Document:

Exhibit 10.1

 

CREDIT AGREEMENT

 

among

 

ARCTIC CAT INC.,

 

as Borrower;

 

WELLS FARGO BANK, NATIONAL ASSOCIATION,

 

as Administrative Agent and Lead Arranger;

 

and

 

THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO

 

 

Closing Date:  August 29,
2008

 

 

$75,000,000 Revolving Credit Facility

 

 

Arranged by

 

WELLS FARGO BANK, NATIONAL ASSOCIATION

 

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I
  Definitions

  	
  1

  	 

	
  Section 1.1

  	
  Definitions

  	
  1

  	 

	
  Section 1.2

  	
  Times

  	
  11

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  II Amount and Terms of the Loans; Letters of Credit

  	
  12

  	 

	
  Section 2.1

  	
  Revolving Facility

  	
  12

  	 

	
  Section 2.2

  	
  Procedure Applicable to
  Borrowings

  	
  12

  
	
  Section 2.3

  	
  Procedures Applicable to
  Letters of Credit

  	
  13

  
	
  Section 2.4

  	
  Interest on Notes

  	
  14

  
	
  Section 2.5

  	
  Payments

  	
  15

  
	
  Section 2.6

  	
  Fees

  	
  16

  
	
  Section 2.7

  	
  Prepayments

  	
  16

  
	
  Section 2.8

  	
  Termination of Revolving
  Facility and Voluntary Reduction of Aggregate Revolving Facility Amount;
  Automatic Reductions of Aggregate Revolving Facility Amount

  	
  16

  
	
  Section 2.9

  	
  Payments

  	
  17

  
	
  Section 2.10

  	
  Increased Costs; Capital
  Adequacy; Funding Exceptions

  	
  18

  
	
  Section 2.11

  	
  Funding Losses

  	
  22

  
	
  Section 2.12

  	
  Discretion of Lenders as
  to Manner of Funding

  	
  22

  
	
  Section 2.13

  	
  Conclusiveness of
  Statements; Survival of Provisions

  	
  22

  
	
  Section 2.14

  	
  Computation of Interest
  and Fees

  	
  22

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  III Conditions Precedent

  	
  22

  	 

	
  Section 3.1

  	
  Initial Conditions
  Precedent

  	
  22

  	 

	
  Section 3.2

  	
  Conditions Precedent to
  All Borrowings and Letters of Credit

  	
  24

  
	
  Section 3.3

  	
  Perfection of Capital
  Stock of Applicable Foreign Subsidiaries

  	
  24

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IV Representations and Warranties

  	
  24

  	 

	
  Section 4.1

  	
  Existence and Power

  	
  25

  	 

	
  Section 4.2

  	
  Authorization of
  Borrowing; No Conflict as to Law or Agreements

  	
  25

  
	
  Section 4.3

  	
  Legal Agreements

  	
  25

  
	
  Section 4.4

  	
  Subsidiaries

  	
  25

  
	
  Section 4.5

  	
  Financial Condition

  	
  25

  
	
  Section 4.6

  	
  Adverse Change

  	
  26

  
	
  Section 4.7

  	
  Litigation

  	
  26

  
	
  Section 4.8

  	
  Hazardous Substances

  	
  26

  
	
  Section 4.9

  	
  Regulation U

  	
  26

  
	
  Section 4.10

  	
  Taxes

  	
  26

  
	
  Section 4.11

  	
  Titles and Liens

  	
  27

  
	
  Section 4.12

  	
  ERISA

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE V
  Affirmative Covenants

  	
  27

  	 

	
  Section 5.1

  	
  Reporting

  	
  27

  	 

	
  Section 5.2

  	
  Books and Records;
  Inspection and Examination

  	
  29

  
	
  Section 5.3

  	
  Compliance with Laws

  	
  30

  

 

i

 

	
  Section 5.4

  	
  Payment of Taxes and Other
  Claims

  	
  30

  	 

	
  Section 5.5

  	
  Maintenance of Properties

  	
  30

  
	
  Section 5.6

  	
  Insurance

  	
  30

  
	
  Section 5.7

  	
  Preservation of Corporate
  Existence

  	
  30

  
	
  Section 5.8

  	
  New Subsidiaries

  	
  31

  
	
  Section 5.9

  	
  Asset Coverage Ratio

  	
  31

  
	
  Section 5.10

  	
  Minimum EBITDA

  	
  31

  
	
  Section 5.11

  	
  Minimum Tangible Net Worth

  	
  31

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VI Negative Covenants

  	
  31

  	 

	
  Section 6.1

  	
  Liens

  	
  31

  	 

	
  Section 6.2

  	
  Indebtedness

  	
  32

  
	
  Section 6.3

  	
  Guaranties

  	
  33

  
	
  Section 6.4

  	
  Investments

  	
  33

  
	
  Section 6.5

  	
  Sale of Assets

  	
  34

  
	
  Section 6.6

  	
  Transactions with
  Affiliates

  	
  34

  
	
  Section 6.7

  	
  Restrictions on Issuance
  and Sale of Subsidiary Stock

  	
  34

  
	
  Section 6.8

  	
  Restrictions on Repurchase
  or Redemption of Borrower Stock with Advances

  	
  34

  
	
  Section 6.9

  	
  Consolidation and Merger;
  Purchase of Assets

  	
  35

  
	
  Section 6.10

  	
  Sale and Leaseback

  	
  35

  
	
  Section 6.11

  	
  Hazardous Substances

  	
  35

  
	
  Section 6.12

  	
  Restrictions on Nature of
  Business

  	
  35

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VII Events of Default, Rights and Remedies

  	
  35

  	 

	
  Section 7.1

  	
  Events of Default

  	
  35

  	 

	
  Section 7.2

  	
  Rights and Remedies

  	
  37

  
	
  Section 7.3

  	
  Pledge of L/C Cash
  Collateral Account

  	
  38

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII The Administrative Agent

  	
  38

  	 

	
  Section 8.1

  	
  Authorization

  	
  38

  	 

	
  Section 8.2

  	
  Distribution of Payments
  and Proceeds

  	
  39

  
	
  Section 8.3

  	
  Expenses

  	
  39

  
	
  Section 8.4

  	
  Payments Received Directly
  by Lenders

  	
  40

  
	
  Section 8.5

  	
  Indemnification

  	
  40

  
	
  Section 8.6

  	
  Exculpation

  	
  40

  
	
  Section 8.7

  	
  Administrative Agent and
  Affiliates

  	
  41

  
	
  Section 8.8

  	
  Credit Investigation

  	
  41

  
	
  Section 8.9

  	
  Resignation and Assignment
  of Administrative Agent

  	
  41

  
	
  Section 8.10

  	
  Defaults

  	
  41

  
	
  Section 8.11

  	
  Obligations Several

  	
  42

  
	
  Section 8.12

  	
  Assignments

  	
  42

  
	
  Section 8.13

  	
  Participations

  	
  44

  
	
  Section 8.14

  	
  Disclosure of Information

  	
  45

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IX Miscellaneous

  	
  45

  	 

	
  Section 9.1

  	
  No
  Waiver; Cumulative Remedies

  	
  45

  	 

	
  Section 9.2

  	
  Amendments, Etc.

  	
  45

  
	
  Section 9.3

  	
  Notice

  	
  46

  

 

ii

 

	
  Section 9.4

  	
  Costs and Expenses

  	
  46

  	 

	
  Section 9.5

  	
  Indemnification by
  Borrower

  	
  47

  
	
  Section 9.6

  	
  Execution in Counterparts

  	
  47

  
	
  Section 9.7

  	
  Binding Effect, Assignment

  	
  47

  
	
  Section 9.8

  	
  Governing Law

  	
  47

  
	
  Section 9.9

  	
  Consent to Jurisdiction

  	
  47

  
	
  Section 9.10

  	
  Waiver of Jury Trial

  	
  48

  
	
  Section 9.11

  	
  Severability of Provisions

  	
  48

  
	
  Section 9.12

  	
  Prior Agreements

  	
  48

  
	
  Section 9.13

  	
  Headings

  	
  48

  
	
  Section 9.14

  	
  Restatement of Prior
  Agreement

  	
  48

  

 

iii

 

CREDIT AGREEMENT

 

Dated as of August 29, 2008

 

Arctic Cat Inc., a Minnesota
corporation; Wells Fargo Bank, National Association, a national banking
association; and the Lenders, as defined below, agree as follows:

 

ARTICLE I

Definitions

 

Section 1.1                                   Definitions.

 

For all purposes of this
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:

 

(a)                                  the
terms defined in this Article have the meanings assigned to them in this
Article, and include the plural as well as the singular; and

 

(b)                                 all
accounting terms not otherwise defined herein have the meanings assigned to
them in accordance with GAAP.

 

“AC Sales” means
Arctic Cat Sales Inc., a Minnesota corporation.

 

“Additional Lender”
means a financial institution that becomes a Lender pursuant to the procedures
set forth in Section 8.12.

 

“Adjusted Asset Value”
means, at any time, the sum of:

 

(i)                                     70%
of Eligible Receivables Value,

 

(ii)                                  60%
of Eligible Finished Goods Value,

 

(iii)                               45%
of Eligible Parts Value, and

 

(iv)                              10%
of Eligible Raw Materials Value.

 

“Administrative Agent”
means Wells Fargo acting in its capacity as administrative agent for itself and
the other Lender Parties hereunder.

 

“Advance” means an
advance by a Lender to the Borrower pursuant to Article II.

 

“Affiliate” means (a) any
Subsidiary, (b) any director or officer of the Borrower or any Subsidiary,
(c) any Person who, individually or with his immediate family, directly or
indirectly beneficially owns or holds 5% or more of the voting interest of the
Borrower or any Subsidiary, or (d) any corporation, partnership or other
Person in which any Person or group of Persons described above directly or
indirectly owns a 5% or greater equity interest.

 

“Aggregate Revolving Commitment Amount”
means $75,000,000, being an amount equal to the sum of the Revolving
Commitments, as such amount may be reduced 

 

 

from time to
time pursuant to Section 2.8 or
amendment in accordance with this Agreement.

 

“Agreement” means
this Credit Agreement.

 

“Applicable Foreign Subsidiary” means
a Subsidiary organized under the laws of any country other than the United
States of America, or a State thereof, if the Borrower and the Administrative
Agent have reasonably determined that the execution by such Subsidiary of the
Guaranty or Security Agreement, or the joinder of such Subsidiary to the
Guaranty or Security Agreement, would result in material adverse tax
consequences under Section 956 of the Code.

 

“Asset Coverage Ratio”
means, as of any date of determination, the ratio of (i) the Adjusted
Asset Value of the Obligors as of that date, to (ii) the Revolving
Facility Outstandings as of that date.

 

“Assignment Certificate”
has the meaning set forth in Section 8.12.

 

“Banking Services Obligations” means each and every debt,
liability and other obligation (whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising) of every
type and description owing by the Borrower or any Subsidiary to any Person that
was a Lender or an affiliate of a Lender when such obligation, liability, fee
or expense arose, with respect to (a) credit cards, (b) credit card
processing services, (c) debit cards, (d) purchase cards, (e) treasury
and cash management or related services (including but not limited to
controlled disbursement, automated clearinghouse transactions, return items,
overdrafts and interstate depository network services), and (f) any
agreement that provides for an interest rate, credit, commodity or equity swap,
cap, floor, collar, forward foreign exchange transaction, currency swap, cross
currency rate swap, currency option, or any combination of, or option with respect
to, these or similar transactions.

 

“Base Rate” means
the rate of interest publicly announced from time to time by the Administrative
Agent as its “prime” or “base” rate or, if the Administrative Agent ceases to
announce a rate so designated, any similar successor rate designated by the
Administrative Agent.

 

 “Borrower”
means Arctic Cat Inc., a Minnesota corporation and a party to this Agreement.

 

“Borrowing” means a
borrowing under Article II consisting of Advances made to the Borrower at
the same time by each of the Lenders severally.

 

“Business Day” means
a day other than a Saturday, Sunday, United States national holiday or other
day on which banks in Minnesota are permitted or required by law to close.
Whenever the context relates to a LIBO Rate Funding or the fixing of a LIBO
Rate, “Business Day” means a day (i) that meets the foregoing definition,
and (ii) on which dealings in U.S. dollar deposits are carried on in the
London interbank eurodollar market.

 

2

 

“Capital Stock”
means, with respect to any Person, any and all shares, interests,
participations or other equivalents (however designated) of such Person’s
capital stock or equity, whether now outstanding or issued after the date
hereof, including all common stock, preferred stock, partnership interests and
limited liability company membership interests.

 

“Change of Control”
means any event, circumstance or occurrence that results in (a) the
acquisition by any “person” or “group” (as those terms are used in Sections 13(d) and
14(d) of the Exchange Act) of beneficial ownership (as defined in Rules 13d-3
and 13d-5 of the SEC, except that a Person shall be deemed to have beneficial
ownership of all securities that such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of 40% or more of the then-outstanding voting capital
stock of the Borrower; or (b) a change in the composition of the Governing
Board of the Borrower such that continuing directors cease to constitute more
than 50% of such Governing Board. As used in this definition, “continuing
directors” means, as of any date, (i) those Directors of the Borrower who
assumed office prior to the date hereof, and (ii) those Directors of the
Borrower who assumed office after the date hereof and whose appointment or
nomination for election by the Borrower’s shareholders was approved by a vote
of at least 50% of the Directors of the Borrower in office immediately prior to
such appointment or nomination.

 

“Code” means the
Internal Revenue Code of 1986, as amended.

 

“Compliance Certificate”
means a certificate in substantially the form of Exhibit C, or such other form as the Borrower and the
Required Lenders may from time to time agree upon in writing.

 

“Covenant Calculation Date”
means the last day of each fiscal quarter of the Borrower.

 

“Dealer Finance Agreements”
means (i) the Program Agreement dated January 20, 2003, between AC
Sales and Textron Financial Corporation, and (ii) the Program Agreement
dated May 1, 2007, between AC Sales and Textron Financial Canada Limited,
but not any amendment to or restatement of such agreements entered into without
the prior written consent of the Required Lenders if such amendment or
restatement would change the nature of the obligations of the Borrower or any
Subsidiary thereunder in a manner adverse to the Borrower or such Subsidiary.

 

“Dealer Holdback”
means the amount that the Borrower or any Subsidiary may be obligated to pay to
its dealers on account of sales incentives in accordance with its dealer sales
incentive program, including but not limited to any accounts payable of the
Obligors treated as dealer holdback in accordance with GAAP.

 

“Default” means an
event that, with the giving of notice, the passage of time or both, would
constitute an Event of Default.

 

“Domestic Subsidiary”
means each Subsidiary that is incorporated under the laws of the United States
or any State thereof.

 

3

 

“EBITDA” means, as
of any date, the consolidated net income of the Borrower and its Subsidiaries
before deductions for income taxes, interest expense, depreciation and
amortization, all as determined in accordance with GAAP, excluding therefrom (a) non-operating
gains (including, without limitation, extraordinary or unusual gains, gains
from discontinuance of operations, gains arising from the sale of assets
outside the ordinary course of business, and other nonrecurring gains) of the
Borrower and its Subsidiaries during the applicable measurement period, and (b) similar
non-operating losses (including, without limitation, losses arising from the
sale of assets outside the ordinary course of business, and other nonrecurring
losses) of the Borrower and its Subsidiaries during such period.

 

“Eligible Finished Goods Value”
means, at any time, the value (determined at the lower of cost or market value
as determined in accordance with GAAP) of all Eligible Inventory of the
Obligors consisting of finished goods and engines (and in no event consisting
of other parts, garments, accessories, raw materials or sub assemblies).

 

“Eligible Inventory”
means inventory of the Obligors, excluding:

 

(a)                                  Inventory
that is (i) in-transit; (ii) located at any leased warehouse or other
leased premises or subject to any bailment (in each case unless the
Administrative Agent shall have received with respect thereto evidence
satisfactory to it establishing that (w) all steps have been taken to duly
perfect the Administrative Agent’s Lien therein in accordance with applicable
law, (x) the Administrative Agent’s Lien therein is first and prior to any
other competing interest or Lien and (y) the Administrative Agent will be
able to obtain possession to such inventory upon default without undue delay or
other difficulty); (iii) located outside of the United States; (iv) covered by any negotiable or non-negotiable
warehouse receipt, bill of lading or other document of title; or (v) on
consignment to or from any other Person; provided, however, that inventory
described in this paragraph (a) shall be excluded from Eligible Inventory
only to the extent that the aggregate value of all inventory described in this
paragraph (a) exceeds $8,000,000 at the time of determination.

 

(b)                                 Inventory
(i) that is not owned by an Obligor free and clear of all Liens, claims
and rights of others (other than the Lien of the Administrative Agent therein),
or (ii) in which the Administrative Agent does not have a valid and
perfected first priority Lien.

 

(c)                                  Inventory
that, in the Administrative Agent’s reasonable discretion, is unacceptable due
to age, type, category, quantity or otherwise.

 

“Eligible Lender”
means (a) a financial institution organized under the laws of the United
States, or any state thereof, and having a combined capital and surplus of at
least $100,000,000; (b) a commercial bank organized under the laws of any
other country which is a member of the Organization for Economic Cooperation
and Development, or a political subdivision of any such country, and having a
combined capital and surplus of at least $100,000,000, provided that such bank
is acting through a branch or agency located 

 

4

 

in the United
States; or (c) a Person controlled by, controlling, or under common
control with any entity identified in clause (a) or (b) above.

 

“Eligible Parts Value”
means, at any time, the value (determined at the lower of cost or market value
as determined in accordance with GAAP) of all Eligible Inventory of the
Obligors consisting of parts, garments and accessories, excluding engines, raw
materials and sub assemblies.

 

“Eligible Raw Materials Value”
means, at any time, the value (determined at the lower of cost or market value
as determined in accordance with GAAP) of all Eligible Inventory of the
Obligors consisting of raw materials and sub assemblies.

 

“Eligible Receivables Value”
means, at any time, the value (determined in accordance with GAAP) of all
unpaid accounts receivable owing to any Obligor, arising from a bona fide sale
or rendition of services by any Obligor in the ordinary course of business on
usual and ordinary terms, evidenced by an invoice and net of (without
duplication) any applied or unapplied credits or other allowance (with any such
unapplied credits or other allowances being applied to the most current
accounts receivable owed to such Obligor) and any Dealer Holdback, excluding
(without duplication):

 

(a)                                  That
portion of accounts receivable over 120 days past the applicable due date; provided,
however, that accounts described in this paragraph (a) shall be excluded
from Eligible Accounts only to the extent that the aggregate value of all
accounts described in this paragraph (a) exceeds $2,000,000 at the time of
determination.

 

(b)                                 That
portion of accounts receivable that are conditional, disputed or subject to a
known claim of offset or a contra account or with respect to which a defense,
counterclaim, right to discount or deduction has been asserted.

 

(c)                                  Accounts
receivable owed by an account debtor that is the subject of dissolution,
liquidation, bankruptcy proceedings or has gone out of business.

 

(d)                                 Accounts
receivable owed by an Affiliate of the Borrower and accounts receivable with
account debtors with whom the Borrower is obligated with respect to goods sold
or services rendered by such account debtor.

 

(e)                                  Accounts
receivable not subject to a duly perfected Lien in favor of the Administrative
Agent or which are subject to any Lien in favor of any Person other than the
Administrative Agent.

 

(f)                                    That
portion of accounts receivable that has been restructured, extended, amended or
modified as a result of an account debtor’s inability to pay.

 

(g)                                 That
portion of accounts receivable which are billed before the rendition of
services or which constitute a finance charge, service charge or interest.

 

5

 

“Environmental Law”
means the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. § 6901 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. § 1802 et seq., the Toxic  Substances Control Act, 15 U.S.C. § 2601
et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1252 et
seq., the Clean Water Act, 33 U.S.C. § 1321 et seq., the Clean
Air Act, 42 U.S.C. § 7401 et seq., and any other federal, state,
county, municipal, local or other statute, law, ordinance or regulation which
may relate to or deal with human health or the environment, all as may be from
time to time amended.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate”
means any trade or business (whether or not incorporated) that is, along with
the Borrower, a member of a controlled group of corporations or a controlled
group of trades or businesses, as described in sections 414(b) and 414(c),
respectively, of the Code.

 

“Event of Default”
has the meaning specified in Section 7.1.

 

“Facility Termination Date”
means March 31, 2009, or the earlier date of the termination of the
Revolving Facility pursuant to Section 2.8
or 7.2.

 

“Federal Funds Rate”
means at any time an interest rate per annum equal to the weighted average of
the rates for overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day by
the Federal Reserve Lender of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
for such transactions received by the Administrative Agent from three federal
funds brokers of recognized standing selected by it, it being understood that
the Federal Funds Rate for any day which is not a Business Day shall be the
Federal Funds Rate for the next preceding Business Day.

 

“Fee Letters” means
one or more separate agreements between the Borrower and the Administrative
Agent, setting forth the terms of certain fees to be paid by the Borrower to
the Administrative Agent for the Administrative Agent’s own behalf or for the
benefit of the Lender Parties, as more fully set forth therein.

 

“Floating Rate”
means, at any time, an annual rate equal to the sum of (i) 75 basis points
(0.75% per annum), and (ii) the greater of:

 

(A)                              the
Base Rate; or

 

(B)                                the
Federal Funds Rate, plus 50 basis points (0.50% per annum).

 

The Floating
Rate shall change when and as the Base Rate or Federal Funds Rate changes.

 

6

 

“Floating Rate Funding”
means any Borrowing, or any portion of the principal balance of the Notes,
bearing interest at the Floating Rate.

 

“Funded Debt” means
(without duplication) (i) all indebtedness of the Borrower or any
Subsidiary for borrowed money; (ii) the deferred and unpaid balance of the
purchase price owing by the Borrower or any Subsidiary on account of any goods
or services purchased (other than trade payables and other accrued liabilities
incurred in the ordinary course of business that are not more than 60 days past
due) if such purchase price is (A) due more than 60 days from the date of
incurrence of the obligation in respect thereof or (B) evidenced by a note
or a similar written instrument; (iii) all capitalized lease obligations; (iv) all
indebtedness secured by a Lien on any property owned by the Borrower or any
Subsidiary, whether or not such indebtedness has been assumed by the Borrower
or any Subsidiary or is nonrecourse to the Borrower or any Subsidiary; (v) notes
payable and drafts accepted representing extensions of credit, whether or not
representing obligations for borrowed money (other than such notes or drafts
for the deferred purchase price of assets or services to the extent such
purchase price is excluded from clause (ii) above); (vi) indebtedness
evidenced by bonds, notes or similar written instrument; (vii) the face
amount of all letters of credit and bankers’ acceptances issued for the account
of the Borrower or any Subsidiary, and without duplication, all drafts drawn
thereunder (other than such letters of credit, bankers’ acceptances and drafts
for the deferred purchase price of assets or services to the extent such
purchase price is excluded from clause (ii) above); (viii) all net
obligations of the Borrower or any Subsidiary under interest rate agreements or
currency agreements; (ix) guaranty obligations (including but not limited
to floor plan financing guaranties and other financial guaranties) of the
Borrower or any Subsidiary with respect to indebtedness for borrowed money of
another person or entity (including affiliates), all determined on a
consolidated basis in accordance with GAAP.

 

“Funding” means a
Floating Rate Funding or a LIBO Rate Funding.

 

“GAAP” means
generally accepted accounting principles as in effect on the date hereof and
applied on a basis consistent with the accounting practices applied in the
financial statements of the Borrower referred to in Section 4.5.

 

“Governing Board”
means, with respect to any corporation, limited liability company or similar
Person, the board of directors, board of governors or other body or entity that
sets overall institutional direction for such Person.

 

“Guaranty” means the
Subsidiary Obligors’ Guaranty of even date herewith, guarantying the payment
and performance of the Obligations.

 

“Hazardous Substance”
means any asbestos, urea-formaldehyde, polychlorinated biphenyls (“PCBs”),
nuclear fuel or material, chemical waste, radioactive material, explosives,
known carcinogens, petroleum products and by-products and other dangerous,
toxic or hazardous pollutants, contaminants, chemicals, materials or substances
listed or identified in, or regulated by, any Environmental Law.

 

7

 

“Interest Period”
means, with respect to any LIBO Rate Funding, a period of one, two, three or
six months beginning on a Business Day, as elected by the Borrower; provided,
that, if an Interest Period ends on a day which is not a Business Day, such
Interest Period shall end on the next succeeding Business Day unless such next
succeeding Business Day falls in another calendar month, in which case, such
Interest Period shall end on the next preceding Business Day and when an
Interest Period begins on a day which has no numerically corresponding day in
the calendar month in which such Interest Period is to end, such Interest
Period shall end on the last Business Day of such month and all Interest
Periods shall in any event end on or prior to the Facility Termination Date.

 

“Issuing Lender”
means Wells Fargo, acting as the Lender issuing Letters of Credit.

 

“L/C Amount” means
the sum of (i) the aggregate face amount of any issued and outstanding
Letters of Credit, plus (ii) amounts drawn under Letters of Credit for
which the Lenders have neither been reimbursed nor made any Advance.

 

“L/C Cash Collateral Account”
means an account maintained with the Administrative Agent in which funds are
deposited pursuant to Section 2.3(e) or
Section 7.2(c).

 

“Lender Parties”
means, collectively, the Administrative Agent, the Lenders, the Issuing Lender
and each affiliate of any Lender to whom any Banking Services Obligations are
owed.

 

“Lenders” means
Wells Fargo, acting on its own behalf and not as Administrative Agent, and any
financial institution that becomes a Lender pursuant to the procedures set
forth in Section 8.12, collectively.

 

“Letter of Credit”
means a standby or commercial letter of credit issued for the account of the
Borrower pursuant to this Agreement. For purposes of this Agreement, the term “Letter of Credit” shall also include all letters of credit
issued by Wells Fargo for the account of the Borrower on or before the date
hereof and outstanding on the date hereof.

 

“Letter of Credit Fee”
has the meaning specified in Section 2.3(b)(ii).

 

“LIBO Base Rate”
means, with respect to an Interest Period, (i) the rate per annum
determined by the Administrative Agent as of approximately 11:00 a.m.
London time on the date 2 Business Days before the commencement of such
Interest Period by reference to the British Bankers’ Association Interest
Settlement Rates for deposits in dollars offered on the London interbank dollar
market for a period corresponding to the term of such Interest Period and in an
amount comparable to the aggregate amount of the relevant LIBO Rate Funding (as
displayed in the Bloomberg Financial Market System or any successor thereto or
any other service selected by the Administrative Agent that has been nominated
by the British Bankers’ Association as an authorized information vendor for the
purpose of displaying such rates), or (ii) if such rate cannot be
determined, the rate per annum equal to the rate determined by the
Administrative Agent in accordance with 

 

8

 

Section 2.4(c) to be a rate at which U.S. dollar
deposits are offered to major banks in the London interbank eurodollar market
for funds to be made available on the first day of such Interest Period and
maturing at the end of such Interest Period.

 

“LIBO Rate” means
the annual rate equal to the sum of (i) the rate obtained by dividing (a) the
applicable LIBO Base Rate (rounded up to the nearest 1/16 of 1%) for funds to
be made available on the first day of any Interest Period in an amount
approximately equal to the amount for which a LIBO Rate has been requested and
maturing at the end of such Interest Period, by (b) a percentage equal to
100% minus the Federal Reserve System requirement (expressed as a percentage)
applicable to such deposits, and (ii) the LIBO Rate Margin.

 

 “LIBO Rate
Funding” means any Borrowing, or any portion of the principal balance
of the Notes, bearing interest at a LIBO Rate.

 

“LIBO Rate Margin”
means 275 basis points (2.75% per annum).

 

“Lien” means any
mortgage, deed of trust, lien, pledge, security interest or other charge or
encumbrance, of any kind whatsoever, including but not limited to the interest
of the lessor or titleholder under any capitalized lease, title retention
contract or similar agreement.

 

“Loan Documents”
means this Agreement, the Notes, the Security Agreement and the Guaranty.

 

“Material Adverse Effect”
means an event, change condition or effect that is materially adverse to (i) the
condition (financial or otherwise), properties, or operations of the Borrower
or any Subsidiary, (ii) the ability of any Obligor to perform its
obligations under the Loan Documents, (iii) the validity or enforceability
of any of the Loan Documents or the rights or remedies of the Lender Parties
thereunder, or (iv) the status, existence, perfection, priority or
enforceability of any Lien granted pursuant to the Security Agreement.

 

“Multiemployer Plan”
means a “multiemployer plan” as defined in Section 4001(a)(3) of
ERISA.

 

“Notes” means the
Revolving Facility Notes.

 

“Obligations” means (i) each
and every debt, liability and other obligation of every type and description
arising under or in connection with any of the Loan Documents which the
Borrower may now or at any time hereafter owe to any Lender Party, whether such
debt, liability or obligation now exists or is hereafter created or incurred,
whether it is direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or sole, joint, several or
joint and several, and including but not limited to principal of and interest
on the Notes, all fees due under this Agreement or any related agreement, and
the Borrower’s obligation to reimburse any Lender Party for any amount drawn
under any Letter of Credit, whether such reimbursement obligation arises
directly under this Agreement or under a separate reimbursement agreement, and (ii) Banking
Services Obligations.

 

9

 

“Obligor” means the
Borrower or any Subsidiary, other than any Applicable Foreign Subsidiary.

 

“Organizational Documents”
means, (i) with respect to any corporation, the articles of incorporation
and bylaws of such corporation, (ii) with respect to any partnership, the
partnership agreement of such partnership, (iii) with respect to any
limited liability company, the articles of organization and operating agreement
or bylaws of such limited liability company, and (iv) with respect to any
entity, any and all other shareholder, partner or member control agreements and
similar organizational documents relating to such entity.

 

“Percentage” means,
with respect to each Lender, (i) through and including the Facility
Termination Date, the ratio of that Lender’s Revolving Commitment, to the
Aggregate Revolving Commitment Amount, and (ii) following the Facility
Termination Date, the ratio of (A) the aggregate principal balance of the
Revolving Notes held by that Lender, to (B) the aggregate principal
balance of the Revolving Notes held by all of the Lenders.

 

“Person” means any
individual, corporation, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof or any other entity
of any kind.

 

“Plan” means an
employee benefit plan or other plan maintained for employees of the Borrower or
any Subsidiary or ERISA Affiliate and covered by Title IV of ERISA.

 

“Reportable Event”
means (i) a “reportable event” described in Section 4043 of ERISA and
the regulations issued thereunder, (ii) a withdrawal from any Plan, as
described in Section 4063 of ERISA, (iii) an action to terminate a
Plan for which a notice is required to be filed under Section 4041 of
ERISA, (iv) any other event or condition that might constitute grounds for
termination of, or the appointment of a trustee to administer, any Plan, or (v) a
complete or partial withdrawal from a Multiemployer Plan as described in
Sections 4203 and 4205 of ERISA.

 

“Required Lenders”
means two or more Lenders (including, where relevant, Additional Lenders)
having an aggregate Percentage of 65% or greater.

 

“Revolving Advance” means
a Borrowing under Section 2.1.

 

“Revolving Facility”
means the revolving credit facility established under Section 2.1.

 

“Revolving Commitment”
means, with respect to each Lender, (i) the amount so designated opposite
such Lender’s name on Exhibit A,
plus or minus any such amount assumed or assigned pursuant to any Assignment
and Assumption, or (ii)  as the context may require, the obligation of
such Lender to make Revolving Advances under Section 2.1 and participate
in Letters of Credit in accordance with Section 2.3(d).

 

10

 

“Revolving Facility Outstandings”
means the sum of (i) the aggregate principal balance of the Revolving
Notes, and (ii) the L/C Amount.

 

“Revolving Note”
means the Borrower’s promissory note in the form of Exhibit B hereto.

 

“Security Agreement”
means the security agreement of the Obligors in favor of the Administrative
Agent, for the benefit of the Lender Parties, pursuant to which the Obligors
grant the Administrative Agent a Lien on substantially all of their personal
property to secure payment of the Obligations, and all amendments and
supplements thereto and modifications thereof; provided, however, that the
Borrower and its Subsidiaries shall not be required to grant (i) a security
interest in more than 65% of the outstanding Capital Stock of any Applicable
Foreign Subsidiary that is wholly owned by an Obligor, or (ii) a security
interest in any Capital Stock of any Applicable Foreign Subsidiary that is
itself wholly owned by another Applicable Foreign Subsidiary.

 

“Subsidiary” means (i) any
corporation of which more than 50% of the outstanding shares of capital stock
having general voting power under ordinary circumstances to elect a majority of
the board of directors of such corporation, irrespective of whether or not at
the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency, is at the time directly or
indirectly owned by the Borrower, by the Borrower and one or more other
Subsidiaries, or by one or more other Subsidiaries, (ii) any partnership
of which 50% or more of the partnership interests therein are directly or
indirectly owned by the Borrower, by the Borrower and one or more other
Subsidiaries, or by one or more other Subsidiaries, and (iii) any limited
liability company or other form of business organization the effective control
of which is held by the Borrower, the Borrower and one or more other
Subsidiaries, or by one or more other Subsidiaries.

 

“Subsidiary Obligor”
means any Subsidiary that is not an Applicable Foreign Subsidiary.

 

“Tangible Net Worth”
means stockholders’ equity, less
intangible assets included in calculating such stockholders’ equity, all
determined with respect to the Borrower and its Subsidiaries on a consolidated
basis in accordance with GAAP. For purposes of the foregoing calculation,
intangible assets shall include but not be limited to the value of patents,
trademarks, trade names, copyrights, licenses and goodwill.

 

“Unused Fee” has the
meaning specified in Section 2.6(b).

 

“Welfare Plan” means
a “welfare plan” as defined in Section 3(1) of ERISA.

 

“Wells Fargo” means
Wells Fargo Bank, National Association, a national banking association and a
party to this Agreement.

 

Section 1.2                                   Times

 

All references to times of day
in this Agreement shall be references to Minneapolis, Minnesota time unless
otherwise specifically provided.

 

11

 

ARTICLE II

Amount and Terms of the Loans; Letters of Credit

 

Section 2.1            Revolving Facility.

 

Each Lender agrees, severally
but not jointly, on the terms and subject to the conditions hereinafter set
forth, to make Advances to the Borrower and to participate in commercial and
standby Letters of Credit for the account of the Borrower from the date hereof
through the Facility Termination Date; provided, however, that in no event
shall any Lender’s Percentage of the Revolving Facility Outstandings exceed
that Lender’s Revolving Commitment. The credit facility established under this Section 2.1 is revolving; within the limits of the
Aggregate Revolving Commitment Amount, the Borrower may request Advances and
Letters of Credit through the Facility Termination Date, repay such Advances or
terminate such Letters of Credit, and reborrow or receive additional Letters of
Credit, so long as no Advance or Letter of Credit causes the limits set forth
below to be exceeded. The Borrower’s obligation to repay the Revolving Advances made by each Lender will be evidenced by
the Borrower’s Revolving Note, payable to the order of that Lender. The
proceeds of each Advance and Letter of Credit shall be used by the Borrower for
the Borrower’s general corporate purposes and to repurchase or redeem the
Borrower’s stock, subject to the limitation imposed in Section 6.8
hereof.

 

Section 2.2            Procedure Applicable
to Borrowings.

 

Each Borrowing shall occur on
prior written request from the Borrower to the Administrative Agent or
telephonic request from any person purporting to be authorized to request
Borrowings on behalf of the Borrower, which request shall specify the date of
the requested Borrowing and the amount
thereof. Except as set forth in Section 2.4(b),
each such request by the Borrower shall be made not less than one Business Day
before the date of the requested Borrowing. 
Each Borrowing shall be in the amount of $100,000 or a multiple
thereof.  Promptly upon receipt of such
request (but in no event later than noon with respect to a Borrowing bearing
interest entirely at the Floating Rate, and the close of business, with respect
to any other Borrowing, in each case on the Business Day of receipt of such
notice), the Administrative Agent shall advise each Lender of the proposed Borrowing.
At or before 2:00 p.m. on the date of the requested Borrowing, each Lender
shall provide the Administrative Agent at such office as the Administrative
Agent may designate with immediately available funds covering such Lender’s pro
rata share of such Borrowing.  The
Administrative Agent shall disburse the amount of the requested Borrowing by
crediting the same to the Borrower’s demand deposit account maintained with the
Administrative Agent or in such other manner as the Administrative Agent and
the Borrower may from time to time agree; provided, however, that the
Administrative Agent shall have no obligation to disburse the requested
Borrowing if any condition set forth in Article III has not been satisfied
on the day of the requested Borrowing or if any Lender has failed its fund its
pro rata share of the requested Borrowing. The Borrower shall promptly confirm
each telephonic request for a Borrowing by executing and delivering an
appropriate confirmation certificate to the Administrative Agent. The Borrower
shall be obligated to repay all Advances notwithstanding the failure of the
Administrative Agent to receive such confirmation and notwithstanding the fact
that the person requesting same was not in fact authorized to do so.  Any request for a Borrowing shall be deemed to be a representation that
the statements set forth in Section 3.2
are correct.

 

12

 

Section 2.3            Procedures Applicable
to Letters of Credit.

 

(a)           Procedures;
Governing Documents. The Borrower shall request each Letter of
Credit on at least five Business Days’ prior written notice from the Borrower
to the Issuing Lender. Prior to the issuance of any Letter of Credit, the
Borrower will execute such letter of credit applications and other documents as
the Issuing Lender deems necessary. The rights and obligations of the Borrower
and the Issuing Lender with respect to each Letter of Credit shall be governed
by (among other things) (i) this Credit Agreement, and (ii) any such
separate letter of credit application and other documents executed in
connection therewith. To the extent that the terms of this Agreement are
different from or in addition to the terms of any other document identified in
the preceding sentence, the terms of this Agreement shall govern.

 

(b)           Fees.

 

(i)            The Borrower will pay to the Administrative Agent,
for the pro rata account of all Lenders, a one-time fronting fee with respect
to each documentary Letter of Credit in an amount equal to 0.25% of the
original face amount of such Letter of Credit, payable upon issuance of such
Letter of Credit.

 

(ii)           The Borrower will pay to the Administrative Agent,
for the pro rata account of all Lenders, a commission (the “Letter of Credit
Fee”) with respect to each standby Letter of Credit. The Letter of Credit Fee
will accrue on the face amount of such standby Letter of Credit outstanding
from time to time at the LIBO Rate Margin, payable in arrears on the last day
of each calendar quarter and on the Facility Termination Date or earlier
termination of the Commitments; provided, however, that from and after the
occurrence of an Event of Default and continuing thereafter until such Event of
Default shall be remedied to the written satisfaction of the Required Lenders,
upon written notice from the Administrative Agent, the annual rate at which the
Letter of Credit Fee accrues with respect to each standby Letter of Credit
shall be equal to the sum of (A) the annual rate that would accrue but for
this proviso, and (B) 2%.

 

(iii)          In addition, the Borrowers shall pay to the Issuing
Lender, on demand, any and all of the Issuing Lender’s customary fees in
connection with the fronting, negotiation and administration of, and any
drawings or acceptances under, any Letter of Credit.

 

(c)           Reimbursement
by Borrower. The Borrower shall pay the amount of each draft drawn
under any Letter of Credit to the Issuing Lender on demand, together with
interest at the Floating Rate from the date that such draft is paid by the
Issuing Lender until payment of such amount in full.  The Issuing Lender may (at its option) charge
any deposit account maintained with the Issuing Lender for the amount of any
draft drawn under a Letter of Credit.

 

13

 

(d)           Reimbursement
by Lenders. Each Lender shall be deemed to hold a participation
interest in each Letter of Credit equal to that Lender’s Percentage of the face
amount of that Letter of Credit.  If the
Issuing Lender makes any payment pursuant to the terms of any Letter of Credit
and is not promptly reimbursed, the Issuing Lender may request that each other
Lender pay such Lender’s Percentage of the unreimbursed amount.  Upon receipt of any such request prior to
11:00 a.m. on a Business Day, the recipient shall be unconditionally and
irrevocably obligated to pay its Percentage of the unreimbursed amount to the
Issuing Lender in immediately available funds prior to 3:00 p.m. on such
date.  Notices received after 11:00 a.m.
shall be deemed to have been received on the following Business Day.  If payment is not made by a Lender when due
hereunder, interest on the unpaid amount shall accrue from the date of the
Issuing Lender’s request through the date of payment at the Federal Funds
Rate.  After making any payment to the
Issuing Lender under this subsection in connection with a particular Letter of
Credit, a Lender shall be entitled to participate to the extent of its
Percentage in the related reimbursements received by the Issuing Lender from
the Borrower or otherwise. Upon receiving any such reimbursement, the Issuing
Lender will distribute to each Lender its Percentage of such
reimbursement.  At the option of the
Issuing Lender, any payment by a Lender hereunder may be deemed an Advance in
accordance with Section 2.1 and
payable under the Revolving Notes.

 

(e)           Term; L/C Cash Collateral
Account. Unless otherwise approved by the Lenders, no Letter of
Credit shall have an initial or any renewal term of more than one year. Unless
otherwise agreed by the Required Lenders in writing, the Borrower shall deposit
in the L/C Cash Collateral Account, not less than 5 Business Days before the
Facility Termination Date, an amount equal to the aggregate face amount of all
Letters of Credit then outstanding, less the balance (if any) then outstanding
in the L/C Cash Collateral Account.

 

Section 2.4            Interest on Notes.

 

(a)           Floating
Rate Fundings. Unless the Borrower elects a LIBO Rate pursuant to
this Section, the principal balance of the Notes shall bear interest at the
Floating Rate.

 

(b)           LIBO Rate
Fundings. So long as no Default or Event of Default exists, the Borrower may request that a portion of any
requested Borrowing constitute a LIBO Rate Funding, or may convert all or any
part of any outstanding Floating Rate Funding into a LIBO Rate Funding, or may
request that a LIBO Rate Funding be converted at the end of the applicable
Interest Period to another LIBO Rate Funding, by giving notice to the
Administrative Agent of such request or conversion not later than 10:30 a.m.
on a Business Day which is at least three Business Days prior to the date of
the requested Borrowing or conversion. Each such notice shall be effective upon
receipt by the Administrative Agent, shall be in writing or by telephone or
telecopy transmission, shall specify the date and amount of such Borrowing or
conversion, and the Interest Period therefor. The Interest Period applicable to
each LIBO Rate Funding shall begin on a Business Day, and the amount of each
LIBO Rate Funding shall be equal to $1,000,000 or an integral multiple of $500,000
greater than $1,000,000. Subject to the terms and conditions hereof, the
principal amount specified by the Borrower in the applicable request for a LIBO
Rate Funding shall bear interest from and including the first day of 

 

14

 

the Interest
Period specified therein to but not including the last day of such Interest
Period, at the LIBO Rate applicable thereto, determined as set forth herein.
Unless the Borrower requests a new LIBO Rate Funding in accordance with
the procedures set forth above, or prepays the principal of an outstanding LIBO
Rate Funding at the expiration of an Interest Period, the Lenders shall automatically and without request of the Borrower convert each LIBO Rate Funding to a
Floating Rate Funding on the last day of the relevant Interest Period.

 

(c)           Setting of
LIBO Rates. The applicable LIBO Rate for each Interest Period shall
be determined by the Administrative Agent between
the opening of business and noon on the second Business Day prior to the
beginning of such Interest Period, whereupon notice thereof (which may be by
telephone) shall be given by the Administrative Agent to the Borrower and each
of the Lenders. Each such determination of the applicable LIBO Rate shall be
conclusive and binding upon the parties hereto, in the absence of demonstrable
error. The Administrative Agent, upon written request of the Borrower, shall deliver to the Borrower a
statement showing the computations used by the Administrative Agent in
determining the applicable LIBO Rate hereunder.

 

(d)           Limitations
on LIBO Rate Fundings. In no event shall more than four LIBO Rate
Fundings be outstanding at any one time. In no event may the Borrower request a
LIBO Rate Funding if, after giving effect to such LIBO Rate Funding, the
Borrower would be required to prepay a LIBO Rate Funding in order to make any
regularly scheduled principal payment.

 

(e)           Default Rate.
From and after the occurrence of any Default or Event of Default and continuing
thereafter until such Default or Event of Default shall be remedied to the
written satisfaction of the Administrative Agent, the outstanding principal
balance of the Notes shall bear interest, until paid in full, at an annual rate
equal to the sum of (i) the interest rate otherwise in effect with respect
thereto, and (ii) 200 basis points (2.00% per annum) (the “Default Rate”).
Calculation of interest at the Default Rate shall not be deemed a waiver or
excuse of any such Default or Event of Default.

 

Section 2.5            Payments.

 

(a)           Interest.
Interest accruing on Floating Rate Fundings each month shall be due and payable
on the last day of that month, commencing on the last day of the month hereof.
Interest on any LIBO Rate Funding shall be due and payable on the last day of
the applicable Interest Period or, if such Interest Period is in excess of
three months, on the last day of each three-month period during such Interest
Period and on the last day of such Interest Period.

 

(b)           Principal.
The principal balance of the Revolving Notes shall be due and payable in full
on the Facility Termination Date. In addition, the Borrower shall make such
prepayments of the Revolving Notes as may be required under any other Section of
this Agreement (including but not limited to Section 2.8(b)).

 

15

 

Section 2.6            Fees.

 

(a)           Fee Letters.
The Borrower shall pay the Administrative Agent and the Issuing Lender such
fees as are outlined in the Fee Letters.

 

(b)           Unused Fee. The Borrower will pay to the
Administrative Agent, for the pro rata account of the Lenders, an ongoing
Unused Fee (the “Unused Fee”) equal to 35 basis
points (0.35% per annum) applied to the daily average amount by which (i) the
sum of the Aggregate Revolving Commitment Amount exceeds (ii) the Revolving
Facility Outstandings, from the date hereof to and including the Facility
Termination Date, payable quarterly in arrears on the last Business Day of each
calendar quarter. Any Unused Fee remaining unpaid on the Facility Termination
Date shall be due and payable on such date. The Unused Fee shall be shared by
the Lenders on the basis of their respective Percentages.

 

(c)           Audit Fees.
The Borrower shall pay to the Administrative Agent, on written demand,
reasonable fees charged by the Administrative Agent in connection with any audits or inspections by the Administrative
Agent of any collateral or the operations
or businesses of the Borrower, together
with actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection. All such audits and inspections shall be for the sole
benefit of the Lender Parties.

 

Section 2.7            Prepayments.

 

Subject to the conditions set
forth herein, the Borrower from time to time may voluntarily prepay the Notes in whole or in part; provided that (i) prepayment
of any Lender’s Revolving Note must be accompanied by pro rata prepayment of
each other Lender’s Revolving Note, (ii) the Borrower may not prepay any
LIBO Rate Funding in part, (iii) any prepayment of the full amount of any
Note shall include accrued interest thereon, (iv) each partial prepayment
shall be in an aggregate amount equal to an integral multiple of $500,000 equal
to or greater than $1,000,000, (v) any prepayment of any LIBO Rate Funding
shall be made only upon three Business Days’ notice to the Administrative
Agent, and (vi) any prepayment of any Floating Rate Funding shall be made
only upon one Business Day’s notice to the Administrative Agent. All
prepayments hereunder shall be applied, first, to the principal of the Notes,
and second, to interest and fees with respect thereto. Any prepayment of a LIBO
Rate Funding shall be accompanied by accrued interest on such partial
prepayment through the date of prepayment and additional compensation
calculated in accordance with Section 2.11.

 

Section 2.8            Termination of Revolving Facility and
Voluntary Reduction of Aggregate Revolving Facility Amount; Automatic
Reductions of Aggregate Revolving Facility Amount.

 

(a)           Voluntary
Termination or Reduction. The Borrower may at any time and from time
to time upon three Business Days’ prior notice to the Administrative Agent
permanently terminate the Revolving Facility in whole or permanently reduce the
Aggregate Revolving Commitment Amount in part, provided that (i) the
Revolving Facility may not be terminated while any Borrowings or Letters of
Credit remain outstanding, (ii) each partial reduction shall be in the
amount of $500,000 or a multiple 

 

16

 

thereof, and (iii) no
reduction shall reduce the Aggregate Revolving Commitment Amount to an amount
less than the Revolving Facility Outstandings at that time. Any partial
reduction of the Aggregate Revolving Commitment Amount shall reduce each Lender’s
Revolving Commitment pro rata in accordance with that Lender’s Percentage.

 

(b)           Automatic Reductions. On each date set
forth below, if the Revolving Commitments have not been terminated and the
Aggregate Revolving Commitment Amount exceeds the amount set forth below
opposite such date, the Aggregate Revolving Commitment Amount shall
automatically reduce to the amount set forth opposite such date:

 

	
  Date

  	
   

  	
  Aggregate Revolving Commitment Amount

  	
   

  
	
  October 31, 2008

  	
   

  	
  $

  	
  60,000,000

  	
   

  
	
  December 31, 2008

  	
   

  	
  $

  	
  40,000,000

  	
   

  

 

Each reduction
in the Aggregate Revolving Commitment Amount shall be distributed pro rata to
each Lender’s Revolving Commitment in accordance with that Lender’s Percentage.
If, after giving effect to any such reduction, the Revolving Facility
Outstandings exceed the then-applicable Aggregate Revolving Commitment Amount,
the Borrower shall immediately remit to the Administrative Agent an amount
equal to such excess, without notice or demand by any Lender Party. Such amount
shall be applied to the prepayment of the Obligations in such order as the
Administrative Agent may in its sole discretion elect; and if any such amount
remains after giving effect to the prepayment of all outstanding Obligations other
than the undrawn amount of any outstanding Letters of Credit, such
remainder shall be deposited in the L/C Cash Collateral Account and shall
secure the Obligations and otherwise be governed in accordance with Section 7.3.

 

Section 2.9            Payments.

 

(a)           Making of
Payments. All payments of principal of and interest due under the
Notes shall be made to the Administrative Agent in
immediately available funds not later than 12:00 noon on the date due at such
place as the Administrative Agent may from time to time designate in writing,
and funds received after that hour shall be deemed to have been received by the
Administrative Agent on the next following Business Day. The Borrower hereby authorizes the
Administrative Agent to charge the Borrower’s
demand deposit account maintained with the Administrative Agent for the amount
of any such payment on its due date, or (at the option of the Administrative
Agent) to effect a Borrowing in such amount, all without receipt of any request
for such charge or Borrowing, but the Lender’s
failure to so charge such account or effect such Borrowing shall in no way
affect the obligation of the Borrower to make any such payment.

 

(b)           Assumed
Payments. Unless the Administrative Agent has been notified by a
Lender or the Borrower prior to the date on which such Lender or the Borrower
is scheduled to make payment to the Administrative Agent of (in the case of a
Lender) the proceeds of an Advance to be made by it hereunder or (in the case
of the Borrower) a payment to the Administrative Agent for the account of one
or more of the Lenders hereunder (such payment by a Lender or the Borrower (as
the case may be) being herein 

 

17

 

called a “Required Payment”), which notice shall be effective upon
receipt, that it does not intend to make the Required Payment to the
Administrative Agent, the Administrative Agent may assume that the Required
Payment has been made and may (but shall not be required to), in reliance upon
such assumption, make the amount thereof available to the intended recipient on
such date and, if such Lender or the Borrower (as the case may be) has not in
fact made the Required Payment to the Administrative Agent, the recipient of
such payment shall, on demand, repay to the Administrative Agent the amount so
made available together with interest thereon for each day during the period
commencing on the date such amount was so made available by the Administrative
Agent until the date the Administrative Agent recovers such amount at a rate (i) equal
to the Federal Funds Rate for such day, in the case of a Required Payment owing
by a Lender, or (ii) equal to the applicable rate of interest as provided
in this Agreement, in the case of a Required Payment owing by the Borrower.

 

(c)           Setoff.
The Borrower agrees that each Lender
shall have all rights of setoff and bankers’ lien provided by applicable law,
and in addition thereto, the Borrower agrees that if at any time any amount is
due and owing by the Borrower under this
Agreement to any Lender at a time when an
Event of Default has occurred and is continuing hereunder, any Lender may apply any and all balances,
credits, and deposits, accounts or moneys of the
Borrower then or thereafter in the possession of that Lender (excluding, however, any trust or
escrow accounts held by the Borrower for
the benefit of any third party) to the payment thereof.

 

(d)           Due Date
Extension. If any payment of principal of or interest on any
Floating Rate Funding or any fees payable hereunder falls due on a day which is
not a Business Day, then such due date shall be extended to the next following
Business Day, and (in the case of principal) additional interest shall accrue
and be payable for the period of such extension.

 

(e)           Application
of Payments. Except as otherwise provided herein, so long as no
Default or Event of Default has occurred and is continuing hereunder, each
payment received from the Borrower shall
be applied to such obligation as the Borrower
shall specify by notice received by the Administrative Agent on or before the
date of such payment, or in the absence of such notice, as the Required Lenders
shall determine in their discretion. Except as otherwise provided herein, after
the occurrence of a Default or Event of Default, the Lenders shall have the right to apply all payments received by the Administrative Agent from the Borrower as the
Required Lenders may determine in their discretion. The Borrower agrees that
the amount shown on the books and records of the Lender Parties as being the
principal balance of and interest on the Notes shall be conclusive absent
demonstrable error.

 

Section 2.10         Increased Costs; Capital
Adequacy; Funding Exceptions.

 

(a)           Increased
Costs on LIBO Rate Fundings. If Regulation D of the Board of
Governors of the Federal Reserve System or after the date of this Agreement the
adoption of any applicable law, rule or regulation, or any change in any
existing law, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration 

 

18

 

thereof, or
compliance by any Lender with any request
or directive (whether or not having the force of law) of any such authority,
central bank or comparable agency, shall:

 

(i)            subject that Lender to or cause the withdrawal or
termination of any exemption previously granted to that Lender with respect to, any tax, duty or other charge with respect
to its LIBO Rate Fundings or its obligation to make LIBO Rate Fundings, or
shall change the basis of taxation of payments to that Lender of the principal of or interest under this Agreement in
respect of its LIBO Rate Fundings or its obligation to make LIBO Rate Fundings
(except for changes in the rate of tax on the overall net income of that Lender imposed by the jurisdictions in which
that Lender’s principal executive office
is located); or

 

(ii)           impose, modify or deem
applicable any reserve (including, without limitation, any reserve imposed by
the Board of Governors of the Federal Reserve System, but excluding any reserve
included in the determination of interest rates pursuant to Section 2.4), special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by,
that Lender; or

 

(iii)          impose on that Lender any other condition affecting its
making, maintaining or funding of its LIBO Rate Fundings or its obligation to
make LIBO Rate Fundings;

 

and the result of any of the foregoing is to
increase the cost to that Lender of
making or maintaining any LIBO Rate Funding, or to reduce the amount of any sum
received or receivable by that Lender
under this Agreement or under its Notes with respect to a LIBO Rate Funding,
then that Lender will notify the Borrower
of such increased cost and within fifteen (15) days after demand by that Lender (which demand shall be accompanied by a
statement setting forth the basis of such demand and representing that that
Lender has made similar demand on one or more other commercial borrowers with
revolving or term loans in excess of $500,000) the Borrower shall pay to that Lender such additional amount or amounts as
will compensate that Lender for such
increased cost or such reduction; provided, however, that no such increased
cost or such reduction shall be payable by the Borrower for any period longer
than ninety (90) days prior to the date on which notice thereof is delivered to
the Borrower, unless such increased cost or such reduction shall apply
retroactively, in which case, the Borrower shall pay such additional amount or
amounts as will compensate that Lender for such increased cost or such
reduction for the longer of ninety (90) days prior to the date on which notice
thereof is delivered to the Borrower or the retroactive period applicable to
such increased cost or such reduction. Each
Lender will promptly notify the Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle that Lender to compensation pursuant to this Section 2.10. If the Borrower receives notice from any
Lender of any event which will entitle that
Lender to compensation pursuant to this Section 2.10, the Borrower may prepay any then
outstanding LIBO Rate Fundings or notify that
Lender that any pending request for a LIBO Rate Funding shall be deemed
to be a request for a Floating Rate Funding, in each case subject to the provisions
of Section 2.11.

 

19

 

(b)           Capital
Adequacy. If any Lender
determines at any time that its Return has been reduced as a result of any
Capital Adequacy Rule Change, that Lender
may require the Borrower to pay it the amount necessary to restore that Lender’s Return to what it would have been had
there been no Capital Adequacy Rule Change. For purposes of this 2.10, the following definitions shall apply:

 

(i)            “Return”,
for any calendar quarter or shorter period, means the percentage determined by
dividing (A) the sum of interest and ongoing fees earned by a Lender under
this Agreement during such period by (B) the average capital that Lender is required to maintain during such
period as a result of its being a party to this Agreement, as determined by
that Lender based upon its total capital
requirements and a reasonable attribution formula that takes account of the
Capital Adequacy Rules then in effect. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.

 

(ii)           “Capital
Adequacy Rule” means any law, rule, regulation or guideline
regarding capital adequacy that applies to any Lender, or the interpretation
thereof by any governmental or regulatory authority. Capital Adequacy Rules include
rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan commitments
and letters of credit.

 

(iii)          “Capital
Adequacy Rule Change” means any change in any Capital Adequacy Rule occurring
after the date of this Agreement, but does not include any changes in
applicable requirements that at the date hereof are scheduled to take place under
the existing Capital Adequacy Rules or any increases in the capital that
any Lender is required to maintain to the extent that the increases are
required due to a regulatory authority’s assessment of that Lender’s financial condition.

 

(iv)          “Lender”
includes (but is not limited to) the Administrative Agent, the Lenders, as
defined elsewhere in this Agreement, and any assignee of any interest of any
Lender hereunder and any participant in the loans made hereunder.

 

The initial notice sent by a Lender shall be sent as promptly as
practicable after that Lender learns that
its Return has been reduced, shall include a demand for payment of the amount
necessary to restore that Lender’s Return
for the quarter in which the notice is sent, shall state in reasonable detail
the cause for the reduction in that Lender’s
Return and that Lender’s calculation of
the amount of such reduction, and shall include that Lender’s representation
that it has made similar demand on one or more other commercial borrowers with
revolving or term loans in excess of $500,000. Thereafter, that Lender may send
a new notice during each calendar quarter setting forth the calculation of the
reduced Return for that quarter and including a demand for payment of the
amount necessary to restore that Lender’s
Return for that quarter. A Lender’s calculation in any such notice shall be
conclusive and binding absent demonstrable error.

 

20

 

(c)           Basis for
Determining Interest Rate Inadequate or Unfair. If with respect to
any Interest Period:

 

(i)            any Lender determines that deposits in U.S. dollars
(in the applicable amounts) are not being offered in the London interbank
eurodollar market for such Interest Period; or

 

(ii)           any Lender otherwise determines that by reason of
circumstances affecting the London interbank eurodollar market adequate and
reasonable means do not exist for ascertaining the applicable LIBO Rate; or

 

(iii)          any Lender determines that the LIBO Rate as
determined by the Administrative Agent will not adequately and fairly reflect
the cost to that Lender of maintaining or
funding a LIBO Rate Funding for such Interest Period, or that the making or
funding of LIBO Rate Fundings has become impracticable as a result of an event
occurring after the date of this Agreement which in the opinion of that Lender materially affects such LIBO Rate
Fundings;

 

then that Lender shall promptly
notify the Borrower and (A) upon the occurrence of any event described in
the foregoing clause (i) the Borrower shall enter into good faith
negotiations with that Lender in order to determine an alternate method to
determine the LIBO Rate for that Lender,
and during the pendency of such negotiations with that Lender, the Lenders shall be
under no obligation to make any new LIBO Rate Fundings, and (B) upon the
occurrence of any event described in the foregoing clauses (ii) or (iii),
for so long as such circumstances shall continue, the Lenders shall be under no
obligation to make any new LIBO Rate Fundings.

 

(d)           Illegality. If any change in
(including the adoption of any new) applicable laws or regulations, or any
change in the interpretation of applicable laws or regulations by any
governmental authority, central bank, comparable agency or any other regulatory
body charged with the interpretation, implementation or administration thereof,
or compliance by any Lender with any request or directive (whether or not
having the force of law) of any such authority, central bank, comparable agency
or other regulatory body, should make it or, in the good faith judgment of that
Lender, shall raise a substantial
question as to whether it is unlawful for that
Lender to make, maintain or fund LIBO Rate Fundings, then (i) that Lender shall promptly notify the Borrower and
the Administrative Agent, (ii) the obligation of the Lenders to make,
maintain or convert into LIBO Rate Fundings shall, upon the effectiveness of
such event, be suspended for the duration of such unlawfulness (and to the
extent it shall be unlawful for one or more of the Lenders to maintain any such
LIBO Rate Fundings, such LIBO Rate Fundings shall be immediately converted to
Floating Rate Fundings), and (iii)  for the duration of such unlawfulness,
any notice by the Borrower requesting the Lenders to make or convert into LIBO
Rate Fundings shall be construed as a request to make or to continue making
Floating Rate Fundings.

 

21

 

Section 2.11         Funding Losses.

 

Upon demand by any Lender (which demand shall be accompanied by a
statement setting forth the basis for the calculations of the amount being
claimed), the Borrower shall indemnify that
Lender against any loss or expense which that Lender may have sustained or incurred (including, without
limitation, any net loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by that Lender to fund or maintain LIBO Rate Fundings) or which that Lender may be deemed to have sustained or
incurred, as reasonably determined by that
Lender, (i) as a consequence of any failure by the Borrower to make
any payment when due of any amount due hereunder in connection with any LIBO
Rate Fundings, (ii) due to any failure of the Borrower to borrow or
convert any LIBO Rate Fundings on a date specified therefor in a notice thereof
or (iii) due to any payment or prepayment of any LIBO Rate Funding on a
date other than the last day of the applicable Interest Period for such LIBO
Rate Funding. For this purpose, all notices under Section 2.4(b) shall be deemed to be irrevocable.

 

Section 2.12         Discretion of Lenders as to Manner of Funding.

 

Notwithstanding any provision
of this Agreement to the contrary, each Lender
shall be entitled to fund and maintain all or any part of its LIBO Rate
Fundings in any manner it deems fit, it being understood, however, that for the
purposes of this Agreement (specifically including, without limitation, Section 2.11 hereof) all determinations hereunder shall
be made as if that Lender had actually
funded and maintained each LIBO Rate Funding during each Interest Period for
such LIBO Rate Funding through the purchase of deposits having a maturity
corresponding to such Interest Period and bearing an interest rate equal to the
appropriate LIBO Rate for such Interest Period.

 

Section 2.13         Conclusiveness of
Statements; Survival of Provisions.

 

Determinations and statements
of any Lender pursuant to Section 2.10 and 2.11
shall be conclusive absent demonstrable error. Without limiting the generality
of the foregoing, the Borrower shall have no right to review any records of any
Lender or its other customers to determine the accuracy of any statement by
that Lender under Section 2.10(a) or 2.10(b) regarding that
Lender’s demands upon other customers of that Lender.  Each Lender
may use reasonable averaging and attribution methods in determining
compensation pursuant to such Sections 2.10
and 2.11 and the provisions of Sections 2.10 and 2.11
shall survive termination of this Agreement.

 

Section 2.14         Computation of Interest
and Fees.

 

Interest under the Notes and
the fees hereunder shall be computed on the basis of actual number of days
elapsed in a year of 360 days.

 

ARTICLE III

Conditions Precedent

 

Section 3.1            Initial Conditions
Precedent.

 

The obligation of the Lender
Parties to effect any Borrowing or to issue any Letter of Credit is subject to
the condition precedent that the Administrative Agent shall have received on or
before 

 

22

 

the day of the first Borrowing
or Letter of Credit all of the following, each dated (unless otherwise
indicated) as of the date hereof, in form and substance satisfactory to each
Lender:

 

(a)           The Notes, properly
executed on behalf of the Borrower.

 

(b)           The Guaranty, duly
executed by each Subsidiary Obligor.

 

(c)           The Security Agreement,
properly executed on behalf of each Obligor, together (subject to Section 3.3) with:

 

(i)            Financing statements
with respect to each Obligor to be filed in each jurisdiction which, in the
opinion of the Administrative Agent, is reasonably necessary to perfect the
Liens created by the Security Agreement, to the extent such Liens can be
perfected by filing.

 

(ii)           Current searches of
appropriate filing offices in each jurisdiction in which any Obligor is
organized, has an office or otherwise conducts business showing that no state
or federal tax liens have been filed and remain in effect against the Borrower
or any Subsidiary, and that no financing statements or other notifications or
filings have been filed and remain in effect against the Borrower or any
Subsidiary except (A) to perfect Liens not prohibited under Section 6.1, and (B) as set forth in Schedule 4.11.

 

(iii)          Original stock
certificates (or other applicable evidence of ownership) evidencing all issued
and outstanding Capital Stock of each Subsidiary Obligor and not less than 65%
of the Capital Stock of each Applicable Foreign Subsidiary, together with stock
powers executed in blank by the applicable owner of such Capital Stock.

 

(iv)          Evidence of all
insurance required by the terms of the Security Agreement, including but not
limited to certificates and loss payable endorsements showing the
Administrative Agent, for the benefit of the Lender Parties, as additional
insured and lender’s loss payee thereunder.

 

(d)           Financial statements of
the Borrower for the 12-month period ending March 31, 2008, together with
a Compliance Certificate with respect to such financial statements, duly
executed by the chief financial officer of the Borrower.

 

(e)           A certificate of the
secretary of each Obligor (i) certifying that the execution, delivery and
performance of the Loan Documents and other documents contemplated hereunder to
which such Obligor is a party have been duly approved by all necessary action
of the Governing Board of such Obligor, and attaching true and correct copies
of the applicable resolutions granting such approval, (ii) certifying that
attached to such certificate are true and correct copies of the Organizational
Documents of such Obligor, together with such copies, and (iii) certifying
the names of the officers of such Obligor that are authorized to sign the Loan
Documents and other documents contemplated hereunder, including (in the case of
the Borrower) requests for Borrowings and Letters of Credit, together with the
true signatures of such officers. The Lender Parties may conclusively rely on
such certificate until they shall receive a further 

 

23

 

certificate of
the Secretary or Assistant Secretary of such Obligor canceling or amending the
prior certificate and submitting the signatures of the officers named in such
further certificate.

 

(f)            Certificates of good
standing of each Obligor, dated not more than ten days before such date.

 

(g)           A signed copy of an
opinion of counsel for the Borrower, addressed to the Lender Parties as to
matters referred to in Sections 4.1, 4.2, 4.3
and 4.7, and as to such other matters as
the Lender Parties may reasonably request, with that opinion being acceptable
to each Lender’s counsel.  In the case of
Section 4.7, the opinion may be to
the knowledge of such counsel and may be made without regard to products
liability and intellectual property litigation, and, in the case of Section 4.3,
insofar as it relates to enforcement of remedies, it may be subject to
applicable bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally from time to time, and to usual equity
principles.

 

(h)           All fees required to be
paid as of the date hereof under this Agreement or any Fee Letter.

 

Section 3.2            Conditions Precedent
to All Borrowings and Letters of Credit.

 

The obligation of the Lender
Parties to effect any Borrowing or to issue any Letter of Credit shall be
subject to the further conditions precedent that on the date of such Borrowing
or Letter of Credit:

 

(a)           the representations and
warranties contained in Article IV
are correct on and as of the date of such Borrowing or Letter of Credit as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and

 

(b)           no event has occurred
and is continuing, or would result from such Borrowing or Letter of Credit,
which constitutes a Default or an Event of Default.

 

Section 3.3            Perfection of Capital
Stock of Applicable Foreign Subsidiaries.

 

Notwithstanding any other term
of this Agreement or any other Loan Document, perfection of the Administrative
Agent’s security interest in the Capital Stock (or any portion thereof) of any
Applicable Foreign Subsidiary shall not be a condition precedent to any
Borrowing or Letter of Credit, and the Borrower shall not be required to effect
such perfection, unless, not less than 15 days before the date of such
Borrowing or Letter of Credit, the Administrative Agent has delivered notice to
the Borrower requiring such perfection.

 

ARTICLE IV

Representations and Warranties

 

The
Borrower represents and warrants to the Lender Parties as follows:

 

24

 

Section 4.1            Existence and Power.

 

The Borrower and its
Subsidiaries are each corporations or limited liability companies duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation, and are each duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary. 
Each of the Borrower and its Subsidiaries has all requisite power and
authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents to which it is a party.

 

Section 4.2            Authorization of
Borrowing; No Conflict as to Law or Agreements.

 

The execution, delivery and
performance by the Obligors of the Loan Documents and the borrowings from time
to time hereunder have been duly authorized by all necessary corporate or
limited liability company action and do not and will not (i) require any
consent or approval of the shareholders or members of the Obligors, or any
authorization, consent or approval by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) violate
any provision of any law, rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal Reserve
System) or of any order, writ, injunction or decree presently in effect having
applicability to any Obligor or of the Organizational Documents of any Obligor,
(iii) result in a breach of or constitute a default under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
any Obligor is a party or by which it or its properties may be bound or affected,
or (iv) result in, or require, the creation or imposition of any Lien or
other charge or encumbrance of any nature upon or with respect to any of the
properties now owned or hereafter acquired by any Obligor.

 

Section 4.3            Legal Agreements.

 

This Agreement and the other
Loan Documents constitute, the legal, valid and binding obligations of the
Obligors that are parties thereto, enforceable against such Obligors in
accordance with their respective terms.

 

Section 4.4            Subsidiaries.

 

Schedule 4.4 hereto is a complete and correct list of
all present Subsidiaries and of the percentage of the ownership of the Borrower
or any other Subsidiary in each as of the date of this Agreement.  Except as otherwise indicated in that
Schedule, all Capital Stock of each Subsidiary owned by the Borrower or by any
such other Subsidiary is validly issued and fully paid and nonassessable.

 

Section 4.5            Financial Condition.

 

The Borrower has heretofore
furnished to the Administrative Agent its audited financial statement as of March 31,
2008. That financial statement fairly presents the financial condition of the
Borrower and its Subsidiaries on the date thereof and the results of their
operations and cash flows for the period then ended, and was prepared in
accordance with GAAP.

 

25

 

Section 4.6            Adverse Change.

 

There has been no material
adverse change in the business, properties or condition (financial or
otherwise) of the Borrower or any Subsidiary since the date of the latest
financial statement referred to in Section 4.5.

 

Section 4.7            Litigation.

 

There are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower or any Subsidiary or the properties of the Borrower or
any Subsidiary before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or that Subsidiary, could reasonably be expected to
have a Material Adverse Effect.

 

Section 4.8            Hazardous Substances.

 

To the best of the Borrower’s
knowledge after reasonable inquiry, neither the Borrower nor any Subsidiary nor
any other Person has ever caused or permitted any Hazardous Substance to be
disposed of in any manner which might result in any material liability to the
Borrower or any Subsidiary on, under or at any real property which is operated
by the Borrower or any Subsidiary or in which the Borrower or any Subsidiary
has any interest; and no such real property has ever been used (either by the
Borrower, by any Subsidiary or by any other Person) as a dump site or permanent
or temporary storage site for any Hazardous Substance (other than the temporary
storage of products used or consumed in the ordinary course of the Borrower’s
business in accordance with all applicable Environmental Laws).

 

Section 4.9            Regulation U.

 

The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Borrowing will
be used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.

 

Section 4.10         Taxes.

 

The Borrower and its
Subsidiaries have each paid or caused to be paid to the proper authorities when
due all federal, state and local taxes required to be withheld by them.  The Borrower and its Subsidiaries have each
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower are required to be filed, and the Borrower and its
Subsidiaries have each paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
them to the extent such taxes have become due, other than taxes whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which the Borrower or the applicable Subsidiary has
provided adequate reserves in accordance with GAAP.

 

26

 

Section 4.11         Titles and Liens.

 

The Borrower or one of its
Subsidiaries has good title to each of the properties and assets reflected in
the latest balance sheet referred to in Section 4.5 (other than any sold, as permitted by Section 6.5), free and clear of all Liens, except for
Liens permitted by Section 6.1 and
covenants, restrictions, rights, easements and minor irregularities in title
which do not materially interfere with the business or operations of the
Borrower or such Subsidiary as presently conducted.  Except as set forth in Schedule 4.11, no financing statement naming the
Borrower or any Subsidiary as debtor is on file in any office except to perfect
only Liens permitted by Section 6.1.

 

Section 4.12         ERISA.

 

No Plan established or
maintained by the Borrower, any Subsidiary or any ERISA Affiliate that is
subject to Part 3 of Subtitle B of Title I of ERISA had an accumulated
funding deficiency (as such term is defined in Section 302 of ERISA) in
excess of $1,000,000 as of the last day of the most recent fiscal year of such
Plan ended prior to the date hereof, and no liability to the Pension Benefit
Guaranty Corporation or the Internal Revenue Service in excess of such amount
has been, or is expected by the Borrower, any Subsidiary or any ERISA Affiliate
to be, incurred with respect to any Plan of the Borrower, any Subsidiary or any
ERISA Affiliate.  The Borrower has no
contingent liability with respect to any post-retirement benefit under a Welfare
Plan, other than liability for continuation coverage described in Part 6
of Subtitle B of Title I of ERISA.

 

ARTICLE V

Affirmative Covenants

 

So long as any Note or any
other Obligations shall remain unpaid or the Revolving Facility shall be
outstanding, the Borrower will comply with the following requirements, unless
the Required Lenders shall otherwise consent in writing:

 

Section 5.1            Reporting.

 

The Borrower will deliver to
the Administrative Agent, with sufficient copies for each Lender:

 

(a)           As soon as available,
and in any event within 75 days after the end of each fiscal year of the
Borrower (or, if earlier, concurrent with the filing of the Borrower’s annual
report on Form 10-K with the Securities and Exchange Commission with
respect to such year), a copy of the annual audit report of the Borrower
prepared on a consolidated basis with the unqualified opinion of independent
certified public accountants selected by the Borrower and acceptable to the
Required Lenders, which annual report shall include the consolidated balance
sheet of the Borrower and its Subsidiaries as at the end of such fiscal year
and the related consolidated statements of income, shareholders’ equity and
cash flows of the Borrower and its Subsidiaries for the fiscal year then ended,
all in reasonable detail and all prepared in accordance with GAAP, together
with a copy of such accountants’ management letter issued to the Borrower for
such year.

 

(b)           As soon as available and in any event within
40 days after the end of each fiscal quarter of the Borrower (or, if earlier,
concurrent with the filing of the Borrower’s 

 

27

 

quarterly
report on Form 10-Q with the Securities and Exchange Commission with
respect to such quarter), consolidated balance sheets of the Borrower and its
Subsidiaries as at the end of such quarter and related consolidated statements
of earnings and cash flows of the Borrower and its Subsidiaries for such
quarter and for the year to date, in reasonable detail and stating in
comparative form the figures for the corresponding date and period in the
previous year, all prepared in accordance with GAAP, and certified by the chief
financial officer of the Borrower, subject to year-end audit adjustments.

 

(c)           As soon as available and in any event within
30 days after the end of each calendar month:

 

(i)            Consolidated balance sheets of the Borrower and its
Subsidiaries as at the end of such month and related consolidated statements of
earnings of the Borrower and its Subsidiaries for such month and for the year
to date, in reasonable detail and stating in comparative form the figures for
the corresponding date and period in the previous year, all prepared in
accordance with GAAP, and certified by the chief financial officer of the
Borrower, subject to year-end audit adjustments.

 

(ii)           A plan and financial forecast for the 12-month
period commencing with the month following such month, including (a) a
forecasted consolidated balance sheet, forecasted consolidated and
consolidating statements of income, and (b) forecasted financing needs
during such period (including a forecast of borrowings hereunder), all
presented on a month-by-month basis in such detail as the Administrative Agent
may reasonably request.

 

(d)           Concurrent with the delivery
of any financial statements under paragraph (a), (b) or (c), a Compliance
Certificate, duly executed by the chief financial officer of the Borrower.

 

(e)           Promptly upon entering
any amendment to or modification of any Dealer Finance Agreement, a copy of
such amendment or modification.

 

(f)            Promptly upon their
distribution, copies of all financial statements, reports and proxy statements
which the Borrower or any Subsidiary shall have sent to its stockholders.

 

(g)           Promptly after the
sending or filing thereof, copies of all regular and periodic financial reports
which the Borrower or any Subsidiary shall file with the Securities and
Exchange Commission or any national securities exchange.

 

(h)           Immediately after the
commencement thereof, notice in writing of all litigation and of all
proceedings before any governmental or regulatory agency affecting the Borrower
or any Subsidiary of the type described in Section 4.7.

 

(i)            As promptly as
practicable (but in any event not later than five business days) after the
chief executive officer or the chief financial officer of the Borrower obtains
knowledge of the occurrence of any Default or Event of Default, notice of such
occurrence, together with a detailed statement by a responsible officer of the
Borrower or 

 

28

 

the
appropriate Subsidiary of the steps being taken by the Borrower or the
appropriate Subsidiary to cure the effect of such event.

 

(j)            Promptly upon becoming
aware of any Reportable Event or any prohibited transaction (as defined in Section 4975
of the Code or Section 406 of ERISA) in connection with any Plan or any
trust created thereunder, a written notice specifying the nature thereof, what
action the Borrower has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the Internal
Revenue Service, the Pension Benefit Guaranty Corporation or the Department of
Labor with respect thereto.

 

(k)           Promptly upon their
receipt or filing, copies of (i) all notices received by the Borrower, any
Subsidiary or any ERISA Affiliate of the Pension Benefit Guaranty Corporation’s
intent to terminate any Plan or to have a trustee appointed to administer any
Plan, and (ii) all notices received by the Borrower, any Subsidiary or any
ERISA Affiliate from a Multiemployer Plan concerning the imposition or amount
of withdrawal liability pursuant to Section 4202 of ERISA.

 

(l)            Upon request of any
Lender, copies of the most recent annual report (Form 5500 Series),
including any supporting schedules, filed by the Borrower, any Subsidiary or
any ERISA Affiliate with the Internal Revenue Service with respect to any Plan.

 

(m)          Such information (in
addition to that specified elsewhere in this Section) respecting the financial
condition and results of operations of the Borrower or any Subsidiary as any
Lender may from time to time reasonably request.

 

Documents required to be
delivered pursuant to Sections 5.1(a) and
5.1(b) (to the extent any such
documents are included in materials otherwise filed with the Securities and
Exchange Commission) may be delivered electronically and, if so delivered,
shall be deemed to have been delivered on the date (i) on which the
Borrower posts such documents on www.sec.gov, or provides a link thereto on the
Borrower’s website at www.arcticcatinc.com; or (ii) on which such
documents are posted on the Borrower’s behalf on IntraLinks/IntraAgency or
another relevant website, if any, to which each Lender and the Administrative
Agent have ready access without charge (whether a commercial, third-party
website or whether sponsored by the Administrative Agent), in each case so long
as, concurrent therewith, the Borrower provides each Lender and the
Administrative Agent with e-mail or other notice alerting them to such posting,
together with any additional materials required to be delivered therewith,
including but not limited to any Compliance Certificate required to be provided
in accordance with Section 5.1(d);
provided that the Borrower shall deliver paper copies of such documents to any
Lender that requests the Borrower to deliver such paper copies.

 

Section 5.2            Books and Records;
Inspection and Examination.

 

The Borrower will keep, and
will cause each Subsidiary to keep, accurate books of record and account for
itself in which true and complete entries will be made in accordance with GAAP
and, upon request of any Lender, will, and will cause each Subsidiary to, give
any representative of that Lender access to, and permit such representative to
examine, copy or make extracts from, 

 

29

 

any and all books, records and
documents in its possession, to inspect any of its properties and to discuss
its affairs, finances and accounts with any of its principal officers, all at
such times during normal business hours and as often as any Lender may
reasonably request.

 

Section 5.3            Compliance with Laws.

 

The Borrower will, and will
cause each Subsidiary to, comply with the requirements of applicable laws and
regulations, the noncompliance with which would have a Material Adverse Effect.

 

Section 5.4            Payment of Taxes and
Other Claims.

 

The Borrower will pay or
discharge, and will cause each Subsidiary to pay or discharge, when due, (a) all
taxes, assessments and governmental charges levied or imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the
date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien or charge
upon any properties of the Borrower or any Subsidiary; provided, that neither
the Borrower nor any Subsidiary shall be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which the Borrower
or such Subsidiary has provided adequate reserves in accordance with GAAP.

 

Section 5.5            Maintenance of
Properties.

 

The Borrower will keep and
maintain, and will cause each Subsidiary to keep and maintain, all of its
properties necessary or useful in its business in good condition, repair and
working order; provided, however, that nothing in this Section shall
prevent the Borrower or any Subsidiary from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in the judgment
of the Borrower or the appropriate Subsidiary, desirable in the conduct of its
business, not disadvantageous in any material respect to any Lender as holder
of the Notes and will not result in a Material Adverse Effect.

 

Section 5.6            Insurance.

 

The Borrower will, and will
cause each Subsidiary to, obtain and maintain insurance with insurers believed
by the Borrower to be responsible and reputable, in such amounts and against
such risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower or
such Subsidiary operates.

 

Section 5.7            Preservation of
Corporate Existence.

 

The Borrower will, and will
cause each Subsidiary to, preserve and maintain its corporate existence and all
of its rights, privileges and franchises; provided, however, that neither the
Borrower nor any Subsidiary shall be required to preserve any of its rights,
privileges and franchises if its Governing Board shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Borrower or the appropriate Subsidiary, that the loss thereof is not
disadvantageous in any material respect to any Lender as a holder of the Notes
and will not result in a Material Adverse Effect.

 

30

 

Section 5.8            New Subsidiaries.

 

If the Borrower acquires or
creates any Subsidiary, other than an Applicable Foreign Subsidiary, the
Borrower will cause such Subsidiary to execute and deliver to the
Administrative Agent, (i) a joinder to the Guaranty and Security
Agreement, in form and content acceptable to the Administrative Agent, (ii) a
certificate of the secretary or other appropriate officer of such Subsidiary (A) certifying
that the execution, delivery and performance of that joinder have been duly
approved by all necessary action of the Governing Board of such Subsidiary, and
attaching true and correct copies of the applicable resolutions granting such
approval, (B) certifying that attached to such certificate are true and
correct copies of the Organizational Documents of such Subsidiary, together
with such copies, and (C) certifying the names of the officers of such
Subsidiary that are authorized to sign that joinder; and (iii) an opinion
of counsel to the Subsidiary, opining as to the due execution, delivery and
enforceability of such joinder, and of the enforceability of the Guaranty and
Security Agreement as to such Subsidiary, in form and substance reasonably
acceptable to the Administrative Agent.

 

Section 5.9            Asset Coverage Ratio.

 

The Borrower will maintain its
Asset Coverage Ratio, determined as of the last day of each calendar month, at
not less than 1.25 to 1.

 

Section 5.10         Minimum EBITDA.

 

The Borrower will maintain its
EBITDA, determined as of each Covenant Calculation Date, at not less than the
applicable amount set forth below:

 

	
  Covenant Calculation Date

  	
   

  	
  EBITDA

  	
   

  
	
  September 30, 2008

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
  December 31, 2008

  	
   

  	
  $

  	
  27,500,000

  	
   

  

 

Section 5.11         Minimum Tangible Net
Worth.

 

The Borrower will maintain
Tangible Net Worth, determined as of each Covenant Calculation Date, in an
amount not less than $150,000,000.

 

ARTICLE VI

Negative Covenants

 

So
long as any Note or other Obligations shall remain unpaid or the Revolving
Facility shall be outstanding, the Borrower agrees that, without the prior
written consent of the Required Lenders:

 

Section 6.1            Liens.

 

The Borrower will not, and will
not permit any Subsidiary to, create, incur, assume or suffer to exist any Lien
or other charge or encumbrance of any nature on any of its assets, now owned or
hereafter acquired, or assign or otherwise convey any right to receive income
or give its consent to the subordination of any right or claim of the Borrower
or any Subsidiary to any right or claim of any other Person; excluding,
however, from the operation of the foregoing:

 

31

 

(a)           Liens for taxes or
assessments or other governmental charges to the extent not required to be paid
by Section 5.4.

 

(b)           Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods, materialmen’s,
merchants’, carriers’, workers’, repairers’ or other like liens arising in the
ordinary course of business to the extent not required to be paid by Section 5.4.

 

(c)           Pledges or deposits to
secure obligations under worker’s compensation laws, unemployment insurance and
social security laws, or to secure the performance of bids, tenders, contracts
(other than for the repayment of borrowed money) or leases or to secure
statutory obligations or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business.

 

(d)           Zoning restrictions,
easements, licenses, restrictions on the use of real property or minor
irregularities in title thereto, which do not materially impair the use of such
property in the operation of the business of the Borrower or any Subsidiary or
the value of such property for the purpose of such business.

 

(e)           Purchase money Liens (including capitalized
leases), so long as the aggregate amount of all debts secured by such purchase
money Liens does not exceed $1,000,000 at any one time outstanding.

 

(f)            Liens created by any Subsidiary Obligor as
security for indebtedness owing to another Obligor.

 

(g)           Liens on any property
of any Obligor (other than those described in subsection (e) and (f))
securing any indebtedness for borrowed money in existence on the date hereof
and listed in Schedule 6.1 hereto, and
Liens on the same property securing indebtedness the proceeds of which are used
solely to refinance the indebtedness for borrowed money secured by such
existing Liens.

 

(h)           Liens granted to the
Administrative Agent pursuant to the Security Agreement.

 

(i)            Liens granted under
the Dealer Finance Agreements to Textron Financial Corporation and Textron
Financial Canada Limited, but only so long as (i) such Liens secure only
obligations described in and permitted under Sections 6.2(e) and 6.3(d), and (ii) such
Liens cover only the right, title and interest (if any) of AC Sales in the
obligations of purchasers of the Borrower’s products which obligations are
acquired or held by Textron Financial Corporation or Textron Financial Canada
Limited pursuant to the Dealer Finance Agreements.

 

Section 6.2            Indebtedness.

 

The Borrower will not, and will
not permit any Subsidiary to, incur, create, assume or permit to exist any
indebtedness or liability on account of deposits or advances or any
indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:

 

32

 

(a)           Indebtedness to the
Lender Parties arising under or related to this Agreement.

 

(b)           Indebtedness of the
Borrower or any Subsidiary in existence on the date hereof and listed in
Schedule 6.2 hereto, and indebtedness the
proceeds of which are used solely to refinance such existing indebtedness.

 

(c)           Indebtedness of one
Obligor to another Obligor on account of borrowings from that other Obligor.

 

(d)           Purchase money
indebtedness of the Borrower or any Subsidiary secured by Liens permitted by
subsection 6.1(e).

 

(e)           Obligations of the
Borrower and AC Sales under the Dealer Finance Agreements.

 

Section 6.3            Guaranties.

 

The Borrower will not, and will
not permit any Subsidiary to, assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except:

 

(a)           The Guaranty.

 

(b)           The endorsement of
negotiable instruments by the Borrower or any Subsidiary for deposit or
collection or similar transactions in the ordinary course of business.

 

(c)           Guaranties,
endorsements and other direct or contingent liabilities in connection with the
obligations of other Persons in existence on the date hereof and listed in
Schedule 6.3 hereto.

 

(d)           Obligations of the
Borrower and AC Sales under the Dealer Finance Agreements.

 

(e)           Guaranties by any
Obligor in respect of the obligations of any other Obligor, so long as such
other Obligor’s guarantied obligations are not prohibited by this Agreement.

 

Section 6.4            Investments.

 

The Borrower will not, and will
not permit any Subsidiary to, purchase or hold beneficially any stock or other
securities or evidence of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in, any
other Person, except:

 

(a)           Investments in (i) direct
obligations of the United States of America or any agency or instrumentality
thereof whose obligations constitute full faith and credit obligations of the
United States of America, (ii) commercial paper issued by U.S.
corporations rated “A-1” by Standard & Poors Corporation or “P1” by
Moody’s Investors 

 

33

 

Service, (iii) certificates
of deposit or bankers’ acceptances having a maturity of one year or less issued
by members of the Federal Reserve System having deposits in excess of
$100,000,000, or (iv) tax exempt securities rated A or better by Standard &
Poors Corporation or M1G1 by Moody’s Investors Service.

 

(b)           Any existing investment
by the Borrower or any Subsidiary in the stock of any other Subsidiary.

 

(c)           Travel advances to
officers and employees of the Borrower or any Subsidiary in the ordinary course
of business.

 

(d)           Advances in the form of
progress payments, prepaid rent or security deposits.

 

Section 6.5            Sale of Assets.

 

The
Borrower will not, and will not permit any Subsidiary to, sell, lease, assign,
transfer or otherwise dispose of all or a substantial part of its assets
(whether in one transaction or a series of transactions) except for the sale of
inventory in the ordinary course of the Borrower’s business.   For purposes of this Section, “substantial part” means 10% or more of the assets of the
Borrower, as determined in accordance with GAAP.

 

Section 6.6            Transactions with
Affiliates.

 

The
Borrower will not, and will not permit any Subsidiary, to purchase or sell any
goods or services from or to any Affiliate on terms less favorable to the
Borrower or the applicable Subsidiary than would otherwise be obtainable if no
Affiliate relationship existed.

 

Section 6.7            Restrictions on
Issuance and Sale of Subsidiary Stock.

 

The Borrower will not:

 

(a)           permit any Subsidiary
to issue or sell any shares of stock of any class of such Subsidiary to any
other Person (other than the Borrower or a wholly-owned Subsidiary of the
Borrower), except for the purpose of qualifying directors or of satisfying
pre-emptive rights or of paying a common stock dividend on, or splitting,
common stock of such Subsidiary; or

 

(b)           sell, transfer or
otherwise dispose of any shares of stock of any class (except to a wholly-owned
Subsidiary of the Borrower) of any Subsidiary or permit any Subsidiary to sell,
transfer or otherwise dispose of (except to the Borrower or a wholly-owned
Subsidiary of the Borrower or for the purpose of qualifying directors) any
shares of stock of any class of any other Subsidiary.

 

Section 6.8            Restrictions on
Repurchase or Redemption of Borrower Stock with Advances.

 

The Borrower will not use
Advances to repurchase or redeem more than $10,000,000 of its stock during any
calendar year.

 

34

 

Section 6.9            Consolidation and
Merger; Purchase of Assets.

 

The Borrower will not, and will
not permit any Subsidiary to, consolidate with or merge into any Person, or
permit any other Person to merge into it, or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all of the assets of any other Person; provided, however, that
the restrictions contained in this Section shall not apply to or prevent
the consolidation or merger of a Subsidiary with, or a conveyance or transfer
of its assets to, the Borrower (if the Borrower shall be the continuing or
surviving entity) or another then-existing wholly-owned Domestic Subsidiary of
the Borrower.

 

Section 6.10         Sale and Leaseback.

 

The Borrower will not, and will
not permit any Subsidiary to, enter into any arrangement, directly or
indirectly, with any other Person whereby the Borrower or such Subsidiary shall
sell or transfer any real or personal property, whether now owned or hereafter
acquired, and then or thereafter rent or lease as lessee such property or any
part thereof or any other property which the Borrower or such Subsidiary, as
the case may be, intends to use for substantially the same purpose or purposes
as the property being sold or transferred.

 

Section 6.11         Hazardous Substances.

 

The Borrower will not, and will
not permit any Subsidiary to, cause or permit any Hazardous Substance to be
disposed of, in any manner which might result in any material liability to the
Borrower or any Subsidiary, on, under or at any real property which is operated
by the Borrower or any Subsidiary or in which the Borrower or any Subsidiary
has any interest.

 

Section 6.12         Restrictions on Nature of
Business.

 

The Borrower will not, and will
not permit any Subsidiary to, engage in any line of business materially
different from that presently engaged in by the Borrower or such Subsidiary.

 

ARTICLE VII

Events of Default, Rights and Remedies

 

Section 7.1            Events of Default.

 

“Event of
Default”, wherever used herein, means any one of the
following events:

 

(a)           Default in the payment
of any principal of or interest on any Note when the same becomes due and
payable.

 

(b)           Default in the payment
of any fees required under this Agreement or any Fee Letter when the same
become due and payable.

 

(c)           Default in the
performance, or breach, of any covenant or agreement on the part of the
Borrower contained in this Agreement.

 

(d)           A default under any
bond, debenture, note or other evidence of indebtedness of the Borrower or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed and the 

 

35

 

expiration of
the applicable period of grace, if any, specified in such evidence of
indebtedness, indenture or other instrument.

 

(e)           Any representation or
warranty made by the Borrower in this Agreement or by the Borrower (or any of
its officers) in any certificate, instrument, or statement contemplated by or made or delivered pursuant to or in
connection with this Agreement, shall prove to have been incorrect or
misleading in any material respect when made.

 

(f)            An event of default
shall occur under any security agreement, mortgage, deed of trust, assignment
or other instrument or agreement directly or indirectly securing any
obligations of the Borrower hereunder or under any Note or any guaranty of such
obligations.

 

(g)           The Borrower or any
Subsidiary shall be adjudicated a bankrupt or insolvent, or admit in writing
its inability to pay its debts as they mature, or make an assignment for the
benefit of creditors; or the Borrower or any Subsidiary shall apply for or
consent to the appointment of any receiver, trustee, or similar officer for it
or for all or any substantial part of its property; or such receiver, trustee
or similar officer shall be appointed without the application or consent of the
Borrower or such Subsidiary, as the case may be, and such appointment shall
continue undischarged for a period of 30 days; or the Borrower or any
Subsidiary shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding relating
to it under the laws of any jurisdiction; or any such proceeding shall be
instituted (by petition, application or otherwise) against the Borrower or any
Subsidiary; or any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the Borrower or any Subsidiary and such judgment, writ, or similar
process shall not be released, vacated or fully bonded within 60 days after its
issue or levy.

 

(h)           A petition naming the
Borrower or any Subsidiary as debtor shall be filed by or against the Borrower
or any Subsidiary under the United States Bankruptcy Code.

 

(i)            The rendering against
the Borrower of a final judgment, decree or order for the payment of money in
excess of $2,000,000 (to the extent not covered by a reputable and solvent
insurance company or Borrower’s reserve therefor) and the continuance of such
judgment, decree or order unsatisfied and in effect for any period of 45
consecutive days without a stay of execution.

 

(j)            A writ of attachment, garnishment, levy or
similar process shall be issued against or served upon the Administrative Agent
with respect to (i) any property of the Borrower or any Subsidiary in the
possession of the Administrative Agent having a value in excess of $500,000, or
(ii) any indebtedness of any Lender to the Borrower or any Subsidiary
having a value in excess of $500,000.

 

(k)           Any Subsidiary Obligor
shall repudiate, purport to revoke, or fail to perform any obligation under its
Guaranty or the Security Agreement or shall contest in 

 

36

 

any manner the
validity, binding nature or enforceability of its Guaranty or the Security
Agreement.

 

(l)            Any Plan shall have
been terminated, or a trustee shall have been appointed by an appropriate
United States District Court to administer any Plan, or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any Plan or
to appoint a trustee to administer any Plan, or withdrawal liability shall have
been asserted against the Borrower, any Subsidiary or any ERISA Affiliate by a
Multiemployer Plan; or the Borrower, any Subsidiary or any ERISA Affiliate shall
have incurred liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or Plan participants in
excess of $1,000,000 with respect to any Plan; or any Reportable Event that the
Required Lenders may determine in good faith might constitute grounds for the
termination of any Plan, for the appointment by the appropriate United States
District Court of a trustee to administer any Plan or for the imposition of
withdrawal liability with respect to a Multiemployer Plan, shall have occurred
and be continuing 30 days after written notice to such effect shall have been
given to the Borrower by the Administrative Agent.

 

(m)          A Change of Control
shall occur.

 

Section 7.2            Rights and Remedies.

 

Upon the occurrence of an Event
of Default or at any time thereafter until such Event of Default is cured to
the written satisfaction of the Required Lenders, the Administrative Agent may,
with the consent of the Required Lenders, and shall, at the request of the
Required Lenders, exercise any or all of the following rights and remedies:

 

(a)           The Administrative
Agent may, by notice to the Borrower, declare the Revolving Facility to be
terminated, whereupon the same shall forthwith terminate.

 

(b)           The Administrative
Agent may, by notice to the Borrower, declare the entire unpaid principal
amount of the Notes then outstanding, all interest accrued and unpaid thereon,
and all other amounts payable under this Agreement to be forthwith due and
payable, whereupon the Notes, all such accrued interest and all such amounts
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower.

 

(c)           If any Letter of Credit remains outstanding,
the Administrative Agent may, by notice to the Borrower, require the Borrower
to deposit in the L/C Cash Collateral Account immediately available funds equal
to the aggregate face amount of all such outstanding Letters of Credit.

 

(d)           The Administrative Agent
may, without notice to the Borrower and without further action, apply any and
all money owing by any Lender to the Borrower to the payment of the Notes then
outstanding, including interest accrued thereon, and of all other sums then
owing by the Borrower hereunder.

 

(e)           The Lender Parties may
exercise any other rights and remedies available to them by law or agreement.

 

37

 

Notwithstanding the foregoing,
upon the occurrence of an Event of Default described in Section 7.1(h) or 7.1(j) hereof,
the entire unpaid principal amount of the Notes then outstanding, all interest
accrued and unpaid thereon, and all other amounts payable under this Agreement
shall be immediately due and payable without presentment, demand, protest or
notice of any kind.

 

Section 7.3            Pledge of L/C Cash
Collateral Account.

 

The Borrower hereby pledges,
and grants the Administrative Agent, as agent for the Lender Parties, including
the Issuing Lender, a security interest in, all sums held in the L/C Cash
Collateral Account from time to time and all proceeds thereof as security for
the payment of the Obligations.  Upon
request of the Borrower, the Administrative Agent shall permit the Borrower to
withdraw from the L/C Cash Collateral Account the lesser of (i) the amount
by which the balance of the L/C Cash Collateral Account exceeds the aggregate
amount secured by the sums held in the L/C Cash Collateral Account, or (ii) the
balance of the L/C Cash Collateral Account. The Administrative Agent shall have
full ownership and control of the L/C Cash Collateral Account, and, except as
set forth above, the Borrower shall have no right to withdraw the funds
maintained in the L/C Cash Collateral Account.

 

ARTICLE VIII

The Administrative Agent

 

Section 8.1            Authorization.

 

Each Lender and the holder of
each Note irrevocably appoints and authorizes the Administrative Agent to act
on behalf of such Lender or holder to the extent provided herein or in any
document or instrument delivered hereunder or in connection herewith, and to
take such other action as may be reasonably incidental thereto. In furtherance
of the foregoing, and not in limitation thereof, each Lender irrevocably (i) authorizes
the Administrative Agent to execute and deliver and perform its obligations
under this Agreement and each of the Loan Documents to which the Administrative
Agent is a party, and to exercise all rights, powers and remedies that the
Administrative Agent may have hereunder or thereunder, (ii) appoints the
Administrative Agent as nominal beneficiary or nominal secured party, as the
case may be, under the Loan Documents and all related UCC-1 financing
statements, and (iii) authorizes the Administrative Agent to act as agent
of and for such Lender for purposes of holding, perfecting and disposing of the
collateral under the Loan Documents.  As
to any matters not expressly provided for by this Agreement or the Loan
Documents, the Administrative Agent shall not be required to exercise any discretion
or take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders or, if so required pursuant to Section 9.2,
upon the instructions of all Lenders; provided, however, that except for action
expressly required of the Administrative Agent hereunder, the Administrative
Agent shall in all cases be fully justified in failing or refusing to act
hereunder unless it shall be indemnified to its satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action, and the Administrative Agent
shall not in any event be required to take any action which is contrary to this
Agreement, the Loan Documents or applicable law.

 

38

 

Section 8.2                                   Distribution
of Payments and Proceeds.

 

(a)           After deduction of any
costs of collection, as provided in this Agreement and the other Loan
Documents, and any fee payable to the Administrative Agent in its capacity as
such under this Agreement, any Fee Letter or any other agreement, the
Administrative Agent shall remit to each Lender that Lender’s pro rata share of
all payments of principal and interest and of all fees and other amounts
payable hereunder for the benefit of the Lenders that are received by the
Administrative Agent under the Loan Documents. 
Each Lender’s interest in the Loan Documents shall be payable solely
from payments, collections and proceeds actually received by the Administrative
Agent under the Loan Documents; and the Administrative Agent’s only liability
to the Lenders hereunder shall be to account for each Lender’s pro rata share
of such payments, collections and proceeds in accordance with this
Agreement.  If the Administrative Agent
is ever required for any reason to refund any such payments, collections or
proceeds, each Lender will refund to the Administrative Agent, upon demand, its
pro rata share of such payments, collections or proceeds, together with its pro
rata share of interest or penalties, if any, payable by the Administrative
Agent in connection with such refund.

 

(b)           Notwithstanding the
foregoing, if any Lender has wrongfully refused to fund its applicable
Percentage of any Borrowing or other Advance as required hereunder, or if the
principal balance of any Lender’s Note is for any other reason less than its
applicable Percentage of the aggregate principal balances of the Notes then
outstanding, the Administrative Agent may remit all payments received by it to
the other Lenders until such payments have reduced the aggregate amounts owed
by the Borrower to the extent that the aggregate amount owing to such Lender
hereunder is equal to its applicable Percentage of the aggregate amount owing
to all of the Lenders hereunder.  The
provisions of this paragraph are intended only to set forth certain rules for
the application of payments, proceeds and collections in the event that a
Lender has breached its obligations hereunder and shall not be deemed to excuse
any Lender from such obligations.

 

Section 8.3                                   Expenses.

 

All payments, collections and
proceeds received or effected by the Administrative Agent may be applied,
first, to pay or reimburse the Administrative Agent for all costs, expenses,
damages and liabilities at any time incurred by or imposed upon the Administrative
Agent in connection with this Agreement or any other Loan Document (including
but not limited to all reasonable attorney’s fees (whether paid to outside
counsel or allocated to the Administrative Agent by in-house counsel),
foreclosure expenses and advances made to protect the security of any
collateral).  If the Administrative Agent
does not receive payments, collections or proceeds sufficient to cover any such
costs, expenses, damages or liabilities within 30 days after their incurrence
or imposition, each Lender shall, upon demand, remit to the Administrative
Agent its Percentage of the difference between (i) such costs, expenses,
damages and liabilities, and (ii) such payments, collections and proceeds,
together with interest on such amount for each day following the thirtieth day
after demand therefor until so remitted at a rate equal to the Federal Funds
Rate for each such day.

 

39

 

Section 8.4            Payments Received Directly by Lenders.

 

If any Lender or other holder
of a Note shall obtain any payment or other recovery (whether voluntary,
involuntary, by application of offset or otherwise) on account of the
Obligations other than through distributions made in accordance with Section 8.2, such Lender or holder shall promptly give
notice of such fact to the Administrative Agent and shall purchase from the
other Lenders or holders such participations in the Obligations held by them as
shall be necessary to cause the purchasing Lender or holder to share the excess
payment or other recovery ratably with each of them; provided, however, that if
all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing Lender or holder, the purchase shall be
rescinded and the purchasing Lender restored to the extent of such recovery
(but without interest thereon).

 

Section 8.5            Indemnification.

 

Each Lender severally (but not
jointly) hereby agrees to indemnify and hold harmless the Administrative Agent,
as well as the Administrative Agent’s agents, employees, officers and
directors, ratably according to their respective Percentages from and against
any and all losses, liabilities (including liabilities for penalties), actions,
suits, judgment, demands, damages, costs, disbursements, or expenses (including
attorneys’ fees and expenses) of any kind or nature whatsoever, which are
imposed on, incurred by, or asserted against the Administrative Agent or its
agents, employees, officers or directors in any way relating to or arising out
of this Agreement or the Loan Documents, or as a result of any action taken or
omitted to be taken by the Administrative Agent; provided, however,
that no Lender shall be liable for any portion of any such losses, liabilities
(including liabilities for penalties), actions, suits, judgments, demands,
damages, costs disbursements, or expenses resulting from the gross negligence
or willful misconduct of the Administrative Agent.

 

Section 8.6            Exculpation.

 

The Administrative Agent shall
not be liable for any action taken or omitted to be taken by the Administrative
Agent in connection with this Agreement or the Loan Documents, except for its
own gross negligence or willful misconduct. 
The Administrative Agent shall be entitled to rely upon advice of
counsel concerning legal matters, the advice of independent public accountants
with respect to accounting matters and advice of other experts as to any other
matters, and upon this Agreement, any Loan Document and any schedule,
certificate, statement, report, notice or other writing which it believes to be
genuine or to have been presented by a proper person.  Neither the Administrative Agent nor any of
its directors, officers, employees or agents shall (a) be responsible for
any recitals, representations or warranties contained in, or for the execution,
validity, genuineness, effectiveness or enforceability of this Agreement, any
Loan Document, or any other instrument or document delivered hereunder or in
connection herewith, (b) be responsible for the validity, genuineness,
perfection, effectiveness, enforceability, existence, value or enforcement of
any collateral security, (c) be under any duty to inquire into or pass
upon any of the foregoing matters, or to make any inquiry concerning the
performance by the Borrower or any other obligor of its obligations, or (d) in
any event, be liable as such for any action taken or omitted by it or them,
except for its or their own gross negligence or willful misconduct.  The agency hereby created shall in no way
impair or affect any of the rights and

 

40

 

powers of, or impose any duties
or obligations upon, the Administrative Agent in its individual capacity.

 

Section 8.7            Administrative Agent and Affiliates.

 

The Administrative Agent shall
have the same rights and powers hereunder in its individual capacity as any
other Lender, and may exercise or refrain from exercising the same as though it
were not the Administrative Agent, and the Administrative Agent and its
affiliates may accept deposits from and generally engage in any kind of
business with the Borrower as fully as if the Administrative Agent were not the
Administrative Agent hereunder.

 

Section 8.8            Credit Investigation.

 

Each Lender acknowledges that
it has made such inquiries and taken such care on its own behalf as would have
been the case had its obligations hereunder been incurred and the Advances made
directly by such Lender to the Borrower without the intervention of the
Administrative Agent or any other Lender. 
Each Lender agrees and acknowledges that the Administrative Agent makes
no representations or warranties about the creditworthiness of the Borrower or
any other party to this Agreement or with respect to the legality, validity,
sufficiency or enforceability of this Agreement, any Loan Document, or any
other instrument or document delivered hereunder or in connection herewith.

 

Section 8.9            Resignation and Assignment of
Administrative Agent.

 

(a)           The Administrative
Agent may resign as such at any time upon at least 30 days’ prior notice to the
Borrower and the Lenders. In the event of any resignation of the Administrative
Agent, the Required Lenders shall as promptly as practicable appoint a
successor Administrative Agent. If no such successor Administrative Agent shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the resigning Administrative Agent’s giving of
notice of resignation, then the resigning Administrative Agent may, on behalf
of the Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank organized under the laws of the United States of America or of
any State thereof.

 

(b)           Upon the acceptance of
any appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon be entitled to
receive from the prior Administrative Agent such documents of transfer and
assignment as such successor Administrative Agent may reasonably request and
the resigning or assigning Administrative Agent shall be discharged from its
duties and obligations under this Agreement. After any resignation or
assignment pursuant to this Section, the provisions of this Section shall
inure to the benefit of the retiring Administrative Agent as to any actions
taken or omitted to be taken by it while it was acting as Administrative Agent
hereunder.

 

Section 8.10         Defaults.

 

The Administrative Agent shall
not be deemed to have knowledge of the occurrence of a Default or an Event of
Default (other than under paragraph (a) of Section 7.1) hereof unless the Administrative Agent has
received notice from a Lender or the Borrower specifying the

 

41

 

occurrence of such Default or
Event of Default.  In the event that the
Administrative Agent receives such a notice of the occurrence of a Default or
an Event of Default, the Administrative Agent shall give prompt notice thereof
to the Lenders. The Administrative Agent shall (subject to Section 8.5 hereof) take such actions with respect to
such Default as shall be directed by the Required Lenders; provided that,
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may take any action, or refrain from taking any action,
with respect to such Default as it shall deem advisable in the best interest of
the Lenders.

 

Section 8.11                            Obligations
Several.

 

The obligations of each Lender
hereunder are the several obligations of such Lender, and neither any Lender
nor the Administrative Agent shall be responsible for the obligations of any
other Lender hereunder, nor will the failure by the Lender Parties to perform
any of their obligations hereunder relieve the Administrative Agent or any
other Lender from the performance of its respective obligations hereunder.  Nothing contained in this Agreement, and no
action taken by any Lender or the Administrative Agent pursuant hereto or in
connection herewith or pursuant to or in connection with the Loan Documents
shall be deemed to constitute the Lenders, together or with or without the
Administrative Agent, as a partnership, association, joint venture, or other
entity.

 

Section 8.12                            Assignments.

 

(a)           Any Lender may, at any
time, assign a portion of its Notes and Revolving Commitment and other rights
and interests hereunder to an Eligible Lender (an “Applicant”)
on any date (the “Adjustment Date”) selected by
such Lender. The aggregate principal amount of the Notes and the portion of the
Revolving Commitment so assigned in any assignment shall be not less than
$5,000,000, and the assigning Lender shall retain at least $5,000,000 of such
Notes and the corresponding Revolving Commitment for its own account; provided,
however, that the foregoing restriction shall not apply to a Lender assigning its
entire Note and Revolving Commitment to the Applicant. Any Lender proposing an
assignment hereunder shall give notice of such assignment to the Administrative
Agent at least ten Business Days prior to such assignment (unless the
Administrative Agent consents to a shorter period of time). Such notice shall
specify the identity of such Applicant and the Revolving Commitment which it
proposes that such Applicant acquire. Any assignment hereunder may be made only
with the prior written consent of the Administrative Agent and the Borrower;
provided, however, that the consent of the Borrower shall not be required if
any Default or Event of Default has occurred and is continuing at the time of
such assignment.

 

(b)           To confirm the status
of each Additional Lender as a party to this Agreement and to evidence the
assignment in accordance herewith:

 

(i)                                     the
Borrower, such Lender, such Applicant, and the Administrative Agent shall, on
or before the Adjustment Date, execute and deliver to the Administrative Agent
an Assignment Certificate in substantially the form of Exhibit D (an “Assignment Certificate”)
(provided that the assignment will be effective without the signature of the
Borrower or the

 

42

 

Administrative
Agent to the extent that the consent of the Borrower or the Administrative
Agent, as the case may be, is not required hereunder); and

 

(ii)           the Borrower will, at
its own expense, execute and deliver to the assigning Lender a new Note or
Notes, each payable to the order of the Applicant in an amount corresponding to
the applicable interest in the assigning Lender’s rights and obligations
acquired by such Applicant pursuant to such assignment, and, if the assigning
Lender has retained interests in such rights and obligations, a new Note or
Notes, each payable to the order of that Lender in an amount corresponding to
such retained interests.  Such new Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of the applicable Notes to be replaced by such new Notes, shall be dated
the effective date of such assignment and shall otherwise be in the form of the
Notes to be replaced thereby.  Such new
Notes shall be issued in substitution for, but not in satisfaction or payment
of, the Notes being replaced thereby.

 

Upon the
execution and delivery of such Assignment Certificate and such Notes, (a) this
Agreement shall be deemed to be amended to the extent, and only to the extent,
necessary to reflect the addition of such Additional Lender and the resulting
adjustment of Revolving Commitments arising therefrom, (b) the assigning
Lender shall be relieved of all obligations hereunder to the extent of the
reduction of all obligations hereunder and to the extent of the reduction of
such Lender’s Revolving Commitments, and (c) the Additional Lender shall
become a party hereto and shall be entitled to all rights, benefits and
privileges accorded to a Lender herein and in each other document or instrument
executed pursuant hereto and subject to all obligations of a Lender hereunder,
including the right to approve or disapprove actions which, in accordance with
the terms hereof, require the approval of the Required Lenders or all Lenders,
and the obligations to make Advances hereunder. 
Promptly after the execution of any Assignment Certificate, a copy
thereof shall be delivered by the Administrative Agent to each Lender.

 

(c)           In order to facilitate
the addition of Additional Lenders hereto, the Borrower shall cooperate fully
with each Lender and the Administrative Agent in connection therewith and shall
provide all reasonable assistance requested by each Lender and the
Administrative Agent relating thereto, including, without limitation, the
furnishing of such written materials and financial information regarding the
Borrower as any Lender or the Administrative Agent may reasonably request, the
execution of such documents as any Lender or the Administrative Agent may
reasonably request with respect thereto, and the participation by officers of
the Borrower in a meeting or teleconference call with any Applicant upon the
request of any Lender or the Administrative Agent.

 

(d)           Without limiting any
other provision hereof:

 

(i)            each Lender may
at any time, upon written notice to the Borrower and the Administrative Agent,
sell, assign, transfer, or negotiate all or any part of its Revolving
Commitments, Advances, Notes, and other rights and obligations under this
Agreement and the Loan Documents to one or more

 

43

 

affiliates of such Lender,
provided that, unless consented to by the Borrower and the Administrative Agent
(which consent shall not be unreasonably withheld), no such sale, assignment,
transfer or negotiation of Revolving Commitments shall relieve the transferring
Lender from its obligations (to the extent such affiliate does not fulfill its
obligations) hereunder; and

 

(ii)           each Lender may
at any time sell, assign, transfer, or negotiate all or any part of its
Revolving Commitment, Advances, Notes, and other rights and obligations under
this Agreement and the Loan Documents to one or more Lenders, and any such
sale, assignment, transfer or negotiation shall relieve the transferring Lender
from its obligations hereunder to the extent of the obligations so transferred
(except, in any event, to the extent that the Borrower, any other Lender or the
Administrative Agent has rights against such transferring Lender as a result of
any default by such transferring Lender under this Agreement);

 

provided,
however, that any partial sale, assignment, transfer or negotiation pursuant to
this Section shall be pro rata as to all of the Revolving Commitment,
Notes and Advances transferred.

 

(e)           Any Lender making an
assignment under this Section shall pay the Administrative Agent a
transfer fee in the amount of $3,000 simultaneous with such assignment.

 

(f)            Notwithstanding any
other provision of this Agreement, any Lender may at any time create a security
interest in all or any portion of its rights under this Agreement and that
Lender’s Note in favor of any Federal Reserve Lender in accordance with
Regulation A of the Board of Governors of the Federal Reserve System.

 

(g)           Except as set forth in
this Section 8.12 and the following Section 8.13, no Lender may
assign any of its rights or obligations under any Loan Document.

 

Section 8.13         Participations

 

In addition to the rights
granted in Section 8.12, each Lender
may grant participations in all or any portion of its Notes and Revolving
Commitment and other rights and interests hereunder to any institutional
investor, without the consent of the Borrower or the Administrative Agent, but
only so long as:

 

(a)           within five Business
Days after granting any participation, such Lender gives the Administrative
Agent notice of such participation, including the name, address and telecopier
number of the participant and the amount of the Notes and Revolving Commitment
covered by the participation; and

 

(b)           the principal amount of
the participation so granted is no less than $5,000,000.

 

44

 

No holder of any such
participation, other than an affiliate of such Lender, shall be entitled to
require such Lender to take or omit to take any action hereunder, except that
such Lender may agree with such participant that such Lender will not, without
such participant’s consent, (i) forgive any indebtedness of the Borrower
under this Agreement or the Notes, (ii) agree to reduce the rate of
interest charged under this Agreement, or (iii) agree to extend the final
maturity of any indebtedness evidenced by the Notes, except as expressly
provided by the terms of the Loan Documents. 
No Lender shall, as between the Borrower and such Lender, be relieved of
any of its obligations hereunder as a result of any such granting of a
participation.  The Borrower hereby
acknowledges and agrees that any participant described in this Section will,
for purposes of Section 2.10(b), be
considered to be a Lender hereunder (provided that such participant shall not
be entitled to receive any more than the Lender selling such participation
would have received had such sale not taken place) and may rely on, and possess
all rights under, any opinions, certificates, or other instruments or documents
delivered under or in connection with any Loan Document.  Except as set forth in this Section 8.13, no
Lender may grant any participation in any Loan Document or Revolving
Commitment.

 

Section 8.14         Disclosure of Information.

 

The Borrower authorizes each
Lender and the Administrative Agent to disclose to any participant, assignee or
Additional Lender (each, a “Transferee”)
and any prospective Transferee any and all financial and other information in
the possession of any Lender Party concerning the Borrower which has been or
hereafter is delivered to the Administrative Agent or such Lender by the
Borrower pursuant to this Agreement or which has been or is hereafter delivered
to the Administrative Agent or such Lender by the Borrower in connection with
the credit evaluation of the Borrower by the Administrative Agent or such
Lender prior to entering into this Agreement.

 

ARTICLE IX

Miscellaneous

 

Section 9.1            No Waiver; Cumulative Remedies.

 

No failure or delay on the part
of the Lenders in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any Lender’s acceptance of
payments while any Default or Event of Default is outstanding operate as a
waiver of such Default or Event of Default, or any right, power or remedy under
the Loan Documents; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy under the Loan Documents.  The remedies provided in the Loan Documents
are cumulative and not exclusive of any remedies provided by law.

 

Section 9.2            Amendments, Etc.

 

No amendment or waiver of any
provision of any Loan Document or consent to any departure by the Borrower
therefrom shall be effective unless the same shall be in writing and signed by
the Required Lenders (or by the Administrative Agent with the consent or at the
request of the Required Lenders), and any such waiver shall be effective only
in the specific instance and for the specific purpose for which given.  No notice to or demand on the Borrower in any
case shall

 

45

 

entitle the Borrower to any
other or further notice or demand in similar or other circumstances.
Notwithstanding the foregoing, no such amendment, waiver or consent shall be
effective to do any of the following unless signed by each of the Lenders (or
by the Administrative Agent with the consent or at the request of each of the
Lenders):

 

(a)           Reduce the principal
of, or the rate of interest specified herein on any Note, or any fees or other
amounts payable to or for the benefit of the Lenders hereunder or under any
other Loan Document.

 

(b)           Postpone or delay any
date fixed by this Agreement or any other Loan Document for any payment of
principal, interest, fees or other material amounts due to the Lenders (or any
of them) hereunder or under any other Loan Document.

 

(c)           Increase the Revolving
Commitment of any Lender or extend the Revolving Commitment of any Lender.

 

(d)           Permit the Borrower to
assign its rights under this Agreement.

 

(e)           Agree to release any
Guaranty.

 

(f)            Amend this Section,
the definition of “Required Lenders” in Section 1.1, or any provision herein providing for consent or other action
by all Lenders.

 

No amendment, waiver or consent
shall affect the rights or duties of the Administrative Agent under this
Agreement or any other Loan Document unless in writing and signed by the
Administrative Agent.

 

Section 9.3            Notice.

 

Except as otherwise expressly
provided herein, all notices and other communications hereunder shall be in
writing and shall be (i)  personally delivered, (ii)  transmitted
by registered mail, postage prepaid, (iii)  sent by Federal Express
or similar expedited delivery service, or (iv)  transmitted by
telecopy, in each case addressed to the party to whom notice is being given at
its address or telecopier number (as the case may be) as set forth in Exhibit A or in any applicable Assignment Certificate;
or, as to each party, at such other address or telecopier number as may
hereafter be designated in a notice by that party to the other party complying
with the terms of this Section.  All such
notices or other communications shall be deemed to have been given on (i) the
date received if delivered personally or by mail, (ii) the date of receipt,
if delivered by Federal Express or similar expedited delivery service, or (iii) the
date of transmission if delivered by telecopy, except that notices or requests
to any Lender Party pursuant to any of the provisions of Article II shall
not be effective until received.

 

Section 9.4            Costs and Expenses.

 

The Borrower agrees to pay on
demand all costs and expenses incurred by the Administrative Agent in
connection with the negotiation, preparation, execution, administration,
amendment or enforcement of the Loan Documents and the other instruments and
documents to be delivered hereunder and thereunder, including the reasonable
fees and out-of-pocket expenses of counsel

 

46

 

for any Lender with respect
thereto, whether paid to outside counsel or allocated to the Administrative
Agent by in-house counsel.

 

Section 9.5            Indemnification by Borrower.

 

The Borrower hereby agrees to
indemnify the Lender Parties and each officer, director, employee and agent
thereof (herein individually each called an “Indemnitee”
and collectively called the “Indemnitees”)
from and against any and all losses, claims, damages, reasonable expenses
(including, without limitation, reasonable attorneys’ fees) and liabilities
(all of the foregoing being herein called the “Indemnified
Liabilities”) incurred by an Indemnitee in connection with or
arising out of the execution or delivery of this Agreement or any agreement or
instrument contemplated hereby, the performance by the parties hereto of their
respective obligations hereunder or the use of the proceeds of any Borrowing or
Letter of Credit hereunder (including but not limited to any such loss, claim,
damage, expense or liability arising out of any claim in which it is alleged
that any Environmental Law has been breached with respect to any activity or
property of the Borrower), except for any portion of such losses, claims,
damages, expenses or liabilities incurred solely as a result of the gross
negligence or willful misconduct of the applicable Indemnitee.  If and to the extent that the foregoing
indemnity may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.  All obligations provided for in this Section shall
survive any termination of this Agreement.

 

Section 9.6            Execution in Counterparts.

 

This Agreement and the other
Loan Documents may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which counterparts of this Agreement or such other Loan Document, as the case
may be, taken together, shall constitute but one and the same instrument.

 

Section 9.7            Binding Effect, Assignment.

 

The Loan Documents shall be
binding upon and inure to the benefit of the Borrower and the Lenders and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights thereunder or any interest therein without the prior
written consent of each of  the Lenders.

 

Section 9.8            Governing Law.

 

The Loan Documents shall be
governed by, and construed in accordance with, the laws of the State of
Minnesota.

 

Section 9.9            Consent to Jurisdiction.

 

The Borrower irrevocably (i) agrees
that any suit, action or other legal proceeding arising out of or relating to
this Agreement or any other Loan Document may be brought in a court of record
in Hennepin County in the State of Minnesota or in the courts of the United
States located in such State, (ii) consents to the jurisdiction of each
such court in any suit, action or proceeding, (iii) waives any objection
which it may have to the laying of venue of any such suit, action or

 

47

 

proceeding in any such courts
and any claim that any such suit, action or proceeding has been brought in an
inconvenient forum, and (iv) agrees that a final judgment in any such
suit, action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.

 

Section 9.10         Waiver of Jury Trial.

 

THE
BORROWER AND THE LENDER PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT AND THE NOTES OR THE RELATIONSHIPS ESTABLISHED
HEREUNDER.

 

Section 9.11         Severability of Provisions.

 

Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.

 

Section 9.12         Prior Agreements.

 

This Agreement and the other
Loan Documents and related documents described herein restate and supersede in
their entirety any and all prior agreements and understandings, oral or
written, between the Lenders and the Borrower.

 

Section 9.13         Headings.

 

Article and Section headings
in this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.

 

Section 9.14         Restatement of Prior Agreement.

 

This Agreement is executed for
the purpose of replacing and restating the Credit Agreement dated July 24,
2002 among the Borrower, Wells Fargo and the other Banks, as defined therein
(together with all amendments, modifications and restatements thereof, the “Prior Agreement”). Upon execution and delivery of this
Agreement by each of the parties hereto and satisfaction of the conditions
precedent set forth in Section 3.1, (i) the
Prior Agreement shall be deemed amended, superseded and restated in its
entirety by the terms and provisions of this Agreement, (ii) the
Commitment of Wells Fargo under the Prior Agreement shall automatically be
deemed amended in accordance with this Agreement, and (iii) all
outstanding Letters of Credit (as defined in the Prior Agreement) shall
continue as Letters of Credit under (and shall be governed by the terms of)
this Agreement.

 

Signature pages follow

 

48

 

IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be executed by their
respective officers thereunto duly authorized as of the date first above
written.

 

	
   

  	
  ARCTIC
  CAT INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Name: Timothy C. Delmore

  
	
   

  	
   

  	
  Title: Chief Financial
  Officer

  

 

Signature Page to Arctic Cat Inc. Credit Agreement

 

 

	
   

  	
  WELLS FARGO BANK, NATIONAL

  ASSOCIATION,

  as Administrative Agent and Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Mark
  H. Halldorson

  
	
   

  	
   

  	
  Title: Vice
  President

  

 

Signature Page to Arctic Cat Inc. Credit Agreement

 

 

EXHIBITS AND SCHEDULES

 

	
  Exhibit A

  	
   

  	
  Revolving
  Commitments and Addresses

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Revolving
  Note

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Form of Compliance Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Assignment
  Certificate

  
	
   

  	
   

  	
   

  
	
  Schedule 4.4

  	
   

  	
  Subsidiaries

  
	
   

  	
   

  	
   

  
	
  Schedule 4.11

  	
   

  	
  Other Filed
  Financing Statements

  
	
   

  	
   

  	
   

  
	
  Schedule 6.1

  	
   

  	
  Permitted
  Liens

  
	
   

  	
   

  	
   

  
	
  Schedule 6.2

  	
   

  	
  Permitted
  Indebtedness

  
	
   

  	
   

  	
   

  
	
  Schedule 6.3

  	
   

  	
  Permitted
  Guaranties

  

 

 

Exhibit A

 

REVOLVING COMMITMENTS AND ADDRESSES

 

	
  Name

  	
   

  	
  Revolving Commitments

  	
   

  	
  Notice Address

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Inc.

  	
   

  	
  N/A

  	
   

  	
  505 North
  Highway 169

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Suite 1000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Plymouth MN 55441

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Attention: Timothy C. Delmore

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Telecopier: 763-354-1803

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wells Fargo Bank,

  	
   

  	
  N/A

  	
   

  	
  MAC
  N9305-077

  	
   

  
	
  National Association, 

  	
   

  	
   

  	
   

  	
  Sixth and Marquette

  	
   

  
	
  as Administrative 

  	
   

  	
   

  	
   

  	
  Minneapolis, Minnesota 55479

  	
   

  
	
  Agent

  	
   

  	
   

  	
   

  	
  Attention: Mark Halldorson

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Telecopier: 612-667-2276

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wells Fargo Bank,

  	
   

  	
  $

  	
  75,000,000

  	
   

  	
  MAC
  N9305-077

  	
   

  
	
  National Association, 

  	
   

  	
   

  	
   

  	
  Sixth and Marquette

  	
   

  
	
  as a Lender

  	
   

  	
   

  	
   

  	
  Minneapolis, Minnesota 55479

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Attention: Mark Halldorson

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Telecopier: 612-667-2276

  	
   

  
							

 

 

Exhibit B

 

PROMISSORY NOTE

 

	
  $         

  	
  Minneapolis, Minnesota

  
	
   

  	
                              ,
  200  

  

 

For value
received, Arctic Cat Inc., a Minnesota corporation (the “Borrower”),
promises to pay to the order of
                                                                          ,
a                                           
(the “Lender”), at such place as the
Administrative Agent under the Credit Agreement defined below may from time to
time designate in writing, the principal sum of
                                                                              
Dollars
($                            ),
or so much thereof as is advanced by the Lender to the Borrower pursuant to Section 2.1 of the Credit Agreement dated as of August 29,
2008 among the Borrower, Wells Fargo Bank, National Association, a national
banking association, as Administrative Agent, and various lenders, including
the Lender (together with all amendments, modifications and restatements
thereof, the “Credit Agreement”), and to pay
interest on the principal balance of this Note outstanding from time to time at
the rate or rates determined pursuant to the Credit Agreement.

 

This Note is
issued pursuant to, and is subject to, the Credit Agreement, which provides
(among other things) for the amount and date of payments of principal and
interest required hereunder, for the acceleration of the maturity hereof upon
the occurrence of an Event of Default (as defined therein) and for the
voluntary prepayment hereof. This Note is a Revolving Note, as defined in the
Credit Agreement.

 

The Borrower
shall pay all costs of collection, including reasonable attorneys’ fees and
legal expenses, if this Note is not paid when due, whether or not legal
proceedings are commenced.

 

Presentment or
other demand for payment, notice of dishonor and protest are expressly waived.

 

	
   

  	
  ARCTIC
  CAT INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

 

Exhibit C

 

COMPLIANCE CERTIFICATE

 

                                                    ,
200   

 

Wells Fargo Bank, National Association

MAC N9305-031

Sixth Street and Marquette Avenue

Minneapolis, Minnesota 55479

 

Compliance Certificate

 

Ladies and Gentlemen:

 

Reference is
made to the Credit Agreement (the “Credit Agreement”)
dated as of August 29, 2008 entered into among Wells Fargo Bank, National
Association, Arctic Cat Inc. and the Lenders, as defined therein (the “Borrower”).

 

All terms
defined in the Credit Agreement and not otherwise defined herein shall have the
meanings given them in the Credit Agreement.

 

This is a
Compliance Certificate submitted in connection with the Borrower’s financial
statements (the “Statements”) as of
                                          ,
200     (the “Effective Date”).

 

I hereby
certify to you as follows:

 

1.                                       I am the
                                                  
of the Borrower, and I am familiar with the financial statements and financial
affairs of the Borrower.

 

2.                                       The Statements,
and the computations below, have been prepared in accordance with GAAP.

 

3.                                       Exhibit 1
sets forth the Asset Coverage Ratio of the Obligors as of the Effective Date.

 

[4.                                   Exhibit 2
sets forth the Borrower’s compliance or non-compliance with the requirements
set forth in Sections 5.10 and 5.11 of the Credit Agreement as of the
Effective Date. Also attached hereto are all relevant facts in reasonable detail
to evidence, and the computations of, the covenants referred to above.](1)

 

(1)                                  Paragraph 4 and Exhibit 2 should be included only
if the applicable statements are being provided under paragraph (a) or (b) of
Section 5.1 of the Credit Agreement (i.e., they are quarterly or annual
statements, not monthly statements).

 

 

5.                                       I have no
knowledge of the occurrence of any Default or Event of Default under the Credit
Agreement, except as set forth in the attachments, if any, hereto.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
   ARCTIC
  CAT INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   By 

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
					

 

2

 

Exhibit 1 to

Compliance Certificate

 

Asset Coverage Ratio

 

Descriptions
of terms below are for ease of reference but not necessarily comprehensive. The
actual meaning of all terms shall be as set forth in the Credit Agreement.

 

	
  Section 5.9 Asset Coverage Ratio

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Adjusted Asset Value:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible Receivable Value

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total value of unpaid accounts

  	
   

  	
   

  	
   $

  	
    

  	
   

  	
   

  
	
  - credits and allowances

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  - Dealer Holdback

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  - over 120 days past due (to extent >
  $2,000,000)

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  - accounts that are disputed or subject to
  a contra accounts

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  - accounts owed by a dissolved debtor

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  - accounts owed by an Affiliate

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  - accounts not a duly perfected in favor of
  the Administrative Agent

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  - modified or extended accounts

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  - accounts tied to finance or services
  charges

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  Total Eligible Receivables Value

  	
   

  	
   

  	
   $

  	
   

  	
   

  	
   

  
	
  (A) 70% of Eligible Receivables Value

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
    

  	
   

  
	
  Total Eligible Raw Materials Value

  	
   

  	
   

  	
   $

  	
   

  	
   

  	
   

  
	
  (B) 10% of Eligible Raw Materials
  Value

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
    

  	
   

  
	
  Total Eligible Finished Goods Value

  	
   

  	
   

  	
   $

  	
   

  	
   

  	
   

  
	
  (C) 60% of Eligible Finished Goods
  Value

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
     

  	
   

  
	
  Total Eligible Parts Value

  	
   

  	
   

  	
   $

  	
   

  	
   

  	
   

  
	
  (D) 45% of Eligible Parts Value

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
    

  	
   

  
	
  (E) Adjusted Asset Value (A + B + C +
  D):

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
    

  	
   

  
	
  (F) Revolving Facility Advances (as of
  Effective Date):

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
    

  	
   

  
	
  Asset Coverage Ratio (E:F)

  	
   

  	
   

  	
   

  	
   

  	
  : 1

  	
   

  
	
  Required Asset Coverage Ratio

  	
   

  	
   

  	
   

  	
   

  	
  > 1.25:1

  	
   

  

 

3

 

Exhibit 2 to

Compliance Certificate

 

EBITDA and Tangible Net Worth

 

Descriptions
of terms below are for ease of reference but not necessarily comprehensive. The
actual meaning of all terms shall be as set forth in the Credit Agreement.

 

	
  Section 5.10
  Minimum EBITDA

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consolidated Net Income

  	
   

  	
   

  	
   $

  	
   

  	
   

  	
   

  
	
  + Income taxes

  	
   

  	
  + 

  	
   $

  	
   

  	
   

  	
   

  
	
  + Interest expense

  	
   

  	
  + 

  	
   $

  	
   

  	
   

  	
   

  
	
  + Depreciation

  	
   

  	
  + 

  	
   $

  	
   

  	
   

  	
   

  
	
  + Amortization

  	
   

  	
  + 

  	
   $

  	
   

  	
   

  	
   

  
	
  - Non-operating gains

  	
   

  	
  - 

  	
   $

  	
   

  	
   

  	
   

  
	
  + Non-operating losses

  	
   

  	
  + 

  	
   $

  	
   

  	
   

  	
   

  
	
  EBITDA

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
     

  	
   

  
	
  Required EBITDA

  	
   

  	
   

  	
   

  	
  > $15,000,000 @
  September 31, 2008

  > $27,500,000 @ December 31, 2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.11
  Minimum Tangible Net Worth

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stockholders’
  Equity

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  - Intangible Assets

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tangible Net Worth

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Required Tangible Net Worth

  	
   

  	
   

  	
   

  	
  > $150,000,000

  	
   

  
								

 

4

 

Exhibit D

 

ASSIGNMENT CERTIFICATE

 

Assigning Lender:
                         

 

Applicant:                     

 

This Certificate (the “Certificate”)
is delivered pursuant to Section 8.12 of the Credit Agreement dated as of August 29,
2008 (together with all amendments, supplements, restatements and other
modifications, if any, from time to time made thereto, the “Credit
Agreement”), among Arctic Cat Inc., a Minnesota corporation (the “Borrower”), Wells Fargo Bank, National Association, as lead
arranger and administrative agent (the “Administrative Agent”),
and the various lenders now or hereafter parties thereto.

 

The Assigning Lender named above wishes to assign all or a portion of
its interest arising under the Credit Agreement to the Applicant named above
pursuant to Section 8.12 of the Credit Agreement, and the Applicant wishes
to become an Additional Lender pursuant thereto. This Certificate is an
Assignment Certificate, as defined in the Credit Agreement, and is executed for
purposes of informing the Administrative Agent and the Borrower of the
transactions contemplate hereby and obtaining the consent of the Administrative
Agent and the Borrower to the extent required under the Credit Agreement.

 

Accordingly, the undersigned hereby agree as follows:

 

1.                                       Definitions.
Unless otherwise defined herein, terms used herein have the meanings provided
in the Credit Agreement.

 

2.                                       Authorization;
No Prior Assignment.  The Assigning
Lender is duly authorized to assign the interest assigned pursuant to Section 4
of this Certificate and such interest is not subject to any other assignment,
participation, claim or other right or interest of any other Person other than
rights and interests of the Borrower and the Lenders as set forth in the Credit
Agreement.

 

3.                                       Allocation
of Payments. Any interest, fees and other payments accrued to the Effective
Date with respect to the Assigning Lender’s interest under the Loan Documents
shall be for the account of the Assigning Lender. Any interest, fees and other
payments accruing on and after the Effective Date with respect to the interests
assigned hereunder shall be for the account of the Applicant.  Each of the Assigning Lender and the
Applicant agrees that it will hold in trust for the other party any interest,
fees and other amounts which it may receive to which the other party is entitled
pursuant to the preceding sentence and pay to the other party any such amounts
which it may receive promptly upon receipt.

 

4.                                       Effective
Date; Conditions. The date on which the Applicant shall become an
Additional Lender (the “Effective Date”)
is
                          , 20    ; provided,
however, that the assignment and assumption described in this Certificate shall
not be effective unless, on or before the Effective Date, (i) the
Administrative Agent has received counterparts of this Certificate duly
executed and delivered by the Borrower (unless the Borrower’s consent to the

 

 

assignment hereunder is not required under Section 8.12 of the
Credit Agreement), the Assigning Lender, the Administrative Agent and the
Applicant, (ii) the Administrative Agent has received the transfer fee for
the account of the Administrative Agent in the amount of $3,000, and (iii) all
other terms and conditions of this Certificate and the Credit Agreement
relating to the assignment hereunder have been satisfied.

 

5.                                       Applicant’s
Interest. Effective as of the Effective Date, (i) the Applicant’s
Revolving Commitment shall be the amounts so designated by the Applicant’s
signature below (and the Applicant shall be deemed to have assumed the
Assigning Lender’s obligations in the amount of such Revolving Commitment), and
(ii) the principal amount of Revolving Advances owing to the Applicant
shall be the amount so designated by the Applicant’s signature below.

 

6.                                       Retained
Interest. Effective as of the Effective Date, (i) the Assigning Lender’s
Revolving Commitment shall be the amounts so designated by the Assigning Lender’s
signature below (which amounts shall, when added to the Applicant’s applicable
Revolving Commitment as determined under paragraph 5., equal the Assigning Lender’s Revolving Commitment as determined
immediately before giving effect to this Certificate) (and the Assigning Lender
shall be relieved of all of its obligations under the Credit Agreement to the
extent of the reduction in its Revolving Commitment in accordance herewith),
and (ii) the principal amount of Revolving Advances owing to the Assigning
Lender shall be the amount so designated by the Assigning Lender’s signature
below.

 

7.                                       New
Notes. Concurrently with the execution and delivery hereof, the Borrower
shall issue and deliver to the Administrative Agent in exchange for the
Assigning Lender’s Revolving Note:

 

(i)                                     a Revolving Note payable to
the order of the Applicant in a face principal amount equal to the Applicant’s
Revolving Commitment (or, if the Effective Date is after the Facility
Termination Date, the principal amount of the Revolving Advances assigned to
the Applicant), in substantially the form of the applicable Exhibits to the
Credit Agreement;

 

(ii)                                  a Revolving Note payable to
the order of the Assigning Lender in a face principal amount equal to the
Assigning Lender’s Revolving Commitment (or, if the Effective Date is after the
Facility Termination Date, the principal amount of the Revolving Advances
retained by the Assigning Lender), in substantially the form of the applicable
Exhibits to the Credit Agreement;

 

The Administrative Agent shall
deliver the foregoing Notes to the Applicant and the Assigning Lender promptly
after the Effective Date, or (if later) the receipt by the Administrative Agent
thereof.

 

8.                                       Notice
Address. The address shown below the Applicant’s signature hereto shall be
its notice address for purposes of Section 9.3
of the Credit Agreement, unless and until it shall designate, in accordance
with such Section 9.3, another
address for such purposes.

 

9.                                       Assumption.
Upon the Effective Date, the Applicant shall become a party to the Credit
Agreement and a Lender thereunder and (i) shall be entitled to all rights,
benefits

 

2

 

and privileges accorded to a Lender in the Credit Agreement, (ii) shall
be subject to all obligations of a Lender thereunder, and (iii) shall be
deemed to have specifically ratified, confirmed and agreed to be bound by (and
by executing this Certificate the Applicant hereby specifically ratifies,
confirms and agrees to be bound by) all of the provisions of the Credit
Agreement and the Loan Documents.

 

10                                    Independent
Credit Decision. The Applicant (a) acknowledges that it has received a
copy of the Credit Agreement and the Schedules and Exhibits thereto, together
with copies of the most recent financial statements referred to in Section 4.5
or 5.1 of the Credit Agreement, and such other documents and information as it
has deemed appropriate to make its own credit and legal analysis and decision to
enter into this Assignment and Acceptance; (b) acknowledges and agrees
that in becoming an Additional Lender and in making any Advance under the
Credit Agreement, such actions have been and will be made without recourse to,
or representation or warranty by, the Assigning Lender or the Administrative
Agent; and (c) agrees that it will, independently and without reliance
upon the Assigning Lender, the Administrative Agent or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit and legal decisions in taking or not
taking action under the Credit Agreement.

 

11.                                 Withholding
Tax. The Applicant (a) represents and warrants to the Administrative
Agent and the Borrower that under applicable law and treaties no tax will be
required to be withheld by the Administrative Agent with respect to any
payments to be made to the Applicant hereunder, (b) agrees to furnish (if
it is organized under the laws of any jurisdiction other than the United States
or any State thereof) to the Administrative Agent and the Borrower prior to the
time that the Administrative Agent or Borrower is required to make any payment
of principal, interest or fees hereunder, duplicate executed originals of U.S.
Internal Revenue Service Form W-8ECI or W-8BEN (or appropriate replacement
forms) and agrees to provide new Forms W-8ECI or W-8BEN (or appropriate
replacement forms) upon the expiration of any previously delivered form or
comparable statements in accordance with applicable U.S. law and regulations
and amendments thereto, duly executed and completed by the Applicant, and (c) agrees
to comply with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.

 

12.                                 Further
Assurances. The Borrower, the Assigning Lender and the Applicant shall, at
any time and from time to time upon the written request of the Administrative
Agent, execute and deliver such further documents and do such further acts and
things as the Administrative Agent may reasonably request in order to effect
the purpose of this Certificate.

 

13.                                 Miscellaneous.
This Certificate may be executed in any number of counterparts by the parties
hereto, each of which counterparts shall be deemed to be an original and all of
which shall together constitute one and the same certificate.  Matters relating to this Certificate shall be
governed by, and construed in accordance with, the internal laws of the State
of Minnesota.

 

3

 

IN WITNESS WHEREOF, the undersigned have executed this Certificate as
of the Effective Date set forth above.

 

	
  Retained:

  	
   

  	
   

  
	
  Revolving Commitment: $                

  	
  [Assigning Lender]

  	
   

  
	
   

  	
   

  	
   

  
	
  Revolving Advances: $

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Assigned:

  	
   

  	
   

  
	
  Revolving Commitment: $

  	
   

  	
   

  
	
   

  	
  [Applicant]

  	
   

  
	
  Revolving Advances: $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Notice Address:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Telecopier:

  	
   

  
						

 

Consent of Administrative Agent

 

The
Administrative Agent hereby consents to the foregoing Assignment.

 

	
   

  	
  WELLS FARGO BANK, NATIONAL

  ASSOCIATION

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

Consent of Borrower

 

The Borrower
hereby consents to the foregoing Assignment.

 

	
   

  	
  ARCTIC CAT INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
						

 

4

 

Schedule
4.4

 

Subsidiaries
of Arctic Cat Inc.

 

	
  Entity

  	
   

  	
  Incorporation/

  Organization

  	
   

  	
  Authorized

  Shares/Units

  	
   

  	
  Outstanding 

  Shares/Units

  	
   

  	
  Ownership

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Sales Inc.

  	
   

  	
  Minnesota

  	
   

  	
  50,000

  	
   

  	
  1,000

  	
   

  	
  Arctic Cat Inc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Production LLC

  	
   

  	
  Minnesota

  	
   

  	
  N/A

  	
   

  	
  1,000

  	
   

  	
  Arctic Cat Inc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Production
  Support LLC

  	
   

  	
  Minnesota

  	
   

  	
  N/A

  	
   

  	
  1,000

  	
   

  	
  Arctic Cat Inc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Shared Services
  LLC

  	
   

  	
  Minnesota

  	
   

  	
  N/A

  	
   

  	
  1,000

  	
   

  	
  Arctic Cat Inc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat ACE Holding
  GmbH

  	
   

  	
  Austria

  	
   

  	
  N/A

  	
   

  	
  N/A

  	
   

  	
  Arctic Cat Sales Inc.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat GmbH

  	
   

  	
  Austria

  	
   

  	
  N/A

  	
   

  	
  N/A

  	
   

  	
  Arctic Cat ACE Holding
  GmbH

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARCTIC CAT France SARL

  	
   

  	
  France

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Arctic Cat GmbH

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARCTIC CAT Deutschland
  GmbH

  	
   

  	
  Germany

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Arctic Cat GmbH

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARCTIC CAT Italia S.R.L.

  	
   

  	
  Italy

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Arctic Cat GmbH

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARCTIC CAT España S.L.

  	
   

  	
  Spain

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Arctic Cat GmbH

  	
   

  

 

 

Schedule 4.11

 

Other Filed Financing Statements

 

	
  Debtor

  	
   

  	
  Secured

  Party

  	
   

  	
  Filing No.

  	
   

  	
  Filing

  Date

  	
   

  	
  Collateral

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Inc.

  	
   

  	
  General
  Electric Capital Corporation

  	
   

  	
  1944140

  	
   

  	
  05/23/97

  	
   

  	
  All Loans and Loan
  Documentation; all deposits, credit balances and reserves on GECC’s books
  relative to the Loans; all proceeds of the foregoing

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Inc.

  	
   

  	
  Monogram
  Credit Card Bank of Georgia

  	
   

  	
  1944143

  	
   

  	
  05/23/97

  	
   

  	
  All Accounts and
  Indebtedness; all deposits, credit balances and reserves on Monogram’s books
  relative to any Accounts; and all proceeds of the foregoing

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Sales Inc.

  	
   

  	
  General
  Electric Capital Corporation

  	
   

  	
  1944141

  	
   

  	
  05/23/97

  	
   

  	
  All Loans and Loan
  Documentation; all deposits, credit balances and reserves on GECC’s books
  relative to the Loans; all proceeds of the foregoing

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Arctic Cat Sales Inc.

  	
   

  	
  Monogram
  Credit Card Bank of Georgia

  	
   

  	
  1944142

  	
   

  	
  05/23/97

  	
   

  	
  All Accounts and
  Indebtedness; all deposits, credit balances and reserves on Monogram’s books
  relative to any Accounts; and all proceeds of the foregoing

  

 

The above financing statements for General Electric Capital Corporation
and Monogram Credit Card Bank of Georgia were filed in connection with dealer
finance arrangements that have been terminated. 
The Borrower is diligently working to have those financing statements
terminated of record.

 

 

Schedule 6.1

 

Permitted Liens

 

Security Interest of City of
St. Cloud, Minnesota in equipment located in Borrower’s St. Cloud, Minnesota
manufacturing plant to secure indebtedness owed to the City of St. Cloud
described in Schedule 6.2.

 

 

Schedule 6.2

 

Permitted Indebtedness

 

Indebtedness
in the original amount of $500,000.00 (current balance of $346,667.00) to City
of St. Cloud, Minnesota under that certain Agreement for Loan of
Minnesota Investment Fund dated as of March 30, 2006, in connection with
Borrower’s participation in the State of Minnesota’s Job Opportunity Building Zones (“JOBZ”)
program

 

 

Schedule 6.3

 

Permitted Guaranties

 

None.Exhibit 10.1

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (the “Agreement”) dated as of August 28, 2008 (the “Effective
Date”), by and between Extra Space Storage Inc. (“REIT”) and Extra Space
Storage LP, with their principal place of business at 2795 East Cottonwood
Parkway, Suite 400, Salt Lake City, Utah 84121 (the “Operating Partnership”),
and Kenneth M. Woolley, residing at the address set forth on the signature page hereof
(the “Executive”).

 

WHEREAS, the REIT and Executive are parties
to an Employment Agreement dated July 27, 2004 (the “Prior Agreement”);

 

WHEREAS, Executive has been providing
services to both the REIT and the Operating Partnership (collectively the “Company”)
as an employee; and

 

WHEREAS, the Company wishes to continue employing
the Executive, and the Executive wishes to continue to be employed, on the
terms set forth below:

 

Accordingly, the parties hereto agree as
follows:

 

1.                                      Term. The Company hereby agrees to
continue employing the Executive for an initial term (the “Initial Term”) commencing
as of the date hereof and continuing for a three-year period, unless sooner
terminated in accordance with the provisions of Section 4 or Section 5;
provided, however, upon the expiration of the Initial Term, such employment will
continue for successive one-year periods in accordance with the terms of this
Agreement (subject to termination as aforesaid) unless either party notifies
the other party of non-renewal in writing prior to 90 days before the
expiration of the Initial Term and each subsequent annual renewal, as
applicable (the period during which the Executive is employed hereunder being
hereinafter referred to as the “Term”).

 

2.                                      Duties. During the Term, the Executive
shall be employed by the Company as Chief Executive Officer and, as such, the
Executive shall faithfully perform the duties of such offices and shall perform
such other duties of an executive, managerial or administrative nature as shall
be specified and designated from time to time by the Board (including, without 

 

 

limitation, the
performance of duties for affiliates and subsidiaries of the Company). During
the Term Executive shall also serve as the Chairman of the Board of the REIT. Excluding
any periods of vacation and or other leave to which the Executive is entitled,
the Executive shall devote substantially all of his business time and effort to
the performance of his duties hereunder; provided that in no event shall this
sentence prohibit the Executive from performing personal and charitable
activities, and any other business interests as may be approved by the Board. It
is expressly understood and agreed that to the extent that any such activities
have been conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Effective Date shall not thereafter be deemed
to interfere with the performance of the Executive’s responsibilities to the
Company; provided that no such activity that violates any written
non-competition agreement between the parties shall be permitted.

 

3.                                      Compensation.

 

3.1                                 Salary.
The Company shall pay the Executive
during the Term a salary at the rate of $420,000 per annum (the “Annual Salary”),
in accordance with the customary payroll practices of the Company applicable to
senior executives. At least annually, the Company shall review the Executive’s
Annual Salary and may provide for increases therein as it may in its discretion
deem appropriate. Any increase in Annual Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. The Annual
Salary shall not be reduced after any such increase and the term “Annual Salary”
as utilized in this Agreement shall refer to such salary as so increased.

 

3.2                                Bonus. During the Term, in addition to
the Annual Salary, for each fiscal year of the Company ending during the Term,
the Executive shall have the opportunity to earn an annual bonus in an amount
to be determined by the Company under the Company’s bonus plan or plans
applicable to senior executives (“Annual Bonus”). At least annually, the
Company shall review the Executive’s Annual Bonus and may provide for changes
therein as it may in its discretion deem appropriate; provided, however, that
the Executive’s total cash compensation opportunity, being the sum of the
Annual Bonus (based on target bonus opportunity and not actual performance
results) and Annual Salary shall not be reduced from the prior year.

 

2

 

3.3                                Benefits - In General. The Executive shall be permitted
during the Term to participate in any group life, hospitalization or disability
insurance plans, health programs, equity compensation plans, retirement plans,
fringe benefit programs and similar benefits that may be available to other
senior executives of the Company generally, on the same terms as such other
executives, in each case to the extent that the Executive is eligible under the
terms of such plans or programs.

 

3.4                                Expenses. The Company shall pay or reimburse
the Executive for all ordinary and reasonable out-of-pocket expenses actually
incurred (and, in the case of reimbursement, paid) by the Executive during the
Term in the performance of the Executive’s services under this Agreement in
accordance with the policies, practices and procedures of the Company. All such
reimbursements shall be made no later than December 31 of the year
following the year in which the expense was incurred. The amount of
reimbursements provided in one year shall not affect the amounts provided in
any subsequent year. Such reimbursements shall not be subject to liquidation or
exchange for another benefit.

 

4.                                      Termination upon Death or Disability. If the Executive dies during the
Term, the Term shall terminate as of the date of death, and the obligations of
the Company to or with respect to the Executive shall terminate in their
entirety upon such date except as otherwise provided under this Section 4.
If the Executive by virtue of ill health or other disability is unable to
perform substantially and continuously the duties assigned to him for more than
180 consecutive or non-consecutive days out of any consecutive 12-month period,
the Company shall have the right, to the extent permitted by law, to terminate
the employment of the Executive upon notice in writing to the Executive. Upon
termination of employment due to death or disability, (i) the Executive
(or the Executive’s estate or beneficiaries in the case of the death of the
Executive) shall be entitled to receive any Annual Salary and other benefits
earned and accrued under this Agreement prior to the date of termination (including
any earned but unpaid bonus and reimbursement under this Agreement for expenses
incurred prior to the date of termination) (the “Accrued Obligations”), and (ii) except
as otherwise required under applicable law or the Company’s benefit plans Executive
(or, in the event of his death, his estate and beneficiaries) shall have no
further rights to any other compensation or benefits hereunder on or after the
termination of employment, or any other rights hereunder.

 

3

 

5.                                      Certain Terminations of Employment.

 

5.1                                Termination by the Company for Cause;
Termination by the Executive without Good Reason.

 

(a)                                 For purposes of this Agreement, “Cause”
shall mean the Executive’s:

 

(i)                                    commission of and indictment for, or
formal admission to, a felony, a crime of moral turpitude, dishonesty, breach
of trust or unethical business conduct, or any crime involving the Company;

 

(ii)                                 engagement in the performance of his
duties hereunder, or otherwise to the material and demonstrable detriment of
the Company, in willful misconduct, willful or gross neglect, fraud,
misappropriation or embezzlement;

 

(iii)                              repeated failure to adhere to the
directions of the Board, to adhere to the Company’s policies and practices or
to devote substantially all of his business time and efforts to the Company;

 

(iv)                             willful and continued failure to
substantially perform his duties properly assigned to him (other than any such
failure resulting from his disability) after demand for substantial performance
is delivered by the Company specifically identifying the manner in which the
Company believes the Executive has not substantially performed such duties;

 

(v)                                breach of any of the provisions of Section 7;
or

 

(vi)                             breach in any material respect of
the terms and provisions of this Agreement and failure to cure such breach
within 21 days following written notice from the Company specifying such
breach;

 

provided that the Company shall not be
permitted to terminate the Executive for Cause except on written notice given
to the Executive at any time following the occurrence of any of the events
described in clauses (i), (ii) or (v) above and on written notice
given to the Executive at any time not more than 30 days following the
occurrence of any of the events described in clause (iii), (iv) or (vi) above
(or, if later, the Company’s knowledge thereof). No termination for Cause shall
be effective unless the Board makes a Cause determination after notice to the
Executive and the Executive has been provided with the 

 

4

 

opportunity (with counsel of his choice) to
contest the determination at a meeting of the Board.

 

(b)                                The Company may terminate the
Executive’s employment hereunder for Cause, and the Executive may terminate his
employment on at least 30 days’ and not more than 60 days’ written notice given
to the Company. If the Company terminates the Executive for Cause, or the
Executive terminates his employment and the termination by the Executive is not
for Good Reason in accordance with Section 5.2, (i) the Executive
shall receive the Accrued Obligations; and (ii) except as otherwise
required under applicable law or the Company’s benefit plans, the Executive
shall have no further rights to any other compensation or benefits hereunder on
or after the termination of employment, or any other rights hereunder.

 

5.2                                Termination by the Company without
Cause; Termination by the Executive for Good Reason.

 

(a)                                 For purposes of this Agreement, “Good
Reason” shall mean, unless otherwise consented to by the Executive,

 

(i)                                    the material reduction of the
Executive’s authority, duties and responsibilities, or the assignment to the
Executive of duties materially inconsistent with the Executive’s position or
positions with the Company;

 

(ii)                                 a material reduction in Annual
Salary of the Executive;

 

(iii)                              the relocation of the Executive’s
office to more than 100 miles from Salt
Lake City, Utah; or

 

(iv)                             the Company’s material and willful
breach of this Agreement.

 

Notwithstanding the foregoing, (A) Good
Reason shall not be deemed to exist unless notice of termination on account
thereof (specifying a termination date no later than 30 days from the date of
such notice) is given no later than 30 days after the time at which the event
or condition purportedly giving rise to Good Reason first occurs or arises and (B) if
there exists (without regard to this clause (B)) an event or condition that
constitutes Good Reason, the Company shall have 30 days from the date notice of
such a termination is given to cure such 

 

5

 

event or condition and, if the Company does
so, such event or condition shall not constitute Good Reason hereunder.

 

(b)                                During the Term, the Company may
terminate the Executive’s employment at any time without Cause and not pursuant
to Section 4, or the Executive terminates his employment with the Company
for Good Reason, then subject to Section 5.3 below, and in addition to the
Accrued Obligations, the Executive shall receive:

 

(i)                                    a lump sum cash payment equal to two
times the sum of (A) the Executive’s Annual Salary (as in effect on the
effective date of such termination); and (B) an amount equal to the
greater of  the Annual Bonus received by
the Executive in the preceding year or the average Annual Bonus received by the
Executive in the three years prior to the termination;

 

(ii)                                 a lump sum cash payment equal to the
sum of (A) the cost of continuing health benefits (including any medical,
vision or dental benefits), under the Company’s group health plans pursuant to Section 4980B
of the Internal Revenue Code of 1986, as amended (the “Code”) or similar state
law (“COBRA”) for a period of twenty-four months, based on the COBRA cost at
the time of termination, plus (B) an amount equal to the taxes payable by
the Executive on the amount determined under (A), so that on an after tax
basis, Executive shall receive the amount equal to the COBRA premiums for a
period of twenty-four months after Executive’s termination of employment based
on the COBRA rate in effect at the time of termination;

 

(iii)                              the Executive shall vest in all
outstanding unvested equity-based awards (including stock options and
restricted stock) and such unvested equity-based awards shall become
immediately exercisable and unrestricted and shall otherwise remain outstanding
in accordance with their terms;

 

(iv)                             the Executive shall become vested in
any pension or other deferred compensation other than pension or deferred
compensation under a plan intended to be qualified under Section 401(a) of
the Code;

 

(v)                                the Company shall provide Executive
with outplacement services for a period of six months following termination of
employment; and

 

(vi)                             except as otherwise required under
applicable law or the Company’s benefit plans, the Executive shall have no
further rights 

 

6

 

to any other
compensation or benefits hereunder on or after the termination of employment,
or any other rights hereunder.

 

5.3                                Release and
Timing of Payment. Executive’s rights to receive the
payments and benefits under Section 5.2(b)(i), (ii), (iii), (iv) and (v) shall
be subject to Executive’s execution, delivery and not revoking a release of
claims and covenant not to sue, in such form as the Company may reasonably
request (the “Release”), within sixty days following the Executive’s termination
of employment. Payment of the amount required under Section 5.2(b)(i) shall
be made in a lump-sum within fifteen days following the effective date of the
Release, but in no event later than seventy-five days following the Executive’s
termination of employment. Notwithstanding any provision herein to the
contrary, the post-termination payments and benefits provided to Executive
under Section 5.2 shall be paid only upon Employee’s “separation from
service” as defined in Treasury Regulation Section 1.409A-1(h). Notwithstanding
the foregoing, the timing of the severance payments under Section 5.2 are subject
to the provisions of Section 8.17, to the extent applicable.

 

5.4                                No
Restrictions on Change. Nothing herein shall restrict the
ability of the Company to amend or terminate the plans and programs referred to
in Section 5.2(b)(ii) from time to time in its sole discretion, and
the Company shall in no event be required to provide any benefits otherwise
required by Section 5.2(b)(ii) after such time as the Executive
becomes entitled to receive benefits of the same type from another employer or
recipient of the Executive’s services (such entitlement being determined
without regard to any individual waivers or other similar arrangements).

 

6.                                      Change in Control. In the event that during the Term,
a “Change in Control” (as defined in the 2004 Long Term Incentive Compensation
Plan as in effect on the date hereof) occurs then:

 

(a)                                 The Company shall pay Executive a bonus
equal the Annual Bonus Executive would have received during the year of the
Change in Control based on performance results through the date of the Change
in Control annualized, and multiplied by a fraction the denominator of which is
the 365 and the numerator is the number of days in the year elapsed through the
date of the Change in Control. Such bonus shall be 

 

7

 

payable in a lump sum on the first business
day of the month following the Change in Control; and

 

(b)                                Executive may terminate his employment with the Company for any
reason within the six-month period following a Change in Control and such
termination will be treated as a “Good Reason” termination entitling Executive
to the severance and other benefits under Section 5.2(b).

 

7.                                      Covenants of the Executive.

 

7.1                                Covenant Against Competition; Other
Covenants. The
Executive acknowledges that (i) the principal business of the Company
(which expressly includes for purposes of this Section 7 (and any related
enforcement provisions hereof), its successors and assigns) is the development,
acquisition, operation, management or investment in self-storage facilities
(such businesses, and any and all other businesses that after the date hereof,
and from time to time during the Term, become material with respect to the
Company’s then-overall business, herein being collectively referred to as the “Business”);
(ii) the Company is one of the limited number of entities which have
developed such a business; (iii) the Company’s Business is, in part,
national in scope; (iv) the Executive’s work for the Company has given and
will continue to give him access to the confidential affairs and proprietary
information of the Company; (v) the covenants and agreements of the
Executive contained in this Section 7 are essential to the business and
goodwill of the Company; and (vi) the Company would not have entered into
this Agreement but for the covenants and agreements set forth in this Section 7.
Accordingly, the Executive covenants and agrees that:

 

(a)                                 By and in consideration of the
salary and benefits to be provided by the Company hereunder, including the
severance and bonus arrangements set forth herein, and further in consideration
of the Executive’s exposure to the proprietary information of the Company, the
Executive covenants and agrees that during the Term and such other time as the
Executive remains employed in the service of the Company, he shall not engage
in the Restricted Activities (as defined below) (i) engage in any element of
the Business (other than for the Company or its affiliates) or otherwise
compete with the Company or its affiliates, (ii) render any services to
any person, corporation, partnership 

 

8

 

or other entity (other than the Company or
its affiliates) engaged in any element of the Business, or (iii) become
interested in any such person, corporation, partnership or other entity (other
than the Company or its affiliates) as a partner, shareholder, principal,
agent, employee, consultant or in any other relationship or capacity (such
activities set forth in clauses (i) through (iii) above collectively
referred to as the “Restricted Activities”); provided, however, that,
notwithstanding the foregoing, (A) the restrictions set forth in this Section 7
shall not limit the Executive’s involvement or activities with respect to Extra
Space Pico Riviera, and (B) the Executive may  invest in securities of any entity, solely for
investment purposes and without participating in the business thereof, if (1) such
securities are traded on any national securities exchange or the National
Association of Securities Dealers, Inc. Automated Quotation System, (2) the
Executive is not a controlling person of, or a member of a group which
controls, such entity and (3) the Executive does not, directly or
indirectly, own 5% or more of any class of securities of such entity.

 

(b)                                At all times during the Term and
thereafter, the Executive shall keep secret and retain in strictest confidence,
and shall not use for his benefit or the benefit of others, except in
connection with the business and affairs of the Company and its affiliates, all
confidential matters relating to the Company’s Business and the business of any
of its affiliates and to the Company and any of its affiliates, learned by the
Executive heretofore or hereafter directly or indirectly from the Company or
any of its affiliates (the “Confidential Company Information”),  and shall not disclose such Confidential
Company Information to anyone outside of the Company except with the Company’s
express written consent and except for Confidential Company Information which
is at the time of receipt or thereafter becomes publicly known through no
wrongful act of the Executive or is received from a third party not under an
obligation to keep such information confidential and without breach of this
Agreement

 

(c)                                 During the Term and for the one year
period after termination of the Executive’s employment, the Executive shall
not, without the Company’s prior written consent, directly or indirectly,
solicit or encourage to leave the employment or other 

 

9

 

service of the Company, or any of its
affiliates, any employee or independent contractor thereof.

 

(d)                                During the Term and except as required
by law, the Executive shall not publish any statement or make any statement
under circumstances reasonably likely to become public that is critical of the
Company or any of its affiliates, or in any way adversely affecting or
otherwise maligning the Business or reputation of the Company or any of its
affiliates.

 

(e)                                 All memoranda, notes, lists,
records, property and any other tangible product and documents (and all copies
thereof), whether visually perceptible, machine-readable or otherwise, made, produced
or compiled by the Executive or made available to the Executive concerning the
business of the Company or its affiliates, (i) shall at all times be the
property of the Company (and, as applicable, any affiliates) and shall be
delivered to the Company at any time upon its request, and (ii) upon the
Executive’s termination of employment, shall be immediately returned to the
Company.

 

7.2                                Rights and Remedies upon Breach.

 

(a)                                 The Executive acknowledges and
agrees that any breach by him of any of the provisions of Section 7.1 (the
“Restrictive Covenants”) would result in irreparable injury and damage for
which money damages would not provide an adequate remedy. Therefore, if the
Executive breaches, or threatens to commit a breach of, any of the provisions
of Section 7.1, the Company and its affiliates shall have the following
rights and remedies, each of which rights and remedies shall be independent of
the other and severally enforceable, and all of which rights and remedies shall
be in addition to, and not in lieu of, any other rights and remedies available
to the Company and its affiliates under law or in equity (including, without
limitation, the recovery of damages), shall have the right and remedy to have
the Restrictive Covenants specifically enforced (without posting bond and
without the need to prove damages) by any court having equity jurisdiction,
including, without limitation, the right to an entry against the Executive of
restraining orders and injunctions (preliminary, mandatory, temporary and permanent)
against violations, threatened or actual, and whether or not then continuing,
of such covenants.

 

10

 

(b)                                The Executive agrees that in any
action seeking specific performance or other equitable relief, he will not
assert or contend that any of the provisions of this Section 7 are
unreasonable or otherwise unenforceable. The existence of any claim or cause of
action by the Executive, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement of the Restrictive Covenants.

 

8.                                      Other Provisions.

 

8.1                                Severability. The Executive acknowledges and
agrees that (i) he has had an opportunity to seek advice of counsel in
connection with this Agreement and (ii) the Restrictive Covenants are
reasonable in geographical and temporal scope and in all other respects. If it
is determined that any of the provisions of this Agreement, including, without
limitation, any of the Restrictive Covenants, or any part thereof, is invalid
or unenforceable, the remainder of the provisions of this Agreement shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.

 

8.2                                Duration and Scope of Covenants. If any court or other
decision-maker of competent jurisdiction determines that any of the Executive’s
covenants contained in this Agreement, including, without limitation, any of
the Restrictive Covenants, or any part thereof, is unenforceable because of the
duration or geographical scope of such provision, then, after such
determination has become final and unappealable, the duration or scope of such
provision, as the case may be, shall be reduced so that such provision becomes
enforceable and, in its reduced form, such provision shall then be enforceable
and shall be enforced.

 

8.3                                Enforceability; Jurisdiction;
Arbitration.

 

(a)                                 The Company and the Executive intend
to and hereby confer jurisdiction to enforce the Restrictive Covenants set
forth in Section 7 upon the courts of any jurisdiction within the
geographical scope of the Restrictive Covenants. If the courts of any one or
more of such jurisdictions hold the Restrictive Covenants wholly unenforceable
by reason of breadth of scope or otherwise it is the intention of the Company
and the Executive that such determination not bar or in any way affect the
Company’s right, or the right of any of its affiliates, to the relief provided
above in the 

 

11

 

courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants, as to breaches of such
Restrictive Covenants in such other respective jurisdictions, such Restrictive
Covenants as they relate to each jurisdiction’s being, for this purpose,
severable, diverse and independent covenants, subject, where appropriate, to
the doctrine of res  judicata. The parties hereby agree to waive
any right to a trial by jury for any and all disputes hereunder (whether or not
relating to the Restricted Covenants).

 

(b)                                Any controversy or claim arising out
of or relating to this Agreement or the breach of this Agreement (other than a
controversy or claim arising under Section 7, to the extent necessary for the
Company (or its affiliates, where applicable) to avail itself of the rights and
remedies referred to in Section 7.2) that is not resolved by the Executive and
the Company (or its affiliates, where applicable) shall be submitted to
arbitration in Salt Lake City, Utah in accordance with Utah law and the
procedures of the American Arbitration Association. The determination of the
arbitrator(s) shall be conclusive and binding on the Company (or its
affiliates, where applicable) and the Executive and judgment may be entered on
the arbitrator(s)’ award in any court having jurisdiction.

 

8.4                                Notices. Any notice or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally, sent by electronic mail or facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any such notice shall
be deemed given when so delivered personally, receipt is confirmed if sent by electronic
mail or facsimile transmission or, if mailed, five days after the date of
deposit in the United States mails as follows:

 

(i)                                    If to the Company, to:

 

Extra Space
Storage Inc.

2795 East Cottonwood Parkway, Suite 400

Salt Lake City, Utah 84121

Attention:  Sr. Vice-President, Human
Resources

 

(ii)                                 If to the Executive, to at the
address set forth on the signature page hereof.

 

Any such person may by notice given in
accordance with this Section 8.4 to the other parties hereto designate
another address or person for receipt by such person of notices hereunder.

 

12

 

8.5                                Entire Agreement. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto,
including the Prior Agreement.

 

8.6                                Waivers and Amendments. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the parties or, in the case of a waiver,
by the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any such right, power
or privilege nor any single or partial exercise of any such right, power or
privilege, preclude any other or further exercise thereof or the exercise of any
other such right, power or privilege.

 

8.7                                GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF UTAH WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

 

8.8                                Assignment. This Agreement, and the Executive’s
rights and obligations hereunder, may not be assigned by the Executive; any
purported assignment by the Executive in violation hereof shall be null and
void. In the event of any sale, transfer or other disposition of all or
substantially all of the Company’s assets or business, whether by merger,
consolidation or otherwise, the Company may assign this Agreement and its
rights hereunder.

 

8.9                                Withholding. The Company shall be entitled to
withhold from any payments or deemed payments any amount of tax withholding it
determines to be required by law.

 

8.10                          No Duty to Mitigate. The Executive shall not be
required to mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, nor will any payments
hereunder be subject to offset in the event the Executive does mitigate.

 

13

 

8.11                          Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors,
permitted assigns, heirs, executors and legal representatives.

 

8.12                          Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original but all such counterparts together shall
constitute one and the same instrument. Each counterpart may consist of two
copies hereof each signed by one of the parties hereto.

 

8.13                          Survival. Anything contained in this
Agreement to the contrary notwithstanding, the provisions of Sections 7, 8.3
and 8.9, and the other provisions of this Section 8 (to the extent
necessary to effectuate the survival of Sections 7, 8.3 and 8.9), shall survive
termination of this Agreement and any termination of the Executive’s employment
hereunder.

 

8.14                          Existing Agreements. The Executive represents to the
Company that he is not subject or a party to any employment or consulting
agreement, non-competition covenant or other agreement, covenant or
understanding which might prohibit him from executing this Agreement or limit
his ability to fulfill his responsibilities hereunder.

 

8.15                          Headings. The headings in this Agreement are
for reference only and shall not affect the interpretation of this Agreement.

 

8.16                          Parachutes. If any amount payable to or other
benefit receivable by the Executive pursuant to this Agreement is deemed to
constitute a Parachute Payment (as defined below), alone or when added to any
other amount payable or paid to or other benefit receivable or received by the
Executive which is deemed to constitute a Parachute Payment (whether or not
under an existing plan, arrangement or other agreement), and would result in
the imposition on the Executive of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended (the “Code”), then, in addition to
any other benefits to which the Executive is entitled under this Agreement, the
Executive shall be paid by the Company an amount in cash equal to the sum of
the excise taxes payable by the Executive by reason of receiving Parachute
Payments plus the amount necessary to put the Executive in the same after-tax
position (taking into account 

 

14

 

any and all
applicable federal, state and local excise, income or other taxes assuming tax at
the highest applicable rates on such Parachute Payments and on any payments
under this Section 8.16) as if no excise taxes had been imposed with
respect to Parachute Payments. “Parachute Payment” shall mean a “parachute
payment” as defined in Section 280G of the Code. The amount of any payment
under this Section 8.16 shall be computed by a certified public accounting
firm selected by the Company and reasonably acceptable to the Executive using
reasonable assumptions and good faith interpretations of the Code, subject to
the last sentence of this Section 8.16. Notwithstanding any other
provision of this Section 8.16, if a reduction in Parachute Payments by
10% or less would cause there not to be excise taxes imposed upon the Executive
under Section 4999 of the Code (as determined by the accounting firm
referred to above, but subject to the last sentence of this Section 8.16),
then (i) no payments shall be made to the Executive under the foregoing
provisions of this Section 8.16, and (ii) the payments and benefits
provided under this Agreement shall be reduced to the extent necessary so that
no excise taxes would be imposed upon the Executive. All amounts payable to
Executive under this Section 8.16 shall be paid as soon as practicable
after the event giving rise to payment of the Excise Tax by the Executive, but
no later than the December 31 of the year next following the year in which
the Executive, or the Company on behalf of the Executive, remits the excise
taxes due. In the event that the Internal Revenue Service or a court, as
applicable, finally and in a decision that has become unappealable, decides
that the determinations by the accounting firm under this Section 8.16 are
incorrect, then the parties shall within five business days take such
corrective actions as are necessary to conform to such final decision; provided
that (i) the Executive shall not initiate any proceeding or other contests
regarding these matters, other than at the direction of the Company, and shall
provide notice to the Company of any proceeding or other contest regarding
these matters initiated by the Internal Revenue Service, and (ii) the
Company shall be entitled to direct and control all such proceeding and other
contests, if it commits to and does pay all costs (including without limitation
legal and other professional fees) associated therewith.

 

8.17                          409A. Notwithstanding anything contained
in this Agreement to the Contrary, to the maximum extent permitted by
applicable law, amounts payable to the Executive pursuant to Section 5.2
or 6.2 shall be made in reliance upon Treas. Reg. Section 1.409A-1(b)(9) (Separation
Pay Plans) or Treas. Reg. Section 1.409A-1(b)(4) (Short-Term
Deferrals). However, 

 

15

 

to the extent any
such payments are treated as non-qualified deferred compensation subject to Section 409A
of  the Code, then if Executive is deemed
at the time of his separation from service to be a “specified employee” for
purposes of Section 409A(a)(2)(B)(i) of the Code, then to the extent
delayed commencement of any portion of the benefits to which Executive is
entitled under this Agreement is required in order to avoid a prohibited
distribution under Section 409A(a)(2)(B)(i) of the Code, such portion
of Executive’s termination benefits shall not be provided to Executive prior to
the earlier of (A) the expiration of the six-month period measured from
the date of the Executive’s “separation from service” or (B) the date of
Executive’s death. Upon the earlier of such dates, all payments deferred
pursuant to this Section 8.17 shall be paid in a lump sum to Executive. The
determination of whether the Executive is a “specified employee” for purposes
of Section 409A(a)(2)(B)(i) of the Code as of the time of his
separation from service shall made by the Company in accordance with the terms
of Section 409A of the Code and applicable guidance thereunder (including
without limitation Treas. Reg. Section 1.409A-1(i) and any successor
provision thereto).

 

IN WITNESS WHEREOF, the parties hereto have signed
their names as of the day and year first above written.

 

	
   

  	
  EXTRA SPACE STORAGE INC.

  
	
   

  	
  EXTRA SPACE STORAGE LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles L. Allen

  
	
   

  	
  Name:

  	
  Charles L. Allen

  
	
   

  	
  Title:

  	
  Chief Legal Officer and Executive Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  Executive:

  
	
   

  	
   

  
	
   

  	
  /s/ Kenneth M. Woolley

  
	
   

  	
   

  
	
   

  	
  Kenneth M. Wool1ey

  
				

 

16

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