Document:

Exhibit 10.1

 

 

AMENDED AND RESTATED

CREDIT 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

 

 

 

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.

  	
   

  

 

 

	
  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.

  	
   

  

 

ii

 

	
  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

  	
   

  

 

iii

 

INDEX
OF 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

  

 

iv

 

AMENDED
AND RESTATED CREDIT AGREEMENT

 

This AMENDED AND RESTATED CREDIT AGREEMENT is dated as of
February 25, 2004 and entered into by and among CHEROKEE INTERNATIONAL
CORPORATION, a Delaware corporation (“Borrower”), the financial
institutions who are or hereafter become parties to this Agreement as
“Lenders”, and GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation  (in
its individual capacity “GE Capital”), as the initial L/C Issuer and as
Agent.

 

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 of
November 27, 2002 (the “Existing  Credit  Agreement”),
pursuant to which Heller, as a Lender thereunder, has made available to
Borrower certain term and revolving credit facilities subject to and in
accordance 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 Agreement
dated as of November 27, 2002 made by Borrower in favor of Heller as agent
under the Existing Credit Agreement, and by the pledge of 65% of the capital
stock of each of Borrower’s direct Subsidiaries pursuant to various pledge
agreements;

 

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

 

WHEREAS, Borrower desires that Lenders continue to extend a revolving
credit facility to Borrower in order to provide working capital financing for
Borrower and its Subsidiaries and to provide funds for other general corporate
purposes of Borrower and its Subsidiaries, and in furtherance thereof the
parties hereto desire to amend and restate the Existing Credit Agreement in its
entirety, upon the terms and conditions set forth herein;

 

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

 

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

 

1

 

NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrower, Lenders and Agent hereby
amend and restate the Existing Credit Agreement in its entirety, without
effecting a novation of the Obligations existing thereunder, and otherwise
agree as follows:

 

SECTION 1.

AMOUNTS AND TERMS OF LOANS

 

1.1                                 Loans.  Subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties of Borrower contained herein:

 

(a)                                  Revolving
Loans.

 

(i)                                     Each Revolving Lender agrees,
severally and not jointly, to make available to Borrower from time to time
until the Commitment Termination Date its Pro Rata Share of advances (each a “Revolving
Credit 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 exceed
its 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 shall
not exceed Borrowing Availability. 
Borrowing Availability may be further reduced by Reserves imposed by
Agent in its Permitted Discretion.  All
Revolving Loans shall be repaid in full on the Commitment Termination
Date.  Borrower shall execute and
deliver to each Revolving Lender a note to evidence the Revolving Loan
Commitment of that Revolving Lender. 
Each note shall be in the principal amount of the Revolving Loan
Commitment of the applicable Revolving Lender, dated the Restatement Effective
Date and substantially in the form of Exhibit 1.1(a)(i) (each a “Revolving
Note” 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 Loans
are herein referred to collectively as “Overadvances”), Lenders shall
not be obligated to make Revolving Credit Advances, no additional Letters of
Credit shall be issued and, except as provided in Section 1.1(a)(ii)
below, Revolving Loans must be repaid immediately and Letters of Credit cash
collateralized in an amount sufficient to eliminate any Overadvances.  All Overadvances shall constitute Index Rate
Loans 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 in
any amount with one (1) Business Day prior written notice required for funding
requests equal to or greater than $5,000,000. 
For funding requests for such Loans less than $5,000,000, written notice
must 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 written
notice. Written notices for funding requests

 

2

 

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

 

(ii)                                  If Borrower requests that Revolving
Lenders make, or permit to remain outstanding any Overadvances, Agent may, in
its sole discretion, elect to make, or permit to remain outstanding such
Overadvances; provided, however, that Agent may not cause
Revolving Lenders to make, or permit to remain outstanding, (a) aggregate
Revolving Loans (including, without duplication, Swing Line Loans) in excess of
the Maximum Amount or (b) Overadvances in an aggregate amount in excess of
20%  of the Revolving Loan Commitment. 
If an Overadvance is made, or permitted to remain outstanding, pursuant
to the preceding sentence, then all Revolving Lenders shall be bound to make,
or permit to remain outstanding, such Overadvance based upon their Pro Rata
Shares of the Revolving Loan Commitment in accordance with the terms of this
Agreement.  If an Overadvance remains
outstanding for more than ninety (90) consecutive days during any one hundred
eighty (180) day period, Revolving Loans must be repaid immediately in an
amount sufficient to eliminate all of such Overadvances.  Furthermore, holders of a majority of the
Revolving Loan Commitment may prospectively revoke Agent’s ability to make or
permit Overadvances by written notice to Agent.  Any Overadvance may be made as a Swing Line Advance.

 

(b)                                 [Reserved].

 

(c)                                  Swing
Line Facility.

 

(i)                                     Agent shall notify the Swing Line
Lender 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 time
until the Commitment Termination Date advances (each, a “Swing Line Advance”)
in accordance with any such notice; provided, however, that any
LIBOR request made by Borrower in accordance with the provisions of this
Agreement 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 Revolving
Credit Advances under Section 1.1(a); provided that if the
Swing Line Lender makes a Swing Line Advance pursuant to any such notice, such
Swing Line Advance shall be in lieu of any Revolving Credit Advance that
otherwise 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 exceed
at any time the lesser of (A) the Swing Line Commitment and (B) Borrowing
Availability (“Swing Line Availability”).  Until the Commitment Termination Date, Borrower may from time to
time borrow, repay and re-borrow under this Section 1.1(c).  Each Swing Line Advance shall be made
pursuant to a Notice of Revolving Credit Advance delivered by Borrower to Agent
in accordance with Section 1.1(a). 
Unless the Swing Line Lender has received at least one (1) Business
Day’s prior written

 

3

 

notice from Requisite Lenders instructing it not to make a
Swing Line Advance, the Swing Line Lender shall, notwithstanding the failure of
any condition precedent set forth in Section 7.2, be entitled to
fund that Swing Line Advance, and to have each Revolving Lender make Revolving
Credit Advances in accordance with Section 1.1(c)(iii) or purchase
participating interests in accordance with Section 1.1(c)(iv).  Notwithstanding any other provision of this
Agreement or the other Loan Documents, the Swing Line Loan shall constitute an
Index Rate Loan.  Borrower shall repay
the aggregate outstanding principal amount of the Swing Line Loan with proceeds
of Revolving Loan (to the extent otherwise available hereunder) or with other
funds available to Borrower upon demand therefor by Agent.  The entire unpaid balance of the Swing Line
Loan and all other non-contingent Obligations shall be immediately due and
payable in full in immediately available funds on the Commitment Termination
Date if not sooner paid in full.

 

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

 

(iii)                               The Swing Line Lender, at any time
and 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 irrevocably
authorizes the Swing Line Lender to so act on its behalf) request each
Revolving Lender (including the Swing Line Lender) to make a Revolving Credit
Advance to Borrower (which shall be an Index Rate Loan) in an amount equal to
that Revolving Lender’s Pro Rata Share of the principal amount of the Swing
Line Loan (the “Refunded Swing Line Loan”) outstanding on the date such
notice is given.  Unless any of the
events described in Sections 6.1(f) and 6.1(g) has occurred (in
which event the procedures of Section 1.1(c)(iv) shall apply) and
regardless of whether the conditions precedent set forth in this Agreement to
the making of a Revolving Credit Advance are then satisfied, each Revolving
Lender shall disburse directly to Agent, its Pro Rata Share of a Revolving
Credit Advance on behalf of the Swing Line Lender, prior to 2:00 p.m. (Chicago
time), in immediately available funds on the Business Day next succeeding the
date that notice is given.  The proceeds
of those Revolving Credit Advances shall be immediately paid to the Swing Line
Lender and applied to repay the Refunded Swing Line Loan.

 

(iv)                              If, prior to refunding a Swing Line
Loan 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) has
occurred, then, subject to the provisions of Section 1.1(c)(v)

 

4

 

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

 

(v)                                 Each Revolving Lender’s obligation
to 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 any
circumstance, including (A) any setoff, counterclaim, recoupment, defense
or other right that such Revolving Lender may have against the Swing Line
Lender, Borrower or any other Person for any reason whatsoever; (B) the
occurrence or continuance of any Default or Event of Default; (C) any
inability of Borrower to satisfy the conditions precedent to borrowing set
forth in this Agreement at any time or (D) any other circumstance,
happening or event whatsoever, whether or not similar to any of the
foregoing.  Swing Line Lender shall be
entitled to recover, on demand, from each Revolving Lender the amounts required
pursuant to Sections 1.1.(c)(iii) or 1.1(c)(iv), as the case may
be.  If any Revolving Lender does not
make 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 on
demand from such Revolving Lender, together with interest thereon for each day
from the date of non-payment until such amount is paid in full at the Federal
Funds Rate for the first two (2) Business Days and at the Index Rate
thereafter.

 

(d)                                 Letters
of Credit.  The Revolving Loan
Commitment 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/C
Issuer of a Letter of Credit, and without further action on the part of Agent
or any of the Lenders, each Revolving Lender shall be deemed to have purchased
from such L/C Issuer a participation in such Letter of Credit (or in its
obligation under a risk participation agreement with respect thereto) equal to
such Revolving Lender’s Pro Rata Share of the aggregate amount available to be
drawn under such Letter of Credit.

 

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

 

(ii)                                  Reimbursement. 
Borrower shall be irrevocably and unconditionally obligated forthwith
without presentment, demand, protest or other formalities of any kind, to
reimburse any L/C Issuer within one (1) Business Day following demand in
immediately available funds for any amounts paid by such L/C Issuer with
respect to a Letter of Credit, including all reimbursement

 

5

 

payments, Fees, Charges, costs and expenses paid by such L/C
Issuer.  Borrower hereby authorizes and
directs Agent, at Agent’s option, to debit Borrower’s account (by increasing
the outstanding principal balance of the Revolving Credit Advances) in the
amount of any payment made by an L/C Issuer with respect to any Letter of
Credit.  All amounts paid by an L/C
Issuer with respect to any Letter of Credit that are not immediately repaid by
Borrower with the proceeds of a Revolving Credit Advance or otherwise shall
bear interest at the interest rate applicable to Revolving Loans which are
Index Rate Loans plus, at the election of Agent or Requisite Lenders, an
additional two percent (2.00%) per annum. 
Each Revolving Lender agrees to fund its Pro Rata Share of any Revolving
Loan made pursuant to this Section 1.1(d)(ii).  In the event Agent elects not to debit
Borrower’s account and Borrower fails to reimburse the L/C Issuer in full on
the date of any payment in respect of a Letter of Credit, Agent shall promptly
notify each Revolving Lender of the amount of such un-reimbursed payment and
the accrued interest thereon and each Revolving Lender, on the next Business
Day prior to 2:00 p.m. (Chicago time),
shall deliver to Agent an amount equal to its Pro Rata Share thereof in
same day funds.  Each Revolving Lender
hereby absolutely and unconditionally agrees to pay to the L/C Issuer upon
demand by the L/C Issuer such Revolving Lender’s Pro Rata Share of each payment
made by the L/C Issuer in respect of a Letter of Credit and not immediately
reimbursed by Borrower or satisfied through a debit of Borrower’s account.  Each Revolving Lender acknowledges and
agrees that its obligations pursuant to this subsection in respect of
Letters of Credit are absolute and unconditional and shall not be affected by
any circumstance whatsoever, including setoff, counterclaim, the occurrence and
continuance of a Default or an Event of Default or any failure by Borrower to
satisfy any of the conditions set forth in Section 7.2.  If any Revolving Lender fails to make
available to the L/C Issuer the amount of such Revolving Lender’s Pro Rata
Share of any payments made by the L/C Issuer in respect of a Letter of Credit
as provided in this Section 1.1(d)(ii), the L/C Issuer shall be
entitled to recover such amount on demand from such Revolving Lender together
with interest at the Index Rate.

 

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

 

6

 

the issuance of a Letter of Credit shall be accompanied by
the form of the Letter of Credit and the Master Standby Agreement or Master
Documentary Agreement, as applicable, and an application for a letter of
credit, if any, then required by the L/C Issuer completed in a manner
satisfactory to such L/C Issuer.  If any
provision of any application or reimbursement agreement is inconsistent with
the terms of this Agreement, then the provisions of this Agreement, to the
extent of such inconsistency, shall control.

 

(iv)                              Expiration Dates of Letters of
Credit.  The expiration date of each Letter of Credit
shall be on a date which is not later than the earlier of (a) one year
from its date of issuance or (b) the thirtieth (30th) day prior
to the date set forth in clause (a) of the definition of the term
Commitment Termination Date. Notwithstanding the foregoing, a Letter of Credit
may provide for automatic extensions of its expiration date for one (1) or more
successive one (1) year periods provided that the L/C Issuer has the right to
terminate such Letter of Credit on each such annual expiration date and no
renewal term may extend the term of the Letter of Credit to a date that is
later 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 any
such Letter of Credit and, upon direction by Agent or Requisite Lenders, shall
not renew any such Letter of Credit at any time during the continuance of an
Event of Default, provided that, in the case of a direction by Agent or
Requisite Lenders, the L/C Issuer receives such directions prior to the date
notice of non-renewal is required to be given by the L/C Issuer and the L/C
Issuer 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 and
Lenders for payments made in respect of Letters of Credit issued by the L/C
Issuer shall be unconditional and irrevocable and shall be paid under all
circumstances strictly in accordance with the terms of this Agreement,
including the following circumstances: (a) any lack of validity or
enforceability of any Letter of Credit; (b) any amendment or waiver of or
any consent or departure from all or any of the provisions of any Letter of
Credit or any Loan Document; (c) the existence of any claim, set-off,
defense or other right which Borrower, any of its Subsidiaries or Affiliates or
any other Person may at any time have against any beneficiary of any Letter of
Credit, Agent, any L/C Issuer, any Lender or any other Person, whether in
connection with this Agreement, any other Loan Document or any other related or
unrelated agreements or transactions; (d) any draft or other document
presented under any  Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; (e) payment
under any Letter of Credit against presentation of a draft or other document
that 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/C
Issuer, Agent, any Lender or any other Person or any other event or circumstance

 

7

 

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 not
issue a Letter of Credit hereunder until it has provided Agent with written
notice specifying the amount and intended issuance date of such Letter of
Credit and Agent has returned a written acknowledgment of such notice to L/C
Issuer.  Each L/C Issuer (other than GE
Capital) further agrees to provide to Agent: 
(a) a copy of each Letter of Credit issued by such L/C Issuer
promptly after its issuance; (b) a weekly report summarizing available
amounts under Letters of Credit issued by such L/C Issuer, the dates and
amounts of any draws under such Letters of Credit, the effective date of any
increase or decrease in the face amount of any Letters of Credit during such
week and the amount of any un-reimbursed draws under such Letters of Credit;
and (c) such additional information reasonably requested by Agent from
time to time with respect to the Letters of Credit issued by such L/C
Issuer.  Without limiting the generality
of the foregoing, it is expressly understood and agreed by Borrower that the
absolute and unconditional obligation of Borrower to Agent and Lenders
hereunder to reimburse payments made under a Letter of Credit will not be
excused by the gross negligence or willful misconduct of the L/C Issuer.  However, the foregoing shall not be
construed to excuse an L/C Issuer from liability to Borrower to the extent of
any direct damages (as opposed to consequential damages, with Borrower hereby
waiving all claims for any consequential damages to the extent permitted by
applicable law) suffered by Borrower that are subject to indemnification under
the Master Standby Agreement or the Master Documentary Agreement.

 

(e)                                  Funding
Authorization.  The proceeds of all
Loans made pursuant to this Agreement subsequent to the Restatement Effective
Date are to be funded by Agent by wire transfer to the account designated by
Borrower 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 the
foregoing instructions at least three (3) Business Days before the desired
effective date of such change.

 

8

 

1.2                                 Interest and Applicable Margins.

 

(a)                                  Borrower
shall pay interest to Agent, for the ratable benefit of Lenders, in accordance
with the various Loans being made by each Lender, in arrears on each applicable
Interest Payment Date, at the following rates: 
(i) with respect to the Revolving Credit Advances which are
designated as Index Rate Loans (and for all other Obligations not otherwise set
forth below), the Index Rate plus the Applicable Revolver Index Margin per annum
or, with respect to Revolving Credit Advances which are designated as LIBOR
Loans, the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per
annum;  and (ii)  with respect to
the Swing Line Loan, the Index Rate plus the Applicable Revolver Index Margin
per annum.

 

The Applicable Margins are as
follows:

 

	
  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)                                 If
any payment on any Loan becomes due and payable on a day other than a Business
Day, 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 to
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension.

 

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

 

(d)                                 So
long 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 any
other Event of Default has occurred and is continuing and at the election of
Agent (or upon the written request of Requisite Lenders) confirmed by written
notice from Agent to Borrower, the interest rates applicable to the Loans and
the Letter of Credit Fee shall be increased by two percentage points (2.00%) per annum above the rates of
interest or the rate of such Fee otherwise applicable hereunder (the “Default
Rate”), and all outstanding Obligations shall bear interest at the Default
Rate applicable to such Obligations. 
Interest and Letter

 

9

 

of Credit Fees at the
Default Rate shall accrue from the initial date of such Event of Default until
that Event of Default is cured or waived and shall be payable upon demand, but
in any event, shall be payable on the next regularly scheduled payment date set
forth herein for such Obligation.

 

(e)                                  Borrower
shall have the option to (i) request that any Revolving Credit Advance be
made as a LIBOR Loan, (ii) convert at any time all or any part of
outstanding Loans (other than the Swing Line Loan) from Index Rate Loans to
LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject
to 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 Period
applicable thereto, or (iv) continue all or any portion of any Loan (other
than the Swing Line Loan) as a LIBOR Loan upon the expiration of the applicable
LIBOR Period and the succeeding LIBOR Period of that continued Loan shall
commence on the first day after the last day of the LIBOR Period of the Loan to
be continued.  Any Loan or group of
Loans having the same proposed LIBOR Period to be made or continued as, or
converted into, a LIBOR Loan must be in a minimum amount of $100,000  and integral multiples of $100,000 in excess of such
amount.  Any such election must be made by noon (Chicago time)  on
the 3rd Business Day prior to (1) the date of any proposed
Revolving 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 be
continued as such, or (3) the date on which Borrower wishes to convert any
Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower in
such election.  If no election is
received with respect to a LIBOR Loan by noon (Chicago time) on the 3rd Business Day prior to
the end of the LIBOR Period with respect thereto, that LIBOR Loan shall be
converted to an Index Rate Loan at the end of its LIBOR Period.  Borrower must make such election by notice
to Agent in writing, by fax or overnight courier.  In the case of any conversion or continuation, such election must
be 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, if
an Event of Default has occurred and is continuing and Agent or Requisite
Lenders have determined not to make or continue any Loan as a LIBOR Loan as a
result thereof. No Loan may be made as
or converted into a LIBOR Loan until five (5) days after the Restatement
Effective Date.

 

(f)                                    Notwithstanding
anything to the contrary set forth in this Section 1.2, if a court
of competent jurisdiction determines in a final order that the rate of interest
payable hereunder exceeds the highest rate of interest permissible under law
(the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate
would be so exceeded, the rate of interest payable hereunder shall be equal to
the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by Agent, on behalf
of Lenders, is equal to the total interest that would have been received had
the interest rate payable hereunder been (but for the operation of this
paragraph) the interest rate payable since the Restatement Effective Date as
otherwise provided in this Agreement.

 

10

 

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

 

1.3                                 Fees.

 

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

 

(b)                                 Unused
Line Fee.  As additional
compensation for the Revolving Lenders, Borrower shall pay to Agent, for the
ratable benefit of such Lenders, in arrears, on the first Business Day of each
Fiscal Quarter prior to the Commitment Termination Date and on the Commitment
Termination Date, a fee for Borrower’s non-use of available funds in an amount
equal to the Applicable Unused Line Fee
Margin per annum multiplied by the difference between (x) the
Maximum Amount (as it may be reduced from time to time) and (y) the
average for the period of the daily closing balances of the Revolving Loan (including,
without duplication, Swing Line Loans) outstanding during the period for which
such Fee is due.

 

(c)                                  [Reserved].

 

(d)                                 Letter
of Credit Fee.  Borrower agrees to
pay to Agent for the benefit of Revolving Lenders, as compensation to such
Revolving Lenders for Letter of Credit Obligations incurred hereunder,
(i) all costs and expenses incurred by Agent or any Lender on account of
such Letter of Credit Obligations, and (ii) for each Fiscal Quarter during
which any Letter of Credit Obligation shall remain outstanding, a fee (the “Letter
of Credit Fee”) in an amount equal to the Applicable L/C Margin multiplied by the average amount
available from time to time to be drawn under the applicable Letter of Credit
during such Fiscal Quarter.  Such fee
shall be paid to Agent for the benefit of the Revolving Lenders in arrears, on
the first Business Day of each month and on the Commitment Termination
Date.  In addition, Borrower shall pay
to 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

 

and payment of such
Letter of Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.

 

(e)                                  LIBOR
Breakage Fee.  Upon (i) any
default by Borrower in making any borrowing of, conversion into or continuation
of any LIBOR Loan following Borrower’s delivery to Agent of any LIBOR Loan
request in respect thereof or (ii) any payment of a LIBOR Loan on any day
that is not the last day of the LIBOR Period applicable thereto (regardless of
the source of such prepayment and whether voluntary, by acceleration or
otherwise), Borrower shall pay Agent, for the benefit of all Lenders that
funded or were prepared to fund any such LIBOR Loan, the LIBOR Breakage Fee.

 

(f)                                    [Reserved].

 

(g)                                 Expenses
and Attorneys’ Fees.  Borrower
agrees to promptly pay all fees, charges, costs and expenses (including
reasonable attorneys’ fees and expenses) incurred by Agent in connection with
any matters contemplated by or arising out of the Loan Documents, in connection
with the examination, review, due diligence investigation, documentation,
negotiation, closing and syndication of the transactions contemplated herein
and in connection with the continued administration of the Loan Documents
including any amendments, modifications, consents and waivers.  Borrower agrees to promptly pay reasonable
documentation charges assessed by Agent for amendments, waivers, consents and
any 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 of
attorneys, auditors (whether internal or external), appraisers, consultants and
advisors and the allocated cost of internal legal staff) incurred by Agent in
connection with any Event of Default, work-out or action to enforce any Loan
Document or to collect any payments due from Borrower or any other Credit
Party.  In addition, in connection with
any work-out or action to enforce any Loan Document or to collect any payments
due from Borrower or any other Credit Party, Borrower agrees to promptly pay
all fees, charges, costs and expenses incurred by Lenders for one (1) counsel
acting for all Lenders and Agent.  All
fees, 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 or
in accordance with the final sentence of Section 1.4 and secured by
the Collateral.

 

1.4                                 Payments. 
All payments by Borrower of the Obligations shall be
without deduction, defense, setoff or counterclaim and shall be made in same
day funds and delivered to Agent, for the benefit of Agent and Lenders, as
applicable, by wire transfer to the following account or such other place as
Agent may from time to time designate in writing.

 

ABA No. 021-001-033

Account Number 502-328-54

Bankers Trust Company

New York, New York

12

 

ACCOUNT NAME: GECC/CAF DEPOSITORY

Reference:  GE Capital re Cherokee International

 

Borrower
shall receive credit on the day of receipt for funds received by Agent by
1:00 p.m. (Chicago time).  In the
absence of timely receipt, such funds shall be deemed to have been paid on the
next Business Day.  Whenever any payment
to be made hereunder shall be stated to be due on a day that is not a Business
Day, the payment may be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the amount of
interest and Fees due hereunder.

 

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

 

1.5                                 Prepayments.  Without
prejudicing, qualifying, limiting or otherwise affecting the provisions of
Section 1.6 of the Security Agreement and the provisions of any Bank
Agency and Control Agreements (as defined therein) or other Blocked Account
agreements now or hereafter existing and relating to the collection, deposit,
control and application of operating revenues and other monies received by
Borrower and/or its Domestic Subsidiaries, Borrower agrees as follows.

 

(a)                                  Voluntary
Prepayments of Loans.  At any time,
Borrower, in accordance with subsection 1.1(a)(i), may prepay the
Loans, in whole or in part, without
premium or penalty subject to the payment of  LIBOR Breakage Fees, if
applicable.

 

(b)                                 [Reserved].

 

(c)                                  Prepayments
from Asset Dispositions. 
Immediately upon receipt of any Net Proceeds relating to any event
occurring after the Restatement Effective Date, Borrower shall, in accordance
with subsection 1.1(a)(i) hereof and except as otherwise provided
in subsection 1.1(a)(ii), repay the Revolving Credit Advances
(without reduction of the Revolving Loan Commitment) by an amount equal to the
amount of any reduction in the
Borrowing Base attributable to the Asset Disposition giving rise to such Net
Proceeds to the extent that any such reduction would result in the outstanding
principal balance of the Revolving Loan exceeding the maximum amount of
Revolving Loan permitted to be outstanding. 
Borrower or any Subsidiary may reinvest all remaining Net Proceeds of
such Asset Disposition, within one year, in productive assets of a kind then
used or usable in the business of Borrower or such Subsidiary.  If Borrower does not intend to so reinvest
such Net Proceeds or if the period set forth in the immediately preceding
sentence expires without Borrower having reinvested such Net Proceeds, the
payments shall be applied in accordance with Section 1.5(e).

 

(d)                                 Prepayments
from Issuance of Securities.  Within
five (5) Business Days following the receipt by Borrower of the net cash
proceeds of the issuance of Stock (other

 

13

 

than (1) proceeds of
the issuance of Stock by Borrower received in connection with the IPO, the over
allotment option granted to the underwriters in connection therewith and any
secondary offering consummated within one year of the IPO, (2) proceeds
from the issuance of Stock to employees, directors or members of the management
of Borrower or any of its Subsidiaries or pursuant to any stock option plan,
(3) proceeds from the issuance of Stock to the Existing Control
Shareholders, (4) proceeds of the issuance of Stock to Borrower or any
Subsidiary of Borrower, and (5) proceeds from the issuance or exercise of
options or warrants relating to the Stock of Borrower), Borrower shall prepay the Loans in an
amount equal to such cash proceeds, net of underwriting discounts and
commissions and other reasonable costs and fees associated therewith or related
thereto, including, without limitation, legal, accounting and investment
banking fees and expenses.  The payments
shall be applied in accordance with Section 1.5(e).

 

(e)                                  Application
of Proceeds.  With respect to the
prepayments described in Sections 1.5(a) (other than any amount applied to the Revolving Credit Advances as a
result of the reduction of the Borrowing Base as specified therein), 1.5(c)  and
1.5(d), such prepayments shall
first be applied  to reduce the outstanding principal
balance of the Swing Line Loan and then the Revolving Credit Advances but not as a permanent reduction of the
Revolving Loan Commitment.  Considering
each type of Loan being prepaid separately, any such prepayment shall be
applied first to Index Rate Loans of the type required to be prepaid before
application to LIBOR Loans of the type required to be prepaid, in each case in
a manner which minimizes any resulting LIBOR Breakage Fee.

 

(f)                                    Application
of Prepayments from Insurance Proceeds. 
Prepayments from insurance in accordance with Section 2.2
shall be applied as follows:  first, to
the Swing Line Loans and, second, to the Revolving Credit Advances.  Neither the Revolving Loan Commitment nor
the Swing Line Loan Commitment shall be permanently reduced by the amount of
any such prepayments.

 

(g)                                 Letter
of Credit Obligations.  In the event
any Letters of Credit are outstanding at the time that the Revolving Loan
Commitment is terminated, Borrower shall (1) deposit with Agent for the
benefit of all Revolving Lenders cash in an amount equal to 105% of the
aggregate outstanding Letter of Credit Obligations to be available to Agent to
reimburse payments of drafts drawn under such Letters of Credit and pay any
Fees and expenses related thereto or cause to be issued back-up letters of
credit reasonably acceptable to Agent, and (2) prepay the fee payable
under Section 1.3(d) with respect to such Letters of Credit for the
full remaining terms of such Letters of Credit.  Upon termination of any such Letter of Credit, the unearned
portion of such prepaid fee attributable to such Letter of Credit and any other
amounts deposited with Agent pursuant to this clause (g) (with respect to such
terminated Letter of Credit) not applied to reimburse the L/C Issuer for
drawings made on such Letter of Credit shall be refunded to Borrower.

 

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

 

14

 

upon termination of this Agreement. 
Until all Obligations have been fully paid and satisfied (other than
contingent indemnification obligations to the extent no unsatisfied claim has
been asserted), the Revolving Loan Commitment has been terminated and all
Letters 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 Collateral
granted under the Collateral Documents and the ability to exercise all rights
and remedies available to them under the Loan Documents and applicable laws.  Notwithstanding anything contained in this
Agreement to the contrary, upon any termination of the Revolving Loan
Commitment, all of the Obligations shall be due and payable.

 

1.7                                 Eligible
Accounts. 
All of the Accounts owned by Borrower and its Domestic Subsidiaries
and reflected in the most recent Borrowing Base Certificate delivered by
Borrower to Agent shall be “Eligible Accounts” for purposes of this
Agreement, except any Account to which any of the exclusionary criteria set
forth below applies.  Agent shall have
the right to establish, modify or
eliminate Reserves against Eligible Accounts from time to time in its
Permitted Discretion.  In addition,
Agent reserves the right, at any time and from time to time after the
Restatement Effective Date, to adjust any of the criteria set forth below, to
establish new criteria and to adjust
advance rates with respect to Eligible Accounts, in its Permitted
Discretion, subject to the approval of Requisite Lenders in the case of
adjustments, new criteria or changes in
advance rates which have the effect of making more credit
available.  Eligible Accounts shall not
include any Account of Borrower or any Domestic Subsidiary thereof:

 

(a)                                  that
does not arise from the sale or lease of goods or the performance of services by
Borrower 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 is
not absolute or is contingent upon the fulfillment of any condition whatsoever
or (ii) as to which such Person is not able to bring suit or otherwise enforce
its remedies against the Account Debtor through judicial process, or (iii) if
the Account represents a progress billing consisting of an invoice for goods
sold or used or services rendered pursuant to a contract under which the
Account Debtor’s obligation to pay that invoice is subject to such Person’s
completion of further performance under such contract or is subject to the
equitable lien of a surety bond issuer;

 

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

 

(d)                                 that
is not a true and correct statement, in all material respects, of bona fide
obligation incurred in the amount of the Account for merchandise sold to or
services rendered and accepted by the applicable Account Debtor;

 

(e)                                  with
respect 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 to
any right, claim, security interest or other interest of any other Person,
other

 

15

 

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

 

(g)                                 that
arises from a sale to any director, officer, other employee or Affiliate of any
Credit Party, or to any entity that has any common officer with any Credit
Party;

 

(h)                                 that
is the obligation of an Account Debtor that is the United States government or
a political subdivision thereof, or any
state, county or municipality or department, agency or instrumentality
thereof unless Agent, in its sole discretion, has agreed to the contrary in
writing or Borrower or such Domestic Subsidiary has complied with respect to
such obligation with the Federal Assignment of Claims Act of 1940, or any applicable state, county or municipal
law restricting the assignment thereof with respect to such obligation;

 

(i)                                     that
is the obligation of an Account Debtor located in a foreign country other than
Canada unless payment thereof is assured by a letter of credit assigned or
other credit support and delivered to Agent, reasonably satisfactory to Agent
as to form, amount and issuer;

 

(j)                                     to
the extent Borrower or any Subsidiary thereof is liable for goods sold or services
rendered by the applicable Account Debtor to Borrower or any Subsidiary thereof
but only to the extent of the potential offset;

 

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

 

(l)                                     an
Account is not paid within the earlier of sixty (60) days following its due
date or ninety (90) days following its original invoice date;

 

(m)                               an
Account with respect to which the Account Debtor obligated thereon suspends
business, makes a general assignment for the benefit of creditors or fails to
pay its debts generally as they come due; or

 

(n)                                 a
petition is filed by or against any Account Debtor obligated upon such Account
under any bankruptcy law or any other federal, state or foreign (including any
provincial) receivership, insolvency relief or other law or laws for the relief
of debtors;

 

(o)                                 that
is the obligation of an Account Debtor if 50% or more of the Dollar amount of
all Accounts owing by that Account Debtor are ineligible under the other
criteria set forth in clause (l) above;

 

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

 

16

 

(q)                                 as
to which any of the representations or warranties in the Loan Documents are
untrue in any material respect;

 

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

 

(s)                                  to
the extent such Account exceeds any credit limit established by Agent, in its
Permitted Discretion, following prior
notice of such limit by Agent to Borrower;

 

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

 

(u)                                 that
is payable in any currency other than Dollars unless supported by credit
support reasonably satisfactory to Agent.

 

1.8                                 Eligible
Inventory. 
All of the Inventory owned by Borrower or any of its
Domestic Subsidiaries and reflected in the most recent Borrowing Base
Certificate delivered by Borrower to Agent shall be “Eligible Inventory”
for purposes of this Agreement, except any Inventory to which any of the
exclusionary criteria set forth below applies. 
Agent shall have the right to establish, modify, or eliminate Reserves against Eligible Inventory from time to time
in its Permitted Discretion.  In
addition, Agent reserves the right, at any time and from time to time after the
Restatement Effective Date, to adjust any of the criteria set forth below, to
establish new criteria and to adjust
advance rates with respect to Eligible Inventory  in its Permitted Discretion,
subject to the approval of Requisite Lenders in the case of adjustments,  new
criteria or changes in advance rates  which
have the effect of making more credit available.  Eligible Inventory shall not include any Inventory of Borrower or
any Domestic Subsidiary of Borrower that:

 

(a)                                  is
not owned by Borrower free and clear of all Liens and rights of any other
Person (including the rights of a purchaser that has made progress payments and
the rights of a surety that has issued a bond to assure Borrower’s performance
with respect to that Inventory), except the Liens in favor of Agent, on behalf
of itself and Lenders, and applicable Permitted Encumbrances;

 

(b)                                 (i)
is not located on premises owned, leased or rented by Borrower and set forth in
Schedule 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 prior
consent thereto and unless (x) a reasonably satisfactory landlord waiver has
been delivered to Agent, or (y) Reserves satisfactory to Agent have been
established with respect thereto, (iii) is stored with a bailee or
warehouseman unless a reasonably satisfactory, acknowledged bailee letter has
been received by Agent or Reserves reasonably satisfactory to Agent have been established
with respect thereto, (iv) is located at an owned location subject to a
mortgage

 

17

 

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

 

(c)                                  is
placed on consignment (except as permitted by clause (b) above) or is in
transit, except for Inventory in transit between domestic locations of Credit
Parties as to which Agent’s Liens have been perfected at origin and
destination;

 

(d)                                 is
covered by a negotiable document of title, unless such document has been
delivered to Agent with all necessary endorsements, free and clear of all Liens
except those in favor of Agent and Lenders;

 

(e)                                  is
obsolete, un-saleable, shopworn, seconds, damaged or unfit for sale;

 

(f)                                    consists
of display items or packing or shipping materials, manufacturing supplies or
replacement parts, in each case to the extent not constituting inventory,

 

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

 

(h)                                 consists
of goods which have been returned by a buyer, other than up to $500,000 of
goods at any given time that have been returned by a buyer other than due to
defect, damage or non-conformance and which have been accepted by Borrower as a
temporary accommodation to such buyer and with respect to which Borrower
expects, in good faith, to re-ship to such buyer, all in a manner consistent
with past practice;

 

(i)                                     is
not of a type held for sale or lease in the ordinary course of Borrower’s
business;

 

(j)                                     is
not subject to a first priority lien in favor of Agent on behalf of itself and
Lenders subject to Permitted Encumbrances;

 

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

 

(l)                                     consists
of any costs associated with “freight-in” charges;

 

(m)                               consists
of goods that can be transported or sold only with licenses that are not
readily available;

 

(n)                                 is
not covered by casualty insurance reasonably acceptable to Agent;

 

(o)                                 with
respect to which there exists any Lien (other than Permitted Encumbrances) in
favor of any Person other than Agent; or

 

18

 

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

 

1.9                                 Loan
Accounts. 
Agent shall maintain a loan account (the “Loan Account”)
on its books to record:  all Advances,
all payments made by Borrower, and  all
other debits and credits as provided in this Agreement with respect to the
Loans or any other Obligations.  All
entries in the Loan Account shall be made in accordance with Agent’s customary
accounting practices as in effect from time to time.  The balance in the Loan Account, as recorded on Agent’s most
recent printout or other written statement, shall, absent manifest error, be
presumptive evidence of the amounts due and owing to Agent and Lenders by
Borrower; provided that any failure to so record or any error in so
recording shall not limit or otherwise affect Borrower’s duty to pay the
Obligations.  Agent shall render to
Borrower a monthly accounting of transactions with respect to the Loans setting
forth the balance of the Loan Account for the immediately preceding month.  Unless Borrower notifies Agent in writing of
any objection to any such accounting (specifically describing the basis for
such objection), within sixty (60) days after the date thereof, each and every
such accounting shall, absent manifest error, be deemed final, binding and
conclusive on Borrower in all respects as to all matters reflected
therein.  Only those items expressly
objected to in such notice shall be deemed to be disputed by Borrower.  Notwithstanding any provision herein
contained 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 Loan
Account as evidence of the amount of Obligations from time to time owing to it.

 

1.10                           Yield
Protection; Illegality.

 

(a)                                  Capital
Adequacy and Other Adjustments.  In
the event that any Lender shall have determined that the adoption after the
later of (x) the date hereof or (y) the date such Lender became a party hereto
of any law, treaty, governmental (or quasi-governmental) rule, regulation,
guideline or order regarding capital adequacy, reserve requirements or similar
requirements or compliance by any Lender or any corporation controlling such
Lender with any request or directive regarding capital adequacy, reserve
requirements or similar requirements (whether or not having the force of law
and whether or not failure to comply therewith would be unlawful) from any
central bank or governmental agency or body having jurisdiction does or shall
have the effect of increasing the amount of capital, reserves or other funds
required to be maintained by such Lender or any corporation controlling such
Lender and thereby reducing the rate of return on such Lender’s or such
corporation’s capital as a consequence of its obligations hereunder, then
Borrower shall from time to time within fifteen (15) days after notice and
demand from such Lender (together with the certificate referred to in the next
sentence and with a copy to Agent) pay to Agent, for the account of such
Lender, additional amounts sufficient to compensate such Lender for such
reduction; provided, however that Borrower shall not be obligated
to pay such Lender or controlling Person any compensation attributable 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 cost and showing the basis
of the computation of such cost submitted

 

19

 

by such Lender to
Borrower and Agent shall, absent manifest error, be final, conclusive and
binding for all purposes.

 

(b)                                 Increased
LIBOR Funding Costs; Illegality. 
Notwithstanding anything to the contrary contained herein, if, with
respect 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 a
party hereto shall make it unlawful, or any central bank or other Governmental
Authority shall assert that it is unlawful, for any such Lender to agree to
make or to make or to continue to fund or maintain any LIBOR Loan, then, unless
that Lender is able to make or to continue to fund or to maintain such LIBOR
Loan at another branch or office of that Lender without, in that Lender’s
reasonable opinion, adversely affecting it or its Loans or the income obtained
therefrom, on notice thereof and demand therefor by such Lender to Borrower
through Agent, (i) the obligation of such Lender to agree to make or to
make or to continue to fund or maintain LIBOR Loans shall terminate and
(ii) Borrower shall forthwith prepay in full all outstanding LIBOR Loans
owing to such Lender, together with interest accrued thereon, unless
Borrower, within five (5) Business Days after the delivery of such notice and
demand, converts all LIBOR Loans into Index Rate Loans. If, after the date
hereof, 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 otherwise
increase the cost to any Lender of making or maintaining a LIBOR Loan, then
Borrower shall from time to time within fifteen (15) days after notice and
demand from Agent (together with the certificate referred to in the next
sentence) pay to Agent, for the account of all such affected Lenders,
additional amounts sufficient to compensate such Lenders for such increased
cost (other than any costs relating to taxes); provided, however
that Borrower shall not be obligated to pay such Lenders any compensation
attributable 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 cost
and showing the basis of the computation of such cost submitted by Agent on
behalf of all such affected Lenders to Borrower shall, absent manifest error,
be final, conclusive and binding for all purposes.

 

1.11                           Taxes.

 

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

 

20

 

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

 

(i)                                     does or shall subject Agent or any
Lender to any tax of any kind whatsoever (except for taxes imposed on or
measured or determined by reference to a net income basis on any Lender or
Agent and any franchise taxes imposed in lieu of net income taxes) with respect
to this Agreement, the other Loan Documents or any Loans made or Letters of
Credit issued hereunder, or change the basis of taxation of payments to Agent
or such Lender of principal, fees, interest or any other amount payable
hereunder (except for taxes imposed on or measured or determined by reference
to a net income basis on any Lender or Agent and any franchise taxes imposed in
lieu of net income taxes), imposed generally by federal, state or local taxing
authorities with respect to principal, fees, interest or any other amount
payable hereunder, or changes in the rate of tax imposed on the overall net
income basis of Agent or such Lender); or

 

(ii)                                  does or shall impose on Agent or any
Lender any other condition or increased cost in connection with the
transactions contemplated hereby or participations herein;

 

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

 

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

 

21

 

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

 

(d)                                 Each
Lender agrees that it will (i) take all reasonable actions requested by
Borrower that are without  cost, risk or
an undue administrative burden to such Lender to maintain all exemptions, if
any, available to it from withholding taxes (whether available by treaty or
existing administrative waiver) and (ii) to the extent reasonable and without
cost, risk or an undue administrative burden to it, otherwise cooperate with
Borrower 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 (including
penalties and interest with respect thereto) it shall deliver official tax
receipts, certified copies thereof or other written evidence of payment,
evidencing that payment to the Lender or Agent on whose account such
withholding was made (with a copy to the Agent if not the recipient of the
original) on or before the thirtieth (30th) day after payment.  If any Lender or the Agent determines that
it has received or been granted a credit against or relief or remission for, or
repayment of, any taxes paid or payable by it because of any taxes paid or
payable by it directly attributable to any taxes, penalties or interest paid by
the 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 of
such credit, relief, remission or repayment, pay to the Borrower such amount as
such Lender or Agent determines is attributable to such deduction or
withholding and which will leave such Lender or Agent (after such payment) in
no better or worse position than it would have been in if the Borrower had not
been required to make such deduction or withholding.

 

SECTION 2.

AFFIRMATIVE COVENANTS

 

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

 

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

 

22

 

matters and employee health and safety) as now in effect and which may
be imposed in the future in all jurisdictions in which any Credit Party or any
of its Subsidiaries is now doing business or may hereafter be doing business
and (ii) the obligations, covenants and conditions contained in all
Contractual Obligations of such Credit Party or any of its Subsidiaries other
than those laws, rules, regulations, orders and provisions of such Contractual
Obligations the noncompliance with which could not be reasonably expected to
have, either individually or in the aggregate, a Material Adverse Effect, and
(b) maintain or obtain and shall cause each of its Subsidiaries to
maintain or obtain all licenses, qualifications and permits now held or hereafter
required to be held by such Credit Party or any of its Subsidiaries, for which
the loss, suspension, revocation or failure to obtain or renew, could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.  This Section 2.1
shall not preclude any Credit Party or its Subsidiaries from contesting any
taxes or other payments, if they are being diligently contested in good faith
in a manner which stays enforcement thereof and if appropriate expense
provisions have been recorded in conformity with GAAP, subject to Section 3.2.  Each Credit Party represents and warrants
that it (i) is in compliance and each of its Subsidiaries is in compliance
with the requirements of all applicable laws, rules, regulations and orders of
any Governmental Authority and the obligations, covenants and conditions
contained in all Contractual Obligations other than those laws, rules,
regulations, orders and provisions of such Contractual Obligations the
noncompliance with which could not be reasonably expected to have, either
individually 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, qualifications
and permits without which could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.

 

2.2                                 Insurance; Damage to or Destruction of Collateral.

 

(a)                                  Borrower
and its Domestic Subsidiaries shall, at their sole cost and expense, maintain
the policies of insurance described on Schedule 5.18 as in effect
on the date hereof or otherwise in form and amounts and with insurers
reasonably acceptable to Agent.  Such
policies of insurance (or the loss payable and additional insured endorsements
delivered to Agent) shall contain provisions pursuant to which the insurer
agrees to provide thirty (30) days prior written notice to Agent in the event
of any non-renewal, cancellation or amendment of any such insurance policy.  If Borrower or any of its Domestic
Subsidiaries at any time or times hereafter shall fail to obtain or maintain
any of the policies of insurance required above or to pay all premiums relating
thereto, Agent may at any time or times thereafter obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect thereto that Agent deems advisable. 
Agent shall have no obligation to obtain insurance for any Credit Party
or pay any premiums therefor.  By doing
so, Agent shall not be deemed to have waived any Default or Event of Default
arising from Borrower’s or any Domestic Subsidiary’s failure to maintain such
insurance or pay any premiums therefor. 
All sums so disbursed, including reasonable attorneys’ fees, court costs
and other charges related thereto, shall be payable on demand by Borrower to
Agent and shall be additional Obligations hereunder secured by the Collateral.

 

23

 

(b)                                 Borrower shall deliver to Agent, in
form and substance reasonably satisfactory to Agent, endorsements to (i) all
“All Risk” and business interruption insurance naming Agent, on behalf of
itself and Lenders, as loss payee, and (ii) all general liability and other
liability policies (excluding director’s and officer’s insurance) naming Agent,
on behalf of itself and Lenders, as additional insured.  Borrower
irrevocably makes, constitutes and appoints Agent (and all officers, employees
or agents designated by Agent), so long as any Default or Event of Default has
occurred and is continuing or the anticipated insurance proceeds exceed
$1,000,000, as Borrower’s true
and lawful agent and attorney-in-fact for the purpose of making, settling and
adjusting claims of Borrower and its Domestic Subsidiaries under such “All
Risk” policies of insurance, endorsing the name of Borrower on any check or other item of payment for the proceeds of
such “All Risk” policies of insurance and for making all determinations and
decisions with respect to such “All Risk” policies of insurance.  Agent shall have no duty to exercise any
rights or powers granted to it pursuant to the foregoing
power-of-attorney.  Borrower shall
promptly notify Agent of any loss, damage, or destruction to the Collateral in
the 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 its
option, apply such proceeds to the reduction of the Obligations in accordance
with Section 1.5(f); provided  that in the case of insurance proceeds
pertaining to Borrower or any Domestic Subsidiary, such insurance proceeds
shall be applied to the Loans owing by Borrower.  Notwithstanding the foregoing, if the
casualty giving rise to such insurance proceeds could not reasonably be
expected to have a Material Adverse Effect and such insurance proceeds do not
exceed $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 entered
into binding agreements to complete such replacement, restoration, repair or
rebuilding within one year of
such casualty, Agent may apply such insurance proceeds to the Obligations in
accordance with Section 1.5(f).  All insurance proceeds
that are to be made available to Borrower or its Domestic Subsidiary to
replace, repair, restore or rebuild the Collateral shall be applied by Agent to
reduce the outstanding principal balance of the Revolving Loan (which
application shall not result in a permanent reduction of the Revolving Loan
Commitment) and upon such application, Agent shall establish a Reserve against
the Borrowing Base in an amount equal to the amount of such proceeds so
applied.   Thereafter, such funds shall
be made available to Borrower, or its
applicable Domestic Subsidiary to provide funds to replace, repair,
restore or rebuild the Collateral as follows: (i) Borrower shall request a
Revolving Credit Advance in the amount requested to be released; (ii) so long
as the conditions set forth in Section 7.2 have been met and
subject to the provisions of any Mortgage encumbering such Collateral,
Revolving Lenders shall make such Revolving Credit Advance; and (iii) in the
case of insurance proceeds applied against the Revolving Loan, the Reserve
established with respect to such insurance proceeds shall be reduced by the
amount of such Revolving Credit Advance.

 

2.3                                 Inspection;
Lender Meeting. 
Each Credit Party shall permit any authorized
representatives of Agent to visit, audit and inspect any of the properties of
such Credit Party and

 

24

 

its Subsidiaries, including its and their financial and accounting
records, and to make copies and take extracts therefrom, and to discuss its and
their affairs, finances and business with its and their officers and certified
public accountants, at such reasonable times during normal business hours and
as often as may be reasonably requested, provided, however, that
unless an Event of Default shall have occurred and be continuing, any such
inspection shall be at the expense of Agent and Lenders.  Representatives of each Lender will be
permitted to accompany representatives of Agent during each visit, inspection
and 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 of
each Credit Party and its Subsidiaries to participate in a meeting with Agent
and Lenders at least once during each year, which meeting shall be held at such
time and such place as may be reasonably requested by Agent.

 

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

 

2.5                                 Environmental
Matters. 
Each Credit Party shall and shall cause each Person within
its control to: (a) conduct its operations and keep and maintain its Real
Estate in compliance with all Environmental Laws and Environmental Permits
other than noncompliance that could not reasonably be expected to have a
Material Adverse Effect; (b) implement any and all investigation,
remediation, removal and response actions that are appropriate or necessary to
maintain the value and marketability of the Real Estate or to otherwise comply
with Environmental Laws and Environmental Permits pertaining to the presence,
generation, treatment, storage, use, disposal, transportation or Release of any
Hazardous Material on, at, in, under, above, to, from or about any of its Real
Estate except to the extent failure to do so could not reasonably be expected
to have a Material Adverse Effect; (c) notify Agent promptly after such
Credit Party or any Person within its control becomes aware of any violation of
Environmental 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 in
Environmental 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 Credit
Party or any Person within its control in connection with any such violation or
Release or any other matter relating to any Environmental Laws or Environmental
Permits that could reasonably be expected to result in Environmental
Liabilities in excess of $250,000,
in each case whether or not the Environmental Protection Agency or any
Governmental Authority has taken or threatened any action in connection with
any such violation, Release or other matter. 
If Agent at any time has a reasonable basis to believe that there may be
a violation of any Environmental Laws or Environmental Permits by any Credit
Party or any Person under its control or any Environmental Liability arising
thereunder, 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, could
reasonably be expected to have a Material Adverse Effect, then each Credit
Party and its Subsidiaries shall, upon Agent’s written request (i) cause
the performance of such environmental audits including

 

25

 

subsurface sampling of soil and groundwater, and preparation of such
environmental reports, at Borrower’s expense, as Agent may from time to time
reasonably request, which shall be conducted by reputable environmental
consulting firms reasonably acceptable to Agent and shall be in form and
substance reasonably acceptable to Agent, and (ii) permit Agent or its
representatives to have access to all such Real Estate for the purpose of
conducting such environmental audits and testing as Agent deems appropriate,
including subsurface sampling of soil and groundwater.  Borrower shall reimburse Agent for the costs
of 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 Estate
Purchases.  Each Credit Party shall use
reasonable efforts (which shall not require the incurrence of material costs,
the expenditure of cash or material amounts of time or the making of any
material concessions) to obtain a landlord’s agreement, mortgagee agreement or
bailee letter, as applicable, from the lessor of each leased property,
mortgagee of owned property or bailee with respect to any warehouse, processor
or converter facility or other location where Collateral in excess of $500,000
is stored or located, which agreement or letter shall contain a waiver or
subordination of all Liens or claims that the landlord, mortgagee or bailee may
assert against the Collateral at that location, and shall otherwise be reasonably
satisfactory in form and substance to Agent. With respect to such locations or
warehouse space leased or owned as of the Restatement Effective Date and
thereafter, if Agent has not received a landlord or mortgagee agreement or
bailee letter as of the Restatement Effective Date (or, if later, as of the
date such location is acquired or leased), the Eligible Inventory at that
location shall, in Agent’s Permitted Discretion, be subject to such Reserves as
may be established by Agent in its reasonable credit judgment.  After the Restatement Effective Date, no
real property or warehouse space shall be leased by any Credit Party or its
Subsidiary and no Inventory shall be shipped to a processor or converter under
arrangements established after the Restatement Effective Date without the prior
written consent of Agent (which consent, in Agent’s discretion, may be
conditioned upon the exclusion from the Borrowing Base of Eligible Inventory at
that location or the establishment of Reserves acceptable to Agent) or, unless
and 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 its
Domestic Subsidiaries to timely and fully pay and perform, in all material
respects, their obligations under all leases and other agreements with respect
to each leased location or public warehouse where any Collateral is or may be
located.

 

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

 

26

 

2.8                                 Further
Assurances.

 

(a)                                  Each
Credit Party shall, from time to time, execute such guaranties, financing
statements, security agreements and other agreements as Agent or Requisite
Lenders at any time may reasonably request in accordance with the terms of this
Agreement, to evidence, perfect or otherwise implement the guaranties and
security for repayment of the Obligations contemplated by the Loan Documents.

 

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

 

(c)                                  Each
Credit Party shall (i) cause each Person, upon its becoming a Domestic
Subsidiary of such Credit Party (provided that this shall not be
construed to constitute consent by any of the Lenders to any transaction
referred to above which is not expressly permitted by the terms of this
Agreement), promptly to guaranty the Obligations and to grant to Agent, for the
benefit of Agent and Lenders, a security interest in the real, personal and
mixed 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 of
the 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 Foreign
Subsidiary.  The documentation for such
guaranty, security and pledge shall be substantially similar to the Loan
Documents executed concurrently herewith with such modifications as are reasonably
requested by Agent and reasonably acceptable to Borrower.

 

(d)                                 Without
limiting the generality of subsection 2.8(a) hereof, Borrower
hereby agrees, and agrees to cause each of its Subsidiaries, as applicable, to
amend and/or reaffirm all pledges and grants of Liens and other security
interests granted by such Person in connection with the Existing Credit
Agreement and to take such other actions and to execute and deliver such
further documents, instruments or agreements as is reasonably deemed necessary
or desirable by Agent in order to continue, create, attach, perfect or
otherwise preserve and protect the Liens and other interests of Agent (in its
own right as secured party under the Loan Documents and/or as successor in
interest to Heller Financial, Inc.) in, to and under the Borrower Pledge
Agreement and that certain Amended and Restated Pledge Agreement dated as of
November 27, 2002 made by Cherokee Netherlands I B.V. with respect to the
Stock of Cherokee Netherlands II B.V.

 

2.9                                 Subsidiaries.

 

(a)                                  On
the Restatement Effective Date, with regard to any Domestic Subsidiary in
existence on the Restatement Effective Date, and within thirty (30) days of

 

27

 

the Borrower creating or
acquiring or otherwise having any other Domestic Subsidiary, the Borrower will
cause such Domestic Subsidiary to provide and grant to the Agent, for the
benefit of the Lenders, a (i) guaranty of the Obligations, and (ii) first
priority security interest in the real, personal and mixed property of such
Domestic Subsidiary, securing the Obligations and such Domestic Subsidiary’s
obligations under such guaranty, provided that the foregoing shall not
be deemed to require a pledge of more than sixty-five (65%) of the stock of any
Foreign Subsidiary of such Domestic Subsidiary that is directly owned by such
Domestic Subsidiary unless required by paragraph (B) of this Section 2.9.

 

(b)                                 Borrower
has heretofore pledged to Agent, for the benefit of Agent and Lenders,
sixty-five percent (65%) of the capital stock of each of its Foreign
Subsidiaries directly owned by Borrower as of the Restatement Effective
Date.  Within thirty (30) days of the
Borrower creating or acquiring or otherwise having any other directly owned
Foreign Subsidiary, the Borrower will provide, or cause to be provided,  to the Agent, for the benefit of the
Lenders, as security for the Obligations a perfected, first priority pledge of
65% of the capital stock (or similar equity interest) of such Foreign
Subsidiary.  If Borrower or any Domestic
Subsidiary can, as a result of a change in applicable laws, rules, regulations
and/or orders of any Governmental Authority after the Restatement Effective
Date, at any time pledge more than 65% of the capital stock of any Foreign
Subsidiary 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 a
security interest on its assets to the Agent for the benefit of the Lenders to
secure the Obligations, or (iii) guaranty the Obligations, in each case without
causing the undistributed earnings of such Foreign Subsidiary (as reasonably
determined by Borrower for 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 applicable Pledge Agreement or Security Agreement as
additional collateral security for the Obligations; (2) Borrower shall record
all intercompany transactions on its books and records in a manner reasonably
satisfactory to Agent; (3) the obligations of Borrower under any such
Intercompany Notes shall be subordinated to the Obligations of Borrower
hereunder in a manner reasonably satisfactory to Agent; (4) at the time any
such intercompany loan or advance is made by Borrower and after giving effect
thereto, Borrower shall be Solvent; and (5) no Default or Event of Default
would occur and be continuing after giving effect to any such proposed
intercompany loan; and (2) loans and advances owing by the ITS Companies to
non-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 $10,000,000
in the aggregate at any time outstanding;

 

29

 

(d)                                 Indebtedness
in an aggregate principal amount not to exceed $10,000,000 in the aggregate at
any time outstanding secured by purchase money Liens or incurred with respect
to Capital Leases;

 

(e)                                  Indebtedness
described on Schedule 3.1, and any extensions, renewals or
refinancings of such existing Indebtedness so long as (i) the principal amount
of such Indebtedness after such renewal, extension or refinancing shall not
exceed the principal amount of such Indebtedness which was outstanding
immediately prior to such renewal, extension or refinancing plus accrued and
unpaid interest and related fees and (ii) such Indebtedness shall not be
secured by any assets other than assets securing such indebtedness, if any,
prior to such renewal, extension or refinancing;

 

(f)                                    Indebtedness
constituting obligations to reimburse worker’s compensation insurance companies
for 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 of
Borrower;

 

(g)                                 Indebtedness
secured by the Liens permitted by clauses (a), (e) and (l) of the definition of
Permitted Encumbrances;

 

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

 

(i)                                     the
net obligations of such Person under any foreign exchange contract, currency
swap agreement, interest rate swap, cap or collar agreement or other similar
agreement or arrangement designed to alter the risks of that Person arising
from fluctuations in currency values or interest rates, in each case whether
contingent or matured, provided that any such agreement or arrangement
is not speculative in nature, is utilized by such Credit Party solely in
connection with actual foreign currency or actual interest rate exposure of a
Credit Party or otherwise related to purchases permitted hereunder from foreign
suppliers or is otherwise entered into to protect such Credit Party against
fluctuations in the costs of raw materials used in its business;

 

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

 

(k)                                  Indebtedness
incurred and as otherwise permitted by this Agreement in connection with Permitted
Acquisitions.

 

30

 

3.2                                 Liens
and Related Matters.

 

(a)                                  No
Liens.  The Credit Parties shall not
and shall not cause or permit their Subsidiaries to directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to any
property or asset of such Credit Party or any such Subsidiary, whether now
owned or hereafter acquired, or any income or profits therefrom, except
Permitted Encumbrances (including, without limitation, those Liens constituting
Permitted Encumbrances existing on the date hereof and renewals and extensions
thereof, as set forth on Schedule 3.2).

 

(b)                                 No
Negative Pledges.  Borrower shall
not and shall not cause or permit its Domestic Subsidiaries to directly or
indirectly enter into or assume any agreement (other than the Loan Documents)
prohibiting the creation or assumption of any Lien upon its properties or
assets in favor of Agent or the Lenders to secure the Obligations, whether now
owned or hereafter acquired, except pursuant to (i) licenses, leases and
subleases entered into in the ordinary 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, and (iii) encumbrances or restrictions imposed pursuant to
agreements entered into for the sale or disposition of capital stock or assets,
to the extent such sale or disposition is not otherwise prohibited under this
Agreement.

 

(c)                                  No
Restrictions on Subsidiary Distributions to Borrower.  Except as provided herein, Borrower shall
not and shall not cause or permit its Subsidiaries to directly or indirectly
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Subsidiary
to: (1) pay dividends or make any other distribution on any of such
Subsidiary’s Stock owned by Borrower or any other Subsidiary; (2) pay any
Indebtedness owed to Borrower or any other Subsidiary; (3) make loans or
advances to Borrower or any other Subsidiary; or (4) transfer any of its
property or assets to Borrower or any other Subsidiary, except pursuant to (i)
non-assignment provisions of licenses, leases and subleases entered into in the
ordinary 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 by
applicable law, (iv) encumbrances or restrictions imposed pursuant to
agreements entered into for the sale or disposition of capital stock or assets,
to the extent such sale or disposition is not otherwise prohibited under this
Agreement, (v) any encumbrance or restriction in respect of any Subsidiary
pursuant to the Loan Documents, the Senior Indenture Documents and the
Intercreditor Agreement, or (vi) pursuant to any working capital Indebtedness
incurred by any of the ITS Companies in accordance with the terms hereof.

 

31

 

3.3                                 Investments. 
The Credit Parties shall not and shall not cause or permit
their Subsidiaries to directly or indirectly make or own any Investment in any
Person except:

 

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

 

(b)                                 Borrower
and its Subsidiaries may make intercompany loans to other Credit Parties to the
extent permitted under Section 3.1;

 

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

 

(d)                                 Borrower
and its Domestic Subsidiaries may make Investments in their wholly-owned
Domestic Subsidiaries so long as each such Subsidiary has issued a guarantee in
favor of Agent for the benefit of the Lenders and granted the security
interests as set forth in Section 2.8 hereof, and Borrower and its
Domestic Subsidiaries may make Investments in their respective Foreign
Subsidiaries in an amount not to exceed $24,500,000 in the aggregate at any
time outstanding, provided that any such Investment in the form of
Indebtedness does not exceed the amounts specified and is otherwise expressly
permitted under Subsections  3.1(b)(1)(iii), 3.1(b)(1)(vi)
and 3.1(b)(1)(vii);

 

(e)                                  Borrower
and its Subsidiaries may acquire and own Investments of any Person received in
connection with the bankruptcy or reorganization of suppliers and customers and
in connection with the settlement of delinquent obligations of, and disputes
with, customers and suppliers arising in the ordinary course of business, and
other Investments received in respect thereof;

 

(f)                                    Investments
received in connection with Asset Dispositions or other sales, dispositions or
transfers of property not prohibited hereunder, and other Investments received
in respect thereof;

 

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

 

(h)                                 Investments
of a Person that becomes a Domestic Subsidiary of Borrower following the
Restatement Effective Date or is merged or consolidated with or into or
transfers all or substantially all of its assets to or is liquidated into
Borrower or any Domestic Subsidiary of Borrower, and other Investments received
in respect thereof;

 

(i)                                     Investments
made by a Foreign Subsidiary in another Foreign Subsidiary, to the extent not
otherwise prohibited hereunder;

 

32

 

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

 

(k)                                  Investments
in the nature of pledges or deposits with respect to leases or utilities
provided to third parties in the ordinary course of business;

 

(l)                                     customary
extensions of trade credit in the ordinary course of business; and

 

(m)                               Investments
other than those described in the foregoing clauses (a) through (l) in an
aggregate amount not to exceed $2,000,000 at any time; and

 

(n)                                 Borrower
may consummate Permitted Acquisitions, including the establishment and
capitalization of wholly-owned Subsidiaries in connection therewith; provided
that the following conditions are fully satisfied:

 

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

 

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

 

(iii)                               Borrower is able to demonstrate a
minimum Borrowing Availability of $5,000,000 after giving effect to all
Revolving Credit Advances to be made in connection with such Permitted
Acquisition but excluding any Inventory or Accounts being acquired in
connection therewith.

 

3.4                                 Contingent
Obligations. 
The Credit Parties shall not and shall not cause or permit
their Subsidiaries to directly or indirectly create or become or be liable with
respect to any Contingent Obligation except:

 

(a)                                  Letter
of Credit Obligations;

 

(b)                                 those
resulting from endorsement of negotiable instruments for collection in the
ordinary course of business;

 

(c)                                  those
existing on the Restatement Effective Date and described in Schedule 3.4;

 

33

 

(d)                                 those
arising under indemnity agreements to title insurers to cause such title
insurers to issue to Agent mortgagee title insurance policies;

 

(e)                                  those
arising with respect to customary indemnification obligations incurred in
connection with Asset Dispositions or Permitted Acquisitions to the extent
otherwise permitted hereunder;

 

(f)                                    those
incurred in the ordinary course of business with respect to surety and appeal
bonds, performance and return-of-money bonds and other similar obligations not
exceeding at any time outstanding $1,000,000 in aggregate liability;

 

(g)                                 those
incurred with respect to Indebtedness permitted by Section 3.1  provided
that any such Contingent Obligation is subordinated to the Obligations to the
same extent as the Indebtedness to which it relates is subordinated to the
Obligations;

 

(h)                                 currency
or interest rate swap agreements or other similar arrangements entered into in
the ordinary course of business, so long as (i) such swap is not speculative in
nature, (ii) is related to income related to foreign currency or interest rate
exposure of Borrower or any Subsidiary or otherwise related to purchases
permitted hereunder from foreign suppliers, or (iii) is entered into to protect
Borrower or any of its Subsidiaries against fluctuations in the prices of
materials used in their businesses;

 

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

 

(j)                                     Contingent
Obligations of Borrower with respect to obligations of any Domestic Subsidiary
and Contingent Obligations of any Domestic Subsidiary with respect to
obligations of Borrower or any other Domestic Subsidiary.

 

3.5                                 Restricted
Payments. 
The Credit Parties shall not and shall not cause or permit
their Subsidiaries to directly or indirectly declare, order, pay, make or set
apart any sum for any Restricted Payment, except that:

 

(a)                                  Wholly-owned
Subsidiaries of Borrower may make Restricted Payments to Borrower or to Wholly
Owned Subsidiaries of Borrower;

 

(b)                                 Borrower
may make regularly scheduled cash interest payments and non-accelerated
principal installment payments pursuant to the terms of the Senior Indenture as
in effect on the date hereof subject to the terms of the Intercreditor
Agreement; provided that no Default or Event of Default exists at the
time of any such Restricted Payment described in this paragraph (b) or would
occur as a result thereof;

 

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

 

34

 

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

 

(d)                                 The Credit Parties may make Restricted
Payments constituting consideration for Permitted Acquisitions, to the extent
otherwise permitted hereunder.

 

3.6                                 Restriction on Fundamental Changes.  The
Credit Parties shall not and shall not cause or permit their Subsidiaries to
directly or indirectly:  (a) amend,
modify or waive any term or provision of its organizational documents,
including its articles of incorporation, certificates of designations
pertaining to preferred stock, by-laws, partnership agreement or operating
agreement unless required by law, if any such action would have a Material
Adverse Effect; (b) enter into any transaction of merger or consolidation
except as otherwise expressly permitted by this Agreement, upon not less than
five (5) Business Days prior written notice to Agent, any Subsidiary of
Borrower may be merged with or into any wholly-owned direct Subsidiary of
Borrower or with Borrower (provided that Borrower or such wholly-owned
Subsidiary is the surviving entity of such merger); (c) liquidate, wind-up
or dissolve itself (or suffer any liquidation or dissolution) except a
Subsidiary of Borrower may liquidate wind-up or dissolve if (i) its property is
transferred to Borrower or a wholly-owned Subsidiary of Borrower and (ii) the
Credit Party acquiring such property complies with its obligations under Section 2.5
following such transfer; (d) acquire by purchase or otherwise all or any
substantial part of the business or assets of any other Person; or (e) amend,
supplement or otherwise modify any of the Senior Indenture Documents without
the prior written consent of Agent.

 

3.7                                 Disposal of Assets or Subsidiary Stock.  The
Credit Parties shall not and shall not cause or permit their Subsidiaries to
directly or indirectly convey, sell, lease, sublease, transfer or otherwise
dispose of, or grant any Person an option to acquire, in one transaction or a
series of related transactions, any of its property, business or assets,
whether now owned or hereafter acquired, except for (a) dispositions of
cash and Cash Equivalents in the ordinary course of business and as otherwise
permitted hereunder, (b) sales of inventory to customers for fair value in the
ordinary course of business and dispositions of obsolete, worn or surplus
equipment not used or useful in the business, (c) transfers between and among
Borrower and its Subsidiaries in the ordinary course of business, (d) transfers
between Foreign Subsidiaries, and (e) Asset Dispositions by Borrower and
its Subsidiaries if all of the following conditions are met:  (i) the market value of assets sold or
otherwise disposed of in any single transaction or series of related
transactions does not exceed $3,000,000 and the aggregate market value of
assets 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 fair
market value of such assets; (iii) at least 70% of the total consideration
received is in the form of cash or Cash Equivalents; (iv) the Net Proceeds
of such Asset Disposition are applied as a repayment and reduction of any
outstanding Revolving Loans to the extent required by Section 1.5(c);
(v) after giving effect to the Asset Disposition and the

 

35

 

repayment of Indebtedness with the proceeds thereof, Borrower is in
compliance on a pro forma basis with the covenants set forth in Section 4
recomputed for the most recently ended month
for which information is available and is in compliance with all other terms
and conditions of this Agreement; and (vi) no Default or Event of Default
then exists or would result from such Asset Disposition.  To the extent the Requisite Lenders waive
pursuant to Section 9.2 the provisions of this Section 3.7
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 3.7, such Collateral shall be sold free
and clear of the Liens created by the Loan Documents, and the Agent shall be
authorized to take any actions deemed appropriate in order to effect the
foregoing and shall, at the request and the sole expense of Borrower take any
such actions reasonably appropriate to effect the foregoing including, without
limitation, filing UCC financing statements or amendments, and executing
release instruments to terminate any Liens on such assets.

 

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

 

3.9                                 Conduct
of Business. 
The Credit Parties shall not and shall not cause or permit
their Subsidiaries to directly or indirectly engage in any business other than
businesses of the type described on Schedule 3.9, and such other
businesses as are reasonably related thereto.

 

3.10                           Changes Relating to Indebtedness.  The
Credit Parties shall not and shall not cause or permit their Subsidiaries to
directly or indirectly change or amend the terms of any of its Indebtedness
permitted 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% per
annum; (b) change the dates upon which payments of principal or interest
are due on or principal amount of such Indebtedness in a manner materially
adverse to any Credit Party; (c) change any event of default in a manner
made more restrictive or add or make more restrictive any covenant with respect
to such Indebtedness; (d) change the redemption or prepayment provisions
of such Indebtedness in a manner materially adverse to any Credit Party;
(e) change the subordination provisions thereof (or the subordination
terms of any guaranty thereof); or (f) change or amend any other term if
such change or amendment would materially increase the obligations of the
obligor or confer additional material

 

36

 

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

 

3.11                           Fiscal
Year. 
No Credit Party shall change its Fiscal Year or permit any
of its Subsidiaries to change their respective fiscal years without giving
Agent at least thirty (30) days prior written notice thereof.

 

3.12                           Press Release; Public Offering Materials. 
Each Credit Party executing this Agreement agrees that
neither it nor its Affiliates will in the future issue any press releases or
other public disclosure, including any prospectus, proxy statement or other
materials filed with any Governmental Authority relating to a public offering
of the Stock of any Credit Party, using the name of GE Capital or its
affiliates or referring to this Agreement, the other Loan Documents or the
Related Transactions Documents without at least two (2) Business Days’ prior
notice 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 do
so under law and then, in any event, such Credit Party or Affiliate will
consult with GE Capital before issuing such press release or other public
disclosure.  Each Credit Party consents
to the publication by Agent or any Lender of a tombstone or similar advertising
material relating to the financing transactions contemplated by this Agreement.  Agent or such Lender shall provide a draft
of any such tombstone or similar advertising material to each Credit Party for
review and comment prior to the publication thereof.  Agent reserves the right to provide to industry trade
organizations information necessary and customary for inclusion in league table
measurements.

 

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

 

3.14                           Bank
Accounts. 
The Credit Parties shall not and shall not cause or permit
their Domestic Subsidiaries to establish any new bank accounts without prior
written notice to Agent and unless Agent and the bank at which the account is
to be opened enter into a tri-party agreement regarding such bank account in
accordance with the requirements of the Security Agreement and pursuant to
which, among other things, such bank acknowledges the security interest of
Agent in such bank account, agrees to comply with instructions originated by
Agent directing disposition of the funds in the bank account without further
consent from Borrower or such Domestic Subsidiary, and agrees to subordinate
and limit any security interest the bank may have in the bank account on terms
satisfactory to Agent.  All amounts held
or deposited in any bank account controlled by Borrower or a Domestic
Subsidiary of Borrower (other than amounts transferred to Borrower’s operating
account 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 a
financial institution designated by Agent. 
If no Revolving Loans are then outstanding and no other Obligations are
then due and payable, Agent shall cause any funds remaining in Agent’s Account
to be immediately transferred to Borrower’s operating account for use by
Borrower in accordance with the terms of this Agreement and the other Loan
Documents.

 

37

3.15                           Hazardous Materials.  The Credit Parties shall not and shall not cause or permit their
Subsidiaries 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 Environmental
Liabilities by the Credit Parties or any of their Subsidiaries under, any
Environmental Laws or Environmental Permits or (b) otherwise adversely
impact the value or marketability of any of the Real Estate or any of the
Collateral, other than such violations or Environmental Liabilities that could
not reasonably be expected to have a Material Adverse Effect.

 

3.16                           ERISA.  The Credit
Parties shall not and shall not cause or permit any ERISA Affiliate to, cause
or permit to occur an ERISA Event to the extent such ERISA Event could
reasonably 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 any
business operations other than acting as a single purpose holding company of
the stock of Cherokee Netherlands II B.V., nor permit Cherokee Netherlands I
B.V. to have any Indebtedness or any creditor other than Indebtedness owing to
the Borrower in accordance with the terms hereof which is subject to the
Tri-Party Agreement Re: Payment Procedures, and (ii) Cherokee Netherlands II
B.V. to engage in any line of business or conduct any business operations other
than acting as a single purpose holding company of the stock of Cherokee Europe
SCA and/or Cherokee Europe SPRL, nor permit Cherokee Netherlands II B.V. to
have any Indebtedness or any creditor other than Indebtedness owing to the
Cherokee Netherlands I B.V. in accordance with the terms hereof.  The Borrower will not permit the ITS
Companies to form or permit to exist any Subsidiary other than those in
existence on the Restatement Effective Date and as disclosed to the Banks prior
to such date.  Subject to the provisions
of the immediately following sentence, the Borrower will at all times maintain
ownership of 100% of the capital stock of Cherokee Netherlands I B.V.  Notwithstanding anything in this Agreement
to the contrary, Borrower shall be permitted to dissolve any of Cherokee
Netherlands I B.V. or Cherokee Netherlands II B.V. or otherwise engage in a
corporate restructuring involving such Persons for purposes of achieving tax
efficiencies or otherwise simplifying the organizational structure of the ITS
Companies, so long as (A) Agent receives not less than ten (10) Business Day’s
prior written of such restructuring and consents thereto in writing (which
consent shall not be unreasonably withheld, it being understood that a failure
to satisfy the following condition “B” shall not be deemed unreasonable grounds
for such objection), (B) and Agent’s Collateral (and the Liens with respect
thereto) is not jeopardized, impaired, compromised or otherwise diminished in
any material manner.

 

SECTION 4.

FINANCIAL COVENANTS/REPORTING

 

Borrower covenants and agrees that from and after the date hereof until
the Termination Date, Borrower shall perform and comply with, and shall cause
each of the other Credit Parties to perform and comply with, all covenants in
this Section 4 applicable to such Person.

 

38

 

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 consolidated
basis shall have, at the end of each Fiscal Quarter, a Senior Leverage Ratio
calculated as of the last day of any such Fiscal Quarter for the trailing
twelve month period then ended, equal to or less than 2.00 to 1.00.  Senior Leverage Ratio shall be calculated as
set forth in the Compliance Certificate.

 

4.8                                 [Reserved].

 

4.9                                 Financial Statements and Other Reports.  Borrower will maintain, and cause each of
its Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit preparation
of Financial Statements in conformity with GAAP (it being understood that
monthly Financial Statements are not required to have footnote
disclosures).  Borrower will deliver
each of the Financial Statements and other reports described below to Agent
(and each Lender in the case of the Financial Statements and other reports
described in Sections (4.9)(a), (b), (d), (f), (g),
(h), and (k)).

 

(a)                                  Monthly
Financials.  As soon as available
and in any event within thirty (30) days after the end of each month (including
the last month of Borrower’s Fiscal Year), Borrower will deliver (1) the
consolidated and consolidating
balance sheet of Borrower  and
its Subsidiaries, as at the end of such month, and the related consolidated and consolidating statements of
income, stockholders’ equity and cash flow for such month and for the period
from the beginning of the then current Fiscal Year of Borrower to the end of such month, and (2) a report setting
forth in comparative form the corresponding figures for the corresponding
periods of the previous Fiscal Year and the corresponding figures from the most
recent Projections for the current Fiscal Year delivered pursuant to Section 4.9(f).

 

(b)                                 Year-End
Financials.  As soon as available
and in any event within one hundred twenty (120) days after the end of each
Fiscal Year of Borrower, Borrower will deliver (1) the consolidated and consolidating balance sheet of Borrower and its Subsidiaries, as at
the end of such year, and the related consolidated and consolidating  statements of income, stockholders’ equity
and cash flow for such Fiscal Year, (2) a schedule of the outstanding
Indebtedness for borrowed money of Borrower
and its Subsidiaries describing in reasonable detail each such debt issue or
loan outstanding and the principal amount and amount of accrued and unpaid
interest with respect to each such debt issue or loan and (3) a report
with respect to the consolidated Financial Statements

 

39

 

from a firm of Certified
Public Accountants selected by Borrower and reasonably acceptable to Agent,
which report shall be prepared in accordance with Statement of Auditing
Standards No. 58 (the “Statement”) “Reports on Audited Financial
Statements” and such report shall be “Unqualified” (as such term is defined in
such Statement).

 

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

 

(d)                                 Additional
Deliveries.

 

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

 

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

 

(B)                                with
respect to Borrower, a summary of Inventory by location and type with a
supporting perpetual Inventory report, in each case accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion; and

 

(C)                                with
respect to Borrower, a monthly trial balance showing Accounts outstanding aged
from invoice date as follows:  1 to 30
days, 31 to 60 days, 61 to 90 days and 91 days or more, accompanied by such supporting
detail and documentation as shall be requested by Agent in its reasonable
discretion.

 

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

 

40

 

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

 

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

 

(A)                              a
reconciliation of the most recent Borrowing Base, general ledger and month-end
Inventory reports of Borrower to Borrower’s general ledger and monthly
Financial Statements delivered pursuant to this Section 4.9, in
each case accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion;

 

(B)                                a
reconciliation of the perpetual inventory by location to Borrower’s most recent
Borrowing Base Certificate, general ledger and monthly Financial Statements
delivered pursuant to this Section 4.9, in each case accompanied by
such supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;

 

(C)                                an
aging of accounts payable and a reconciliation of that accounts payable aging
to Borrower’s general ledger and monthly Financial Statements delivered
pursuant to this Section 4.9, in each case accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;

 

(D)                               a
reconciliation of the outstanding Loans as set forth in the monthly Loan
Account statement provided by Agent to Borrower’s general ledger and monthly
Financial Statements delivered pursuant to this Section 4.9, in
each case accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion;

 

(iv)                              To Agent, at the time of delivery of
each 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 the
Federal Assignment of Claims Act of 1940; and (ii) a list of any applications
for the registration of any Patent, Trademark or Copyright filed by any Credit
Party with the United States Patent and Trademark Office, the United States
Copyright Office or any similar office or agency in the prior Fiscal Quarter.

 

(e)                                  Appraisals;
Inspections.

 

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

 

41

 

any time while and so long as an Event of Default shall have
occurred and be continuing, and in the absence of an Event of Default at any
time in which the outstanding amount of Revolving Loans 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 appraisal reports in
form and substance and from appraisers reasonably satisfactory to Agent stating
the then current market values of all or any portion of the Real Estate and
personal property owned by any of the Credit Parties; provided, however,
that, absent an Event of Default, no such appraisals may be obtained within the
one year period following the date of the last such appraisal.

 

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

 

(f)                                    Other
Reports.

 

(i)                                     Projections. As soon as available
and in any event no later than the last day of each of Borrower’s Fiscal Years,
Borrower will deliver Projections of Borrower
and 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 the
Securities and Exchange Commission for Borrower’s Form 10Q reports, Borrower
will deliver a management report (1) describing the operations and financial
condition of Borrower and its Subsidiaries for the month then ended and the
portion of the current Fiscal Year then elapsed (or for the fiscal year then
ended in the case of year-end financials), (2) setting forth in comparative
form the corresponding figures for the corresponding periods of the previous Fiscal
Year and the corresponding figures from the most recent Projections for the
current Fiscal Year delivered pursuant to subsection 4.6(J) and (3)
discussing the reasons for any significant variations.  The information above shall be presented in
reasonable detail and shall be certified by the chief financial officer of
Borrower to the effect that such information fairly presents the results of
operations and financial condition of Borrower and its Subsidiaries as at the
dates and for the periods indicated.  
Such information may be provided in the form of SEC Forms 10Q and 10K
reports.

 

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

 

42

 

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 form
and substance reasonably satisfactory to Agent, from an independent collateral
auditor satisfactory to Agent (which may be, or be affiliated with, a Lender)
with respect to the accounts and inventory components included in the Borrowing
Base, which report shall indicate whether or not the information set forth in
the Borrowing Base Certificate most recently delivered is accurate and complete
in all material respects based upon a review by such auditors of the accounts
(including verification with respect to the amount, aging, identity and credit
of the respective account debtors and the billing practices of Borrower) and
inventory (including verification as to the value, location and respective
types); provided, however, that, absent an Event of Default, no such
reports may be obtained within the one year period following the date of the
last such report.

 

(g)                                 SEC
Filings and Press Releases. 
Promptly upon their becoming available, Borrower will deliver copies of
(1) all Financial Statements, reports, notices and proxy statements sent
or made available by Borrower or any of its
Subsidiaries to its
Stockholders, (2) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by Borrower or any of its  Subsidiaries with any
securities exchange or with the Securities and Exchange Commission, and
(3) all press releases and other statements made available by Borrower or
any of its Subsidiaries to the
public concerning developments in the business of any such Person.

 

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

 

(i)                                     Litigation.  Promptly upon any officer of any Credit
Party obtaining knowledge of (1) the institution of any action, charge,
claim, demand, suit, proceeding, petition, governmental investigation, tax
audit or arbitration now pending or, to the best knowledge of such Credit Party
after due inquiry, threatened against or affecting any Credit Party or any of
its 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, governmental
investigation or

 

43

 

arbitration at any time
pending against or affecting any Credit Party or any property of any Credit
Party which, in each case, could reasonably be expected to have a Material
Adverse Effect, Borrower will promptly give notice thereof to Agent and provide
such other information as may be reasonably available to them to enable Agent
and its counsel to evaluate such matter to the extent such disclosure will not
violate any applicable law or order or attorney-client privilege.

 

(j)                                     Notice
of Corporate and other Changes. 
Borrower shall provide prompt written notice of (1) all
jurisdictions in which a Credit Party becomes qualified after the Restatement
Effective Date to transact business, (2) any change after the Restatement
Effective Date in the authorized and issued Stock of any Credit Party or any
Subsidiary of any Credit Party or any amendment to their articles or
certificate of incorporation, by-laws, partnership agreement or other
organizational documents, (3) any Subsidiary created or acquired by any
Credit Party or any of its Subsidiaries after the Restatement Effective Date,
such notice, in each case, to identify the applicable jurisdictions, capital
structures or Subsidiaries, as applicable, and (4) any other event that
occurs after the Restatement Effective Date which would cause any of the
representations and warranties in Section 5 of this Agreement or in
any other Loan Document to be untrue or misleading in any material
respect.  The foregoing notice
requirement shall not be construed to constitute consent by any of the Lenders
to any transaction referred to above which is not expressly permitted by the
terms of this Agreement.

 

(k)                                  Compliance
Certificate.  Together with each
delivery of Financial Statements of Borrower
and its Subsidiaries pursuant to Sections 4.9(a) and (b), Borrower
will deliver a fully and properly completed Compliance Certificate (in
substantially the same form as Exhibit 4.9(k) (the “Compliance
Certificate”) signed by Borrower’s chief executive officer or chief
financial officer.

 

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

 

(m)                               Reserved.

 

(n)                                 Other
Information.  With reasonable
promptness, Borrower will deliver such other information and data with respect
to any Credit Party or any Subsidiary of any Credit Party as from time to time
may be reasonably requested by Agent.

 

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

 

44

 

reason of a change in
accounting method or otherwise, in each case which could reasonably be expected
to have a Material Adverse Effect.

 

4.10                           Accounting Terms; Utilization of GAAP for
Purposes of Calculations Under Agreement. 
For purposes of this Agreement, all accounting terms not otherwise
defined herein shall have the meanings assigned to such terms in conformity
with GAAP.  Financial statements and
other information furnished to Agent pursuant to Section 4.9 or any
other section (unless specifically indicated otherwise) shall be prepared
in accordance with GAAP as in effect at the time of such preparation; provided
that no Accounting Change shall affect financial covenants, standards or terms
in this Agreement; provided further that Borrower shall prepare
footnotes to the Financial Statements required to be delivered hereunder that
show the differences between the Financial Statements delivered (which reflect
such Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). All such adjustments described in
clause (c) of the definition of the term Accounting Changes resulting from
expenditures made subsequent to the Restatement Effective Date (including
capitalization of costs and expenses or payment of pre-Restatement Effective
Date liabilities) shall be treated as expenses in the period the expenditures
are made.

 

SECTION 5.

REPRESENTATIONS AND WARRANTIES

 

To induce Agent and Lenders to enter into the Loan Documents, to make
Loans and to issue or cause to be issued Letters of Credit, Borrower
represents, warrants and covenants to Agent and each Lender that the following
statements are and, after giving effect to the Related Transactions, will
remain true, correct and complete, in all material respects, until the
Termination Date with respect to all Credit Parties:

 

5.1                                 Disclosure. 
No representation or warranty of any Credit Party contained in this
Agreement, the Financial Statements referred to in Section 5.5, the
other Related Transactions Documents or any other document, certificate or
written statement furnished to Agent or any Lender by or on behalf of any such
Person for use in connection with the Loan Documents or the Related
Transactions Documents contains any untrue statement of a material fact or
omitted, omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances in which the same were made.

 

5.2                                 No Material Adverse Effect.  Since September 30, 2003 there have
been no events or changes in facts or circumstances affecting any Credit Party
or any of its Subsidiaries which individually or in the aggregate have had or
could reasonably be expected to have a Material Adverse Effect and that have
not been disclosed herein or in the attached Disclosure Schedules.

 

5.3                                 No Conflict. 
The consummation of the Related Transactions does not and will not
violate or conflict with any laws, rules, regulations or orders of any Governmental
Authority or violate, conflict with, result in a breach of, or constitute a
default (with due notice or lapse of time or both) under any Contractual
Obligation or organizational documents of any Credit Party or any of its
Subsidiaries except, in each case, if such violations, conflicts, breaches or
defaults

 

45

 

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

 

5.4                                 Organization, Powers, Capitalization and Good
Standing.

 

(a)                                  Organization
and Powers.  Each of the Credit
Parties and each of their Subsidiaries is duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization and
qualified to do business in all states where such qualification is required
except where failure to be so qualified could not reasonably be expected to
have a Material Adverse Effect.  The
jurisdiction of organization and all jurisdictions in which each Credit Party
is qualified to do business are set forth on Schedule 5.4(a).  Each of the Credit Parties and each of their
Subsidiaries has all requisite organizational 
power and authority to own and operate its properties, to carry on its
business as now conducted and proposed to be conducted, to enter into each
Related Transactions Document to which it is a party and to incur the
Obligations, grant liens and security interests in the Collateral and carry out
the Related Transactions.

 

(b)                                 Capitalization.  As of the Restatement Effective Date:  (i) the authorized Stock of each of the
Credit 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 and
each of their Subsidiaries is duly authorized and validly issued, fully paid,
nonassessable, free and clear of all Liens, other than those in favor of Agent
for the benefit of Agent and Lenders, and those pursuant to the Senior
Indenture Documents, and such Stock was issued in compliance with all applicable
state, federal and foreign laws concerning the issuance of securities;
(iii) the identity of the holders of the Stock of each of the Credit
Parties (other than public shareholders of Borrower not consisting of Existing
Control Shareholders) and each of their Subsidiaries and the percentage of
their fully-diluted ownership of the Stock of each of such Credit Parties and
each 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 their
Subsidiaries, other than those described above, are issued and
outstanding.  Except as provided in Schedule 5.4(b),
as of the Restatement Effective Date, there are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from any Credit Party (other
than Borrower) or any of their Subsidiaries of any Stock of any such entity.

 

(c)                                  Binding
Obligation.  This Agreement is, and
the 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 accordance
with their respective terms, except as limited by bankruptcy, insolvency or
other 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 Borrower
and its Subsidiaries which have
been or will hereafter be furnished to Agent pursuant to this Agreement,
including the consolidated balance sheets at December 31, 2003 and the

 

46

 

related statement of income of Borrower and its Subsidiaries for the Fiscal
Year then ended, audited by Deloitte & Touche LLP, have been or will be
prepared in accordance with GAAP consistently applied (except as disclosed
therein) and do or will present fairly the financial condition of the entities
covered thereby as at the dates thereof and the results of their operations for
the periods then ended, subject to, in the case of un-audited Financial
Statements, the absence of footnotes and normal year-end adjustments.  The Projections delivered on or prior to the
Restatement Effective Date and the updated Projections delivered pursuant to Section 4.9
represent and will represent as of the date thereof the good faith estimate of
Borrower and its senior management concerning the most probable course of its
business based on assumptions believed to be reasonable at the time made (it
being understood that the Projections are subject to significant uncertainties
and 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 its
Subsidiaries owns, is licensed to use or otherwise has the right to use, all
Intellectual Property used in or necessary for the conduct of its business as
currently conducted that is material to the condition (financial or other),
business or operations of such Credit Party and its Domestic Subsidiaries and
all such Intellectual Property owned or licensed by Borrower or any of its
Domestic Subsidiaries is identified on Schedule 5.6 and duly and
properly registered, filed or issued in the appropriate office and
jurisdictions for such registrations, filings or issuances.  Except as disclosed in Schedule 5.6,
the use of such Intellectual Property by Borrower and its Domestic Subsidiaries
and the conduct of their businesses does not and, to the knowledge of Borrower
has 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, except
as set forth on Schedule 5.7, no Credit Party or any of their
Subsidiaries is the subject of any review or audit by the IRS or any
governmental investigation concerning the violation or possible violation of
any law.

 

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

 

47

 

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 no
judgments outstanding against any Credit Party or any of its Subsidiaries or
affecting any property of any Credit Party or to any of its Subsidiaries, nor
is there any Litigation pending, or to the best knowledge of any Credit Party
threatened, against any Credit Party or any of its Subsidiaries which could
reasonably 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 be
used for “buying” or “carrying” “margin stock” within the respective meanings
of such terms under Regulation U of the Board of Governors of the Federal
Reserve System as now and from time to time hereafter in effect or for any
other purpose that violates the provisions of the regulations of the Board of
Governors of the Federal Reserve System. 
If requested by Agent, each Credit Party will furnish to Agent and each
Lender a statement to the foregoing effect in conformity with the requirements
of FR Form G-3 or FR Form 0-1, as applicable, referred to in Regulation U.

 

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

 

5.12                           Ownership of Property; Liens.  As of the Restatement Effective Date, the real
estate (“Real Estate”) listed in Schedule 5.12 constitutes
all of the real property owned, leased, subleased, or used by Borrower or any
of its Domestic Subsidiaries.  Each of
Borrower and each of its Domestic Subsidiaries owns good and marketable fee simple
title to all of its owned Real Estate, and valid and marketable leasehold
interests 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 reasonably
satisfactory to Agent have been delivered to Agent.  Schedule 5.12 further describes any Real Estate with
respect 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 Domestic
Subsidiaries also has good and marketable title to, or valid leasehold
interests in, all of its personal property and assets that are material to its
business.  As of the Restatement
Effective Date, none of the properties and assets of Borrower or any of its
Domestic Subsidiaries are subject to any Liens other than Permitted
Encumbrances, and there are no facts, circumstances or conditions known to
Borrower that may result in any Liens (including Liens arising under
Environmental Laws) other than Permitted Encumbrances against the properties or
assets of Borrower or any of its Domestic Subsidiaries.  Borrower and each of its Domestic
Subsidiaries has received all deeds, assignments, waivers, consents,
non-disturbance and attornment or similar agreements, bills of sale and other
documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Person’s right, title and
interest in and to all such Real Estate and other properties and assets.  As of the Restatement Effective Date, no
portion of Borrower’s or any of its Domestic Subsidiaries’ Real Estate has

 

48

 

suffered any material damage by fire or other casualty loss that has
not heretofore been repaired and restored in all material respects to its
original condition or otherwise remedied.

 

5.13                           Environmental Matters.

 

(a)                                  Except
as set forth in Schedule 5.13, as of the Restatement Effective
Date: (i)  the Real Estate is free of contamination from any Hazardous
Material except for such contamination that could not reasonably be expected to
result in a Material Adverse Effect; (ii) no Credit Party and no
Subsidiary of a Credit Party has caused or suffered to occur any Release of
Hazardous Materials on, at, in, under, above, to, from or about any of their
Real Estate except for such Release that could not reasonably be expected to
result in a Material Adverse Effect; (iii) the Credit Parties and their
Subsidiaries are and have been in compliance with all Environmental Laws,
except for such noncompliance that could not reasonably be expected to result
in Environmental Liabilities of the Credit Parties or their Subsidiaries which
would result in a Material Adverse Effect; (iv) the Credit Parties and their
Subsidiaries have obtained, and are in compliance with, all Environmental
Permits required by Environmental Laws for the operations of their respective
businesses as presently conducted or as proposed to be conducted, except where
the failure to so obtain or comply with such Environmental Permits could not
reasonably be expected to result in Environmental Liabilities of the Credit
Parties or their Subsidiaries which would result in a Material Adverse Effect;
(v) no Credit Party and no Subsidiary of a Credit Party is involved in
operations or knows of any facts, circumstances or conditions, including any
Releases of Hazardous Materials, that are likely to result in any Environmental
Liabilities of such Credit Party or Subsidiary which could reasonably be expected
result in a Material Adverse Effect, and no Credit Party or Subsidiary of a
Credit Party has permitted any current or former tenant or occupant of the Real
Estate to engage in any such operations; (vi) there is no Litigation
arising under or related to any Environmental Laws, Environmental Permits or
Hazardous Material that could reasonably be expected to result in a Material
Adverse Effect or injunctive relief against, or that alleges criminal
misconduct by any Credit Party or any Subsidiary of a Credit Party;
(vii) no notice has been received by any Credit Party or any Subsidiary of
a Credit Party identifying any of them as a “potentially responsible party” or
requesting information under CERCLA or analogous state statutes, and to the
knowledge of the Credit Parties, there are no facts, circumstances or
conditions that may result in any of the Credit Parties or their Subsidiaries
being identified as a “potentially responsible party” under CERCLA or analogous
state statutes; and (viii) the Credit Parties have provided to Agent
copies of all existing environmental reports, reviews and audits and all
written information pertaining to actual or potential Environmental
Liabilities, in each case relating to any of the Credit Parties or their
Subsidiaries.

 

(b)                                 Each
Credit Party hereby acknowledges and agrees that Agent (i) is not now, and
has not ever been, in control of any of the Real Estate or affairs of such
Credit Party or its Subsidiaries , and (ii) does not have the capacity
through the provisions of the Loan Documents or otherwise to influence any
Credit Party’s or its Subsidiaries’ conduct

 

49

 

with respect to the
ownership, operation or management of any of their Real Estate or compliance
with Environmental Laws or Environmental Permits.

 

5.14                           ERISA.

 

(a)                                  Schedule 5.14
lists any Plan (i) subject to Title IV of ERISA or the funding requirements of
Section 412 of the Code; (ii) which is a Multiemployer Plan; (iii) which
is an ESOP or (iv) which provides post-retirement or post-employment “welfare
type” benefits other than continuation coverage required by Section 4980B
of the Code, applicable state continuation coverage law or deferred
compensation benefits accrued as liabilities on the books of the Borrower, any
Credit Party or any of its ERISA Affiliates. 
Copies of all such listed Plans, together with a copy of the latest form
IRS/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 under
Section 401 of the IRC, the trusts created thereunder have been determined
to be exempt from tax under the provisions of Section 501 of the IRC, and
nothing has occurred that would cause the loss of such qualification or
tax-exempt status.  Each Plan is in
compliance with the applicable provisions of ERISA and the IRC, including the
timely filing of all reports required under the IRC or ERISA, including the
statement required by 29 CFR Section 2520.104-23.  Neither any Credit Party nor ERISA Affiliate
has failed to make any contribution or pay any amount due as required by either
Section 412 of the IRC or Section 302 of ERISA or the terms of any
such Plan.  Neither any Credit Party nor
ERISA Affiliate has engaged in a “prohibited transaction,” as defined in
Section 406 of ERISA and Section 4975 of the IRC, in connection with
any Plan, that would subject any Credit Party to a material tax on prohibited
transactions imposed by Section 502(i) of ERISA or Section 4975 of
the IRC.

 

(b)                                 Except
as set forth in Schedule 5.14: (i) no Title IV Plan has any
Unfunded Pension Liability; (ii) no ERISA Event or event described in
Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or
is reasonably expected to occur; (iii) there are no pending, or to the
knowledge of Borrower, threatened claims (other than claims for benefits in the
normal course), sanctions, actions or lawsuits, asserted or instituted against
any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit
Party or ERISA Affiliate has incurred or reasonably expects to incur any
liability as a result of a complete or partial withdrawal from a Multiemployer
Plan; (v) within the last five years no Title IV Plan of any Credit Party
or ERISA Affiliate has been terminated, whether or not in a “standard
termination” as that term is used in Section 404(b)(1) of ERISA, nor has
any Title IV Plan of any Credit Party or ERISA Affiliate (determined at any
time within the past five years) with Unfunded Pension Liabilities been
transferred outside of the “controlled group” (within the meaning of
Section 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 their
ERISA Affiliates makes up, in the aggregate, no more than 10% of fair market
value of the assets of any Plan measured on the basis of fair market value as
of the latest valuation date of any Plan; and (vii) no liability under any
Title IV Plan has been satisfied with the purchase of a contract from

 

50

 

an insurance company that
is not rated AAA by S&P or an equivalent rating by another nationally
recognized rating agency.

 

5.15                           Brokers.  No
broker or finder acting on behalf of any Credit Party or Affiliate thereof
brought about the obtaining, making or closing of the Loans or the Related
Transactions, and no Credit Party or Affiliate thereof has any obligation to
any Person in respect of any finder’s or brokerage fees in connection
therewith.

 

5.16                           Deposit and Disbursement Accounts.  Schedule 5.16 lists all banks
and other financial institutions at which any Credit Party (other than Foreign
Subsidiaries) maintains deposit or other accounts as of the Restatement
Effective Date, including any Disbursement Accounts, and such
Schedule correctly identifies the name, address and telephone number of
each depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number therefor.

 

5.17                           Agreements and Other Documents.  As of the Restatement Effective Date, each
Credit Party has provided to Agent or its counsel, on behalf of Lenders,
accurate and complete copies (or summaries) of all of the following agreements
or documents to which it is subject and each of which is listed in Schedule 5.17:  supply agreements and purchase agreements
not terminable by such Credit Party within sixty (60) days following written
notice issued by such Credit Party, the absence of which could reasonably be
expected to have a Material Adverse Effect; leases of Equipment having a
remaining term of one year or longer, the absence of which could reasonably be
expected to have a Material Adverse Effect; licenses and permits held by the
Credit Parties, the absence of which could reasonably be expected to have a
Material Adverse Effect; instruments and documents evidencing any material
Indebtedness or Guaranteed Indebtedness of such Credit Party and any Lien
granted by such Credit Party with respect thereto; and instruments and
agreements evidencing the issuance of any equity securities, warrants, rights
or options to purchase equity securities of such Credit Party (other than
Borrower).

 

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

 

5.19                           Related Transactions.  As of the Restatement Effective Date, the Related Transactions
have been consummated in accordance with, all applicable laws.  All requisite approvals by Governmental
Authorities having jurisdiction over any Credit Party and other Persons
referenced therein, with respect to the Related Transactions, have been
obtained, and no such approvals impose any materially adverse conditions to the
consummation of the Related Transaction or to the conduct by any Credit Party
of its business thereafter.

 

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

 

51

 

SECTION 6.

DEFAULT, RIGHTS AND REMEDIES

 

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

 

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

 

(b)                                 Default
in Other Agreements.  (1) Any
Credit Party or any of its Subsidiaries fails to pay when due, after the lapse
of any applicable grace period, any principal or interest on Indebtedness
(other than the Loans) or any Contingent Obligations or (2) breach or
default of any Credit Party or any of its Subsidiaries, or the occurrence of
any 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 cause
or to permit the holder or holders then to cause, Indebtedness and/or
Contingent Obligations having an individual principal amount in excess of
$3,000,000 or having an aggregate principal amount in excess of $5,000,000 to
become or be declared due prior to their stated maturity; or

 

(c)                                  Breach
of Certain Provisions.  Failure of
any Credit Party to perform or comply with any term or condition contained in
that 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)                                 Borrowing
Base Certificate.  Any information
contained in any Borrowing Base Certificate is untrue or incorrect in any
respect (other than inadvertent, immaterial or other errors that do not result
in an Overadvance in excess of $300,000 in the aggregate in any Borrowing Base
Certificate), or any representation or warranty herein or in any Loan Document
or in any written statement, report, financial statement or certificate (other
than a Borrowing Base Certificate) made or delivered to Agent or any Lender by
any Credit Party is untrue or incorrect in any material respect (without
duplication of materiality qualifiers contained therein) as of the date when
made or deemed made; or

 

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

 

52

 

specified, or for which
no cure period is specified and which constitute immediate Events of Default)
and such default is not remedied or waived within thirty (30) days after the
earlier of (1) receipt by Borrower of notice from Agent or Requisite
Lenders of such default or (2) actual knowledge of Borrower or any other
Credit Party of such default; or

 

(f)                                    Involuntary
Bankruptcy; Appointment of Receiver, Etc. 
(1) A court enters a decree or order for relief with respect to any
Credit Party in an involuntary case under the Bankruptcy Code, which decree or
order is not stayed or other similar relief is not granted under any applicable
federal or state law; or (2) the continuance of any of the following
events for sixty (60) days unless dismissed, bonded or discharged:  (a) an involuntary case is commenced
against  any
Credit Party, under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect; or (b) a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or
other officer having similar powers over  any Credit Party, or over all or a
substantial part of its property, is entered; or (c) a receiver, trustee
or other custodian is appointed without the consent of a Credit Party, for all
or a substantial part of the property of  the Credit Party; or

 

(g)                                 Voluntary
Bankruptcy; Appointment of Receiver, Etc. 
(1) any Credit Party commences a voluntary case under the
Bankruptcy Code, or consents to the entry of an order for relief in an
involuntary case or to the conversion of an involuntary case to a voluntary
case under any such law or consents to the appointment of or taking possession
by a receiver, trustee or other custodian for all or a substantial part of its
property; or (2) any Credit Party makes any assignment for the benefit of
creditors; or (3) the Board of Directors of any Credit Party adopts any
resolution or otherwise authorizes action to approve any of the actions
referred to in this Section 6.1(g); or

 

(h)                                 Judgment
and Attachments.  Any money
judgment, writ or warrant of attachment, or similar process (other than those
described elsewhere in this Section 6.1) involving (1) an
amount in any individual case in excess of $1,000,000 or (2) an amount in
the aggregate at any time in excess of $3,000,000 (in either case to the extent
not adequately covered by insurance in Agent’s sole discretion as to which the
insurance company has acknowledged coverage) is entered or filed against one or
more of the Credit Parties or any of their respective assets and remains
un-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 date
of any proposed sale thereunder; or

 

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

 

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

 

53

 

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

 

(l)                                     Damage;
Casualty.  Any event occurs, whether
or not insured or insurable, as a result of which revenue-producing activities
cease or are substantially curtailed at any facility of any Credit Party which
cessation or curtailment continues for more than fifteen (15) consecutive days
if any such event could reasonably be expected to result in a Material Adverse
Effect; or

 

(m)                               Business Activities.  Any
Subsidiary engages in any type of business activity other than as expressly
contemplated under Sections 3.9 and 3.17 hereof and performance
of its obligations under the Related Transaction Documents to which it is a
party; or

 

(n)                                 Change
of Control.  A Change of Control
occurs; or

 

(o)                                 Subordinated
Indebtedness.  The failure of any
Credit Party or any creditor of Borrower or any of its Subsidiaries to comply
with the terms of any subordination or intercreditor agreement or any
subordination provisions of any note or other document running to the benefit
of Agent or Lenders, or if any such document becomes null and void or any party
denies further liability under any such document or provides notice to that
effect; or

 

(p)                                 Employee
Benefit Plans.  (1) Borrower or any
of its Affiliates fails to make full payment when due of all amounts which,
under the provisions of any employee benefit plans or any applicable provisions
of the IRC, any such Person is required to pay as contributions thereto and
such 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 IRC
which results in or could reasonably be expected to result in a Material
Adverse Effect.

 

6.2                                 Suspension or Termination of Revolving Loan
Commitments.  Upon the occurrence of
any Default or Event of Default, Agent may, and at the request of Requisite
Lenders Agent shall, without notice or demand, immediately suspend or terminate
all or any portion of Lenders’ obligations to make additional Loans or issue or
cause to be issued Letters of Credit under the Revolving Loan Commitment; provided
that, in the case of a Default, if the subject condition or event is waived by
Requisite Lenders or cured within any applicable grace or cure period, the
Revolving Loan Commitment shall be reinstated.

 

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

 

54

 

immediately due and payable, without presentment, demand, protest,
notice of intent to accelerate, notice of acceleration or other requirements of
any kind, all of which are hereby expressly waived by Borrower, and the
Revolving Loan Commitments shall thereupon terminate.  Upon the occurrence and during the continuance of any other Event
of Default, Agent may, and at the request of the Requisite Lenders, Agent
shall, by written notice to Borrower (a) reduce the aggregate amount of
the Revolving Loan Commitments from time to time, (b) declare all or any
portion of the Loans and all or any portion of the other Obligations to be, and
the same shall forthwith become, immediately due and payable together with
accrued interest thereon, (c) terminate all or any portion of the obligations
of Agent, L/C Issuers and Lenders to make Revolving Credit Advances and issue
Letters of Credit, (d) demand that Borrower immediately deliver cash to
Agent for the benefit of L/C Issuers (and Borrower shall then immediately so
deliver) in an amount equal to 105% of the aggregate outstanding Letter of
Credit Obligations or demand that Borrower cause to be issued back-up letters
of credit reasonably acceptable to Agent, and (e) exercise any other
remedies which may be available under the Loan Documents or applicable
law.  Borrower hereby grants to Agent,
for the benefit of L/C Issuers and each Lender with a participation in any
Letters of Credit then outstanding, a security interest in such cash collateral
to secure all of the Letter of Credit Obligations.  Any such cash collateral shall be made available by Agent to L/C
Issuers to reimburse L/C Issuers for payments of drafts drawn under such
Letters of Credit and any Fees, Charges and expenses of L/C Issuers with
respect to such Letters of Credit and the unused portion thereof, after all
such Letters of Credit shall have expired or been fully drawn upon, shall be
applied to repay any other Obligations. 
After all such Letters of Credit shall have expired or been fully drawn
upon and all Obligations shall have been satisfied and paid in full, the
balance, if any, of such cash collateral shall be returned to Borrower.  Borrower shall from time to time execute and
deliver to Agent such further documents and instruments as Agent may request
with respect to such cash collateral.

 

6.4                                 Performance by Agent.  Upon the occurrence of a Default or an Event
of Default, if any Credit Party shall fail to perform any covenant, duty or
agreement contained in any of the Loan Documents, Agent may perform or attempt
to perform such covenant, duty or agreement on behalf of such Credit Party
after the expiration of any cure or grace periods set forth herein.  In such event, such Credit Party shall, at
the request of Agent, promptly pay any amount reasonably expended by Agent in
such performance or attempted performance to Agent, together with interest
thereon at the highest rate of interest in effect upon the occurrence of an
Event of Default as specified in Section 1.2(d) from the date of
such expenditure until paid. 
Notwithstanding the foregoing, it is expressly agreed that Agent shall
not have any liability or responsibility for the performance of any obligation
of any Credit Party under this Agreement or any other Loan Document.

 

6.5                                 Application of Proceeds.  Notwithstanding anything to the contrary
contained in this Agreement, upon the occurrence and during the continuance of
an Event of Default, (a) Borrower irrevocably waives the right to direct
the application of any and all payments at any time or times thereafter
received by Agent from or on behalf of Borrower, and Agent shall have the
continuing and exclusive right to apply and to reapply any and all payments
received at any time or times after the occurrence and during the continuance
of an Event of Default against the Obligations in such manner as Agent may
reasonably deem advisable notwithstanding any

 

55

 

previous application by Agent and (b) in the absence of a specific
determination by Agent with respect thereto, the proceeds of any sale of, or
other realization upon, all or any part of the Collateral shall be applied:  first, to all Fees, costs and
expenses incurred by or owing to Agent and any Lender with respect to this
Agreement, the other Loan Documents or the Collateral; second, to
accrued and unpaid interest on the Obligations (including any interest which
but for the provisions of the Bankruptcy Code, would have accrued on such
amounts); third, to the principal amount of the Obligations outstanding;
and fourth to any other obligations of Borrower owing to Agent or any
Lender under the Loan Documents.  Any
balance remaining shall be delivered to Borrower or to whomever may be lawfully
entitled to receive such balance or as a court of competent jurisdiction may
direct.

 

SECTION 7.

CONDITIONS TO LOANS

 

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

 

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

 

(b)                                 The
Intercreditor Agreement shall have either been reaffirmed or amended and
restated in a manner reasonably satisfactory to Agent and the Indebtedness of
Borrower under the Senior Indenture shall not exceed $46,630,000;

 

(c)                                  Borrower’s
most recent Projections delivered on or about the end of Borrower’s Fiscal Year
ended December 31, 2003 shall be reasonably acceptable to Agent and
Lenders;

 

(d)                                 Agent
shall 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 or
condition which could reasonably be expected to result in such a material
adverse change;

 

(e)                                  The
IPO shall have been consummated and Borrower shall have received not less than $70,000,000
Net Proceeds therefrom and after giving effect to the Payoffs, and the initial
funding of any Loans and/or the issuance of any Letter(s) of Credit on the
Restatement Effective Date and the establishment of any Reserves required by
Agent (including, without limitation, a Reserve for closing costs incurred by
Borrower in connection with this credit facility), the total amount of all
Obligations shall not exceed

 

56

 

$5,000,000 and Borrower
shall have not less than $8,000,000 of Borrowing Availability hereunder;

 

(f)                                    After
giving effect to the initial funding of the Loans and/or issuance of any
Letter(s) of Credit on the Restatement Effective Date, the ratio of (x) Total
Debt (as of the Restatement Effective Date and as measured under the Existing
Credit Agreement) to (y) EBITDA for the twelve month period ending
December 31, 2003 based on Borrower’s most current financial statements
delivered to Agent, does not exceed 4.25;

 

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

 

(h)                                 Agent
shall have received fully executed deposit account control agreements, lock-box
agreements, securities account control agreements and other cash management
agreements with Wells Fargo Bank, N.A. and each other bank, if any, where
Borrower maintains a deposit or a securities account, all in form and substance
reasonably acceptable to Agent.

 

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

 

(a)                                  any
representation or warranty by any Credit Party contained herein or in any other
Loan Document is untrue or incorrect in any material respect (without
duplication of any materiality qualifier contained therein) as of such date,
except to the extent that such representation or warranty expressly relates to
an earlier date, and Agent or Requisite Lenders have determined not to make
such Advance or incur such Letter of Credit Obligation as a result thereof;

 

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

 

(c)                                  after
giving effect to any Advance (or the incurrence of any Letter of Credit
Obligations), the outstanding amount of the Revolving Loan would exceed the
remaining Borrowing Availability (except as provided in Section 1.1(a)(ii));

 

The
request and acceptance by Borrower of the proceeds of any Advance, the
incurrence of any Letter of Credit Obligations or the conversion or
continuation of any Loan into, or as, a LIBOR Loan shall be deemed to
constitute, as of the date thereof, (i) a representation and warranty by
Borrower that the conditions in this Section 7.2  have been satisfied and (ii) a
reaffirmation by Borrower of the granting and continuance of Agent’s Liens, on
behalf of itself and Lenders, pursuant to the Collateral Documents.

 

57

 

7.3                                 Conditions to Loans to Fund Permitted
Acquisitions.  In the event that the
proceeds of a Revolving Loan are to be used to finance all or a portion of the
purchase price of a Permitted Acquisition, the obligation of Lenders to make
such Revolving Loans are subject to the further conditions precedent set forth
below:

 

(a)                                  Without
limiting the generality of the other provisions hereof, Agent shall have
received, to the extent required by Section 2.8 hereof, with
respect to the Person and any other assets being acquired, prior to or
simultaneously with the funding of such Loan, evidence of the due execution of
UCC Financing Statements or amendments to existing financing statements with
respect to such Person or assets, in form and substance reasonably acceptable
to Agent, necessary to perfect a first priority security interest of Agent for
the benefit of Lenders in such Person and/or other assets being acquired.  In the event real property is being acquired
in connection with such Permitted Acquisition, Agent shall, if reasonably
requested, have received, to the extent required by Section 2.8
hereof, a fully executed mortgage or deed of trust, in form and substance
reasonably satisfactory to Agent together with an ALTA lender’s title insurance
policy issued by a title insurer reasonably satisfactory to Agent, in form and
substance and in an amount reasonably satisfactory to Agent, insuring that the
mortgage or deed of trust is a valid and enforceable first priority mortgage lien
on the respective property, free and clear of all defects, encumbrances and
Liens, other than Permitted Encumbrances; and

 

(b)                                 Such
Permitted Acquisition is otherwise permitted under the terms of this Agreement
and all other conditions precedent have been fully satisfied or waived by
Agent, in writing.

 

SECTION 8.

ASSIGNMENT AND PARTICIPATION

 

8.1                                 Assignment and Participations.

 

(a)                                  Subject
to the terms of this Section 8.1, any Lender may make an assignment
to 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 Loan
Commitment or any portion thereof or interest therein, including any Lender’s
rights, title, interests, remedies, powers or duties thereunder.  Any assignment by a Lender shall:  (i) require the consent of Agent (which
consent shall not be unreasonably withheld or delayed with respect to a
Qualified Assignee) and the execution of an assignment agreement (an “Assignment
Agreement” substantially in the form attached hereto as Exhibit 8.1
and otherwise in form and substance reasonably satisfactory to, and
acknowledged by, Agent); (ii) be conditioned on such assignee Lender
representing to the assigning Lender, Agent and Borrower that it is purchasing
the applicable Loans to be assigned to it for its own account, for investment
purposes and not with a view to the distribution thereof; (iii) after giving
effect to any such partial assignment, the assignee Lender shall have Revolving
Loan Commitments in an amount at least equal to $2,500,000  and the assigning Lender shall have
retained Revolving Loan Commitments in an amount at least equal to $2,500,000; (iv) require a payment to
Agent of an

 

58

 

assignment fee of $3,500 and (v) so long as no Event of Default has
occurred and is continuing, require the consent of Borrower, which shall not be
unreasonably withheld or delayed and shall be deemed granted if not objected to
within three (3) Business Days following notice thereof to Borrower; provided that no such consent shall be required for an assignment to a Qualified
Assignee.  In the case of an
assignment by a Lender under this Section 8.1, the assignee shall
have, to the extent of such assignment, the same rights, benefits and
obligations as all other Lenders hereunder. 
The assigning Lender shall be relieved of its obligations hereunder with
respect to its Revolving Loan Commitments or assigned portion thereof from and after
the date of such assignment.  Borrower
hereby acknowledges and agrees that any assignment shall give rise to a direct
obligation of Borrower to the assignee and that the assignee shall be
considered to be a “Lender.”  In all
instances, each Lender’s liability to make Loans hereunder shall be several and
not joint and shall be limited to such Lender’s Pro Rata Share of the
applicable Revolving Loan Commitment. 
In the event Agent or any Lender assigns or otherwise transfers all or
any part of the Obligations, Agent or any such Lender shall so notify Borrower
and Borrower shall, upon the request of Agent or such Lender, execute new Notes
in 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 such
Lender’s rights under this Agreement and the other Loan Documents to a Federal
Reserve Bank, (b) any Lender that is an investment fund may assign the
Obligations held by it and such Lender’s rights under this Agreement and the
other Loan Documents to another investment fund managed by the same investment
advisor or pledge such Obligations and rights to trustee for the benefit of its
investors and (c) any Lender may assign the Obligations to an Affiliate of such
Lender or to a Person that is a Lender prior to the date of such assignment.

 

(b)                                 Any
participation by a Lender of all or any part of its Revolving Loan Commitments
shall be made with the understanding that all amounts payable by Borrower
hereunder shall be determined as if that Lender had not sold such
participation, and that the holder of any such participation shall not be
entitled to require such Lender to take or omit to take any action hereunder
except 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 holder
participates, (ii) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder participates or the final maturity date
thereof, and (iii) any release of all or substantially all of the Collateral
(other than in accordance with the terms of this Agreement, the Collateral
Documents or the other Loan Documents). 
Solely for purposes of Sections 1.10, 1.11, 8.3 and
9.1, Borrower acknowledges and agrees that a participation shall give
rise to a direct obligation of Borrower to the participant and the participant
shall be considered to be a “Lender”, provided  that such participant Lender shall not be entitled to
receive any greater payment under such Sections than the applicable Lender
selling such participation would have. 
Except as set forth in the preceding sentence neither Borrower nor any
other Credit Party shall have any obligation or duty to any participant.  Neither Agent nor any Lender (other than the
Lender selling a participation) shall have any duty to any

 

59

 

participant and may
continue to deal solely with the Lender selling a participation as if no such
sale had occurred.

 

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

 

(d)                                 Each
Credit Party shall assist Agent (for itself or on behalf of the applicable
Lender) in syndicating the Loans and Commitments under this Section 8.1
as required to enable the assigning or selling Lender to effect any assignment
or participation relating thereto, including the execution and delivery of any
and all agreements, notes and other documents and instruments as shall be
requested and the prompt preparation of informational materials for, and the
participation of management in meetings with, potential assignees or
participants, all on a timetable established by Agent in its sole
discretion.  Each Credit Party executing
this Agreement shall certify the correctness, completeness and accuracy of all
descriptions of the Credit Parties and their respective affairs contained in
any selling materials provided by it and all other information provided by it
and included in such materials, except that any Projections delivered by
Borrower shall only be certified by Borrower as having been prepared by
Borrower 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 the
name, address, commitment and Loans owing to each Lender.  The entries in such register shall be
presumptive evidence of the amounts due and owing to each Lender in the absence
of manifest error.  Borrower, Agent and
each Lender may treat each Person whose name is recorded in such register
pursuant to the terms hereof as a Lender for all purposes of this
Agreement.  The register described
herein shall be available for inspection by Borrower and any Lender, at any reasonable
time upon reasonable prior notice.

 

(e)                                  A
Lender may furnish any information concerning Credit Parties in the possession
of such Lender from time to time to assignees and participants (including
prospective assignees and participants); provided that such Lender shall
obtain from assignees or participants confidentiality covenants substantially
equivalent to those contained in Section 9.13.

 

8.2                                 Agent.

 

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

 

60

 

Agent is authorized and
empowered to amend, modify, or waive any provisions of this Agreement or the
other Loan Documents on behalf of Lenders subject to the requirement that
certain of Lenders’ consent be obtained in certain instances as provided in
this Section 8.2 and Section 9.2.  The provisions of this Section 8.2
are solely for the benefit of Agent and Lenders and neither Borrower nor any
other Credit Party shall have any rights as a third party beneficiary of any of
the provisions hereof.  In performing
its functions and duties under this Agreement, Agent shall act solely as agent
of Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for Borrower or
any other Credit Party.  Agent may
perform any of its duties hereunder, or under the Loan Documents, by or through
its agents or employees.

 

(b)                                 Nature
of Duties.  The duties of Agent
shall be mechanical and administrative in nature.  Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender.  
Nothing in this Agreement or any of the Loan Documents, express or
implied, is intended to or shall be construed to impose upon Agent any
obligations in respect of this Agreement or any of the Loan Documents except as
expressly set forth herein or therein. 
Each Lender shall make its own independent investigation of the
financial condition and affairs of each Credit Party in connection with the
extension of credit hereunder and shall make its own appraisal of the
creditworthiness of each Credit Party, and Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto (other than as
expressly required herein).  If Agent
seeks the consent or approval of any Lenders to the taking or refraining from
taking any action hereunder, then Agent shall send notice thereof to each
Lender.  Agent shall promptly notify
each Lender any time that the Requisite Lenders have instructed Agent to act or
refrain from acting pursuant hereto.

 

(c)                                  Rights,
Exculpation, Etc.  Neither Agent nor
any of its officers, directors, employees or agents shall be liable to any
Lender for any action taken or omitted by them hereunder or under any of the
Loan Documents, or in connection herewith or therewith, except that Agent shall
be liable to the extent of its own gross negligence or willful misconduct as
determined by a final non-appealable order by a court of competent
jurisdiction.  Agent shall not be liable
for any apportionment or distribution of payments made by it in good faith and
if any such apportionment or distribution is subsequently determined to have
been made in error the sole recourse of any Lender to whom payment was due but
not made, shall be to recover from other Lenders any payment in excess of the
amount to which they are determined to be entitled (and such other Lenders
hereby agree to return to such Lender any such erroneous payments received by
them).  In no event shall Agent be
liable for punitive, special, consequential, incidental, exemplary or other
similar damages.  In performing its
functions and duties hereunder, Agent shall exercise the same care which it
would in dealing with loans for its own account, but neither Agent nor any of
its agents or representatives shall be responsible to any Lender for any
recitals, statements, representations or warranties herein or for the
execution, effectiveness, genuineness, validity, enforceability,
collectibility, or sufficiency of this

 

61

 

Agreement or any of the
Loan Documents or the transactions contemplated thereby, or for the financial
condition of any Credit Party.  Agent
shall not be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
any of the Loan Documents or the financial condition of any Credit Party, or
the existence or possible existence of any Default or Event of Default.  Agent may at any time request instructions
from Requisite Lenders or all affected Lenders with respect to any actions or
approvals which by the terms of this Agreement or of any of the Loan Documents
Agent is permitted or required to take or to grant.  If such instructions are promptly requested, Agent shall be
absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the Loan
Documents until it shall have received such instructions from the Requisite
Lenders or such other portion of the Lenders as shall be prescribed by this
Agreement.  Without limiting the
foregoing, no Lender shall have any right of action whatsoever against Agent as
a result of Agent acting or refraining from acting under this Agreement or any
of the other Loan Documents in accordance with the instructions of Requisite
Lenders or all affected Lenders, as applicable; and, notwithstanding the
instructions of Requisite Lenders or all affected Lenders, as applicable, Agent
shall have no obligation to take any action if it believes, in good faith, that
such action is deemed to be illegal by Agent or exposes Agent to any liability
for which it has not received satisfactory indemnification in accordance with Section 8.2(e).

 

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

 

(e)                                  Indemnification.  Lenders will reimburse and indemnify Agent
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, attorneys’ fees and expenses), advances or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any of
the Loan Documents or any action taken or omitted by Agent under this Agreement
or 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 portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements to the extent
resulting from Agent’s gross negligence or willful misconduct as determined by
a final non-appealable order by a court of competent jurisdiction.  If any indemnity furnished to Agent for any
purpose shall, in the opinion of Agent, be insufficient or become impaired,
Agent may call for additional indemnity and

 

62

 

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

 

(f)                                    GE
Capital Individually.  With respect
to its Revolving Loan Commitments hereunder, GE Capital shall have and may
exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any other
Lender.  The terms “Lenders”, “Requisite
Lenders” or any similar terms shall, unless the context clearly otherwise
indicates, include GE Capital in its individual capacity as a Lender or one of
the Requisite Lenders.  GE Capital,
either directly or through strategic affiliations, may lend money to, acquire
equity or other ownership interests in, provide advisory services to and
generally engage in any kind of banking, trust or other business with any
Credit Party as if it were not acting as Agent pursuant hereto and without any
duty to account therefor to Lenders.  GE
Capital, either directly or through strategic affiliations, may accept fees and
other consideration from any Credit Party for services in connection with this
Agreement or otherwise without having to account for the same to Lenders.

 

(g)                                 Successor
Agent.

 

(i)                                     Resignation. 
Agent may resign from the performance of all its agency functions and
duties 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 successor
Agent of appointment pursuant to clause (ii) below or as otherwise provided in
clause (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 of
Default has occurred and is continuing, shall be reasonably acceptable to
Borrower.  If a successor Agent shall
not have been so appointed within the thirty (30) Business Day period referred
to in clause (i) above, the retiring Agent, upon notice to Borrower, shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
Requisite Lenders appoint a successor Agent as provided above.

 

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

 

63

 

(h)                                 Collateral
Matters.

 

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

 

(ii)                                  Confirmation of Authority; Execution
of Releases.  Without in any manner limiting Agent’s
authority to act without any specific or further authorization or consent by
Lenders (as set forth in Section 8.2(h)(i)), each Lender agrees to
confirm in writing, upon request by Agent or Borrower, the authority to release
any Collateral conferred upon Agent under clauses (x) and (y) of Section 8.2(h)(i).  Upon receipt by Agent of any required
confirmation from the Requisite Lenders of its authority to release any
particular item or types of Collateral, and upon at least seven (7) Business
Days’ prior written request by Borrower, Agent shall (and is hereby irrevocably
authorized by Lenders to) execute such documents as may be necessary to
evidence the release of the Liens granted to Agent upon such Collateral; provided,
however, that (x) Agent shall not be required to execute any such
document on terms which, in Agent’s opinion, would expose Agent to liability or
create any obligation or entail any consequence other than the release of such
Liens without recourse or warranty, and (y) such release shall not in any
manner discharge, affect or impair the Obligations or any Liens upon (or
obligations of any Credit Party, in respect of), all interests retained by any
Credit Party, including the proceeds of any sale, all of which shall continue
to constitute part of the Collateral.

 

(iii)                               Absence of Duty. 
Agent shall have no obligation whatsoever to any Lender or any other
Person to assure that the property covered by the Collateral Documents exists
or is owned by Borrower or any other Credit Party or is cared for, protected or
insured or has been encumbered or that the Liens granted to Agent have been
properly or sufficiently or lawfully created, perfected, protected or enforced
or are entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent in this Section 8.2(h) or in any of the Loan
Documents, it being understood and agreed that in respect of the property
covered by the Collateral Documents or any act, omission or event related
thereto, Agent may act in any manner it may deem appropriate, in its
discretion, given Agent’s own interest in property covered by the Collateral
Documents as one of the Lenders and that Agent shall have no duty or liability
whatsoever to any of the other Lenders,

 

64

 

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

 

(i)                                     Agency
for Perfection.  Agent and each Lender
hereby appoint each other Lender as agent for the purpose of perfecting Agent’s
security interest in assets which, in accordance with the Code in any
applicable jurisdiction, can be perfected by possession or control.  Should any Lender (other than Agent) obtain
possession or control of any such assets, such Lender shall notify Agent
thereof, and, promptly upon Agent’s request therefor, shall deliver such assets
to Agent or in accordance with Agent’s instructions or transfer control to
Agent in accordance with Agent’s instructions. 
Each Lender agrees that it will not have any right individually to
enforce or seek to enforce any Collateral Document or to realize upon any
collateral security for the Loans unless instructed to do so by Agent in
writing, it being understood and agreed that such rights and remedies may be
exercised only by Agent.

 

(j)                                     Notice
of Default.  Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default except with respect to defaults in the payment of principal, interest
and Fees required to be paid to Agent for the account of Lenders, unless Agent
shall have received written notice from a Lender or Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a “notice of default”.  Agent
will use reasonable efforts to notify each Lender of its receipt of any such
notice, unless such notice is with respect to defaults in the payment of
principal, interest and fees, in which case Agent will notify each Lender of
its receipt of such notice.  Agent shall
take such action with respect to such Default or Event of Default as may be
requested by Requisite Lenders in accordance with Section 6.  Unless and until Agent has received any such
request, Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable or in the best interests of Lenders.

 

(k)                                  Lender
Actions Against Collateral.  Each
Lender agrees that it will not take any action, nor institute any actions or
proceedings, with respect to the Loans, against Borrower or any Credit Party
hereunder or under the other Loan Documents or against any of the Real Estate
encumbered by Mortgages without the consent of the Requisite Lenders.  With respect to any action by Agent to
enforce the rights and remedies of Agent and the Lenders under this Agreement
and the other Loan Documents, each Lender hereby consents to the jurisdiction
of the court in which such action is maintained, and agrees to deliver its
Notes to Agent to the extent necessary to enforce the rights and remedies of
Agent for the benefit of the Lenders under the Mortgages in accordance with the
provisions hereof.

 

8.3                                 Set Off and Sharing of Payments.  In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
during the continuance of any Event of Default, each Lender is hereby
authorized by Borrower at any time or from time to time, with reasonably prompt
subsequent notice to Borrower (any prior or contemporaneous notice being hereby
expressly 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

 

65

 

Borrower or any of its Subsidiaries (regardless of whether such
balances are then due to Borrower or its Subsidiaries), and (B) other
property at any time held or owing by such Lender to or for the credit or for
the account of Borrower or any of its Subsidiaries, against and on account of
any of the Obligations; except that no Lender shall exercise any such right
without the prior written consent of Agent. 
Any Lender exercising a right to set off shall purchase for cash (and
the other Lenders shall sell) interests in each of such other Lender’s Pro Rata
Share of the Obligations as would be necessary to cause all Lenders to share
the amount so set off with each other Lender in accordance with their
respective Pro Rata Shares.  Borrower
agrees, to the fullest extent permitted by law, that any Lender may exercise
its right to set off with respect to amounts in excess of its Pro Rata Share of
the Obligations and upon doing so shall deliver such amount so set off to the
Agent for the benefit of all Lenders in accordance with their Pro Rata Shares.

 

8.4                                 Disbursement of Funds.  Agent may, on behalf of Lenders, disburse
funds to Borrower for Loans requested. 
Each Lender shall reimburse Agent on demand for all funds disbursed on
its behalf by Agent, or if Agent so requests, each Lender will remit to Agent
its Pro Rata Share of any Loan before Agent disburses same to Borrower.  If Agent elects to require that each Lender
make 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 such
Lender’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 Lender
shall pay Agent such Lender’s Pro Rata Share of such requested Loan, in same
day funds, by wire transfer to Agent’s account on such Funding Date.  If any Lender fails to pay the amount of its
Pro Rata Share within one (1) Business Day after Agent’s demand, Agent shall
promptly notify Borrower, and Borrower shall immediately repay such amount to
Agent.  Any repayment required pursuant
to this Section 8.4 shall be without premium or penalty.  Nothing in this Section 8.4 or
elsewhere in this Agreement or the other Loan Documents, including the
provisions of Section 8.5, shall be deemed to require Agent to
advance funds on behalf of any Lender or to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights that
Agent or Borrower may have against any Lender as a result of any default by
such Lender hereunder.

 

8.5                                 Disbursements of Advances; Payment.

 

(a)                                  Advances;
Payments.

 

(i)                                     Revolving Lenders shall refund or
participate in the Swing Line Loan in accordance with clauses (iii) and (iv) of
Section 1.1(c).  If the
Swing Line Lender declines to make a Swing Line Loan or if Swing Line
Availability is zero, Agent shall notify Revolving Lenders, promptly after
receipt of a Notice of Revolving Credit Advance and in any event prior to noon (Chicago time)  on
the 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 Pro
Rata Share of such Revolving Credit Advance available to Agent in same day
funds by wire transfer to Agent’s account as set forth in Section 1.1(e)
not later than 2:00 p.m. (Chicago time)  on
the requested Funding Date in the case of an Index Rate Loans and not later
than 10:00 a.m.

 

66

 

(Chicago time)  on
the requested Funding Date in the case of a LIBOR Loan.  After receipt of such wire transfers (or, in
the Agent’s sole discretion, before receipt of such wire transfers), subject to
the terms hereof, Agent shall make the requested Revolving Credit Advance to
Borrower.  All payments by each
Revolving Lender shall be made without setoff, counterclaim or deduction of any
kind.

 

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

 

(b)                                 Availability
of Lender’s Pro Rata Share.  Agent
may assume that each Revolving Lender will make its Pro Rata Share of each
Revolving Credit Advance available to Agent on each Funding Date.  If such Pro Rata Share is not, in fact, paid
to Agent by such Revolving Lender when due, Agent will be entitled to recover
such amount on demand from such Revolving Lender without setoff, counterclaim
or deduction of any kind.  If any
Revolving Lender fails to pay the amount of its Pro Rata Share forthwith upon
Agent’s demand, Agent shall promptly notify Borrower and Borrower shall
immediately repay such amount to Agent. 
Nothing in this Section 8.5(b) or elsewhere in this
Agreement or the other Loan Documents shall be deemed to require Agent to
advance funds on behalf of any Revolving Lender or to relieve any Revolving
Lender from its obligation to fulfill its Revolving Loan Commitments hereunder
or to prejudice any rights that Borrower may have against any Revolving Lender
as a result of any default by such Revolving Lender hereunder.  To the extent that Agent advances funds to
Borrower on behalf of any Revolving Lender and is not reimbursed therefor on
the same Business Day as such Advance is made, Agent shall be entitled to
retain for its account all interest accrued on such Advance until reimbursed by
the applicable Revolving Lender.

 

67

 

(c)                                  Return
of Payments.

 

(i)                                     If Agent pays an amount to a Lender
under this Agreement in the belief or expectation that a related payment has
been or will be received by Agent from Borrower and such related payment is not
received by Agent, then Agent will be entitled to recover such amount from such
Lender on demand without setoff, counterclaim or deduction of any kind.

 

(ii)                                  If Agent determines at any time that
any amount received by Agent under this Agreement must be returned to Borrower
or 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 Loan
Document, Agent will not be required to distribute any portion thereof to any
Lender.  In addition, each Lender will
repay to Agent on demand any portion of such amount that Agent has distributed
to such Lender, together with interest at such rate, if any, as Agent is
required to pay to Borrower or such other Person, without setoff, counterclaim
or deduction of any kind.

 

(d)                                 Non-Funding
Lenders.  The failure of any
Non-Funding Lender to make any Revolving Credit Advance or any payment required
by it hereunder, or to purchase any participation in any Swing Line Loan to be
made or purchased by it on the date specified therefor shall not relieve any
other Lender (each such other Revolving Lender, an “Other Lender”) of
its 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 of
any Non-Funding Lender to make an Advance, purchase a participation or make any
other payment required hereunder. 
Notwithstanding anything set forth herein to the contrary, a Non-Funding
Lender shall not have any voting or consent rights under or with respect to any
Loan Document or constitute a “Lender” or a “Revolving Lender” (or be included
in the calculation of “Requisite Lenders” hereunder) for any voting or consent rights
under or with respect to any Loan Document.

 

(e)                                  Dissemination
of Information.  Agent shall use
reasonable efforts to provide Lenders with any notice of Default or Event of
Default received by Agent from, or delivered by Agent to, any Credit Party, with
notice of any Event of Default of which Agent has actually become aware and
with 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)                                    Actions
in Concert.  Anything in this
Agreement to the contrary notwithstanding, each Lender hereby agrees with each
other Lender that no Lender shall take any action to protect or enforce its
rights arising out of this Agreement or the Notes (including exercising any
rights of setoff) without first obtaining the prior written consent of Agent
and Requisite Lenders, it being the intent of Lenders that any such action to
protect or enforce rights under this Agreement and the Notes shall be taken in
concert and at the direction or with the consent of Agent or Requisite
Lenders.  Agent is authorized to

 

68

 

issue all notices to be
issued 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/C
Issuer and their respective officers, directors, employees, agents, and
attorneys (the “Indemnitees”) harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs and expenses (including all reasonable fees and expenses
of counsel to such Indemnitees) of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against the Indemnitee as a result of such
Indemnitees being a party to this Agreement or the transactions consummated
pursuant to this Agreement or otherwise relating to any of the Related
Transactions; provided, that Borrower shall have no obligation to an
Indemnitee hereunder with respect to liabilities to the extent resulting from
the gross negligence or willful misconduct of that Indemnitee as determined by
a court of competent jurisdiction.  If
and to the extent that the foregoing undertaking may be unenforceable for any
reason, Borrower agrees to make the maximum contribution to the payment and
satisfaction thereof which is permissible under applicable law.

 

9.2                                 Amendments and Waivers.

 

(a)                                  Except
for actions expressly permitted to be taken by Agent, no amendment,
modification, termination or waiver of any provision of this Agreement or any
other Loan Document, or any consent to any departure by any Credit Party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Borrower, and by Requisite Lenders or all affected Lenders, as
applicable.  Except as set forth in
clauses (b) and (c) below, all such amendments, modifications, terminations or
waivers requiring the consent of any Lenders shall require the written consent
of Requisite Lenders.

 

(b)                                 No
amendment, modification, termination or waiver of or consent with respect to
any provision of this Agreement that increases the percentage advance rates set
forth in the definition of the Borrowing Base, or that makes less restrictive the
nondiscretionary criteria for exclusion from Eligible Accounts and Eligible
Inventory set forth in Exhibit 4.9(d), shall be effective unless the
same shall be in writing and signed by Agent, Requisite Lenders and
Borrower.  No amendment, modification, termination
or waiver of or consent with respect to any provision of this Agreement that
waives compliance with the conditions precedent set forth in Section 7.2
to the making of any Loan or the incurrence of any Letter of Credit Obligations
shall 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, no
waiver or consent with respect to any Default or any Event of Default shall be
effective for purposes of the conditions precedent to the making of Loans or
the incurrence of Letter

 

69

 

of Credit Obligations set
forth in Section 7.2 unless the same shall be in writing and signed
by Agent, Requisite Lenders and Borrower.

 

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

 

70

 

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

 

Notices shall be
addressed 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

  

 

71

 

9.4                                 Failure or Indulgence Not Waiver; Remedies
Cumulative.  No failure or delay on
the part of Agent or any Lender to exercise, nor any partial exercise of, any
power, right or privilege hereunder or under any other Loan Documents shall
impair such power, right, or privilege or be construed to be a waiver of any
Default or Event of Default.  All rights
and remedies existing hereunder or under any other Loan Document are cumulative
to and not exclusive of any rights or remedies otherwise available.

 

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

 

9.6                                 Severability. 
The invalidity, illegality, or unenforceability in any jurisdiction of
any provision under the Loan Documents shall not affect or impair the remaining
provisions in the Loan Documents.

 

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

 

9.8                                 Headings. 
Section and subsection headings are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for 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 OF
LAW AND FORUM ACT, THE PARTIES HERETO AGREE THAT THIS AGREEMENT AND EACH OF THE
OTHER LOAN DOCUMENTS WHICH DOES NOT EXPRESSLY SET FORTH APPLICABLE LAW SHALL BE
GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF ILLINOIS,
WITHOUT OTHERWISE GIVING EFFECT TO ILLINOIS’ CONFLICTS OF LAW PRINCIPLES THAT
WOULD REQUIRE THE APPLICATION OF LAWS OTHER THAN THE LAWS OF THE STATE OF
ILLINOIS.

 

72

 

9.10                           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns except that Borrower may not assign its rights or obligations hereunder
without the written consent of all Lenders.

 

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

 

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

 

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

 

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

 

73

 

OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS  MAY
BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS AGREEMENT
AND SERVICE  SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS
BEEN POSTED.

 

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

 

9.16                           Survival of Warranties and Certain Agreements.  All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement, the making of the Loans, issuances of Letters of Credit and the
execution and delivery of the Notes and shall continue in full force and effect
as long as the Obligations are outstanding and so long as the Commitments have
not been terminated.  Notwithstanding
anything in this Agreement or implied by law to the contrary, the agreements of
Borrower set forth in Sections 1.3(g), 1.10, 1.11 and
9.1 shall survive the repayment of the Obligations and the termination
of this Agreement.

 

9.17                           Entire Agreement.  This Agreement, the Notes and the other Loan Documents embody the
entire 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 by
evidence of prior, contemporaneous, or subsequent oral agreements or
discussions of the parties hereto.  All
Exhibits, Schedules and Annexes referred to herein are incorporated in this
Agreement 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 by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one in the same instrument.  This Agreement shall become effective upon
the execution of a counterpart hereof by each of the parties hereto.

 

74

 

9.19                           Replacement of Lenders.

 

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

 

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

 

(ii)                                  Borrower may prepay in full all
outstanding Obligations owed to such Affected Lender and terminate such
Affected Lender’s Pro Rata Share of the Revolving Loan Commitment, in which
case the Revolving Loan Commitment will be reduced by the amount of such Pro
Rata Share.  Borrower shall, within
ninety (90) days following notice of its intention to do so, prepay in full all
outstanding Obligations owed to such Affected Lender (including, in any case
where such prepayment occurs as the result of a demand for payment for
increased costs, such Affected Lender’s increased costs for which it is
entitled to reimbursement under this Agreement through the date of such
prepayment), and terminate such Affected Lender’s obligations under the
Revolving Loan Commitment.

 

(b)                                 In
the case of a Non-Funding Lender pursuant to Section 8.5(a), at
Borrower’s request, Agent or a Person reasonably acceptable to Agent shall have
the right with Agent’s consent and in Agent’s sole discretion (but shall have
no obligation) to purchase from any Non-Funding Lender, and each Non-Funding
Lender hereby irrevocably agrees that it shall, at Agent’s request, sell and
assign to Agent or such Person, all of the Loans and Revolving Loan Commitments
of that Non-Funding Lender for an amount equal to the principal balance of all
Loans held by such Non-Funding

 

75

 

Lender and all accrued
interest and Fees with respect thereto through the date of sale, such purchase
and sale to be consummated pursuant to an executed Assignment Agreement.

 

(c)                                  If,
in connection with any proposed amendment, modification, waiver or termination
pursuant to Section 9.2 (a “Proposed Change”) requiring the
consent of all affected Lenders, the consent of Requisite Lenders is obtained,
but the consent of other Lenders whose consent is required is not obtained (any
such Lender whose consent is not obtained as described herein this being
referred to as a “Non-Consenting Lender”), then, so long as Agent is not
a Non-Consenting Lender, at Borrower’s request Agent, or a Person reasonably
acceptable to Agent, shall have the right with Agent’s consent and in Agent’s
sole discretion (but shall have no obligation) to purchase from such
Non-Consenting Lenders, and such Non-Consenting Lenders hereby irrevocably
agree that they shall, upon Agent’s request, sell and assign to Agent or such
Person, all of the Loans and Revolving Loan Commitments of such Non-Consenting
Lenders for an amount equal to the principal balance of all Loans held by the
Non-Consenting Lenders and all accrued interest and Fees with respect thereto
through the date of sale, such purchase and sale to be consummated pursuant to
an executed Assignment Agreement.

 

9.20                           Delivery of Termination Statements and Mortgage Releases.  Upon payment in full in cash and performance
of all of the Obligations (other than indemnification Obligations), termination
of the Revolving Loan Commitments, and so long as no suits, actions
proceedings, or claims are pending or threatened against any Indemnitee
asserting any damages, losses or liabilities that are indemnified liabilities
hereunder, Agent shall deliver to Borrower termination statements, mortgage
releases and other documents necessary or appropriate to evidence the
termination of the Liens securing payment of the Obligations.

 

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

 

76

 

Witness the due execution of this Amended and Restated Credit Agreement
by the respective duly authorized officers of the undersigned as of the date
first 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

  
					

 

77Exhibit 10.2

 

AMENDED AND RESTATED REVOLVING NOTE

 

	
   

  	
   

  	
  Chicago,
  Illinois

  
	
  $20,000,000.00

  	
   

  	
  February 25,
  2004

  

 

FOR VALUE RECEIVED, the undersigned, CHEROKEE
INTERNATIONAL CORPORATION, a 
Delaware corporation (“Borrower”),
HEREBY PROMISES TO PAY to the order of GENERAL
ELECTRIC CAPITAL CORPORATION (“Lender”),
at the offices of GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation,
as Agent for Lenders (“Agent”), at
its address at 100 California Street, 10th Floor, San Francisco, California
94111, or at such other place as Agent may designate from time to time in
writing, in lawful money of the United States of America and in immediately
available funds, the amount of TWENTY MILLION
DOLLARS AND NO CENTS ($20,000,000.00) or, if less, the aggregate
unpaid amount of all Revolving Credit Advances made to the undersigned under
the “Credit Agreement” (as hereinafter defined).  All capitalized terms used but not otherwise defined herein have
the meanings given to them in the Credit Agreement or in Annex A
thereto.

 

This Revolving Note is one of the Revolving Notes issued pursuant to
that certain Amended and Restated Credit Agreement dated as of
February 25, 2004 by and among Borrower, Agent, Lender and the other
Persons signatory thereto from time to time as Lenders (including all annexes,
exhibits and schedules thereto, and as from time to time amended, restated,
supplemented or otherwise modified, the “Credit
Agreement”), and is entitled to the benefit and security of the
Credit Agreement, the Security Agreement and all of the other Loan Documents
referred to therein.  Reference is
hereby made to the Credit Agreement for a statement of all of the terms and
conditions under which the Loans evidenced hereby are made and are to be
repaid.  The date and amount of each Revolving
Credit Advance made by Lenders to Borrower, the rates of interest applicable
thereto and each payment made on account of the principal thereof, shall be
recorded by Agent on its books; provided that the failure of Agent to make any
such recordation shall not affect the obligations of Borrower to make a payment
when due of any amount owing under the Credit Agreement or this Revolving Note
in respect of the Revolving Credit Advances made by Lender to Borrower.

 

The principal amount of the indebtedness evidenced hereby shall be
payable in the amounts and on the dates specified in the Credit Agreement, the
terms of which are hereby incorporated herein by reference.  Interest thereon shall be paid until such
principal amount is paid in full at such interest rates and at such times, and
pursuant to such calculations, as are specified in the Credit Agreement. The
terms of the Credit Agreement are hereby incorporated herein by reference.

 

If any payment on this Revolving Note becomes due and payable on a day
other than a Business Day, the payment thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.

 

Upon and after the occurrence of any Event of Default, this Revolving
Note may, as provided in the Credit Agreement, and without presentment, demand,
protest, notice of intent to

 

 

accelerate, notice of acceleration or other legal requirement of any
kind (all of which are hereby expressly waived by Borrower), be declared, and
immediately shall become, due and payable.

 

Time is of the essence of this Revolving Note.

 

Except as provided in the Credit Agreement, this Revolving Note may not
be assigned by Lender to any Person.

 

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

 

This Revolving Note is issued in full
substitution for and replacement of, but not in payment of the Amended and
Restated Revolving Note of Borrower dated November 27, 2002, payable to
the order of HELLER FINANCIAL, INC. in the original principal amount of SEVEN
MILLION SIX HUNDRED THOUSAND DOLLARS and NO CENTS ($7,600,000.00).

 

Remainder of Page Intentionally Left Blank

Signature Page Follows

 

2

 

IN WITNESS WHEREOF, Borrower has executed
this Amended and Restated Revolving Note as of the date first written above.

 

 

	
   

  	
  CHEROKEE INTERNATIONAL

  CORPORATION, a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Van Holland

  
	
   

  	
  Name: Van Holland

  
	
   

  	
  Title:  Chief Financial
  Officer

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