**Exhibit 10.1**

 

 

AMENDED AND RESTATEDCREDIT AGREEMENT

 

DATED AS OF FEBRUARY 25, 2004

 

by and among

 

**CHEROKEE INTERNATIONAL CORPORATION**

as Borrower

 

and

 

**GENERAL ELECTRIC CAPITAL CORPORATION**

as Agent, L/C Issuer and a Lender

 

and

 

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO

as Lenders

 

 

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TABLE OF CONTENTS

 
| SECTION 1. | AMOUNTS AND TERMS OF LOANS                                                                   |   |
|-----------------|----------------------------------------------------------------------------------------------|--------|
|            |                                                                                         |   |
| 1.1             | Loans.                                                                                       |   |
| 1.2             | Interest and Applicable Margins.                                                             |   |
| 1.3             | Fees.                                                                                        |   |
| 1.4             | Payments.                                                                                    |   |
| 1.5             | Prepayments                                                                                  |   |
| 1.6             | Maturity.                                                                                    |   |
| 1.7             | Eligible Accounts.                                                                           |   |
| 1.8             | Eligible Inventory.                                                                          |   |
| 1.9             | Loan Accounts.                                                                               |   |
| 1.10            | Yield Protection; Illegality.                                                                |   |
| 1.11            | Taxes.                                                                                       |   |
|            |                                                                                         |   |
| SECTION 2. | AFFIRMATIVE  COVENANTS                                                                       |   |
|            |                                                                                         |   |
| 2.1             | Compliance With Laws and Contractual  Obligations.                                           |   |
| 2.2             | Insurance; Damage to or Destruction of  Collateral.                                          |   |
| 2.3             | Inspection; Lender Meeting.                                                                  |   |
| 2.4             | Organizational Existence.                                                                    |   |
| 2.5             | Environmental Matters.                                                                       |   |
| 2.6             | Landlords’ Agreements, Mortgagee  Agreements, Bailee Letters and Real Estate Purchases. |   |
| 2.7             | Conduct of Business.                                                                         |   |
| 2.8             | Further Assurances.                                                                          |   |
| 2.9             | Subsidiaries.                                                                                |   |
|            |                                                                                         |   |
| SECTION 3. | NEGATIVE  COVENANTS                                                                          |   |
|            |                                                                                         |   |
| 3.1             | Indebtedness.                                                                                |   |
| 3.2             | Liens and Related Matters.                                                                   |   |
| 3.3             | Investments.                                                                                 |   |
| 3.4             | Contingent Obligations.                                                                      |   |
| 3.5             | Restricted Payments.                                                                         |   |
| 3.6             | Restriction on Fundamental Changes.                                                          |   |
| 3.7             | Disposal of Assets or Subsidiary Stock.                                                      |   |
| 3.8             | Transactions with Affiliates.                                                                |   |
| 3.9             | Conduct of Business.                                                                         |   |
| 3.10            | Changes Relating to Indebtedness.                                                            |   |
| 3.11            | Fiscal Year.                                                                                 |   |
| 3.12            | Press Release; Public Offering Materials.                                                    |   |
| 3.13            | Subsidiaries.                                                                                |   |
| 3.14            | Bank Accounts.                                                                               |   |

 

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| 3.15            | Hazardous Materials.                                                                 |   |
|-----------------|--------------------------------------------------------------------------------------|--------|
| 3.16            | ERISA.                                                                               |   |
| 3.17            | ITS Company Restrictions                                                             |   |
|            |                                                                                 |   |
| SECTION 4. | FINANCIAL  COVENANTS/REPORTING                                                       |   |
|            |                                                                                 |   |
| 4.1             | [Reserved].                                                                          |   |
| 4.2             | [Reserved].                                                                          |   |
| 4.3             | [Reserved].                                                                          |   |
| 4.4             | [Reserved].                                                                          |   |
| 4.5             | [Reserved].                                                                          |   |
| 4.6             | [Reserved].                                                                          |   |
| 4.7             | Maximum Senior Leverage Ratio.                                                       |   |
| 4.8             | [Reserved].                                                                          |   |
| 4.9             | Financial Statements and Other Reports.                                              |   |
| 4.10            | Accounting Terms; Utilization of GAAP for  Purposes of Calculations Under Agreement. |   |
|            |                                                                                 |   |
| SECTION 5. | REPRESENTATIONS  AND WARRANTIES                                                      |   |
|            |                                                                                 |   |
| 5.1             | Disclosure.                                                                          |   |
| 5.2             | No Material Adverse Effect.                                                          |   |
| 5.3             | No Conflict.                                                                         |   |
| 5.4             | Organization, Powers, Capitalization and  Good Standing.                             |   |
| 5.5             | Financial Statements and Projections.                                                |   |
| 5.6             | Intellectual Property.                                                               |   |
| 5.7             | Investigations, Audits, Etc.                                                         |   |
| 5.8             | Employee Matters.                                                                    |   |
| 5.9             | Solvency                                                                             |   |
| 5.10            | Litigation; Adverse Facts.                                                           |   |
| 5.11            | Use of Proceeds; Margin Regulations.                                                 |   |
| 5.12            | Ownership of Property; Liens.                                                        |   |
| 5.13            | Environmental Matters.                                                               |   |
| 5.14            | ERISA.                                                                               |   |
| 5.15            | Brokers.                                                                             |   |
| 5.16            | Deposit and Disbursement Accounts.                                                   |   |
| 5.17            | Agreements and Other Documents.                                                      |   |
| 5.18            | Insurance.                                                                           |   |
| 5.19            | Related Transactions.                                                                |   |
| 5.20            | Senior Indenture Documents                                                           |   |
|            |                                                                                 |   |
| SECTION 6. | DEFAULT, RIGHTS AND REMEDIES                                                         |   |
|            |                                                                                 |   |
| 6.1             | Event of Default.                                                                    |   |
| 6.2             | Suspension or Termination of Revolving Loan  Commitments.                            |   |

 

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| 6.3             | Acceleration and other Remedies.                                                |   |
|-----------------|---------------------------------------------------------------------------------|--------|
| 6.4             | Performance by Agent                                                            |   |
| 6.5             | Application of Proceeds.                                                        |   |
|            |                                                                            |   |
| SECTION 7. | CONDITIONS TO LOANS                                                             |   |
|            |                                                                            |   |
| 7.1             | Conditions to Initial Loans.                                                    |   |
| 7.2             | Conditions to All Loans.                                                        |   |
| 7.3             | Conditions to Loans to Fund Permitted Acquisitions                              |   |
|            |                                                                            |   |
| SECTION 8. | ASSIGNMENT AND PARTICIPATION                                                    |   |
|            |                                                                            |   |
| 8.1             | Assignment and Participations.                                                  |   |
| 8.2             | Agent.                                                                          |   |
| 8.3             | Set Off and Sharing of Payments.                                                |   |
| 8.4             | Disbursement of Funds.                                                          |   |
| 8.5             | Disbursements of Advances; Payment.                                             |   |
|            |                                                                            |   |
| SECTION 9. | MISCELLANEOUS                                                                   |   |
|            |                                                                            |   |
| 9.1             | Indemnities.                                                                    |   |
| 9.2             | Amendments and Waivers.                                                         |   |
| 9.3             | Notices.                                                                        |   |
| 9.4             | Failure or Indulgence Not Waiver; Remedies  Cumulative.                         |   |
| 9.5             | Marshaling; Payments Set Aside.                                                 |   |
| 9.6             | Severability.                                                                   |   |
| 9.7             | Lenders’ Obligations Several; Independent  Nature of Lenders’ Rights. |   |
| 9.8             | Headings.                                                                       |   |
| 9.9             | Applicable Law                                                                  |   |
| 9.10            | Successors and Assigns.                                                         |   |
| 9.11            | No Fiduciary Relationship; Limited  Liability.                                  |   |
| 9.12            | Construction.                                                                   |   |
| 9.13            | Confidentiality.                                                                |   |
| 9.14            | CONSENT TO JURISDICTION.                                                        |   |
| 9.15            | WAIVER OF JURY TRIAL.                                                           |   |
| 9.16            | Survival of Warranties and Certain  Agreements.                                 |   |
| 9.17            | Entire Agreement.                                                               |   |
| 9.18            | Counterparts; Effectiveness.                                                    |   |
| 9.19            | Replacement of Lenders.                                                         |   |
| 9.20            | Delivery of Termination Statements and  Mortgage Releases.                      |   |
| 9.21            | No Novation                                                                     |   |

 

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**INDEXOF APPENDICES**

 

Annexes

 
| Annex A              |   | -      |   | Definitions                                      |
|----------------------|--------|--------|--------|--------------------------------------------------|
| Annex B              |   | -      |   | Pro Rata Shares and Commitment Amounts           |
| Annex C              |   | -      |   | Closing Checklist                                |
| Annex D              |   | -      |   | Pro Forma                                        |
| Annex E              |   | -      |   | Lenders’ Bank Accounts                      |
|                 |   |   |   |                                             |
| Exhibits             |   |   |   |                                             |
|                 |   |   |   |                                             |
| Exhibit 1.1(a)(i)    |   | -      |   | Revolving Note                                   |
| Exhibit 1.1(a)(ii)   |   | -      |   | Notice of Revolving Credit Advance               |
| Exhibit 1.1(c)       |   | -      |   | Swing Line Note                                  |
| Exhibit 1.2(e)       |   | -      |   | Notice of Continuation/Conversion                |
| Exhibit 4.9(d)       |   | -      |   | Borrowing Base Certificate                       |
| Exhibit 4.9(k)       |   | -      |   | Compliance Certificate                           |
| Exhibit 8.1          |   | -      |   | Assignment Agreement                             |
|                 |   |   |   |                                             |
| Schedules            |   |   |   |                                             |
|                 |   |   |   |                                             |
| Schedule 2.7    |   | -      |   | Corporate and Trade Names                        |
| Schedule 3.1    |   | -      |   | Indebtedness                                     |
| Schedule 3.2    |   | -      |   | Liens                                            |
| Schedule 3.3    |   | -      |   | Investments                                      |
| Schedule 3.4    |   | -      |   | Contingent Obligations                           |
| Schedule 3.8    |   | -      |   | Affiliate Transactions                           |
| Schedule 3.9    |   | -      |   | Business Description                             |
| Schedule 5.4(a) |   | -      |   | Jurisdictions of Organization and Qualifications |
| Schedule 5.4(b) |   | -      |   | Capitalization                                   |
| Schedule 5.6    |   | -      |   | Intellectual Property                            |
| Schedule 5.7    |   | -      |   | Investigations and Audits                        |
| Schedule 5.8    |   | -      |   | Employee Matters                                 |
| Schedule 5.10   |   | -      |   | Litigation                                       |
| Schedule 5.11   |   |   |   | Use of Proceeds                                  |
| Schedule 5.12   |   | -      |   | Real Estate                                      |
| Schedule 5.13   |   | -      |   | Environmental Matters                            |
| Schedule 5.14   |   | -      |   | ERISA                                            |
| Schedule 5.16   |   | -      |   | Deposit and Disbursement Accounts                |
| Schedule 5.17   |   | -      |   | Agreements and Other Documents                   |
| Schedule 5.18   |   |   |   | Insurance                                        |

 

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**AMENDEDAND RESTATED CREDIT AGREEMENT**

 

This AMENDED AND RESTATED CREDIT AGREEMENT is dated as ofFebruary 25, 2004 and entered into by and among CHEROKEE INTERNATIONALCORPORATION, a Delaware corporation (“Borrower”), the financialinstitutions who are or hereafter become parties to this Agreement as“Lenders”, and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation****(inits individual capacity “GE Capital”), as the initial L/C Issuer and asAgent.

 

R E C I T A L S:

 

WHEREAS, Borrower and Heller Financial, Inc., a Delaware corporation (“Heller”)are parties to a certain Amended and Restated Credit Agreement dated as ofNovember 27, 2002 (the “ExistingCreditAgreement”),pursuant to which Heller, as a Lender thereunder, has made available toBorrower certain term and revolving credit facilities subject to and inaccordance with the terms, conditions and provisions set forth therein;

 

WHEREAS, the Obligations (as defined in the Existing Credit Agreement)are secured by, *inter alia*,collateral pledged under a certain Amended and Restated Security Agreementdated as of November 27, 2002 made by Borrower in favor of Heller as agentunder the Existing Credit Agreement, and by the pledge of 65% of the capitalstock of each of Borrower’s direct Subsidiaries pursuant to various pledgeagreements;

 

WHEREAS, in a substantially contemporaneous transactions, Borrower isconsummating an initial public offering of equity securities, the proceeds ofwhich will be used, in part, to repay certain existing Indebtedness of Borrowerand to reduce the amount of outstanding Loans (as defined in the ExistingCredit Agreement) and Heller is assigning to GE Capital all of its rights,title and interest in, to and under the Existing Credit Agreement andassociated Loan Documents and is resigning as “Agent” under the Existing CreditFacility and appointing GE Capital as “Agent” thereunder;

 

WHEREAS, Borrower desires that Lenders continue to extend a revolvingcredit facility to Borrower in order to provide working capital financing forBorrower and its Subsidiaries and to provide funds for other general corporatepurposes of Borrower and its Subsidiaries, and in furtherance thereof theparties hereto desire to amend and restate the Existing Credit Agreement in itsentirety, upon the terms and conditions set forth herein;

 

WHEREAS, Borrower desires that all of its Obligations (as hereinafterdefined) under the Loan Documents (as hereinafter defined) continue to be fullysecured by reaffirming the continuing Lien of Agent, for the benefit of Agentand Lenders, a security interest in and lien upon substantially all of itspersonal and real property; and

 

WHEREAS, all capitalized terms herein shall have the meanings ascribedthereto in Annex A hereto which is incorporated herein by reference.

 

1

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NOW, THEREFORE, in consideration of the premises and the agreements,provisions and covenants herein contained, Borrower, Lenders and Agent herebyamend and restate the Existing Credit Agreement in its entirety, withouteffecting a novation of the Obligations existing thereunder, and otherwiseagree as follows:

** **

**SECTION 1.AMOUNTS AND TERMS OF LOANS**

** **

## 1.1                                 Loans.  Subject to the terms andconditions of this Agreement and in reliance upon the representations andwarranties of Borrower contained herein:

 

### (a)                                  RevolvingLoans.

###  

#### (i)                                     Each Revolving Lender agrees,severally and not jointly, to make available to Borrower from time to timeuntil the Commitment Termination Date its Pro Rata Share of advances (each a “RevolvingCredit Advance”) requested by Borrower hereunder.  The Pro Rata Share of the Revolving Loan of any Revolving Lender(including, without duplication, Swing Line Loans) shall not at any time exceedits separate Revolving Loan Commitment. Revolving Credit Advances may be repaid and re-borrowed; provided,that the amount of any Revolving Credit Advance to be made at any time shallnot exceed Borrowing Availability. Borrowing Availability may be further reduced by Reserves imposed byAgent in its Permitted Discretion.  AllRevolving Loans shall be repaid in full on the Commitment TerminationDate.  Borrower shall execute anddeliver to each Revolving Lender a note to evidence the Revolving LoanCommitment of that Revolving Lender. Each note shall be in the principal amount of the Revolving LoanCommitment of the applicable Revolving Lender, dated the Restatement EffectiveDate and substantially in the form of Exhibit 1.1(a)(i) (each a “RevolvingNote” and, collectively, the “Revolving Notes”).  Other than pursuant to Section 1.1(a)(ii),if at any time the outstanding Revolving Loans (including, without duplication,Swing Line Loans) exceed the Borrowing Base (any such excess Revolving Loansare herein referred to collectively as “Overadvances”), Lenders shallnot be obligated to make Revolving Credit Advances, no additional Letters ofCredit shall be issued and, except as provided in Section 1.1(a)(ii)below, Revolving Loans must be repaid immediately and Letters of Credit cashcollateralized in an amount sufficient to eliminate any Overadvances.  All Overadvances shall constitute Index RateLoans and, to the extent not permitted under Section 1.1(a)(ii)below, shall bear interest at the Default Rate.  Revolving Loans which are Index Rate Loans may be requested inany amount with one (1) Business Day prior written notice required for fundingrequests equal to or greater than $5,000,000. For funding requests for such Loans less than $5,000,000, written noticemust be provided by noon (Chicago time)on the Business Day on which the Loan is to be made.  All LIBOR Loans require three (3) Business Days prior writtennotice. Written notices for funding requests

 

2

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#### shall be in the form attached as Exhibit 1.1(a)(ii) (“Noticeof Revolving Credit Advance”).

####  

#### (ii)                                  If Borrower requests that RevolvingLenders make, or permit to remain outstanding any Overadvances, Agent may, inits sole discretion, elect to make, or permit to remain outstanding suchOveradvances; provided, however, that Agent may not causeRevolving Lenders to make, or permit to remain outstanding, (a) aggregateRevolving Loans (including, without duplication, Swing Line Loans) in excess ofthe Maximum Amount or (b) Overadvances in an aggregate amount in excess of20%****of the Revolving Loan Commitment. If an Overadvance is made, or permitted to remain outstanding, pursuantto the preceding sentence, then all Revolving Lenders shall be bound to make,or permit to remain outstanding, such Overadvance based upon their Pro RataShares of the Revolving Loan Commitment in accordance with the terms of thisAgreement.  If an Overadvance remainsoutstanding for more than ninety (90) consecutive days during any one hundredeighty (180) day period, Revolving Loans must be repaid immediately in anamount sufficient to eliminate all of such Overadvances.  Furthermore, holders of a majority of theRevolving Loan Commitment may prospectively revoke Agent’s ability to make orpermit Overadvances by written notice to Agent.  Any Overadvance may be made as a Swing Line Advance.

####  

### (b)                                 [Reserved].

###  

### (c)                                  SwingLine Facility.

###  

#### (i)                                     Agent shall notify the Swing LineLender upon Agent’s receipt of any Notice of Revolving Credit Advance.  Subject to the terms and conditions hereof,the Swing Line Lender may, in its discretion, make available from time to timeuntil the Commitment Termination Date advances (each, a “Swing Line Advance”)in accordance with any such notice; provided, however, that anyLIBOR request made by Borrower in accordance with the provisions of thisAgreement shall not be funded by the Lenders as a Base Rate Loan.  The provisions of this Section 1.1(c)shall not relieve Revolving Lenders of their obligations to make RevolvingCredit Advances under Section 1.1(a); provided that if theSwing Line Lender makes a Swing Line Advance pursuant to any such notice, suchSwing Line Advance shall be in lieu of any Revolving Credit Advance thatotherwise may be made by Revolving Lenders pursuant to such notice.  Except as provided in Section 1.1(a)(ii)above, the aggregate amount of Swing Line Advances outstanding shall not exceedat any time the lesser of (A) the Swing Line Commitment and (B) BorrowingAvailability (“Swing Line Availability”).  Until the Commitment Termination Date, Borrower may from time totime borrow, repay and re-borrow under this Section 1.1(c).  Each Swing Line Advance shall be madepursuant to a Notice of Revolving Credit Advance delivered by Borrower to Agentin accordance with Section 1.1(a). Unless the Swing Line Lender has received at least one (1) BusinessDay’s prior written

 

3

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#### notice from Requisite Lenders instructing it not to make aSwing Line Advance, the Swing Line Lender shall, notwithstanding the failure ofany condition precedent set forth in Section 7.2, be entitled tofund that Swing Line Advance, and to have each Revolving Lender make RevolvingCredit Advances in accordance with Section 1.1(c)(iii) or purchaseparticipating interests in accordance with Section 1.1(c)(iv).  Notwithstanding any other provision of thisAgreement or the other Loan Documents, the Swing Line Loan shall constitute anIndex Rate Loan.  Borrower shall repaythe aggregate outstanding principal amount of the Swing Line Loan with proceedsof Revolving Loan (to the extent otherwise available hereunder) or with otherfunds available to Borrower upon demand therefor by Agent.  The entire unpaid balance of the Swing LineLoan and all other non-contingent Obligations shall be immediately due andpayable in full in immediately available funds on the Commitment TerminationDate if not sooner paid in full**.**

####  

#### (ii)                                  Borrower shall execute and deliverto the Swing Line Lender a promissory note to evidence the Swing Line Commitment.  Such note shall be in the principal amountof the Swing Line Commitment of the Swing Line Lender, dated the RestatementEffective Date and substantially in the form of Exhibit 1.1(c) (the “SwingLine Note”).  The Swing Line Noteshall represent the obligation of Borrower to pay the amount of the Swing LineCommitment or, if less, the aggregate unpaid principal amount of all Swing LineAdvances made to Borrower together with interest thereon as prescribed in Section 1.2.

####  

#### (iii)                               The Swing Line Lender, at any timeand from time to time in its sole and absolute discretion but no less frequently than once weekly,shall****on behalf of Borrower (and Borrower hereby irrevocablyauthorizes the Swing Line Lender to so act on its behalf) request eachRevolving Lender (including the Swing Line Lender) to make a Revolving CreditAdvance to Borrower (which shall be an Index Rate Loan) in an amount equal tothat Revolving Lender’s Pro Rata Share of the principal amount of the SwingLine Loan (the “Refunded Swing Line Loan”) outstanding on the date suchnotice is given.  Unless any of theevents described in Sections 6.1(f) and 6.1(g) has occurred (inwhich event the procedures of Section 1.1(c)(iv) shall apply) andregardless of whether the conditions precedent set forth in this Agreement tothe making of a Revolving Credit Advance are then satisfied, each RevolvingLender shall disburse directly to Agent, its Pro Rata Share of a RevolvingCredit Advance on behalf of the Swing Line Lender, prior to 2:00 p.m. (Chicagotime), in immediately available funds on the Business Day next succeeding thedate that notice is given.  The proceedsof those Revolving Credit Advances shall be immediately paid to the Swing LineLender and applied to repay the Refunded Swing Line Loan.

####  

#### (iv)                              If, prior to refunding a Swing LineLoan with a Revolving Credit Advance pursuant to Section 1.1(c)(iii),one of the events described in Sections 6.1(f) or 6.1(g) hasoccurred, then, subject to the provisions of Section 1.1(c)(v)

 

4

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#### below, each Revolving Lender shall, on the date suchRevolving Credit Advance was to have been made for the benefit of Borrower,purchase from the Swing Line Lender an undivided participation interest in theSwing Line Loan in an amount equal to its Pro Rata Share (determined withrespect to Revolving Loans) of such Swing Line Loan.  Upon request, each Revolving Lender shall promptly transfer tothe Swing Line Lender, in immediately available funds, the amount of itsparticipation interest.

####  

#### (v)                                 Each Revolving Lender’s obligationto make Revolving Credit Advances in accordance with Section 1.1(c)(iii)and to purchase participation interests in accordance with Section 1.1(c)(iv)shall be absolute and unconditional and shall not be affected by anycircumstance, including (A) any setoff, counterclaim, recoupment, defenseor other right that such Revolving Lender may have against the Swing LineLender, Borrower or any other Person for any reason whatsoever; (B) theoccurrence or continuance of any Default or Event of Default; (C) anyinability of Borrower to satisfy the conditions precedent to borrowing setforth in this Agreement at any time or (D) any other circumstance,happening or event whatsoever, whether or not similar to any of theforegoing.  Swing Line Lender shall beentitled to recover, on demand, from each Revolving Lender the amounts requiredpursuant to Sections 1.1.(c)(iii) or 1.1(c)(iv), as the case maybe.  If any Revolving Lender does notmake available such amounts to Agent or the Swing Line Lender, as applicable,the Swing Line Lender shall be entitled to recover, on demand, such amount ondemand from such Revolving Lender, together with interest thereon for each dayfrom the date of non-payment until such amount is paid in full at the FederalFunds Rate for the first two (2) Business Days and at the Index Ratethereafter.

####  

### (d)                                 Lettersof Credit.  The Revolving LoanCommitment may, in addition to advances under the Revolving Loan, be utilized,upon the request of Borrower, for the issuance of Letters of Credit.  Immediately upon the issuance by an L/CIssuer of a Letter of Credit, and without further action on the part of Agentor any of the Lenders, each Revolving Lender shall be deemed to have purchasedfrom such L/C Issuer a participation in such Letter of Credit (or in itsobligation under a risk participation agreement with respect thereto) equal tosuch Revolving Lender’s Pro Rata Share of the aggregate amount available to bedrawn under such Letter of Credit.

###  

#### (i)                                     Maximum Amount. The aggregate amount of Letter of Credit Obligations with respect to allLetters of Credit outstanding at any time shall not exceed $3,000,000 (“L/CSublimit”).

####  

#### (ii)                                  Reimbursement. Borrower shall be irrevocably and unconditionally obligated forthwithwithout presentment, demand, protest or other formalities of any kind, toreimburse any L/C Issuer within one (1) Business Day following demand inimmediately available funds for any amounts paid by such L/C Issuer withrespect to a Letter of Credit, including all reimbursement

 

5

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#### payments, Fees, Charges, costs and expenses paid by such L/CIssuer.  Borrower hereby authorizes anddirects Agent, at Agent’s option, to debit Borrower’s account (by increasingthe outstanding principal balance of the Revolving Credit Advances) in theamount of any payment made by an L/C Issuer with respect to any Letter ofCredit.  All amounts paid by an L/CIssuer with respect to any Letter of Credit that are not immediately repaid byBorrower with the proceeds of a Revolving Credit Advance or otherwise shallbear interest at the interest rate applicable to Revolving Loans which areIndex Rate Loans plus, at the election of Agent or Requisite Lenders, anadditional two percent (2.00%) per annum. Each Revolving Lender agrees to fund its Pro Rata Share of any RevolvingLoan made pursuant to this Section 1.1(d)(ii).  In the event Agent elects not to debitBorrower’s account and Borrower fails to reimburse the L/C Issuer in full onthe date of any payment in respect of a Letter of Credit, Agent shall promptlynotify each Revolving Lender of the amount of such un-reimbursed payment andthe accrued interest thereon and each Revolving Lender, on the next BusinessDay prior to 2:00 p.m. (Chicago time),shall deliver to Agent an amount equal to its Pro Rata Share thereof insame day funds.  Each Revolving Lenderhereby absolutely and unconditionally agrees to pay to the L/C Issuer upondemand by the L/C Issuer such Revolving Lender’s Pro Rata Share of each paymentmade by the L/C Issuer in respect of a Letter of Credit and not immediatelyreimbursed by Borrower or satisfied through a debit of Borrower’s account.  Each Revolving Lender acknowledges andagrees that its obligations pursuant to this subsection in respect ofLetters of Credit are absolute and unconditional and shall not be affected byany circumstance whatsoever, including setoff, counterclaim, the occurrence andcontinuance of a Default or an Event of Default or any failure by Borrower tosatisfy any of the conditions set forth in Section 7.2.  If any Revolving Lender fails to makeavailable to the L/C Issuer the amount of such Revolving Lender’s Pro RataShare of any payments made by the L/C Issuer in respect of a Letter of Creditas provided in this Section 1.1(d)(ii), the L/C Issuer shall beentitled to recover such amount on demand from such Revolving Lender togetherwith interest at the Index Rate.

####  

#### (iii)                               Request for Letters of Credit. Borrower shall give Agent at least three (3) Business Days prior writtennotice specifying the date a Letter of Credit is requested to be issued, theamount and the name and address of the beneficiary and a description of thetransactions proposed to be supported thereby. If Agent informs Borrower that the L/C Issuer cannot issue the requestedLetter of Credit directly, Borrower may request that L/C Issuer arrange for theissuance of the requested Letter of Credit under a risk participation agreementwith another financial institution reasonably acceptable to Agent, L/C Issuerand Borrower.  The issuance of anyLetter of Credit under this Agreement shall be subject to the conditions thatthe Letter of Credit (i) supports a transaction entered into in theordinary course of business of Borrower and (ii) is in a form, is for anamount and contains such terms and conditions as are reasonably satisfactory tothe L/C Issuer and, in the case of standby letters of credit, Agent.  The initial notice requesting

 

6

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#### the issuance of a Letter of Credit shall be accompanied bythe form of the Letter of Credit and the Master Standby Agreement or MasterDocumentary Agreement, as applicable, and an application for a letter ofcredit, if any, then required by the L/C Issuer completed in a mannersatisfactory to such L/C Issuer.  If anyprovision of any application or reimbursement agreement is inconsistent withthe terms of this Agreement, then the provisions of this Agreement, to theextent of such inconsistency, shall control.

####  

#### (iv)                              Expiration Dates of Letters ofCredit.  The expiration date of each Letter of Creditshall be on a date which is not later than the earlier of (a) one yearfrom its date of issuance or (b) the thirtieth (30th) day priorto the date set forth in clause (a) of the definition of the termCommitment Termination Date. Notwithstanding the foregoing, a Letter of Creditmay provide for automatic extensions of its expiration date for one (1) or moresuccessive one (1) year periods provided that the L/C Issuer has the right toterminate such Letter of Credit on each such annual expiration date and norenewal term may extend the term of the Letter of Credit to a date that islater than the thirtieth (30th) day prior to the date set forth in clause (a)of the definition of the term Commitment Termination Date.  The L/C Issuer may elect not to renew anysuch Letter of Credit and, upon direction by Agent or Requisite Lenders, shallnot renew any such Letter of Credit at any time during the continuance of anEvent of Default, provided that, in the case of a direction by Agent orRequisite Lenders, the L/C Issuer receives such directions prior to the datenotice of non-renewal is required to be given by the L/C Issuer and the L/CIssuer has had a reasonable period of time to act on such notice.

####  

#### (v)                                 Obligations Absolute. The obligation of Borrower to reimburse the L/C Issuer, Agent andLenders for payments made in respect of Letters of Credit issued by the L/CIssuer shall be unconditional and irrevocable and shall be paid under allcircumstances strictly in accordance with the terms of this Agreement,including the following circumstances: (a) any lack of validity orenforceability of any Letter of Credit; (b) any amendment or waiver of orany consent or departure from all or any of the provisions of any Letter ofCredit or any Loan Document; (c) the existence of any claim, set-off,defense or other right which Borrower, any of its Subsidiaries or Affiliates orany other Person may at any time have against any beneficiary of any Letter ofCredit, Agent, any L/C Issuer, any Lender or any other Person, whether inconnection with this Agreement, any other Loan Document or any other related orunrelated agreements or transactions; (d) any draft or other documentpresented under any  Letter of Creditproving to be forged, fraudulent, invalid or insufficient in any respect or anystatement therein being untrue or inaccurate in any respect; (e) paymentunder any Letter of Credit against presentation of a draft or other documentthat does not substantially comply with the terms of such Letter of Credit; or(f) any other act or omission to act or delay of any kind of any L/CIssuer, Agent, any Lender or any other Person or any other event or circumstance

 

7

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#### whatsoever that might, but for the provisions of this Section 1.1(d)(v),constitute a legal or equitable discharge of Borrower’s obligations hereunder.

####  

#### (vi)                              Obligations of L/C Issuers. Each L/C Issuer (other than GE Capital) hereby agrees that it will notissue a Letter of Credit hereunder until it has provided Agent with writtennotice specifying the amount and intended issuance date of such Letter ofCredit and Agent has returned a written acknowledgment of such notice to L/CIssuer.  Each L/C Issuer (other than GECapital) further agrees to provide to Agent: (a) a copy of each Letter of Credit issued by such L/C Issuerpromptly after its issuance; (b) a weekly report summarizing availableamounts under Letters of Credit issued by such L/C Issuer, the dates andamounts of any draws under such Letters of Credit, the effective date of anyincrease or decrease in the face amount of any Letters of Credit during suchweek and the amount of any un-reimbursed draws under such Letters of Credit;and (c) such additional information reasonably requested by Agent fromtime to time with respect to the Letters of Credit issued by such L/CIssuer.  Without limiting the generalityof the foregoing, it is expressly understood and agreed by Borrower that theabsolute and unconditional obligation of Borrower to Agent and Lendershereunder to reimburse payments made under a Letter of Credit will not beexcused by the gross negligence or willful misconduct of the L/C Issuer.  However, the foregoing shall not beconstrued to excuse an L/C Issuer from liability to Borrower to the extent ofany direct damages (as opposed to consequential damages, with Borrower herebywaiving all claims for any consequential damages to the extent permitted byapplicable law) suffered by Borrower that are subject to indemnification underthe Master Standby Agreement or the Master Documentary Agreement.

####  

### (e)                                  FundingAuthorization.  The proceeds of allLoans made pursuant to this Agreement subsequent to the Restatement EffectiveDate are to be funded by Agent by wire transfer to the account designated byBorrower below (the “Disbursement Account”):

###  

| Bank:         | Wells Fargo Bank                              |
|---------------|-----------------------------------------------|
| ABA No.:      | 121-000-248                                   |
| Bank Address: | 2030 Main Street, Suite 900, Irvine, CA 92614 |
| Account No.:  | 4159-418938                                   |
| Reference:    | Cherokee International                        |

 

Borrower shall provide Agent with written notice of any change in theforegoing instructions at least three (3) Business Days before the desiredeffective date of such change.

 

8

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## 1.2                                 Interest and Applicable Margins.

##  

### (a)                                  Borrowershall pay interest to Agent, for the ratable benefit of Lenders, in accordancewith the various Loans being made by each Lender, in arrears on each applicableInterest Payment Date, at the following rates: (i) with respect to the Revolving Credit Advances which aredesignated as Index Rate Loans (and for all other Obligations not otherwise setforth below), the Index Rate plus the Applicable Revolver Index Margin per annumor, with respect to Revolving Credit Advances which are designated as LIBORLoans, the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin perannum;  and (ii)  with respect tothe Swing Line Loan, the Index Rate plus the Applicable Revolver Index Marginper annum.

###  

The Applicable Margins are asfollows:

 
| Applicable Revolver Index Margin  |   | 1.00   | %      |
|-----------------------------------|--------|--------|--------|
|                              |   |   |   |
| Applicable Revolver LIBOR Margin  |   | 2.50   | %      |
|                              |   |   |   |
| Applicable L/C Margin             |   | 2.50   | %      |
|                              |   |   |   |
| Applicable Unused Line Fee Margin |   | 0.50   | %      |

 

### (b)                                 Ifany payment on any Loan becomes due and payable on a day other than a BusinessDay, the maturity thereof will be extended to the next succeeding Business Day(except as set forth in the definition of LIBOR Period) and, with respect topayments of principal, interest thereon shall be payable at the then applicablerate during such extension.

###  

### (c)                                  Allcomputations of Fees calculated on a per annum basis and interest on LIBORLoans shall be made by Agent on the basis of a 360-day year, in each case forthe actual number of days occurring in the period for which such Fees and suchinterest are payable.  All computationsof interest on Index Rate Loans shall be made by Agent on the basis of a 365 or366-day year, as applicable, for the actual number of days occurring in theperiod for which such interest is payable. The Index Rate is a floating rate determined for each day.  Each determination by Agent of an interestrate and Fees hereunder shall be final, binding and conclusive on Borrower,absent manifest error.

###  

### (d)                                 Solong as an Event of Default has occurred and is continuing under Section 6.1(a),(f) or (g) and without notice of any kind, or so long as anyother Event of Default has occurred and is continuing and at the election ofAgent (or upon the written request of Requisite Lenders) confirmed by writtennotice from Agent to Borrower, the interest rates applicable to the Loans andthe Letter of Credit Fee shall be increased by two percentage points (2.00%) per annum above the rates ofinterest or the rate of such Fee otherwise applicable hereunder (the “DefaultRate”), and all outstanding Obligations shall bear interest at the DefaultRate applicable to such Obligations. Interest and Letter

 

9

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### of Credit Fees at theDefault Rate shall accrue from the initial date of such Event of Default untilthat Event of Default is cured or waived and shall be payable upon demand, butin any event, shall be payable on the next regularly scheduled payment date setforth herein for such Obligation.

###  

### (e)                                  Borrowershall have the option to (i) request that any Revolving Credit Advance bemade as a LIBOR Loan, (ii) convert at any time all or any part ofoutstanding Loans (other than the Swing Line Loan) from Index Rate Loans toLIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subjectto payment of the LIBOR Breakage Fee in accordance with Section 1.3(e)if such conversion is made prior to the expiration of the LIBOR Periodapplicable thereto, or (iv) continue all or any portion of any Loan (otherthan the Swing Line Loan) as a LIBOR Loan upon the expiration of the applicableLIBOR Period and the succeeding LIBOR Period of that continued Loan shallcommence on the first day after the last day of the LIBOR Period of the Loan tobe continued.  Any Loan or group ofLoans having the same proposed LIBOR Period to be made or continued as, orconverted into, a LIBOR Loan must be in a minimum amount of $100,000****and integral multiples of $100,000 in excess of suchamount.  Any such election must be made by noon (Chicago time)****onthe 3rd Business Day prior to (1) the date of any proposedRevolving Credit Advance which is to bear interest at the LIBOR Rate,(2) the end of each LIBOR Period with respect to any LIBOR Loans to becontinued as such, or (3) the date on which Borrower wishes to convert anyIndex Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower insuch election.  If no election isreceived with respect to a LIBOR Loan by noon (Chicago time) on the 3rd Business Day prior tothe end of the LIBOR Period with respect thereto, that LIBOR Loan shall beconverted to an Index Rate Loan at the end of its LIBOR Period.  Borrower must make such election by noticeto Agent in writing, by fax or overnight courier.  In the case of any conversion or continuation, such election mustbe made pursuant to a written notice (a “Notice of Conversion/Continuation”)in the form of Exhibit 1.2(e). No Loan shall be made, converted into or continued as a LIBOR Loan, ifan Event of Default has occurred and is continuing and Agent or RequisiteLenders have determined not to make or continue any Loan as a LIBOR Loan as aresult thereof. No Loan may be made asor converted into a LIBOR Loan until five (5) days after the RestatementEffective Date.

###  

### (f)                                    Notwithstandinganything to the contrary set forth in this Section 1.2, if a courtof competent jurisdiction determines in a final order that the rate of interestpayable hereunder exceeds the highest rate of interest permissible under law(the “Maximum Lawful Rate”), then so long as the Maximum Lawful Ratewould be so exceeded, the rate of interest payable hereunder shall be equal tothe Maximum Lawful Rate; provided, however, that if at any timethereafter the rate of interest payable hereunder is less than the MaximumLawful Rate, Borrower shall continue to pay interest hereunder at the MaximumLawful Rate until such time as the total interest received by Agent, on behalfof Lenders, is equal to the total interest that would have been received hadthe interest rate payable hereunder been (but for the operation of thisparagraph) the interest rate payable since the Restatement Effective Date asotherwise provided in this Agreement.

 

10

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### Thereafter, interesthereunder shall be paid at the rate(s) of interest and in the manner providedin Sections 1.2(a) through (e), unless and until the rate ofinterest again exceeds the Maximum Lawful Rate, and at that time this paragraphshall again apply.  In no event shallthe total interest received by any Lender pursuant to the terms hereof exceedthe amount that such Lender could lawfully have received had the interest duehereunder been calculated for the full term hereof at the Maximum Lawful Rate.  If the Maximum Lawful Rate is calculatedpursuant to this paragraph, such interest shall be calculated at a daily rateequal to the Maximum Lawful Rate divided by the number of days in the year inwhich such calculation is made.  If,notwithstanding the provisions of this Section 1.2(f), a court ofcompetent jurisdiction shall determine by a final, non-appealable order that aLender has received interest hereunder in excess of the Maximum Lawful Rate,Agent shall, to the extent permitted by applicable law, promptly apply suchexcess as specified in Section 1.5(e) and thereafter shall refundany excess to Borrower or as such court of competent jurisdiction may otherwiseorder.

###  

## 1.3                                 Fees.

##  

### (a)                                  FeeLetter.  Borrower shall pay to GECapital, individually, the Fees specified in that certain fee letter dated as of January 22, 2004 betweenBorrower and GE Capital (the “GECapital Fee Letter”), at the times specified for payment therein.

###  

### (b)                                 UnusedLine Fee.  As additionalcompensation for the Revolving Lenders, Borrower shall pay to Agent, for theratable benefit of such Lenders, in arrears, on the first Business Day of eachFiscal Quarter prior to the Commitment Termination Date and on the CommitmentTermination Date, a fee for Borrower’s non-use of available funds in an amountequal to the Applicable Unused Line FeeMargin per annum multiplied by the difference between (x) theMaximum Amount (as it may be reduced from time to time) and (y) theaverage for the period of the daily closing balances of the Revolving Loan (including,without duplication, Swing Line Loans) outstanding during the period for whichsuch Fee is due.

###  

### (c)                                  [Reserved].

###  

### (d)                                 Letterof Credit Fee.  Borrower agrees topay to Agent for the benefit of Revolving Lenders, as compensation to suchRevolving Lenders for Letter of Credit Obligations incurred hereunder,(i) all costs and expenses incurred by Agent or any Lender on account ofsuch Letter of Credit Obligations, and (ii) for each Fiscal Quarter duringwhich any Letter of Credit Obligation shall remain outstanding, a fee (the “Letterof Credit Fee”) in an amount equal to the Applicable L/C Margin multiplied by the average amountavailable from time to time to be drawn under the applicable Letter of Creditduring such Fiscal Quarter.  Such feeshall be paid to Agent for the benefit of the Revolving Lenders in arrears, onthe first Business Day of each month and on the Commitment TerminationDate.  In addition, Borrower shall payto any L/C Issuer, on demand, such customary fees (including all per annum fees),charges and expenses of such L/C Issuer in respect of the issuance,negotiation, acceptance, amendment, transfer

 

11

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### and payment of suchLetter of Credit or otherwise payable pursuant to the application and relateddocumentation under which such Letter of Credit is issued.

###  

### (e)                                  LIBORBreakage Fee.  Upon (i) anydefault by Borrower in making any borrowing of, conversion into or continuationof any LIBOR Loan following Borrower’s delivery to Agent of any LIBOR Loanrequest in respect thereof or (ii) any payment of a LIBOR Loan on any daythat is not the last day of the LIBOR Period applicable thereto (regardless ofthe source of such prepayment and whether voluntary, by acceleration orotherwise), Borrower shall pay Agent, for the benefit of all Lenders thatfunded or were prepared to fund any such LIBOR Loan, the LIBOR Breakage Fee.

###  

### (f)                                    [Reserved].

###  

### (g)                                 Expensesand Attorneys’ Fees.  Borroweragrees to promptly pay all fees, charges, costs and expenses (includingreasonable attorneys’ fees and expenses) incurred by Agent in connection withany matters contemplated by or arising out of the Loan Documents, in connectionwith the examination, review, due diligence investigation, documentation,negotiation, closing and syndication of the transactions contemplated hereinand in connection with the continued administration of the Loan Documentsincluding any amendments, modifications, consents and waivers.  Borrower agrees to promptly pay reasonabledocumentation charges assessed by Agent for amendments, waivers, consents andany of the documentation prepared by Agent’s internal legal staff.  Borrower agrees to promptly pay all fees,charges, costs and expenses (including fees, charges, costs and expenses ofattorneys, auditors (whether internal or external), appraisers, consultants andadvisors and the allocated cost of internal legal staff) incurred by Agent inconnection with any Event of Default, work-out or action to enforce any LoanDocument or to collect any payments due from Borrower or any other CreditParty.  In addition, in connection withany work-out or action to enforce any Loan Document or to collect any paymentsdue from Borrower or any other Credit Party, Borrower agrees to promptly payall fees, charges, costs and expenses incurred by Lenders for one (1) counselacting for all Lenders and Agent.  Allfees, charges, costs and expenses for which Borrower is responsible under this Section 1.3(g)shall be deemed part of the Obligations when incurred, payable upon demand orin accordance with the final sentence of Section 1.4 and secured bythe Collateral.

###  

## 1.4                                 Payments. All payments by Borrower of the Obligations shall bewithout deduction, defense, setoff or counterclaim and shall be made in sameday funds and delivered to Agent, for the benefit of Agent and Lenders, asapplicable, by wire transfer to the following account or such other place asAgent may from time to time designate in writing.

 

ABA No. 021-001-033Account Number 502-328-54Bankers Trust CompanyNew York, New York

12

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ACCOUNT NAME: GECC/CAF DEPOSITORYReference:  GE Capital re Cherokee International

 

Borrowershall receive credit on the day of receipt for funds received by Agent by1:00 p.m. (Chicago time).  In theabsence of timely receipt, such funds shall be deemed to have been paid on thenext Business Day.  Whenever any paymentto be made hereunder shall be stated to be due on a day that is not a BusinessDay, the payment may be made on the next succeeding Business Day and suchextension of time shall be included in the computation of the amount ofinterest and Fees due hereunder.

 

Borrower hereby authorizes Lenders to make Revolving Credit Advances orSwing Line Advances, on the basis of their Pro Rata Shares, for the payment ofScheduled Installments, interest, Fees and expenses, Letter of Creditreimbursement obligations and any amounts required to be deposited with respectto outstanding Letter of Credit Obligations pursuant to Sections 1.5(g)or 6.3.

 

## 1.5                                 Prepayments.  Withoutprejudicing, qualifying, limiting or otherwise affecting the provisions ofSection 1.6 of the Security Agreement and the provisions of any BankAgency and Control Agreements (as defined therein) or other Blocked Accountagreements now or hereafter existing and relating to the collection, deposit,control and application of operating revenues and other monies received byBorrower and/or its Domestic Subsidiaries, Borrower agrees as follows.

##  

### (a)                                  VoluntaryPrepayments of Loans.  At any time,Borrower, in accordance with subsection 1.1(a)(i), may prepay theLoans, in whole or in part, withoutpremium or penalty subject to the payment of****LIBOR Breakage Fees, ifapplicable.

###  

### (b)                                 [Reserved]**.**

###  

### (c)                                  Prepaymentsfrom Asset Dispositions. Immediately upon receipt of any Net Proceeds relating to any eventoccurring after the Restatement Effective Date, Borrower shall, in accordancewith subsection 1.1(a)(i) hereof and except as otherwise providedin subsection 1.1(a)(ii), repay the Revolving Credit Advances(without reduction of the Revolving Loan Commitment) by an amount equal to theamount of any reduction in theBorrowing Base attributable to the Asset Disposition giving rise to such NetProceeds to the extent that any such reduction would result in the outstandingprincipal balance of the Revolving Loan exceeding the maximum amount ofRevolving Loan permitted to be outstanding. Borrower or any Subsidiary may reinvest all remaining Net Proceeds ofsuch Asset Disposition, within one year, in productive assets of a kind thenused or usable in the business of Borrower or such Subsidiary.  If Borrower does not intend to so reinvestsuch Net Proceeds or if the period set forth in the immediately precedingsentence expires without Borrower having reinvested such Net Proceeds, thepayments shall be applied in accordance with Section 1.5(e).

###  

### (d)                                 Prepaymentsfrom Issuance of Securities.  Withinfive (5) Business Days following the receipt by Borrower of the net cashproceeds of the issuance of Stock (other

 

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### than (1) proceeds ofthe issuance of Stock by Borrower received in connection with the IPO, the overallotment option granted to the underwriters in connection therewith and anysecondary offering consummated within one year of the IPO, (2) proceedsfrom the issuance of Stock to employees, directors or members of the managementof Borrower or any of its Subsidiaries or pursuant to any stock option plan,(3) proceeds from the issuance of Stock to the Existing ControlShareholders, (4) proceeds of the issuance of Stock to Borrower or anySubsidiary of Borrower, and (5) proceeds from the issuance or exercise ofoptions or warrants relating to the Stock of Borrower)**,** Borrower shall prepay the Loans in anamount equal to such cash proceeds, net of underwriting discounts andcommissions and other reasonable costs and fees associated therewith or relatedthereto, including, without limitation, legal, accounting and investmentbanking fees and expenses.  The paymentsshall be applied in accordance with Section 1.5(e).

###  

### (e)                                  Applicationof Proceeds.  With respect to theprepayments described in Sections 1.5(a) (other than any amount applied to the Revolving Credit Advances as aresult of the reduction of the Borrowing Base as specified therein), 1.5(c)****and1.5(d), such prepayments shallfirst be applied****to reduce the outstanding principalbalance of the Swing Line Loan and then the Revolving Credit Advances but not as a permanent reduction of theRevolving Loan Commitment.  Consideringeach type of Loan being prepaid separately, any such prepayment shall beapplied first to Index Rate Loans of the type required to be prepaid beforeapplication to LIBOR Loans of the type required to be prepaid, in each case ina manner which minimizes any resulting LIBOR Breakage Fee.

###  

### (f)                                    Applicationof Prepayments from Insurance Proceeds. Prepayments from insurance in accordance with Section 2.2shall be applied as follows:  first, tothe Swing Line Loans and, second, to the Revolving Credit Advances.  Neither the Revolving Loan Commitment northe Swing Line Loan Commitment shall be permanently reduced by the amount ofany such prepayments.

###  

### (g)                                 Letterof Credit Obligations.  In the eventany Letters of Credit are outstanding at the time that the Revolving LoanCommitment is terminated, Borrower shall (1) deposit with Agent for thebenefit of all Revolving Lenders cash in an amount equal to 105% of theaggregate outstanding Letter of Credit Obligations to be available to Agent toreimburse payments of drafts drawn under such Letters of Credit and pay anyFees and expenses related thereto or cause to be issued back-up letters ofcredit reasonably acceptable to Agent, and (2) prepay the fee payableunder Section 1.3(d) with respect to such Letters of Credit for thefull remaining terms of such Letters of Credit.  Upon termination of any such Letter of Credit, the unearnedportion of such prepaid fee attributable to such Letter of Credit and any otheramounts deposited with Agent pursuant to this clause (g) (with respect to suchterminated Letter of Credit) not applied to reimburse the L/C Issuer fordrawings made on such Letter of Credit shall be refunded to Borrower.

###  

## 1.6                                 Maturity. All of the Obligations shall become due and payable asotherwise set forth herein, but in any event all of the remaining Obligationsshall become due and payable

 

14

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upon termination of this Agreement. Until all Obligations have been fully paid and satisfied (other thancontingent indemnification obligations to the extent no unsatisfied claim hasbeen asserted), the Revolving Loan Commitment has been terminated and allLetters of Credit have been terminated or otherwise secured in accordance with Section 1.5(g),Agent shall be entitled to retain the security interests in the Collateralgranted under the Collateral Documents and the ability to exercise all rightsand remedies available to them under the Loan Documents and applicable laws.  Notwithstanding anything contained in thisAgreement to the contrary, upon any termination of the Revolving LoanCommitment, all of the Obligations shall be due and payable.

 

## 1.7                                 EligibleAccounts. All of the Accounts owned by Borrower and its Domestic Subsidiariesand reflected in the most recent Borrowing Base Certificate delivered byBorrower to Agent shall be “Eligible Accounts” for purposes of thisAgreement, except any Account to which any of the exclusionary criteria setforth below applies.  Agent shall havethe right to establish, modify oreliminate Reserves against Eligible Accounts from time to time in itsPermitted Discretion.  In addition,Agent reserves the right, at any time and from time to time after theRestatement Effective Date, to adjust any of the criteria set forth below, toestablish new criteria and to adjustadvance rates with respect to Eligible Accounts, in its PermittedDiscretion, subject to the approval of Requisite Lenders in the case ofadjustments, new criteria or changes inadvance rates which have the effect of making more creditavailable.  Eligible Accounts shall notinclude any Account of Borrower or any Domestic Subsidiary thereof:

 

### (a)                                  thatdoes not arise from the sale or lease of goods or the performance of services byBorrower or such Domestic Subsidiary in the ordinary course of its business;

###  

### (b)                                 (i)upon which Borrower’s or such Domestic Subsidiary’s right to receive payment isnot absolute or is contingent upon the fulfillment of any condition whatsoeveror (ii) as to which such Person is not able to bring suit or otherwise enforceits remedies against the Account Debtor through judicial process, or (iii) ifthe Account represents a progress billing consisting of an invoice for goodssold or used or services rendered pursuant to a contract under which theAccount Debtor’s obligation to pay that invoice is subject to such Person’scompletion of further performance under such contract or is subject to theequitable lien of a surety bond issuer;

###  

### (c)                                  to the extent of any amount of anydefense, counterclaim, setoff or dispute asserted as to such Account;

###  

### (d)                                 thatis not a true and correct statement, in all material respects, of bona fideobligation incurred in the amount of the Account for merchandise sold to orservices rendered and accepted by the applicable Account Debtor;

###  

### (e)                                  withrespect to which an invoice has not been sent to the applicable Account Debtor;

###  

### (f)                                    that(i) is not owned by Borrower or such Domestic Subsidiary or (ii) is subject toany right, claim, security interest or other interest of any other Person,other

 

15

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### than Liens in favor ofAgent, on behalf of itself and Lenders or applicable Permitted Encumbrances;

###  

### (g)                                 thatarises from a sale to any director, officer, other employee or Affiliate of anyCredit Party, or to any entity that has any common officer with any CreditParty;

###  

### (h)                                 thatis the obligation of an Account Debtor that is the United States government ora political subdivision thereof, or anystate, county or municipality or department, agency or instrumentalitythereof unless Agent, in its sole discretion, has agreed to the contrary inwriting or Borrower or such Domestic Subsidiary has complied with respect tosuch obligation with the Federal Assignment of Claims Act of 1940, or any applicable state, county or municipallaw restricting the assignment thereof with respect to such obligation;

###  

### (i)                                     thatis the obligation of an Account Debtor located in a foreign country other thanCanada unless payment thereof is assured by a letter of credit assigned orother credit support and delivered to Agent, reasonably satisfactory to Agentas to form, amount and issuer;

###  

### (j)                                     tothe extent Borrower or any Subsidiary thereof is liable for goods sold or servicesrendered by the applicable Account Debtor to Borrower or any Subsidiary thereofbut only to the extent of the potential offset;

###  

### (k)                                  thatarises with respect to goods that are delivered on a bill-and-hold,cash-on-delivery basis or placed on consignment, guaranteed sale or other termsby reason of which the payment by the Account Debtor is or may be conditional;

###  

### (l)                                     anAccount is not paid within the earlier of sixty (60) days following its duedate or ninety (90) days following its original invoice date;

###  

### (m)                               anAccount with respect to which the Account Debtor obligated thereon suspendsbusiness, makes a general assignment for the benefit of creditors or fails topay its debts generally as they come due; or

###  

### (n)                                 apetition is filed by or against any Account Debtor obligated upon such Accountunder any bankruptcy law or any other federal, state or foreign (including anyprovincial) receivership, insolvency relief or other law or laws for the reliefof debtors;

###  

### (o)                                 thatis the obligation of an Account Debtor if 50% or more of the Dollar amount ofall Accounts owing by that Account Debtor are ineligible under the othercriteria set forth in clause (l) above;

###  

### (p)                                 asto which Agent does not have a valid first priority and fully perfectedsecurity interest and accounts subject to any Lien except those in favor ofAgent and Permitted Encumbrances, including Accounts evidenced by an instrument(as defined in Article 9 of the UCC) not in the possession of Agent;

 

16

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### (q)                                 asto which any of the representations or warranties in the Loan Documents areuntrue in any material respect;

###  

### (r)                                    tothe extent such Account is evidenced by an Instrument or Chattel  Paper unless in the possession of Agent orthe aggregate amount of such Account is not greater than $250,000;

###  

### (s)                                  tothe extent such Account exceeds any credit limit established by Agent, in itsPermitted Discretion, following priornotice of such limit by Agent to Borrower;

###  

### (t)                                    tothe extent that such Account, together with all other Accounts owing to suchAccount Debtor and its Affiliates as of any date of determination exceed 30%****of all Eligible Accounts but only to theextent of such excess, unless such Account Debtor is reasonably satisfactory toAgent or such excess is supported by credit support reasonably satisfactory toAgent; or

###  

### (u)                                 thatis payable in any currency other than Dollars unless supported by creditsupport reasonably satisfactory to Agent.

###  

## 1.8                                 EligibleInventory. All of the Inventory owned by Borrower or any of itsDomestic Subsidiaries and reflected in the most recent Borrowing BaseCertificate delivered by Borrower to Agent shall be “Eligible Inventory”for purposes of this Agreement, except any Inventory to which any of theexclusionary criteria set forth below applies. Agent shall have the right to establish, modify, or eliminate Reserves against Eligible Inventory from time to timein its Permitted Discretion.  Inaddition, Agent reserves the right, at any time and from time to time after theRestatement Effective Date, to adjust any of the criteria set forth below, toestablish new criteria and to adjustadvance rates with respect to Eligible Inventory****in its Permitted Discretion,subject to the approval of Requisite Lenders in the case of adjustments,****newcriteria or changes in advance rates****whichhave the effect of making more credit available.  Eligible Inventory shall not include any Inventory of Borrower orany Domestic Subsidiary of Borrower that:

 

### (a)                                  isnot owned by Borrower free and clear of all Liens and rights of any otherPerson (including the rights of a purchaser that has made progress payments andthe rights of a surety that has issued a bond to assure Borrower’s performancewith respect to that Inventory), except the Liens in favor of Agent, on behalfof itself and Lenders, and applicable Permitted Encumbrances;

###  

### (b)                                 (i)is not located on premises owned, leased or rented by Borrower and set forth inSchedule 5.12 (as the same may, from time to time be supplemented,amended or updated by Borrower in writing as otherwise permitted hereunder),(ii) is stored at a leased location, unless Agent has given its priorconsent thereto and unless (x) a reasonably satisfactory landlord waiver hasbeen delivered to Agent, or (y) Reserves satisfactory to Agent have beenestablished with respect thereto, (iii) is stored with a bailee orwarehouseman unless a reasonably satisfactory, acknowledged bailee letter hasbeen received by Agent or Reserves reasonably satisfactory to Agent have been establishedwith respect thereto, (iv) is located at an owned location subject to amortgage

 

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### in favor of a lenderother than Agent, unless a reasonably satisfactory mortgagee waiver has beendelivered to Agent, or (v) is located at any site if the aggregate book valueof Inventory as any such location is less than $100,000;

###  

### (c)                                  isplaced on consignment (except as permitted by clause (b) above) or is intransit, except for Inventory in transit between domestic locations of CreditParties as to which Agent’s Liens have been perfected at origin anddestination;

###  

### (d)                                 iscovered by a negotiable document of title, unless such document has beendelivered to Agent with all necessary endorsements, free and clear of all Liensexcept those in favor of Agent and Lenders;

###  

### (e)                                  isobsolete, un-saleable, shopworn, seconds, damaged or unfit for sale;

###  

### (f)                                    consistsof display items or packing or shipping materials, manufacturing supplies orreplacement parts, in each case to the extent not constituting inventory,

###  

### (g)                                 consistsof more than an aggregate of $3,000,000 of work-in-process Inventory;

###  

### (h)                                 consistsof goods which have been returned by a buyer, other than up to $500,000 ofgoods at any given time that have been returned by a buyer other than due todefect, damage or non-conformance and which have been accepted by Borrower as atemporary accommodation to such buyer and with respect to which Borrowerexpects, in good faith, to re-ship to such buyer, all in a manner consistentwith past practice;

###  

### (i)                                     isnot of a type held for sale or lease in the ordinary course of Borrower’sbusiness;

###  

### (j)                                     isnot subject to a first priority lien in favor of Agent on behalf of itself andLenders subject to Permitted Encumbrances;

###  

### (k)                                  breachesany of the representations or warranties pertaining to Inventory set forth inthe Loan Documents in any material respect;

###  

### (l)                                     consistsof any costs associated with “freight-in” charges;

###  

### (m)                               consistsof goods that can be transported or sold only with licenses that are notreadily available;

###  

### (n)                                 isnot covered by casualty insurance reasonably acceptable to Agent;

###  

### (o)                                 withrespect to which there exists any Lien (other than Permitted Encumbrances) infavor of any Person other than Agent; or

 

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### (p)                                 isproduced in violation of the Fair Labor Standards Act and subject to theso-called “hot goods” provisions set forth in title 25 U.S.C. 215(a)(i).

###  

## 1.9                                 LoanAccounts. Agent shall maintain a loan account (the “Loan Account”)on its books to record:  all Advances,all payments made by Borrower, and  allother debits and credits as provided in this Agreement with respect to theLoans or any other Obligations.  Allentries in the Loan Account shall be made in accordance with Agent’s customaryaccounting practices as in effect from time to time.  The balance in the Loan Account, as recorded on Agent’s mostrecent printout or other written statement, shall, absent manifest error, bepresumptive evidence of the amounts due and owing to Agent and Lenders byBorrower; provided that any failure to so record or any error in sorecording shall not limit or otherwise affect Borrower’s duty to pay theObligations.  Agent shall render toBorrower a monthly accounting of transactions with respect to the Loans settingforth the balance of the Loan Account for the immediately preceding month.  Unless Borrower notifies Agent in writing ofany objection to any such accounting (specifically describing the basis forsuch objection), within sixty (60) days after the date thereof, each and everysuch accounting shall, absent manifest error, be deemed final, binding andconclusive on Borrower in all respects as to all matters reflectedtherein.  Only those items expresslyobjected to in such notice shall be deemed to be disputed by Borrower.  Notwithstanding any provision hereincontained to the contrary, any Lender may elect (which election may be revoked)to dispense with the issuance of Notes to that Lender and may rely on the LoanAccount as evidence of the amount of Obligations from time to time owing to it.

 

## 1.10                           YieldProtection; Illegality.

##  

### (a)                                  CapitalAdequacy and Other Adjustments.  Inthe event that any Lender shall have determined that the adoption after thelater of (x) the date hereof or (y) the date such Lender became a party heretoof any law, treaty, governmental (or quasi-governmental) rule, regulation,guideline or order regarding capital adequacy, reserve requirements or similarrequirements or compliance by any Lender or any corporation controlling suchLender with any request or directive regarding capital adequacy, reserverequirements or similar requirements (whether or not having the force of lawand whether or not failure to comply therewith would be unlawful) from anycentral bank or governmental agency or body having jurisdiction does or shallhave the effect of increasing the amount of capital, reserves or other fundsrequired to be maintained by such Lender or any corporation controlling suchLender and thereby reducing the rate of return on such Lender’s or suchcorporation’s capital as a consequence of its obligations hereunder, thenBorrower shall from time to time within fifteen (15) days after notice anddemand from such Lender (together with the certificate referred to in the nextsentence and with a copy to Agent) pay to Agent, for the account of suchLender, additional amounts sufficient to compensate such Lender for suchreduction; provided, however that Borrower shall not be obligatedto pay such Lender or controlling Person any compensation attributable to anyperiod prior to the date that is one hundred twenty (120) days prior to thedate of such notice and demand from such Lender.  A certificate as to the amount of such cost and showing the basisof the computation of such cost submitted

 

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### by such Lender toBorrower and Agent shall, absent manifest error, be final, conclusive andbinding for all purposes.

###  

### (b)                                 IncreasedLIBOR Funding Costs; Illegality. Notwithstanding anything to the contrary contained herein, if, withrespect to any Lender, the introduction of or any change in any law, rule,regulation, treaty or directive (or any change in the interpretation thereof)after the later of the date hereof or the date on which such Lender became aparty hereto shall make it unlawful, or any central bank or other GovernmentalAuthority shall assert that it is unlawful, for any such Lender to agree tomake or to make or to continue to fund or maintain any LIBOR Loan, then, unlessthat Lender is able to make or to continue to fund or to maintain such LIBORLoan at another branch or office of that Lender without, in that Lender’sreasonable opinion, adversely affecting it or its Loans or the income obtainedtherefrom, on notice thereof and demand therefor by such Lender to Borrowerthrough Agent, (i) the obligation of such Lender to agree to make or tomake or to continue to fund or maintain LIBOR Loans shall terminate and(ii) Borrower shall forthwith prepay in full all outstanding LIBOR Loansowing to such Lender, together with interest accrued thereon, unlessBorrower, within five (5) Business Days after the delivery of such notice anddemand, converts all LIBOR Loans into Index Rate Loans. If, after the datehereof, the introduction of, change in or interpretation of any law, rule,regulation, treaty or directive would impose or increase reserve requirements(other than as taken into account in the definition of LIBOR) or otherwiseincrease the cost to any Lender of making or maintaining a LIBOR Loan, thenBorrower shall from time to time within fifteen (15) days after notice anddemand from Agent (together with the certificate referred to in the nextsentence) pay to Agent, for the account of all such affected Lenders,additional amounts sufficient to compensate such Lenders for such increasedcost (other than any costs relating to taxes); provided, howeverthat Borrower shall not be obligated to pay such Lenders any compensationattributable to any period prior to the date that is one hundred twenty (120)days prior to the date of such notice and demand from such Lender.  A certificate as to the amount of such costand showing the basis of the computation of such cost submitted by Agent onbehalf of all such affected Lenders to Borrower shall, absent manifest error,be final, conclusive and binding for all purposes.

###  

## 1.11                           Taxes.

##  

### (a)                                  NoDeductions.  Any and all payments orreimbursements made hereunder or under the Notes shall be made free and clearof and without deduction for any and all Charges, taxes, levies, imposts,deductions or withholdings, and all liabilities with respect thereto of anynature whatsoever imposed by any taxing authority, excluding such taxes to theextent imposed on, or measured or determined by reference to, Agent’s or aLender’s net income (including branch profit taxes and any franchise taxesimposed in lieu of net income taxes). If Borrower shall be required by law to deduct any such amounts from orin respect of any sum payable hereunder to any Lender or Agent, then the sumpayable hereunder shall be increased as may be necessary so that, after makingall required deductions, such Lender or Agent receives an amount equal to thesum it would have received had no such deductions been made.

 

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### (b)                                 Changesin Tax Laws.  In the event that,subsequent to the Restatement Effective Date, (1) any changes in anyexisting law, regulation, treaty or directive or in the interpretation or applicationthereof by a court or taxing authority, (2) any new law, regulation,treaty or directive enacted or any interpretation or application thereof by acourt or taxing authority, or (3) compliance by Agent or any Lender withany request or directive from any Governmental Authority:

###  

#### (i)                                     does or shall subject Agent or anyLender to any tax of any kind whatsoever (except for taxes imposed on ormeasured or determined by reference to a net income basis on any Lender orAgent and any franchise taxes imposed in lieu of net income taxes) with respectto this Agreement, the other Loan Documents or any Loans made or Letters ofCredit issued hereunder, or change the basis of taxation of payments to Agentor such Lender of principal, fees, interest or any other amount payablehereunder (except for taxes imposed on or measured or determined by referenceto a net income basis on any Lender or Agent and any franchise taxes imposed inlieu of net income taxes), imposed generally by federal, state or local taxingauthorities with respect to principal, fees, interest or any other amountpayable hereunder, or changes in the rate of tax imposed on the overall netincome basis of Agent or such Lender); or

####  

#### (ii)                                  does or shall impose on Agent or anyLender any other condition or increased cost in connection with thetransactions contemplated hereby or participations herein;

####  

and the result of any of the foregoing is to increasethe cost to Agent or any such Lender of issuing any Letter of Credit or makingor continuing any Loan hereunder, as the case may be, or to reduce any amountreceivable hereunder, then, in any such case, Borrower shall promptly pay toAgent or such Lender, upon its demand, any additional amounts necessary tocompensate Agent or such Lender, on an after-tax basis, for such additionalcost or reduced amount receivable, as reasonably determined by Agent or suchLender with respect to this Agreement or the other Loan Documents.  If Agent or such Lender becomes entitled toclaim any additional amounts pursuant to this Section 1.11(b), itshall promptly notify Borrower of the event by reason of which Agent or suchLender has become so entitled.  Acertificate as to any additional amounts payable pursuant to the foregoingsentence as reasonably determined and submitted in writing by Agent or suchLender to Borrower (with a copy to Agent) shall, absent manifest error, befinal, conclusive and binding for all purposes.

 

### (c)                                  ForeignLenders.  Each Lender organizedunder the laws of a jurisdiction outside the United States (a “ForeignLender”) shall provide to Borrower and Agent a properly completed andexecuted IRS Form W-8BEN or Form W-8ECI or other applicable form, certificateor document prescribed by the IRS of the United States certifying as to suchForeign Lender’s entitlement to a complete exemption from imposition of UntiedStates withholding tax with respect to payments to be made to such ForeignLender under this Agreement and under the Notes (a “Certificate of

 

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### Exemption”).  Prior to becoming a Lender under thisAgreement and within fifteen (15) days after a reasonable written request ofBorrower or Agent from time to time thereafter, each Foreign Lender thatbecomes a Lender under this Agreement shall provide a Certificate of Exemptionto Borrower and Agent.  If a ForeignLender is entitled to an exemption with respect to payments to be made to suchForeign Lender under this Agreement and does not provide a Certificate ofExemption to Borrower and Agent within the time periods set forth in thepreceding sentence, Borrower shall withhold taxes from payments to such ForeignLender at the applicable statutory rates and Borrower shall not be required topay any additional amounts as a result of such withholding, providedthat all such withholding shall cease upon delivery by such Foreign Lender of aCertificate of Exemption to Borrower and Agent.

###  

### (d)                                 EachLender agrees that it will (i) take all reasonable actions requested byBorrower that are without  cost, risk oran undue administrative burden to such Lender to maintain all exemptions, ifany, available to it from withholding taxes (whether available by treaty orexisting administrative waiver) and (ii) to the extent reasonable and withoutcost, risk or an undue administrative burden to it, otherwise cooperate withBorrower to minimize any amounts payable by Borrower under this Section 1.11,including, without limitation, designating another lending office.  If the Borrower pays any Charges (includingpenalties and interest with respect thereto) it shall deliver official taxreceipts, certified copies thereof or other written evidence of payment,evidencing that payment to the Lender or Agent on whose account suchwithholding was made (with a copy to the Agent if not the recipient of theoriginal) on or before the thirtieth (30th) day after payment.  If any Lender or the Agent determines thatit has received or been granted a credit against or relief or remission for, orrepayment of, any taxes paid or payable by it because of any taxes paid orpayable by it directly attributable to any taxes, penalties or interest paid bythe Borrower and evidenced by such a tax receipt, such Lender or Agent shall,to the extent it can do so without prejudice to the retention of the amount ofsuch credit, relief, remission or repayment, pay to the Borrower such amount assuch Lender or Agent determines is attributable to such deduction orwithholding and which will leave such Lender or Agent (after such payment) inno better or worse position than it would have been in if the Borrower had notbeen required to make such deduction or withholding.

 

**SECTION 2.AFFIRMATIVE COVENANTS**

** **

Borrower agrees as to itself and all other Credit Parties that from andafter the date hereof and until the Termination Date:

 

## 2.1                                 Compliance With Laws and Contractual Obligations. Each Credit Party will (a) comply with and shallcause each of its Subsidiaries to comply with (i) the requirements of allapplicable laws, rules, regulations and orders of any Governmental Authority(including, without limitation, laws, rules, regulations and orders relating totaxes, employer and employee contributions, securities, employee retirement andwelfare benefits, environmental protection

 

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matters and employee health and safety) as now in effect and which maybe imposed in the future in all jurisdictions in which any Credit Party or anyof its Subsidiaries is now doing business or may hereafter be doing businessand (ii) the obligations, covenants and conditions contained in allContractual Obligations of such Credit Party or any of its Subsidiaries otherthan those laws, rules, regulations, orders and provisions of such ContractualObligations the noncompliance with which could not be reasonably expected tohave, either individually or in the aggregate, a Material Adverse Effect, and(b) maintain or obtain and shall cause each of its Subsidiaries tomaintain or obtain all licenses, qualifications and permits now held or hereafterrequired to be held by such Credit Party or any of its Subsidiaries, for whichthe loss, suspension, revocation or failure to obtain or renew, couldreasonably be expected to have, either individually or in the aggregate, aMaterial Adverse Effect.  This Section 2.1shall not preclude any Credit Party or its Subsidiaries from contesting anytaxes or other payments, if they are being diligently contested in good faithin a manner which stays enforcement thereof and if appropriate expenseprovisions have been recorded in conformity with GAAP, subject to Section 3.2.  Each Credit Party represents and warrantsthat it (i) is in compliance and each of its Subsidiaries is in compliancewith the requirements of all applicable laws, rules, regulations and orders ofany Governmental Authority and the obligations, covenants and conditionscontained in all Contractual Obligations other than those laws, rules,regulations, orders and provisions of such Contractual Obligations thenoncompliance with which could not be reasonably expected to have, eitherindividually or in the aggregate, a Material Adverse Effect, and(ii) maintains and each of its Subsidiaries maintains all licenses,qualifications and permits referred to above, other than those licenses, qualificationsand permits without which could not reasonably be expected to have, eitherindividually or in the aggregate, a Material Adverse Effect.

 

## 2.2                                 Insurance; Damage to or Destruction of Collateral.

##  

### (a)                                  Borrowerand its Domestic Subsidiaries shall, at their sole cost and expense, maintainthe policies of insurance described on Schedule 5.18 as in effecton the date hereof or otherwise in form and amounts and with insurersreasonably acceptable to Agent.  Suchpolicies of insurance (or the loss payable and additional insured endorsementsdelivered to Agent) shall contain provisions pursuant to which the insureragrees to provide thirty (30) days prior written notice to Agent in the eventof any non-renewal, cancellation or amendment of any such insurance policy.  If Borrower or any of its DomesticSubsidiaries at any time or times hereafter shall fail to obtain or maintainany of the policies of insurance required above or to pay all premiums relatingthereto, Agent may at any time or times thereafter obtain and maintain suchpolicies of insurance and pay such premiums and take any other action withrespect thereto that Agent deems advisable. Agent shall have no obligation to obtain insurance for any Credit Partyor pay any premiums therefor.  By doingso, Agent shall not be deemed to have waived any Default or Event of Defaultarising from Borrower’s or any Domestic Subsidiary’s failure to maintain suchinsurance or pay any premiums therefor. All sums so disbursed, including reasonable attorneys’ fees, court costsand other charges related thereto, shall be payable on demand by Borrower toAgent and shall be additional Obligations hereunder secured by the Collateral.

 

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### (b)                                 Borrower shall deliver to Agent, inform and substance reasonably satisfactory to Agent, endorsements to (i) all“All Risk” and business interruption insurance naming Agent, on behalf ofitself and Lenders, as loss payee, and (ii) all general liability and otherliability policies (excluding director’s and officer’s insurance) naming Agent,on behalf of itself and Lenders, as additional insured.  Borrowerirrevocably makes, constitutes and appoints Agent (and all officers, employeesor agents designated by Agent), so long as any Default or Event of Default hasoccurred and is continuing or the anticipated insurance proceeds exceed$1,000,000, as Borrower’s trueand lawful agent and attorney-in-fact for the purpose of making, settling andadjusting claims of Borrower and its Domestic Subsidiaries under such “AllRisk” policies of insurance, endorsing the name of Borrower on any check or other item of payment for the proceeds ofsuch “All Risk” policies of insurance and for making all determinations anddecisions with respect to such “All Risk” policies of insurance.  Agent shall have no duty to exercise anyrights or powers granted to it pursuant to the foregoingpower-of-attorney.  Borrower shallpromptly notify Agent of any loss, damage, or destruction to the Collateral inthe amount of $500,000 or more,whether or not covered by insurance. After deducting from any insurance proceeds the expenses, if any,incurred by Agent in the collection or handling thereof, Agent may, at itsoption, apply such proceeds to the reduction of the Obligations in accordancewith Section 1.5(f); provided****that in the case of insurance proceedspertaining to Borrower or any Domestic Subsidiary, such insurance proceedsshall be applied to the Loans owing by Borrower.  Notwithstanding the foregoing, if thecasualty giving rise to such insurance proceeds could not reasonably beexpected to have a Material Adverse Effect and such insurance proceeds do notexceed $1,000,000 in the aggregate, Agent shall permit Borrower or the applicable Domestic Subsidiary to replace, restore,repair or rebuild the property; provided that if Borrower or such Domestic Subsidiary has not completed or enteredinto binding agreements to complete such replacement, restoration, repair orrebuilding within one year ofsuch casualty, Agent may apply such insurance proceeds to the Obligations inaccordance with Section 1.5(f).  All insurance proceedsthat are to be made available to Borrower or its Domestic Subsidiary toreplace, repair, restore or rebuild the Collateral shall be applied by Agent toreduce the outstanding principal balance of the Revolving Loan (whichapplication shall not result in a permanent reduction of the Revolving LoanCommitment) and upon such application, Agent shall establish a Reserve againstthe Borrowing Base in an amount equal to the amount of such proceeds soapplied.   Thereafter, such funds shallbe made available to Borrower, or itsapplicable Domestic Subsidiary to provide funds to replace, repair,restore or rebuild the Collateral as follows: (i) Borrower shall request aRevolving Credit Advance in the amount requested to be released; (ii) so longas the conditions set forth in Section 7.2 have been met andsubject to the provisions of any Mortgage encumbering such Collateral,Revolving Lenders shall make such Revolving Credit Advance; and (iii) in thecase of insurance proceeds applied against the Revolving Loan, the Reserveestablished with respect to such insurance proceeds shall be reduced by theamount of such Revolving Credit Advance.

###  

## 2.3                                 Inspection;Lender Meeting. Each Credit Party shall permit any authorizedrepresentatives of Agent to visit, audit and inspect any of the properties ofsuch Credit Party and

 

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its Subsidiaries, including its and their financial and accountingrecords, and to make copies and take extracts therefrom, and to discuss its andtheir affairs, finances and business with its and their officers and certifiedpublic accountants, at such reasonable times during normal business hours andas often as may be reasonably requested, provided, however, thatunless an Event of Default shall have occurred and be continuing, any suchinspection shall be at the expense of Agent and Lenders.  Representatives of each Lender will bepermitted to accompany representatives of Agent during each visit, inspectionand discussion referred to in the immediately preceding sentence.  Without in any way limiting the foregoing,each Credit Party will participate and will cause key management personnel ofeach Credit Party and its Subsidiaries to participate in a meeting with Agentand Lenders at least once during each year, which meeting shall be held at suchtime and such place as may be reasonably requested by Agent.

 

## 2.4                                 OrganizationalExistence. Except as otherwise permitted by Section 3.6,each Credit Party will and will cause its Subsidiaries to at all times preserveand keep in full force and effect its organizational existence and all rightsand franchises material to its business except to the extent failure to do socould not reasonably be expected to result in a Material Adverse Effect.

 

## 2.5                                 EnvironmentalMatters. Each Credit Party shall and shall cause each Person withinits control to: (a) conduct its operations and keep and maintain its RealEstate in compliance with all Environmental Laws and Environmental Permitsother than noncompliance that could not reasonably be expected to have aMaterial Adverse Effect; (b) implement any and all investigation,remediation, removal and response actions that are appropriate or necessary tomaintain the value and marketability of the Real Estate or to otherwise complywith Environmental Laws and Environmental Permits pertaining to the presence,generation, treatment, storage, use, disposal, transportation or Release of anyHazardous Material on, at, in, under, above, to, from or about any of its RealEstate except to the extent failure to do so could not reasonably be expectedto have a Material Adverse Effect; (c) notify Agent promptly after suchCredit Party or any Person within its control becomes aware of any violation ofEnvironmental Laws or Environmental Permits or any Release on, at, in, under,above, to, from or about any Real Estate that is reasonably likely to result inEnvironmental Liabilities to a Credit Party or its Subsidiaries in excess of$250,000; and (d) promptly forward to Agent a copy of any order, notice,request for information or any communication or report received by such CreditParty or any Person within its control in connection with any such violation orRelease or any other matter relating to any Environmental Laws or EnvironmentalPermits that could reasonably be expected to result in EnvironmentalLiabilities in excess of $250,000,in each case whether or not the Environmental Protection Agency or anyGovernmental Authority has taken or threatened any action in connection withany such violation, Release or other matter. If Agent at any time has a reasonable basis to believe that there may bea violation of any Environmental Laws or Environmental Permits by any CreditParty or any Person under its control or any Environmental Liability arisingthereunder, or a Release of Hazardous Materials on, at, in, under, above, to,from or about any of its fee owned Real Estate, that, in each case, couldreasonably be expected to have a Material Adverse Effect, then each CreditParty and its Subsidiaries shall, upon Agent’s written request (i) causethe performance of such environmental audits including

 

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subsurface sampling of soil and groundwater, and preparation of suchenvironmental reports, at Borrower’s expense, as Agent may from time to timereasonably request, which shall be conducted by reputable environmentalconsulting firms reasonably acceptable to Agent and shall be in form andsubstance reasonably acceptable to Agent, and (ii) permit Agent or itsrepresentatives to have access to all such Real Estate for the purpose ofconducting such environmental audits and testing as Agent deems appropriate,including subsurface sampling of soil and groundwater.  Borrower shall reimburse Agent for the costsof such audits and tests and the same will constitute a part of  the Obligations secured hereunder.

 

## 2.6                                 Landlords’ Agreements, Mortgagee Agreements, Bailee Letters and Real EstatePurchases.  Each Credit Party shall usereasonable efforts (which shall not require the incurrence of material costs,the expenditure of cash or material amounts of time or the making of anymaterial concessions) to obtain a landlord’s agreement, mortgagee agreement orbailee letter, as applicable, from the lessor of each leased property,mortgagee of owned property or bailee with respect to any warehouse, processoror converter facility or other location where Collateral in excess of $500,000is stored or located, which agreement or letter shall contain a waiver orsubordination of all Liens or claims that the landlord, mortgagee or bailee mayassert against the Collateral at that location, and shall otherwise be reasonablysatisfactory in form and substance to Agent. With respect to such locations orwarehouse space leased or owned as of the Restatement Effective Date andthereafter, if Agent has not received a landlord or mortgagee agreement orbailee letter as of the Restatement Effective Date (or, if later, as of thedate such location is acquired or leased), the Eligible Inventory at thatlocation shall, in Agent’s Permitted Discretion, be subject to such Reserves asmay be established by Agent in its reasonable credit judgment.  After the Restatement Effective Date, noreal property or warehouse space shall be leased by any Credit Party or itsSubsidiary and no Inventory shall be shipped to a processor or converter underarrangements established after the Restatement Effective Date without the priorwritten consent of Agent (which consent, in Agent’s discretion, may beconditioned upon the exclusion from the Borrowing Base of Eligible Inventory atthat location or the establishment of Reserves acceptable to Agent) or, unlessand until a satisfactory landlord agreement or bailee letter, as appropriate,shall first have been obtained with respect to such location.  Each Credit Party shall and shall cause itsDomestic Subsidiaries to timely and fully pay and perform, in all materialrespects, their obligations under all leases and other agreements with respectto each leased location or public warehouse where any Collateral is or may belocated.

 

## 2.7                                 Conductof Business. Each Credit Party shall at all times maintain, preserveand protect its assets and properties taken as a whole that are material in theconduct of its business, and keep the same in good repair, working order andcondition in all material respects (taking into consideration ordinary wear andtear) and from time to time make, or cause to be made, all necessary orappropriate repairs, replacements and improvements thereto consistent withindustry practices; and all Credit Parties (other than Foreign Subsidiaries)shall transact business only in such corporate and trade names as are set forthin Schedule 2.7, unless Borrower shall have given Agent not lessthan twenty (20) days prior written notice thereof.

 

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## 2.8                                 FurtherAssurances.

##  

### (a)                                  EachCredit Party shall, from time to time, execute such guaranties, financingstatements, security agreements and other agreements as Agent or RequisiteLenders at any time may reasonably request in accordance with the terms of thisAgreement, to evidence, perfect or otherwise implement the guaranties andsecurity for repayment of the Obligations contemplated by the Loan Documents.

###  

### (b)                                 Inthe event any Credit Party (other than a Foreign Subsidiary) acquires a feesimple interest in real property after the Restatement Effective Date in excessof $1,000,000, such Credit Party shall promptly notify Agent thereof and, ifrequested by Agent, shall deliver to Agent a fully executed mortgage or deed oftrust over such real property in form and substance reasonably satisfactory toAgent, together with such title insurance policies, surveys, appraisals,evidence of insurance, legal opinions, environmental assessments and otherdocuments and certificates as shall be reasonably required by Agent.

###  

### (c)                                  EachCredit Party shall (i) cause each Person, upon its becoming a DomesticSubsidiary of such Credit Party (provided that this shall not beconstrued to constitute consent by any of the Lenders to any transactionreferred to above which is not expressly permitted by the terms of thisAgreement), promptly to guaranty the Obligations and to grant to Agent, for thebenefit of Agent and Lenders, a security interest in the real, personal andmixed property of such Person to secure the Obligations and (ii) pledge,or cause to be pledged, to Agent, for the benefit of Agent and Lenders, all ofthe Stock of such Subsidiary to secure the Obligations; provided, however,in the case of Foreign Subsidiaries such Credit Party shall, subject to Section 2.9(b)hereof, be required to pledge not more than 65% of the Stock of such ForeignSubsidiary.  The documentation for suchguaranty, security and pledge shall be substantially similar to the LoanDocuments executed concurrently herewith with such modifications as are reasonablyrequested by Agent and reasonably acceptable to Borrower.

###  

### (d)                                 Withoutlimiting the generality of subsection 2.8(a) hereof, Borrowerhereby agrees, and agrees to cause each of its Subsidiaries, as applicable, toamend and/or reaffirm all pledges and grants of Liens and other securityinterests granted by such Person in connection with the Existing CreditAgreement and to take such other actions and to execute and deliver suchfurther documents, instruments or agreements as is reasonably deemed necessaryor desirable by Agent in order to continue, create, attach, perfect orotherwise preserve and protect the Liens and other interests of Agent (in itsown right as secured party under the Loan Documents and/or as successor ininterest to Heller Financial, Inc.) in, to and under the Borrower PledgeAgreement and that certain Amended and Restated Pledge Agreement dated as ofNovember 27, 2002 made by Cherokee Netherlands I B.V. with respect to theStock of Cherokee Netherlands II B.V.

###  

## 2.9                                 Subsidiaries.

##  

### (a)                                  Onthe Restatement Effective Date, with regard to any Domestic Subsidiary inexistence on the Restatement Effective Date, and within thirty (30) days of

 

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### the Borrower creating oracquiring or otherwise having any other Domestic Subsidiary, the Borrower willcause such Domestic Subsidiary to provide and grant to the Agent, for thebenefit of the Lenders, a (i) guaranty of the Obligations, and (ii) firstpriority security interest in the real, personal and mixed property of suchDomestic Subsidiary, securing the Obligations and such Domestic Subsidiary’sobligations under such guaranty, provided that the foregoing shall notbe deemed to require a pledge of more than sixty-five (65%) of the stock of anyForeign Subsidiary of such Domestic Subsidiary that is directly owned by suchDomestic Subsidiary unless required by paragraph (B) of this Section 2.9.

###  

### (b)                                 Borrowerhas heretofore pledged to Agent, for the benefit of Agent and Lenders,sixty-five percent (65%) of the capital stock of each of its ForeignSubsidiaries directly owned by Borrower as of the Restatement EffectiveDate.  Within thirty (30) days of theBorrower creating or acquiring or otherwise having any other directly ownedForeign Subsidiary, the Borrower will provide, or cause to be provided,  to the Agent, for the benefit of theLenders, as security for the Obligations a perfected, first priority pledge of65% of the capital stock (or similar equity interest) of such ForeignSubsidiary.  If Borrower or any DomesticSubsidiary can, as a result of a change in applicable laws, rules, regulationsand/or orders of any Governmental Authority after the Restatement EffectiveDate, at any time pledge more than 65% of the capital stock of any ForeignSubsidiary as security for the Obligations, or a Foreign Subsidiary can (i)pledge any notes issued to it by the Borrower or any other Subsidiary, (ii)pledge all or a portion of the stock of one of its subsidiaries or grant asecurity interest on its assets to the Agent for the benefit of the Lenders tosecure the Obligations, or (iii) guaranty the Obligations, in each case withoutcausing the undistributed earnings of such Foreign Subsidiary (as reasonablydetermined by Borrower for Federal income tax purposes) to be treated as adeemed dividend to the Borrower for Federal income tax purposes or withoutresulting in any other material adverse tax consequences, then Borrower or suchDomestic Subsidiary, as applicable, shall make such pledge and/or such ForeignSubsidiary shall execute and deliver documents sufficient to grant suchsecurity interest and/or make such guaranty, as applicable.  All grants of security interests, pledgesand guaranties contemplated by this Section 2.9 shall be madepursuant to documentation in form and substance substantially similar to theCollateral Documents in effect on the Restatement Effective Date and otherwisereasonably satisfactory to the Agent.

** **

**SECTION 3.NEGATIVE COVENANTS**

 

Borrower agrees as to itself and all other Credit Parties that from andafter the date hereof until the Termination Date:

 

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## 3.1                                 Indebtedness. The Credit Parties shall not and shall not cause or permittheir Subsidiaries directly or indirectly to create, incur, assume or otherwisebecome or remain directly or indirectly liable with respect to any Indebtedness(other than pursuant to a Contingent Obligation permitted under Section 3.4)except:

 

### (a)                                  theObligations;

###  

### (b)                                 Indebtednessconsisting of (1) intercompany loans and advances owing (i) by Borrower to anyCredit Party that is a Guarantor or by such Guarantor to Borrower, (ii) by a Domestic Subsidiary to the Borrower orto a Domestic Subsidiary of Borrower; (iii) by Cherokee Electronica, S.A. deC.V. (“Cherokee MX”) to Borrower or any Domestic Subsidiary in anaggregate principal amount not to exceed $15,000,000 for purposes of fundingand supporting the operations and working capital needs of Cherokee MX to theextent and in a manner consistent with past practices; (iv) by a ForeignSubsidiary to another Foreign Subsidiary, other than to Cherokee MX; (v)subject to and in accordance with the Tri-Party Agreement Re: PaymentProcedures, by the ITS Companies and Borrower to each other and Borrower, asapplicable, in an aggregate amount not to exceed $53,000,000; (vi) by any ofthe ITS Companies to Borrower or any Domestic Subsidiary of Borrower in anamount not to exceed $8,000,000 provided that such Indebtedness consistsonly of accounts receivable generated by and recorded on the books of Borrower inthe ordinary course of business in selling Inventory, machinery and equipmentto such ITS Company in a manner and to the extent consistent with historicalpractice; and (vii) by any Foreign Subsidiary, to the Borrower or any DomesticSubsidiary in an aggregate principal amount not to exceed $1,500,000; provided,that: (1) Borrower shall have executed and delivered to each such Guarantor orDomestic Subsidiary, and each such Guarantor or Domestic Subsidiary shall haveexecuted and delivered to Borrower a demand note (collectively, the “IntercompanyNotes”) to evidence any such intercompany Indebtedness owing at any time byBorrower to such Guarantor or Domestic Subsidiary or by such Guarantor orDomestic Subsidiary to Borrower, which Intercompany Notes shall be in form andsubstance reasonably satisfactory to Agent and shall be pledged and deliveredto Agent pursuant to the applicable Pledge Agreement or Security Agreement asadditional collateral security for the Obligations; (2) Borrower shall recordall intercompany transactions on its books and records in a manner reasonablysatisfactory to Agent; (3) the obligations of Borrower under any suchIntercompany Notes shall be subordinated to the Obligations of Borrowerhereunder in a manner reasonably satisfactory to Agent; (4) at the time anysuch intercompany loan or advance is made by Borrower and after giving effectthereto, Borrower shall be Solvent; and (5) no Default or Event of Defaultwould occur and be continuing after giving effect to any such proposedintercompany loan; and (2) loans and advances owing by the ITS Companies tonon-affiliated third parties in an aggregate principal amount not to exceed$7,500,000;

###  

### (c)                                  unsecured,Subordinated Debt of Borrower in a principal amount not to exceed $10,000,000in the aggregate at any time outstanding;

 

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### (d)                                 Indebtednessin an aggregate principal amount not to exceed $10,000,000 in the aggregate atany time outstanding secured by purchase money Liens or incurred with respectto Capital Leases;

###  

### (e)                                  Indebtednessdescribed on Schedule 3.1, and any extensions, renewals orrefinancings of such existing Indebtedness so long as (i) the principal amountof such Indebtedness after such renewal, extension or refinancing shall notexceed the principal amount of such Indebtedness which was outstandingimmediately prior to such renewal, extension or refinancing plus accrued andunpaid interest and related fees and (ii) such Indebtedness shall not besecured by any assets other than assets securing such indebtedness, if any,prior to such renewal, extension or refinancing;

###  

### (f)                                    Indebtednessconstituting obligations to reimburse worker’s compensation insurance companiesfor claims paid by such companies on Borrower’s or any of its Subsidiaries’behalf in accordance with the policies issued to Borrower or such Subsidiary ofBorrower;

###  

### (g)                                 Indebtednesssecured by the Liens permitted by clauses (a), (e) and (l) of the definition ofPermitted Encumbrances;

###  

### (h)                                 Indebtednessof a Subsidiary of Borrower acquired after the Restatement Effective Date andIndebtedness of a Person merged or consolidated with or into Borrower or aSubsidiary of Borrower after the Restatement Effective Date, which Indebtednessin each case exists at the time of such acquisition, merger or consolidationand was not created or incurred in contemplation of such acquisition, merger orconsolidation and where such acquisition, merger or consolidation is notprohibited under this Agreement;

###  

### (i)                                     thenet obligations of such Person under any foreign exchange contract, currencyswap agreement, interest rate swap, cap or collar agreement or other similaragreement or arrangement designed to alter the risks of that Person arisingfrom fluctuations in currency values or interest rates, in each case whethercontingent or matured, provided that any such agreement or arrangementis not speculative in nature, is utilized by such Credit Party solely inconnection with actual foreign currency or actual interest rate exposure of aCredit Party or otherwise related to purchases permitted hereunder from foreignsuppliers or is otherwise entered into to protect such Credit Party againstfluctuations in the costs of raw materials used in its business;

###  

### (j)                                     Indebtednessin addition to the Indebtedness described in the foregoing clauses (a) through(i) in an aggregate principal amount not exceeding $3,000,000 at any timeoutstanding; and

###  

### (k)                                  Indebtednessincurred and as otherwise permitted by this Agreement in connection with PermittedAcquisitions.

 

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## 3.2                                 Liensand Related Matters.

##  

### (a)                                  NoLiens.  The Credit Parties shall notand shall not cause or permit their Subsidiaries to directly or indirectlycreate, incur, assume or permit to exist any Lien on or with respect to anyproperty or asset of such Credit Party or any such Subsidiary, whether nowowned or hereafter acquired, or any income or profits therefrom, exceptPermitted Encumbrances (including, without limitation, those Liens constitutingPermitted Encumbrances existing on the date hereof and renewals and extensionsthereof, as set forth on Schedule 3.2).

###  

### (b)                                 NoNegative Pledges.  Borrower shallnot and shall not cause or permit its Domestic Subsidiaries to directly orindirectly enter into or assume any agreement (other than the Loan Documents)prohibiting the creation or assumption of any Lien upon its properties orassets in favor of Agent or the Lenders to secure the Obligations, whether nowowned or hereafter acquired, except pursuant to (i) licenses, leases andsubleases entered into in the ordinary course of business, (ii) agreementsrelating to capital leases, purchase money indebtedness or Indebtednessrelating to Permitted Acquisitions, in each case as permitted under thisAgreement, and (iii) encumbrances or restrictions imposed pursuant toagreements entered into for the sale or disposition of capital stock or assets,to the extent such sale or disposition is not otherwise prohibited under thisAgreement.

###  

### (c)                                  NoRestrictions on Subsidiary Distributions to Borrower.  Except as provided herein, Borrower shallnot and shall not cause or permit its Subsidiaries to directly or indirectlycreate or otherwise cause or suffer to exist or become effective any consensualencumbrance or restriction of any kind on the ability of any such Subsidiaryto: (1) pay dividends or make any other distribution on any of suchSubsidiary’s Stock owned by Borrower or any other Subsidiary; (2) pay anyIndebtedness owed to Borrower or any other Subsidiary; (3) make loans oradvances to Borrower or any other Subsidiary; or (4) transfer any of itsproperty or assets to Borrower or any other Subsidiary, except pursuant to (i)non-assignment provisions of licenses, leases and subleases entered into in theordinary course of business, (ii) agreements relating to capital leases,purchase money indebtedness or Indebtedness relating to Permitted Acquisitions,in each case as permitted under this Agreement, (iii) requirements imposed byapplicable law, (iv) encumbrances or restrictions imposed pursuant toagreements entered into for the sale or disposition of capital stock or assets,to the extent such sale or disposition is not otherwise prohibited under thisAgreement, (v) any encumbrance or restriction in respect of any Subsidiarypursuant to the Loan Documents, the Senior Indenture Documents and theIntercreditor Agreement, or (vi) pursuant to any working capital Indebtednessincurred by any of the ITS Companies in accordance with the terms hereof.

 

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## 3.3                                 Investments. The Credit Parties shall not and shall not cause or permittheir Subsidiaries to directly or indirectly make or own any Investment in anyPerson except:

 

### (a)                                  Borrowerand its Subsidiaries may make and own Investments in Cash Equivalents subjectto Control Agreements in favor of Agent; provided that such CashEquivalents are not subject to setoff rights;

###  

### (b)                                 Borrowerand its Subsidiaries may make intercompany loans to other Credit Parties to theextent permitted under Section 3.1;

###  

### (c)                                  Borrowerand its Subsidiaries may make loans and advances to employees for moving,entertainment, travel and other similar expenses in the ordinary course ofbusiness not to exceed $1,000,000 in the aggregate at any time outstanding andto the extent expressly permitted by Section 3.8;

###  

### (d)                                 Borrowerand its Domestic Subsidiaries may make Investments in their wholly-ownedDomestic Subsidiaries so long as each such Subsidiary has issued a guarantee infavor of Agent for the benefit of the Lenders and granted the securityinterests as set forth in Section 2.8 hereof, and Borrower and itsDomestic Subsidiaries may make Investments in their respective ForeignSubsidiaries in an amount not to exceed $24,500,000 in the aggregate at anytime outstanding, provided that any such Investment in the form ofIndebtedness does not exceed the amounts specified and is otherwise expresslypermitted under Subsections3.1(b)(1)(iii), 3.1(b)(1)(vi)and 3.1(b)(1)(vii);

###  

### (e)                                  Borrowerand its Subsidiaries may acquire and own Investments of any Person received inconnection with the bankruptcy or reorganization of suppliers and customers andin connection with the settlement of delinquent obligations of, and disputeswith, customers and suppliers arising in the ordinary course of business, andother Investments received in respect thereof;

###  

### (f)                                    Investmentsreceived in connection with Asset Dispositions or other sales, dispositions ortransfers of property not prohibited hereunder, and other Investments receivedin respect thereof;

###  

### (g)                                 Investmentsexisting on the Restatement Effective Date and disclosed on Schedule 3.3,and other Investments received in respect thereof;

###  

### (h)                                 Investmentsof a Person that becomes a Domestic Subsidiary of Borrower following theRestatement Effective Date or is merged or consolidated with or into ortransfers all or substantially all of its assets to or is liquidated intoBorrower or any Domestic Subsidiary of Borrower, and other Investments receivedin respect thereof;

###  

### (i)                                     Investmentsmade by a Foreign Subsidiary in another Foreign Subsidiary, to the extent nototherwise prohibited hereunder;

 

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### (j)                                     Investmentsmade by Borrower or any of its Subsidiaries, with proceeds which either (i)have been contributed, directly or indirectly, to Borrower or such Subsidiaryas equity from the Existing Control Shareholders, or (ii) are Net Proceedswhich are being reinvested by Borrower or such Subsidiary in accordance withthe terms of Section 1.5(c);

###  

### (k)                                  Investmentsin the nature of pledges or deposits with respect to leases or utilitiesprovided to third parties in the ordinary course of business;

###  

### (l)                                     customaryextensions of trade credit in the ordinary course of business; and

###  

### (m)                               Investmentsother than those described in the foregoing clauses (a) through (l) in anaggregate amount not to exceed $2,000,000 at any time; and

###  

### (n)                                 Borrowermay consummate Permitted Acquisitions, including the establishment andcapitalization of wholly-owned Subsidiaries in connection therewith; providedthat the following conditions are fully satisfied:

###  

#### (i)                                     No Default or Event of Default  then exists or would result therefrom;

####  

#### (ii)                                  The total consideration paid orpayable by Borrower for Permitted Acquisitions (or related series of suchacquisitions) made by Borrower (including, without limitation all Indebtednessassumed or incurred in connection therewith and in accordance with Section 3.1hereof) during any given twelve month period shall not exceed $10,000,000individually or in the aggregate; and

####  

#### (iii)                               Borrower is able to demonstrate aminimum Borrowing Availability of $5,000,000 after giving effect to allRevolving Credit Advances to be made in connection with such PermittedAcquisition but excluding any Inventory or Accounts being acquired inconnection therewith.

####  

## 3.4                                 ContingentObligations. The Credit Parties shall not and shall not cause or permittheir Subsidiaries to directly or indirectly create or become or be liable withrespect to any Contingent Obligation except:

 

### (a)                                  Letterof Credit Obligations;

###  

### (b)                                 thoseresulting from endorsement of negotiable instruments for collection in theordinary course of business;

###  

### (c)                                  thoseexisting on the Restatement Effective Date and described in Schedule 3.4;

 

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### (d)                                 thosearising under indemnity agreements to title insurers to cause such titleinsurers to issue to Agent mortgagee title insurance policies;

###  

### (e)                                  thosearising with respect to customary indemnification obligations incurred inconnection with Asset Dispositions or Permitted Acquisitions to the extentotherwise permitted hereunder;

###  

### (f)                                    thoseincurred in the ordinary course of business with respect to surety and appealbonds, performance and return-of-money bonds and other similar obligations notexceeding at any time outstanding $1,000,000 in aggregate liability;

###  

### (g)                                 thoseincurred with respect to Indebtedness permitted by Section 3.1providedthat any such Contingent Obligation is subordinated to the Obligations to thesame extent as the Indebtedness to which it relates is subordinated to theObligations;

###  

### (h)                                 currencyor interest rate swap agreements or other similar arrangements entered into inthe ordinary course of business, so long as (i) such swap is not speculative innature, (ii) is related to income related to foreign currency or interest rateexposure of Borrower or any Subsidiary or otherwise related to purchasespermitted hereunder from foreign suppliers, or (iii) is entered into to protectBorrower or any of its Subsidiaries against fluctuations in the prices ofmaterials used in their businesses;

###  

### (i)                                     anyother Contingent Obligation not expressly permitted by clauses (a) through (h)above, so long as any such other Contingent Obligations, in the aggregate atany time outstanding, do not exceed $2,000,000; and

###  

### (j)                                     ContingentObligations of Borrower with respect to obligations of any Domestic Subsidiaryand Contingent Obligations of any Domestic Subsidiary with respect toobligations of Borrower or any other Domestic Subsidiary.

###  

## 3.5                                 RestrictedPayments. The Credit Parties shall not and shall not cause or permittheir Subsidiaries to directly or indirectly declare, order, pay, make or setapart any sum for any Restricted Payment, except that:

 

(a)                                  Wholly-ownedSubsidiaries of Borrower may make Restricted Payments to Borrower or to WhollyOwned Subsidiaries of Borrower;

 

(b)                                 Borrowermay make regularly scheduled cash interest payments and non-acceleratedprincipal installment payments pursuant to the terms of the Senior Indenture asin effect on the date hereof subject to the terms of the IntercreditorAgreement; provided that no Default or Event of Default exists at thetime of any such Restricted Payment described in this paragraph (b) or wouldoccur as a result thereof;

 

(c)                                  Borrower may make distributions or paymentsthat are used to repurchase, redeem or otherwise acquire for value any sharesof capital stock of the Borrower held by any member of the Borrower’s or a Subsidiary’smanagement pursuant to any

 

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management equity subscription agreement orstock option agreement or similar agreement, or otherwise upon their death,disability, retirement or termination of employment or departure from themanagement of the Borrower or any Subsidiary not in excess of the lesser of(i)  $2,000,000 in the aggregate in anytwelve month period, or (ii) $3,000,000 in the aggregate since the RestatementEffective Date; provided that no Default or Event of Default exists atthe time of any such Restricted Payment described in this paragraph (c) orwould occur as a result thereof; and

 

(d)                                 The Credit Parties may make RestrictedPayments constituting consideration for Permitted Acquisitions, to the extentotherwise permitted hereunder.

 

## 3.6                                 Restriction on Fundamental Changes.  TheCredit Parties shall not and shall not cause or permit their Subsidiaries todirectly or indirectly:  (a) amend,modify or waive any term or provision of its organizational documents,including its articles of incorporation, certificates of designationspertaining to preferred stock, by-laws, partnership agreement or operatingagreement unless required by law, if any such action would have a MaterialAdverse Effect; (b) enter into any transaction of merger or consolidationexcept as otherwise expressly permitted by this Agreement, upon not less thanfive (5) Business Days prior written notice to Agent, any Subsidiary ofBorrower may be merged with or into any wholly-owned direct Subsidiary ofBorrower or with Borrower (provided that Borrower or such wholly-ownedSubsidiary is the surviving entity of such merger); (c) liquidate, wind-upor dissolve itself (or suffer any liquidation or dissolution) except aSubsidiary of Borrower may liquidate wind-up or dissolve if (i) its property istransferred to Borrower or a wholly-owned Subsidiary of Borrower and (ii) theCredit Party acquiring such property complies with its obligations under Section 2.5following such transfer; (d) acquire by purchase or otherwise all or anysubstantial part of the business or assets of any other Person; or (e) amend,supplement or otherwise modify any of the Senior Indenture Documents withoutthe prior written consent of Agent.

 

## 3.7                                 Disposal of Assets or Subsidiary Stock.  TheCredit Parties shall not and shall not cause or permit their Subsidiaries todirectly or indirectly convey, sell, lease, sublease, transfer or otherwisedispose of, or grant any Person an option to acquire, in one transaction or aseries of related transactions, any of its property, business or assets,whether now owned or hereafter acquired, except for (a) dispositions ofcash and Cash Equivalents in the ordinary course of business and as otherwisepermitted hereunder, (b) sales of inventory to customers for fair value in theordinary course of business and dispositions of obsolete, worn or surplusequipment not used or useful in the business, (c) transfers between and amongBorrower and its Subsidiaries in the ordinary course of business, (d) transfersbetween Foreign Subsidiaries, and (e) Asset Dispositions by Borrower andits Subsidiaries if all of the following conditions are met:  (i) the market value of assets sold orotherwise disposed of in any single transaction or series of relatedtransactions does not exceed $3,000,000 and the aggregate market value ofassets sold or otherwise disposed of in any Fiscal Year does not exceed$6,000,000; (ii) the consideration received is at least equal to the fairmarket value of such assets; (iii) at least 70% of the total considerationreceived is in the form of cash or Cash Equivalents; (iv) the Net Proceedsof such Asset Disposition are applied as a repayment and reduction of anyoutstanding Revolving Loans to the extent required by Section 1.5(c);(v) after giving effect to the Asset Disposition and the

 

35

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repayment of Indebtedness with the proceeds thereof, Borrower is incompliance on a pro forma basis with the covenants set forth in Section 4recomputed for the most recently ended monthfor which information is available and is in compliance with all other termsand conditions of this Agreement; and (vi) no Default or Event of Defaultthen exists or would result from such Asset Disposition.  To the extent the Requisite Lenders waivepursuant to Section 9.2 the provisions of this Section 3.7with respect to the sale of any Collateral, or any Collateral is sold aspermitted by this Section 3.7, such Collateral shall be sold freeand clear of the Liens created by the Loan Documents, and the Agent shall beauthorized to take any actions deemed appropriate in order to effect theforegoing and shall, at the request and the sole expense of Borrower take anysuch actions reasonably appropriate to effect the foregoing including, withoutlimitation, filing UCC financing statements or amendments, and executingrelease instruments to terminate any Liens on such assets.

 

## 3.8                                 Transactions with Affiliates.  TheCredit Parties shall not and shall not cause or permit their Subsidiaries todirectly or indirectly enter into or permit to exist any transaction (includingthe purchase, sale, lease or exchange of any property or the rendering of anymanagement, consulting, investment banking, advisory or other similar services)with any Affiliate or with any director, officer or employee of any CreditParty, except (a) as set forth on Schedule 3.8,(b) transactions in the ordinary course of and pursuant to the reasonablerequirements of the business of any such Credit Party or any of itsSubsidiaries and upon fair and reasonable terms which are fully disclosed toAgent and are no less favorable to any such Credit Party or any of itsSubsidiaries than would be obtained in a comparable arm’s length transactionwith a Person that is not an Affiliate, (c) payment of reasonablecompensation to officers and employees for services actually rendered to anysuch Credit Party or any of its Subsidiaries and (d) payment of fees andindemnities for, and any other arrangements in respect of directors that arecustomary and reasonable for similarly situated companies as such Credit Party,(e) transactions between or among Borrower and wholly-owned DomesticSubsidiaries, and (f) other transactions expressly permitted by this Agreement.

 

## 3.9                                 Conductof Business. The Credit Parties shall not and shall not cause or permittheir Subsidiaries to directly or indirectly engage in any business other thanbusinesses of the type described on Schedule 3.9, and such otherbusinesses as are reasonably related thereto.

 

## 3.10                           Changes Relating to Indebtedness.  TheCredit Parties shall not and shall not cause or permit their Subsidiaries todirectly or indirectly change or amend the terms of any of its Indebtednesspermitted by Section 3.1 if the effect of such amendment is to:(a) increase the interest rate on such Indebtedness by more than 2.0% perannum; (b) change the dates upon which payments of principal or interestare due on or principal amount of such Indebtedness in a manner materiallyadverse to any Credit Party; (c) change any event of default in a mannermade more restrictive or add or make more restrictive any covenant with respectto such Indebtedness; (d) change the redemption or prepayment provisionsof such Indebtedness in a manner materially adverse to any Credit Party;(e) change the subordination provisions thereof (or the subordinationterms of any guaranty thereof); or (f) change or amend any other term ifsuch change or amendment would materially increase the obligations of theobligor or confer additional material

 

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rights on the holder of such Indebtedness in a manner materiallyadverse to any Credit Party or Lenders.

 

## 3.11                           FiscalYear. No Credit Party shall change its Fiscal Year or permit anyof its Subsidiaries to change their respective fiscal years without givingAgent at least thirty (30) days prior written notice thereof.

 

## 3.12                           Press Release; Public Offering Materials. Each Credit Party executing this Agreement agrees thatneither it nor its Affiliates will in the future issue any press releases orother public disclosure, including any prospectus, proxy statement or othermaterials filed with any Governmental Authority relating to a public offeringof the Stock of any Credit Party, using the name of GE Capital or itsaffiliates or referring to this Agreement, the other Loan Documents or theRelated Transactions Documents without at least two (2) Business Days’ priornotice to GE Capital and without the prior written consent of GE Capital unless(and only to the extent that) such Credit Party or Affiliate is required to doso under law and then, in any event, such Credit Party or Affiliate willconsult with GE Capital before issuing such press release or other publicdisclosure.  Each Credit Party consentsto the publication by Agent or any Lender of a tombstone or similar advertisingmaterial relating to the financing transactions contemplated by this Agreement.  Agent or such Lender shall provide a draftof any such tombstone or similar advertising material to each Credit Party forreview and comment prior to the publication thereof.  Agent reserves the right to provide to industry tradeorganizations information necessary and customary for inclusion in league tablemeasurements.

 

## 3.13                           Subsidiaries. The Credit Parties shall not and shall not cause or permittheir Subsidiaries to directly or indirectly establish, create or acquire anynew Foreign Subsidiary, except as and to the extent expressly permitted under Section 3.3.

 

## 3.14                           BankAccounts. The Credit Parties shall not and shall not cause or permittheir Domestic Subsidiaries to establish any new bank accounts without priorwritten notice to Agent and unless Agent and the bank at which the account isto be opened enter into a tri-party agreement regarding such bank account inaccordance with the requirements of the Security Agreement and pursuant towhich, among other things, such bank acknowledges the security interest ofAgent in such bank account, agrees to comply with instructions originated byAgent directing disposition of the funds in the bank account without furtherconsent from Borrower or such Domestic Subsidiary, and agrees to subordinateand limit any security interest the bank may have in the bank account on termssatisfactory to Agent.  All amounts heldor deposited in any bank account controlled by Borrower or a DomesticSubsidiary of Borrower (other than amounts transferred to Borrower’s operatingaccount and/or payroll account to fund anticipated draws against such accounts)shall be automatically transferred, on a daily basis, to a depository account(the “Agent’s Account”) established and maintained by Agent at afinancial institution designated by Agent. If no Revolving Loans are then outstanding and no other Obligations arethen due and payable, Agent shall cause any funds remaining in Agent’s Accountto be immediately transferred to Borrower’s operating account for use byBorrower in accordance with the terms of this Agreement and the other LoanDocuments.

 

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## 3.15                           Hazardous Materials.  The Credit Parties shall not and shall not cause or permit theirSubsidiaries to cause or permit a Release of any Hazardous Material on, at, in,under, above, to, from or about any of the Real Estate where such Release would(a) violate in any respect, or form the basis for any EnvironmentalLiabilities by the Credit Parties or any of their Subsidiaries under, anyEnvironmental Laws or Environmental Permits or (b) otherwise adverselyimpact the value or marketability of any of the Real Estate or any of theCollateral, other than such violations or Environmental Liabilities that couldnot reasonably be expected to have a Material Adverse Effect.

 

## 3.16                           ERISA.  The CreditParties shall not and shall not cause or permit any ERISA Affiliate to, causeor permit to occur an ERISA Event to the extent such ERISA Event couldreasonably be expected to have a Material Adverse Effect.

 

## 3.17                           ITS Company Restrictions.  Borrower will not at any time permit (i)Cherokee Netherlands I B.V. to engage in any line of business or conduct anybusiness operations other than acting as a single purpose holding company ofthe stock of Cherokee Netherlands II B.V., nor permit Cherokee Netherlands IB.V. to have any Indebtedness or any creditor other than Indebtedness owing tothe Borrower in accordance with the terms hereof which is subject to theTri-Party Agreement Re: Payment Procedures, and (ii) Cherokee Netherlands IIB.V. to engage in any line of business or conduct any business operations otherthan acting as a single purpose holding company of the stock of Cherokee EuropeSCA and/or Cherokee Europe SPRL, nor permit Cherokee Netherlands II B.V. tohave any Indebtedness or any creditor other than Indebtedness owing to theCherokee Netherlands I B.V. in accordance with the terms hereof.  The Borrower will not permit the ITSCompanies to form or permit to exist any Subsidiary other than those inexistence on the Restatement Effective Date and as disclosed to the Banks priorto such date.  Subject to the provisionsof the immediately following sentence, the Borrower will at all times maintainownership of 100% of the capital stock of Cherokee Netherlands I B.V.  Notwithstanding anything in this Agreementto the contrary, Borrower shall be permitted to dissolve any of CherokeeNetherlands I B.V. or Cherokee Netherlands II B.V. or otherwise engage in acorporate restructuring involving such Persons for purposes of achieving taxefficiencies or otherwise simplifying the organizational structure of the ITSCompanies, so long as (A) Agent receives not less than ten (10) Business Day’sprior written of such restructuring and consents thereto in writing (whichconsent shall not be unreasonably withheld, it being understood that a failureto satisfy the following condition “B” shall not be deemed unreasonable groundsfor such objection), (B) and Agent’s Collateral (and the Liens with respectthereto) is not jeopardized, impaired, compromised or otherwise diminished inany material manner.

 

**SECTION 4.FINANCIAL COVENANTS/REPORTING**

 

Borrower covenants and agrees that from and after the date hereof untilthe Termination Date, Borrower shall perform and comply with, and shall causeeach of the other Credit Parties to perform and comply with, all covenants inthis Section 4 applicable to such Person.

 

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## 4.1                                 [Reserved].

##  

## 4.2                                 [Reserved].

##  

## 4.3                                 [Reserved].

##  

## 4.4                                 [Reserved].

##  

## 4.5                                 [Reserved].

##  

## 4.6                                 [Reserved].

##  

## 4.7                                 Maximum Senior Leverage Ratio.  Borrower and its Subsidiaries on a consolidatedbasis shall have, at the end of each Fiscal Quarter, a Senior Leverage Ratiocalculated as of the last day of any such Fiscal Quarter for the trailingtwelve month period then ended, equal to or less than 2.00 to 1.00.  Senior Leverage Ratio shall be calculated asset forth in the Compliance Certificate.

 

## 4.8                                 [Reserved].

##  

## 4.9                                 Financial Statements and Other Reports.  Borrower will maintain, and cause each ofits Subsidiaries to maintain, a system of accounting established andadministered in accordance with sound business practices to permit preparationof Financial Statements in conformity with GAAP (it being understood thatmonthly Financial Statements are not required to have footnotedisclosures).  Borrower will delivereach of the Financial Statements and other reports described below to Agent(and each Lender in the case of the Financial Statements and other reportsdescribed in Sections (4.9)(a), (b), (d), (f), (g),(h), and (k)).

 

### (a)                                  MonthlyFinancials.  As soon as availableand in any event within thirty (30) days after the end of each month (includingthe last month of Borrower’s Fiscal Year), Borrower will deliver (1) theconsolidated and consolidatingbalance sheet of Borrower****andits Subsidiaries, as at the end of such month, and the related consolidated and consolidating statements ofincome, stockholders’ equity and cash flow for such month and for the periodfrom the beginning of the then current Fiscal Year of Borrower to the end of such month, and (2) a report settingforth in comparative form the corresponding figures for the correspondingperiods of the previous Fiscal Year and the corresponding figures from the mostrecent Projections for the current Fiscal Year delivered pursuant to Section 4.9(f).

###  

### (b)                                 Year-EndFinancials.  As soon as availableand in any event within one hundred twenty (120) days after the end of eachFiscal Year of Borrower, Borrower will deliver (1) the consolidated and consolidating balance sheet of Borrower and its Subsidiaries, as atthe end of such year, and the related consolidated and consolidating****statements of income, stockholders’ equityand cash flow for such Fiscal Year, (2) a schedule of the outstandingIndebtedness for borrowed money of Borrowerand its Subsidiaries describing in reasonable detail each such debt issue orloan outstanding and the principal amount and amount of accrued and unpaidinterest with respect to each such debt issue or loan and (3) a reportwith respect to the consolidated Financial Statements

 

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### from a firm of CertifiedPublic Accountants selected by Borrower and reasonably acceptable to Agent,which report shall be prepared in accordance with Statement of AuditingStandards No. 58 (the “Statement”) “Reports on Audited FinancialStatements” and such report shall be “Unqualified” (as such term is defined insuch Statement).

###  

### (c)                                  Accountants’Reports.  Promptly upon receiptthereof, Borrower will deliver copies of all significant reports submitted byBorrower’s firm of certified public accountants in connection with each annual,interim or special audit or review of any type of the Financial Statements orrelated internal control systems of Borroweror its Subsidiaries****made by such accountants, including anycomment letter submitted by such accountants to management in connection withtheir services.

###  

### (d)                                 AdditionalDeliveries.

###  

#### (i)                                     To Agent, noon Chicago time fifteen(15) Business Days after the end of each Fiscal Month (together with a copy ofany of the following reports requested by any Lender in writing after theRestatement Effective Date), each of the following reports, each of which shallbe prepared by Borrower as of the last day of the immediately preceding FiscalMonth or the date two (2) days prior to the date of any such request:

####  

(A)                              aBorrowing Base Certificate with respect to Borrower, accompanied by suchsupporting detail and documentation as shall be requested by Agent in itsreasonable discretion (in substantially the same form as Exhibit 4.9(d),the “Borrowing Base Certificate”) as at the last day of such period;

 

(B)                                withrespect to Borrower, a summary of Inventory by location and type with asupporting perpetual Inventory report, in each case accompanied by suchsupporting detail and documentation as shall be requested by Agent in itsreasonable discretion; and

 

(C)                                withrespect to Borrower, a monthly trial balance showing Accounts outstanding agedfrom invoice date as follows:  1 to 30days, 31 to 60 days, 61 to 90 days and 91 days or more, accompanied by such supportingdetail and documentation as shall be requested by Agent in its reasonablediscretion.

 

#### (ii)                                  To Agent, at all times during whichBorrower’s Borrowing Availability is less than the greater of (x) $5,000,000and (y) 33 percent of the then current Borrowing Base, on a weekly basis or atsuch more frequent intervals as Agent may request from time to time (togetherwith a copy of all or any part of such delivery requested by any Lender inwriting after the Restatement Effective Date), collateral reports with respectto Borrower, including all additions and reductions (cash and non-cash) withrespect to Accounts of Borrower, in each case accompanied by such supportingdetail and documentation as shall be requested by Agent in its reasonablediscretion, each of which shall be prepared

 

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#### by Borrower as of the last day of the immediately precedingweek or the date two (2) days prior to the date of any request;

####  

#### (iii)                               To Agent, at the time of delivery ofeach of the monthly Financial Statements delivered pursuant to this Section 4.9:

 

(A)                              areconciliation of the most recent Borrowing Base, general ledger and month-endInventory reports of Borrower to Borrower’s general ledger and monthlyFinancial Statements delivered pursuant to this Section 4.9, ineach case accompanied by such supporting detail and documentation as shall berequested by Agent in its reasonable discretion;

 

(B)                                areconciliation of the perpetual inventory by location to Borrower’s most recentBorrowing Base Certificate, general ledger and monthly Financial Statementsdelivered pursuant to this Section 4.9, in each case accompanied bysuch supporting detail and documentation as shall be requested by Agent in itsreasonable discretion;

 

(C)                                anaging of accounts payable and a reconciliation of that accounts payable agingto Borrower’s general ledger and monthly Financial Statements deliveredpursuant to this Section 4.9, in each case accompanied by suchsupporting detail and documentation as shall be requested by Agent in itsreasonable discretion;

 

(D)                               areconciliation of the outstanding Loans as set forth in the monthly LoanAccount statement provided by Agent to Borrower’s general ledger and monthlyFinancial Statements delivered pursuant to this Section 4.9, ineach case accompanied by such supporting detail and documentation as shall berequested by Agent in its reasonable discretion;

 

#### (iv)                              To Agent, at the time of delivery ofeach of the annual Financial Statements delivered pursuant to Section 4.9,(i) a listing of government contracts of Borrower or any Domestic Subsidiary in excess of $250,000 subject to theFederal Assignment of Claims Act of 1940; and (ii) a list of any applicationsfor the registration of any Patent, Trademark or Copyright filed by any CreditParty with the United States Patent and Trademark Office, the United StatesCopyright Office or any similar office or agency in the prior Fiscal Quarter.

####  

### (e)                                  Appraisals;Inspections.

###  

#### (i)                                     From time to time, if Agent or anyLender reasonably determines that obtaining appraisals is necessary in orderfor Agent or such Lender to comply with applicable laws or regulations, Agentwill, at Borrower’s expense, obtain appraisal reports in form and substance andfrom appraisers satisfactory to Agent stating the then current fair marketvalues of all or any portion of the Real Estate owned by Credit Parties.  In addition to the foregoing, at Borrower’sexpense, at

 

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#### any time while and so long as an Event of Default shall haveoccurred and be continuing, and in the absence of an Event of Default at anytime in which the outstanding amount of Revolving Loans is equal to or greaterthan the lesser of (x) $5,000,000 and (y) 33 percent of the then currentBorrowing Base for ten consecutive days, Agent may obtain appraisal reports inform and substance and from appraisers reasonably satisfactory to Agent statingthe then current market values of all or any portion of the Real Estate andpersonal property owned by any of the Credit Parties; provided, however,that, absent an Event of Default, no such appraisals may be obtained within theone year period following the date of the last such appraisal.

####  

#### (ii)                                  Borrower, at its own expense, shalldeliver to Agent the results of each physical verification, if any, thatBorrower or any of its Subsidiaries may in their discretion have made, orcaused any other Person to have made on their behalf, of all or any portion oftheir Inventory (and, if a Default or an Event of Default has occurred and iscontinuing, Borrower shall, upon the request of Agent, conduct, and deliver theresults of, such physical verifications as Agent may require).

####  

### (f)                                    OtherReports.

###  

#### (i)                                     Projections. As soon as availableand in any event no later than the last day of each of Borrower’s Fiscal Years,Borrower will deliver Projections of Borrowerand its Subsidiaries for the forthcoming three (3) Fiscal Years, year by year,and for the forthcoming Fiscal Year, month by month.

####  

#### (ii)                                  Management Report.  At the required time of delivery to theSecurities and Exchange Commission for Borrower’s Form 10Q reports, Borrowerwill deliver a management report (1) describing the operations and financialcondition of Borrower and its Subsidiaries for the month then ended and theportion of the current Fiscal Year then elapsed (or for the fiscal year thenended in the case of year-end financials), (2) setting forth in comparativeform the corresponding figures for the corresponding periods of the previous FiscalYear and the corresponding figures from the most recent Projections for thecurrent Fiscal Year delivered pursuant to subsection 4.6(J) and (3)discussing the reasons for any significant variations.  The information above shall be presented inreasonable detail and shall be certified by the chief financial officer ofBorrower to the effect that such information fairly presents the results ofoperations and financial condition of Borrower and its Subsidiaries as at thedates and for the periods indicated.  Such information may be provided in the form of SEC Forms 10Q and 10Kreports.

####  

#### (iii)                               Collateral Value Report.  At any time while and so long as an Event ofDefault shall have occurred and be continuing, and in the absence of an Eventof Default at any time in which the outstanding amount of Revolving Loans

 

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#### is equal to or greater than the lesser of (x) $5,000,000 and(y) 33 percent of the then current Borrowing Base for ten consecutive days,Agent may obtain collateral value reports, at Borrower’s expense and in formand substance reasonably satisfactory to Agent, from an independent collateralauditor satisfactory to Agent (which may be, or be affiliated with, a Lender)with respect to the accounts and inventory components included in the BorrowingBase, which report shall indicate whether or not the information set forth inthe Borrowing Base Certificate most recently delivered is accurate and completein all material respects based upon a review by such auditors of the accounts(including verification with respect to the amount, aging, identity and creditof the respective account debtors and the billing practices of Borrower) andinventory (including verification as to the value, location and respectivetypes); provided, however, that, absent an Event of Default, no suchreports may be obtained within the one year period following the date of thelast such report.

####  

### (g)                                 SECFilings and Press Releases. Promptly upon their becoming available, Borrower will deliver copies of(1) all Financial Statements, reports, notices and proxy statements sentor made available by Borrower or any of itsSubsidiaries to itsStockholders, (2) all regular and periodic reports and all registrationstatements and prospectuses, if any, filed by Borrower or any of its****Subsidiaries with anysecurities exchange or with the Securities and Exchange Commission, and(3) all press releases and other statements made available by Borrower orany of its Subsidiaries to thepublic concerning developments in the business of any such Person.

###  

### (h)                                 Eventsof Default, Etc.  Promptly upon anyofficer of any Credit Party obtaining knowledge of any of the following eventsor conditions, Borrower shall deliver copies of all notices given or receivedby Borrower or any of itsSubsidiaries with respect to any such event or condition and a certificate ofBorrower’s chief executive officer specifying the nature and period ofexistence of such event or condition and what action Borrower or any of its Subsidiaries has taken, is takingand proposes to take with respect thereto: (1) any condition or event that constitutes an Event of Default orDefault; (2) any notice that any Person has given to Borrower or any ofits Subsidiaries or any other action taken with respect to a claimed default orevent or condition of the type referred to in Section 6.1(b);(3) any event or condition that could reasonably be expected to result inany Material Adverse Effect; or (4) any default or event of default withrespect to any Indebtedness in excess of $1,000,000 of Borrower or any of itsSubsidiaries.

###  

### (i)                                     Litigation.  Promptly upon any officer of any CreditParty obtaining knowledge of (1) the institution of any action, charge,claim, demand, suit, proceeding, petition, governmental investigation, taxaudit or arbitration now pending or, to the best knowledge of such Credit Partyafter due inquiry, threatened against or affecting any Credit Party or any ofits Subsidiaries or any property of any Credit Party or any of its Subsidiaries(“Litigation”) not previously disclosed by Borrower to Agent or(2) any material development in any action, suit, proceeding, governmentalinvestigation or

 

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### arbitration at any timepending against or affecting any Credit Party or any property of any CreditParty which, in each case, could reasonably be expected to have a MaterialAdverse Effect, Borrower will promptly give notice thereof to Agent and providesuch other information as may be reasonably available to them to enable Agentand its counsel to evaluate such matter to the extent such disclosure will notviolate any applicable law or order or attorney-client privilege.

###  

### (j)                                     Noticeof Corporate and other Changes. Borrower shall provide prompt written notice of (1) alljurisdictions in which a Credit Party becomes qualified after the RestatementEffective Date to transact business, (2) any change after the RestatementEffective Date in the authorized and issued Stock of any Credit Party or anySubsidiary of any Credit Party or any amendment to their articles orcertificate of incorporation, by-laws, partnership agreement or otherorganizational documents, (3) any Subsidiary created or acquired by anyCredit Party or any of its Subsidiaries after the Restatement Effective Date,such notice, in each case, to identify the applicable jurisdictions, capitalstructures or Subsidiaries, as applicable, and (4) any other event thatoccurs after the Restatement Effective Date which would cause any of therepresentations and warranties in Section 5 of this Agreement or inany other Loan Document to be untrue or misleading in any materialrespect.  The foregoing noticerequirement shall not be construed to constitute consent by any of the Lendersto any transaction referred to above which is not expressly permitted by theterms of this Agreement.

###  

### (k)                                  ComplianceCertificate.  Together with eachdelivery of Financial Statements of Borrowerand its Subsidiaries pursuant to Sections 4.9(a) and (b), Borrowerwill deliver a fully and properly completed Compliance Certificate (insubstantially the same form as Exhibit 4.9(k) (the “ComplianceCertificate”) signed by Borrower’s chief executive officer or chieffinancial officer.

###  

### (l)                                     Customer Concentration.  Borrowershall provide prompt written notice if the Accounts of any customer exceed inthe aggregate an amount equal to thirty percent (30%) of the aggregate of allAccounts of Borrower and its Domestic Subsidiaries at any time.

###  

### (m)                               Reserved.

###  

### (n)                                 OtherInformation.  With reasonablepromptness, Borrower will deliver such other information and data with respectto any Credit Party or any Subsidiary of any Credit Party as from time to timemay be reasonably requested by Agent.

###  

### (o)                                 Taxes.  Borrower shall provide prompt written noticeof (i) the execution or filing with the IRS or any other Governmental Authorityof any agreement or other document extending, or having the effect ofextending, the period for assessment or collection of any Charges by any CreditParty or any of its Subsidiaries and (ii) any agreement by any Credit Party orany of its Subsidiaries or request directed to any Credit Party or any of itsSubsidiaries to make any adjustment under IRC Section 481(a), by

 

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### reason of a change inaccounting method or otherwise, in each case which could reasonably be expectedto have a Material Adverse Effect.

###  

## 4.10                           Accounting Terms; Utilization of GAAP forPurposes of Calculations Under Agreement. For purposes of this Agreement, all accounting terms not otherwisedefined herein shall have the meanings assigned to such terms in conformitywith GAAP.  Financial statements andother information furnished to Agent pursuant to Section 4.9 or anyother section (unless specifically indicated otherwise) shall be preparedin accordance with GAAP as in effect at the time of such preparation; providedthat no Accounting Change shall affect financial covenants, standards or termsin this Agreement; provided further that Borrower shall preparefootnotes to the Financial Statements required to be delivered hereunder thatshow the differences between the Financial Statements delivered (which reflectsuch Accounting Changes) and the basis for calculating financial covenant compliance(without reflecting such Accounting Changes). All such adjustments described inclause (c) of the definition of the term Accounting Changes resulting fromexpenditures made subsequent to the Restatement Effective Date (includingcapitalization of costs and expenses or payment of pre-Restatement EffectiveDate liabilities) shall be treated as expenses in the period the expendituresare made.

** **

**SECTION 5.REPRESENTATIONS AND WARRANTIES**

 

To induce Agent and Lenders to enter into the Loan Documents, to makeLoans and to issue or cause to be issued Letters of Credit, Borrowerrepresents, warrants and covenants to Agent and each Lender that the followingstatements are and, after giving effect to the Related Transactions, willremain true, correct and complete, in all material respects, until theTermination Date with respect to all Credit Parties:

 

## 5.1                                 Disclosure. No representation or warranty of any Credit Party contained in thisAgreement, the Financial Statements referred to in Section 5.5, theother Related Transactions Documents or any other document, certificate orwritten statement furnished to Agent or any Lender by or on behalf of any suchPerson for use in connection with the Loan Documents or the RelatedTransactions Documents contains any untrue statement of a material fact oromitted, omits or will omit to state a material fact necessary in order to makethe statements contained herein or therein not misleading in light of thecircumstances in which the same were made.

 

## 5.2                                 No Material Adverse Effect.  Since September 30, 2003 there havebeen no events or changes in facts or circumstances affecting any Credit Partyor any of its Subsidiaries which individually or in the aggregate have had orcould reasonably be expected to have a Material Adverse Effect and that havenot been disclosed herein or in the attached Disclosure Schedules.

 

## 5.3                                 No Conflict. The consummation of the Related Transactions does not and will notviolate or conflict with any laws, rules, regulations or orders of any GovernmentalAuthority or violate, conflict with, result in a breach of, or constitute adefault (with due notice or lapse of time or both) under any ContractualObligation or organizational documents of any Credit Party or any of itsSubsidiaries except, in each case, if such violations, conflicts, breaches ordefaults

 

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could not reasonably be expected to have, either individually or in theaggregate, a Material Adverse Effect.

 

## 5.4                                 Organization, Powers, Capitalization and GoodStanding.

##  

### (a)                                  Organizationand Powers.  Each of the CreditParties and each of their Subsidiaries is duly organized, validly existing andin good standing under the laws of its jurisdiction of organization andqualified to do business in all states where such qualification is requiredexcept where failure to be so qualified could not reasonably be expected tohave a Material Adverse Effect.  Thejurisdiction of organization and all jurisdictions in which each Credit Partyis qualified to do business are set forth on Schedule 5.4(a).  Each of the Credit Parties and each of theirSubsidiaries has all requisite organizational power and authority to own and operate its properties, to carry on itsbusiness as now conducted and proposed to be conducted, to enter into eachRelated Transactions Document to which it is a party and to incur theObligations, grant liens and security interests in the Collateral and carry outthe Related Transactions.

###  

### (b)                                 Capitalization.  As of the Restatement Effective Date:  (i) the authorized Stock of each of theCredit Parties and each of their Subsidiaries is as set forth on Schedule 5.4(b);(ii) all issued and outstanding Stock of each of the Credit Parties andeach of their Subsidiaries is duly authorized and validly issued, fully paid,nonassessable, free and clear of all Liens, other than those in favor of Agentfor the benefit of Agent and Lenders, and those pursuant to the SeniorIndenture Documents, and such Stock was issued in compliance with all applicablestate, federal and foreign laws concerning the issuance of securities;(iii) the identity of the holders of the Stock of each of the CreditParties (other than public shareholders of Borrower not consisting of ExistingControl Shareholders) and each of their Subsidiaries and the percentage oftheir fully-diluted ownership of the Stock of each of such Credit Parties andeach of their Subsidiaries is set forth on Schedule 5.4(b); and(iv) no Stock of any Credit Party (other than Borrower) or any of theirSubsidiaries, other than those described above, are issued andoutstanding.  Except as provided in Schedule 5.4(b),as of the Restatement Effective Date, there are no preemptive or otheroutstanding rights, options, warrants, conversion rights or similar agreementsor understandings for the purchase or acquisition from any Credit Party (otherthan Borrower) or any of their Subsidiaries of any Stock of any such entity.

###  

### (c)                                  BindingObligation.  This Agreement is, andthe other Related Transactions Documents when executed and delivered will be,the legally valid and binding obligations of the applicable parties thereto,each enforceable against each of such parties, as applicable, in accordancewith their respective terms, except as limited by bankruptcy, insolvency orother laws of general application relating to the enforcement of creditors’rights and general principles of equity.

###  

## 5.5                                 Financial Statements and Projections.  All Financial Statements concerning Borrowerand its Subsidiaries which havebeen or will hereafter be furnished to Agent pursuant to this Agreement,including the consolidated balance sheets at December 31, 2003 and the

 

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related statement of income of Borrower and its Subsidiaries for the FiscalYear then ended, audited by Deloitte & Touche LLP, have been or will beprepared in accordance with GAAP consistently applied (except as disclosedtherein) and do or will present fairly the financial condition of the entitiescovered thereby as at the dates thereof and the results of their operations forthe periods then ended, subject to, in the case of un-audited FinancialStatements, the absence of footnotes and normal year-end adjustments.  The Projections delivered on or prior to theRestatement Effective Date and the updated Projections delivered pursuant to Section 4.9represent and will represent as of the date thereof the good faith estimate ofBorrower and its senior management concerning the most probable course of itsbusiness based on assumptions believed to be reasonable at the time made (itbeing understood that the Projections are subject to significant uncertaintiesand contingencies, many of which are beyond the control of the Credit Parties,and that no assurance can be given that the Projections will be realized).

 

## 5.6                                 Intellectual Property.  Each of the Credit Parties and itsSubsidiaries owns, is licensed to use or otherwise has the right to use, allIntellectual Property used in or necessary for the conduct of its business ascurrently conducted that is material to the condition (financial or other),business or operations of such Credit Party and its Domestic Subsidiaries andall such Intellectual Property owned or licensed by Borrower or any of itsDomestic Subsidiaries is identified on Schedule 5.6 and duly andproperly registered, filed or issued in the appropriate office andjurisdictions for such registrations, filings or issuances.  Except as disclosed in Schedule 5.6,the use of such Intellectual Property by Borrower and its Domestic Subsidiariesand the conduct of their businesses does not and, to the knowledge of Borrowerhas not been alleged by any Person to infringe on the rights of any Person.

 

## 5.7                                 Investigations, Audits, Etc.  As of the Restatement Effective Date, exceptas set forth on Schedule 5.7, no Credit Party or any of theirSubsidiaries is the subject of any review or audit by the IRS or anygovernmental investigation concerning the violation or possible violation ofany law.

 

## 5.8                                 Employee Matters.  Except as set forth on Schedule 5.8, (a) noCredit Party or Subsidiary of a Credit Party nor any of their respectiveemployees is subject to any collective bargaining agreement, (b) nopetition for certification or union election is pending with respect to theemployees of any Credit Party or any of their Subsidiaries and no union orcollective bargaining unit has sought such certification or recognition withrespect to the employees of any Credit Party or any of their Subsidiaries,(c) there are no strikes, slowdowns, work stoppages or controversiespending or, to the best knowledge of any Credit Party after due inquiry,threatened between any Credit Party or any of their Subsidiaries and itsrespective employees, other than employee grievances arising in the ordinary courseof business which could not reasonably be expected to have, either individuallyor in the aggregate, a Material Adverse Effect and (d) hours worked by andpayment made to employees of each Credit Party and each of their Subsidiariescomply with the Fair Labor Standards Act and each other federal, state, localor foreign law applicable to such matters. Except as set forth on Schedule 5.8, neither Borrower norany of its Subsidiaries is party to an employment contract.

 

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## 5.9                                 Solvency. After giving effect to the Related Transactions, the Credit Parties,taken as a whole, are Solvent.

##  

## 5.10                           Litigation; Adverse Facts.

##  

Except as set forth on Schedule 5.10, there are nojudgments outstanding against any Credit Party or any of its Subsidiaries oraffecting any property of any Credit Party or to any of its Subsidiaries, noris there any Litigation pending, or to the best knowledge of any Credit Partythreatened, against any Credit Party or any of its Subsidiaries which couldreasonably be expected to result in any Material Adverse Effect.

 

## 5.11                           Use of Proceeds; Margin Regulations.  No part of the proceeds of any Loan will beused for “buying” or “carrying” “margin stock” within the respective meaningsof such terms under Regulation U of the Board of Governors of the FederalReserve System as now and from time to time hereafter in effect or for anyother purpose that violates the provisions of the regulations of the Board ofGovernors of the Federal Reserve System. If requested by Agent, each Credit Party will furnish to Agent and eachLender a statement to the foregoing effect in conformity with the requirementsof FR Form G-3 or FR Form 0-1, as applicable, referred to in Regulation U.

 

### (a)                                  Borrowershall utilize the proceeds of the Loans solely for the financing of Borrower’sordinary working capital and general corporate needs. Schedule 5.11contains a description of Borrower’s sources and uses of funds as of theRestatement Effective Date, including Loans and Letter of Credit Obligations tobe made or incurred on that date, and a funds flow memorandum detailing howfunds from each source are to be transferred for particular uses.

###  

## 5.12                           Ownership of Property; Liens.  As of the Restatement Effective Date, the realestate (“Real Estate”) listed in Schedule 5.12 constitutesall of the real property owned, leased, subleased, or used by Borrower or anyof its Domestic Subsidiaries.  Each ofBorrower and each of its Domestic Subsidiaries owns good and marketable fee simpletitle to all of its owned Real Estate, and valid and marketable leaseholdinterests in all of its material leased Real Estate, all as described on Schedule 5.12,and copies of all such leases or a summary of terms thereof reasonablysatisfactory to Agent have been delivered to Agent.  Schedule 5.12 further describes any Real Estate withrespect to which Borrower or any of its Domestic Subsidiaries is a lessor,sublessor or assignor as of the Restatement Effective Date.  Borrower and each of its DomesticSubsidiaries also has good and marketable title to, or valid leaseholdinterests in, all of its personal property and assets that are material to itsbusiness.  As of the RestatementEffective Date, none of the properties and assets of Borrower or any of itsDomestic Subsidiaries are subject to any Liens other than PermittedEncumbrances, and there are no facts, circumstances or conditions known toBorrower that may result in any Liens (including Liens arising underEnvironmental Laws) other than Permitted Encumbrances against the properties orassets of Borrower or any of its Domestic Subsidiaries.  Borrower and each of its DomesticSubsidiaries has received all deeds, assignments, waivers, consents,non-disturbance and attornment or similar agreements, bills of sale and otherdocuments, and has duly effected all recordings, filings and other actionsnecessary to establish, protect and perfect such Person’s right, title andinterest in and to all such Real Estate and other properties and assets.  As of the Restatement Effective Date, noportion of Borrower’s or any of its Domestic Subsidiaries’ Real Estate has

 

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suffered any material damage by fire or other casualty loss that hasnot heretofore been repaired and restored in all material respects to itsoriginal condition or otherwise remedied.

 

## 5.13                           Environmental Matters.

##  

### (a)                                  Exceptas set forth in Schedule 5.13, as of the Restatement EffectiveDate: (i)  the Real Estate is free of contamination from any HazardousMaterial except for such contamination that could not reasonably be expected toresult in a Material Adverse Effect; (ii) no Credit Party and noSubsidiary of a Credit Party has caused or suffered to occur any Release ofHazardous Materials on, at, in, under, above, to, from or about any of theirReal Estate except for such Release that could not reasonably be expected toresult in a Material Adverse Effect; (iii) the Credit Parties and theirSubsidiaries are and have been in compliance with all Environmental Laws,except for such noncompliance that could not reasonably be expected to resultin Environmental Liabilities of the Credit Parties or their Subsidiaries whichwould result in a Material Adverse Effect; (iv) the Credit Parties and theirSubsidiaries have obtained, and are in compliance with, all EnvironmentalPermits required by Environmental Laws for the operations of their respectivebusinesses as presently conducted or as proposed to be conducted, except wherethe failure to so obtain or comply with such Environmental Permits could notreasonably be expected to result in Environmental Liabilities of the CreditParties or their Subsidiaries which would result in a Material Adverse Effect;(v) no Credit Party and no Subsidiary of a Credit Party is involved inoperations or knows of any facts, circumstances or conditions, including anyReleases of Hazardous Materials, that are likely to result in any EnvironmentalLiabilities of such Credit Party or Subsidiary which could reasonably be expectedresult in a Material Adverse Effect, and no Credit Party or Subsidiary of aCredit Party has permitted any current or former tenant or occupant of the RealEstate to engage in any such operations; (vi) there is no Litigationarising under or related to any Environmental Laws, Environmental Permits orHazardous Material that could reasonably be expected to result in a MaterialAdverse Effect or injunctive relief against, or that alleges criminalmisconduct by any Credit Party or any Subsidiary of a Credit Party;(vii) no notice has been received by any Credit Party or any Subsidiary ofa Credit Party identifying any of them as a “potentially responsible party” orrequesting information under CERCLA or analogous state statutes, and to theknowledge of the Credit Parties, there are no facts, circumstances orconditions that may result in any of the Credit Parties or their Subsidiariesbeing identified as a “potentially responsible party” under CERCLA or analogousstate statutes; and (viii) the Credit Parties have provided to Agentcopies of all existing environmental reports, reviews and audits and allwritten information pertaining to actual or potential EnvironmentalLiabilities, in each case relating to any of the Credit Parties or theirSubsidiaries.

###  

### (b)                                 EachCredit Party hereby acknowledges and agrees that Agent (i) is not now, andhas not ever been, in control of any of the Real Estate or affairs of suchCredit Party or its Subsidiaries , and (ii) does not have the capacitythrough the provisions of the Loan Documents or otherwise to influence anyCredit Party’s or its Subsidiaries’ conduct

 

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### with respect to theownership, operation or management of any of their Real Estate or compliancewith Environmental Laws or Environmental Permits.

###  

## 5.14                           ERISA.

##  

### (a)                                  Schedule 5.14lists any Plan (i) subject to Title IV of ERISA or the funding requirements ofSection 412 of the Code; (ii) which is a Multiemployer Plan; (iii) whichis an ESOP or (iv) which provides post-retirement or post-employment “welfaretype” benefits other than continuation coverage required by Section 4980Bof the Code, applicable state continuation coverage law or deferredcompensation benefits accrued as liabilities on the books of the Borrower, anyCredit Party or any of its ERISA Affiliates. Copies of all such listed Plans, together with a copy of the latest formIRS/DOL 5500-series for each such Plan have been delivered to Agent.  Except with respect to Multiemployer Plans,each Qualified Plan has been determined by the IRS to qualify underSection 401 of the IRC, the trusts created thereunder have been determinedto be exempt from tax under the provisions of Section 501 of the IRC, andnothing has occurred that would cause the loss of such qualification ortax-exempt status.  Each Plan is incompliance with the applicable provisions of ERISA and the IRC, including thetimely filing of all reports required under the IRC or ERISA, including thestatement required by 29 CFR Section 2520.104-23.  Neither any Credit Party nor ERISA Affiliatehas failed to make any contribution or pay any amount due as required by eitherSection 412 of the IRC or Section 302 of ERISA or the terms of anysuch Plan.  Neither any Credit Party norERISA Affiliate has engaged in a “prohibited transaction,” as defined inSection 406 of ERISA and Section 4975 of the IRC, in connection withany Plan, that would subject any Credit Party to a material tax on prohibitedtransactions imposed by Section 502(i) of ERISA or Section 4975 ofthe IRC.

###  

### (b)                                 Exceptas set forth in Schedule 5.14: (i) no Title IV Plan has anyUnfunded Pension Liability; (ii) no ERISA Event or event described inSection 4062(e) of ERISA with respect to any Title IV Plan has occurred oris reasonably expected to occur; (iii) there are no pending, or to theknowledge of Borrower, threatened claims (other than claims for benefits in thenormal course), sanctions, actions or lawsuits, asserted or instituted againstany Plan or any Person as fiduciary or sponsor of any Plan; (iv) no CreditParty or ERISA Affiliate has incurred or reasonably expects to incur anyliability as a result of a complete or partial withdrawal from a MultiemployerPlan; (v) within the last five years no Title IV Plan of any Credit Partyor ERISA Affiliate has been terminated, whether or not in a “standardtermination” as that term is used in Section 404(b)(1) of ERISA, nor hasany Title IV Plan of any Credit Party or ERISA Affiliate (determined at anytime within the past five years) with Unfunded Pension Liabilities beentransferred outside of the “controlled group” (within the meaning ofSection 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate;(vi) except in the case of any ESOP, Stock of all Credit Parties and theirERISA Affiliates makes up, in the aggregate, no more than 10% of fair marketvalue of the assets of any Plan measured on the basis of fair market value asof the latest valuation date of any Plan; and (vii) no liability under anyTitle IV Plan has been satisfied with the purchase of a contract from

 

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### an insurance company thatis not rated AAA by S&P or an equivalent rating by another nationallyrecognized rating agency.

###  

## 5.15                           Brokers.  Nobroker or finder acting on behalf of any Credit Party or Affiliate thereofbrought about the obtaining, making or closing of the Loans or the RelatedTransactions, and no Credit Party or Affiliate thereof has any obligation toany Person in respect of any finder’s or brokerage fees in connectiontherewith.

 

## 5.16                           Deposit and Disbursement Accounts.  Schedule 5.16 lists all banksand other financial institutions at which any Credit Party (other than ForeignSubsidiaries) maintains deposit or other accounts as of the RestatementEffective Date, including any Disbursement Accounts, and suchSchedule correctly identifies the name, address and telephone number ofeach depository, the name in which the account is held, a description of thepurpose of the account, and the complete account number therefor.

 

## 5.17                           Agreements and Other Documents.  As of the Restatement Effective Date, eachCredit Party has provided to Agent or its counsel, on behalf of Lenders,accurate and complete copies (or summaries) of all of the following agreementsor documents to which it is subject and each of which is listed in Schedule 5.17:  supply agreements and purchase agreementsnot terminable by such Credit Party within sixty (60) days following writtennotice issued by such Credit Party, the absence of which could reasonably beexpected to have a Material Adverse Effect; leases of Equipment having aremaining term of one year or longer, the absence of which could reasonably beexpected to have a Material Adverse Effect; licenses and permits held by theCredit Parties, the absence of which could reasonably be expected to have aMaterial Adverse Effect; instruments and documents evidencing any materialIndebtedness or Guaranteed Indebtedness of such Credit Party and any Liengranted by such Credit Party with respect thereto; and instruments andagreements evidencing the issuance of any equity securities, warrants, rightsor options to purchase equity securities of such Credit Party (other thanBorrower).

 

## 5.18                           Insurance.  Schedule 5.18lists all insurance policies of any nature maintained, as of the RestatementEffective Date, for current occurrences by Borrower and each of its DomesticSubsidiaries, as well as a summary of the key business terms of each suchpolicy such as deductibles, coverage limits and term of policy.

 

## 5.19                           Related Transactions.  As of the Restatement Effective Date, the Related Transactionshave been consummated in accordance with, all applicable laws.  All requisite approvals by GovernmentalAuthorities having jurisdiction over any Credit Party and other Personsreferenced therein, with respect to the Related Transactions, have beenobtained, and no such approvals impose any materially adverse conditions to theconsummation of the Related Transaction or to the conduct by any Credit Partyof its business thereafter.

 

## 5.20                           Senior Indenture Documents.  Each representation and warranty made or tobe made by Borrower under the Senior Indenture Documents is and will be true,correct and complete in all material respects on the date made.

 

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**SECTION 6.****DEFAULT, RIGHTS AND REMEDIES**

 

## 6.1                                 Event of Default.  “Event of Default” shall mean the occurrence or existenceof any one or more of the following:

 

### (a)                                  Payment.  (1) Failure to pay any installment orother payment of principal of any Loan when due, or to repay Revolving Loans toreduce their balance to the maximum amount of Revolving Loans then permitted tobe outstanding or to reimburse any L/C Issuer for any payment made by such L/CIssuer under or in respect of any Letter of Credit when due or (2) failureto pay, within five (5) days after the due date, any interest on any Loan orany other amount due under this Agreement or any of the other Loan Documents;or

###  

### (b)                                 Defaultin Other Agreements.  (1) AnyCredit Party or any of its Subsidiaries fails to pay when due, after the lapseof any applicable grace period, any principal or interest on Indebtedness(other than the Loans) or any Contingent Obligations or (2) breach ordefault of any Credit Party or any of its Subsidiaries, or the occurrence ofany condition or event, with respect to any Indebtedness (other than the Loans)or any Contingent Obligations after the lapse of any applicable grace periods,if the effect of such failure to pay, breach, default or occurrence is to causeor to permit the holder or holders then to cause, Indebtedness and/orContingent Obligations having an individual principal amount in excess of$3,000,000 or having an aggregate principal amount in excess of $5,000,000 tobecome or be declared due prior to their stated maturity; or

###  

### (c)                                  Breachof Certain Provisions.  Failure ofany Credit Party to perform or comply with any term or condition contained inthat portion of Section 2.2 relating to the Credit Parties’obligation to maintain insurance, Section 2.3, Section 2.8(d),Section 3 or Section 4; or

###  

### (d)                                 BorrowingBase Certificate.  Any informationcontained in any Borrowing Base Certificate is untrue or incorrect in anyrespect (other than inadvertent, immaterial or other errors that do not resultin an Overadvance in excess of $300,000 in the aggregate in any Borrowing BaseCertificate), or any representation or warranty herein or in any Loan Documentor in any written statement, report, financial statement or certificate (otherthan a Borrowing Base Certificate) made or delivered to Agent or any Lender byany Credit Party is untrue or incorrect in any material respect (withoutduplication of materiality qualifiers contained therein) as of the date whenmade or deemed made; or

###  

### (e)                                  OtherDefaults Under Loan Documents. Any Credit Party defaults in the performanceof or compliance with any term contained in this Agreement or the other LoanDocuments (other than occurrences described in other provisions of this Section 6.1for which a different grace or cure period is

 

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### specified, or for whichno cure period is specified and which constitute immediate Events of Default)and such default is not remedied or waived within thirty (30) days after theearlier of (1) receipt by Borrower of notice from Agent or RequisiteLenders of such default or (2) actual knowledge of Borrower or any otherCredit Party of such default; or

###  

### (f)                                    InvoluntaryBankruptcy; Appointment of Receiver, Etc. (1) A court enters a decree or order for relief with respect to anyCredit Party in an involuntary case under the Bankruptcy Code, which decree ororder is not stayed or other similar relief is not granted under any applicablefederal or state law; or (2) the continuance of any of the followingevents for sixty (60) days unless dismissed, bonded or discharged:  (a) an involuntary case is commencedagainst****anyCredit Party, under any applicable bankruptcy, insolvency or other similar lawnow or hereafter in effect; or (b) a decree or order of a court for theappointment of a receiver, liquidator, sequestrator, trustee, custodian orother officer having similar powers over****any Credit Party, or over all or asubstantial part of its property, is entered; or (c) a receiver, trusteeor other custodian is appointed without the consent of a Credit Party, for allor a substantial part of the property of****the Credit Party; or

###  

### (g)                                 VoluntaryBankruptcy; Appointment of Receiver, Etc. (1) any Credit Party commences a voluntary case under theBankruptcy Code, or consents to the entry of an order for relief in aninvoluntary case or to the conversion of an involuntary case to a voluntarycase under any such law or consents to the appointment of or taking possessionby a receiver, trustee or other custodian for all or a substantial part of itsproperty; or (2) any Credit Party makes any assignment for the benefit ofcreditors; or (3) the Board of Directors of any Credit Party adopts anyresolution or otherwise authorizes action to approve any of the actionsreferred to in this Section 6.1(g); or

###  

### (h)                                 Judgmentand Attachments.  Any moneyjudgment, writ or warrant of attachment, or similar process (other than thosedescribed elsewhere in this Section 6.1) involving (1) anamount in any individual case in excess of $1,000,000 or (2) an amount inthe aggregate at any time in excess of $3,000,000 (in either case to the extentnot adequately covered by insurance in Agent’s sole discretion as to which theinsurance company has acknowledged coverage) is entered or filed against one ormore of the Credit Parties or any of their respective assets and remainsun-discharged, un-vacated, un-bonded or un-stayed for a period of forty-five(45) days or in any event later than five (5) Business Days prior to the dateof any proposed sale thereunder; or

###  

### (i)                                     Dissolution.  Any order, judgment or decree is enteredagainst any Credit Party decreeing the dissolution or split up of such CreditParty and such order remains un-discharged or un-stayed for a period in excessof thirty (30) days; or

###  

### (j)                                     Solvency.  Borrower or the Credit Parties taken as awhole cease to be Solvent, fail to pay any of their respective debts as theybecome due or admit in writing their present or prospective inability to paytheir respective debts as they become due; or

 

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### (k)                                  Invalidityof Loan Documents.  Any of the LoanDocuments for any reason, other than a partial or full release in accordancewith the terms thereof, ceases to be in full force and effect or is declared tobe null and void, or any Credit Party denies that it has any further liabilityunder any Loan Documents to which it is party, or gives notice to such effect;or

###  

### (l)                                     Damage;Casualty.  Any event occurs, whetheror not insured or insurable, as a result of which revenue-producing activitiescease or are substantially curtailed at any facility of any Credit Party whichcessation or curtailment continues for more than fifteen (15) consecutive daysif any such event could reasonably be expected to result in a Material AdverseEffect; or

###  

### (m)                               Business Activities.  AnySubsidiary engages in any type of business activity other than as expresslycontemplated under Sections 3.9 and 3.17 hereof and performanceof its obligations under the Related Transaction Documents to which it is aparty; or

###  

### (n)                                 Changeof Control.  A Change of Controloccurs; or

###  

### (o)                                 SubordinatedIndebtedness.  The failure of anyCredit Party or any creditor of Borrower or any of its Subsidiaries to complywith the terms of any subordination or intercreditor agreement or anysubordination provisions of any note or other document running to the benefitof Agent or Lenders, or if any such document becomes null and void or any partydenies further liability under any such document or provides notice to thateffect; or

###  

### (p)                                 EmployeeBenefit Plans.  (1) Borrower or anyof its Affiliates fails to make full payment when due of all amounts which,under the provisions of any employee benefit plans or any applicable provisionsof the IRC, any such Person is required to pay as contributions thereto andsuch failure results in or is likely to result in a Material Adverse Effect; or(2) an accumulated funding deficiency in excess of $3,000,000 occurs or exists,whether or not waived, with respect to any such employee benefit plans; or (3)any employee benefit plan loses its status as a qualified plan under the IRCwhich results in or could reasonably be expected to result in a MaterialAdverse Effect.

###  

## 6.2                                 Suspension or Termination of Revolving LoanCommitments.  Upon the occurrence ofany Default or Event of Default, Agent may, and at the request of RequisiteLenders Agent shall, without notice or demand, immediately suspend or terminateall or any portion of Lenders’ obligations to make additional Loans or issue orcause to be issued Letters of Credit under the Revolving Loan Commitment; providedthat, in the case of a Default, if the subject condition or event is waived byRequisite Lenders or cured within any applicable grace or cure period, theRevolving Loan Commitment shall be reinstated.

 

## 6.3                                 Acceleration and other Remedies.  Upon the occurrence of any Event of Defaultdescribed in Sections 6.1(f) or 6.1(g), the Revolving LoanCommitments shall be immediately terminated and all of the Obligations,including the Revolving Loans, shall automatically become

 

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immediately due and payable, without presentment, demand, protest,notice of intent to accelerate, notice of acceleration or other requirements ofany kind, all of which are hereby expressly waived by Borrower, and theRevolving Loan Commitments shall thereupon terminate.  Upon the occurrence and during the continuance of any other Eventof Default, Agent may, and at the request of the Requisite Lenders, Agentshall, by written notice to Borrower (a) reduce the aggregate amount ofthe Revolving Loan Commitments from time to time, (b) declare all or anyportion of the Loans and all or any portion of the other Obligations to be, andthe same shall forthwith become, immediately due and payable together withaccrued interest thereon, (c) terminate all or any portion of the obligationsof Agent, L/C Issuers and Lenders to make Revolving Credit Advances and issueLetters of Credit, (d) demand that Borrower immediately deliver cash toAgent for the benefit of L/C Issuers (and Borrower shall then immediately sodeliver) in an amount equal to 105% of the aggregate outstanding Letter ofCredit Obligations or demand that Borrower cause to be issued back-up lettersof credit reasonably acceptable to Agent, and (e) exercise any otherremedies which may be available under the Loan Documents or applicablelaw.  Borrower hereby grants to Agent,for the benefit of L/C Issuers and each Lender with a participation in anyLetters of Credit then outstanding, a security interest in such cash collateralto secure all of the Letter of Credit Obligations.  Any such cash collateral shall be made available by Agent to L/CIssuers to reimburse L/C Issuers for payments of drafts drawn under suchLetters of Credit and any Fees, Charges and expenses of L/C Issuers withrespect to such Letters of Credit and the unused portion thereof, after allsuch Letters of Credit shall have expired or been fully drawn upon, shall beapplied to repay any other Obligations. After all such Letters of Credit shall have expired or been fully drawnupon and all Obligations shall have been satisfied and paid in full, thebalance, if any, of such cash collateral shall be returned to Borrower.  Borrower shall from time to time execute anddeliver to Agent such further documents and instruments as Agent may requestwith respect to such cash collateral.

 

## 6.4                                 Performance by Agent.  Upon the occurrence of a Default or an Eventof Default, if any Credit Party shall fail to perform any covenant, duty oragreement contained in any of the Loan Documents, Agent may perform or attemptto perform such covenant, duty or agreement on behalf of such Credit Partyafter the expiration of any cure or grace periods set forth herein.  In such event, such Credit Party shall, atthe request of Agent, promptly pay any amount reasonably expended by Agent insuch performance or attempted performance to Agent, together with interestthereon at the highest rate of interest in effect upon the occurrence of anEvent of Default as specified in Section 1.2(d) from the date ofsuch expenditure until paid. Notwithstanding the foregoing, it is expressly agreed that Agent shallnot have any liability or responsibility for the performance of any obligationof any Credit Party under this Agreement or any other Loan Document.

##  

## 6.5                                 Application of Proceeds.  Notwithstanding anything to the contrarycontained in this Agreement, upon the occurrence and during the continuance ofan Event of Default, (a) Borrower irrevocably waives the right to directthe application of any and all payments at any time or times thereafterreceived by Agent from or on behalf of Borrower, and Agent shall have thecontinuing and exclusive right to apply and to reapply any and all paymentsreceived at any time or times after the occurrence and during the continuanceof an Event of Default against the Obligations in such manner as Agent mayreasonably deem advisable notwithstanding any

 

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previous application by Agent and (b) in the absence of a specificdetermination by Agent with respect thereto, the proceeds of any sale of, orother realization upon, all or any part of the Collateral shall be applied:  first, to all Fees, costs andexpenses incurred by or owing to Agent and any Lender with respect to thisAgreement, the other Loan Documents or the Collateral; second, toaccrued and unpaid interest on the Obligations (including any interest whichbut for the provisions of the Bankruptcy Code, would have accrued on suchamounts); third, to the principal amount of the Obligations outstanding;and fourth to any other obligations of Borrower owing to Agent or anyLender under the Loan Documents.  Anybalance remaining shall be delivered to Borrower or to whomever may be lawfullyentitled to receive such balance or as a court of competent jurisdiction maydirect.

 

**SECTION 7.****CONDITIONS TO LOANS**

** **

## 7.1                                 Conditions to Initial Loans.  The obligations of Lenders and L/C Issuersto make the initial Loans and to issue or cause to be issued Letters of Crediton or at any time after the Restatement Effective Date are, in addition to theconditions precedent specified in Section 7.2, subject tosatisfaction of the following conditions precedent in a manner reasonablyacceptable to Agent in its sole discretion:

 

### (a)                                  Borrowerand/or the applicable Credit Party shall have delivered of all documents listedon, taken all actions set forth on and satisfied of all other conditionsprecedent listed on the Closing Checklist (other than the landlord waiver andconsent with respect to Borrower’s Irvine, California facility and thosedocuments or conditions waived by Agent in writing);

###  

### (b)                                 TheIntercreditor Agreement shall have either been reaffirmed or amended andrestated in a manner reasonably satisfactory to Agent and the Indebtedness ofBorrower under the Senior Indenture shall not exceed $46,630,000;

###  

### (c)                                  Borrower’smost recent Projections delivered on or about the end of Borrower’s Fiscal Yearended December 31, 2003 shall be reasonably acceptable to Agent andLenders;

###  

### (d)                                 Agentshall be reasonably satisfied as to the absence, since December 31, 2003,of any material adverse change in the business, operations, properties or condition(financial or otherwise) of Borrower, any Credit Party, or any event orcondition which could reasonably be expected to result in such a materialadverse change;

###  

### (e)                                  TheIPO shall have been consummated and Borrower shall have received not less than $70,000,000Net Proceeds therefrom and after giving effect to the Payoffs, and the initialfunding of any Loans and/or the issuance of any Letter(s) of Credit on theRestatement Effective Date and the establishment of any Reserves required byAgent (including, without limitation, a Reserve for closing costs incurred byBorrower in connection with this credit facility), the total amount of allObligations shall not exceed

 

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### $5,000,000 and Borrowershall have not less than $8,000,000 of Borrowing Availability hereunder;

###  

### (f)                                    Aftergiving effect to the initial funding of the Loans and/or issuance of anyLetter(s) of Credit on the Restatement Effective Date, the ratio of (x) TotalDebt (as of the Restatement Effective Date and as measured under the ExistingCredit Agreement) to (y) EBITDA for the twelve month period endingDecember 31, 2003 based on Borrower’s most current financial statementsdelivered to Agent, does not exceed 4.25;

###  

### (g)                                 Agentshall have received evidence reasonably acceptable to it of the consummation ofthe Payoffs and associated Lien releases utilizing proceeds from the IPO;

###  

### (h)                                 Agentshall have received fully executed deposit account control agreements, lock-boxagreements, securities account control agreements and other cash managementagreements with Wells Fargo Bank, N.A. and each other bank, if any, whereBorrower maintains a deposit or a securities account, all in form and substancereasonably acceptable to Agent.

###  

## 7.2                                 Conditions to All Loans.  Except as otherwise expressly providedherein, no Lender or L/C Issuer shall be obligated to fund any Advance or incurany Letter of Credit Obligation, if, as of the date thereof (the “FundingDate”):

 

### (a)                                  anyrepresentation or warranty by any Credit Party contained herein or in any otherLoan Document is untrue or incorrect in any material respect (withoutduplication of any materiality qualifier contained therein) as of such date,except to the extent that such representation or warranty expressly relates toan earlier date, and Agent or Requisite Lenders have determined not to makesuch Advance or incur such Letter of Credit Obligation as a result thereof;

###  

### (b)                                 anyDefault or Event of Default has occurred and is continuing or would resultafter giving effect to any Advance (or the incurrence of any Letter of CreditObligation), and Agent or Requisite Lenders shall have determined not to makeany Advance or incur any Letter of Credit Obligation as a result of thatDefault or Event of Default;

###  

### (c)                                  aftergiving effect to any Advance (or the incurrence of any Letter of CreditObligations), the outstanding amount of the Revolving Loan would exceed theremaining Borrowing Availability (except as provided in Section 1.1(a)(ii));

###  

Therequest and acceptance by Borrower of the proceeds of any Advance, theincurrence of any Letter of Credit Obligations or the conversion orcontinuation of any Loan into, or as, a LIBOR Loan shall be deemed toconstitute, as of the date thereof, (i) a representation and warranty byBorrower that the conditions in this Section 7.2  have been satisfied and (ii) areaffirmation by Borrower of the granting and continuance of Agent’s Liens, onbehalf of itself and Lenders, pursuant to the Collateral Documents.

 

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## 7.3                                 Conditions to Loans to Fund PermittedAcquisitions.  In the event that theproceeds of a Revolving Loan are to be used to finance all or a portion of thepurchase price of a Permitted Acquisition, the obligation of Lenders to makesuch Revolving Loans are subject to the further conditions precedent set forthbelow:

 

(a)                                  Withoutlimiting the generality of the other provisions hereof, Agent shall havereceived, to the extent required by Section 2.8 hereof, withrespect to the Person and any other assets being acquired, prior to orsimultaneously with the funding of such Loan, evidence of the due execution ofUCC Financing Statements or amendments to existing financing statements withrespect to such Person or assets, in form and substance reasonably acceptableto Agent, necessary to perfect a first priority security interest of Agent forthe benefit of Lenders in such Person and/or other assets being acquired.  In the event real property is being acquiredin connection with such Permitted Acquisition, Agent shall, if reasonablyrequested, have received, to the extent required by Section 2.8hereof, a fully executed mortgage or deed of trust, in form and substancereasonably satisfactory to Agent together with an ALTA lender’s title insurancepolicy issued by a title insurer reasonably satisfactory to Agent, in form andsubstance and in an amount reasonably satisfactory to Agent, insuring that themortgage or deed of trust is a valid and enforceable first priority mortgage lienon the respective property, free and clear of all defects, encumbrances andLiens, other than Permitted Encumbrances; and

 

(b)                                 SuchPermitted Acquisition is otherwise permitted under the terms of this Agreementand all other conditions precedent have been fully satisfied or waived byAgent, in writing.

** **

**SECTION 8.****ASSIGNMENT AND PARTICIPATION**

 

## 8.1                                 Assignment and Participations.

##  

### (a)                                  Subjectto the terms of this Section 8.1, any Lender may make an assignmentto a Qualified Assignee of, or sale of participations in, at any time or times,the Loan Documents, Loans, Letter of Credit Obligations and any Revolving LoanCommitment or any portion thereof or interest therein, including any Lender’srights, title, interests, remedies, powers or duties thereunder.  Any assignment by a Lender shall:  (i) require the consent of Agent (whichconsent shall not be unreasonably withheld or delayed with respect to aQualified Assignee) and the execution of an assignment agreement (an “AssignmentAgreement” substantially in the form attached hereto as Exhibit 8.1and otherwise in form and substance reasonably satisfactory to, andacknowledged by, Agent); (ii) be conditioned on such assignee Lenderrepresenting to the assigning Lender, Agent and Borrower that it is purchasingthe applicable Loans to be assigned to it for its own account, for investmentpurposes and not with a view to the distribution thereof; (iii) after givingeffect to any such partial assignment, the assignee Lender shall have RevolvingLoan Commitments in an amount at least equal to $2,500,000****and the assigning Lender shall haveretained Revolving Loan Commitments in an amount at least equal to $2,500,000; (iv) require a payment toAgent of an

 

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### assignment fee of $3,500 and (v) so long as no Event of Default hasoccurred and is continuing, require the consent of Borrower, which shall not beunreasonably withheld or delayed and shall be deemed granted if not objected towithin three (3) Business Days following notice thereof to Borrower; provided that no such consent shall be required for an assignment to a QualifiedAssignee.  In the case of anassignment by a Lender under this Section 8.1, the assignee shallhave, to the extent of such assignment, the same rights, benefits andobligations as all other Lenders hereunder. The assigning Lender shall be relieved of its obligations hereunder withrespect to its Revolving Loan Commitments or assigned portion thereof from and afterthe date of such assignment.  Borrowerhereby acknowledges and agrees that any assignment shall give rise to a directobligation of Borrower to the assignee and that the assignee shall beconsidered to be a “Lender.”  In allinstances, each Lender’s liability to make Loans hereunder shall be several andnot joint and shall be limited to such Lender’s Pro Rata Share of theapplicable Revolving Loan Commitment. In the event Agent or any Lender assigns or otherwise transfers all orany part of the Obligations, Agent or any such Lender shall so notify Borrowerand Borrower shall, upon the request of Agent or such Lender, execute new Notesin exchange for the Notes, if any, being assigned.  Notwithstanding the foregoing provisions of this Section 8.1(a),(a) any Lender may at any time pledge the Obligations held by it and suchLender’s rights under this Agreement and the other Loan Documents to a FederalReserve Bank, (b) any Lender that is an investment fund may assign theObligations held by it and such Lender’s rights under this Agreement and theother Loan Documents to another investment fund managed by the same investmentadvisor or pledge such Obligations and rights to trustee for the benefit of itsinvestors and (c) any Lender may assign the Obligations to an Affiliate of suchLender or to a Person that is a Lender prior to the date of such assignment.

###  

### (b)                                 Anyparticipation by a Lender of all or any part of its Revolving Loan Commitmentsshall be made with the understanding that all amounts payable by Borrowerhereunder shall be determined as if that Lender had not sold suchparticipation, and that the holder of any such participation shall not beentitled to require such Lender to take or omit to take any action hereunderexcept actions directly affecting (i) any reduction in the principal amount of,or interest rate or Fees payable with respect to, any Loan in which such holderparticipates, (ii) any extension of the scheduled amortization of the principalamount of any Loan in which such holder participates or the final maturity datethereof, and (iii) any release of all or substantially all of the Collateral(other than in accordance with the terms of this Agreement, the CollateralDocuments or the other Loan Documents). Solely for purposes of Sections 1.10, 1.11, 8.3 and9.1, Borrower acknowledges and agrees that a participation shall giverise to a direct obligation of Borrower to the participant and the participantshall be considered to be a “Lender”, provided**that such participant Lender shall not be entitled toreceive any greater payment under such Sections than the applicable Lenderselling such participation would have. Except as set forth in the preceding sentence neither Borrower nor anyother Credit Party shall have any obligation or duty to any participant.  Neither Agent nor any Lender (other than theLender selling a participation) shall have any duty to any

 

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### participant and maycontinue to deal solely with the Lender selling a participation as if no suchsale had occurred.

###  

### (c)                                  Exceptas expressly provided in this Section 8.1, no Lender shall, asbetween Borrower and that Lender, or Agent and that Lender, be relieved of anyof its obligations hereunder as a result of any sale, assignment, transfer ornegotiation of, or granting of participation in, all or any part of the Loans,the Notes or other Obligations owed to such Lender.

###  

### (d)                                 EachCredit Party shall assist Agent (for itself or on behalf of the applicableLender) in syndicating the Loans and Commitments under this Section 8.1as required to enable the assigning or selling Lender to effect any assignmentor participation relating thereto, including the execution and delivery of anyand all agreements, notes and other documents and instruments as shall berequested and the prompt preparation of informational materials for, and theparticipation of management in meetings with, potential assignees orparticipants, all on a timetable established by Agent in its solediscretion.  Each Credit Party executingthis Agreement shall certify the correctness, completeness and accuracy of alldescriptions of the Credit Parties and their respective affairs contained inany selling materials provided by it and all other information provided by itand included in such materials, except that any Projections delivered byBorrower shall only be certified by Borrower as having been prepared byBorrower in compliance with the representations contained in Section 5.5.  Agent shall maintain, on behalf of Borrower,in its offices located at Chicago, Illinois a “register” for recording thename, address, commitment and Loans owing to each Lender.  The entries in such register shall bepresumptive evidence of the amounts due and owing to each Lender in the absenceof manifest error.  Borrower, Agent andeach Lender may treat each Person whose name is recorded in such registerpursuant to the terms hereof as a Lender for all purposes of thisAgreement.  The register describedherein shall be available for inspection by Borrower and any Lender, at any reasonabletime upon reasonable prior notice.

###  

### (e)                                  ALender may furnish any information concerning Credit Parties in the possessionof such Lender from time to time to assignees and participants (includingprospective assignees and participants); provided that such Lender shallobtain from assignees or participants confidentiality covenants substantiallyequivalent to those contained in Section 9.13.

###  

## 8.2                                 Agent.

##  

### (a)                                  Appointment.  Each Lender hereby designates and appointsGE Capital as its Agent under this Agreement and the other Loan Documents, andeach Lender hereby irrevocably authorizes Agent to execute and deliver theCollateral Documents and to take such action or to refrain from taking suchaction on its behalf under the provisions of this Agreement and the other LoanDocuments and to exercise such powers as are set forth herein or therein,together with such other powers as are reasonably incidental thereto.

 

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### Agent is authorized andempowered to amend, modify, or waive any provisions of this Agreement or theother Loan Documents on behalf of Lenders subject to the requirement thatcertain of Lenders’ consent be obtained in certain instances as provided inthis Section 8.2 and Section 9.2.  The provisions of this Section 8.2are solely for the benefit of Agent and Lenders and neither Borrower nor anyother Credit Party shall have any rights as a third party beneficiary of any ofthe provisions hereof.  In performingits functions and duties under this Agreement, Agent shall act solely as agentof Lenders and does not assume and shall not be deemed to have assumed anyobligation toward or relationship of agency or trust with or for Borrower orany other Credit Party.  Agent mayperform any of its duties hereunder, or under the Loan Documents, by or throughits agents or employees.

###  

### (b)                                 Natureof Duties.  The duties of Agentshall be mechanical and administrative in nature.  Agent shall not have by reason of this Agreement a fiduciaryrelationship in respect of any Lender.  Nothing in this Agreement or any of the Loan Documents, express orimplied, is intended to or shall be construed to impose upon Agent anyobligations in respect of this Agreement or any of the Loan Documents except asexpressly set forth herein or therein. Each Lender shall make its own independent investigation of thefinancial condition and affairs of each Credit Party in connection with theextension of credit hereunder and shall make its own appraisal of thecreditworthiness of each Credit Party, and Agent shall have no duty orresponsibility, either initially or on a continuing basis, to provide anyLender with any credit or other information with respect thereto (other than asexpressly required herein).  If Agentseeks the consent or approval of any Lenders to the taking or refraining fromtaking any action hereunder, then Agent shall send notice thereof to eachLender.  Agent shall promptly notifyeach Lender any time that the Requisite Lenders have instructed Agent to act orrefrain from acting pursuant hereto.

###  

### (c)                                  Rights,Exculpation, Etc.  Neither Agent norany of its officers, directors, employees or agents shall be liable to anyLender for any action taken or omitted by them hereunder or under any of theLoan Documents, or in connection herewith or therewith, except that Agent shallbe liable to the extent of its own gross negligence or willful misconduct asdetermined by a final non-appealable order by a court of competentjurisdiction.  Agent shall not be liablefor any apportionment or distribution of payments made by it in good faith andif any such apportionment or distribution is subsequently determined to havebeen made in error the sole recourse of any Lender to whom payment was due butnot made, shall be to recover from other Lenders any payment in excess of theamount to which they are determined to be entitled (and such other Lendershereby agree to return to such Lender any such erroneous payments received bythem).  In no event shall Agent beliable for punitive, special, consequential, incidental, exemplary or othersimilar damages.  In performing itsfunctions and duties hereunder, Agent shall exercise the same care which itwould in dealing with loans for its own account, but neither Agent nor any ofits agents or representatives shall be responsible to any Lender for anyrecitals, statements, representations or warranties herein or for theexecution, effectiveness, genuineness, validity, enforceability,collectibility, or sufficiency of this

 

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### Agreement or any of theLoan Documents or the transactions contemplated thereby, or for the financialcondition of any Credit Party.  Agentshall not be required to make any inquiry concerning either the performance orobservance of any of the terms, provisions or conditions of this Agreement orany of the Loan Documents or the financial condition of any Credit Party, orthe existence or possible existence of any Default or Event of Default.  Agent may at any time request instructionsfrom Requisite Lenders or all affected Lenders with respect to any actions orapprovals which by the terms of this Agreement or of any of the Loan DocumentsAgent is permitted or required to take or to grant.  If such instructions are promptly requested, Agent shall beabsolutely entitled to refrain from taking any action or to withhold anyapproval and shall not be under any liability whatsoever to any Person forrefraining from any action or withholding any approval under any of the LoanDocuments until it shall have received such instructions from the RequisiteLenders or such other portion of the Lenders as shall be prescribed by thisAgreement.  Without limiting theforegoing, no Lender shall have any right of action whatsoever against Agent asa result of Agent acting or refraining from acting under this Agreement or anyof the other Loan Documents in accordance with the instructions of RequisiteLenders or all affected Lenders, as applicable; and, notwithstanding theinstructions of Requisite Lenders or all affected Lenders, as applicable, Agentshall have no obligation to take any action if it believes, in good faith, thatsuch action is deemed to be illegal by Agent or exposes Agent to any liabilityfor which it has not received satisfactory indemnification in accordance with Section 8.2(e).

###  

### (d)                                 Reliance.  Agent shall be entitled to rely, and shallbe fully protected in relying, upon any written or oral notices, statements,certificates, orders or other documents or any telephone message or othercommunication (including any writing, telex, fax or telegram) believed by it ingood faith to be genuine and correct and to have been signed, sent or made bythe proper Person, and with respect to all matters pertaining to this Agreementor any of the Loan Documents and its duties hereunder or thereunder.  Agent shall be entitled to rely upon theadvice of legal counsel, independent accountants, and other experts selected byAgent in its sole discretion.

###  

### (e)                                  Indemnification.  Lenders will reimburse and indemnify Agentfor and against any and all liabilities, obligations, losses, damages,penalties, actions, judgments, suits, costs, expenses (including, withoutlimitation, attorneys’ fees and expenses), advances or disbursements of anykind or nature whatsoever which may be imposed on, incurred by, or assertedagainst Agent in any way relating to or arising out of this Agreement or any ofthe Loan Documents or any action taken or omitted by Agent under this Agreementor any of the Loan Documents, in proportion to each Lender’s Pro Rata Share,but only to the extent that any of the foregoing is not reimbursed by Borrower;provided, however, that no Lender shall be liable for any portionof such liabilities, obligations, losses, damages, penalties, actions,judgments, suits, costs, expenses, advances or disbursements to the extentresulting from Agent’s gross negligence or willful misconduct as determined bya final non-appealable order by a court of competent jurisdiction.  If any indemnity furnished to Agent for anypurpose shall, in the opinion of Agent, be insufficient or become impaired,Agent may call for additional indemnity and

 

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### cease, or not commence,to do the acts indemnified against even if so directed by the Requisite Lendersor such other portion of the Lenders as shall be prescribed by this Agreementuntil such additional indemnity is furnished. The obligations of Lenders under this Section 8.2(e) shallsurvive the payment in full of the Obligations and the termination of thisAgreement.

###  

### (f)                                    GECapital Individually.  With respectto its Revolving Loan Commitments hereunder, GE Capital shall have and mayexercise the same rights and powers hereunder and is subject to the sameobligations and liabilities as and to the extent set forth herein for any otherLender.  The terms “Lenders”, “RequisiteLenders” or any similar terms shall, unless the context clearly otherwiseindicates, include GE Capital in its individual capacity as a Lender or one ofthe Requisite Lenders.  GE Capital,either directly or through strategic affiliations, may lend money to, acquireequity or other ownership interests in, provide advisory services to andgenerally engage in any kind of banking, trust or other business with anyCredit Party as if it were not acting as Agent pursuant hereto and without anyduty to account therefor to Lenders.  GECapital, either directly or through strategic affiliations, may accept fees andother consideration from any Credit Party for services in connection with thisAgreement or otherwise without having to account for the same to Lenders.

###  

### (g)                                 SuccessorAgent.

###  

#### (i)                                     Resignation. Agent may resign from the performance of all its agency functions andduties hereunder at any time by giving at least thirty (30) Business Days’prior written notice to Borrower and Lenders. Such resignation shall take effect upon the acceptance by a successorAgent of appointment pursuant to clause (ii) below or as otherwise provided inclause (ii) below.

####  

#### (ii)                                  Appointment of Successor. Upon any such notice of resignation pursuant to clause (i) above,Requisite Lenders shall appoint a successor Agent which, unless an Event ofDefault has occurred and is continuing, shall be reasonably acceptable toBorrower.  If a successor Agent shallnot have been so appointed within the thirty (30) Business Day period referredto in clause (i) above, the retiring Agent, upon notice to Borrower, shall thenappoint a successor Agent who shall serve as Agent until such time, if any, asRequisite Lenders appoint a successor Agent as provided above.

####  

#### (iii)                               Successor Agent. Upon the acceptance of any appointment as Agent under the Loan Documentsby a successor Agent, such successor Agent shall thereupon succeed to andbecome vested with all the rights, powers, privileges and duties of theretiring Agent, and the retiring Agent shall be discharged from its duties andobligations under the Loan Documents. After any retiring Agent’s resignation as Agent, the provisions of this Section 8.2shall continue to inure to its benefit as to any actions taken or omitted to betaken by it in its capacity as Agent.

 

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### (h)                                 CollateralMatters.

###  

#### (i)                                     Release of Collateral. Lenders hereby irrevocably authorize Agent, at its option and in itsdiscretion, to release any Lien granted to or held by Agent upon any Collateral(x) upon termination of the Revolving Loan Commitments and payment andsatisfaction of all Obligations (other than contingent indemnificationobligations to the extent no claims giving rise thereto have been asserted) or(y) constituting property being sold or disposed of if Borrower certifiesto Agent that the sale or disposition is made in compliance with the provisionsof the Loan Documents (and Agent may rely in good faith conclusively on anysuch certificate, without further inquiry).

####  

#### (ii)                                  Confirmation of Authority; Executionof Releases.  Without in any manner limiting Agent’sauthority to act without any specific or further authorization or consent byLenders (as set forth in Section 8.2(h)(i)), each Lender agrees toconfirm in writing, upon request by Agent or Borrower, the authority to releaseany Collateral conferred upon Agent under clauses (x) and (y) of Section 8.2(h)(i).  Upon receipt by Agent of any requiredconfirmation from the Requisite Lenders of its authority to release anyparticular item or types of Collateral, and upon at least seven (7) BusinessDays’ prior written request by Borrower, Agent shall (and is hereby irrevocablyauthorized by Lenders to) execute such documents as may be necessary toevidence the release of the Liens granted to Agent upon such Collateral; provided,however, that (x) Agent shall not be required to execute any suchdocument on terms which, in Agent’s opinion, would expose Agent to liability orcreate any obligation or entail any consequence other than the release of suchLiens without recourse or warranty, and (y) such release shall not in anymanner discharge, affect or impair the Obligations or any Liens upon (orobligations of any Credit Party, in respect of), all interests retained by anyCredit Party, including the proceeds of any sale, all of which shall continueto constitute part of the Collateral.

####  

#### (iii)                               Absence of Duty. Agent shall have no obligation whatsoever to any Lender or any otherPerson to assure that the property covered by the Collateral Documents existsor is owned by Borrower or any other Credit Party or is cared for, protected orinsured or has been encumbered or that the Liens granted to Agent have beenproperly or sufficiently or lawfully created, perfected, protected or enforcedor are entitled to any particular priority, or to exercise at all or in anyparticular manner or under any duty of care, disclosure or fidelity, or tocontinue exercising, any of the rights, authorities and powers granted oravailable to Agent in this Section 8.2(h) or in any of the LoanDocuments, it being understood and agreed that in respect of the propertycovered by the Collateral Documents or any act, omission or event relatedthereto, Agent may act in any manner it may deem appropriate, in itsdiscretion, given Agent’s own interest in property covered by the CollateralDocuments as one of the Lenders and that Agent shall have no duty or liabilitywhatsoever to any of the other Lenders,

 

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#### provided that Agent shall exercise the same care which itwould in dealing with loans for its own account.

####  

### (i)                                     Agencyfor Perfection.  Agent and each Lenderhereby appoint each other Lender as agent for the purpose of perfecting Agent’ssecurity interest in assets which, in accordance with the Code in anyapplicable jurisdiction, can be perfected by possession or control.  Should any Lender (other than Agent) obtainpossession or control of any such assets, such Lender shall notify Agentthereof, and, promptly upon Agent’s request therefor, shall deliver such assetsto Agent or in accordance with Agent’s instructions or transfer control toAgent in accordance with Agent’s instructions. Each Lender agrees that it will not have any right individually toenforce or seek to enforce any Collateral Document or to realize upon anycollateral security for the Loans unless instructed to do so by Agent inwriting, it being understood and agreed that such rights and remedies may beexercised only by Agent.

###  

### (j)                                     Noticeof Default.  Agent shall not bedeemed to have knowledge or notice of the occurrence of any Default or Event ofDefault except with respect to defaults in the payment of principal, interestand Fees required to be paid to Agent for the account of Lenders, unless Agentshall have received written notice from a Lender or Borrower referring to thisAgreement, describing such Default or Event of Default and stating that suchnotice is a “notice of default”.  Agentwill use reasonable efforts to notify each Lender of its receipt of any suchnotice, unless such notice is with respect to defaults in the payment ofprincipal, interest and fees, in which case Agent will notify each Lender ofits receipt of such notice.  Agent shalltake such action with respect to such Default or Event of Default as may berequested by Requisite Lenders in accordance with Section 6.  Unless and until Agent has received any suchrequest, Agent may (but shall not be obligated to) take such action, or refrainfrom taking such action, with respect to such Default or Event of Default as itshall deem advisable or in the best interests of Lenders.

###  

### (k)                                  LenderActions Against Collateral.  EachLender agrees that it will not take any action, nor institute any actions orproceedings, with respect to the Loans, against Borrower or any Credit Partyhereunder or under the other Loan Documents or against any of the Real Estateencumbered by Mortgages without the consent of the Requisite Lenders.  With respect to any action by Agent toenforce the rights and remedies of Agent and the Lenders under this Agreementand the other Loan Documents, each Lender hereby consents to the jurisdictionof the court in which such action is maintained, and agrees to deliver itsNotes to Agent to the extent necessary to enforce the rights and remedies ofAgent for the benefit of the Lenders under the Mortgages in accordance with theprovisions hereof.

 

## 8.3                                 Set Off and Sharing of Payments.  In addition to any rights now or hereaftergranted under applicable law and not by way of limitation of any such rights,during the continuance of any Event of Default, each Lender is herebyauthorized by Borrower at any time or from time to time, with reasonably promptsubsequent notice to Borrower (any prior or contemporaneous notice being herebyexpressly waived) to set off and to appropriate and to apply any and all(A) balances held by such Lender at any of its offices for the account of

 

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Borrower or any of its Subsidiaries (regardless of whether suchbalances are then due to Borrower or its Subsidiaries), and (B) otherproperty at any time held or owing by such Lender to or for the credit or forthe account of Borrower or any of its Subsidiaries, against and on account ofany of the Obligations; except that no Lender shall exercise any such rightwithout the prior written consent of Agent. Any Lender exercising a right to set off shall purchase for cash (andthe other Lenders shall sell) interests in each of such other Lender’s Pro RataShare of the Obligations as would be necessary to cause all Lenders to sharethe amount so set off with each other Lender in accordance with theirrespective Pro Rata Shares.  Borroweragrees, to the fullest extent permitted by law, that any Lender may exerciseits right to set off with respect to amounts in excess of its Pro Rata Share ofthe Obligations and upon doing so shall deliver such amount so set off to theAgent for the benefit of all Lenders in accordance with their Pro Rata Shares.

 

## 8.4                                 Disbursement of Funds.  Agent may, on behalf of Lenders, disbursefunds to Borrower for Loans requested. Each Lender shall reimburse Agent on demand for all funds disbursed onits behalf by Agent, or if Agent so requests, each Lender will remit to Agentits Pro Rata Share of any Loan before Agent disburses same to Borrower.  If Agent elects to require that each Lendermake funds available to Agent prior to a disbursement by Agent to Borrower,Agent shall advise each Lender by telephone or fax of the amount of suchLender’s Pro Rata Share of the Loan requested by Borrower no later than noon(Chicago time) on the Funding Date applicable thereto, and each such Lendershall pay Agent such Lender’s Pro Rata Share of such requested Loan, in sameday funds, by wire transfer to Agent’s account on such Funding Date.  If any Lender fails to pay the amount of itsPro Rata Share within one (1) Business Day after Agent’s demand, Agent shallpromptly notify Borrower, and Borrower shall immediately repay such amount toAgent.  Any repayment required pursuantto this Section 8.4 shall be without premium or penalty.  Nothing in this Section 8.4 orelsewhere in this Agreement or the other Loan Documents, including theprovisions of Section 8.5, shall be deemed to require Agent toadvance funds on behalf of any Lender or to relieve any Lender from itsobligation to fulfill its commitments hereunder or to prejudice any rights thatAgent or Borrower may have against any Lender as a result of any default bysuch Lender hereunder.

 

## 8.5                                 Disbursements of Advances; Payment.

##  

### (a)                                  Advances;Payments.

###  

#### (i)                                     Revolving Lenders shall refund orparticipate in the Swing Line Loan in accordance with clauses (iii) and (iv) ofSection 1.1(c).  If theSwing Line Lender declines to make a Swing Line Loan or if Swing LineAvailability is zero, Agent shall notify Revolving Lenders, promptly afterreceipt of a Notice of Revolving Credit Advance and in any event prior to noon (Chicago time)****onthe date such Notice of a Revolving Credit Advance is received, by fax,telephone or other similar form of transmission.  Each Revolving Lender shall make the amount of such Lender’s ProRata Share of such Revolving Credit Advance available to Agent in same dayfunds by wire transfer to Agent’s account as set forth in Section 1.1(e)not later than 2:00 p.m. (Chicago time)****onthe requested Funding Date in the case of an Index Rate Loans and not laterthan 10:00 a.m.

 

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#### (Chicago time)****onthe requested Funding Date in the case of a LIBOR Loan.  After receipt of such wire transfers (or, inthe Agent’s sole discretion, before receipt of such wire transfers), subject tothe terms hereof, Agent shall make the requested Revolving Credit Advance toBorrower.  All payments by eachRevolving Lender shall be made without setoff, counterclaim or deduction of anykind.

####  

#### (ii)                                  At least once each calendar week ormore frequently at Agent’s election (each, a “Settlement Date”), Agentshall advise each Lender by telephone or fax of the amount of such Lender’s ProRata Share of principal, interest and Fees paid for the benefit of Lenders withrespect to each applicable Loan.  Providedthat each Lender has funded all payments and Advances required to be made by itand purchased all participations required to be purchased by it under thisAgreement and the other Loan Documents as of such Settlement Date, Agent shallpay to each Lender such Lender’s Pro Rata Share of principal, interest and Feespaid by Borrower since the previous Settlement Date for the benefit of suchLender on the Loans held by it. Such payments shall be made by wire transfer tosuch Lender’s account (as specified by such Lender in Annex E or theapplicable Assignment Agreement) not later than 1:00 p.m. (Chicago time)****on the next Business Day following eachSettlement Date. To the extent that any Lender (a “Non-Funding Lender”)has failed to fund all such payments and Advances or failed to fund thepurchase of all such participations, Agent shall be entitled to set off thefunding short-fall against that Non-Funding Lender’s Pro Rata Share of allpayments received from Borrower.

####  

### (b)                                 Availabilityof Lender’s Pro Rata Share.  Agentmay assume that each Revolving Lender will make its Pro Rata Share of eachRevolving Credit Advance available to Agent on each Funding Date.  If such Pro Rata Share is not, in fact, paidto Agent by such Revolving Lender when due, Agent will be entitled to recoversuch amount on demand from such Revolving Lender without setoff, counterclaimor deduction of any kind.  If anyRevolving Lender fails to pay the amount of its Pro Rata Share forthwith uponAgent’s demand, Agent shall promptly notify Borrower and Borrower shallimmediately repay such amount to Agent. Nothing in this Section 8.5(b) or elsewhere in thisAgreement or the other Loan Documents shall be deemed to require Agent toadvance funds on behalf of any Revolving Lender or to relieve any RevolvingLender from its obligation to fulfill its Revolving Loan Commitments hereunderor to prejudice any rights that Borrower may have against any Revolving Lenderas a result of any default by such Revolving Lender hereunder.  To the extent that Agent advances funds toBorrower on behalf of any Revolving Lender and is not reimbursed therefor onthe same Business Day as such Advance is made, Agent shall be entitled toretain for its account all interest accrued on such Advance until reimbursed bythe applicable Revolving Lender.

 

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### (c)                                  Returnof Payments.

###  

#### (i)                                     If Agent pays an amount to a Lenderunder this Agreement in the belief or expectation that a related payment hasbeen or will be received by Agent from Borrower and such related payment is notreceived by Agent, then Agent will be entitled to recover such amount from suchLender on demand without setoff, counterclaim or deduction of any kind.

####  

#### (ii)                                  If Agent determines at any time thatany amount received by Agent under this Agreement must be returned to Borroweror paid to any other Person pursuant to any insolvency law or otherwise, then,notwithstanding any other term or condition of this Agreement or any other LoanDocument, Agent will not be required to distribute any portion thereof to anyLender.  In addition, each Lender willrepay to Agent on demand any portion of such amount that Agent has distributedto such Lender, together with interest at such rate, if any, as Agent isrequired to pay to Borrower or such other Person, without setoff, counterclaimor deduction of any kind.

####  

### (d)                                 Non-FundingLenders.  The failure of anyNon-Funding Lender to make any Revolving Credit Advance or any payment requiredby it hereunder, or to purchase any participation in any Swing Line Loan to bemade or purchased by it on the date specified therefor shall not relieve anyother Lender (each such other Revolving Lender, an “Other Lender”) ofits obligations to make such Advance or purchase such participation on such date,but neither any Other Lender nor Agent shall be responsible for the failure ofany Non-Funding Lender to make an Advance, purchase a participation or make anyother payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-FundingLender shall not have any voting or consent rights under or with respect to anyLoan Document or constitute a “Lender” or a “Revolving Lender” (or be includedin the calculation of “Requisite Lenders” hereunder) for any voting or consent rightsunder or with respect to any Loan Document.

###  

### (e)                                  Disseminationof Information.  Agent shall usereasonable efforts to provide Lenders with any notice of Default or Event ofDefault received by Agent from, or delivered by Agent to, any Credit Party, withnotice of any Event of Default of which Agent has actually become aware andwith notice of any action taken by Agent following any Event of Default; provided,that Agent shall not be liable to any Lender for any failure to do so.

###  

### (f)                                    Actionsin Concert.  Anything in thisAgreement to the contrary notwithstanding, each Lender hereby agrees with eachother Lender that no Lender shall take any action to protect or enforce itsrights arising out of this Agreement or the Notes (including exercising anyrights of setoff) without first obtaining the prior written consent of Agentand Requisite Lenders, it being the intent of Lenders that any such action toprotect or enforce rights under this Agreement and the Notes shall be taken inconcert and at the direction or with the consent of Agent or RequisiteLenders.  Agent is authorized to

 

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### issue all notices to beissued by or on behalf of the Lenders with respect to any Subordinated Debt.

 

**SECTION 9.****MISCELLANEOUS**

 

## 9.1                                 Indemnities. Borrower agrees to indemnify, pay, and hold Agent, each Lender, each L/CIssuer and their respective officers, directors, employees, agents, andattorneys (the “Indemnitees”) harmless from and against any and allliabilities, obligations, losses, damages, penalties, actions, judgments,suits, claims, costs and expenses (including all reasonable fees and expensesof counsel to such Indemnitees) of any kind or nature whatsoever that may beimposed on, incurred by, or asserted against the Indemnitee as a result of suchIndemnitees being a party to this Agreement or the transactions consummatedpursuant to this Agreement or otherwise relating to any of the RelatedTransactions; provided, that Borrower shall have no obligation to anIndemnitee hereunder with respect to liabilities to the extent resulting fromthe gross negligence or willful misconduct of that Indemnitee as determined bya court of competent jurisdiction.  Ifand to the extent that the foregoing undertaking may be unenforceable for anyreason, Borrower agrees to make the maximum contribution to the payment andsatisfaction thereof which is permissible under applicable law.

 

## 9.2                                 Amendments and Waivers.

##  

### (a)                                  Exceptfor actions expressly permitted to be taken by Agent, no amendment,modification, termination or waiver of any provision of this Agreement or anyother Loan Document, or any consent to any departure by any Credit Partytherefrom, shall in any event be effective unless the same shall be in writingand signed by Borrower, and by Requisite Lenders or all affected Lenders, asapplicable.  Except as set forth inclauses (b) and (c) below, all such amendments, modifications, terminations orwaivers requiring the consent of any Lenders shall require the written consentof Requisite Lenders.

###  

### (b)                                 Noamendment, modification, termination or waiver of or consent with respect toany provision of this Agreement that increases the percentage advance rates setforth in the definition of the Borrowing Base, or that makes less restrictive thenondiscretionary criteria for exclusion from Eligible Accounts and EligibleInventory set forth in Exhibit 4.9(d), shall be effective unless thesame shall be in writing and signed by Agent, Requisite Lenders andBorrower.  No amendment, modification, terminationor waiver of or consent with respect to any provision of this Agreement thatwaives compliance with the conditions precedent set forth in Section 7.2to the making of any Loan or the incurrence of any Letter of Credit Obligationsshall be effective unless the same shall be in writing and signed by Agent,Requisite Lenders and Borrower. Notwithstanding anything contained in this Agreement to the contrary, nowaiver or consent with respect to any Default or any Event of Default shall beeffective for purposes of the conditions precedent to the making of Loans orthe incurrence of Letter

 

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### of Credit Obligations setforth in Section 7.2 unless the same shall be in writing and signedby Agent, Requisite Lenders and Borrower.

###  

### (c)                                  Noamendment, modification, termination or waiver shall, unless in writing andsigned by Agent and each Lender directly affected thereby:  (i) increase the principal amount ofany Lender’s Revolving Loan Commitment (which action shall be deemed todirectly affect all Lenders); (ii) reduce the principal of, rate ofinterest on or Fees payable with respect to any Loan or Letter of CreditObligations of any affected Lender; (iii) extend any scheduled paymentdate or final maturity date of the principal amount of any Loan of any affectedLender; (iv) waive, forgive, defer, extend or postpone any payment ofinterest or Fees as to any affected Lender (which action shall be deemed onlyto affect those Lenders to whom such payments are made); (v) release anyGuaranty or, except as otherwise permitted in Section 3.7, releaseall or substantially all Collateral (which action shall be deemed to directlyaffect all Lenders); (vi) change the percentage of the Revolving LoanCommitments or of the aggregate unpaid principal amount of the Loans that shallbe required for Lenders or any of them to take any action hereunder; and(vii) amend or waive this Section 9.2 or the definitions ofthe terms “Requisite Lenders” insofar as such definitions affect the substanceof this Section 9.2. Furthermore, no amendment, modification, termination or waiver affectingthe rights or duties of Agent or L/C Issuers under this Agreement or any otherLoan Document shall be effective unless in writing and signed by Agent or L/CIssuers, as the case may be, in addition to Lenders required hereinabove totake such action.  Each amendment,modification, termination or waiver shall be effective only in the specificinstance and for the specific purpose for which it was given.  No amendment, modification, termination orwaiver shall be required for Agent to take additional Collateral pursuant toany Loan Document.  No amendment,modification, termination or waiver of any provision of any Note shall beeffective without the written concurrence of the holder of that Note.  No notice to or demand on any Credit Partyin any case shall entitle such Credit Party or any other Credit Party to anyother or further notice or demand in similar or other circumstances.  Any amendment, modification, termination,waiver or consent effected in accordance with this Section 9.2shall be binding upon each holder of the Notes at the time outstanding and eachfuture holder of the Notes.

 

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## 9.3                                 Notices.  Anynotice or other communication required shall be in writing addressed to therespective party as set forth below and may be personally served, telecopied,sent by electronic mail, sent by overnight courier service or U.S. mail andshall be deemed to have been given: (a) if delivered in person, when delivered; (b) if deliveredby fax or electronic mail, on the date of transmission if transmitted on aBusiness Day before 4:00 p.m. Chicagotime;****(c) if delivered by overnight courier, one (1) Business Dayafter delivery to the courier properly addressed; or (d) if delivered byU.S. mail, four (4) Business Days after deposit with postage prepaid andproperly addressed.

 

Notices shall beaddressed as follows:

 
| If to Borrower:            |   | Cherokee International Corporation                                                               |
|----------------------------|--------|--------------------------------------------------------------------------------------------------|
|                       |   | 2841 Dow Avenue                                                                                  |
|                       |   | Tustin, CA  92780                                                                           |
|                       |   | ATTN: R. Van Ness Holland                                                                        |
|                       |   | Telecopy:  (714) 508-5888                                                                   |
|                       |   | e-mail: van@cherokeellc.com                                                                      |
|                       |   |                                                                                             |
| With a copy to:            |   | Oaktree Capital Management, LLC                                                                  |
|                       |   | 333 South Grand Avenue, 28th Flr                                                                 |
|                       |   | Los Angeles, CA  90071                                                                      |
|                       |   | ATTN:  Christopher S. Brothers                                                              |
|                       |   | Fax:  (213) 830-6395                                                                        |
|                       |   | e-mail: cbrothers@oaktreecap.com                                                                 |
|                       |   |                                                                                             |
| If to Agent or GE Capital: |   | GENERAL ELECTRIC                                                                                 |
|                       |   | CORPORATION                                                                                      |
|                       |   | 100 California Street, 10th Floor                                                                |
|                       |   | San Francisco, CA  94111                                                                    |
|                       |   | ATTN: Cherokee International Account Officer                                                     |
|                       |   | Fax:  (415) 277-7443                                                                        |
|                       |   | e-mail: patrick.henahan@ge.com                                                                   |
|                       |   |                                                                                             |
| With a copy to:            |   | GENERAL ELECTRIC CAPITAL  CORPORATION                                                            |
|                       |   | 500 West Monroe Street                                                                           |
|                       |   | Chicago, Illinois 60661                                                                          |
|                       |   | ATTN:  Legal Department                                                                     |
|                       |   | Commercial Finance – Global Sponsor Finance                                                 |
|                       |   | Fax:  (312) 441-6876                                                                        |
|                       |   | e-mail: andrew.packer@ge.com                                                                     |
|                       |   |                                                                                             |
| If to a Lender:            |   | To the address set forth on the signature page hereto or in the  applicable Assignment Agreement |

 

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## 9.4                                 Failure or Indulgence Not Waiver; RemediesCumulative.  No failure or delay onthe part of Agent or any Lender to exercise, nor any partial exercise of, anypower, right or privilege hereunder or under any other Loan Documents shallimpair such power, right, or privilege or be construed to be a waiver of anyDefault or Event of Default.  All rightsand remedies existing hereunder or under any other Loan Document are cumulativeto and not exclusive of any rights or remedies otherwise available.

 

## 9.5                                 Marshaling; Payments Set Aside.  Neither Agent nor any Lender shall be underany obligation to marshal any assets in payment of any or all of theObligations.  To the extent thatBorrower makes payment(s) or Agent enforces its Liens or Agent or any Lenderexercises its right of set-off, and such payment(s) or the proceeds of suchenforcement or set-off is subsequently invalidated, declared to be fraudulentor preferential, set aside, or required to be repaid by anyone, then to theextent of such recovery, the Obligations or part thereof originally intended tobe satisfied, and all Liens, rights and remedies therefor, shall be revived andcontinued in full force and effect as if such payment had not been made or suchenforcement or set-off had not occurred.

 

## 9.6                                 Severability. The invalidity, illegality, or unenforceability in any jurisdiction ofany provision under the Loan Documents shall not affect or impair the remainingprovisions in the Loan Documents.

 

## 9.7                                 Lenders’ Obligations Several; Independent Nature ofLenders’ Rights.  The obligation ofeach Lender hereunder is several and not joint and no Lender shall beresponsible for the obligation or commitment of any other Lenderhereunder.  In the event that any Lenderat any time should fail to make a Loan as herein provided, the Lenders, or anyof them, at their sole option, may make the Loan that was to have been made bythe Lender so failing to make such Loan. Nothing contained in any Loan Document and no action taken by Agent orany Lender pursuant hereto or thereto shall be deemed to constitute Lenders tobe a partnership, an association, a joint venture or any other kind ofentity.  The amounts payable at any timehereunder to each Lender shall be a separate and independent debt.

 

## 9.8                                 Headings. Section and subsection headings are included herein forconvenience of reference only and shall not constitute a part of this Agreementfor any other purposes or be given substantive effect.

 

## 9.9                                 Applicable Law. PURSUANT TO 735 ILCS 105/5-5 OF THE ILLINOIS CIVIL PROCEDURE-CHOICE OFLAW AND FORUM ACT, THE PARTIES HERETO AGREE THAT THIS AGREEMENT AND EACH OF THEOTHER LOAN DOCUMENTS WHICH DOES NOT EXPRESSLY SET FORTH APPLICABLE LAW SHALL BEGOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNALLAWS OF THE STATE OF ILLINOIS,WITHOUT OTHERWISE GIVING EFFECT TO ILLINOIS’ CONFLICTS OF LAW PRINCIPLES THATWOULD REQUIRE THE APPLICATION OF LAWS OTHER THAN THE LAWS OF THE STATE OFILLINOIS.

 

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## 9.10                           Successors and Assigns.  This Agreement shall be binding upon andinure to the benefit of the parties hereto and their respective successors andassigns except that Borrower may not assign its rights or obligations hereunderwithout the written consent of all Lenders.

 

## 9.11                           No Fiduciary Relationship; Limited Liability.  No provision in the Loan Documents and nocourse of dealing between the parties shall be deemed to create any fiduciaryduty owing to Borrower by Agent or any Lender. Borrower agrees that neither Agent nor any Lender shall have liabilityto Borrower (whether sounding in tort, contract or otherwise) for lossessuffered by Borrower in connection with, arising out of, or in any way relatedto the transactions contemplated and the relationship established by the LoanDocuments, or any act, omission or event occurring in connection therewith,unless and to the extent that it is determined that such losses resulted fromthe gross negligence or willful misconduct of the party from which recovery issought as determined by a final non-appealable order by a court of competentjurisdiction.  Neither Agent nor anyLender shall have any liability with respect to, and Borrower hereby waives,releases and agrees not to sue for, any special, indirect or consequentialdamages suffered by Borrower in connection with, arising out of, or in any wayrelated to the Loan Documents or the transactions contemplated thereby.

 

## 9.12                           Construction. Agent, each Lender, Borrower and each other Credit Party acknowledgethat each of them has had the benefit of legal counsel of its own choice andhas been afforded an opportunity to review the Loan Documents with its legalcounsel and that the Loan Documents shall be construed as if jointly drafted byAgent, each Lender, Borrower and each other Credit Party.

 

## 9.13                           Confidentiality.  Agent and each Lender agree to keep confidential any non-publicinformation delivered pursuant to the Loan Documents and to not disclose suchinformation to Persons other than to potential assignees or participants or toPersons employed by or engaged by Agent a Lender or a Lender’s assignees orparticipants including attorneys, auditors, professional consultants, ratingagencies, insurance industry associations and portfolio management services.  The confidentiality provisions contained inthis Section 9.13 shall not apply to disclosures (i) requiredto be made by Agent or any Lender to any regulatory or governmental agency orpursuant to legal process or (ii) consisting of general portfolioinformation that does not identify Borrower. The obligations of Agent and Lenders under this Section 9.13shall supersede and replace the obligations of Agent and Lenders under anyconfidentiality agreement in respect of this financing executed and deliveredby Agent or any Lender prior to the date hereof.

 

## 9.14                           CONSENT TO JURISDICTION.  BORROWER HEREBY CONSENTS TO THE JURISDICTIONOF ANY STATE OR FEDERAL COURT LOCATED WITHIN COOK COUNTY, STATE OF ILLINOISAND IRREVOCABLY AGREE THAT, SUBJECT TO AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THISAGREEMENT OR THE OTHER LOAN DOCUMENTS**** SHALL BE LITIGATED IN SUCH COURTS.  BORROWER EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OFTHE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS.  BORROWER HEREBY WAIVES PERSONAL SERVICE

 

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OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS****MAYBE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPTREQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS AGREEMENTAND SERVICE****SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HASBEEN POSTED.

 

## 9.15                           WAIVER OF JURY TRIAL.  BORROWER, AGENT  AND EACHLENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM ORCAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT AND THE OTHER LOANDOCUMENTS.  BORROWER, AGENT AND EACHLENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO ABUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THISAGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ONTHE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER, AGENT AND EACH LENDER WARRANT AND REPRESENT THAT EACH HAS HADTHE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACHKNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

 

## 9.16                           Survival of Warranties and Certain Agreements.  All agreements, representations andwarranties made herein shall survive the execution and delivery of thisAgreement, the making of the Loans, issuances of Letters of Credit and theexecution and delivery of the Notes and shall continue in full force and effectas long as the Obligations are outstanding and so long as the Commitments havenot been terminated.  Notwithstandinganything in this Agreement or implied by law to the contrary, the agreements ofBorrower set forth in Sections 1.3(g), 1.10, 1.11 and9.1 shall survive the repayment of the Obligations and the terminationof this Agreement.

 

## 9.17                           Entire Agreement.  This Agreement, the Notes and the other Loan Documents embody theentire agreement among the parties hereto and supersede all prior commitments,agreements, representations, and understandings, whether oral or written,relating to the subject matter hereof, and may not be contradicted or varied byevidence of prior, contemporaneous, or subsequent oral agreements ordiscussions of the parties hereto.  AllExhibits, Schedules and Annexes referred to herein are incorporated in thisAgreement by reference and constitute a part of this Agreement.

 

## 9.18                           Counterparts; Effectiveness.  This Agreement and any amendments, waivers,consents or supplements may be executed in any number of counterparts and bydifferent parties hereto in separate counterparts, each of which when soexecuted and delivered shall be deemed an original, but all of whichcounterparts together shall constitute but one in the same instrument.  This Agreement shall become effective uponthe execution of a counterpart hereof by each of the parties hereto.

 

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## 9.19                           Replacement of Lenders.

##  

### (a)                                  Withinfifteen (15) days after receipt by Borrower of written notice and demand fromany Lender for payment pursuant to Section 1.10 or 1.11 or,as provided in this Section 9.19(c), in the case of certainrefusals by any Lender to consent to certain proposed amendments,modifications, terminations or waivers with respect to this Agreement that havebeen approved by Requisite Lenders or all affected Lenders, as applicable (anysuch Lender demanding such payment or refusing to so consent being referred toherein as an “Affected Lender”), Borrower may, at its option, notifyAgent and such Affected Lender of its intention to do one of the following:

###  

#### (i)                                     Borrower may obtain, at Borrower’sexpense, a replacement Lender (“Replacement Lender”) for such AffectedLender, which Replacement Lender shall be reasonably satisfactory toAgent.  In the event Borrower obtains aReplacement Lender that will purchase all outstanding Obligations owed to suchAffected Lender and assume its Revolving Loan Commitments hereunder withinninety (90) days following notice of Borrower’s intention to do so, theAffected Lender hereby irrevocably agrees to sell and to assign all of itsrights and delegate all of its obligations under this Agreement to suchReplacement Lender in accordance with the provisions of Section 8.1,provided that Borrower has reimbursed such Affected Lender for anyadministrative fee payable pursuant to Section 8.1 and, in any casewhere such replacement occurs as the result of a demand for payment pursuant toSection 1.10 or 1.11, paid all amounts required to be paidto such Affected Lender pursuant to Section 1.10 or 1.11through the date of such sale and assignment; or

####  

#### (ii)                                  Borrower may prepay in full alloutstanding Obligations owed to such Affected Lender and terminate suchAffected Lender’s Pro Rata Share of the Revolving Loan Commitment, in whichcase the Revolving Loan Commitment will be reduced by the amount of such ProRata Share.  Borrower shall, withinninety (90) days following notice of its intention to do so, prepay in full alloutstanding Obligations owed to such Affected Lender (including, in any casewhere such prepayment occurs as the result of a demand for payment forincreased costs, such Affected Lender’s increased costs for which it isentitled to reimbursement under this Agreement through the date of suchprepayment), and terminate such Affected Lender’s obligations under theRevolving Loan Commitment.

####  

### (b)                                 Inthe case of a Non-Funding Lender pursuant to Section 8.5(a), atBorrower’s request, Agent or a Person reasonably acceptable to Agent shall havethe right with Agent’s consent and in Agent’s sole discretion (but shall haveno obligation) to purchase from any Non-Funding Lender, and each Non-FundingLender hereby irrevocably agrees that it shall, at Agent’s request, sell andassign to Agent or such Person, all of the Loans and Revolving Loan Commitmentsof that Non-Funding Lender for an amount equal to the principal balance of allLoans held by such Non-Funding

 

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### Lender and all accruedinterest and Fees with respect thereto through the date of sale, such purchaseand sale to be consummated pursuant to an executed Assignment Agreement.

###  

### (c)                                  If,in connection with any proposed amendment, modification, waiver or terminationpursuant to Section 9.2 (a “Proposed Change”) requiring theconsent of all affected Lenders, the consent of Requisite Lenders is obtained,but the consent of other Lenders whose consent is required is not obtained (anysuch Lender whose consent is not obtained as described herein this beingreferred to as a “Non-Consenting Lender”), then, so long as Agent is nota Non-Consenting Lender, at Borrower’s request Agent, or a Person reasonablyacceptable to Agent, shall have the right with Agent’s consent and in Agent’ssole discretion (but shall have no obligation) to purchase from suchNon-Consenting Lenders, and such Non-Consenting Lenders hereby irrevocablyagree that they shall, upon Agent’s request, sell and assign to Agent or suchPerson, all of the Loans and Revolving Loan Commitments of such Non-ConsentingLenders for an amount equal to the principal balance of all Loans held by theNon-Consenting Lenders and all accrued interest and Fees with respect theretothrough the date of sale, such purchase and sale to be consummated pursuant toan executed Assignment Agreement.

###  

## 9.20                           Delivery of Termination Statements and Mortgage Releases.  Upon payment in full in cash and performanceof all of the Obligations (other than indemnification Obligations), terminationof the Revolving Loan Commitments, and so long as no suits, actionsproceedings, or claims are pending or threatened against any Indemniteeasserting any damages, losses or liabilities that are indemnified liabilitieshereunder, Agent shall deliver to Borrower termination statements, mortgagereleases and other documents necessary or appropriate to evidence thetermination of the Liens securing payment of the Obligations.

 

## 9.21                           No Novation. Notwithstanding anything to the contrary contained herein, thisAgreement is not intended to and does not serve to effect a novation of theObligations under the Existing Credit Agreement.  Instead, it is the express intention of the parties hereto toreaffirm the indebtedness created under the Existing Credit Agreement which isevidenced by the notes provided for therein and secured by the Collateral.  Borrower acknowledges and confirms that theliens and security interests granted pursuant to the Loan Documents secure theindebtedness, liabilities and obligations of Borrower to Agent and Lendersunder the Existing Credit Agreement, as amended and restated hereby, and thatthe term “Obligations” as used in the Loan Documents (or any other term usedtherein to describe or refer to the indebtedness, liabilities and obligationsof Borrower to Agent and Lenders) includes, without limitation, theindebtedness, liabilities and obligations of Borrower under the Notes to bedelivered hereunder, and under the Credit Agreement, as amended and restatedhereby, as the same may be further amended, modified, supplemented or restatedfrom time to time.  The Loan Documentsand all agreements, instruments and documents executed or delivered inconnection with any of the foregoing shall each be deemed to be amended to theextent necessary to give effect to the provisions of this Agreement.  Cross-references in the Loan Documents toparticular section numbers in the Existing Credit Agreement shall bedeemed to be cross-references to the corresponding sections, as applicable, ofthis Agreement.

 

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Witness the due execution of this Amended and Restated Credit Agreementby the respective duly authorized officers of the undersigned as of the datefirst written above.

 

 
|   | **CHEROKEE INTERNATIONAL CORPORATION**,  a  Delaware corporation                 |
|--------|----------------------------------------------------------------------------------|
|   |                                                                             |
|   |                                                                             |
|   | By:                                                                              | /s/ Van Holland |   |
|   | Name: Van Holland                                                                |
|   | Title:  Chief Financial  Officer                                            |
|   |                                                                             |
|   |                                                                             |
|   | **GENERAL ELECTRIC  CAPITAL CORPORATION**,  as Agent, an L/C Issuer and a Lender |
|   |                                                                             |
|   |                                                                             |
|   | Name:                                                                            | /s/ Randall J. Boba |   |
|   | Its Duly Authorized Signatory                                                    |
|        |                                                                                  |  |  |  |

 

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