**EXHIBIT10.1**

**WAIVER AND FOURTH AMENDMENT**

**TO CREDIT AGREEMENT**

 

 

 

                This WAIVER AND FOURTH AMENDMENT TO CREDIT AGREEMENT(“Amendment”) is dated as of August 13, 2002  and is entered into by and among CherokeeInternational, LLC, a California limited liability company (“Borrower”), HellerFinancial, Inc., in its capacity as Agent for the Lenders party to the CreditAgreement described below (“Agent”), and the Lenders which are signatorieshereto.

 

                WHEREAS, Agent,Lenders and Borrower are parties to a certain Credit Agreement dated as ofApril 30, 1999, as amended by that certain Consent, Waiver and First Amendmentto Credit Agreement dated as of June 15, 2000, as further amended by thatcertain Second Amendment to Credit Agreement dated as of March 30, 2001, and asfurther amended by that certain Waiver and Third Amendment to Credit Agreementdated as of September 26, 2001 (as such agreement may be further amended,restated, supplemented or otherwise modified and in effect from time to time,the “Agreement”);****and

 

**               **WHEREAS, the Borrower has requested a waiver ofcompliance with the provisions set forth on Exhibit A and any Event ofDefault relating to such failure to comply (together with any notification orcertification obligations with respect thereto, the “Waived Provisions”); and

 

                WHEREAS, the Borrower has requested that the Lenderswaive the Waived Provisions, and the Lenders are willing to waive the WaivedProvisions upon the terms, and subject to the conditions, set forth herein; and

 

                WHEREAS, theparties desire to amend the Agreement****as hereinafter set forth.

 

                NOW THEREFORE, inconsideration of the mutual conditions and agreements set forth in theAgreement and this Amendment, and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged,  the parties hereto hereby agree as follows:

 

**                1.             Definitions. **Capitalizedterms used in this Amendment, unless otherwise defined herein, shall have themeaning ascribed to such terms in the Agreement.

 

                **2.             Amendments. **Subject to the conditions setforth below, the Agreement is amended as follows:

 

(a)           The Term Loan A ScheduledInstallments and the Term Loan B Scheduled Installments set forth in subsection1.1(A) are each amended by deleting all dates and amounts occurring afterDecember 31, 2003 and replacing such dates and amounts with the following, asapplicable.

For the Term Loan A Scheduled Installments:

January 8, 2004                     Theremaining unpaid balance of the Term Loan A

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For the Term Loan B Scheduled Installments:

January 8, 2004                     Theremaining unpaid balance of the Term Loan B

(b)           Subsection 1.1(B)(1) is amended bydeleting the “$25,000,000” figure therein and substituting “$20,000,000” inlieu thereof.

(c)           Subsection 1.1(B)(2) is amended bydeleting the last two sentences of such subsection and adding in their placethe following sentences to the end of such subsection:

The Lenders agree to provide Overadvance Revolving Loans to theBorrower during the period from the Third Amendment Effective Date throughDecember 31, 2002 in an amount not to exceed $2,500,000, subject to the termsof this Agreement; provided that, the first, second, and third sentencesof this subsection will not apply to such Overadvance Revolving Loans throughand including December 31, 2002.  TheMaximum Revolving Loan Balance shall be deemed increased by the amount of suchOveradvance Revolving Loans from time to time outstanding.  Notwithstanding anything contained in thisAgreement to the contrary, the Base Rate Margin and the LIBOR Margin applicableto such Overadvance Revolving Loans shall be equal to 2% in excess of the BaseRate Margin and LIBOR Margin otherwise applicable to Revolving Loans inaccordance with the Pricing Table set forth in Subsection 1.2(A) hereof.  Unless an earlier maturity is provided forherein, such Overadvance Revolving Loans shall be due and payable on December31, 2002.  From and after the FourthAmendment Effective Date, each outstanding or new Overadvance Revolving Loanshall begin accruing interest from and after (i) the date such OveradvanceRevolving Loan was advanced, if such Overadvance Revolving Loan is madepursuant to the affirmative request of the Borrower, or (ii) in all othercases, the date on which the Borrower delivers (or was required to deliverpursuant to the terms of this Agreement) a Borrowing Base Certificate whichindicates the amount of outstanding Revolving Loans exceeds the MaximumRevolving Loan Balance, in which case the Borrower shall, subject to the amountlimitation set forth above, be deemed to have requested such an OveradvanceRevolving Loan bearing interest at the Base Rate plus 2% in excess of the BaseRate Margin or LIBOR plus 2% in excess of the LIBOR Margin, as applicable, onthe date such Borrowing Base Certificate is delivered.  Notwithstanding anything in this subsectionto the contrary, in no event may the aggregate principal amount of allRevolving Loans and all Overadvance Revolving Loans exceed the amount of theRevolving Loan Commitment less outstanding Risk Participation Liability.

(d)           Subsection 1.3(C) is amended byadding the following sentence to the end of such subsection:

Without limiting the generality of the foregoing, Borrower agrees topay, solely in connection with the Fourth Amendment, all reasonable fees, costs

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and expenses (including those of attorneys) incurred by each Lenderconsenting to the Fourth Amendment.

(e)           A new Subsection 2.10 is insertedinto the Agreement in proper numerical order, which Subsection shall read asfollows:

2.10         Subordinated NotesRestructuring.   On or prior toAugust 15, 2002, Borrower shall deliver to Agent a preliminary term sheet forthe restructuring of the Subordinated Notes, which restructuring shall provide,among other things, for a reduction in the cash interest required to be paid onthe Subordinated Notes, and/or the conversion into preferred equity orredemption of a percentage to be determined of the Subordinated Notes (the “Restructuring”).** **Onor prior to September 15, 2002, Borrower shall deliver to Agent a final termsheet with respect thereto.  Borrowershall cause the Restructuring to be completed on or prior to October 15, 2002on terms reasonably acceptable to the Agent and to the Requisite Lenders.  Borrower’s failure to comply with any of theterms contained in this Section 2.10 shall constitute an Event of Default.

(f)            Subsection 4.6(F) is amended byadding the following sentence to the end of such subsection:

Borrower will deliver to Agent a preliminary BorrowingBase Certificate within (15) days after the end of each month if at such timeBorrower has not delivered the financial statements and Borrowing BaseCertificate described in the immediately preceding sentence.  Without limiting the generality of Section6.1(C), Borrower’s failure to comply with any of the terms of this Section4.6(F) shall constitute an Event of Default.

(g)           Subsection 4.8 is amended andrestated in its entirety to be and to read as follows:

4.8           SponsorObligations. The parties agree that the Sponsor Guaranties and the SponsorCollateral constitute Security Documents. Any proceeds obtained by Agent or Borrower from the Sponsor Guarantiesand the Sponsor Collateral shall be applied in the following order ofpriority:  (i) $2,215,089.52 to beapplied to reduce the outstanding Overadvance Revolving Loans, (ii) $150,301.73to repay outstanding Revolving Loans, (iii) $2,033,848.37 to be applied againstthe September 30, 2002 Scheduled installments of both Term Loans, and (iv)$4,298,928.72 shall be applied pro rata between both Term Loans as a pro ratareduction of the remaining Scheduled Installments.  The parties further acknowledge and agree that the $1,801,831.66payment received by Agent under the Sponsor Guaranties on July 1, 2002 wasapplied against the June 30, 2002 Scheduled Installments of both Term Loans.

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(h)           Subsection 10.1 is amended byinserting the following definitions in their proper alphabetical order, or,where applicable, replacing an existing definition with the applicable belowdefinition:

“Expiry Date” means the earlier of (a) the suspension (subject toreinstatement) of the Lenders’ obligations to make Revolving Loans pursuant tosubsection 6.2, (b) the acceleration of the Obligations pursuant to subsection6.3, or (c) January 8, 2004.

“Fourth Amendment” means that certain Waiver and Fourth Amendment toCredit Agreement dated as of the Fourth Amendment Effective Date among Borrower,Agent and the Lenders party thereto.

 “Fourth Amendment EffectiveDate” means August 13, 2002.

“Maximum Revolving Loan Balance” will be the lesser of (a) the“Borrowing Base” (as calculated on Exhibit 4.6(F), the “Borrowing BaseCertificate”) less outstanding Risk Participation Liability or (b) theRevolving Loan Commitment less outstanding Risk Participation Liability.

                **3.**             **Waiver.**  Agent and Lenders hereby waive compliance withthe Waived Provisions.  This waivershall not be deemed to constitute a waiver of any Event of Default (other thanBorrower’s failure to comply with the Waived Provisions) or any future breachof the Agreement or any of the other Loan Documents.

 

**4.             Conditions. **The effectiveness of this Amendment is subject to thefollowing conditions precedent (unless specifically waived in writing byAgent):

 

(a)           Borrower, Agent and Requisite Lendersshall have executed and delivered this Amendment,**** and such other documents and instruments as Agent may reasonablyrequire shall have been executed and/or delivered to Agent;

 

(b)           All proceedings taken in connectionwith the transactions contemplated by this Amendment and all documents,instruments and other legal matters incident thereto shall be reasonablysatisfactory to Agent, its legal counsel and the Lenders consenting to thisAmendment;

 

(c)           No Default or Event of Default shallhave occurred and be continuing after giving effect to this Amendment;

 

(d)           Borrower shall have paid Agent, forthe benefit of the Lenders consenting to this Amendment, an amendment fee inthe amount of $93,403.17, to be paid to each consenting Lender based upon theirrespective Pro Rata Share (determined in accordance with clause (c) of thedefinition thereof);

 

(e)           Agent shall have received payments inan aggregate amount equal to at least $10,500,000 under the Sponsor Guarantees,including any payments made on July 1, 2002,

 

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which payments have beenor will be applied in accordance with Section 4.8 of the Agreement, as amendedhereby; and

 

(f)            Agent shall have received financialstatements and/or such other information as it shall request demonstrating toAgent’s satisfaction that Borrower has adequate liquidity to maintain itsnormal business operations through September 30, 2002.

 

                **5.             Representations and Warranties.**      Toinduce Agent and Lenders to enter into this Amendment, Borrower represents andwarrants to Agent and Lenders:

 

                                (a)           that the execution, delivery andperformance of this Amendment has been duly authorized by all requisite limitedliability company action on the part of Borrower and that this Amendment hasbeen duly executed and delivered by Borrower;

 

                                (b)           that each of the representations andwarranties set forth in Section 5 of the Agreement (other than those that, bytheir terms, specifically are made as of certain date prior to the date hereof)are true and correct in all material respects as of the date hereof (aftergiving effect to this Amendment); and

 

                                (c)           there is no Default or Event of Defaultother than those resulting from Borrower’s failure to comply with the WaivedProvisions.

 

                **6.             Severability.        **Any provision of thisAmendment held by a court of competent jurisdiction to be invalid orunenforceable shall not impair or invalidate the remainder of this Amendmentand the effect thereof shall be confined to the provision so held to be invalidor unenforceable.

 

**                7.             References.         **Any reference to the Agreement containedin any  document, instrument oragreement executed in connection with the Agreement shall be deemed to be areference to the Agreement as modified by this Amendment.

 

                **8.             Counterparts. **This Amendment may be executed byfacsimile and in one or more counterparts, each of which shall constitute anoriginal, but all of which taken together shall be one and the same instrument.

 

                **9.             Ratification. **The terms and provisions setforth in this Amendment shall modify and supersede all inconsistent terms andprovisions of the Agreement and shall not be deemed to be a consent to themodification or waiver of any other term or condition of the Agreement.  Except as expressly modified and supersededby this Amendment, the terms and provisions of the Agreement are ratified andconfirmed and shall continue in full force and effect.

 

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                IN WITNESS WHEREOF, the parties hereto have causedthis Amendment to be duly executed under seal and delivered by their respectiveduly authorized officers on the date first written above.

 

 

 
| **HELLER FINANCIAL, INC.**,  as Agent and Lender                  |   | **CHEROKEE INTERNATIONAL, LLC** |
|-------------------------------------------------------------------|--------|---------------------------------|
|                                                              |
| By:                                                               |   | By:                             |   |
| Title:                                                            |   | Title:                          |   |
|                                                              |   |                            |   |
| **BANK  AUSTRIA  CREDITANSTALT****CORPORATE  FINANCE, INC.** |   |                            |
|                                                              |
| By:                                                               |   |
| Title:                                                            |   |
|                                                              |   |
| **FLEET CAPITAL CORPORATION**                                     |
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| By:                                                               |   |
| Title:                                                            |   |
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| **U.S. BANK**                                                     |
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| By:                                                               |   |
| Title:                                                            |   |
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| **GSC  RECOVERY II, L.P.**                                        |
|                                                              |   |
| By:                                                               |   |
| Title:                                                            |   |
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| **FINOVA CAPITAL CORPORATION**                                    |
|                                                              |
|                                                              |
| By:                                                               |   |
| Title:                                                            |   |

 

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**CONSENT AND REAFFIRMATION**

 

                The undersigned(“Guarantor”) hereby (i) acknowledges receipt of a copy of the foregoing Waiverand Fourth Amendment to Credit****Agreement; (ii) consents to Borrower’sexecution and delivery thereof; (iii) agrees to be bound thereby; and (iv)affirms that nothing contained therein shall modify in any respect whatsoeverits guaranty of the obligations of Borrower to Agent and Lenders pursuant tothe terms of that certain Guaranty dated as of April 30, 1999, (the “Guaranty”)and reaffirms that the Guaranty is and shall continue to remain in full forceand effect.  Although Guarantor has beeninformed of the matters set forth herein and has acknowledged and agreed tosame, Guarantor understands that Agent and Lenders have no obligation to informGuarantor of such matters in the future or to seek Guarantor’s acknowledgmentor agreement to future amendments or waivers, and nothing herein shall createsuch a duty.

 

                IN WITNESSWHEREOF, the undersigned has executed this Consent and Reaffirmation on and asof the date of such Amendment.

 
| **CHEROKEE INTERNATIONAL FINANCE,  INC.**, a  California corporation |
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|                                                                 |
| By:                                                                  |   |
| Name:                                                                |   |
| Title:                                                               |   |

 

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**EXHIBIT A TOAMENDMENT**

**LIST OF WAIVEDPROVISIONS UNDER THE AGREEMENT**

 

1.                                       Section 1.5(B) of the Agreement for thefiscal year ending December 31, 2001.

2.                                       Section 4.3 of the Agreement for thefiscal quarter ending June 30, 2002.

3.                                       Section 4.4 of the Agreement for thefiscal quarter ending June 30, 2002.

4.                                       Section 4.5 of the Agreement for thefiscal quarter ending June 30, 2002.

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