FEDERAL INCOME TAX
PURPOSES) TO BE TREATED AS A DEEMED DIVIDEND TO THE BORROWER FOR FEDERAL INCOME
TAX PURPOSES OR WITHOUT RESULTING IN ANY OTHER MATERIAL ADVERSE TAX
CONSEQUENCES, THEN BORROWER OR SUCH DOMESTIC SUBSIDIARY, AS APPLICABLE, SHALL
MAKE SUCH PLEDGE AND/OR SUCH FOREIGN SUBSIDIARY SHALL EXECUTE AND DELIVER
DOCUMENTS SUFFICIENT TO GRANT SUCH SECURITY INTEREST AND/OR MAKE SUCH GUARANTY,
AS APPLICABLE.
ALL GRANTS OF SECURITY INTERESTS, PLEDGES AND GUARANTIES
CONTEMPLATED BY THIS SECTION 2.9 SHALL BE MADE PURSUANT TO DOCUMENTATION IN FORM
AND SUBSTANCE SUBSTANTIALLY SIMILAR TO THE COLLATERAL DOCUMENTS IN EFFECT ON THE
RESTATEMENT EFFECTIVE DATE AND OTHERWISE REASONABLY SATISFACTORY TO THE AGENT.
SECTION 3.
NEGATIVE COVENANTS
Borrower agrees as to itself and all other Credit Parties that from and after
the date hereof until the Termination Date:
28
3.1
INDEBTEDNESS.
THE CREDIT PARTIES SHALL NOT
AND SHALL NOT CAUSE OR PERMIT THEIR SUBSIDIARIES DIRECTLY OR INDIRECTLY TO
CREATE, INCUR, ASSUME OR OTHERWISE BECOME 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)
THE OBLIGATIONS;
(B)
INDEBTEDNESS CONSISTING OF (1) INTERCOMPANY
LOANS AND ADVANCES OWING (I) BY BORROWER TO ANY CREDIT PARTY THAT IS A GUARANTOR
OR BY SUCH GUARANTOR TO BORROWER, (II) BY A DOMESTIC SUBSIDIARY TO THE BORROWER
OR TO A DOMESTIC SUBSIDIARY OF BORROWER; (III) BY CHEROKEE ELECTRONICA, S.A. DE
C.V. ("CHEROKEE MX") TO BORROWER OR ANY DOMESTIC SUBSIDIARY IN AN AGGREGATE
PRINCIPAL AMOUNT NOT TO EXCEED $15,000,000 FOR PURPOSES OF FUNDING AND
SUPPORTING THE OPERATIONS AND WORKING CAPITAL NEEDS OF CHEROKEE MX TO THE EXTENT
AND IN A MANNER CONSISTENT WITH PAST PRACTICES; (IV) BY A FOREIGN SUBSIDIARY TO
ANOTHER FOREIGN SUBSIDIARY, OTHER THAN TO CHEROKEE MX; (V) SUBJECT TO AND IN
ACCORDANCE WITH THE TRI-PARTY AGREEMENT RE: PAYMENT PROCEDURES, BY THE ITS
COMPANIES AND BORROWER TO EACH OTHER AND BORROWER, AS APPLICABLE, IN AN
AGGREGATE AMOUNT NOT TO EXCEED $53,000,000; (VI) BY ANY OF THE ITS COMPANIES TO
BORROWER OR ANY DOMESTIC SUBSIDIARY OF BORROWER IN AN AMOUNT NOT TO EXCEED
$8,000,000 PROVIDED THAT SUCH INDEBTEDNESS CONSISTS ONLY OF ACCOUNTS RECEIVABLE
GENERATED BY AND RECORDED ON THE BOOKS OF BORROWER IN THE ORDINARY COURSE OF
BUSINESS IN SELLING INVENTORY, MACHINERY AND EQUIPMENT TO SUCH ITS COMPANY IN A
MANNER AND TO THE EXTENT CONSISTENT WITH HISTORICAL PRACTICE; AND (VII) BY ANY
FOREIGN SUBSIDIARY, TO THE BORROWER OR ANY DOMESTIC SUBSIDIARY IN AN AGGREGATE
PRINCIPAL AMOUNT NOT TO EXCEED $1,500,000; PROVIDED, THAT: (1) BORROWER SHALL
HAVE EXECUTED AND DELIVERED TO EACH SUCH GUARANTOR OR DOMESTIC SUBSIDIARY, AND
EACH SUCH GUARANTOR OR DOMESTIC SUBSIDIARY SHALL HAVE EXECUTED AND DELIVERED TO
BORROWER A DEMAND NOTE (COLLECTIVELY, THE "INTERCOMPANY NOTES") TO EVIDENCE ANY
SUCH INTERCOMPANY INDEBTEDNESS OWING AT ANY TIME BY BORROWER TO SUCH GUARANTOR
OR DOMESTIC SUBSIDIARY OR BY SUCH GUARANTOR OR DOMESTIC SUBSIDIARY TO BORROWER,
WHICH INTERCOMPANY NOTES SHALL BE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY
TO AGENT AND SHALL BE PLEDGED AND DELIVERED TO AGENT PURSUANT TO THE