necessary to comply with any applicable federal assignment of claims laws or
other comparable laws.


 


(n)                                 Hot
Goods.  Grantor shall not, and shall
not permit any Domestic Subsidiary to, produce any Inventory in violation of
the Fair Labor Standards Act of 1938, as amended, or in violation of any other
applicable federal, state or local law. 
Grantor shall not permit any Foreign Subsidiary to produce any Inventory
in violation of any law applicable to such Foreign Subsidiary.


 


6.                                       Bank
Accounts; Collection of Accounts and Payments.


 


Grantor shall enter into a bank agency and control
agreement (“Bank Agency and Control Agreement”),
in a form reasonably acceptable to Agent, with each financial


 


11

















 


institution with which Grantor maintains from time to time any Deposit
Accounts.  Each Bank Agency and Control
Agreement shall provide, among other things, that (a) all items of payment
deposited in each Deposit Account subject thereto shall be held by the
applicable financial institution as Agent or bailee-in-possession for Agent, on
behalf of itself and Lenders, (b) the financial institution executing such
agreement has no rights of offset or recoupment of any other claim against any
Deposit Account subject thereto, as the case may be, other than for payment of
its services and other charges directly related to the administration of each
such Deposit Account and for returned checks or other items of payment,
(c) to the extent provided below, the financial institution will transfer
all amounts held or deposited from time to time in any such Deposit Account as
Agent may so direct, and (d) the applicable financial institution will agree in
writing to comply with instructions originated by Agent directing disposition
of the funds in the Deposit Account without further consent by Grantor.  Grantor hereby grants to Agent, for the
benefit of Agent and Lenders, a continuing lien upon, and security interest in,
all such accounts and all funds at any time paid, deposited, credited or held
in such accounts (whether for collection, provisionally or otherwise) or
otherwise in the possession of such financial institutions, and each such
financial institution shall act as Agent’s agent in connection therewith.  Grantor shall not establish any Deposit
Account with any financial institution unless prior thereto Agent and Grantor
shall have entered into a Bank Agency and Control Agreement with such financial
institution.  Except as expressly
permitted in writing by Agent, Grantor shall not establish or maintain any
securities account(s), as defined in the Code.


 


Grantor shall establish lockbox or blocked accounts
(collectively, “Blocked Accounts”)
in Grantor’s name with such banks as are reasonably acceptable to Agent (“Collecting Banks”), subject to a Bank
Agency and Control Agreement pursuant to which all Account Debtors shall
directly remit all payments on Accounts and in which Grantor will immediately
deposit all cash payments for Inventory or other cash payments constituting
proceeds of Collateral in the identical form in which such payment was made,
whether by cash or check.  In addition,
Agent, for the benefit of Agent and Lenders, may establish one or more
depository accounts at each Collecting Bank or at a centrally located bank in
the name of Agent or Grantor as customer (collectively, the “Concentration Accounts”).  All amounts held or deposited from time to
time in the Blocked Accounts held by such Collecting Bank shall be transferred
on a daily basis to Agent (as Agent may direct) or any of the Concentration
Accounts for application by Agent to the Obligations as provided in the Credit
Agreement.  Subject to the foregoing,
Grantor hereby agrees that all payments received by Agent or any Lender whether
by cash, check, wire transfer or any other instrument, made to such Blocked
Accounts or Concentration Accounts or otherwise received by Agent or any Lender
and whether on the Accounts or as proceeds of other Collateral or otherwise
will be the sole and exclusive property of Lenders.  Grantor, and any of its Affiliates, employees, agents and other
Persons acting for or in concert with Grantor shall, acting as trustee for
Agent and Lenders, receive, as the sole and exclusive property of Lenders, any
moneys, checks, notes, drafts or other payments relating to and/or constituting
proceeds of Accounts or other Collateral which come into the possession or
under the control of Grantor or any Affiliates, employees, agent, or other
Persons acting for or in concert with Grantor, and immediately upon receipt
thereof, Grantor or such Persons shall deposit the same or cause the same to be
deposited in kind, in a Blocked Account or other account subject to a Bank
Agency and Control Agreement.


 


12

















 


If at any time a Collecting Bank is obligated to
transfer to Agent or any Concentration Account all amounts held or deposited in
the Blocked Accounts held by such Collecting Bank, Grantor shall not nor shall
Grantor permit any Domestic Subsidiary to, accumulate or maintain cash in any disbursement
or payroll account, as of any date, in an amount in excess of checks
outstanding against such account as of such date and amounts necessary to meet
minimum balance requirements.


 


Grantor shall close any of its accounts (and promptly
establish replacement accounts with a financial institution which has executed,
or is willing to execute, a Bank Agency and Control Agreement) maintained with
any financial institution which is the subject of a notice from Agent that the
creditworthiness of such financial institution or any of its affiliates is no
longer acceptable to Agent in its Permitted Discretion, or that the operating
performance, funds transfer or availability procedures or performance with
respect to any Bank Agency and Control Agreement of such financial institution
is no longer acceptable in Agent’s reasonable judgment.


 


Notwithstanding anything to the contrary contain
herein, Grantor shall enter into a Bank Agency and Control Agreement and
securities control agreement to evidence certain lockbox arrangements and
investment account(s), respectively, on or prior to the date of first funding
as provided for in the Credit Agreement.


 


7.                                       Agent’s
Appointment as Attorney-In-Fact.


 


On the Closing Date Grantor shall execute and deliver
to Agent a power of attorney (the ”Power
of Attorney”) substantially in the form attached hereto as Exhibit A.  The power of attorney granted pursuant to
the Power of Attorney is a power coupled with an interest and shall be
irrevocable until the Termination Date. 
The powers conferred on Agent, for the benefit of Agent and Lenders,
under the Power of Attorney are solely to protect Agent’s interests (for the
benefit of Agent and Lenders) in the Collateral and shall not impose any duty
upon Agent or any Lender to exercise any such powers.  Agent agrees that (a) except for the powers granted in clause (h)
of the Power of Attorney, it shall not exercise any power or authority
granted  under the Power of Attorney
unless an Event of Default has occurred and is continuing, and (b) Agent shall
account for any moneys received by Agent in respect of any foreclosure on or
disposition of Collateral pursuant to the Power of Attorney provided that none
of Agent nor any Lender shall have any duty as to any Collateral, and Agent and
Lenders shall be accountable only for amounts they actually receive as a result
of the exercise of such powers.  NONE OF
AGENT, LENDERS OR THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS OR REPRESENTATIVES SHALL BE RESPONSIBLE TO GRANTOR FOR ANY ACT OR
FAILURE TO ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT  IN RESPECT OF DAMAGES ATTRIBUTABLE SOLELY TO
THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A
COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR
CONSEQUENTIAL DAMAGES.


 


8.                                       Remedies;
Rights Upon Default.


 


(a)                                  In
addition to all other rights and remedies granted to it under this Security
Agreement, the Credit Agreement, the other Loan Documents and under any other
instrument or


 


13

















 


agreement securing, evidencing or relating to any of the Obligations,
if any Event of Default shall have occurred and be continuing, Agent may
exercise all rights and remedies of a secured party under the Code.  Without limiting the generality of the
foregoing, Grantor expressly agrees that in any such event Agent, without
demand of performance or other demand, advertisement or notice of any kind
(except the notice specified below of time and place of public or private sale)
to or upon Grantor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the Code and other applicable law), may forthwith (personally or
through its agents or attorneys) enter upon the premises where any Collateral
is located, without any obligation to pay rent, through self-help, without
judicial process, without first obtaining a final judgment or giving Grantor or
any other Person notice and opportunity for a hearing on Agent’s claim or
action and may take possession of, collect, receive, assemble, process,
appropriate, remove and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, license, assign, give an option or options to
purchase, or otherwise dispose of and deliver said Collateral (or contract
to do so), or any part thereof, in one or more parcels at a public or private
sale or sales, at any exchange at such prices as it may deem acceptable, for
cash or on credit or for future delivery without assumption of any credit
risk.  To facilitate the foregoing, upon
the occurrence and during the continuance of an Event of Default, Agent shall
have the right to take possession of Grantor’s original books and records, to
obtain access to Grantor’s data processing equipment, computer hardware and
Software and to use all of the foregoing and the information contained therein
in any manner which Agent deems appropriate. 
Agent or any Lender shall have the right upon any such public sale or
sales and, to the extent permitted by law, upon any such private sale or sales,
to purchase for the benefit of Agent and Lenders, the whole or any part of said
Collateral so sold, free of any right or equity of redemption, which equity of
redemption Grantor hereby releases. 
Such sales may be adjourned and continued from time to time with or
without notice.  Agent shall have the
right to conduct such sales on Grantor’s premises or elsewhere and shall have
the right to use Grantor’s premises without charge for such time or times as
Agent deems necessary or advisable.


 


If any Event of Default shall have occurred and be
continuing, Grantor further agrees, at Agent’s request, to assemble the
Collateral and make it available to Agent at a place or places designated by
Agent which are reasonably convenient to Agent and Grantor, whether at
Grantor’s premises or elsewhere. 
Without limiting the foregoing, Agent shall also have the right to
require that Grantor store and keep any Collateral pending further action by
Agent, and while Collateral is so stored or kept, provide such guards and
maintenance services as shall be necessary to protect the same and to preserve
and maintain the Collateral in good condition. 
Until Agent is able to effect a sale, lease, license or other
disposition of Collateral, Agent shall have the right to hold or use
Collateral, or any part thereof, to the extent that it deems appropriate for
the purpose of preserving Collateral or its value or for any other purpose
deemed appropriate by Agent.  Agent
shall have no obligation to Grantor to maintain or preserve the rights of
Grantor as against third parties with respect to Collateral while Collateral is
in the possession of Agent.  Agent may,
if it so elects, seek the appointment of a receiver or keeper to take
possession of Collateral and to enforce any of Agent’s remedies (for the
benefit of Agent and Lenders), with respect to such appointment without prior
notice or hearing as to such appointment. 
Agent shall apply the net proceeds of any sale, lease, license, other
disposition of, or any collection, recovery, receipt, or realization on, the
Collateral to the Obligations as provided in the Credit Agreement, and only
after so paying over such net proceeds, and after the payment by Agent of any
other amount required by any provision of law, need Agent account for the
surplus, if any, to


 


14

















 


Grantor.  To the maximum extent
permitted by applicable law, Grantor waives all claims, damages, and demands
against Agent or any Lender arising out of the repossession, retention or sale
of the Collateral except such as arise solely out of the gross negligence or
willful misconduct of Agent or such Lender as finally determined by a court of
competent jurisdiction.  Grantor agrees
that, to the extent notice of sale shall be required by law, a reasonable
authenticated notification of disposition shall be a notification given at
least ten (10) days prior to any such sale and such notice shall (i) describe
Agent and Grantor, (ii) describe the Collateral that is the subject of the
intended disposition, (iii) state the method of intended disposition, (iv)
state that the Grantor is entitled to an accounting of the Secured Obligations
and stating the charge, if any, for an accounting, and (v) state the time and
place of any public disposition or the time after which any private sale is to
be made.  Notwithstanding any such
notice of sale, Agent shall not be obligated to make any sale of
Collateral.  In connection with any
sale, lease, license or other disposition of Collateral, Agent may disclaim any
warranties that might arise in connection therewith and Agent shall have no
obligation to provide any warranties at such time.  To the extent permitted by law, Grantor shall remain liable for
any deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all Obligations, including any reasonable attorneys’ fees
or other expenses incurred by Agent or any Lender to collect such deficiency.


 


(b)                                 Except
as otherwise specifically provided herein, Grantor hereby waives presentment,
demand, protest or any notice (to the maximum extent permitted by
applicable law) of any kind in connection with this Security Agreement or any
Collateral.


 


(c)                                  To
the extent that applicable law imposes duties on Agent to exercise remedies in
a commercially reasonable manner, Grantor acknowledges and agrees that it is
not commercially unreasonable for Agent (i) to fail to incur expenses
reasonably deemed significant by Agent to prepare Collateral for disposition or
otherwise to complete raw material or work in process into finished goods or
other finished products for disposition, (ii) to fail to obtain third party
consents for access to Collateral to be disposed of, or to obtain or, if not
required by other law, to fail to obtain governmental or third party consents
for the collection or disposition of Collateral to be collected or disposed of,
(iii) to fail to exercise collection remedies against Account Debtors or other
Persons obligated on Collateral or to remove Liens on or any adverse claims
against Collateral, (iv) to exercise collection remedies against Account
Debtors and other Persons obligated on Collateral directly or through the use
of collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as the Grantor, for
expressions of interest in acquiring all or any portion of such Collateral,
(vii) to hire one or more professional auctioneers to assist in the disposition
of Collateral, whether or not the Collateral is of a specialized nature, (viii)
to dispose of Collateral by utilizing internet sites that provide for the
auction of assets of the types included in the Collateral or that have the
reasonable capacity of doing so, or that match buyers and sellers of assets,
(ix) to dispose of assets in wholesale rather than retail markets, (x) to
disclaim disposition warranties, such as title, possession or quiet enjoyment,
(xi) to purchase insurance or credit enhancements to insure Agent against risks
of loss, collection or disposition of Collateral or to provide to Agent a
guaranteed return from the collection or disposition of Collateral, or (xii) to
the extent deemed appropriate by Agent, to obtain the services of other
brokers, investment bankers, consultants and other professionals to assist Agent
in the collection or disposition of any of the Collateral.  Grantor acknowledges that the purpose of
this Section 8(c)


 


15

















 


is to provide non-exhaustive indications of what actions or omissions
by Agent would not be commercially unreasonable in Agent’s exercise of remedies
against the Collateral and that other actions or omissions by Agent shall not
be deemed commercially unreasonable solely on account of not being indicated in
this Section 8(c).  Without
limitation upon the foregoing, nothing contained in this Section 8(c)
shall be construed to grant any rights to Grantor or to impose any duties on
Agent that would not have been granted or imposed by this Security Agreement or
by applicable law in the absence of this Section 8(c).


 


(d)                                 Neither
Agent nor any Lender shall be required to make any demand upon, or pursue or
exhaust any of their rights or remedies against, Grantor, any other obligor,
guarantor, pledgor or any other Person with respect to the payment of the
Obligations or to pursue or exhaust any of their rights or remedies with
respect to any Collateral therefor or any direct or indirect guarantee
thereof.  Neither Agent nor any Lender
shall be required to marshal the Collateral or any guarantee of the Obligations
or to resort to the Collateral or any such guarantee in any particular order,
and all of its and their rights hereunder or under any other Loan Document
shall be cumulative.  To the extent it
may lawfully do so, Grantor absolutely and irrevocably waives and relinquishes
the benefit and advantage of, and covenants not to assert against Agent or any
Lender, any valuation, stay, appraisement, extension, redemption or similar
laws and any and all rights or defenses it may have as a surety now or
hereafter existing which, but for this provision, might be applicable to the
sale of any Collateral made under the judgment, order or decree of any court,
or privately under the power of sale conferred by this Security Agreement, or
otherwise.


 


9.                                       Grant
of License to Use Property.  For the
purpose of enabling Agent to exercise rights and remedies under Section 8
hereof (including, without limiting the terms of Section 8 hereof,
in order to take possession of, collect, receive, assemble, process, appropriate,
remove, realize upon, sell, lease, license, assign, give an option or options
to purchase  or otherwise dispose of
Collateral) at such time as Agent shall be lawfully entitled to exercise such
rights and remedies, Grantor hereby grants to Agent (to the extent permitted by
the agreements governing such Intellectual Property and applicable law),
effective upon the occurrence and during the continuance of any Event of
Default, for the benefit of Agent and Lenders, an irrevocable, nonexclusive
license (exercisable without payment of royalty or other compensation to
Grantor) to use, license or sublicense any Intellectual Property now owned or
hereafter acquired by Grantor, and wherever the same may be located, and
including in such license access to all media in which any of the licensed
items may be recorded or stored and to all Software and programs used for the
compilation or printout thereof and an irrevocable license (exercisable without
payment of rent or other compensation to Grantor) to use and occupy all real
estate owned or leased by Grantor.


 


10.                                 Limitation
on Agent’s and Lenders’ Duty in Respect of Collateral.  Agent and each Lender shall use reasonable
care with respect to the Collateral in its possession or under its
control.  Neither Agent nor any Lender
shall have any other duties concerning the custody and preservation of any
Collateral in its possession or control or in the possession or control of any
agent or nominee of Agent or such Lender, or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto.  Agent shall be deemed to have
exercised reasonable care in the custody and preservation the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which it accords its own property.


 


16

















 


Agent shall not be liable or responsible for any loss or damage to any
of the Collateral, or for any diminution in the value thereof, by reason of the
act or omission of any warehousemen, carrier, forwarding agency, consignee or
other agent or bailee selected by Agent in good faith.


 


11.                                 Reinstatement.  This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by
or against Grantor for liquidation or reorganization, should Grantor become
insolvent or make an assignment for the benefit of any creditor or creditors or
should a receiver or trustee be appointed for all or any significant part of
Grantor’s assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Obligations, or any
part thereof, is, pursuant to applicable law, rescinded or reduced in amount,
or must otherwise be restored or returned by any obligee of the Obligations,
whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all
as though such payment or performance had not been made.  In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.


 


12.                                 Expenses
and Attorneys Fees.  Without
limiting Grantor’s obligations under the Credit Agreement or the other Loan
Documents, Grantor agrees to promptly pay all fees, costs, charges and expenses
of Agent (including reasonable attorneys’ fees and expenses) incurred in
connection with (a) protecting, storing, warehousing, appraising, insuring,
handling, maintaining and shipping the Collateral, (b) creating, perfecting,
maintaining and enforcing Agent’s Liens and (c) collecting, enforcing,
retaking, holding, preparing for disposition, processing and disposing of
Collateral.  Grantor shall also pay any
and all excise, property, sales and use taxes imposed by any federal, state,
local or foreign authority on any of the Collateral, or with respect to
periodic appraisals and inspections of the Collateral, or with respect to the
sale or other disposition thereof.  If
Grantor fails to promptly pay any portion of the above costs, fees and expenses
when due or to perform any other obligation of Grantor under this Security
Agreement, Agent or any other Lender may, at its option, but shall not be
required to, pay or perform the same and charge Grantor’s account for all fees,
costs and expenses incurred therefor, and Grantor agrees to reimburse Agent or
such Lender therefor on demand.  All
sums so paid or incurred by Agent or any other Lender for any of the foregoing,
any and all other sums for which Grantor may become liable hereunder and all
fees, costs and expenses (including attorneys’ fees, legal expenses and court
costs) incurred by Agent or any other Lender in enforcing or protecting the
Liens or any of their rights or remedies under this Security Agreement shall be
payable on demand, shall constitute Obligations, shall bear interest until paid
at the highest rate provided in the Credit Agreement and shall be secured by
the Collateral.


 


13.                                 Notices.  Except as otherwise provided herein,
whenever it is provided herein that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or served
upon any of the parties by any other party, or whenever any of the parties desires
to give and serve upon any other party any communication with respect to this
Security Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be given in
the manner, and deemed received, as provided for in the Credit Agreement.


 


17

















 


14.                                 Limitation
by Law.  All rights, remedies and
powers provided in this Security Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be
limited to the extent necessary so that they shall not render this Security
Agreement invalid, unenforceable, in whole or in part, or not entitled to be
recorded, registered or filed under the provisions of any applicable law.


 


15.                                 Termination
of this Security Agreement.  Subject
to Section 11 hereof, this Security Agreement shall terminate upon
the Termination Date.


 


16.                                 Successors
and Assigns.  This Security
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns except that Grantor may not assign
its rights or obligations hereunder without the written consent of all
Lenders.  No sales of participations,
other sales, assignments, transfers or other dispositions of any agreement
governing or instrument evidencing the Obligations or any portion thereof or
interest therein shall in any manner impair the Lien granted to Agent, for the
benefit of Agent and Lenders, hereunder.


 


17.                                 Counterparts.  This Security Agreement and any amendments,
waivers, consents or supplements may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts taken together shall constitute but one in the same instrument.  This Security Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto.  This Security Agreement may be
authenticated by manual signature, facsimile or, if approved in writing by
Agent, electronic means, all of which shall be equally valid.


 


18.                                 Applicable
Law.  PURSUANT TO 735 ILCS 105/5-5
OF THE ILLINOIS CIVIL PROCEDURE-CHOICE OF LAW AND FORUM ACT, THIS SECURITY
AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT OTHERWISE
GIVING EFFECT TO ILLINOIS’ CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE
APPLICATION OF LAWS OTHER THAN THE LAWS OF THE STATE OF ILLINOIS.


 


19.                                 Headings.  Section headings are included herein
for convenience of reference only and shall not constitute a part of this
Security Agreement for any other purposes or be given substantive effect.


 


20.                                 Benefit
of Lenders.  All Liens granted or
contemplated hereby shall be for the benefit of Agent, individually, and
Lenders, and all proceeds or payments realized from Collateral in accordance
herewith shall be applied to the Obligations in accordance with the terms of
the Credit Agreement.


 


21.                                 Amendment
and Restatement; No Novation.  This
Security Agreement amends and restates the Original Security Agreement in its
entirety and shall not be deemed to constitute


 


18

















 


a novation thereof.  It is the
express intention of the parties hereto that the execution and delivery of this
Amended and Restated Credit Agreement shall not extinguish, terminate, serve as
a replacement of or otherwise impair or diminish, in any manner, the existing
Liens granted by Grantor under the Original Security Agreement.  The parties hereto hereby agree that the
Liens granted to Agent pursuant to the Original Security Agreement remain in
full force and effect to secure the Obligations and hereby are ratified and
confirmed in all respects.  Such Liens
remain and continue to be granted, created, attached, perfected and
enforceable, and shall constitute first-priority perfected security interests
of the Agent for the benefit of the Lenders. 
Notwithstanding but without limiting the foregoing, Grantor has granted
Liens hereunder in favor of Agent for the benefit of the Lenders, not in
addition to or substitution or denigration of the existing Liens, but rather
out of an abundance of caution.


 


22.                                 Intercreditor
Agreement.  All rights and remedies
provided for herein to Agent and all obligations of Grantor hereunder are
subject to the applicable terms and provisions of the Intercreditor Agreement.


 


Remainder of Page Intentionally Left Blank

Signature Page Follows


 


19

















 


IN WITNESS WHEREOF, each of the parties hereto has
caused this Amended and Restated Security Agreement to be executed and
delivered by its duly authorized officer as of the date first set forth above.


 


 


	
   

  	
  CHEROKEE INTERNATIONAL

  CORPORATION, a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Van Holland

  	
   

  
	
   

  	
  Name: Van Holland

  
	
   

  	
  Title: Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GENERAL ELECTRIC CAPITAL

  CORPORATION, as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randall J. Boba

  	
   

  
	
   

  	
  Name: Randall J. Boba

  
	
   

  	
  Title: Its Duly Authorized Signatory

  
					



 

















 


SCHEDULE I

to

SECURITY AGREEMENT


 


Filing Jurisdictions


 

















 


SCHEDULE II

to

SECURITY AGREEMENT


 


Stock,
Instruments, Documents, Chattel Paper, Commercial

Tort Claims and Letter of Credit Rights


 


[to be completed
by Grantor]


 

















 


SCHEDULE III

to

SECURITY AGREEMENT


 


Schedule of
Organizational Identification, Offices,

Locations of Collateral

and Records Concerning Collateral


 


I.                                         Grantor’s official name:


 


II.                                     Prior official names of Grantor:


 


III.                                 Type of entity (e.g. corporation,
partnership, business trust, limited partnership, limited liability company):


 


IV.                                 Organizational identification number
issued by Grantor’s state of incorporation or organization or a statement that
no such number has been issued:


 


V.                                     State of organization or incorporation of
Grantor:


 


VI.                                 Chief executive office and principal
place of business of Grantor:


 


VII.                             Other offices of Grantor:


 


VIII.                         Warehouses, Consignees and Processors:


 


IX.                                Other premises at which Collateral is
stored or located:


 


X.                                    Locations of records concerning
Collateral:


 


XI.                                Persons from whom assets have been
acquired, during the past five (5) years, other than in the ordinary course of
business:


 


[to be completed by Grantor]


 

















 


SCHEDULE IV

to

SECURITY AGREEMENT


 


 




	
  Motor Vehicle

  Make/Model

  	
   

  	
  Model Year

  	
   

  	
  VIN

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  






 


 


[to be completed by Grantor]


 

















 


EXHIBIT A


 


POWER OF ATTORNEY


 


This Power of Attorney is executed and delivered by
CHEROKEE INTERNATIONAL CORPORATION, a Delaware corporation (“Grantor”), to GENERAL ELECTRIC CAPITAL
CORPORATION, a Delaware corporation (hereinafter referred to as “Attorney”), as Agent for the benefit of
Agent and Lenders, under an Amended and Restated Credit Agreement and an
Amended and Restated Security Agreement, both dated as of
February    , 2004, and other related documents (the ”Loan Documents”).  No person to whom this Power of Attorney is presented, as
authority for Attorney to take any action or actions contemplated hereby, shall
be required to inquire into or seek confirmation from Grantor as to the
authority of Attorney to take any action described below, or as to the existence
of or fulfillment of any condition to this Power of Attorney, which is intended
to grant to Attorney unconditionally the authority to take and perform the
actions contemplated herein, and Grantor irrevocably waives any right to
commence any suit or action, in law or equity, against any person or entity
which acts in reliance upon or acknowledges the authority granted under this
Power of Attorney.  The power of
attorney granted hereby is coupled with an interest, and may not be revoked or
canceled by Grantor without Attorney’s written consent.


 


Grantor hereby irrevocably constitutes and appoints
Attorney (and all officers, employees or agents designated by Attorney), with
full power of substitution, as Grantor’s true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of Grantor and in
the name of Grantor or in its own name, from time to time in Attorney’s
discretion, to take any and all appropriate action and to execute and deliver
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of the Loan Documents and, without limiting the
generality of the foregoing, Grantor hereby grants to Attorney the power and
right, on behalf of Grantor, without notice to or assent by Grantor, and at any
time, to do the following:  (a) change
the mailing address of Grantor, open a post office box on behalf of Grantor,
open mail for Grantor, and ask, demand, collect, give acquittances and receipts
for, take possession of, endorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with any property of Grantor; (b)
effect any repairs to any asset of Grantor, or continue to obtain any insurance
and pay all or any part of the premiums therefor and costs thereof, and make,
settle and adjust all claims under such policies of insurance, and make all
determinations and decisions with respect to such policies; (c) pay or
discharge any taxes, liens, security interests, or other encumbrances levied or
placed on or threatened against Grantor or its property; (d) defend any suit,
action or proceeding brought against Grantor if Grantor does not defend such
suit, action or proceeding or if Attorney believes that Grantor is not pursuing
such defense in a manner that will maximize the recovery to Attorney, and
settle, compromise or adjust any suit, action, or proceeding described above
and, in connection therewith, give such discharges or releases as Attorney may
deem appropriate; (e) file or prosecute any claim, litigation, suit or
proceeding in any court of competent jurisdiction or before any arbitrator, or
take any other action otherwise deemed appropriate by Attorney for the purpose
of collecting any and all such moneys due to Grantor whenever payable and to
enforce any other right in respect of Grantor’s property; (f) cause the
certified public accountants then engaged by Grantor to


 


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prepare and deliver to Attorney at any time and from time to time,
promptly upon Attorney’s request, the following reports:  (1) a reconciliation of all accounts, (2) an
aging of all accounts, (3) trial balances, (4) test verifications of such
accounts as Attorney may request, and (5) the results of each physical
verification of inventory; (g) communicate in its own name with any party to
any contract with regard to the assignment of the right, title and interest of
such Grantor in and under the contract and other matters relating thereto; (h)
to file such financing statements with respect to the Security Agreement, with
or without Grantor’s signature, or to file a photocopy of the Security
Agreement in substitution for a financing statement, as the Agent may deem
appropriate and to execute in Grantor’s name such financing statements and
amendments thereto and continuation statements which may require the Grantor’s
signature; (i) execute, in connection with any sale provided for in any Loan
Document, any endorsements, assignments or other instruments of conveyance or
transfer with respect to collateral subject to the Loan Documents and to
otherwise direct such sale or resale; (j) exercise the rights of Grantor with
respect to the obligation of all account debtors to make payment or otherwise
render performance to Grantor; (k) exercise the rights of Grantor to, and take
any and all actions that Attorney deems appropriate to realize the benefit of,
any intellectual property; and (l) assert any claims Grantor may have, from
time to time, against any other party to any contract to which Grantor is a
party and to otherwise exercise any right or remedy of Grantor thereunder all
as though Attorney were the absolute owner of the property of Grantor for all
purposes, and to do, at Attorney’s option and grantor’s expense, at any time or
from time to time, all acts and other things that Attorney reasonably deems
necessary to perfect, preserve, or realize upon Grantor’s property or assets
and Attorney’s liens thereon, all as fully and effectively as Grantor might
do.  Grantor hereby ratifies, to the
extent permitted by law, all that said Attorney shall lawfully do or cause to
be done by virtue hereof.


 


IN WITNESS WHEREOF, this Power of Attorney is executed
by Grantor pursuant to the authority of its board of directors this
            day of
                      ,
2004.


 


 


	
   

  	
  GRANTOR:

  
	
   

  	
  CHEROKEE INTERNATIONAL

  CORPORATION, a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
					



 


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NOTARY PUBLIC
CERTIFICATE


 


On this
            day of
                   ,
200  , [officer’s name] who is personally known to me appeared before
me in his/her capacity as the [title] of [Grantor] (“Grantor”) and executed on
behalf of Grantor the Power of Attorney in favor of General Electric Capital
Corporation to which this Certificate is attached.


 


 


	
   

  	
   

  	
   

  
	
   

  	
  Notary Public

  



 


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