Exhibit 10.2

 

EXECUTION

 

LOAN AND SECURITY AGREEMENT

 

by and among

 

MERIX CORPORATION

MERIX SAN JOSE, INC.

as Borrowers

 

and

 

MERIX NEVADA, INC.

MERIX ASIA, INC.

and

DATA CIRCUIT HOLDINGS, INC.

as Guarantors

 

THE LENDERS AND ISSUING BANK FROM TIME TO TIME PARTY HERETO

 

WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN)

as Administrative Agent

 

BANK OF AMERICA, N.A.

as Syndication Agent

 

WACHOVIA CAPITAL MARKETS, LLC

as Sole Lead Arranger, Manager and Bookrunner

 

Dated: September 28, 2005

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TABLE OF CONTENTS

 

SECTION 1. DEFINITIONS

   1

1.2

   1

SECTION 2. CREDIT FACILITIES

   29

2.1 Loans.

   29

2.2 Letters of Credit.

   29

2.3 Term Loans.

   33

2.4 Commitments.

   33

SECTION 3. INTEREST AND FEES

   33

3.1 Interest.

   33

3.2 Fees.

   35

3.3 Changes in Laws and Increased Costs of Loans.

   36

SECTION 4. CONDITIONS PRECEDENT

   38

4.1 Conditions Precedent to Initial Loans and Letters of Credit.

   38

4.2 Conditions Precedent to All Loans and Letters of Credit.

   40

SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST

   41

5.1 Grant of Security Interest.

   41

5.2 Perfection of Security Interests.

   42

SECTION 6. COLLECTION AND ADMINISTRATION

   46

6.1 Borrowers’ Loan Accounts.

   46

6.2 Statements.

   46

6.3 Collection of Accounts; Cash Management.

   46

6.4 Payments.

   48

6.5 Taxes.

   49

6.6 Authorization to Make Loans.

   51

6.7 Use of Proceeds.

   51

6.8 Appointment of Administrative Borrower as Agent for Requesting Loans and
Receipts of Loans and Statements.

   52

6.9 Pro Rata Treatment.

   52

6.10 Sharing of Payments, Etc.

   53

6.11 Settlement Procedures.

   54

6.12 Obligations Several; Independent Nature of Lenders’ Rights.

   56

6.13 Bank Products.

   56

 

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SECTION 7. COLLATERAL REPORTING AND COVENANTS

   56

7.1 Collateral Reporting.

   56

7.2 Accounts Covenants.

   57

7.3 Inventory Covenants.

   58

7.4 Equipment and Real Property Covenants.

   59

7.5 Power of Attorney.

   59

7.6 Right to Cure.

   60

7.7 Access to Premises.

   61

SECTION 8. REPRESENTATIONS AND WARRANTIES

   61

8.1 Corporate Existence, Power and Authority.

   61

8.2 Name; State of Organization; Chief Executive Office; Collateral Locations.

   62

8.3 Financial Statements; No Material Adverse Change.

   62

8.4 Priority of Liens; Title to Properties.

   63

8.5 Tax Returns.

   63

8.6 Litigation.

   63

8.7 Compliance with Other Agreements and Applicable Laws.

   63

8.8 Environmental Compliance.

   64

8.9 Employee Benefits.

   65

8.10 Bank Accounts.

   65

8.11 Intellectual Property.

   65

8.12 Subsidiaries; Affiliates; Capitalization; Solvency.

   66

8.13 Labor Disputes.

   67

8.14 Restrictions on Subsidiaries.

   67

8.15 Material Contracts.

   67

8.16 Payable Practices.

   68

8.17 Accuracy and Completeness of Information.

   68

8.18 Survival of Warranties; Cumulative.

   68

SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS

   68

9.1 Maintenance of Existence.

   68

9.2 New Collateral Locations.

   69

9.3 Compliance with Laws, Regulations, Etc.

   69

9.4 Payment of Taxes and Claims.

   70

9.5 Insurance.

   70

9.6 Financial Statements and Other Information.

   72

9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.

   73

9.8 Encumbrances.

   78

9.9 Indebtedness.

   79

9.10 Loans, Investments, Etc.

   84

9.11 Dividends and Redemptions.

   87

9.12 Transactions with Affiliates.

   88

9.13 Compliance with ERISA.

   88

9.14 End of Fiscal Years; Fiscal Quarters.

   88

9.15 Change in Business.

   88

9.16 Limitation of Restrictions Affecting Subsidiaries.

   89

 

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9.17 Fixed Charge Coverage Ratio.

   89

9.18 License Agreements.

   89

9.19 Foreign Assets Control Regulations, Etc.

   90

9.20 After Acquired Real Property.

   91

9.21 Merix B.V.

   91

9.22 Costs and Expenses.

   92

9.23 Further Assurances.

   92

SECTION 10. EVENTS OF DEFAULT AND REMEDIES

   93

10.1 Events of Default.

   93

10.2 Remedies.

   95

SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

   98

11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.

   98

11.2 Waiver of Notices.

   100

11.3 Amendments and Waivers.

   100

11.4 Waiver of Counterclaims.

   102

11.5 Indemnification.

   102

SECTION 12. THE AGENT

   103

12.1 Appointment, Powers and Immunities.

   103

12.2 Reliance by Agent.

   104

12.3 Events of Default.

   104

12.4 Wachovia in its Individual Capacity.

   105

12.5 Indemnification.

   105

12.6 Non-Reliance on Agent and Other Lenders.

   105

12.7 Failure to Act.

   106

12.8 Additional Loans.

   106

12.9 Concerning the Collateral and the Related Financing Agreements.

   106

12.10 Field Audit, Examination Reports and other Information; Disclaimer by
Lenders.

   106

12.11 Collateral Matters.

   107

12.12 Agency for Perfection.

   109

12.13 Successor Agent.

   109

12.14 Other Agent Designations.

   109

SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS

   110

13.1 Term.

   110

13.2 Interpretative Provisions.

   111

13.3 Notices.

   112

13.4 Partial Invalidity.

   113

13.5 Confidentiality.

   114

13.6 Successors.

   115

13.7 Assignments; Participations.

   115

13.8 Entire Agreement.

   117

13.9 USA Patriot Act.

   117

13.10 Counterparts, Etc.

   117

 

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INDEX

TO

EXHIBITS AND SCHEDULES

 

Exhibit A    Form of Assignment and Acceptance Exhibit B    Form of Borrowing
Base Certificate Exhibit C    Information Certificate Exhibit D    Form of
Compliance Certificate Schedule 1.42    Merix Purchasers under EPC Acquisition
Documents Schedule 1.43    EPC Acquisition Documents Schedule 1.44    EPC
Companies Schedule 1.107    Investment Accounts for Qualified Cash Schedule 9.14
   Fiscal Month End Dates

 

iv

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LOAN AND SECURITY AGREEMENT

 

This Loan and Security Agreement dated September 28, 2005 is entered into by and
among Merix Corporation, an Oregon corporation (“Parent”) and Merix San Jose,
Inc., a California corporation (“Merix San Jose” and together with Parent, each
individually a “Borrower” and collectively, “Borrowers” as hereinafter further
defined), Merix Nevada, Inc., an Oregon corporation (“Nevada”), Merix Asia,
Inc., an Oregon corporation (“Asia”), Data Circuit Holdings, Inc., a Delaware
corporation (“DC Holdings”, and together with Nevada and Asia, each individually
a “Guarantor” and collectively, “Guarantors” as hereinafter further defined),
the parties hereto from time to time as lenders, whether by execution of this
Agreement or an Assignment and Acceptance (each individually, a “Lender” and
collectively, “Lenders” as hereinafter further defined), Bank of America, N.A.,
in its capacity as syndication agent (in such capacity, “Syndication Agent”) and
Wachovia Capital Finance Corporation (Western), a California corporation, in its
capacity as administrative and collateral agent for Lenders (in such capacity,
“Agent” as hereinafter further defined).

 

W I T N E S S E T H:

 

WHEREAS, Borrowers and Guarantors have requested that Agent and Lenders enter
into financing arrangements with Borrowers pursuant to which Lenders may make
loans and provide other financial accommodations to Borrowers; and

 

WHEREAS, each Lender is willing to agree (severally and not jointly) to make
such loans and provide such financial accommodations to Borrowers on a pro rata
basis according to its Commitment (as defined below) on the terms and conditions
set forth herein and Agent is willing to act as agent for Lenders on the terms
and conditions set forth herein and the other Financing Agreements;

 

NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

 

SECTION 1. DEFINITIONS

 

For purposes of this Agreement, the following terms shall have the respective
meanings given to them below:

 

1.1 “Accounts” shall mean, as to each Borrower and Guarantor, all present and
future rights of such Borrower and Guarantor to payment of a monetary
obligation, whether or not earned by performance, which is not evidenced by
chattel paper or an instrument, (a) for property that has been or is to be sold,
leased, licensed, assigned, or otherwise disposed of, (b) for services rendered
or to be rendered, (c) for a secondary obligation incurred or to be incurred, or
(d) arising out of the use of a credit or charge card or information contained
on or for use with the card.

 

1.2 “Adjusted Eurodollar Rate” shall mean, with respect to each Interest Period
for any Eurodollar Rate Loan comprising part of the same borrowing (including
conversions, extensions and renewals), the rate per annum determined by dividing
(a) the London Interbank Offered Rate

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for such Interest Period by (b) a percentage equal to: (i) one (1) minus
(ii) the Reserve Percentage. For purposes hereof, “Reserve Percentage” shall
mean for any day, that percentage (expressed as a decimal) which is in effect
from time to time under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor), as such regulation may be amended from time
to time or any successor regulation, as the maximum reserve requirement
(including, without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as that
term is defined in Regulation D (or against any other category of liabilities
that includes deposits by reference to which the interest rate of Eurodollar
Loans is determined), whether or not any Lender has any Eurocurrency liabilities
subject to such reserve requirement at that time. Eurodollar Loans shall be
deemed to constitute Eurocurrency liabilities and as such shall be deemed
subject to reserve requirements without benefits of credits for proration,
exceptions or offsets that may be available from time to time to a Lender. The
Adjusted Eurodollar Rate shall be adjusted automatically on and as of the
effective date of any change in the Reserve Percentage.

 

1.3 “Administrative Borrower” shall mean Merix Corporation, an Oregon
corporation in its capacity as Administrative Borrower on behalf of itself and
the other Borrowers pursuant to Section 6.8 hereof and it successors and assigns
in such capacity.

 

1.4 “Affiliate” shall mean, with respect to a specified Person, any other Person
which directly or indirectly, through one or more intermediaries, controls or is
controlled by or is under common control with such Person, and without limiting
the generality of the foregoing, includes (a) any Person which beneficially owns
or holds five (5%) percent or more of any class of Voting Stock of such Person
or other equity interests in such Person, (b) any Person of which such Person
beneficially owns or holds five (5%) percent or more of any class of Voting
Stock or in which such Person beneficially owns or holds five (5%) percent or
more of the equity interests and (c) any director or executive officer of such
Person. For the purposes of this definition, the term “control” (including with
correlative meanings, the terms “controlled by” and “under common control
with”), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of Voting Stock, by
agreement or otherwise.

 

1.5 “Agent” shall mean Wachovia Capital Finance Corporation (Western), in its
capacity as agent on behalf of Lenders pursuant to the terms hereof and any
replacement or successor agent hereunder.

 

1.6 “Agent Payment Account” shall mean account no. 5000000030321 of Agent at
Wachovia Bank, National Association, or such other account of Agent as Agent may
from time to time designate to Administrative Borrower as the Agent Payment
Account for purposes of this Agreement and the other Financing Agreements.

 

1.7 “Applicable L/C Rate” shall mean the applicable percentage set forth under
the heading “Applicable L/C Rate” in the table contained in the definition of
“Applicable Margin.”

 

1.8 “Applicable Margin” shall mean, at any time, as to the Interest Rate for
Prime Rate Loans and the Interest Rate for Eurodollar Rate Loans, the applicable
percentage (on a per

 

2

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annum basis) set forth below if the Quarterly Average Excess Availability for
the immediately preceding calendar quarter is at or within the amounts indicated
for such percentage:

    

Quarterly Average

Excess Availability

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   Applicable Margin for
Prime Rate Loans

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    Applicable Margin for
Eurodollar Rate Loans

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    Applicable
L/C Rate

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          Revolving
Loans

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    Term
Loans

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    Revolving
Loans

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    Term
Loans

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Tier 1

   $45,000,000 or greater    0     .25 %   1.75 %   2.25 %   1.75 %

Tier 2

   Less than $45,000,000 and greater than or equal to $30,000,000    0     0.50
%   2.00 %   2.50     2.00 %

Tier 3

   Less than $30,000,000 and greater than or equal to $15,000,000    0.25 %  
0.75 %   2.25 %   2.75 %   2.25 %

Tier 4

   Less than $15,000,000    0.50 %   1.00 %   2.50 %   3.00 %   2.50 %

 

provided, that, (i) the Applicable Margin shall be calculated and established
once each calendar quarter and shall remain in effect until adjusted thereafter
after the end of such calendar quarter, (ii) each adjustment of the Applicable
Margin shall be effective as of the first day of a calendar quarter based on the
Quarterly Average Excess Availability for the immediately preceding calendar
quarter, and (iii) the Applicable Margin until the last day of the second
(2nd) full calendar quarter after the date hereof shall be the amount for Tier 2
set forth above.

 

1.9 “Approved Foreign Account Debtor” shall mean an account debtor in respect of
an Eligible Account approved by Agent (a) with its chief executive office or
principal place of business located outside of the United States of America, the
United Kingdom or Canada, and (b) that is either (i) a direct or indirect
Subsidiary of a corporation organized under the laws of a State of the United
States of America with its chief executive office and principal place of
business within the United States of America, which Agent determines is
satisfactory or (ii) Nokia Corporation and its Subsidiaries or (iii) a
Subsidiary of Celestica Corporation.

 

1.10 “Approved Fund” shall mean, as to any Lender, any Person (other than a
natural person) that is an Eligible Transferee engaged in making, purchasing,
holding or investing in bank loans or similar extensions of credit in the
ordinary course of its business and that is administered or managed by such
Lender, or an Affiliate of such Lender, or an entity or an Affiliate of an
entity that administers or manages such Lender.

 

3

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1.11 “Assignment and Acceptance” shall mean an Assignment and Acceptance
substantially in the form of Exhibit A attached hereto (with blanks
appropriately completed) delivered to Agent in connection with an assignment of
a Lender’s interest hereunder in accordance with the provisions of Section 13.7
hereof.

 

1.12 “Bank Product Provider” shall mean any Lender, Affiliate of any Lender or
other financial institution (in each case as to any Lender, Affiliate or other
financial institution to the extent approved by Agent) that provides any Bank
Products to Borrowers or Guarantors. For purposes hereof, Syndication Agent and
its Affiliates are approved by Agent.

 

1.13 “Bank Products” shall mean any one or more of the following types or
services or facilities provided to a Borrower or Guarantor by Agent or a Bank
Product Provider: (a) credit cards or stored value cards or (b) cash management
or related services, including (i) the automated clearinghouse transfer of funds
for the account of a Borrower pursuant to agreement or overdraft for any
accounts of Borrowers maintained at Agent or any Bank Product Provider that are
subject to the control of Agent pursuant to any Deposit Account Control
Agreement to which Agent, such Affiliate of Agent, Lender or Affiliate of Lender
is a party, as applicable, and (ii) controlled disbursement services and
(iii) Hedge Agreements if and to the extent permitted hereunder. Any of the
foregoing shall only be included in the definition of the term “Bank Products”
to the extent that the Lender, its Affiliate or the other financial institution
has been approved by Agent. For purposes hereof, Syndication Agent and its
Affiliates are approved by Agent.

 

1.14 “Blocked Accounts” shall have the meaning set forth in Section 6.3 hereof.

 

1.15 “Borrowers” shall mean, collectively, the following (together with their
respective successors and assigns): (a) Merix Corporation, an Oregon
corporation; (b) Merix San Jose, Inc., a California corporation; and (c) any
other Person that at any time after the date hereof becomes a Borrower; each
sometimes being referred to herein individually as a “Borrower”.

 

1.16 “Borrowing Base” shall mean, at any time the amount equal to:

 

(a) the sum of:

 

(i) eighty-five (85%) percent of the Eligible Accounts in respect of which the
account debtor is not an Approved Foreign Account Debtor, plus

 

(ii) the lesser of (A) eighty-five (85%) percent of the Eligible Accounts in
respect of which the account debtor is an Approved Foreign Account Debtor, or
(B) $10,000,000 or (C) the amount equal to fifty (50%) percent of the sum of
(1) the amount determined in accordance with clause (a)(i) of this definition
plus (2) the lesser of the amount determined in accordance with clause (ii)(A)
or clause (ii)(B) of this definition, plus

 

(iii) on and after the Inventory Availability Date, the lesser of:

 

(A) the Inventory Loan Limit, or

 

(B) the sum of:

 

4

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(1) the lesser of seventy (70%) percent multiplied by the Value of the Eligible
Finished Goods Inventory or ninety (90%) percent of the Net Recovery Percentage
for such Eligible Inventory multiplied by the Value of such Eligible Inventory,
plus

 

(2) the lesser of thirty-five (35%) percent multiplied by the Value of the
Eligible Inventory of such Borrower consisting of raw materials (other than
Eligible Gold Raw Material Inventory) or ninety (90%) percent of the Net
Recovery Percentage for such Eligible Inventory multiplied by the Value of such
Eligible Inventory, plus

 

(3) the lesser of seventy (70%) percent multiplied by the Value of the Eligible
Gold Raw Material Inventory or ninety (90%) percent of the Net Recovery
Percentage for such Eligible Inventory multiplied by the Value of such Eligible
Inventory,

 

minus

 

(b) Reserves.

 

Notwithstanding anything to the contrary contained herein, in no event shall any
Eligible Inventory be included in the calculation of the Borrowing Base unless
and until the Inventory Availability Date. For purposes only of applying the
Inventory Loan Limit, Agent may treat the then undrawn amounts of outstanding
Letters of Credit for the purpose of purchasing Eligible Inventory as Revolving
Loans to the extent Agent is in effect basing the issuance of the Letter of
Credit on the Value of the Eligible Inventory being purchased with such Letter
of Credit. In determining the actual amounts of such Letter of Credit to be so
treated for purposes of the sublimit, the outstanding Revolving Loans and
Reserves shall be attributed first to any components of the lending formulas set
forth above that are not subject to such sublimit, before being attributed to
the components of the lending formulas subject to such sublimit. The amounts of
Eligible Inventory of a Borrower shall, at Agent’s option, be determined based
on the lesser of the amount of Inventory set forth in the general ledger of such
Borrower or the perpetual inventory record maintained by such Borrower.

 

1.17 “Borrowing Base Certificate” shall mean a certificate substantially in the
form of Exhibit B hereto, as such form may from time to time be modified by
Agent in a manner consistent with the terms of this Agreement, which is duly
completed (including all schedules thereto) and executed by the
vice-president-finance, chief financial officer, treasurer, assistant treasurer,
controller or other financial or senior officer of Administrative Borrower and
delivered to Agent.

 

1.18 “Business Day” shall mean any day other than a Saturday, Sunday, or other
day on which commercial banks are authorized or required to close under the laws
of the State of California, New York or North Carolina, and a day on which Agent
is open for the transaction of business, except that if a determination of a
Business Day shall relate to any Eurodollar Rate Loans, the term Business Day
shall also exclude any day on which banks are closed for dealings in dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market.

 

1.19 “Capital Expenditures” shall mean, with respect to any Person for any
period, the aggregate of all expenditures by such Person and its Subsidiaries
during such period that in accordance with GAAP are or should be included in
“property, plant and equipment” or in a

 

5

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similar fixed asset account on its balance sheet, whether such expenditures are
paid in cash or financed and including that portion of the obligations under
Capital Leases that is capitalized on the balance sheet of such Person during
such period.

 

1.20 “Capital Leases” shall mean, as applied to any Person, any lease of (or any
agreement conveying the right to use) any property (whether real, personal or
mixed) by such Person as lessee which in accordance with GAAP, is required to be
reflected as a liability on the balance sheet of such Person.

 

1.21 “Capital Stock” shall mean, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person’s capital stock or partnership, limited liability company or other equity
interests at any time outstanding, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or other interests (but
excluding any debt security that is exchangeable for or convertible into such
capital stock).

 

1.22 “Cash Dominion Event” shall mean either (a) a Default or Event of Default
shall exist or have occurred and is continuing or (b) the Excess Availability
shall at any time be less than $10,000,000; provided, that,

 

(i) a Cash Dominion Event shall be deemed to be continuing after the occurrence
of either of the foregoing until terminated as provided in clauses (ii) and
(iii) of this definition below,

 

(ii) at any time after Agent has first exercised its right under Section 6.3(c)
hereof to notify the depository banks at which the Blocked Accounts are
maintained to transfer funds in the Blocked Accounts to the Agent Payment
Account after a Cash Dominion Event, in the event that the Excess Availability
is equal to or greater than $10,000,000 for any period of sixty (60) consecutive
days and no Default or Event of Default shall exist or have occurred and be
continuing, then upon the written request of Administrative Borrower, the Cash
Dominion Event that was the basis for the exercise by Agent of such right shall
be deemed to have terminated and no longer continuing,

 

(iii) if after any such termination of a Cash Dominion Event, a subsequent Cash
Dominion Event shall occur, such subsequent Cash Dominion Event shall not be
deemed to be terminated and no longer continuing prior to the date that is the
first anniversary of the date of the later of an event described in clause
(a) or (b) above and then only if the conditions set forth in clause (ii) above
have been satisfied for the sixty (60) consecutive days immediately preceding
the termination of such subsequent Cash Dominion Event.

 

1.23 “Cash Equivalents” shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of ninety (90) days or less issued or directly
and fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof; provided, that, the full faith and credit of the United
States of America is pledged in support thereof; (b) certificates of deposit or
bankers’ acceptances with a maturity of ninety (90) days or less of any
financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$1,000,000,000; (c) commercial paper (including variable

 

6

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rate demand notes and taxable auction variable rate notes) with a maturity of
ninety (90) days or less (or in the case of auction variable rate notes, with
the next auction or a maturity within ninety (90) days or less) issued by a
corporation (but not any Affiliate of a Borrower or Guarantor), or in the case
of taxable auction variable rate notes, issued by a governmental education
authority, in each case organized under the laws of any State of the United
States of America or the District of Columbia and rated at least A-1 by
Standard & Poor’s Ratings Service, a division of The McGraw-Hill Companies, Inc.
or at least P-1 by Moody’s Investors Service, Inc.; (d) repurchase obligations
with a term of not more than thirty (30) days for underlying securities of the
types described in clause (a) above entered into with any financial institution
having combined capital and surplus and undivided profits of not less than
$1,000,000,000; (e) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the United States of America or issued by any governmental agency thereof and
backed by the full faith and credit of the United States of America, in each
case maturing within ninety (90) days or less from the date of acquisition;
provided, that, the terms of such agreements comply with the guidelines set
forth in the Federal Financial Agreements of Depository Institutions with
Securities Dealers and Others, as adopted by the Comptroller of the Currency on
October 31, 1985; and (f) investments in money market funds and mutual funds
which invest substantially all of their assets in securities of the types
described in clauses (a) through (e) above.

 

1.24 “Change of Control” shall mean (a) the acquisition by any Person or group
(as such term is used in Section 13(d)(3) of the Exchange Act) of more than
thirty-five (35%) percent of beneficial ownership, directly or indirectly, of
the voting power of the total outstanding Voting Stock of Parent or the Board of
Directors of Parent; (b) during any period of two (2) consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of Parent (together with any new directors whose nomination for
election by the stockholders of Parent was approved by a vote of at least a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of Parent then still in office; or (c) the failure of Parent
to own directly or indirectly one hundred (100%) percent of the voting power of
the total outstanding Voting Stock of any other Borrower or Guarantor.

 

1.25 “Code” shall mean the Internal Revenue Code of 1986, together with all
rules, regulations and interpretations thereunder or related thereto, all as
amended and in effect from time to time.

 

1.26 “Collateral” shall have the meaning set forth in Section 5 hereof.

 

1.27 “Collateral Access Agreement” shall mean an agreement in writing, in form
and substance satisfactory to Agent, from any lessor of premises to any Borrower
or Guarantor, or any other person to whom any Collateral is consigned or who has
custody, control or possession of any such Collateral or is otherwise the owner
or operator of any premises on which any of such Collateral is located, in favor
of Agent with respect to the Collateral at such premises or otherwise in the
custody, control or possession of such lessor, consignee or other person.

 

7

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1.28 “Commitment” shall mean, at any time, as to each Lender, the principal
amount set forth below such Lender’s signature on the signatures pages hereto
designated as the Commitment or on Schedule 1 to the Assignment and Acceptance
Agreement pursuant to which such Lender became a Lender hereunder in accordance
with the provisions of Section 13.7 hereof, as the same may be adjusted from
time to time in accordance with the terms hereof; sometimes being collectively
referred to herein as “Commitments”.

 

1.29 “Consolidated Net Income” shall mean, with respect to any Person for any
period, the aggregate of the net income (loss) of such Person, for such period
(excluding to the extent included therein any extraordinary and/or one time or
unusual and non-recurring gains or any non-cash losses) after deducting all
charges which should be deducted before arriving at the net income (loss) for
such period and, without duplication, after deducting the Provision for Taxes
for such period, all as determined in accordance with GAAP. For the purposes of
this definition, net income excludes any gain or non-cash loss, together with
any related Provision for Taxes for such gain or non-cash loss, realized upon
the sale or other disposition of any assets that are not sold in the ordinary
course of business (including, without limitation, dispositions pursuant to sale
and leaseback transactions) or of any Capital Stock of such Person and any net
income realized or loss incurred as a result of changes in accounting principles
or the application thereof to such Person.

 

1.30 “Credit Facility” shall mean the Loans and Letters of Credit provided to or
for the benefit of a Borrower pursuant to Sections 2.1, 2.2 and 2.3 hereof.

 

1.31 “Default” shall mean an act, condition or event which with notice or
passage of time or both would constitute an Event of Default.

 

1.32 “Defaulting Lender” shall have the meaning set forth in Section 6.11
hereof.

 

1.33 “Deposit Account Control Agreement” shall mean an agreement in writing, in
form and substance satisfactory to Agent, by and among Agent, the Borrower or
Guarantor with a deposit account at any bank and the bank at which such deposit
account is at any time maintained which provides that such bank will comply with
instructions originated by Agent directing disposition of the funds in the
deposit account without further consent by such Borrower or Guarantor and has
such other terms and conditions as Agent may require.

 

1.34 “Domestic Subsidiary” shall mean any direct or indirect Subsidiary of a
Borrower or Guarantor, other than a Foreign Subsidiary.

 

1.35 “EBITDA” shall mean, as to any Person, with respect to any period, an
amount equal to: (a) the Consolidated Net Income of such Person for such period,
plus (b) depreciation, amortization and other non-cash charges (including, but
not limited to, imputed interest, deferred compensation and for the grant of
options for the purchase of shares), in each case for such period (to the extent
deducted in the computation of Consolidated Net Income of such Person), and in
the case of Parent, up to $3,000,000 of legal expenses incurred in connection
with the securities litigation currently pending against Parent in the United
States District Court for the District of Oregon in the aggregate for all
periods (and to the extent deducted in the computation of Consolidated Net
Income), all in accordance with GAAP, plus (c) Interest Expense for such

 

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period (to the extent deducted in the computation of Consolidated Net Income of
such Person), plus (d) the Provision for Taxes for such period (to the extent
deducted in the computation of Consolidated Net Income of such Person), plus
(e) in the case of Parent, the purchase accounting inventory mark-up taken by
Merix San Jose as of December 2004 in an amount not to exceed $320,000 and up to
$650,000 in severance charges by Parent taken in the first quarter of its 2006
fiscal year.

 

1.36 “Eligible Accounts” shall mean Accounts created by a Borrower that in each
case satisfy the criteria set forth below as determined by Agent. In general,
Accounts shall be Eligible Accounts if:

 

(a) such Accounts arise from the actual and bona fide sale and delivery of goods
by such Borrower or rendition of services by such Borrower in the ordinary
course of its business which transactions are completed in accordance with the
terms and provisions contained in any documents related thereto;

 

(b) such Accounts are not unpaid more than sixty (60) days after the original
due date thereof or more than one hundred twenty (120) days after the date of
the original invoice for them;

 

(c) such Accounts comply with the terms and conditions contained in
Section 7.2(b) of this Agreement;

 

(d) such Accounts do not arise from sales on consignment, guaranteed sale, sale
and return, sale on approval, or other terms under which payment by the account
debtor may be conditional or contingent;

 

(e) the chief executive office of the account debtor with respect to such
Accounts is located in the United States of America, the United Kingdom or
Canada or the account debtor with respect to such Accounts is an Approved
Foreign Account Debtor; provided, that,

 

(i) at any time promptly upon Agent’s request, such Borrower shall (A) execute
and deliver, or cause to be executed and delivered, such other agreements,
documents and instruments as may be required by Agent to perfect (or otherwise
establish the effectiveness and priority of) the security interests of Agent in
those Accounts of (1) an account debtor with its chief executive office or
principal place of business in Canada in accordance with the applicable laws of
the Province of Canada, (2) an account debtor with its chief executive office or
principal place of business in the United Kingdom in accordance with the
applicable laws of the United Kingdom, or (3) of an Approved Foreign Account
Debtor in accordance with the applicable laws of the jurisdiction in which the
Approved Foreign Account Debtor has its chief executive office or principal
place of business, as the case may be, and (B) take or cause to be taken such
other and further actions as Agent may request to establish the effectiveness of
the rights of Agent to such accounts as against a third party (including any
insolvency official) and to otherwise enable Agent as secured party with respect
thereto to collect such Accounts under the applicable laws of the jurisdiction
in which such account debtor or Approved Foreign Account Debtor, as the case may
be, has its chief executive office or principal place of business or which might
otherwise affect the rights of Agent with respect thereto;

 

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(ii) at Agent’s option, if the chief executive office and principal place of
business of the account debtor with respect to such Accounts is located other
than in the United States of America, the United Kingdom or Canada or the
account debtor is not an Approved Foreign Account Debtor, then otherwise
Eligible Accounts owing by an account debtor may be Eligible Accounts if either:
(A) such Account is subject to credit insurance payable to Agent issued by an
insurer and on terms and in an amount acceptable to Agent, or (B) the account
debtor has delivered to such Borrower an irrevocable letter of credit issued or
confirmed by a bank satisfactory to Agent and payable only in the United States
of America and in U.S. dollars, sufficient to cover such Account, in form and
substance satisfactory to Agent and if required by Agent, the original of such
letter of credit has been delivered to Agent or Agent’s agent and the issuer
thereof, and such Borrower has complied with the terms of Section 5.2(f) hereof
with respect to the assignment of the proceeds of such letter of credit to Agent
or naming Agent as transferee beneficiary thereunder, as Agent may specify;

 

(f) such Accounts do not consist of progress billings (such that the obligation
of the account debtors with respect to such Accounts is conditioned upon such
Borrower’s satisfactory completion of any further performance under the
agreement giving rise thereto), bill and hold invoices or retainage invoices,
except as to bill and hold invoices, if Agent shall have received an agreement
in writing from the account debtor, in form and substance satisfactory to Agent,
confirming the unconditional obligation of the account debtor to take the goods
related thereto and pay such invoice;

 

(g) the account debtor with respect to such Accounts has not asserted a
counterclaim, defense or dispute and is not owed or does not claim to be owed
any amounts that may give rise to any right of setoff or recoupment against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by such Borrower to such
account debtor or claimed owed by such account debtor may be deemed Eligible
Accounts);

 

(h) there are no facts, events or occurrences which would impair the validity,
enforceability or collectability of such Accounts or reduce the amount payable
or delay payment thereunder;

 

(i) such Accounts are subject to the first priority, valid and perfected
security interest of Agent and any goods giving rise thereto are not, and were
not at the time of the sale thereof, subject to any liens except any Permitted
Liens that are subject to an intercreditor agreement in form and substance
satisfactory to Agent between the holder of such security interest or lien and
Agent or are permitted under Sections 9.9(b) or 9.9(c) hereof;

 

(j) neither the account debtor nor any officer or employee of the account debtor
with respect to such Accounts is an officer, employee, agent or other Affiliate
of any Borrower or Guarantor;

 

(k) the account debtors with respect to such Accounts are not any foreign
government, the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, unless, if the account debtor is
the United States of America, any State, political subdivision, department,
agency or instrumentality thereof, upon Agent’s request, the Federal Assignment
of Claims Act of 1940, as amended or any similar State or local law, if
applicable, has been complied with in a manner satisfactory to Agent;

 

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(l) there are no proceedings or actions which are threatened or pending against
the account debtors with respect to such Accounts which might result in any
material adverse change in any such account debtor’s financial condition
(including, without limitation, any bankruptcy, dissolution, liquidation,
reorganization or similar proceeding);

 

(m) the aggregate amount of such Accounts (i) owing by a single account debtor
(other than Solectron Corporation) do not constitute more than ten (10%) percent
of the aggregate amount of all otherwise Eligible Accounts, (ii) owing by
Solectron Corporation do not constitute more than forty-five (45%) percent of
the aggregate amount of all otherwise Eligible Accounts, which percentage as to
Solectron Corporation may be reduced in such amounts as Agent may determine
based on Agent’s determination of the creditworthiness of Solectron Corporation,
and (iii) owing by a single account debtor and its affiliates that are Approved
Foreign Account Debtors do not exceed $2,500,000, provided, that, such Accounts
owing by one account debtor and its affiliates that are Approved Foreign Account
Debtors may exceed such amount, but not more than $4,500,000 (but the portion of
the Accounts not in excess of the applicable percentages or limits may be deemed
Eligible Accounts);

 

(n) such Accounts are not owed by an account debtor who has Accounts unpaid more
than one hundred twenty (120) days after the original invoice date for them or
more than sixty (60) days past the due date thereof, which constitute more than
fifty (50%) percent of the total Accounts of such account debtor;

 

(o) the account debtor is not located in a state requiring the filing of a
Notice of Business Activities Report or similar report in order to permit such
Borrower to seek judicial enforcement in such State of payment of such Account,
unless such Borrower has qualified to do business in such state or has filed a
Notice of Business Activities Report or equivalent report for the then current
year or such failure to file and inability to seek judicial enforcement is
capable of being remedied without any material delay or material cost;

 

(p) such Accounts are owed by account debtors whose total indebtedness to such
Borrower does not exceed the credit limit with respect to such account debtors
as determined by such Borrower from time to time, to the extent such credit
limit as to any account debtor is established consistent with the current
practices of such Borrower as of the date hereof and such credit limit is
acceptable to Agent (but the portion of the Accounts not in excess of such
credit limit may be deemed Eligible Accounts); and

 

(q) such Accounts are owed by account debtors deemed creditworthy at all times
by Agent in good faith.

 

The criteria for Eligible Accounts set forth above may only be changed and any
new criteria for Eligible Accounts may only be established by Agent in good
faith based on either: (i) an event, condition or other circumstance arising
after the date hereof, or (ii) an event, condition or other circumstance
existing on the date hereof to the extent Agent has no written notice thereof
from a Borrower prior to the date hereof, in either case under clause (i) or
(ii) which adversely affects or could reasonably be expected to adversely affect
the Accounts in the good faith determination of Agent. Any Accounts that are not
Eligible Accounts shall nevertheless be part of the Collateral.

 

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1.37 “Eligible Finished Goods Inventory” shall mean Eligible Inventory
consisting of finished goods for which the Borrower that is the owner of such
goods has received and accepted a confirmed purchase order for such Inventory
from a customer in the ordinary course of the business of such Borrower and
customer or for which such Borrower has a valid and enforceable written sales
contract pursuant to which such Inventory is to be sold by such Borrower and
purchased by such customer in accordance with the terms of such contract and no
party is in default under the terms of such contract.

 

1.38 “Eligible Gold Raw Material Inventory” shall mean Eligible Inventory
consisting of gold used as raw material for the finished goods of Borrowers.

 

1.39 “Eligible Inventory” shall mean, as to each Borrower, Inventory of such
Borrower consisting of finished goods held for resale in the ordinary course of
the business of such Borrower and raw materials for such finished goods, that in
each case satisfy the criteria set forth below as determined by Agent. In
general, Eligible Inventory shall not include: (a) work-in-process; (b)
components which are not part of finished goods; (c) spare parts for equipment;
(d) packaging and shipping materials; (e) supplies used or consumed in such
Borrower’s business; (f) Inventory at premises other than (i) premises owned or
leased and controlled by any Borrower or (ii) premises owned and operated by
third parties that are expressly approved by Agent subject to the satisfaction
of such additional requirements with respect to such Inventory as Agent may from
time to time establish; (g) Inventory subject to a security interest or lien in
favor of any Person other than Agent except those permitted in this Agreement
that are subject to an intercreditor agreement in form and substance
satisfactory to Agent between the holder of such security interest or lien and
Agent; (h) bill and hold goods; (i) unserviceable, obsolete or slow moving
Inventory; (j) Inventory that is not subject to the first priority, valid and
perfected security interest of Agent; (k) returned, damaged and/or defective
Inventory; (l) Inventory purchased or sold on consignment and (m) Inventory
located outside the United States of America. The criteria for Eligible
Inventory set forth above may only be changed and any new criteria for Eligible
Inventory may only be established by Agent in good faith based on either: (i) an
event, condition or other circumstance arising after the date hereof, or (ii) an
event, condition or other circumstance existing on the date hereof to the extent
Agent has no written notice thereof from a Borrower prior to the date hereof, in
either case under clause (i) or (ii) which adversely affects or could reasonably
be expected to adversely affect the Inventory in the good faith determination of
Agent. Any Inventory that is not Eligible Inventory shall nevertheless be part
of the Collateral.

 

1.40 “Eligible Transferee” shall mean (a) any Lender; (b) the parent company of
any Lender and/or any Affiliate of such Lender which is at least fifty (50%)
percent owned by such Lender or its parent company; (c) any person (whether a
corporation, partnership, trust or otherwise) that is engaged in the business of
making, purchasing, holding or otherwise investing in bank loans and similar
extensions of credit in the ordinary course of its business and is administered
or managed by a Lender or with respect to any Lender that is a fund which
invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Lender or by

 

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an Affiliate of such investment advisor, and in each case is approved by Agent;
and (d) any other commercial bank, financial institution or “accredited
investor” (as defined in Regulation D under the Securities Act of 1933) approved
by Agent, provided, that, (i) neither any Borrower nor any Guarantor or any
Affiliate of any Borrower or Guarantor shall qualify as an Eligible Transferee
and (ii) no Person to whom any Indebtedness which is in any way subordinated in
right of payment to any other Indebtedness of any Borrower or Guarantor shall
qualify as an Eligible Transferee, except as Agent may otherwise specifically
agree.

 

1.41 “Environmental Laws” shall mean all foreign, Federal, State and local laws
(including common law), legislation, rules, codes, licenses, permits (including
any conditions imposed therein), authorizations, judicial or administrative
decisions, injunctions or agreements between any Borrower or Guarantor and any
Governmental Authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term “Environmental Laws” includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.

 

1.42 “EPC Acquisition” shall mean the purchase by the Subsidiaries of Merix
Caymans Holding Company Limited listed on Schedule 1.42 hereof of all or
substantially all of the assets of the EPC Companies (or in the case of Eastern
Pacific Circuits Investments Limited, a company incorporated under the laws of
Hong Kong and Eastern Pacific Circuits Investments (Singapore) Pte Ltd, a
company incorporated under the laws of Singapore, the shares thereof) pursuant
to the EPC Acquisition Documents as in effect on the date hereof.

 

1.43 “EPC Acquisition Documents” shall mean, collectively, the following (as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced): (a) the Master Sale and Purchase Agreement,
dated April 14, 2005, by and among Parent and the EPC Companies and (b) the
bills of sale, assignment and assumption agreements and other agreements,
documents and instruments executed and/or delivered in connection therewith all
as listed on Schedule 1.43 hereto; sometimes being referred to herein
individually as an “EPC Acquisition Document”.

 

1.44 “EPC Companies” shall mean, collectively, Eastern Pacific Circuits Limited,
a company incorporated under the laws of the Cayman Islands, and its
subsidiaries listed on Schedule 1.44 hereto and their respective successors and
assigns; sometimes being referred to herein individually as an “EPC Company”.

 

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1.45 “Equipment” shall mean, as to each Borrower and Guarantor, all of such
Borrower’s and Guarantor’s now owned and hereafter acquired equipment, wherever
located, including machinery, data processing and computer equipment (whether
owned or licensed and including embedded software), vehicles, tools, furniture,
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and substitutions and replacements
thereof, wherever located.

 

1.46 “ERISA” shall mean the Employee Retirement Income Security Act of 1974,
together with all rules, regulations and interpretations thereunder or related
thereto, all as amended and in effect from time to time.

 

1.47 “ERISA Affiliate” shall mean any person required to be aggregated with any
Borrower, any Guarantor or any of its or their respective Domestic Subsidiaries
under Sections 414(b) or 414(c), or, solely for purposes of Title IV of ERISA
and the funding requirements of Section 412 of the Code and Section 302 of
ERISA, Sections 414(m) or 414(o) of the Code.

 

1.48 “ERISA Event” shall mean (a) any “reportable event”, as defined in
Section 4043(c) of ERISA or the regulations issued thereunder, with respect to a
Pension Plan, other than events as to which the requirement of notice has been
waived in regulations by statute, regulation or otherwise; (b) the adoption of
any amendment to a Pension Plan that would require the provision of security
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) a
complete or partial withdrawal by any Borrower, Guarantor or any ERISA Affiliate
from a Multiemployer Plan or a cessation of operations which is treated as such
a withdrawal or notification that a Multiemployer Plan is in reorganization;
(d) the filing of a notice of intent to terminate, the treatment of a Pension
Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the
commencement of proceedings by the Pension Benefit Guaranty Corporation to
terminate a Pension Plan; (e) an event or condition which would constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; (f) the imposition of any
liability under Title IV of ERISA, other than the Pension Benefit Guaranty
Corporation premiums due but not delinquent under Section 4007 of ERISA, upon
any Borrower, Guarantor or any ERISA Affiliate in excess of $500,000 and (g) any
other event or condition with respect to a Plan including any Pension Plan
subject to Title IV of ERISA maintained, or contributed to, by any ERISA
Affiliate that could reasonably be expected to result in liability of any
Borrower in excess of $500,000.

 

1.49 “Eurodollar Rate Loans” shall mean any Loans or portion thereof on which
interest is payable based on the Adjusted Eurodollar Rate in accordance with the
terms hereof.

 

1.50 “Event of Default” shall mean the occurrence or existence of any event or
condition described in Section 10.1 hereof.

 

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1.51 “Excess Availability” shall mean, the amount, as determined by Agent,
calculated at any date, equal to:

 

(a) the lesser of: (i) the Borrowing Base and (ii) the Revolving Loan Limit (in
each case under (i) or (ii) after giving effect to any Reserves other than any
Reserves in respect of Letter of Credit Obligations), minus

 

(b) the sum of: (i) the amount of all then outstanding and unpaid Obligations
(but not including for this purpose Obligations of a Borrower arising pursuant
to any guarantees in favor of Agent and Lenders of the Obligations of the other
Borrower or the then outstanding aggregate principal amount of the Term Loans or
any outstanding Letter of Credit Obligations), plus (ii) the amount of all
Reserves then established in respect of Letter of Credit Obligations, plus
(iii) the aggregate amount of all then outstanding and unpaid trade payables and
other obligations of Borrowers owed to unaffiliated third parties which are
outstanding more than sixty (60) days past due as of the end of the immediately
preceding month or at Agent’s option, as of a more recent date based on such
reports as Agent may from time to time specify (other than trade payables or
other obligations being contested or disputed by a Borrower in good faith), plus
(iv) without duplication, and at Agent’s option, the amount of checks issued by
a Borrower to pay trade payables and other obligations which are more than sixty
(60) days past due as of the end of the immediately preceding month or at
Agent’s option, as of a more recent date based on such reports as Agent may from
time to time specify (other than trade payables or other obligations being
contested or disputed by a Borrower in good faith), but not yet sent, plus

 

(c) Qualified Cash.

 

1.52 “Exchange Act” shall mean the Securities Exchange Act of 1934, together
with all rules, regulations and interpretations thereunder or related thereto.

 

1.53 “Fee Letter” shall mean the letter agreement, dated of even date herewith,
by and among Borrowers, Guarantors and Agent, setting forth certain fees payable
by Borrowers to Agent for the benefit of itself and Lenders, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.

 

1.54 “Financing Agreements” shall mean, collectively, this Agreement and all
notes, guarantees, security agreements, deposit account control agreements,
investment property control agreements, intercreditor agreements and all other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by any Borrower or Guarantor in connection with this Agreement;
provided, that, in no event shall the term Financing Agreements be deemed to
include any Hedge Agreement.

 

1.55 “Fixed Charge Coverage Ratio” shall mean, as to any Person, with respect to
any period, the ratio of: (a) the amount equal to EBITDA of such Person for such
period to (b) the Fixed Charges of such Person for such period.

 

1.56 “Fixed Charges” shall mean, as to any Person, with respect to any period,
the sum of, without duplication, (a) all Interest Expense during such period,
plus (b) all Capital Expenditures during such period (other than, as to Parent
and its Subsidiaries, Capital Expenditures made with the proceeds of
Indebtedness permitted for such purpose hereunder), plus (c) all regularly
scheduled (as determined at the beginning of the respective period) principal
payments in respect of Indebtedness for borrowed money (excluding payments in

 

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respect of Revolving Loans which do not result in a reduction of the Maximum
Credit) and Indebtedness with respect to Capital Leases (and without duplicating
items (a) and (c) of this definition, the interest component with respect to
Indebtedness under Capital Leases) during such period, plus (d) dividends and
other distributions, and repurchases and redemptions, in respect of Capital
Stock paid during such period, plus (e) cash costs paid under any Hedge
Agreement, plus (f) taxes paid during such period in cash.

 

1.57 “Foreign Lender” shall mean any Lender that is organized under the laws of
a jurisdiction other than that in which a Borrower is resident for tax purposes.
For purposes of this definition, the United States of America, each State
thereof and the District of Columbia shall be deemed to constitute a single
jurisdiction.

 

1.58 “Foreign Subsidiary” shall mean, a direct or indirect Subsidiary of Parent
organized or incorporated under the laws of a jurisdiction other than a state of
the United States of America, the United States of America or its territories or
its possessions.

 

1.59 “Funding Bank” shall have the meaning given to such term in Section 3.3
hereof.

 

1.60 “GAAP” shall mean generally accepted accounting principles in the United
States of America as in effect from time to time as set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the circumstances
as of the date of determination consistently applied, except that, for purposes
of Section 9.17 hereof, GAAP shall be determined on the basis of such principles
in effect on the date hereof and consistent with those used in the preparation
of the most recent audited financial statements delivered to Agent prior to the
date hereof.

 

1.61 “Governmental Authority” shall mean any nation or government, any state,
province, or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.

 

1.62 “Guarantors” shall mean, collectively, the following (together with their
respective successors and assigns): (a) Merix Nevada, Inc., an Oregon
corporation; (b) Merix Asia, Inc., an Oregon corporation; (c) Data Circuit
Holdings, Inc., a Delaware corporation; and (d) any other Person that at any
time after the date hereof becomes party to a guarantee in favor of Agent or any
Lender or otherwise liable on or with respect to the Obligations or who is the
owner of any property which is security for the Obligations (other than
Borrowers); each sometimes being referred to herein individually as a
“Guarantor”.

 

1.63 “Hazardous Materials” shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).

 

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1.64 “Hedge Agreement” shall mean an agreement between any Borrower or Guarantor
and a Bank Product Provider that is a rate swap agreement, basis swap, forward
rate agreement, commodity swap, forward commodity contracts, interest rate
option, forward foreign exchange agreement, spot foreign exchange agreement,
rate cap agreement rate, floor agreement, rate collar agreement, currency swap
agreement, cross-currency rate swap agreement, currency option, any other
similar agreement (including any option to enter into any of the foregoing or a
master agreement for any the foregoing together with all supplements thereto)
for the purpose of protecting against or managing exposure to fluctuations in
interest or exchange rates, currency valuations or commodity prices; sometimes
being collectively referred to herein as “Hedge Agreements”.

 

1.65 “Indebtedness” shall mean, with respect to any Person, any liability,
whether or not contingent, (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof) or evidenced by bonds, notes, debentures or similar
instruments; (b) representing the balance deferred and unpaid of the purchase
price of any property or services (other than an account payable to a trade
creditor (whether or not an Affiliate) incurred in the ordinary course of
business of such Person and payable in accordance with customary trade
practices); (c) all obligations as lessee under leases which have been, or
should be, in accordance with GAAP recorded as Capital Leases; (d) any
contractual obligation, contingent or otherwise, of such Person to pay or be
liable for the payment of any indebtedness described in this definition of
another Person, including, without limitation, any such indebtedness, directly
or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise
acquire such indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof, or to maintain solvency,
assets, level of income, or other financial condition; (e) all obligations with
respect to redeemable stock and redemption or repurchase obligations under any
Capital Stock or other equity securities issued by such Person; (f) all
reimbursement obligations and other liabilities of such Person with respect to
surety bonds (whether bid, performance or otherwise), letters of credit,
banker’s acceptances, drafts or similar documents or instruments issued for such
Person’s account; (g) all indebtedness of such Person in respect of indebtedness
of another Person for borrowed money or indebtedness of another Person otherwise
described in this definition which is secured by any consensual lien, security
interest, collateral assignment, conditional sale, mortgage, deed of trust, or
other encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time; (h) all obligations, liabilities and indebtedness
of such Person (marked to market) arising under swap agreements, cap agreements
and collar agreements and other agreements or arrangements designed to protect
such person against fluctuations in interest rates or currency or commodity
values; (i) all obligations owed by such Person under License Agreements with
respect to non-refundable, advance or minimum guarantee royalty payments;
(j) indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer to the extent such Person is liable therefor
as a result of such Person’s ownership interest in such entity, except to the
extent that the terms of such indebtedness expressly provide that such Person is
not liable therefor or such Person has no liability therefor as a matter of law
and (k) the principal and interest portions of all rental obligations of such
Person under any

 

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synthetic lease or similar off-balance sheet financing where such transaction is
considered to be borrowed money for tax purposes but is classified as an
operating lease in accordance with GAAP.

 

1.66 “Information Certificate” shall mean, collectively, the Information
Certificates of Borrowers and Guarantors constituting Exhibit C hereto
containing material information with respect to Borrowers and Guarantors, their
respective businesses and assets provided by or on behalf of Borrowers and
Guarantors to Agent in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.

 

1.67 “Intellectual Property” shall mean, as to each Borrower and Guarantor, such
Borrower’s and Guarantor’s now owned and hereafter arising or acquired: patents,
patent rights, patent applications, copyrights, works which are the subject
matter of copyrights, copyright applications, copyright registrations,
trademarks, servicemarks, trade names, trade styles, trademark and service mark
applications, and licenses and rights to use any of the foregoing and all
applications, registrations and recordings relating to any of the foregoing as
may be filed in the United States Copyright Office, the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, any political subdivision thereof or in any other country or
jurisdiction, together with all rights and privileges arising under applicable
law with respect to any Borrower’s or Guarantor’s use of any of the foregoing;
all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to sue for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys,
reports, manuals, and operating standards; goodwill (including any goodwill
associated with any trademark or servicemark, or the license of any trademark or
servicemark); customer and other lists in whatever form maintained; trade secret
rights, copyright rights, rights in works of authorship, domain names and domain
name registration; software and contract rights relating to computer software
programs, in whatever form created or maintained.

 

1.68 “Interest Expense” shall mean, for any period, as to any Person, as
determined in accordance with GAAP, the total interest expense of such Person,
whether paid or accrued during such period (including the interest component of
Capital Leases for such period), including, without limitation, discounts in
connection with the sale of any Accounts and bank fees, commissions, discounts
and other fees and charges owed with respect to letters of credit, banker’s
acceptances or similar instruments.

 

1.69 “Interest Period” shall mean for any Eurodollar Rate Loan, a period of
approximately one (1), two (2), three (3) or six (6) months duration as any
Borrower (or Administrative Borrower on behalf of such Borrower) may elect, the
exact duration to be determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, such Borrower (or
Administrative Borrower on behalf of such Borrower) may not elect an Interest
Period which will end after the last day of the then-current term of this
Agreement.

 

1.70 “Interest Rate” shall mean, as to Prime Rate Loans, a rate equal to the
Prime Rate plus the Applicable Margin for Prime Rate Loans, and as to Eurodollar
Rate Loans, a rate equal

 

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to the Adjusted Eurodollar Rate plus the Applicable Margin for Eurodollar Rate
Loans (in each case, based on the London Interbank Offered Rate applicable for
the Interest Period selected by a Borrower, or by Administrative Borrower on
behalf of such Borrower, as in effect two (2) Business Days prior to the
commencement of the Interest Period whether such rate is higher or lower than
any rate previously quoted to any Borrower or Guarantor). Notwithstanding
anything to the contrary contained in this definition, the Applicable Margin
otherwise used to calculate the Interest Rate for Prime Rate Loans and
Eurodollar Rate Loans shall be the percentage set forth in the definition of the
term Applicable Margin for each category of Loans that is then applicable plus
two (2.00%) percent per annum, at Agent’s option, (i) for the period (A) from
and after the effective date of termination or non-renewal hereof until such
time as all Obligations are indefeasibly paid and satisfied in full in
immediately available funds, or (B) from and after the date of the occurrence of
any Event of Default, and for so long as such Event of Default is continuing as
determined by Agent and (ii) on the Revolving Loans to any Borrower at any time
outstanding in excess of the Borrowing Base or the Revolving Loan Limit (whether
or not such excess(es) arise or are made with or without Agent’s or any Lender’s
knowledge or consent and whether made before or after an Event of Default).

 

1.71 “Inventory” shall mean, as to each Borrower and Guarantor, all of such
Borrower’s and Guarantor’s now owned and hereafter existing or acquired goods,
wherever located, which (a) are leased by such Borrower or Guarantor as lessor;
(b) are held by such Borrower or Guarantor for sale or lease or to be furnished
under a contract of service; (c) are furnished by such Borrower or Guarantor
under a contract of service; or (d) consist of raw materials, work in process,
finished goods or materials used or consumed in its business.

 

1.72 “Inventory Availability Date” shall mean the date that each of the
following conditions is satisfied as determined in good faith by Agent:

 

(a) Agent shall have received a written notice from Administrative Borrower not
less than fifteen (15) Business Days prior to such date requesting that the
Eligible Inventory be included in the calculation of the Borrowing Base;

 

(b) Agent shall have received a Borrowing Base Certificate setting forth the
amount of Eligible Inventory and otherwise completed to include the Eligible
Inventory as provided for in such form not more than seven (7) Business Days and
not less than three (3) Business Days prior to such date;

 

(c) Agent shall have received, in form and substance satisfactory to Agent, in
each case not less than three (3) Business Days prior to such date,
(i) inventory reports by location and category (and including the amounts of
Inventory and the value thereof at any leased locations and at premises of
warehouses, processors or other third parties), (ii) such information indicating
the amounts owing to owners and lessors or leased premises, warehouses,
processors and other third parties from time to time in possession of any
Inventory, (iii) such purchase orders, invoice and delivery documents for
Inventory acquired by Borrowers, and such other information with respect to the
Inventory, as Agent may reasonably request;

 

(d) if the request from Administrative Borrower is received after November 30,
2005, Agent shall have conducted a field examination of the Inventory in scope
and nature, and

 

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with results as of a date not more than ten (10) Business Days prior to such
date, satisfactory to Agent and completed the final version of its written
report of the results of such field examination not less than three (3) Business
Days prior to such date;

 

(e) if the request from Administrative Borrower is received after August 31,
2006, not less than five (5) Business Days prior to such date, Agent shall have
received an appraisal of the Inventory in form, scope and methodology acceptable
to Agent, by an appraiser acceptable to Agent and upon which Agent and Lenders
are permitted to rely, reflecting appraised values as of a date not more than
thirty (30) days prior to such date (provided, that, such appraisal shall not be
considered for purposes of any limitation on the number of appraisals that Agent
may receive set forth herein); and

 

(f) Agent shall have received such Collateral Access Agreements and related
agreements as Agent may require with respect to locations of Inventory owned or
operated by a third party, as duly authorized, executed and delivered by the
owner and operator of such locations, including any lessor, processor, customs
broker or other third party, as the case may be.

 

1.73 “Inventory Loan Limit” shall mean, at any time, the amount equal to
$2,500,000 (and including Letters of Credit to the extent provided in the
definition of the term Borrowing Base).

 

1.74 “Investment” shall have the meaning set forth in Section 9.10 hereof.

 

1.75 “Investment Property Control Agreement” shall mean an agreement in writing,
in form and substance satisfactory to Agent, by and among Agent, any Borrower or
Guarantor (as the case may be) and any securities intermediary, commodity
intermediary or other person who has custody, control or possession of any
investment property of such Borrower or Guarantor acknowledging that such
securities intermediary, commodity intermediary or other person has custody,
control or possession of such investment property on behalf of Agent, that it
will comply with entitlement orders originated by Agent with respect to such
investment property, or other instructions of Agent, and has such other terms
and conditions as Agent may require.

 

1.76 “Issuing Bank” shall mean Wachovia Bank, National Association as issuer of
any Letters of Credit.

 

1.77 “Lenders” shall mean the financial institutions who are signatories hereto
as Lenders and other persons made a party to this Agreement as a Lender in
accordance with Section 13.7 hereof, and their respective successors and
assigns; each sometimes being referred to herein individually as a “Lender”.

 

1.78 “Letter of Credit Documents” shall mean, with respect to any Letter of
Credit, such Letter of Credit, any amendments thereto, any documents delivered
in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk or (b) any collateral
security for such obligations.

 

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1.79 “Letter of Credit Limit” shall mean $4,000,000.

 

1.80 “Letter of Credit Obligations” shall mean, at any time, the sum of (a) the
aggregate undrawn amount of all Letters of Credit outstanding at such time, plus
(b) the aggregate amount of all drawings under Letters of Credit for which
Issuing Bank has not at such time been reimbursed, plus (c) without duplication,
the aggregate amount of all payments made by each Lender to Issuing Bank with
respect to such Lender’s participation in Letters of Credit as provided in
Section 2.2 for which Borrowers have not at such time reimbursed the Lenders,
whether by way of a Revolving Loan or otherwise.

 

1.81 “Letters of Credit” shall mean all letters of credit (whether documentary
or stand-by and whether for the purchase of inventory, equipment or otherwise)
issued by an Issuing Bank for the account of a Borrower pursuant to this
Agreement, and all amendments, renewals, extensions or replacements thereof and
including, but not limited to, the Existing Letters of Credit.

 

1.82 “License Agreements” shall have the meaning set forth in Section 8.11
hereof.

 

1.83 “Loans” shall mean, collectively, the Revolving Loans and the Term Loans.

 

1.84 “London Interbank Offered Rate” shall mean, with respect to any Eurodollar
Rate Loan for the Interest Period applicable thereto, the rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in U.S. Dollars at approximately 11:00 a.m. (London time) two
(2) Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, that, if more than one rate is
specified on Telerate Page 3750, the applicable rate shall be the arithmetic
mean of all such rates. If, for any reason, such rate is not available, the term
“London Interbank Offered Rate” shall mean, with respect to any Eurodollar Loan
for the Interest Period applicable thereto, the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 a.m. (London time) two (2) Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates.

 

1.85 “Material Adverse Effect” shall mean a material adverse effect on (a) the
financial condition, business, performance or operations of Borrowers; (b) the
legality, validity or enforceability of this Agreement or any of the other
Financing Agreements; (c) the legality, validity, enforceability, perfection or
priority of the security interests and liens of Agent upon the Collateral;
(d) the Collateral or its value; (e) the ability of any Borrower to repay the
Obligations or of any Borrower to perform its obligations under this Agreement
or any of the other Financing Agreements as and when to be performed; or (f) the
ability of Agent or any Lender to enforce the Obligations or realize upon the
Collateral or otherwise with respect to the rights and remedies of Agent and
Lenders under this Agreement or any of the other Financing Agreements.

 

1.86 “Material Contract” shall mean (a) any contract or other agreement (other
than the Financing Agreements), written or oral, of any Borrower or Guarantor
involving monetary

 

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liability of or to any Person in an amount in excess of $500,000 in any fiscal
year and (b) any other contract or other agreement (other than the Financing
Agreements), whether written or oral, to which any Borrower or Guarantor is a
party as to which the breach, nonperformance, cancellation or failure to renew
by any party thereto would have a Material Adverse Effect.

 

1.87 “Maturity Date” shall have the meaning set forth in Section 13.1 hereof.

 

1.88 “Maximum Credit” shall mean the amount of $55,000,000.

 

1.89 “Merix $2,000,000 Note” shall mean the Promissory Note due December 9,
2006, dated December 9, 2004, issued by Merix payable to the Stockholders and
the Warrant Holders (as each such term is defined in the Stock Purchase
Agreement, dated as of December 9, 2004, by and among Parent, Merix San Jose, DC
Holdings and the stockholders of DC Holdings, as in effect on the date hereof)
in care of the Stockholder’s Agent (as such term is defined in such Stock
Purchase Agreement as in effect on the date hereof) in the original principal
amount of $2,000,000, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

 

1.90 “Merix 6.5% Debenture” shall mean the 6.5% Convertible Debenture due
May 30, 2007, dated May 30, 2002, issued by Merix in the original principal
amount of $25,000,000, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

 

1.91 “Mortgage” shall mean, collectively, the following (as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced): (a) the Line of Credit Deed of Trust, Assignment of Leases and
Rents, Security Agreement and Fixture Filing, dated of even date herewith, by
Parent in favor of Agent with respect to the Real Property and related assets of
Parent located at 1521 Poplar Lane, Forest Grove, Oregon and (b) any mortgage,
deed of trust or deed to secure debt executed and delivered after the date
hereof by any Borrower or Guarantor with respect to any other Real Property of
such Borrower or Guarantor in favor of Agent, including any such agreement
delivered pursuant to Section 9.7(b)(iv) hereof or Section 9.20 hereof.

 

1.92 “Multiemployer Plan” shall mean a “multi-employer plan” as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding six (6) years contributed to by any Borrower,
Guarantor or any ERISA Affiliate or with respect to which any Borrower,
Guarantor or any ERISA Affiliate may incur any liability.

 

1.93 “Net Cash Proceeds” shall mean the aggregate cash proceeds payable to any
Borrower or Guarantor in respect of any sale, lease, transfer or other
disposition of any assets or properties, or interest in assets and properties,
or in respect of any loss of or damage to any assets or property of any Borrower
or Guarantor from proceeds of insurance, and in the case of a sale, lease,
transfer or other disposition, net of the reasonable and customary direct costs
relating to such sale, lease, transfer or other disposition (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) or in the case of proceeds of insurance, net of costs and expenses
relating to obtaining such proceeds, and in each case, net of taxes paid or
payable as a result thereof (after taking into account any available tax credits
or deductions and

 

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any tax sharing arrangements), and net of amounts applied to the repayment of
indebtedness secured by a valid and enforceable lien on the asset or assets that
are the subject of such sale or other disposition required to be repaid in
connection with such transaction or that are the subject of such loss or damage
that is the basis for such payment of proceeds of insurance. Net Cash Proceeds
shall exclude any non-cash proceeds received from any sale or other disposition
or other transaction or from insurance, but shall include such proceeds when and
as converted by any Borrower or Guarantor to cash or other immediately available
funds.

 

1.94 “Net Recovery Percentage” shall mean the fraction, expressed as a
percentage, (a) the numerator of which is the amount equal to the amount of the
recovery in respect of the Inventory at such time on a “net orderly liquidation
value” basis as set forth in the most recent acceptable appraisal of Inventory
received by Agent in accordance with Section 7.3, net of operating expenses,
liquidation expenses and commissions, and (b) the denominator of which is the
applicable original cost of the aggregate amount of the Inventory subject to
such appraisal.

 

1.95 “Obligations” shall mean (a) any and all Loans, Letter of Credit
Obligations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by any or all of Borrowers to Agent or any
Lender and/or any of their Affiliates or any Issuing Bank, including principal,
interest, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, arising under this
Agreement or any of the other Financing Agreements or on account of any Letter
of Credit and all other Letter of Credit Obligations, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of this Agreement or after the commencement of any case with
respect to such Borrower under the United States Bankruptcy Code or any similar
statute (including the payment of interest and other amounts which would accrue
and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, or secured or unsecured and
(b) for purposes only of Section 5.1 hereof and subject to the priority in right
of payment set forth in Section 6.4 hereof, all obligations, liabilities and
indebtedness of every kind, nature and description owing by any or all of
Borrowers or Guarantors to Agent or any Bank Product Provider arising under or
pursuant to any Bank Products, whether now existing or hereafter arising,
provided, that, (i) as to any obligations, liabilities and indebtedness arising
under or pursuant to a Hedge Agreement, such obligations, liabilities and
indebtedness shall only be included within the Obligations if upon Agent’s
request, Agent shall have entered into an agreement, in form and substance
reasonably satisfactory to Agent, with the Bank Product Provider that is a
counterparty to such Hedge Agreement, as acknowledged and agreed to by Borrowers
and Guarantors, providing for the delivery to Agent by such counterparty of
information with respect to the amount of such obligations and providing for the
other rights of Agent and such Bank Product Provider in connection with such
arrangements and (ii) as to any obligations, liabilities and indebtedness
arising under or pursuant to a Bank Product, such obligations, liabilities and
indebtedness shall only be included within the Obligations, if the
Administrative Borrower and the applicable Bank Product Provider, other than
Wachovia and its Affiliates, shall have delivered written notice to Agent that
(A) such Bank Product Provider has entered into a transaction to provide Bank
Products to a Borrower and Guarantor and (B) the obligations arising pursuant to
such Bank Products provided to Borrowers and Guarantors constitute Obligations
entitled to the benefits of the security interest of Agent granted hereunder,

 

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and Agent shall have approved and accepted such notice in writing and (iii) in
no event shall any Bank Product Provider to whom such obligations, liabilities
or indebtedness are owing be deemed a Lender for purposes hereof to the extent
of and as to such obligations, liabilities or indebtedness other than for
purposes of Section 5.1 hereof and other than for purposes of Sections 12.1,
12.2, 12.3(b), 12.6, 12.7, 12.9, 12.12 and 13.6 hereof and in no event shall
such obligations, liabilities or indebtedness be included in the Obligations to
the extent that the effect is that the value of the Collateral (as determined by
Agent) is less than the Obligations (provided, that, any such obligations,
liabilities or indebtedness for which a Reserve has not been established shall
be deemed to not constitute Obligations in such event prior to any such
obligations, liabilities or indebtedness for which a Reserve has been
established) and in no event shall the approval of any such person be required
in connection with the release or termination of any security interest or lien
of Agent.

 

1.96 “Other Taxes” shall have the meaning given to such term in Section 6.5
hereof.

 

1.97 “Parent” shall mean Merix Corporation, an Oregon corporation, and its
successors and assigns.

 

1.98 “Participant” shall mean any financial institution that acquires and holds
a participation in the interest of any Lender in any of the Loans and Letters of
Credit in conformity with the provisions of Section 13.7 of this Agreement
governing participations.

 

1.99 “Pension Plan” shall mean a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which any Borrower or Guarantor sponsors,
maintains, or to which any Borrower, Guarantor or ERISA Affiliate makes, is
making, or is obligated to make contributions, other than a Multiemployer Plan.

 

1.100 “Permitted Liens” shall have the meaning set forth in Section 9.8 hereof.

 

1.101 “Person” or “person” shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Code), limited liability company, limited liability
partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.

 

1.102 “Plan” shall mean an employee benefit plan (as defined in Section 3(3) of
ERISA) which any Borrower or Guarantor sponsors, maintains, or to which it
makes, is making, or is obligated to make contributions, or in the case of a
Multiemployer Plan has made contributions at any time during the immediately
preceding six (6) plan years or with respect to which any Borrower or Guarantor
may incur liability.

 

1.103 “Prime Rate” shall mean the rate from time to time publicly announced by
Wachovia Bank, National Association, or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.

 

1.104 “Prime Rate Loans” shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms
thereof.

 

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1.105 “Pro Rata Share” shall mean as to any Lender, the fraction (expressed as a
percentage) the numerator of which is such Lender’s Commitment and the
denominator of which is the aggregate amount of all of the Commitments of
Lenders, as adjusted from time to time in accordance with the provisions of
Section 13.7 hereof; provided, that, if the Commitments have been terminated,
the numerator shall be the unpaid amount of such Lender’s Loans and its interest
in the Letters of Credit and the denominator shall be the aggregate amount of
all unpaid Loans and Letters of Credit.

 

1.106 “Provision for Taxes” shall mean an amount equal to all taxes imposed on
or measured by net income, whether Federal, State, county or local, and whether
foreign or domestic, that are paid or payable by any Person in respect of any
period in accordance with GAAP.

 

1.107 “Qualified Cash” shall mean cash or Cash Equivalents owned by a Borrower,
which funds are (a) available for use by a Borrower, without condition or
restriction, (b) free and clear of any pledge, security interest, lien, claim or
other encumbrance (except in favor of Agent), (c) are subject to the first
priority perfected security interest of Agent, (d) in an investment account
specified in Schedule 1.107 hereto and in each case such account is subject to
an Investment Property Control Agreement in form and substance satisfactory to
Agent, and the securities intermediary party to such agreement is in compliance
with the terms thereof, and (e) for which Agent shall have received evidence, in
form and substance satisfactory to Agent, of the amount of such cash or Cash
Equivalents held in such investment account as of the applicable date of the
calculation of Excess Availability by Agent and the satisfaction of the other
conditions herein.

 

1.108 “Quarterly Average Excess Availability” shall mean, at any time, the daily
average of the Excess Availability for the immediately preceding calendar
quarter as calculated by Agent (provided, that, for purposes of such
calculation, Qualified Cash shall be included in the calculation of Excess
Availability based on such reporting thereof as Agent may from time to time
request for such purpose).

 

1.109 “Quarterly Average Revolving Obligations” shall mean, at any time, the
daily average principal balance of the outstanding Revolving Loans and undrawn
amount of Letters of Credit for the immediately preceding calendar quarter as
calculated by Agent.

 

1.110 “Real Property” shall mean all now owned and hereafter acquired real
property of each Borrower and Guarantor, including leasehold interests, together
with all buildings, structures, and other improvements located thereon and all
licenses, easements and appurtenances relating thereto, wherever located,
including the real property and related assets more particularly described in
the Mortgage.

 

1.111 “Receivables” shall mean all of the following now owned or hereafter
arising or acquired property of each Borrower and Guarantor: (a) all Accounts;
(b) all interest, fees, late charges, penalties, collection fees and other
amounts due or to become due or otherwise payable in connection with any
Account; (c) all payment intangibles of such Borrower or Guarantor; (d) letters
of credit, indemnities, guarantees, security or other deposits and proceeds
thereof issued payable to any Borrower or Guarantor or otherwise in favor of or
delivered to any Borrower or

 

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Guarantor in connection with any Account; or (e) all other accounts, contract
rights, chattel paper, instruments, notes, general intangibles and other forms
of obligations owing to any Borrower or Guarantor, whether from the sale and
lease of goods or other property, licensing of any property (including
Intellectual Property or other general intangibles), rendition of services or
from loans or advances by any Borrower or Guarantor or to or for the benefit of
any third person (including loans or advances to any Affiliates or Subsidiaries
of any Borrower or Guarantor) or otherwise associated with any Accounts,
Inventory or general intangibles of any Borrower or Guarantor (including,
without limitation, choses in action, causes of action, tax refunds, tax refund
claims, any funds which may become payable to any Borrower or Guarantor in
connection with the termination of any Plan or other employee benefit plan and
any other amounts payable to any Borrower or Guarantor from any Plan or other
employee benefit plan, rights and claims against carriers and shippers, rights
to indemnification, and proceeds thereof, casualty or any similar types of
insurance and any proceeds thereof and proceeds of insurance covering the lives
of employees on which any Borrower or Guarantor is a beneficiary).

 

1.112 “Records” shall mean, as to each Borrower and Guarantor, all of such
Borrower’s and Guarantor’s present and future books of account of every kind or
nature, purchase and sale agreements, invoices, ledger cards, bills of lading
and other shipping evidence, statements, correspondence, memoranda, credit files
and other data relating to the Collateral or any account debtor, together with
the tapes, disks, diskettes and other data and software storage media and
devices, file cabinets or containers in or on which the foregoing are stored
(including any rights of any Borrower or Guarantor with respect to the foregoing
maintained with or by any other person).

 

1.113 “Refinancing Indebtedness” shall have the meaning set forth in
Section 9.9(j) hereof.

 

1.114 “Register” shall have the meaning set forth in Section 13.7 hereof.

 

1.115 “Required Lenders” shall mean, at any time, those Lenders whose Pro Rata
Shares aggregate more than fifty (50%) percent of the aggregate of the
Commitments of all Lenders, or if the Commitments shall have been terminated,
Lenders to whom more than fifty (50%) percent of the then outstanding Loans and
Letter of Credit Obligations are owing; provided, that, in the event that there
are only two (2) Lenders, then “Required Lenders” shall mean both of such
Lenders and if there are more than two (2) Lenders, but one (1) Lender has more
than fifty (50%) percent of the aggregate of the Commitments of all Lenders (or
outstanding Obligations as provided above), then “Required Lenders” shall mean
such Lender and one other Lender.

 

1.116 “Reserves” shall mean as of any date of determination, such amounts as
Agent may from time to time establish and revise in good faith reducing the
amount of Revolving Loans and Letters of Credit that would otherwise be
available to a Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by Agent
in good faith, adversely affect, or would have a reasonable likelihood of
adversely affecting, either (i) the Collateral or any other property which is
security for the Obligations, its value or the amount that might be received by
Agent from the sale or other disposition or realization upon such Collateral, or
(ii) the assets or business of any Borrower or

 

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Guarantor or (iii) the security interests and other rights of Agent or any
Lender in the Collateral (including the enforceability, perfection and priority
thereof) or (b) to reflect Agent’s good faith belief that any collateral report
or financial information furnished by or on behalf of any Borrower or Guarantor
to Agent is or may have been incomplete, inaccurate or misleading in any
material respect or (c) to reflect outstanding Letters of Credit as provided in
Section 2.2 hereof or (d) in respect of any state of facts which Agent
determines in good faith constitutes a Default or an Event of Default. Without
limiting the generality of the foregoing, Reserves may, at Agent’s option, be
established to reflect: (i) dilution with respect to the Accounts (based on the
ratio of the aggregate amount of non-cash reductions in Accounts for any period
to the aggregate dollar amount of the sales of such Borrower for such period) as
calculated by Agent for any period is or is reasonably anticipated to be greater
than five (5%) percent, (ii) that the orderly liquidation value of the Equipment
or fair market value of any of the Real Property as set forth in the then most
recent acceptable appraisals received by Agent with respect thereto has declined
so that the then outstanding principal amount of the Term Loans is greater than
such percentage with respect to such appraised values as Agent used in
establishing the original principal amount of the Term Loans multiplied by such
appraised values; (iii) returns, discounts, claims, credits and allowances of
any nature that are not paid pursuant to the reduction of Accounts, (iv) the
sales, excise or similar taxes included in the amount of any Accounts reported
to Agent, (v) on and after the Inventory Availability Date, a change in the
turnover, age or mix of the categories of Inventory that adversely affects the
aggregate value of all Inventory, (vi) on and after an Inventory Availability
Date, amounts due or to become due to owners and lessors of premises where any
Collateral is located, other than for those locations where Agent has received a
Collateral Access Agreement that Agent has approved and accepted in writing,
(vii) amounts due or to become due to owners and licensors of trademarks and
other Intellectual Property used by a Borrower in connection with the
manufacture, sale or distribution of any Inventory having a value in excess of
$500,000 or in connection with the use, development or maintenance of Records
relating to the Collateral, and (viii) obligations, liabilities or indebtedness
(contingent or otherwise) of Borrowers or Guarantors to any Bank Product
Provider arising under or in connection with any Bank Products of any Borrower
or Guarantor with a Bank Product Provider or as such Person may otherwise
require in connection therewith to the extent that such obligations, liabilities
or indebtedness constitute Obligations as such term is defined herein or
otherwise receive the benefit of the security interest of Agent in any
Collateral. To the extent Agent may revise the lending formulas used to
determine the Borrowing Base or establish new criteria or revise existing
criteria for Eligible Accounts or Eligible Inventory so as to address any
circumstances, condition, event or contingency in a manner satisfactory to
Agent, Agent shall not establish a Reserve for the same purpose. The amount of
any Reserve established by Agent shall have a reasonable relationship to the
event, condition or other matter which is the basis for such reserve as
determined by Agent in good faith and to the extent that such Reserve is in
respect of amounts that may be payable to third parties, Agent may, at its
option, deduct such Reserve from the Revolving Loan Limit, at any time that such
limit is less than the amount of the Borrowing Base.

 

1.117 “Revolving Loan Limit” shall mean, at any time, the amount equal to the
$38,500,000.

 

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1.118 “Revolving Loans” shall mean the loans now or hereafter made by or on
behalf of any Lender or by Agent for the account of any Lender on a revolving
basis pursuant to the Credit Facility (involving advances, repayments and
readvances) as set forth in Section 2.1 hereof.

 

1.119 “Secured Parties” shall mean, collectively, (a) Agent, (b) Lenders,
(c) the Issuing Bank and (d) any Bank Product Provider; provided, that, (i) as
to any Bank Product Provider, only to the extent of the Obligations owing to
such Bank Product Provider and (ii) such parties are sometimes referred to
herein individually as a “Secured Party”.

 

1.120 “Solvent” shall mean, at any time with respect to any Person, that at such
time such Person (a) is able to pay its debts as they mature and has (and has a
reasonable basis to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business consistent with its
practices as of the date hereof, and (b) the assets and properties of such
Person at a fair valuation (and including as assets for this purpose at a fair
valuation all rights of subrogation, contribution or indemnification arising
pursuant to any guarantees given by such Person) are greater than the
Indebtedness of such Person, and including subordinated and contingent
liabilities computed at the amount which, such person has a reasonable basis to
believe, represents an amount which can reasonably be expected to become an
actual or matured liability (and including as to contingent liabilities arising
pursuant to any guarantee the face amount of such liability as reduced to
reflect the probability of it becoming a matured liability).

 

1.121 “Special Agent Advances” shall have the meaning set forth in Section 12.11
hereof.

 

1.122 “Subsidiary” or “subsidiary” shall mean, with respect to any Person, any
corporation, limited liability company, limited liability partnership or other
limited or general partnership, trust, association or other business entity of
which an aggregate of at least a majority of the outstanding Capital Stock or
other interests entitled to vote in the election of the board of directors of
such corporation (irrespective of whether, at the time, Capital Stock of any
other class or classes of such corporation shall have or might have voting power
by reason of the happening of any contingency), managers, trustees or other
controlling persons, or an equivalent controlling interest therein, of such
Person is, at the time, directly or indirectly, owned by such Person and/or one
or more subsidiaries of such Person.

 

1.123 “Term Loans” shall mean, collectively, the term loans made by or on behalf
of Lenders to Borrowers as provided for in Section 2.3 hereof; sometimes being
referred to herein individually as a “Term Loan”.

 

1.124 “UCC” shall mean the Uniform Commercial Code as in effect in the State of
New York, and any successor statute, as in effect from time to time (except that
terms used herein which are defined in the Uniform Commercial Code as in effect
in the State of New York on the date hereof shall continue to have the same
meaning notwithstanding any replacement or amendment of such statute except as
Agent may otherwise determine).

 

1.125 “Value” shall mean, as determined by Agent in good faith, with respect to
Inventory, the lower of (a) cost computed on a first-in first-out basis in
accordance with GAAP or (b) market value, provided, that, for purposes of the
calculation of the Borrowing Base, (i) the

 

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Value of the Inventory shall not include: (A) the portion of the value of
Inventory equal to the profit earned by any Affiliate on the sale thereof to any
Borrower or (B) write-ups or write-downs in value with respect to currency
exchange rates and (ii) notwithstanding anything to the contrary contained
herein, the cost of the Inventory shall be computed in the same manner and
consistent with the most recent appraisal of the Inventory received and accepted
by Agent prior to the date hereof, if any.

 

1.126 “Voting Stock” shall mean with respect to any Person, (a) one (1) or more
classes of Capital Stock of such Person having general voting powers to elect at
least a majority of the board of directors, managers or trustees of such Person,
irrespective of whether at the time Capital Stock of any other class or classes
have or might have voting power by reason of the happening of any contingency,
and (b) any Capital Stock of such Person convertible or exchangeable without
restriction at the option of the holder thereof into Capital Stock of such
Person described in clause (a) of this definition.

 

1.127 “Wachovia” shall mean Wachovia Capital Finance Corporation (Western), a
California corporation, in its individual capacity, and its successors and
assigns.

 

SECTION 2. CREDIT FACILITIES

 

2.1 Loans.

 

(a) Subject to and upon the terms and conditions contained herein, each Lender
severally (and not jointly) agrees to make its Pro Rata Share of Revolving Loans
to each Borrower from time to time in amounts requested by such Borrower (or
Administrative Borrower on behalf of such Borrower) up to the aggregate amount
outstanding for all Lenders at any time equal to the lesser of: (i) the
Borrowing Base at such time or (ii) the Revolving Loan Limit at such time.

 

(b) Except in Agent’s discretion, with the consent of all Lenders, or as
otherwise provided herein, (i) the aggregate amount of the Loans and the Letter
of Credit Obligations outstanding at any time shall not exceed the Maximum
Credit and (ii) the aggregate principal amount of the Revolving Loans and Letter
of Credit Obligations outstanding at any time shall not exceed the lesser of the
Borrowing Base or the Revolving Loan Limit.

 

(c) In the event that (i) the aggregate amount of the Loans and the Letter of
Credit Obligations outstanding at any time exceed the Maximum Credit, or
(ii) except as otherwise provided herein, the aggregate principal amount of the
Revolving Loans and Letter of Credit Obligations outstanding at any time exceed
the lesser of the Borrowing Base or the Revolving Loan Limit, such event shall
not limit, waive or otherwise affect any rights of Agent or Lenders in such
circumstances or on any future occasions and Borrowers shall, upon demand by
Agent, which may be made at any time or from time to time, immediately repay to
Agent the entire amount of any such excess(es) for which payment is demanded.

 

2.2 Letters of Credit.

 

(a) Subject to and upon the terms and conditions contained herein and in the
Letter of Credit Documents, at the request of a Borrower (or Administrative
Borrower on behalf of such

 

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Borrower), Agent agrees to cause Issuing Bank to issue, and Issuing Bank agrees
to issue, for the account of such Borrower one or more Letters of Credit, for
the ratable risk of each Lender according to its Pro Rata Share, containing
terms and conditions acceptable to such Borrower, Agent and Issuing Bank.

 

(b) The Borrower requesting such Letter of Credit (or Administrative Borrower on
behalf of such Borrower) shall give Agent and Issuing Bank three (3) Business
Days’ prior written notice of such Borrower’s request for the issuance of a
Letter of Credit. Such notice shall be irrevocable and shall specify the
original face amount of the Letter of Credit requested, the effective date
(which date shall be a Business Day and in no event shall be a date less than
ten (10) days prior to the end of the then current term of this Agreement) of
issuance of such requested Letter of Credit, whether such Letter of Credit may
be drawn in a single or in partial draws, the date on which such requested
Letter of Credit is to expire (which date shall be a Business Day and shall not
be more than one year from the date of issuance), the purpose for which such
Letter of Credit is to be issued, and the beneficiary of the requested Letter of
Credit. The Borrower requesting the Letter of Credit (or Administrative Borrower
on behalf of such Borrower) shall attach to such notice the proposed terms of
the Letter of Credit. The renewal or extension of any Letter of Credit shall,
for purposes hereof be treated in all respects the same as the issuance of a new
Letter of Credit hereunder.

 

(c) In addition to being subject to the satisfaction of the applicable
conditions precedent contained in Section 4 hereof and the other terms and
conditions contained herein, no Letter of Credit shall be available unless each
of the following conditions precedent have been satisfied in a manner
satisfactory to Agent: (i) the Borrower requesting such Letter of Credit (or
Administrative Borrower on behalf of such Borrower) shall have delivered to
Issuing Bank at such times and in such manner as Issuing Bank may require, an
application, in form and substance satisfactory to Issuing Bank and Agent, for
the issuance of the Letter of Credit and such other Letter of Credit Documents
as may be required pursuant to the terms thereof, and the form and terms of the
proposed Letter of Credit shall be satisfactory to Agent and Issuing Bank,
(ii) as of the date of issuance, no order of any court, arbitrator or other
Governmental Authority shall purport by its terms to enjoin or restrain money
center banks generally from issuing letters of credit of the type and in the
amount of the proposed Letter of Credit, and no law, rule or regulation
applicable to money center banks generally and no request or directive (whether
or not having the force of law) from any Governmental Authority with
jurisdiction over money center banks generally shall prohibit, or request that
Issuing Bank refrain from, the issuance of letters of credit generally or the
issuance of such Letter of Credit, (iii) after giving effect to the issuance of
such Letter of Credit, the Letter of Credit Obligations shall not exceed the
Letter of Credit Limit, and (iv) the Excess Availability, prior to giving effect
to any Reserves with respect to such Letter of Credit, on the date of the
proposed issuance of any Letter of Credit shall be equal to or greater than:
(A) if the proposed Letter of Credit is for the purpose of purchasing Eligible
Inventory and the documents of title with respect thereto are consigned to
Issuing Bank or Agent, the sum of (1) the percentage equal to one hundred
(100%) percent minus the then applicable percentage with respect to Eligible
Inventory set forth in the definition of the term Borrowing Base multiplied by
the Value of such Eligible Inventory, plus (2) freight, taxes, duty and other
amounts which Agent estimates must be paid in connection with such Inventory
upon arrival and for delivery to one of such Borrower’s locations for Eligible
Inventory within the United States of America and (B) if the proposed Letter of
Credit is for any other purpose or the documents of

 

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title are not consigned to Issuing Bank or Agent in connection with a Letter of
Credit for the purpose of purchasing Inventory, an amount equal to one hundred
(100%) percent of the Letter of Credit Obligations with respect thereto.
Effective on the issuance of each Letter of Credit, a Reserve shall be
established in the applicable amount set forth in Section 2.2(c)(iv)(A) or
Section 2.2(c)(iv)(B).

 

(d) Except in Agent’s discretion, with the consent of all Lenders, the amount of
all outstanding Letter of Credit Obligations shall not at any time exceed the
Letter of Credit Limit.

 

(e) Each Borrower shall reimburse immediately Issuing Bank for any draw under
any Letter of Credit issued for the account of such Borrower and pay Issuing
Bank the amount of all other charges and fees payable to Issuing Bank in
connection with any Letter of Credit issued for the account of such Borrower
immediately when due, irrespective of any claim, setoff, defense or other right
which such Borrower may have at any time against Issuing Bank or any other
Person. Each drawing under any Letter of Credit or other amount payable in
connection therewith when due shall constitute a request by the Borrower for
whose account such Letter of Credit was issued to Agent for a Prime Rate Loan in
the amount of such drawing or other amount then due, and shall be made by Agent
on behalf of Lenders as a Revolving Loan (or Special Agent Advance, as the case
may be). The date of such Loan shall be the date of the drawing or as to other
amounts, the due date therefor. Any payments made by or on behalf of Agent or
any Lender to Issuing Bank and/or related parties in connection with any Letter
of Credit shall constitute additional Revolving Loans to such Borrower pursuant
to this Section 2 (or Special Agent Advances as the case may be).

 

(f) Borrowers and Guarantors shall indemnify and hold Agent and Lenders harmless
from and against any and all losses, claims, damages, liabilities, costs and
expenses which Agent or any Lender may suffer or incur in connection with any
Letter of Credit and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by Issuing Bank or correspondent with respect to any Letter of
Credit, except for such losses, claims, damages, liabilities, costs or expenses
that are a direct result of the gross negligence or wilful misconduct of Agent
or any Lender as determined pursuant to a final non-appealable order of a court
of competent jurisdiction. Each Borrower and Guarantor assumes all risks with
respect to the acts or omissions of the drawer under or beneficiary of any
Letter of Credit and for such purposes the drawer or beneficiary shall be deemed
such Borrower’s agent. Each Borrower and Guarantor assumes all risks for, and
agrees to pay, all foreign, Federal, State and local taxes, duties and levies
relating to any goods subject to any Letter of Credit or any documents, drafts
or acceptances thereunder. Each Borrower and Guarantor hereby releases and holds
Agent and Lenders harmless from and against any acts, waivers, errors, delays or
omissions with respect to or relating to any Letter of Credit, except for the
gross negligence or wilful misconduct of Agent or any Lender as determined
pursuant to a final, non-appealable order of a court of competent jurisdiction.
The provisions of this Section 2.2(f) shall survive the payment of Obligations
and the termination of this Agreement.

 

(g) In connection with Inventory purchased pursuant to any Letter of Credit,
Borrowers and Guarantors shall, at Agent’s request, instruct all suppliers,
carriers, forwarders, customs brokers, warehouses or others receiving or holding
cash, checks, Inventory, documents

 

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or instruments in which Agent holds a security interest that upon Agent’s
request, such items are to be delivered to Agent and/or subject to Agent’s
order, and if they shall come into such Borrower’s or Guarantor’s possession, to
deliver them, upon Agent’s request, to Agent in their original form. Except as
otherwise provided herein, Agent shall not exercise such right to request such
items so long as no Default or Event of Default shall exist or have occurred and
be continuing. Except as Agent may otherwise specify, Borrowers and Guarantors
shall designate Issuing Bank as the consignee on all bills of lading and other
negotiable and non-negotiable documents.

 

(h) Each Borrower and Guarantor hereby irrevocably authorizes and directs
Issuing Bank to name such Borrower or Guarantor as the account party therein and
to deliver to Agent all instruments, documents and other writings and property
received by Issuing Bank pursuant to the Letter of Credit and to accept and rely
upon Agent’s instructions and agreements with respect to all matters arising in
connection with the Letter of Credit or the Letter of Credit Documents with
respect thereto. Nothing contained herein shall be deemed or construed to grant
any Borrower or Guarantor any right or authority to pledge the credit of Agent
or any Lender in any manner. Borrowers and Guarantors shall be bound by any
reasonable interpretation made in good faith by Agent, or Issuing Bank under or
in connection with any Letters of Credit or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be inconsistent with
any instructions of any Borrower or Guarantor.

 

(i) Immediately upon the issuance or amendment of any Letter of Credit, each
Lender shall be deemed to have irrevocably and unconditionally purchased and
received, without recourse or warranty, an undivided interest and participation
to the extent of such Lender’s Pro Rata Share of the liability with respect to
such Letter of Credit and the obligations of Borrowers with respect thereto
(including all Letter of Credit Obligations with respect thereto). Each Lender
shall absolutely, unconditionally and irrevocably assume, as primary obligor and
not as surety, and be obligated to pay to Issuing Bank therefor and discharge
when due, its Pro Rata Share of all of such obligations arising under such
Letter of Credit. Without limiting the scope and nature of each Lender’s
participation in any Letter of Credit, to the extent that Issuing Bank has not
been reimbursed or otherwise paid as required hereunder or under any such Letter
of Credit, each such Lender shall pay to Issuing Bank its Pro Rata Share of such
unreimbursed drawing or other amounts then due to Issuing Bank in connection
therewith.

 

(j) The obligations of Borrowers to pay each Letter of Credit Obligations and
the obligations of Lenders to make payments to Agent for the account of Issuing
Bank with respect to Letters of Credit shall be absolute, unconditional and
irrevocable and shall be performed strictly in accordance with the terms of this
Agreement under any and all circumstances, whatsoever, notwithstanding the
occurrence or continuance of any Default, Event of Default, the failure to
satisfy any other condition set forth in Section 4 or any other event or
circumstance. If such amount is not made available by a Lender when due, Agent
shall be entitled to recover such amount on demand from such Lender with
interest thereon, for each day from the date such amount was due until the date
such amount is paid to Agent at the interest rate then payable by any Borrower
in respect of Loans that are Prime Rate Loans. Any such reimbursement shall not
relieve or otherwise impair the obligation of Borrowers to reimburse Issuing
Bank under any Letter of Credit or make any other payment in connection
therewith.

 

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2.3 Term Loans.

 

(a) Subject to and upon the terms and conditions contained herein, each Lender
severally (and not jointly) agrees to make Term Loans in an amount equal to its
Pro Rata Share of the Term Loans on the date hereof. The aggregate original
principal amount of the Term Loans to Borrowers shall be in the amount of
$16,500,000.

 

(b) Each of the Term Loans is (i) to be repaid, together with interest and other
amounts, in accordance with this Agreement, the Term Promissory Note evidencing
such Term Loan, and the other Financing Agreements and (ii) secured by all of
the Collateral. The principal amount of each of the Term Loans shall be repaid
in twenty (20) consecutive installments (or earlier as provided herein) payable
on the first day of each December, March, June and September of each year,
commencing with December 1, 2005, of which the first nineteen (19) installments
shall each be in the aggregate amount of $687,500 and the last installment shall
be in the amount of the entire unpaid balance of such Term Loan; provided, that,
the entire unpaid principal amount of Term Loans and all accrued and unpaid
interest thereon shall be due and payable on the earlier of the Maturity Date or
any other effective date of termination of this Agreement or an Event of Default
as provided herein.

 

2.4 Commitments. The aggregate amount of each Lender’s Pro Rata Share of the
Loans and Letter of Credit Obligations shall not exceed the amount of such
Lender’s Commitment, as the same may from time to time be amended in accordance
with the provisions hereof.

 

SECTION 3. INTEREST AND FEES

 

3.1 Interest.

 

(a) Borrowers shall pay to Agent, for the benefit of Lenders, interest on the
outstanding principal amount of the Loans at the Interest Rate. All interest
accruing hereunder on and after the date of any Event of Default or termination
hereof shall be payable on demand.

 

(b) Each Borrower (or Administrative Borrower on behalf of such Borrower) may
from time to time request Eurodollar Rate Loans or may request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate
Loans continue for an additional Interest Period. Such request from a Borrower
(or Administrative Borrower on behalf of such Borrower) shall specify the amount
of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be
converted to Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans to
be continued (subject to the limits set forth below) and the Interest Period to
be applicable to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Agent of such a
request from a Borrower (or Administrative Borrower on behalf of such Borrower),
such Eurodollar Rate Loans shall be made or Prime Rate Loans shall be converted
to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the
case may be, provided, that, (i) no Default or Event of Default shall exist or
have occurred and be continuing, (ii) no party hereto shall have sent any notice
of termination of this Agreement, (iii) such Borrower (or Administrative
Borrower on behalf of such Borrower) shall have complied with such customary
procedures as are established by Agent and specified by Agent to Administrative
Borrower from time to time for requests by Borrowers

 

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for Eurodollar Rate Loans, (iv) no more than eight (8) Interest Periods may be
in effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $2,000,000 or an integral multiple of
$500,000 in excess thereof, and (vi) Agent and each Lender shall have determined
that the Interest Period or Adjusted Eurodollar Rate is available to Agent and
such Lender and can be readily determined as of the date of the request for such
Eurodollar Rate Loan by such Borrower. Any request by or on behalf of a Borrower
for Eurodollar Rate Loans or to convert Prime Rate Loans to Eurodollar Rate
Loans or to continue any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Agent and Lenders
shall not be required to purchase United States Dollar deposits in the London
interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if
Agent and Lenders had purchased such deposits to fund the Eurodollar Rate Loans.

 

(c) Any Eurodollar Rate Loans shall automatically convert to Prime Rate Loans
upon the last day of the applicable Interest Period, unless Agent has received
and approved a request to continue such Eurodollar Rate Loan at least three
(3) Business Days prior to such last day in accordance with the terms hereof.
Any Eurodollar Rate Loans shall, at Agent’s option, upon notice by Agent to
Parent, be subsequently converted to Prime Rate Loans in the event that this
Agreement shall terminate or not be renewed. Borrowers shall pay to Agent, for
the benefit of Lenders, upon demand by Agent (or Agent may, at its option,
charge any loan account of any Borrower) any amounts required to compensate any
Lender or Participant for any loss (including loss of anticipated profits), cost
or expense incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.

 

(d) Interest on Prime Rate Loans shall be payable by Borrowers to Agent, for the
account of Lenders, monthly in arrears not later than the first day of each
calendar month and shall be calculated on the basis of a three hundred
sixty-five (365) or three hundred sixty-six (366) day year, as applicable, and
actual days elapsed.

 

(e) Interest on Eurodollar Rate Loans shall be payable by Borrowers to Agent,
for the account of Lenders, in arrears on the last day of the Interest Period
applicable to such Eurodollar Rate Loans and, if such Interest Period has a
duration of more than three months, on each day that occurs during such Interest
Period every three months from the first day of such Interest Period and on the
date such Eurodollar Rate Loan shall be converted or paid in full and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed.

 

(f) The interest rate on non-contingent Obligations (other than Eurodollar Rate
Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the date of any change in such Prime
Rate. In no event shall charges constituting interest payable by Borrowers to
Agent and Lenders exceed the maximum amount or the rate permitted under any
applicable law or regulation, and if any such part or provision of this
Agreement is in contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.

 

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3.2 Fees.

 

(a) Borrowers shall pay to Agent, for the account of Lenders, quarterly an
unused line fee at a rate equal to the percentage (on a per annum basis) set
forth below calculated upon the amount by which the Revolving Loan Limit exceeds
the Quarterly Average Revolving Obligations during the immediately preceding
quarter (or part thereof) while this Agreement is in effect and for so long
thereafter as any of the Obligations are outstanding. Such fee shall be payable
on the first day of each calendar quarter in arrears. The percentage used for
determining the unused line fee shall be as set forth below if the Quarterly
Average Revolving Obligations for the immediately preceding calendar quarter is
at or within the amounts indicated for such percentage:

 

Tier

--------------------------------------------------------------------------------

  

Quarterly Average

Revolving Obligations

--------------------------------------------------------------------------------

  

Unused Line

Fee Percentage

--------------------------------------------------------------------------------

  1    Greater than or equal to $20,000,000    .250 % 2    Less than $20,000,000
and greater than or equal to $10,000,000    .375 % 3    Less than $10,000,000   
.500 %

 

provided, that, (i) the unused line fee percentage shall be calculated and
established based on the foregoing once each calendar quarter, (ii) each
adjustment of the unused line fee percentage shall be effective as of the first
day of a calendar quarter based on the Quarterly Average Revolving Obligations
for the immediately preceding calendar quarter and (iii) the unused line fee
until the last day of the second (2nd) full calendar quarter after the date
hereof shall be the amount set forth in Tier 2 above.

 

(b) Borrowers shall pay to Agent, for the account of Lenders, a fee at a rate
equal to the Applicable L/C Rate per annum on the average daily maximum amount
available to be drawn under Letters of Credit for the immediately preceding
quarter (or part thereof), payable in arrears as of the first day of each
succeeding calendar quarter, except that Borrowers shall pay, at Agent’s option
or at the request of the Required Lenders, after notice by Agent to
Administrative Borrower, such fee at a rate two (2%) percent greater than the
otherwise applicable rate on such average daily maximum amount for: (i) the
period from and after the date of termination or non-renewal hereof until
Lenders have received full and final payment of all Obligations (notwithstanding
entry of a judgment against any Borrower or Guarantor) and (ii) the period from
and after the date of the occurrence of an Event of Default for so long as such
Event of Default is continuing. Agent may send such notice of its option or
shall send such notice at the request of Required Lenders. Such letter of credit
fees shall be calculated on the basis of a three hundred sixty (360) day year
and actual days elapsed and the obligation of Borrowers to pay such fee shall
survive the termination or non-renewal of this Agreement. In addition to the
letter of credit fees provided above, Borrowers shall pay to the Issuing Bank
for its own account (without sharing with Lenders) the letter of credit fronting
and negotiation fees agreed to by Borrowers and Issuing Bank from time to time
and the customary charges from time to time of Issuing Bank with respect to the
issuance, amendment, transfer, administration, cancellation and conversion of,
and drawings under, such Letters of Credit.

 

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(c) Borrowers shall pay to Agent the other fees and amounts set forth in the Fee
Letter in the amounts and at the times specified therein. To the extent payment
in full of the applicable fee is received by Agent from Borrowers on or about
the date hereof, Agent shall pay to each Lender its share of such fees in
accordance with the terms of the arrangements of Agent with such Lender.

 

3.3 Changes in Laws and Increased Costs of Loans.

 

(a) If after the date hereof, either (i) any change in, or in the interpretation
of, any law or regulation is introduced, including, without limitation, with
respect to reserve requirements, applicable to any Lender or any banking or
financial institution from whom any Lender borrows funds or obtains credit (a
“Funding Bank”), or (ii) a Funding Bank or any Lender complies with any future
guideline or request from any central bank or other Governmental Authority or
(iii) a Funding Bank, any Lender or Issuing Bank determines that the adoption of
any applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof has or would have the effect described
below, or a Funding Bank, any Lender or Issuing Bank complies with any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, and in the case of any
event set forth in this clause (iii), such adoption, change or compliance has or
would have the direct or indirect effect of reducing the rate of return on any
Lender’s or Issuing Bank’s capital as a consequence of its obligations hereunder
to a level below that which such Lender or Issuing Bank could have achieved but
for such adoption, change or compliance (taking into consideration the Funding
Bank’s or Lender’s or Issuing Bank’s policies with respect to capital adequacy)
by an amount deemed by such Lender or Issuing Bank to be material, and the
result of any of the foregoing events described in clauses (i), (ii) or (iii) is
or results in an increase in the cost to any Lender or Issuing Bank of funding
or maintaining the Loans, the Letters of Credit or its Commitment, then
Borrowers and Guarantors shall from time to time upon demand by Agent pay to
Agent additional amounts sufficient to indemnify such Lender or Issuing Bank, as
the case may be, against such increased cost on an after-tax basis (after taking
into account applicable deductions and credits in respect of the amount
indemnified). A certificate as to the amount of such increased cost and that in
general similarly situated borrowers from Agent or the applicable Lender are
being similarly treated shall be submitted to Administrative Borrower by Agent
or the applicable Lender and shall be conclusive, absent manifest error.

 

(b) If prior to the first day of any Interest Period, (i) Agent shall have
determined in good faith (which determination shall be conclusive and binding
upon Borrowers and Guarantors) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for ascertaining the
Adjusted Eurodollar Rate for such Interest Period, (ii) Agent has received
notice from the Required Lenders that the Adjusted Eurodollar Rate determined or
to be determined for such Interest Period will not adequately and fairly reflect
the cost to Lenders of making or maintaining Eurodollar Rate Loans during such
Interest Period, or (iii) Dollar deposits in the principal amounts of the
Eurodollar Rate Loans to which

 

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such Interest Period is to be applicable are not generally available in the
London interbank market, Agent shall give telecopy or telephonic notice thereof
to Administrative Borrower as soon as practicable thereafter, and will also give
prompt written notice to Administrative Borrower when such conditions no longer
exist. If such notice is given (A) any Eurodollar Rate Loans requested to be
made on the first day of such Interest Period shall be made as Prime Rate Loans,
(B) any Loans that were to have been converted on the first day of such Interest
Period to or continued as Eurodollar Rate Loans shall be converted to or
continued as Prime Rate Loans and (C) each outstanding Eurodollar Rate Loan
shall be converted, on the last day of the then-current Interest Period thereof,
to Prime Rate Loans. Until such notice has been withdrawn by Agent, no further
Eurodollar Rate Loans shall be made or continued as such, nor shall any Borrower
(or Administrative Borrower on behalf of any Borrower) have the right to convert
Prime Rate Loans to Eurodollar Rate Loans.

 

(c) Notwithstanding any other provision herein, if the adoption of or any change
in any law, treaty, rule or regulation or final, non-appealable determination of
an arbitrator or a court or other Governmental Authority or in the
interpretation or application thereof occurring after the date hereof shall make
it unlawful for Agent or any Lender to make or maintain Eurodollar Rate Loans as
contemplated by this Agreement, (i) Agent or such Lender shall promptly give
written notice of such circumstances to Administrative Borrower (which notice
shall be withdrawn whenever such circumstances no longer exist), (ii) the
commitment of such Lender hereunder to make Eurodollar Rate Loans, continue
Eurodollar Rate Loans as such and convert Prime Rate Loans to Eurodollar Rate
Loans shall forthwith be canceled and, until such time as it shall no longer be
unlawful for such Lender to make or maintain Eurodollar Rate Loans, such Lender
shall then have a commitment only to make a Prime Rate Loan when a Eurodollar
Rate Loan is requested and (iii) such Lender’s Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate
Loans on the respective last days of the then current Interest Periods with
respect to such Loans or within such earlier period as required by law. If any
such conversion of a Eurodollar Rate Loan occurs on a day which is not the last
day of the then current Interest Period with respect thereto, Borrowers and
Guarantors shall pay to such Lender such amounts, if any, as may be required
pursuant to Section 3.3(d) below.

 

(d) Borrowers and Guarantors shall indemnify Agent and each Lender and to hold
Agent and each Lender harmless from any loss or expense which Agent or such
Lender may sustain or incur as a consequence of (i) default by any Borrower in
making a borrowing of, conversion into or extension of Eurodollar Rate Loans
after such Borrower (or Administrative Borrower on behalf of such Borrower) has
given a notice requesting the same in accordance with the provisions of this
Agreement, (ii) default by any Borrower in making any prepayment of a Eurodollar
Rate Loan after such Borrower has given a notice thereof in accordance with the
provisions of this Agreement, and (iii) the making of a prepayment of Eurodollar
Rate Loans on a day which is not the last day of an Interest Period with respect
thereto. With respect to Eurodollar Rate Loans, such indemnification may include
an amount equal to the excess, if any, of (A) the amount of interest which would
have accrued on the amount so prepaid, or not so borrowed, converted or
extended, for the period from the date of such prepayment or of such failure to
borrow, convert or extend to the last day of the applicable Interest Period (or,
in the case of a failure to borrow, convert or extend, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Rate

 

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Loans provided for herein over (B) the amount of interest (as determined by such
Agent or such Lender) which would have accrued to Agent or such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank Eurodollar market. This covenant shall survive the
termination or non-renewal of this Agreement and the payment of the Obligations.

 

SECTION 4. CONDITIONS PRECEDENT

 

4.1 Conditions Precedent to Initial Loans and Letters of Credit. The obligation
of Lenders to make the initial Loans or of Issuing Bank to issue the initial
Letters of Credit hereunder is subject to the satisfaction of, or waiver of,
immediately prior to or concurrently with the making of such Loan or the
issuance of such Letter of Credit of each of the following conditions precedent:

 

(a) all requisite corporate action and proceedings in connection with this
Agreement and the other Financing Agreements shall be satisfactory in form and
substance to Agent, and Agent shall have received all information and copies of
all documents, including records of requisite corporate action and proceedings
which Agent may have requested in connection therewith, such documents where
requested by Agent or its counsel to be certified by appropriate corporate
officers or Governmental Authority (and including a copy of the certificate of
incorporation of each Borrower and Guarantor certified by the Secretary of State
(or equivalent Governmental Authority) which shall set forth the same complete
corporate name of such Borrower or Guarantor as is set forth herein and such
document as shall set forth the organizational identification number of each
Borrower or Guarantor, if one is issued in its jurisdiction of incorporation);

 

(b) no material adverse change shall have occurred in the assets, business or
prospects of Borrowers since the date of Agent’s latest field examination (not
including for this purpose the field review referred to in clause (c) below) and
no change or event shall have occurred which would impair the ability of any
Borrower or Guarantor to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Agent or any Lender to
enforce the Obligations or realize upon the Collateral;

 

(c) Agent shall have completed a field review of the Records and such other
information with respect to the Collateral as Agent may require to determine the
amount of Loans available to Borrowers (including, without limitation, current
perpetual inventory records and/or roll-forwards of Accounts and Inventory
through the date of closing and test counts of the Inventory in a manner
satisfactory to Agent, together with such supporting documentation as may be
necessary or appropriate, and other documents and information that will enable
Agent to accurately identify and verify the Collateral), the results of which in
each case shall be satisfactory to Agent, not more than three (3) Business Days
prior to the date hereof or such earlier date as Agent may agree;

 

(d) Agent shall have received, in form and substance satisfactory to Agent, all
consents, waivers, acknowledgments and other agreements from third persons which
Agent may deem necessary or desirable in order to permit, protect and perfect
its security interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing Agreements
(provided, that, the foregoing shall not include Collateral Access Agreements
for locations of Inventory at premises owned and operated by third parties);

 

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(e) the Excess Availability as determined by Agent, as of the date hereof, shall
be not less than $25,000,000 after giving effect to the initial Loans made or to
be made and Letters of Credit issued or to be issued in connection with the
initial transactions hereunder;

 

(f) the EBITDA of Parent and Domestic Subsidiaries (on a consolidated basis) for
the twelve (12) consecutive fiscal month period ending August 27, 2005 shall be
not less than $15,000,000, as determined by Agent;

 

(g) Agent shall have received a Borrowing Base Certificate setting forth the
Borrowing Base as at the date set forth therein and completed in a manner
reasonably satisfactory to Agent and duly authorized, executed and delivered by
Borrowers;

 

(h) Agent shall have received, in form and substance satisfactory to Agent,
Deposit Account Control Agreements and Investment Property Control Agreements by
and among Agent, each Borrower and Guarantor, as the case may be and each bank,
securities intermediary or other Person where such Borrower (or Guarantor) has a
deposit account, investment account or other account, in each case, duly
authorized, executed and delivered by such bank, securities intermediary or
other Person and Borrower or Guarantor, as the case may be;

 

(i) Agent shall have received evidence, in form and substance satisfactory to
Agent, that Agent has a valid perfected first priority security interest in all
of the Collateral;

 

(j) Agent shall have received and reviewed lien and judgment search results for
the jurisdiction of organization of each Borrower and Guarantor, the
jurisdiction of the chief executive office of each Borrower and Guarantor and
all jurisdictions in which assets of Borrowers and Guarantors are located, which
search results shall be in form and substance satisfactory to Agent;

 

(k) Agent shall have received environmental audits of the Real Property to be
subject to the Mortgage conducted by an independent environmental engineering
firm acceptable to Agent, and in form, scope and methodology satisfactory to
Agent, the results of which shall be satisfactory to Agent;

 

(l) Agent shall have received, in form and substance satisfactory to Agent, a
valid and effective title insurance policy issued by a company acceptable to
Agent: (i) insuring the priority, amount and sufficiency of the Mortgage,
(ii) insuring against matters that would be disclosed by surveys and
(iii) containing any legally available endorsements, assurances or affirmative
coverage requested by Agent for protection of its interests;

 

(m) Agent shall have received originals of the stock certificates representing
all of the issued and outstanding shares of the Capital Stock of the direct
Subsidiaries of each Borrower and Guarantor (in each case together with stock
powers duly executed in blank with respect thereto);

 

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(n) Agent shall have received evidence of insurance and loss payee endorsements
required hereunder and under the other Financing Agreements, in form and
substance satisfactory to Agent, and certificates of insurance policies and/or
endorsements naming Agent as loss payee;

 

(o) Agent shall have received evidence that the EPC Acquisition Documents have
been duly authorized, executed and delivered by and to the appropriate parties
thereto and that the EPC Acquisition and the transactions contemplated under the
terms and conditions of the EPC Acquisition Documents have been consummated
prior to or contemporaneously with the execution of this Agreement;

 

(p) Agent shall have received true and complete copies of the EPC Acquisition
Documents and all notices, consents, instruments, documents and agreements
relating thereto, including all exhibits and schedules thereto, all as duly
executed and delivered by the parties thereto;

 

(q) Agent shall have received, in form and substance satisfactory to Agent, such
opinion letters of counsel to Parent and its Subsidiaries with respect to the
Financing Agreements and such other matters as Agent may request; and

 

(r) the other Financing Agreements and all instruments and documents hereunder
and thereunder shall have been duly executed and delivered to Agent, in form and
substance satisfactory to Agent.

 

4.2 Conditions Precedent to All Loans and Letters of Credit. The obligation of
Lenders to make the Loans, including the initial Loans, or of Issuing Bank to
issue any Letter of Credit, including the initial Letters of Credit, is subject
to the further satisfaction of, or waiver of, immediately prior to or
concurrently with the making of each such Loan or the issuance of such Letter of
Credit of each of the following conditions precedent:

 

(a) all representations and warranties contained herein and in the other
Financing Agreements shall be true and correct with the same effect as though
such representations and warranties had been made on and as of the date of the
making of each such Loan or providing each such Letter of Credit and after
giving effect thereto, except to the extent that such representations and
warranties expressly relate solely to an earlier date (in which case such
representations and warranties shall have been true and accurate on and as of
such earlier date);

 

(b) no law, regulation, order, judgment or decree of any Governmental Authority
shall exist, and no action, suit, investigation, litigation or proceeding shall
be pending or threatened in any court or before any arbitrator or Governmental
Authority, which (i) purports to enjoin, prohibit, restrain or otherwise affect
(A) the making of the Loans or providing the Letters of Credit, or (B) the
consummation of the transactions contemplated pursuant to the terms hereof or
the other Financing Agreements or (ii) has or has a reasonable likelihood of
having a Material Adverse Effect except for (A) the pending shareholder
derivative complaints filed, purportedly on behalf of Parent, in the Circuit
Court for the State of Oregon, County of Multnomah, against the executive
officers and directors of Parent and (B) the securities class action complaints
filed in the United States District Court for the District of Oregon against
Parent and certain of its executive officers and directors, in each case as
described in Section 8.6 of the Information Certificate; and

 

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(c) no Default or Event of Default shall exist or have occurred and be
continuing on and as of the date of the making of such Loan or providing each
such Letter of Credit and after giving effect thereto.

 

SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST

 

5.1 Grant of Security Interest.

 

(a) To secure payment and performance of all Obligations, each Borrower and
Guarantor hereby grants to Agent, for itself and the benefit of the Secured
Parties, a continuing security interest in, a lien upon, and a right of set off
against, and hereby assigns to Agent, for itself and the benefit of the Secured
Parties, as security, all personal and real property and fixtures, and interests
in property and fixtures, of each Borrower and Guarantor, whether now owned or
hereafter acquired or existing, and wherever located (together with all other
collateral security for the Obligations at any time granted to or held or
acquired by Agent or any Secured Party, collectively, the “Collateral”),
including:

 

(i) all Accounts;

 

(ii) all general intangibles, including, without limitation, all Intellectual
Property;

 

(iii) all goods, including, without limitation, Inventory and Equipment;

 

(iv) all Real Property at any time subject to the Mortgage and fixtures;

 

(v) all chattel paper, including, without limitation, all tangible and
electronic chattel paper;

 

(vi) all instruments, including, without limitation, all promissory notes;

 

(vii) all documents;

 

(viii) all deposit accounts;

 

(ix) all letters of credit, banker’s acceptances and similar instruments and
including all letter-of-credit rights;

 

(x) all supporting obligations and all present and future liens, security
interests, rights, remedies, title and interest in, to and in respect of
Receivables and other Collateral, including (A) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (B) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (C) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Receivables or other Collateral, including returned, repossessed
and reclaimed goods, and (D) deposits by and property of account debtors or
other persons securing the obligations of account debtors;

 

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(xi) all (A) investment property (including securities, whether certificated or
uncertificated, securities accounts, security entitlements, commodity contracts
or commodity accounts) and (B) monies, credit balances, deposits and other
property of any Borrower or Guarantor now or hereafter held or received by or in
transit to Agent, any Lender or its Affiliates or at any other depository or
other institution from or for the account of any Borrower or Guarantor, whether
for safekeeping, pledge, custody, transmission, collection or otherwise;

 

(xii) all commercial tort claims, including, without limitation, those
identified in the Information Certificate;

 

(xiii) to the extent not otherwise described above, all Receivables;

 

(xiv) all Records; and

 

(xv) all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of or other involuntary conversion of any kind or nature of any or
all of the other Collateral.

 

(b) Notwithstanding anything to the contrary contained in Section 5.1(a) above,
the types or items of Collateral described in such Section shall not include
(i) the portion of the Capital Stock of any Foreign Subsidiary that is a
“controlled foreign corporation” (as such term is defined in Section 957(a) of
the Code or a successor provision thereof) in excess of sixty-five (65%) percent
of the voting power of all classes of Capital Stock of such issuer entitled to
vote (within the meaning of Treasury Regulation Section 1.956-2) if it would
have material adverse tax consequences for such Borrower or Guarantor or
(ii) the business interruption insurance of Borrowers and Guarantors.

 

5.2 Perfection of Security Interests.

 

(a) Each Borrower and Guarantor irrevocably and unconditionally authorizes Agent
(or its agent) to file at any time and from time to time such financing
statements with respect to the Collateral naming Agent or its designee as the
secured party and such Borrower or Guarantor as debtor, as Agent may require,
and including any other information with respect to such Borrower or Guarantor
or otherwise required by part 5 of Article 9 of the Uniform Commercial Code of
such jurisdiction as Agent may determine, together with any amendment and
continuations with respect thereto, which authorization shall apply to all
financing statements filed on, prior to or after the date hereof. Each Borrower
and Guarantor hereby ratifies and approves all financing statements naming Agent
or its designee as secured party and such Borrower or Guarantor, as the case may
be, as debtor with respect to the Collateral (and any amendments with respect to
such financing statements) filed by or on behalf of Agent prior to the date
hereof and ratifies and confirms the authorization of Agent to file such
financing statements (and amendments, if any). Each Borrower and Guarantor
hereby authorizes Agent to adopt on behalf of such Borrower and Guarantor any
symbol required for authenticating any electronic filing. In the event that the
description of the collateral in any financing statement naming Agent or its
designee as the secured party and any Borrower or Guarantor as debtor includes
assets and

 

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properties of such Borrower or Guarantor that do not at any time constitute
Collateral, whether hereunder, under any of the other Financing Agreements or
otherwise, the filing of such financing statement shall nonetheless be deemed
authorized by such Borrower or Guarantor to the extent of the Collateral
included in such description and it shall not render the financing statement
ineffective as to any of the Collateral or otherwise affect the financing
statement as it applies to any of the Collateral. In no event shall any Borrower
or Guarantor at any time file, or permit or cause to be filed, any correction
statement or termination statement with respect to any financing statement (or
amendment or continuation with respect thereto) naming Agent or its designee as
secured party and such Borrower or Guarantor as debtor.

 

(b) Each Borrower and Guarantor does not have any chattel paper (whether
tangible or electronic) or instruments as of the date hereof, except as set
forth in the Information Certificate. In the event that any Borrower or
Guarantor shall be entitled to or shall receive any chattel paper or instrument
after the date hereof, Borrowers and Guarantors shall promptly notify Agent
thereof in writing. Promptly upon the receipt thereof by or on behalf of any
Borrower or Guarantor (including by any agent or representative), such Borrower
or Guarantor shall deliver, or cause to be delivered to Agent, all tangible
chattel paper and instruments that such Borrower or Guarantor has or may at any
time acquire, accompanied by such instruments of transfer or assignment duly
executed in blank as Agent may from time to time specify, in each case except as
Agent may otherwise agree. At Agent’s option, each Borrower and Guarantor shall,
or Agent may at any time on behalf of any Borrower or Guarantor, cause the
original of any such instrument or chattel paper to be conspicuously marked in a
form and manner acceptable to Agent with the following legend referring to
chattel paper or instruments as applicable: “This [chattel paper][instrument] is
subject to the security interest of Wachovia Capital Finance Corporation
(Western), as Agent and any sale, transfer, assignment or encumbrance of this
[chattel paper][instrument] violates the rights of such secured party.”

 

(c) In the event that any Borrower or Guarantor shall at any time hold or
acquire an interest in any electronic chattel paper or any “transferable record”
(as such term is defined in Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction), such Borrower or
Guarantor shall promptly notify Agent thereof in writing. Promptly upon Agent’s
request, such Borrower or Guarantor shall take, or cause to be taken, such
actions as Agent may request to give Agent control of such electronic chattel
paper under Section 9-105 of the UCC and control of such transferable record
under Section 201 of the Federal Electronic Signatures in Global and National
Commerce Act or, as the case may be, Section 16 of the Uniform Electronic
Transactions Act, as in effect in such jurisdiction.

 

(d) Each Borrower and Guarantor does not have any deposit accounts as of the
date hereof, except as set forth in the Information Certificate. Borrowers and
Guarantors shall not, directly or indirectly, after the date hereof open,
establish or maintain any deposit account unless each of the following
conditions is satisfied: (i) Agent shall have received not less than five
(5) Business Days prior written notice of the intention of any Borrower or
Guarantor to open or establish such account which notice shall specify in
reasonable detail and specificity acceptable to Agent the name of the account,
the owner of the account, the name and address of the bank at which such account
is to be opened or established, the individual at such bank with whom such
Borrower or Guarantor is dealing and the purpose of the account, (ii) the bank
where such

 

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account is opened or maintained shall be reasonably acceptable to Agent, and
(iii) on or before the opening of such deposit account, such Borrower or
Guarantor shall deliver to Agent a Deposit Account Control Agreement with
respect to such deposit account duly authorized, executed and delivered by such
Borrower or Guarantor and the bank at which such deposit account is opened and
maintained. The terms of this subsection (d) shall not apply to deposit accounts
specifically and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for the benefit of any Borrower’s or Guarantor’s
salaried employees.

 

(e) No Borrower or Guarantor owns or holds, directly or indirectly, beneficially
or as record owner or both, any investment property, as of the date hereof, or
have any investment account, securities account, commodity account or other
similar account with any bank or other financial institution or other securities
intermediary or commodity intermediary as of the date hereof, in each case
except as set forth in the Information Certificate.

 

(i) In the event that any Borrower or Guarantor shall be entitled to or shall at
any time after the date hereof hold or acquire any certificated securities, such
Borrower or Guarantor shall promptly endorse, assign and deliver the same to
Agent, accompanied by such instruments of transfer or assignment duly executed
in blank as Agent may from time to time specify; provided, that, if such
certificated securities constitute shares of Capital Stock of a Foreign
Subsidiary constituting a “controlled foreign corporation” (as such term is
defined in Section 957(a) of the Code or a successor provision thereof), then
such Borrower or Guarantor shall not be required to endorse, assign or deliver
to Agent those certificates representing the number of shares of the issuer
thereof exceeding sixty-five (65%) percent of the voting power of all classes of
Capital Stock of such issuer entitled to vote if it would have material adverse
tax consequences for such Borrowers or Guarantor. If any securities, now or
hereafter acquired by any Borrower or Guarantor are uncertificated and are
issued to such Borrower or Guarantor or its nominee directly by the issuer
thereof, such Borrower or Guarantor shall immediately notify Agent thereof and
shall subject to the proviso contained in the immediately preceding sentence,
cause the issuer to agree (in form and substance satisfactory to Agent) to
comply with instructions from Agent as to such securities, without further
consent of any Borrower or Guarantor or such nominee.

 

(ii) Borrowers and Guarantors shall not, directly or indirectly, after the date
hereof open, establish or maintain any investment account, securities account,
commodity account or any other similar account (other than a deposit account)
with any securities intermediary or commodity intermediary unless each of the
following conditions is satisfied: (A) Agent shall have received not less than
five (5) Business Days prior written notice of the intention of such Borrower or
Guarantor to open or establish such account which notice shall specify in
reasonable detail and specificity acceptable to Agent the name of the account,
the owner of the account, the name and address of the securities intermediary or
commodity intermediary at which such account is to be opened or established, the
individual at such intermediary with whom such Borrower or Guarantor is dealing
and the purpose of the account, (B) the securities intermediary or commodity
intermediary (as the case may be) where such account is opened or maintained
shall be acceptable to Agent, and (C) on or before the opening of such
investment account, securities account or other similar account with a
securities intermediary or commodity intermediary, such Borrower or Guarantor
shall execute and deliver, and cause to be executed and delivered to Agent, an
Investment Property Control Agreement with respect thereto duly authorized,
executed and delivered by such Borrower or Guarantor and such securities
intermediary or commodity intermediary.

 

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(f) Borrowers and Guarantors are not the beneficiary or otherwise entitled to
any right to payment under any letter of credit, banker’s acceptance or similar
instrument as of the date hereof, except as set forth in the Information
Certificate. In the event that any Borrower or Guarantor shall be entitled to or
shall receive any right to payment under any letter of credit, banker’s
acceptance or any similar instrument, whether as beneficiary thereof or
otherwise after the date hereof, such Borrower or Guarantor shall promptly
notify Agent thereof in writing. Such Borrower or Guarantor shall immediately,
as Agent may specify, either (i) deliver, or cause to be delivered to Agent,
with respect to any such letter of credit, banker’s acceptance or similar
instrument, the written agreement of the issuer and any other nominated person
obligated to make any payment in respect thereof (including any confirming or
negotiating bank), in form and substance satisfactory to Agent, consenting to
the assignment of the proceeds of the letter of credit to Agent by such Borrower
or Guarantor and agreeing to make all payments thereon directly to Agent or as
Agent may otherwise direct or (ii) cause Agent to become, at Borrowers’ expense,
the transferee beneficiary of the letter of credit, banker’s acceptance or
similar instrument (as the case may be).

 

(g) Borrowers and Guarantors do not have any commercial tort claims as of the
date hereof, except as set forth in the Information Certificate. In the event
that any Borrower or Guarantor shall at any time after the date hereof have any
commercial tort claims, such Borrower or Guarantor shall promptly notify Agent
thereof in writing, which notice shall (i) set forth in reasonable detail the
basis for and nature of such commercial tort claim and (ii) include the express
grant by such Borrower or Guarantor to Agent of a security interest in such
commercial tort claim (and the proceeds thereof). In the event that such notice
does not include such grant of a security interest, the sending thereof by such
Borrower or Guarantor to Agent shall be deemed to constitute such grant to
Agent. Upon the sending of such notice, any commercial tort claim described
therein shall constitute part of the Collateral and shall be deemed included
therein. Without limiting the authorization of Agent provided in Section 5.2(a)
hereof or otherwise arising by the execution by such Borrower or Guarantor of
this Agreement or any of the other Financing Agreements, Agent is hereby
irrevocably authorized from time to time and at any time to file such financing
statements naming Agent or its designee as secured party and such Borrower or
Guarantor as debtor, or any amendments to any financing statements, covering any
such commercial tort claim as Collateral. In addition, each Borrower and
Guarantor shall promptly upon Agent’s request, execute and deliver, or cause to
be executed and delivered, to Agent such other agreements, documents and
instruments as Agent may require in connection with such commercial tort claim.

 

(h) Borrowers and Guarantors do not have any goods, documents of title or other
Collateral in the custody, control or possession of a third party as of the date
hereof, except as set forth in the Information Certificate and except for goods
in transit to a location of a Borrower or Guarantor permitted herein in the
ordinary course of business of such Borrower or Guarantor in the possession of
the carrier transporting such goods. In the event that any goods, documents of
title or other Collateral collectively having a value in excess of $100,000 are
at any time after the date hereof in the custody, control or possession of any
other person not referred to in the Information Certificate or such carriers,
Borrowers and Guarantors shall promptly notify Agent

 

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thereof in writing. Promptly upon Agent’s request, Borrowers and Guarantors
shall deliver to Agent a Collateral Access Agreement duly authorized, executed
and delivered by such person and the Borrower or Guarantor that is the owner of
such Collateral.

 

(i) Borrowers and Guarantors shall take any other actions reasonably requested
by Agent from time to time to cause the attachment, perfection and first
priority of, and the ability of Agent to enforce, the security interest of Agent
in any and all of the Collateral, including, without limitation, (i) executing,
delivering and, where appropriate, filing financing statements and amendments
relating thereto under the UCC or other applicable law, to the extent, if any,
that any Borrower’s or Guarantor’s signature thereon is required therefor,
(ii) causing Agent’s name to be noted as secured party on any certificate of
title for a titled good if such notation is a condition to attachment,
perfection or priority of, or ability of Agent to enforce, the security interest
of Agent in such Collateral, (iii) complying with any provision of any statute,
regulation or treaty of the United States as to any Collateral if compliance
with such provision is a condition to attachment, perfection or priority of, or
ability of Agent to enforce, the security interest of Agent in such Collateral,
(iv) obtaining the consents and approvals of any Governmental Authority or third
party, including, without limitation, any consent of any licensor, lessor or
other person obligated on Collateral, and taking all actions required by any
earlier versions of the UCC or by other law, as applicable in any relevant
jurisdiction.

 

SECTION 6. COLLECTION AND ADMINISTRATION

 

6.1 Borrowers’ Loan Accounts. Agent shall maintain one or more loan account(s)
on its books in which shall be recorded (a) all Loans, Letters of Credit and
other Obligations and the Collateral, (b) all payments made by or on behalf of
any Borrower or Guarantor and (c) all other appropriate debits and credits as
provided in this Agreement, including fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be made in accordance with
Agent’s customary practices as in effect from time to time.

 

6.2 Statements. Agent shall render to Administrative Borrower each month a
statement setting forth the balance in the Borrowers’ loan account(s) maintained
by Agent for Borrowers pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Agent but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrowers and Guarantors
and conclusively binding upon Borrowers and Guarantors as an account stated
except to the extent that Agent receives a written notice from Administrative
Borrower of any specific exceptions of Administrative Borrower thereto within
thirty (30) days after the date such statement has been received by Parent.
Until such time as Agent shall have rendered to Administrative Borrower a
written statement as provided above, the balance in any Borrower’s loan
account(s) shall be presumptive evidence of the amounts due and owing to Agent
and Lenders by Borrowers and Guarantors.

 

6.3 Collection of Accounts; Cash Management.

 

(a) Borrowers shall establish and maintain, at their expense, blocked accounts
or lockboxes and related blocked accounts (in either case, “Blocked Accounts”),
as Agent may specify, with such banks as are acceptable to Agent into which
Borrowers shall promptly deposit

 

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and direct their respective account debtors to directly remit all payments on
Receivables and all payments constituting proceeds of Inventory or other
Collateral in the identical form in which such payments are made, whether by
cash, check or other manner.

 

(b) Borrowers shall deliver, or cause to be delivered, to Agent a Deposit
Account Control Agreement duly authorized, executed and delivered by each bank
where a Blocked Account is maintained as provided in Section 5.2 hereof or at
any time and from time to time Agent may become the bank’s customer with respect
to any of the Blocked Accounts and promptly upon Agent’s request, Borrowers
shall execute and deliver such agreements and documents as Agent may require in
connection therewith. Agent shall instruct the depository banks at which the
Blocked Accounts are maintained to transfer the funds on deposit in the Blocked
Accounts to such operating bank account of Borrowers as Borrowers may specify in
writing to Agent until such time as Agent shall notify the depository bank
otherwise.

 

(c) Without limiting any other rights or remedies of Agent or Lenders, at any
time on and after a Cash Dominion Event, and for so long as the same is
continuing, Agent may, at its option, instruct the depository banks at which the
Blocked Accounts are maintained to transfer by federal funds wire transfer all
funds received or deposited into such Blocked Accounts and related deposit
accounts to the Agent Payment Account or as Agent may direct. Each Borrower and
Guarantor agrees that all payments made to such Blocked Accounts upon or after a
Cash Dominion Event and for so long as the same is continuing or other funds
received and collected by Agent or any Lender at any time, whether in respect of
the Receivables, as proceeds of Inventory or other Collateral or otherwise shall
be treated as payments to Agent and Lenders in respect of the Obligations and
therefore shall constitute the property of Agent and Lenders to the extent of
the then outstanding Obligations. Upon the written request of Administrative
Borrower promptly after the termination of a Cash Dominion Event, Agent shall
instruct the depository banks at which the Blocked Accounts are maintained to
transfer the funds received or deposited in such accounts to such operating bank
account of the applicable Borrower as Administrative Borrower may specify in
writing to Agent until such time as Agent may thereafter be entitled to instruct
the depository bank otherwise as provided above.

 

(d) Without limiting any other rights or remedies of Agent or Lenders, Agent
may, at its option, send a “notice of exclusive control” or similar notice and
otherwise instruct the securities intermediary or other Person party to an
Investment Property Control Agreement that no funds in any investment account or
other account subject to such agreement may be transferred except to the Blocked
Accounts or otherwise paid to the Agent Payment Account at any time on or after
a Cash Dominion Event and for so long as the same is continuing or at any time
on or after Agent receives a notice of the intention of the securities
intermediary or other party thereto to terminate such Investment Property
Control Agreement.

 

(e) For purposes of calculating the amount of the Loans available to each
Borrower, such payments will be applied (conditional upon final collection) to
the Obligations on the Business Day of receipt by Agent of immediately available
funds in the Agent Payment Account provided such payments and notice thereof are
received in accordance with Agent’s usual and customary practices as in effect
from time to time and within sufficient time to credit such Borrower’s loan
account on such day, and if not, then on the next Business Day. For the purposes
of calculating interest on the Obligations, such payments or other funds
received will

 

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be applied (conditional upon final collection) to the Obligations on the date of
receipt of immediately available funds by Agent in the Agent Payment Account
provided such payments or other funds and notice thereof are received in
accordance with Agent’s usual and customary practices as in effect from time to
time and within sufficient time to credit such Borrower’s loan account on such
day, and if not, then on the next Business Day.

 

(f) Each Borrower and Guarantor and their respective employees, agents and
Subsidiaries shall, acting as trustee for Agent, receive, as the property of
Agent, any monies, checks, notes, drafts or any other payment relating to and/or
proceeds of Accounts or other Collateral which come into their possession or
under their control and immediately upon receipt thereof, shall deposit or cause
the same to be deposited in the Blocked Accounts, or remit the same or cause the
same to be remitted, in kind, to Agent. In no event shall the same be commingled
with any Borrower’s or Guarantor’s own funds. Borrowers agree to reimburse Agent
on demand for any amounts owed or paid to any bank or other financial
institution at which a Blocked Account or any other deposit account or
investment account is established or any other bank, financial institution or
other person involved in the transfer of funds to or from the Blocked Accounts
arising out of Agent’s payments to or indemnification of such bank, financial
institution or other person. The obligations of Borrowers to reimburse Agent for
such amounts pursuant to this Section 6.3 shall survive the termination of this
Agreement.

 

6.4 Payments.

 

(a) All Obligations shall be payable to the Agent Payment Account as provided in
Section 6.3 or such other place as Agent may designate from time to time.
Subject to the other terms and conditions contained herein, Agent shall apply
payments received or collected from any Borrower or Guarantor or for the account
of any Borrower or Guarantor (including the monetary proceeds of collections or
of realization upon any Collateral) as follows: first, to pay any fees,
indemnities or expense reimbursements then due to Agent, Lenders and Issuing
Bank from any Borrower or Guarantor; second, to pay interest due in respect of
any Loans (and including any Special Agent Advances) or Letter of Credit
Obligations; third, to pay or prepay principal in respect of Special Agent
Advances; fourth, to pay principal due in respect of the Term Loans; fifth, to
pay or prepay principal in respect of the Revolving Loans and to pay or prepay
Obligations then due arising under or pursuant to any Hedge Agreements of a
Borrower or Guarantor with a Bank Product Provider (up to the amount of any then
effective Reserve established in respect of such Obligations), on a pro rata
basis; sixth, to pay or prepay any other Obligations whether or not then due, in
such order and manner as Agent determines or to be held as cash collateral in
connection with any Letter of Credit Obligations (and in the case of such cash
collateral as to any Letter of Credit Obligations in the amount equal to one
hundred five (105%) percent of the amount thereof plus the amount of any fees
and expenses payable in connection therewith through the end of the latest
expiration date of the then outstanding Letters of Credit) or other contingent
Obligations (but not including for this purpose any Obligations arising under or
pursuant to any Bank Products); and seventh, to pay or prepay any Obligations
arising under or pursuant to any Bank Products (other than to the extent
provided for above) on a pro rata basis.

 

(b) Notwithstanding anything to the contrary contained in this Agreement,
(i) unless so directed by Administrative Borrower, or unless a Default or an
Event of Default shall exist or

 

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have occurred and be continuing, Agent shall not apply any payments which it
receives to any Eurodollar Rate Loans, except (A) on the expiration date of the
Interest Period applicable to any such Eurodollar Rate Loans or (B) in the event
that there are no outstanding Prime Rate Loans and (ii) to the extent any
Borrower uses any proceeds of the Loans or Letters of Credit to acquire rights
in or the use of any Collateral or to repay any Indebtedness used to acquire
rights in or the use of any Collateral, payments in respect of the Obligations
shall be deemed applied first to the Obligations arising from Loans and Letters
of Credit that were not used for such purposes and second to the Obligations
arising from Loans and Letters of Credit the proceeds of which were used to
acquire rights in or the use of any Collateral in the chronological order in
which such Borrower acquired such rights in or the use of such Collateral.

 

(c) At Agent’s option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of any Borrower maintained by Agent. If
after receipt of any payment of, or proceeds of Collateral applied to the
payment of, any of the Obligations, Agent, any Lender or Issuing Bank is
required to surrender or return such payment or proceeds to any Person for any
reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Agent or such Lender. Borrowers and Guarantors shall be liable to pay to Agent,
and do hereby indemnify and hold Agent and Lenders harmless for the amount of
any payments or proceeds surrendered or returned. This Section 6.4(c) shall
remain effective notwithstanding any contrary action which may be taken by Agent
or any Lender in reliance upon such payment or proceeds. This Section 6.4(c)
shall survive the payment of the Obligations and the termination of this
Agreement.

 

6.5 Taxes.

 

(a) Any and all payments by or on account of any of the Obligations shall be
made free and clear of and without deduction or withholding for or on account
of, any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, charges, withholdings, liabilities, restrictions or conditions of
any kind, excluding (i) in the case of each Lender, Issuing Bank and Agent
(A) taxes measured by its net income, and franchise taxes imposed on it, by the
jurisdiction (or any political subdivision thereof) under the laws of which such
Lender, Issuing Bank or Agent (as the case may be) is organized and (B) any
United States withholding taxes payable with respect to payments under the
Financing Agreements under laws (including any statute, treaty or regulation) in
effect on the date hereof (or, in the case of an Eligible Transferee, the date
of the Assignment and Acceptance) applicable to such Lender, Issuing Bank or
Agent, as the case may be, but not excluding any United States withholding taxes
payable as a result of any change in such laws occurring after the date hereof
(or the date of such Assignment and Acceptance) and (ii) in the case of each
Lender, Issuing Bank or Agent, taxes measured by its net income, and franchise
taxes imposed on it as a result of a present or former connection between such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any taxing authority thereof or therein (all such non-excluded taxes, levies,
imposts, fees, deductions, charges, withholdings and liabilities being
hereinafter referred to as “Taxes”).

 

(b) If any Taxes shall be required by law to be deducted from or in respect of
any sum payable in respect of the Obligations to any Lender, Issuing Bank or
Agent (i) the sum

 

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payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 6.5), such Lender, Issuing Bank or Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the relevant Borrower or Guarantor shall make such
deductions, (iii) the relevant Borrower or Guarantor shall pay the full amount
deducted to the relevant taxing authority or other authority in accordance with
applicable law and (iv) the relevant Borrower or Guarantor shall deliver to
Agent evidence of such payment.

 

(c) In addition, each Borrower and Guarantor agrees to pay any present or future
stamp or documentary taxes or any other excise or property taxes, charges or
similar levies of the United States or any political subdivision thereof or any
applicable foreign jurisdiction, and all liabilities with respect thereto, in
each case arising from any payment made hereunder or under any of the other
Financing Agreements or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any of the other Financing
Agreements (collectively, “Other Taxes”).

 

(d) Each Borrower and Guarantor shall indemnify each Lender, Issuing Bank and
Agent for the full amount of Taxes and Other Taxes (including any Taxes and
Other Taxes imposed by any jurisdiction on amounts payable under this
Section 6.5) paid by such Lender, Issuing Bank or Agent (as the case may be) and
any liability (including for penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. This indemnification shall be made within thirty (30) days
from the date such Lender, Issuing Bank or Agent (as the case may be) makes
written demand therefor. A certificate as to the amount of such payment or
liability delivered to Administrative Borrower by a Lender, Issuing Bank (with a
copy to Agent) or by Agent on its own behalf or on behalf of a Lender or Issuing
Bank, shall be conclusive absent manifest error.

 

(e) As soon as practicable after any payment of Taxes or Other Taxes by any
Borrower or Guarantor, such Borrower or Guarantor shall furnish to Agent, at its
address referred to herein, the original or a certified copy of a receipt
evidencing payment thereof.

 

(f) Without prejudice to the survival of any other agreements of any Borrower or
Guarantor hereunder or under any of the other Financing Agreements, the
agreements and obligations of such Borrower or Guarantor contained in this
Section 6.5 shall survive the termination of this Agreement and the payment in
full of the Obligations.

 

(g) Any Foreign Lender that is entitled to an exemption from or reduction of
withholding tax under the law of the jurisdiction in which the applicable
Borrower is resident for tax purposes, or any treaty to which such jurisdiction
is a party, with respect to payments hereunder or under any of the other
Financing Agreements shall deliver to Administrative Borrower (with a copy to
Agent), at the time or times prescribed by applicable law or reasonably
requested by Administrative Borrower or Agent (in such number of copies as is
reasonably requested by the recipient), whichever of the following is applicable
(but only if such Foreign Lender is legally entitled to do so): (i) duly
completed copies of Internal Revenue Service Form W-8BEN claiming exemption
from, or a reduction to, withholding tax under an income tax treaty, or any
successor form, (ii) duly completed copies of Internal Revenue Service Form
8-8ECI claiming exemption from withholding because the income is effectively
connection with a

 

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U.S. trade or business or any successor form, (iii) in the case of a Foreign
Lender claiming the benefits of the exemption for portfolio interest under
Sections 871(h) or 881(c) of the Code, (A) a certificate of the Lender to the
effect that such Lender is not a “bank” within the meaning of
Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of a Borrower
within the meaning of Section 881(c)(3)(B) of the Code or a “controlled foreign
corporation” described and Section 881(c)(3)(C) of the Code and (B) duly
completed copies of Internal Revenue Service Form W-8BEN claiming exemption from
withholding under the portfolio interest exemption or any successor form or
(iv) any other applicable form, certificate or document prescribed by applicable
law as a basis for claiming exemption from or a reduction in United States
withholding tax duly completed together with such supplementary documentation as
may be prescribed by applicable law to permit a Borrower to determine the
withholding or deduction required to be made. Unless Administrative Borrower and
Agent have received forms or other documents satisfactory to them indicating
that payments hereunder or under any of the other Financing Agreements to or for
a Foreign Lender are not subject to United States withholding tax or are subject
to such tax at a rate reduced by an applicable tax treaty, Borrowers or Agent
shall withhold amounts required to be withheld by applicable requirements of law
from such payments at the applicable statutory rate.

 

(h) Any Lender claiming any additional amounts payable pursuant to this
Section 6.5 shall use its reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
applicable lending office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts that would be payable
or may thereafter accrue and would not, in the sole determination of such
Lender, be otherwise disadvantageous to such Lender.

 

6.6 Authorization to Make Loans. Agent and Lenders are authorized to make the
Loans based upon telephonic or other instructions received from anyone
purporting to be an officer of Administrative Borrower or any Borrower or other
authorized person or, at the discretion of Agent, if such Loans are necessary to
satisfy any Obligations. All requests for Loans or Letters of Credit hereunder
shall specify the date on which the requested advance is to be made (which day
shall be a Business Day) and the amount of the requested Loan. Requests received
after 11:00 a.m. Los Angeles time on any day shall be deemed to have been made
as of the opening of business on the immediately following Business Day. All
Loans and Letters of Credit under this Agreement shall be conclusively presumed
to have been made to, and at the request of and for the benefit of, any Borrower
or Guarantor when deposited to the credit of any Borrower or Guarantor or
otherwise disbursed or established in accordance with the written instructions
of any Borrower or Guarantor or in accordance with the terms and conditions of
this Agreement.

 

6.7 Use of Proceeds. Borrowers shall use the initial proceeds of the Loans and
Letters of Credit hereunder only for: (a) payments to each of the persons listed
in the disbursement direction letter furnished by Borrowers to Agent on or about
the date hereof (including but not limited to the payment of a portion of the
purchase price for the assets of the EPC Companies pursuant to the EPC
Acquisition) and (b) costs, expenses and fees in connection with the
preparation, negotiation, execution and delivery of this Agreement, the other
Financing Agreements and the EPC Acquisition Documents. All other Loans made or
Letters of Credit provided to or for the benefit of any Borrower pursuant to the
provisions hereof shall be used by such Borrower only for general operating,
working capital and other proper corporate purposes

 

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of such Borrower not otherwise prohibited by the terms hereof. None of the
proceeds will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Loans to be
considered a “purpose credit” within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended.

 

6.8 Appointment of Administrative Borrower as Agent for Requesting Loans and
Receipts of Loans and Statements.

 

(a) Each Borrower hereby irrevocably appoints and constitutes Administrative
Borrower as its agent and attorney-in-fact to request and receive Loans and
Letters of Credit pursuant to this Agreement and the other Financing Agreements
from Agent or any Lender in the name or on behalf of such Borrower. Agent and
Lenders may disburse the Loans to such bank account of Administrative Borrower
or a Borrower or otherwise make such Loans to a Borrower and provide such
Letters of Credit to a Borrower as Administrative Borrower may designate or
direct, without notice to any other Borrower or Guarantor. Notwithstanding
anything to the contrary contained herein, Agent may at any time and from time
to time require that Loans to or for the account of any Borrower be disbursed
directly to an operating account of such Borrower.

 

(b) Administrative Borrower hereby accepts the appointment by Borrowers to act
as the agent and attorney-in-fact of Borrowers pursuant to this Section 6.8.
Administrative Borrower shall ensure that the disbursement of any Loans to each
Borrower requested by or paid to or for the account of Parent, or the issuance
of any Letter of Credit for a Borrower hereunder, shall be paid to or for the
account of such Borrower.

 

(c) Each Borrower and other Guarantor hereby irrevocably appoints and
constitutes Administrative Borrower as its agent to receive statements on
account and all other notices from Agent and Lenders with respect to the
Obligations or otherwise under or in connection with this Agreement and the
other Financing Agreements.

 

(d) Any notice, election, representation, warranty, agreement or undertaking by
or on behalf of any other Borrower or any Guarantor by Administrative Borrower
shall be deemed for all purposes to have been made by such Borrower or
Guarantor, as the case may be, and shall be binding upon and enforceable against
such Borrower or Guarantor to the same extent as if made directly by such
Borrower or Guarantor.

 

(e) No purported termination of the appointment of Administrative Borrower as
agent as aforesaid shall be effective, except after ten (10) days’ prior written
notice to Agent.

 

6.9 Pro Rata Treatment. Except to the extent otherwise provided in this
Agreement or as otherwise agreed by Lenders: (a) the making and conversion of
Loans shall be made among the Lenders based on their respective Pro Rata Shares
as to the Loans and (b) each payment on account of any Obligations to or for the
account of one or more of Lenders in respect of any Obligations due on a
particular day shall be allocated among the Lenders entitled to such payments
based on their respective Pro Rata Shares and shall be distributed accordingly
except as otherwise agreed.

 

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6.10 Sharing of Payments, Etc.

 

(a) Each Borrower and Guarantor agrees that, in addition to (and without
limitation of) any right of setoff, banker’s lien or counterclaim Agent or any
Lender may otherwise have, each Lender shall be entitled, at its option (but
subject, as among Agent and Lenders, to the provisions of Section 12.3(b)
hereof), to offset balances held by it for the account of such Borrower or
Guarantor at any of its offices, in dollars or in any other currency, against
any principal of or interest on any Loans owed to such Lender or any other
amount payable to such Lender hereunder, that is not paid when due (regardless
of whether such balances are then due to such Borrower or Guarantor), in which
case it shall promptly notify Administrative Borrower and Agent thereof;
provided, that, such Lender’s failure to give such notice shall not affect the
validity thereof.

 

(b) If any Lender (including Agent) shall obtain from any Borrower or Guarantor
payment of any principal of or interest on any Loan owing to it or payment of
any other amount under this Agreement or any of the other Financing Agreements
through the exercise of any right of setoff, banker’s lien or counterclaim or
similar right or otherwise (other than from Agent as provided herein), and, as a
result of such payment, such Lender shall have received more than its Pro Rata
Share of the principal of the Loans or more than its share of such other amounts
then due hereunder or thereunder by any Borrower or Guarantor to such Lender
than the percentage thereof received by any other Lender, it shall promptly pay
to Agent, for the benefit of Lenders, the amount of such excess and
simultaneously purchase from such other Lenders a participation in the Loans or
such other amounts, respectively, owing to such other Lenders (or such interest
due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all Lenders
shall share the benefit of such excess payment (net of any expenses that may be
incurred by such Lender in obtaining or preserving such excess payment) in
accordance with their respective Pro Rata Shares or as otherwise agreed by
Lenders. To such end all Lenders shall make appropriate adjustments among
themselves (by the resale of participation sold or otherwise) if such payment is
rescinded or must otherwise be restored.

 

(c) Each Borrower and Guarantor agrees that any Lender purchasing a
participation (or direct interest) as provided in this Section may exercise, in
a manner consistent with this Section, all rights of setoff, banker’s lien,
counterclaim or similar rights with respect to such participation as fully as if
such Lender were a direct holder of Loans or other amounts (as the case may be)
owing to such Lender in the amount of such participation.

 

(d) Nothing contained herein shall require any Lender to exercise any right of
setoff, banker’s lien, counterclaims or similar rights or shall affect the right
of any Lender to exercise, and retain the benefits of exercising, any such right
with respect to any other Indebtedness or obligation of any Borrower or
Guarantor. If, under any applicable bankruptcy, insolvency or other similar law,
any Lender receives a secured claim in lieu of a setoff to which this Section
applies, such Lender shall, to the extent practicable, assign such rights to
Agent for the benefit of Lenders and, in any event, exercise its rights in
respect of such secured claim in a manner consistent with the rights of Lenders
entitled under this Section to share in the benefits of any recovery on such
secured claim.

 

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6.11 Settlement Procedures.

 

(a) In order to administer the Credit Facility in an efficient manner and to
minimize the transfer of funds between Agent and Lenders, Agent may, at its
option, subject to the terms of this Section, make available, on behalf of
Lenders, the full amount of the Loans requested or charged to any Borrower’s
loan account(s) or otherwise to be advanced by Lenders pursuant to the terms
hereof, without requirement of prior notice to Lenders of the proposed Loans.

 

(b) With respect to all Loans made by Agent on behalf of Lenders as provided in
this Section, the amount of each Lender’s Pro Rata Share of the outstanding
Loans shall be computed weekly, and shall be adjusted upward or downward on the
basis of the amount of the outstanding Loans as of 5:00 p.m. Los Angeles time on
the Business Day immediately preceding the date of each settlement computation;
provided, that, Agent retains the absolute right at any time or from time to
time to make the above described adjustments at intervals more frequent than
weekly, but in no event more than twice in any week. Agent shall deliver to each
of the Lenders after the end of each week, or at such lesser period or periods
as Agent shall determine, a summary statement of the amount of outstanding Loans
for such period (such week or lesser period or periods being hereinafter
referred to as a “Settlement Period”). If the summary statement is sent by Agent
and received by a Lender prior to 12:00 p.m. Los Angeles time, then such Lender
shall make the settlement transfer described in this Section by no later than
3:00 p.m. Los Angeles time on the same Business Day and if received by a Lender
after 12:00 p.m. Los Angeles time, then such Lender shall make the settlement
transfer by not later than 3:00 p.m. Los Angeles time on the next Business Day
following the date of receipt. If, as of the end of any Settlement Period, the
amount of a Lender’s Pro Rata Share of the outstanding Loans is more than such
Lender’s Pro Rata Share of the outstanding Loans as of the end of the previous
Settlement Period, then such Lender shall forthwith (but in no event later than
the time set forth in the preceding sentence) transfer to Agent by wire transfer
in immediately available funds the amount of the increase. Alternatively, if the
amount of a Lender’s Pro Rata Share of the outstanding Loans in any Settlement
Period is less than the amount of such Lender’s Pro Rata Share of the
outstanding Loans for the previous Settlement Period, Agent shall forthwith
transfer to such Lender by wire transfer in immediately available funds the
amount of the decrease. The obligation of each of the Lenders to transfer such
funds and effect such settlement shall be irrevocable and unconditional and
without recourse to or warranty by Agent. Agent and each Lender agrees to mark
its books and records at the end of each Settlement Period to show at all times
the dollar amount of its Pro Rata Share of the outstanding Loans and Letters of
Credit. Each Lender shall only be entitled to receive interest on its Pro Rata
Share of the Loans to the extent such Loans have been funded by such Lender.
Because the Agent on behalf of Lenders may be advancing and/or may be repaid
Loans prior to the time when Lenders will actually advance and/or be repaid such
Loans, interest with respect to Loans shall be allocated by Agent in accordance
with the amount of Loans actually advanced by and repaid to each Lender and the
Agent and shall accrue from and including the date such Loans are so advanced to
but excluding the date such Loans are either repaid by Borrowers or actually
settled with the applicable Lender as described in this Section.

 

(c) To the extent that Agent has made any such amounts available and the
settlement described above shall not yet have occurred, upon repayment of any
Loans by a Borrower, Agent may apply such amounts repaid directly to any amounts
made available by

 

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Agent pursuant to this Section. In lieu of weekly or more frequent settlements,
Agent may, at its option, at any time require each Lender to provide Agent with
immediately available funds representing its Pro Rata Share of each Loan, prior
to Agent’s disbursement of such Loan to Borrower. In such event, all Loans under
this Agreement shall be made by the Lenders simultaneously and proportionately
to their Pro Rata Shares. No Lender shall be responsible for any default by any
other Lender in the other Lender’s obligation to make a Loan requested hereunder
nor shall the Commitment of any Lender be increased or decreased as a result of
the default by any other Lender in the other Lender’s obligation to make a Loan
hereunder.

 

(d) If Agent is not funding a particular Loan to a Borrower (or Administrative
Borrower for the benefit of such Borrower) pursuant to Sections 6.11(a) and
6.11(b) above on any day, but is requiring each Lender to provide Agent with
immediately available funds on the date of such Loan as provided in
Section 6.11(c) above, Agent may assume that each Lender will make available to
Agent such Lender’s Pro Rata Share of the Loan requested or otherwise made on
such day and Agent may, in its discretion, but shall not be obligated to, cause
a corresponding amount to be made available to or for the benefit of such
Borrower on such day. If Agent makes such corresponding amount available to a
Borrower and such corresponding amount is not in fact made available to Agent by
such Lender, Agent shall be entitled to recover such corresponding amount on
demand from such Lender together with interest thereon for each day from the
date such payment was due until the date such amount is paid to Agent at the
Federal Funds Rate for each day during such period (as published by the Federal
Reserve Bank of New York or at Agent’s option based on the arithmetic mean
determined by Agent of the rates for the last transaction in overnight Federal
funds arranged prior to 9:00 a.m. (New York City time) on that day by each of
the three leading brokers of Federal funds transactions in New York City
selected by Agent) and if such amounts are not paid within three (3) days of
Agent’s demand, at the highest Interest Rate provided for in Section 3.1 hereof
applicable to Prime Rate Loans. During the period in which such Lender has not
paid such corresponding amount to Agent, notwithstanding anything to the
contrary contained in this Agreement or any of the other Financing Agreements,
the amount so advanced by Agent to or for the benefit of any Borrower shall, for
all purposes hereof, be a Loan made by Agent for its own account. Upon any such
failure by a Lender to pay Agent, Agent shall promptly thereafter notify
Administrative Borrower of such failure and Borrowers shall pay such
corresponding amount to Agent for its own account within five (5) Business Days
of Administrative Borrower’s receipt of such notice. A Lender who fails to pay
Agent its Pro Rata Share of any Loans made available by the Agent on such
Lender’s behalf, or any Lender who fails to pay any other amount owing by it to
Agent, is a “Defaulting Lender”. Agent shall not be obligated to transfer to a
Defaulting Lender any payments received by Agent for the Defaulting Lender’s
benefit, nor shall a Defaulting Lender be entitled to the sharing of any
payments hereunder (including any principal, interest or fees). Amounts payable
to a Defaulting Lender shall instead be paid to or retained by Agent. Agent may
hold and, in its discretion, relend to a Borrower the amount of all such
payments received or retained by it for the account of such Defaulting Lender.
For purposes of voting or consenting to matters with respect to this Agreement
and the other Financing Agreements and determining Pro Rata Shares, such
Defaulting Lender shall be deemed not to be a “Lender” and such Lender’s
Commitment shall be deemed to be zero (0). This Section shall remain effective
with respect to a Defaulting Lender until such default is cured. The operation
of this Section shall not be construed to increase or otherwise affect the
Commitment of any Lender, or relieve or excuse the performance by any Borrower
or Guarantor of their duties and obligations hereunder.

 

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(e) Nothing in this Section or elsewhere in this Agreement or the other
Financing Agreements shall be deemed to require Agent to advance funds on behalf
of any Lender or to relieve any Lender from its obligation to fulfill its
Commitment hereunder or to prejudice any rights that any Borrower may have
against any Lender as a result of any default by any Lender hereunder in
fulfilling its Commitment.

 

6.12 Obligations Several; Independent Nature of Lenders’ Rights. The obligation
of each Lender hereunder is several, and no Lender shall be responsible for the
obligation or commitment of any other Lender hereunder. Nothing contained in
this Agreement or any of the other Financing Agreements and no action taken by
the Lenders pursuant hereto or thereto shall be deemed to constitute the Lenders
to be a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and subject to Section 12.3 hereof, each Lender
shall be entitled to protect and enforce its rights arising out of this
Agreement and it shall not be necessary for any other Lender to be joined as an
additional party in any proceeding for such purpose.

 

6.13 Bank Products. Borrowers and Guarantors, or any of their Subsidiaries, may
(but no such Person is required to) request that the Bank Product Providers
provide or arrange for such Person to obtain Bank Products from Bank Product
Providers, and each Bank Product Provider may, in its sole discretion, provide
or arrange for such Person to obtain the requested Bank Products. Borrowers and
Guarantors or any of their Subsidiaries that obtains Bank Products shall
indemnify and hold Agent, each Lender and their respective Affiliates harmless
from any and all obligations now or hereafter owing to any other Person by any
Bank Product Provider in connection with any Bank Products other than for gross
negligence or willful misconduct on the part of any such indemnified Person.
This Section 6.13 shall survive the payment of the Obligations and the
termination of this Agreement. Borrower and its Subsidiaries acknowledge and
agree that the obtaining of Bank Products from Bank Product Providers (a) is in
the sole discretion of such Bank Product Provider, and (b) is subject to all
rules and regulations of such Bank Product Provider. Each Bank Product Provider
shall be deemed a party hereto for purposes of any reference in any of the
Financing Agreements to the parties for whom Agent is acting, provided, that,
the rights of such Bank Product Provider hereunder and under any of the other
Financing Agreements shall consist exclusively of such Bank Product Provider’s
right to share in payments and collections out of the Collateral as set forth
herein. In connection with any such distribution of payments and collections,
Agent shall be entitled to assume that no amounts are due to any Bank Product
Provider unless such Bank Product Provider has notified Agent in writing of any
such liability owed to it as of the date of any such distribution

 

SECTION 7. COLLATERAL REPORTING AND COVENANTS

 

7.1 Collateral Reporting.

 

(a) Borrowers shall provide Agent with the following documents in a form
satisfactory to Agent:

 

(i) as soon as possible after the end of each fiscal month (but in any event
within ten (10) Business Days after the end thereof), on a monthly basis or on a
weekly basis in

 

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the event that at any time prior to the first anniversary of the date hereof the
Excess Availability is less than $20,000,000 or at any time thereafter the
Excess Availability is less than $15,000,000, or in any event more frequently as
Agent may from time to time request at any time, (A) a Borrowing Base
Certificate setting forth the calculation of the Borrowing Base as of the last
Business Day of the immediately preceding period, duly completed and executed by
the vice president-finance, chief financial officer, treasurer, assistant
treasurer, controller or other financial or senior officer of Administrative
Borrower, together with all schedules required pursuant to the terms of the
Borrowing Base Certificate duly completed (including a schedule of all Accounts
created, collections received and credit memos issued for the immediately
preceding period); provided, that, unless and until the Inventory Availability
Date (or prior thereto to the extent set forth in the definition of the
Inventory Availability Date), the Borrowing Base Certificate will not include
any of the Eligible Inventory or the other information with respect to the
Inventory provided for in such certificate, (B) perpetual inventory reports,
(C) on and after the Inventory Availability Date, inventory reports by location
and category (and including the amounts of Inventory and the value thereof at
any leased locations and at premises of warehouses, processors or other third
parties), (D) agings of accounts receivable (together with a rollforward from
the previous month’s accounts receivable balance and a reconciliation with the
general ledger), and (E) agings of accounts payable;

 

(ii) upon Agent’s request, (A) copies of customer statements, purchase orders,
sales invoices, credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (B) copies of shipping and delivery documents
and (C) copies of purchase orders, invoices and on and after the Inventory
Availability Date, delivery documents for Inventory and Equipment acquired by
any Borrower or Guarantor;

 

(iii) such other reports as to the Collateral as Agent shall request from time
to time.

 

(b) If any Borrower’s or Guarantor’s records or reports of the Collateral are
prepared or maintained by an accounting service, contractor, shipper or other
agent, such Borrower and Guarantor hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Agent and to follow Agent’s instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.

 

7.2 Accounts Covenants.

 

(a) Borrowers shall notify Agent promptly of: (i) any material delay in any
Borrower’s performance of any of its material obligations to any account debtor
or the assertion of any material claims, offsets, defenses or counterclaims by
any account debtor, or any material disputes with account debtors, or any
settlement, adjustment or compromise thereof, (ii) all material adverse
information known to any Borrower or Guarantor relating to the financial
condition of any account debtor that is obligated in respect of Accounts of more
than $250,000 and (iii) any event or circumstance which, to the best of any
Borrower’s or Guarantor’s knowledge, would cause Agent to consider any then
existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor without Agent’s consent, except in the ordinary

 

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course of a Borrower’s or Guarantor’s business in accordance with practices and
policies previously disclosed in writing to Agent and except as set forth in the
schedules delivered to Agent pursuant to Section 7.1(a) above. So long as no
Event of Default exists or has occurred and is continuing, Borrowers and
Guarantors shall settle, adjust or compromise any claim, offset, counterclaim or
dispute with any account debtor. At any time that an Event of Default exists or
has occurred and is continuing, Agent shall, at its option, have the exclusive
right to settle, adjust or compromise any claim, offset, counterclaim or dispute
with account debtors or grant any credits, discounts or allowances.

 

(b) With respect to each Account: (i) the amounts shown on any invoice delivered
to Agent or schedule thereof delivered to Agent shall be true and complete,
(ii) no payments shall be made thereon except payments immediately deposited to
Blocked Accounts or immediately delivered to Agent pursuant to the terms of this
Agreement, (iii) no credit, discount, allowance or extension or agreement for
any of the foregoing shall be granted to any account debtor except as reported
to Agent in accordance with this Agreement and except for credits, discounts,
allowances or extensions made or given in the ordinary course of each Borrower’s
business in accordance with practices and policies previously disclosed to
Agent, (iv) all setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto shall be reported to Agent in
accordance with the terms of this Agreement, (v) none of the transactions giving
rise thereto will violate any applicable foreign, Federal, State or local laws
or regulations, all documentation relating thereto will be legally sufficient
under such laws and regulations and all such documentation will be legally
enforceable in accordance with its terms, except as such enforceability may be
limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or
similar law affecting creditors’ rights generally and by general principles of
equity.

 

(c) Agent shall have the right at any time or times, in Agent’s name or in the
name of a nominee of Agent, to verify the validity, amount or any other matter
relating to any Receivables or other Collateral, by mail, telephone, facsimile
transmission or otherwise.

 

7.3 Inventory Covenants. With respect to the Inventory: (a) each Borrower and
Guarantor shall at all times maintain inventory records and conduct physical
counts of Inventory consistent with the current practices of Borrowers and
Guarantors as of the date hereof or as otherwise consented to by Agent, but in
any event in a manner sufficient to permit an audit of the financial statements
of Borrowers in accordance with GAAP and Borrowers shall provide to Agent such
reports as may be prepared consistent with current practices with respect to
such physical counts; (b) Borrowers and Guarantors shall not remove any
Inventory from the locations set forth or permitted herein (including third
party locations as set forth in the Information Certificate), without the prior
written consent of Agent, except (i) for sales of Inventory in the ordinary
course of its business, (ii) to move Inventory directly from one location set
forth or permitted herein to another such location, and (iii) for Inventory
shipped from the manufacturer thereof to such Borrower or Guarantor which is in
transit to the locations set forth or permitted herein; (c) upon Agent’s request
at any time on or after a Cash Dominion Event and for so long as the same is
continuing and after the Inventory Availability Date, Borrowers shall deliver or
cause to be delivered to Agent written appraisals as to the Inventory in form,
scope and methodology acceptable to Agent and by an appraiser acceptable to
Agent, addressed to Agent and Lenders and upon which Agent and Lenders are
expressly permitted to rely, provided, that,

 

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(i) such appraisal shall be at the expense of Borrowers and (ii) so long as no
Event of Default shall exist or have occurred and be continuing, there shall be
no more than one (1) appraisal in any twelve (12) month period; (d) Borrowers
and Guarantors shall produce, use, store and maintain the Inventory with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (e) none of the Inventory or other
Collateral constitutes farm products or the proceeds thereof; (f) each Borrower
and Guarantor assumes all responsibility and liability arising from or relating
to the production, use, sale or other disposition of the Inventory;
(g) Borrowers and Guarantors shall not sell Inventory to any customer on
approval, or any other basis which entitles the customer to return or may
obligate any Borrower or Guarantor to repurchase such Inventory; (h) Borrowers
and Guarantors shall keep the Inventory in good and marketable condition; and
(i) Borrowers and Guarantors shall not, on and after the Inventory Availability
Date, without prior written notice to Agent or the specific identification of
such Inventory in a report with respect thereto provided by Administrative
Borrower to Agent pursuant to Section 7.1(a) hereof, acquire or accept any
Inventory on consignment or approval.

 

7.4 Equipment and Real Property Covenants. With respect to the Equipment and
Real Property: (a) upon Agent’s request, Borrowers and Guarantors shall deliver
or cause to be delivered to Agent written appraisals as to the Equipment and/or
the Real Property that is subject to a Mortgage, in form, scope and methodology
acceptable to Agent and by an appraiser acceptable to Agent, addressed to Agent
and Lenders and upon which Agent and Lenders are expressly permitted to rely,
provided, that, (i) such appraisals shall be at the expense of Borrowers on or
after a Cash Dominion Event and for so long as the same is continuing and
otherwise at the expense of Agent and Lenders, and (ii) so long as no Event of
Default shall exist or have occurred and be continuing, there shall be no more
than one (1) appraisal in any twelve (12) month period at the expense of
Borrowers; (b) Borrowers and Guarantors shall keep the Equipment in good order,
repair, running and marketable condition (ordinary wear and tear excepted) in
accordance with current practices; (c) Borrowers and Guarantors shall use the
Equipment and Real Property with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with all
applicable laws; (d) the Equipment is and shall be used in the business of
Borrowers and Guarantors and not for personal, family, household or farming use;
(e) Borrowers and Guarantors shall not remove any Equipment from the locations
set forth or permitted herein, except (i) for sales or other dispositions of
Equipment permitted hereunder, (ii) to the extent necessary to have any
Equipment repaired or maintained in the ordinary course of its business,
(iii) to move Equipment directly from one location set forth or permitted herein
to another such location and (iv) for the movement of motor vehicles used by or
for the benefit of such Borrower or Guarantor in the ordinary course of
business; (f) the Equipment is now and shall remain personal property and
Borrowers and Guarantors shall not permit any of the Equipment to be or become a
part of or affixed to real property; and (g) each Borrower and Guarantor assumes
all responsibility and liability arising from the use of the Equipment and Real
Property.

 

7.5 Power of Attorney. Each Borrower and Guarantor hereby irrevocably designates
and appoints Agent (and all persons designated by Agent) as such Borrower’s and
Guarantor’s true and lawful attorney-in-fact, and authorizes Agent, in such
Borrower’s, Guarantor’s or Agent’s name, to: (a) at any time an Event of Default
exists or has occurred and is continuing (i) demand

 

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payment on Receivables or other Collateral, (ii) enforce payment of Receivables
by legal proceedings or otherwise, (iii) exercise all of such Borrower’s or
Guarantor’s rights and remedies to collect any Receivable or other Collateral,
(iv) sell or assign any Receivable upon such terms, for such amount and at such
time or times as the Agent deems advisable, (v) settle, adjust, compromise,
extend or renew an Account, (vi) discharge and release any Receivable,
(vii) prepare, file and sign such Borrower’s or Guarantor’s name on any proof of
claim in bankruptcy or other similar document against an account debtor or other
obligor in respect of any Receivables or other Collateral, (viii) notify the
post office authorities to change the address for delivery of remittances from
account debtors or other obligors in respect of Receivables or other proceeds of
Collateral to an address designated by Agent, and open all mail addressed to
such Borrower or Guarantor and handle and store all mail relating to the
Collateral; and (ix) do all acts and things which are necessary, in Agent’s
determination, to fulfill such Borrower’s or Guarantor’s obligations under this
Agreement and the other Financing Agreements, (b) at any time on or after a Cash
Dominion Event and for so long as the same is continuing to (i) take control in
any manner of any item of payment in respect of Receivables or constituting
Collateral or otherwise received in or for deposit in the Blocked Accounts or
otherwise received by Agent or any Lender and (ii) have access to any lockbox or
postal box into which remittances from account debtors or other obligors in
respect of Receivables or other proceeds of Collateral are sent or received, and
(c) at any time to (i) endorse such Borrower’s or Guarantor’s name upon any
items of payment in respect of Receivables or constituting Collateral or
otherwise received by Agent and any Lender and deposit the same in Agent’s
account for application to the Obligations, (ii) endorse such Borrower’s or
Guarantor’s name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Receivable or any goods pertaining
thereto or any other Collateral, including any warehouse or other receipts, or
bills of lading and other negotiable or non-negotiable documents, (iii) clear
Inventory the purchase of which was financed with a Letter of Credit through
U.S. Customs or foreign export control authorities in such Borrower’s or
Guarantor’s name, Agent’s name or the name of Agent’s designee, and to sign and
deliver to customs officials powers of attorney in such Borrower’s or
Guarantor’s name for such purpose, and to complete in such Borrower’s or
Guarantor’s or Agent’s name, any order, sale or transaction, obtain the
necessary documents in connection therewith and collect the proceeds thereof,
and (iv) sign such Borrower’s or Guarantor’s name on any verification of
Receivables and notices thereof to account debtors or any secondary obligors or
other obligors in respect thereof. Each Borrower and Guarantor hereby releases
Agent and Lenders and their respective officers, employees and designees from
any liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Agent’s or any Lender’s own gross negligence or wilful misconduct as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.

 

7.6 Right to Cure. Agent may, at its option, upon notice to Administrative
Borrower given at any time a Default or an Event of Default exists or has
occurred and is continuing, (a) cure any default by any Borrower or Guarantor
under any material agreement with a third party that affects the Collateral, its
value or the ability of Agent to collect, sell or otherwise dispose of the
Collateral or the rights and remedies of Agent or any Lender therein or the
ability of any Borrower or Guarantor to perform its obligations hereunder or
under any of the other Financing Agreements, (b) pay or bond on appeal any
judgment entered against any Borrower or Guarantor, (c) discharge taxes, liens,
security interests or other encumbrances at any time levied

 

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on or existing with respect to the Collateral and (d) pay any amount, incur any
expense or perform any act which, in Agent’s judgment, is necessary or
appropriate to preserve, protect, insure or maintain the Collateral and the
rights of Agent and Lenders with respect thereto. Agent may add any amounts so
expended to the Obligations and charge any Borrower’s account therefor, such
amounts to be repayable by Borrowers on demand. Agent and Lenders shall be under
no obligation to effect such cure, payment or bonding and shall not, by doing
so, be deemed to have assumed any obligation or liability of any Borrower or
Guarantor. Any payment made or other action taken by Agent or any Lender under
this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.

 

7.7 Access to Premises; Field Examinations. From time to time as requested by
Agent, at the cost and expense of Borrowers, (a) Agent or its designee shall
have complete access to all of each Borrower’s and Guarantor’s premises during
normal business hours and after prior notice to Administrative Borrower, or at
any time and without notice to Administrative Borrower if an Event of Default
exists or has occurred and is continuing, for the purposes of inspecting,
verifying and auditing the Collateral and all of each Borrower’s and Guarantor’s
books and records, including the Records, and (b) each Borrower and Guarantor
shall promptly furnish to Agent such copies of such books and records or
extracts therefrom as Agent may reasonably request, and Agent or any Lender or
Agent’s designee may use during normal business hours such of any Borrower’s and
Guarantor’s personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing (provided, that, Borrowers may make such personnel,
equipment, supplies and premises available to Agent in such a manner so as to
not to interfere in any material respect with the operations of Borrowers and
Guarantors) and if an Event of Default exists or has occurred and is continuing
for the collection of Receivables and realization of other Collateral. Agent
shall conduct four (4) field examinations with respect to Borrowers prior to the
first anniversary of the date hereof and not less than three (3) field
examinations with respect to Borrowers in any twelve (12) month period
commencing thereafter, in each case except as Agent and Required Lenders may
otherwise agree.

 

SECTION 8. REPRESENTATIONS AND WARRANTIES

 

Each Borrower and Guarantor hereby represents and warrants to Agent, Lenders and
Issuing Bank the following (which shall survive the execution and delivery of
this Agreement):

 

8.1 Corporate Existence, Power and Authority. Each Borrower and Guarantor is a
corporation duly organized and in existence (in the case of a corporation
organized under the laws of the State of Oregon) or otherwise in good standing
under the laws of its jurisdiction of organization and is duly qualified as a
foreign corporation, and, to the extent applicable, in good standing in all
states or other jurisdictions where the nature and extent of the business
transacted by it or the ownership of assets makes such qualification necessary,
except for those jurisdictions in which the failure to so qualify would not have
a Material Adverse Effect. The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated
hereunder and thereunder (a) are all within each Borrower’s and Guarantor’s
corporate powers, (b) have been duly authorized, (c) are not in contravention of
law or the terms of any Borrower’s or Guarantor’s certificate of incorporation,
by laws, or other organizational documentation, or any indenture, agreement or
undertaking to which any Borrower or Guarantor is a party or by which any
Borrower or Guarantor or its property are

 

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bound and (d) will not result in the creation or imposition of, or require or
give rise to any obligation to grant, any lien, security interest, charge or
other encumbrance upon any property of any Borrower or Guarantor. This Agreement
and the other Financing Agreements to which any Borrower or Guarantor is a party
constitute legal, valid and binding obligations of such Borrower and Guarantor
enforceable in accordance with their respective terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium, or similar law affecting creditors’ rights generally
and by general principles of equity.

 

8.2 Name; State of Organization; Chief Executive Office; Collateral Locations.

 

(a) The exact legal name of each Borrower and Guarantor is as set forth on the
signature page of this Agreement and in the Information Certificate. No Borrower
or Guarantor has, during the five years prior to the date of this Agreement,
been known by or used any other corporate or fictitious name or been a party to
any merger or consolidation, or acquired all or substantially all of the assets
of any Person, or acquired any of its property or assets out of the ordinary
course of business, except as set forth in the Information Certificate.

 

(b) Each Borrower and Guarantor is an organization of the type and organized in
the jurisdiction set forth in the Information Certificate. The Information
Certificate accurately sets forth the organizational identification number of
each Borrower and Guarantor or accurately states that such Borrower or Guarantor
has none and accurately sets forth the federal employer identification number of
each Borrower and Guarantor.

 

(c) The chief executive office and mailing address of each Borrower and
Guarantor and each Borrower’s and Guarantor’s Records concerning Accounts are
located only at the address identified as such in Schedule 8.2 to the
Information Certificate and its only other places of business and the only other
locations of Collateral, if any, are the addresses set forth in Schedule 8.2 to
the Information Certificate, subject to the rights of any Borrower or Guarantor
to establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by a
Borrower or Guarantor and sets forth the owners and/or operators thereof.

 

8.3 Financial Statements; No Material Adverse Change. All financial statements
relating to any Borrower or Guarantor which have been or may hereafter be
delivered by any Borrower or Guarantor to Agent and Lenders have been prepared
in accordance with GAAP (except as to any interim financial statements, to the
extent such statements are subject to normal year-end adjustments and do not
include any notes) and fairly present in all material respects the financial
condition and the results of operation of such Borrower and Guarantor as at the
dates and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrowers and Guarantors to Agent prior to the
date of this Agreement, there has been no act, condition or event which has had
or is reasonably likely to have a Material Adverse Effect since the date of the
most recent audited financial statements of any Borrower or Guarantor furnished
by any Borrower or Guarantor to Agent prior to the date of this Agreement. The
projections received by Agent on September 1, 2005 for each of the fiscal months
after the date hereof through the end of the 2006 fiscal year of Borrowers and
the fiscal years ending 2006 through 2009 that have been delivered to Agent or
any projections hereafter delivered to Agent have been

 

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prepared in light of the past operations of the businesses of Borrowers and
Guarantors and are based upon estimates and assumptions stated therein, all of
which Borrowers and Guarantors have determined to be reasonable and fair in
light of the then current conditions and current facts and reflect the good
faith and reasonable estimates of Borrowers and Guarantors of the future
financial performance of Parent and its Subsidiaries and of the other
information projected therein for the periods set forth therein (it being
recognized that projections and forecasts provided by Borrowers are not to be
viewed as facts and that actual results during the period covered by any
projections and forecasts may differ from the projected or forecasted results).

 

8.4 Priority of Liens; Title to Properties. The security interests and liens
granted to Agent under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4 to
the Information Certificate and the other liens permitted under Section 9.8
hereof. Each Borrower and Guarantor has good and marketable fee simple title to
or valid leasehold interests in all of its Real Property and good, valid and
merchantable title to all of its other properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Agent and such others as are specifically listed
on Schedule 8.4 to the Information Certificate or permitted under Section 9.8
hereof.

 

8.5 Tax Returns. Each Borrower and Guarantor has filed, or caused to be filed,
in a timely manner all tax returns, reports and declarations which are required
to be filed by it. All information in such tax returns, reports and declarations
is complete and accurate in all material respects. Each Borrower and Guarantor
has paid or caused to be paid all taxes due and payable or claimed due and
payable in any assessment received by it, except taxes the validity of which are
being contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower or Guarantor and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.

 

8.6 Litigation. Except as set forth on Schedule 8.6 to the Information
Certificate, (a) there is no investigation by any Governmental Authority
pending, or to the best of any Borrower’s or Guarantor’s knowledge threatened,
against or affecting any Borrower or Guarantor, its or their assets or business
and (b) there is no action, suit, proceeding or claim by any Person pending, or
to the best of any Borrower’s or Guarantor’s knowledge threatened, against any
Borrower or Guarantor or its or their assets or goodwill, or against or
affecting any transactions contemplated by this Agreement, in each case, which
if adversely determined against such Borrower or Guarantor has or could
reasonably be expected to have a Material Adverse Effect.

 

8.7 Compliance with Other Agreements and Applicable Laws.

 

(a) Borrowers and Guarantors are not in default in any respect under, or in
violation in any respect of the terms of, any material agreement, contract,
instrument, lease or other commitment to which it is a party or by which it or
any of its assets are bound, which default or violation has or could reasonably
be expected to have a Material Adverse Effect. Borrowers and

 

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Guarantors are in compliance with the requirements of all applicable laws,
rules, regulations and orders of any Governmental Authority relating to their
respective businesses, including, without limitation, those set forth in or
promulgated pursuant to the Occupational Safety and Health Act of 1970, as
amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the Code, as
amended, and the rules and regulations thereunder, and all Environmental Laws,
where the failure to so compliance has or could reasonably be expected to have a
Material Adverse Effect.

 

(b) Borrowers and Guarantors have obtained all material permits, licenses,
approvals, consents, certificates, orders or authorizations of any Governmental
Authority required for the lawful conduct of its business (the “Permits”). All
of the Permits are valid and subsisting and in full force and effect. There are
no actions, claims or proceedings pending or to the best of any Borrower’s or
Guarantor’s knowledge, threatened that seek the revocation, cancellation,
suspension or modification of any of the Permits.

 

8.8 Environmental Compliance.

 

(a) Except as set forth on Schedule 8.8 to the Information Certificate,
Borrowers, Guarantors and any Subsidiary of any Borrower or Guarantor have not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or Permit in a manner that has or could reasonably be expected
to have a Material Adverse Effect, and the operations of Borrowers, Guarantors
and any Subsidiary of any Borrower or Guarantor complies in all respects with
all Environmental Laws and all Permits where the failure to do so has or could
reasonably be expected to have a Material Adverse Effect.

 

(b) Except as set forth on Schedule 8.8 to the Information Certificate, there
has been no investigation by any Governmental Authority or any proceeding,
complaint, order, directive, claim, citation or notice by any Governmental
Authority or any other person nor is any pending or to the best of any
Borrower’s or Guarantor’s knowledge threatened, with respect to any non
compliance with or violation of the requirements of any Environmental Law by any
Borrower or Guarantor and any Subsidiary of any Borrower or Guarantor or the
release, spill or discharge, threatened or actual, of any Hazardous Material or
the generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials or any other environmental,
health or safety matter, which has had or could reasonably be expected to have a
Material Adverse Effect.

 

(c) Except as set forth on Schedule 8.8 to the Information Certificate,
Borrowers, Guarantors and their Subsidiaries have no material liability
(contingent or otherwise) in connection with a release, spill or discharge,
threatened or actual, of any Hazardous Materials or the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials.

 

(d) Borrowers, Guarantors and their Subsidiaries have all material Permits
required to be obtained or filed in connection with the operations of Borrowers
and Guarantors under any Environmental Law and all of such licenses,
certificates, approvals or similar authorizations and other Permits are valid
and in full force and effect.

 

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8.9 Employee Benefits.

 

(a) Each Plan is in compliance in all respects with the applicable provisions of
ERISA, the Code and other Federal or State law where the failure to so comply
has or could reasonably be expected to have a Material Adverse Effect. Each Plan
which is intended to qualify under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service and to the best
of any Borrower’s or Guarantor’s knowledge, nothing has occurred which would
cause the loss of such qualification and result in a Material Adverse Effect.
Each Borrower and its ERISA Affiliates have made all required contributions to
any Plan subject to Section 412 of the Code, and no application for a funding
waiver or an extension of any amortization period pursuant to Section 412 of the
Code has been made with respect to any Plan where any failure to do so has or
could reasonably be expected to have a Material Adverse Effect.

 

(b) There are no pending, or to the best of any Borrower’s or Guarantor’s
knowledge, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan, which, if decided adversely to any Borrower
or Guarantor, would have a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan that has had, or could reasonably be expected to have, a Material
Adverse Effect.

 

(c) Except as set forth in Schedule 8.9 hereto, (i) no ERISA Event has occurred
or is reasonably expected to occur that would result in a liability of a
Borrower in excess of $500,000 or otherwise have a Material Adverse Effect;
(ii) based on the latest valuation of each Pension Plan and on the actuarial
methods and assumptions employed for such valuation (determined in accordance
with the assumptions used for funding such Pension Plan pursuant to Section 412
of the Code), the aggregate current value of accumulated benefit liabilities of
such Pension Plan under Section 4001(a)(16) of ERISA does not exceed the
aggregate current value of the assets of such Pension Plan by an amount in
excess of $500,000; (iii) each Borrower and Guarantor, and their ERISA
Affiliates, have not incurred and do not reasonably expect to incur, any
liability under Title IV of ERISA with respect to any Plan (other than premiums
due and not delinquent under Section 4007 of ERISA) in excess of $500,000;
(iv) each Borrower and Guarantor, and their ERISA Affiliates, have not incurred
and do not reasonably expect to incur, any liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA, would result in
such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan in excess of $500,000; and (v) each Borrower and Guarantor,
and their ERISA Affiliates, have not engaged in a transaction that would be
subject to Section 4069 or 4212(c) of ERISA.

 

8.10 Bank Accounts. All of the deposit accounts, investment accounts or other
accounts in the name of or used by any Borrower or Guarantor maintained at any
bank or other financial institution are set forth on Schedule 8.10 to the
Information Certificate, subject to the right of each Borrower and Guarantor to
establish new accounts in accordance with Section 5.2 hereof.

 

8.11 Intellectual Property. Each Borrower and Guarantor owns or licenses or
otherwise has the right to use all Intellectual Property necessary for the
operation of its business as presently conducted or proposed to be conducted. As
of the date hereof, Borrowers and

 

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Guarantors do not have any Intellectual Property registered, or subject to
pending applications, in the United States Patent and Trademark Office or any
similar office or agency in the United States, any State thereof, any political
subdivision thereof or in any other country, other than those described in
Schedule 8.11 to the Information Certificate and has not granted any licenses
with respect thereto other than as set forth in Schedule 8.11 to the Information
Certificate. No event has occurred which permits or would permit after notice or
passage of time or both, the revocation, suspension or termination of such
rights. To the best of any Borrower’s and Guarantor’s knowledge, no slogan or
other advertising device, product, process, method, substance or other
Intellectual Property or goods bearing or using any Intellectual Property
presently contemplated to be sold by or employed by any Borrower or Guarantor
infringes any patent, trademark, servicemark, tradename, copyright, license or
other Intellectual Property owned by any other Person presently and no claim or
litigation is pending or threatened against or affecting any Borrower or
Guarantor contesting its right to sell or use any such Intellectual Property.
Schedule 8.11 to the Information Certificate sets forth all of the agreements or
other arrangements of each Borrower and Guarantor pursuant to which such
Borrower or Guarantor has a license or other right to use any trademarks, logos,
designs, representations or other Intellectual Property owned by another person
as in effect on the date hereof and the dates of the expiration of such
agreements or other arrangements of such Borrower or Guarantor as in effect on
the date hereof (collectively, together with such agreements or other
arrangements as may be entered into by any Borrower or Guarantor after the date
hereof, collectively, the “License Agreements” and individually, a “License
Agreement”). No trademark, servicemark, copyright or other Intellectual Property
at any time used by any Borrower or Guarantor which is owned by another person,
or owned by such Borrower or Guarantor subject to any security interest, lien,
collateral assignment, pledge or other encumbrance in favor of any person other
than Agent, is affixed to any Eligible Inventory, except (a) to the extent
permitted under the term of the license agreements listed on Schedule 8.11 to
the Information Certificate and (b) to the extent the sale of Inventory to which
such Intellectual Property is affixed is permitted to be sold by such Borrower
or Guarantor under applicable law (including the United States Copyright Act of
1976).

 

8.12 Subsidiaries; Affiliates; Capitalization; Solvency.

 

(a) Each Borrower and Guarantor does not have any direct or indirect
Subsidiaries or Affiliates and is not engaged in any joint venture or
partnership except as set forth in Schedule 8.12 to the Information Certificate.

 

(b) Except as set forth in Schedule 8.12 to the Information Certificate, each
Borrower and Guarantor is the record and beneficial owner of all of the issued
and outstanding shares of Capital Stock of each of the Subsidiaries listed on
Schedule 8.12 to the Information Certificate as being owned by such Borrower or
Guarantor and there are no proxies, irrevocable or otherwise, with respect to
such shares and no equity securities of any of the Subsidiaries are or may
become required to be issued by reason of any options, warrants, rights to
subscribe to, calls or commitments of any kind or nature and there are no
contracts, commitments, understandings or arrangements by which any Subsidiary
is or may become bound to issue additional shares of its Capital Stock or
securities convertible into or exchangeable for such shares.

 

(c) The issued and outstanding shares of Capital Stock of each Borrower (other
than Parent) and Guarantor are directly and beneficially owned and held by the
persons indicated in

 

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the Information Certificate, and in each case all of such shares have been duly
authorized and are fully paid and non-assessable, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as disclosed in writing to
Agent prior to the date hereof.

 

(d) Each Borrower and Guarantor is Solvent and will continue to be Solvent after
the creation of the Obligations, the security interests of Agent and the other
transaction contemplated hereunder.

 

(e) Merix B.V. does not own any assets or have any liabilities and is not
engaged in any business or commercial activities, does not own any assets with a
book value of more than $25,000 in the aggregate and is not obligated or liable,
directly or indirectly, contingently or otherwise, in respect of any
Indebtedness or other obligations.

 

8.13 Labor Disputes.

 

(a) Set forth on Schedule 8.13 to the Information Certificate is a list
(including dates of termination) of all collective bargaining or similar
agreements between or applicable to each Borrower and Guarantor and any union,
labor organization or other bargaining agent in respect of the employees of any
Borrower or Guarantor on the date hereof.

 

(b) There is (i) no significant unfair labor practice complaint pending against
any Borrower or Guarantor or, to the best of any Borrower’s or Guarantor’s
knowledge, threatened against it, before the National Labor Relations Board, and
no significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is pending on the date hereof against
any Borrower or Guarantor or, to best of any Borrower’s or Guarantor’s
knowledge, threatened against it, and (ii) no significant strike, labor dispute,
slowdown or stoppage is pending against any Borrower or Guarantor or, to the
best of any Borrower’s or Guarantor’s knowledge, threatened against any Borrower
or Guarantor.

 

8.14 Restrictions on Subsidiaries. Except for restrictions contained in this
Agreement or any other agreement with respect to Indebtedness of any Borrower or
Guarantor permitted hereunder as in effect on the date hereof, there are no
contractual or consensual restrictions on any Borrower or Guarantor or any of
its Domestic Subsidiaries which prohibit or otherwise restrict (a) the transfer
of cash or other assets (i) between any Borrower or Guarantor and any of its or
their Domestic Subsidiaries or (ii) between any Domestic Subsidiaries of any
Borrower or Guarantor or (b) the ability of any Borrower or Guarantor or any of
its or their Domestic Subsidiaries to incur Indebtedness or grant security
interests to Agent or any Lender in the Collateral.

 

8.15 Material Contracts. Schedule 8.15 to the Information Certificate sets forth
all Material Contracts to which any Borrower or Guarantor is a party or is bound
as of the date hereof. Borrowers and Guarantors have delivered true, correct and
complete copies of such Material Contracts to Agent on or before the date
hereof. Borrowers and Guarantors are not in breach or in default in any material
respect of or under any Material Contract and have not received any notice of
the intention of any other party thereto to terminate any Material Contract.

 

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8.16 Payable Practices. Each Borrower and Guarantor has not made any material
change in the historical accounts payable practices from those in effect
immediately prior to the date hereof.

 

8.17 Accuracy and Completeness of Information. All information furnished by or
on behalf of any Borrower or Guarantor in writing to Agent or any Lender in
connection with this Agreement or any of the other Financing Agreements or any
transaction contemplated hereby or thereby, including all information on the
Information Certificate is true and correct in all material respects on the date
as of which such information is dated or certified and does not omit any
material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a Material Adverse Affect, which has not been fully and accurately
disclosed to Agent in writing prior to the date hereof.

 

8.18 Survival of Warranties; Cumulative. All representations and warranties
contained in this Agreement or any of the other Financing Agreements shall
survive the execution and delivery of this Agreement and shall be deemed to have
been made again to Agent and Lenders on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Agent and Lenders regardless of any investigation made or
information possessed by Agent or any Lender The representations and warranties
set forth herein shall be cumulative and in addition to any other
representations or warranties which any Borrower or Guarantor shall now or
hereafter give, or cause to be given, to Agent or any Lender.

 

SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS

 

9.1 Maintenance of Existence.

 

(a) Each Borrower and Guarantor shall at all times preserve, renew and keep in
full force and effect its corporate existence and rights and franchises with
respect thereto. Each Borrower and Guarantor shall maintain in full force and
effect all material licenses, trademarks, tradenames, approvals, authorizations,
leases, contracts and Permits necessary to carry on the business as presently or
proposed to be conducted, except as otherwise permitted in Section 9.7 hereto.

 

(b) No Borrower or Guarantor shall change its name unless each of the following
conditions is satisfied: (i) Agent shall have received not less than ten
(10) days prior written notice from Administrative Borrower of such proposed
change in its corporate name, which notice shall accurately set forth the new
name; and (ii) Agent shall have received a copy of the amendment to the
Certificate of Incorporation of such Borrower or Guarantor providing for the
name change certified by the Secretary of State of the jurisdiction of
incorporation or organization of such Borrower or Guarantor as soon as it is
available.

 

(c) No Borrower or Guarantor shall change its chief executive office or its
mailing address or organizational identification number (or if it does not have
one, shall not acquire one) unless Agent shall have received not less than ten
(10) Business Days’ prior written notice from Administrative Borrower of such
proposed change, which notice shall set forth such information

 

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with respect thereto as Agent may require and Agent shall have received such
agreements as Agent may reasonably require in connection therewith. No Borrower
or Guarantor shall change its type of organization, jurisdiction of organization
or other legal structure.

 

9.2 New Collateral Locations. Each Borrower and Guarantor may only open any new
location within the continental United States provided such Borrower or
Guarantor gives Agent ten (10) days prior written notice of the intended opening
of any such new location, except, that, Borrowers and Guarantors shall not be
required to give such prior written notice of a new location of Inventory that
is owned and operated by a third party (including any processor or customer
pursuant to any consignment arrangement) so long as: (a) the aggregate amount of
all of the Inventory at locations for which Agent has not received such notice
does not exceed $1,000,000 prior to an Inventory Availability Date and $250,000
after an Inventory Availability Date; (b) no Default or Event of Default exists
or has occurred and is continuing; and (c) Borrowers and Guarantors shall
include the name of the owner and operator and address of such location with the
compliance certificate to be delivered under Section 9.6(a)(i) hereof. Each
Borrower and Guarantor shall execute and deliver, or cause to be executed and
delivered, to Agent such agreements, documents, and instruments as Agent may
deem reasonably necessary or desirable to protect its interests in the
Collateral at such location.

 

9.3 Compliance with Laws, Regulations, Etc.

 

(a) Each Borrower and Guarantor shall, and shall cause any Domestic Subsidiary
to, at all times, comply with all laws, rules, regulations, licenses, approvals,
orders and other Permits applicable to it and duly observe all requirements of
any foreign, Federal, State or local Governmental Authority where the failure to
do so has or could reasonably be expected to have a Material Adverse Effect.

 

(b) Borrowers and Guarantors shall give written notice to Agent immediately upon
any Borrower’s or Guarantor’s receipt of any notice of, or any Borrower’s or
Guarantor’s otherwise obtaining knowledge of, (i) the occurrence of any event
involving the release, spill or discharge, threatened or actual, of any
Hazardous Material or (ii) any investigation, proceeding, complaint, order,
directive, claims, citation or notice with respect to: (A) any non-compliance
with or violation of any Environmental Law by any Borrower or Guarantor or
(B) the release, spill or discharge, threatened or actual, of any Hazardous
Material other than in the ordinary course of business and other than as
permitted under any applicable Environmental Law. Copies of all environmental
surveys, audits, assessments, feasibility studies and results of remedial
investigations shall be promptly furnished, or caused to be furnished, by such
Borrower or Guarantor to Agent. Each Borrower and Guarantor shall take prompt
action to respond to any material non-compliance with any of the Environmental
Laws and shall regularly report to Agent on such response.

 

(c) Without limiting the generality of the foregoing, whenever Agent reasonably
determines that there is non-compliance, or any condition which requires any
action by or on behalf of any Borrower or Guarantor in order to avoid any non
compliance, with any Environmental Law, Borrowers shall, at Agent’s request and
Borrowers’ expense: (i) cause an independent environmental engineer reasonably
acceptable to Agent to conduct such tests of the site where non-compliance or
alleged non compliance with such Environmental Laws has

 

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occurred as to such non-compliance and prepare and deliver to Agent a report as
to such non-compliance setting forth the results of such tests, a proposed plan
for responding to any environmental problems described therein, and an estimate
of the costs thereof and (ii) provide to Agent a supplemental report of such
engineer whenever the scope of such non-compliance, or such Borrower’s or
Guarantor’s response thereto or the estimated costs thereof, shall change in any
material respect.

 

(d) Each Borrower and Guarantor shall indemnify and hold harmless Agent and
Lenders and their respective directors, officers, employees, agents, invitees,
representatives, successors and assigns, from and against any and all losses,
claims, damages, liabilities, costs, and expenses (including reasonable
attorneys’ fees and expenses) directly or indirectly arising out of or
attributable to the use, generation, manufacture, reproduction, storage,
release, threatened release, spill, discharge, disposal or presence of a
Hazardous Material, including the costs of any required or necessary repair,
cleanup or other remedial work with respect to any property of any Borrower or
Guarantor and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination of this Agreement.

 

9.4 Payment of Taxes and Claims. Each Borrower and Guarantor shall, and shall
cause any Domestic Subsidiary to, duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to such Borrower,
Guarantor or Domestic Subsidiary, as the case may be, and with respect to which
adequate reserves have been set aside on its books to the extent required by
GAAP.

 

9.5 Insurance.

 

(a) Each Borrower and Guarantor shall, and shall cause any Domestic Subsidiary
to, at all times, maintain with financially sound and reputable insurers
insurance with respect to the Collateral against loss or damage and all other
insurance of the kinds and in the amounts customarily insured against or carried
by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
reasonably satisfactory to Agent as to form, amount and insurer. Borrowers and
Guarantors shall furnish certificates, policies or endorsements to Agent as
Agent shall reasonably require as proof of such insurance, and, if any Borrower
or Guarantor fails to do so, Agent is authorized, but not required, to obtain
such insurance at the expense of Borrowers. All such policies shall provide for
at least thirty (30) days prior written notice to Agent of any cancellation or
reduction of coverage and that Agent may act as attorney for each Borrower and
Guarantor in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Borrowers and Guarantors shall cause Agent to be named as a loss
payee and an additional insured (but without any liability for any premiums)
under such insurance policies and Borrowers and Guarantors shall obtain
non-contributory lender’s loss payable endorsements to all insurance policies in
form and substance satisfactory to Agent. Such lender’s loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Agent as its interests may appear and further specify that Agent and Lenders
shall be

 

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paid regardless of any act or omission by any Borrower, Guarantor or any of its
or their Affiliates. Without limiting any other rights of Agent or Lenders,
subject to Section 9.5(b) below, any insurance proceeds received by Agent at any
time may be applied to payment of the Obligations, whether or not then due, in
any order and in such manner as Agent may determine.

 

(b) Notwithstanding anything to the contrary contained herein, if any of the
Equipment or any portion of any building, structure or other improvement on any
Real Property is lost, physically damaged or destroyed, upon the written request
of Administrative Borrower,

 

(i) if the amount of the Net Cash Proceeds from insurance received by Agent
pursuant to this Section 9.5 based on a claim by a Borrower as a result of such
loss, damage or destruction is equal to or less than $500,000, Agent shall
release such Net Cash Proceeds then in the possession and control of Agent at
the time of such request, provided, that, no Default or Event of Default shall
exist or have occurred and be continuing,

 

(ii) if the amount of the Net Cash Proceeds from insurance received by Agent
pursuant to this Section 9.5 based on a claim by a Borrower as a result of such
loss, damage or destruction is greater than $500,000 and less than $4,000,000,
Agent shall from time to time release such Net Cash Proceeds then in the
possession and control of Agent at the time of such request, provided, that,
each of the following conditions is satisfied: (A) no Default or Event of
Default shall exist or have occurred and be continuing, (B) the sum of the
amount of the insurance proceeds (together with any deductible to be satisfied
by any Borrower or Guarantor) plus the Qualified Cash of Borrowers at the time
of the receipt of the initial insurance proceeds are sufficient, in Agent’s good
faith determination, to effect such repair, refurbishing or replacement in a
satisfactory manner (provided, that, Qualified Cash will only be included for
this purpose if the Excess Availability, without regard to Qualified Cash, is
equal to or greater than $10,000,000 and to the extent that the amounts of
Qualified Cash to be used for such purpose shall be set aside in a manner
satisfactory to Agent to be available solely for the costs and expenses of such
repair, refurbishing or replacement), (C) such proceeds shall be used first to
repair, refurbish or replace the Collateral so lost, damaged or destroyed (free
and clear of any security interests, liens, claims or encumbrances), (D) the
insurance carrier shall have waived any right of subrogation against Borrowers
and Guarantors under its policy, (E) such repair, refurbishing or replacement
shall be commenced as soon as reasonably practicable and shall be diligently
pursued to satisfactory completion, (F) the insurance proceeds shall be released
by Agent to Administrative Borrower from time to time as needed and/or at
Agent’s option, released by Agent directly to the contractor, subcontractor,
materialmen, laborers, engineers, architects and other persons rendering
services or materials to repair, refurbish or replace such Equipment, building,
structure or improvements, and (G) the repair, refurbishing or replacement to
which the proceeds are applied shall cause the Equipment, building, structure or
improvement so lost, damaged, destroyed to be of at least equal value and
substantially the same character as prior to such loss, damage or destruction.

 

(c) Notwithstanding anything to the contrary in Section 9.5(b), at any time an
Event of Default exists or has occurred and is continuing or as to any insurance
proceeds in excess of those used to repair, refurbish or replace any Collateral,
at its option, Agent may apply such insurance proceeds to payment of the

 

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Obligations, whether or not then due, in any order and in such manner as Agent
may determine or hold such proceeds as cash collateral for the Obligations.
After the repair, refurbishing or replacement of any Equipment, building,
structure or improvement as provided in Section 9.5(b), without limiting any
other rights of Agent or Lenders, at Agent’s option, Borrowers shall, at their
expense, deliver or cause to be delivered to Agent written appraisals as to such
Equipment, building, structure or improvement in form, scope and methodology
acceptable to Agent and by an appraiser acceptable to Agent, addressed to Agent
and Lenders and upon which Agent and Lenders are expressly permitted to rely
(which appraisal shall not be considered for purposes of any limitations on
appraisals provided for herein, but is be in addition thereto).

 

9.6 Financial Statements and Other Information.

 

(a) Each Borrower and Guarantor shall, and shall cause each Domestic Subsidiary
to, keep proper books and records in which true and complete entries shall be
made of all dealings or transactions of or in relation to the Collateral and the
business of such Borrower, Guarantor and its Subsidiaries in accordance with
GAAP. Borrowers and Guarantors shall promptly furnish to Agent and Lenders all
such financial and other information as Agent shall reasonably request relating
to the Collateral and the assets, business and operations of Borrowers and
Guarantors, and Borrower shall notify the auditors and accountants of Borrowers
and Guarantors that Agent is authorized to obtain such information directly from
them. Without limiting the foregoing, Borrowers shall furnish or cause to be
furnished to Agent, the following:

 

(i) within thirty (30) days after the end of each fiscal month, monthly
unaudited balance sheets, statements of income and loss and statements of cash
flow of Parent’s consolidated U.S. operations (on a consolidating basis) in
accordance with GAAP, subject to normal quarter-end adjustments and accompanied
by a compliance certificate substantially in the form of Exhibit D hereto, along
with a schedule in form reasonably satisfactory to Agent of the calculations
used in determining (A) whether Borrowers and Guarantors were in compliance with
the covenants set forth in Section 9.17 of this Agreement for such fiscal month
and (B) the Debt Ratio (as defined in the Merix 6.5% Debenture), in each case,
as of the end of such fiscal month,

 

(ii) within forty-five (45) days after the end of each of the first three fiscal
quarters of each fiscal year, a copy of Parent’s Form 10-Q for such quarter,
together with Parent’s quarterly balance sheets, statements of income and loss
and statements of cash flow for Parent’s consolidated U.S. operations, with
comparisons to corresponding amounts for the U.S. operations in the financial
plan approved by the Board of Directors of Parent for such period, and

 

(iii) within ninety (90) days after the end of each fiscal year, a copy of
Parent’s Form 10-K which shall include consolidated financial statements audited
by, and the unqualified opinion of, a nationally recognized firm of certified
public accountants, together with a copy of the annual consolidating trial
balances which include annual unaudited balance sheets, statements of income and
loss and statements of cash flow for Parent’s consolidated U.S. operations, and

 

(iv) at such time as available, but in no event later than sixty (60) days after
the end of each two (2) consecutive fiscal quarter period (commencing with the
third and fourth fiscal quarters of 2006 of Borrowers), the semi-annual
financial plans approved by the Board of Directors of Parent prepared and
presented by fiscal quarter in a manner consistent with the current practices of
Parent as of the date hereof.

 

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(b) Borrowers and Guarantors shall promptly notify Agent in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to Collateral having a value of more than $250,000 or which if
adversely determined would result in any material adverse change in any
Borrower’s or Guarantor’s business, properties, assets, goodwill or condition,
financial or otherwise, (ii) any Material Contract being terminated or amended
or any new Material Contract entered into (in which event Borrowers and
Guarantors shall provide Agent with a copy of such Material Contract), (iii) any
order, judgment or decree in excess of $250,000 shall have been entered against
any Borrower or Guarantor any of its or their properties or assets, (iv) any
notification of a material violation of laws or regulations received by any
Borrower or Guarantor, (v) any ERISA Event, and (vi) the occurrence of any
Default or Event of Default.

 

(c) Promptly after the sending or filing thereof, Borrowers shall notify Agent
that any of the following have been sent or filed, and to the extent are not
then publicly available by electronic means to Agent shall send to Agent copies
of (i) all reports which Parent or any of its Subsidiaries sends to its security
holders generally, (ii) all reports and registration statements which Parent or
any of its Subsidiaries files with the Securities Exchange Commission, any
national or foreign securities exchange or the National Association of
Securities Dealers, Inc., and such other reports as Agent may hereafter
specifically identify to Administrative Borrower that Agent will require be
provided to Agent, (iii) all press releases and (iv) all other statements
concerning material changes or developments in the business of a Borrower or
Guarantor made available by any Borrower or Guarantor to the public.

 

(d) Borrowers and Guarantors shall furnish or cause to be furnished to Agent
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrowers and Guarantors, as Agent may, from time
to time, reasonably request. Agent is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrowers and Guarantors to any court or other Governmental Authority or to any
Lender or Participant or prospective Lender or Participant or any Affiliate of
any Lender or Participant. Each Borrower and Guarantor hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Agent, at
Borrowers’ expense, copies of the financial statements of any Borrower and
Guarantor and any reports or management letters prepared by such accountants or
auditors on behalf of any Borrower or Guarantor and to disclose to Agent and
Lenders such information as they may have regarding the business of any Borrower
and Guarantor. Any documents, schedules, invoices or other papers delivered to
Agent or any Lender may be destroyed or otherwise disposed of by Agent or such
Lender one (1) year after the same are delivered to Agent or such Lender, except
as otherwise designated by Administrative Borrower to Agent or such Lender in
writing.

 

9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each Borrower and
Guarantor shall not, and shall not permit any Subsidiary to, directly or
indirectly,

 

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(a) merge into or with or consolidate with any other Person or permit any other
Person to merge into or with or consolidate with it, except:

 

(i) any Domestic Subsidiary (other than a Borrower) may merge with and into or
consolidate with any other Domestic Subsidiary of Parent (other than a
Borrower), provided, that, each of the following conditions is satisfied as
determined by Agent: (A) Agent shall have received not less than ten
(10) Business Days’ prior written notice of the intention of such Domestic
Subsidiaries to so merge or consolidate, which notice shall set forth in
reasonable detail satisfactory to Agent, the persons that are merging or
consolidating, which person will be the surviving entity, the locations of the
assets of the persons that are merging or consolidating, and the material
agreements and documents relating to such merger or consolidation, (B) Agent
shall have received such other information with respect to such merger or
consolidation as Agent may reasonably request, (C) as of the effective date of
the merger or consolidation and after giving effect thereto, no Default or Event
of Default shall exist or have occurred and be continuing, (D) Agent shall have
received, true, correct and complete copies of all agreements, documents and
instruments relating to such merger or consolidation, including, but not limited
to, the certificate or certificates of merger to be filed with each appropriate
Secretary of State (with a copy as filed promptly after such filing), and
(E) the surviving corporation shall expressly confirm, ratify and assume the
Obligations and the Financing Agreements to which it is a party in writing, in
form and substance satisfactory to Agent, and Borrowers and Guarantors shall
execute and deliver such other agreements, documents and instruments as Agent
may request in connection therewith,

 

(ii) any Foreign Subsidiary may merge or consolidate with and into any other
Foreign Subsidiary or any other Person, provided, that, (A) Agent shall have
received prompt written notice of the intention of such Foreign Subsidiary to so
merge or consolidate, which notice shall set forth in reasonable detail, the
Foreign Subsidiary that is merging or consolidating, the person with whom such
Foreign Subsidiary is merging or consolidating and the material agreements and
documents relating to such merger or consolidation, (B) a Foreign Subsidiary
shall be the surviving entity of such merger or consolidation and the conditions
set forth in Section 9.10(i) shall be satisfied, and (C) in no event shall any
Borrower or Guarantor make, or be required to make, any payment or incur any
obligation or liability in connection with such merger or consolidation or take
any other action which is otherwise prohibited hereunder; or

 

(b) sell, issue, assign, lease, license, transfer, abandon or otherwise dispose
of any Capital Stock or Indebtedness to any other Person or any of its assets to
any other Person, except for

 

(i) sales of Inventory in the ordinary course of business,

 

(ii) the sale or other disposition of Equipment (including worn-out or obsolete
Equipment or Equipment no longer used or useful in the business of any Borrower
or Guarantor) so long as such sales or other dispositions do not involve
Equipment having an aggregate fair market value in excess of $100,000 for all
such Equipment disposed of in any fiscal year of Borrowers or such greater
amount as Agent may otherwise agree,

 

(iii) the sale or other disposition of Equipment to any Foreign Subsidiary,
provided, that, each of the following conditions is satisfied: (A) each such
sale or other disposition shall be in a bona fide arms’ length transaction,
(B) such sales or other dispositions do not involve Equipment having an
aggregate fair market value in excess of $1,000,000 for all

 

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such Equipment sold or disposed of in any fiscal year of Borrowers or such
greater amount as Agent may otherwise agree, (C) to the extent that such
Equipment so sold or otherwise disposed of has been included in any appraisal of
Equipment received by Agent, Agent shall have received Net Cash Proceeds from
the Foreign Subsidiary in respect of such sale or other disposition not less
than the amount equal to: (1) the net orderly liquidation value of such
Equipment set forth in the final written appraisal of the Equipment received by
Agent prior to the date hereof minus (2) the amount equal to: (aa) the fraction,
the numerator of which is the net orderly liquidation value of such Equipment as
set forth in the final written appraisal of the Equipment received by Agent
prior to the date hereof and the denominator of which is $26,381,000 multiplied
by (bb) the aggregate amount of the payments received by Agent in respect of the
Term Loans as of the date of such sale or other disposition; and such Net Cash
Proceeds shall be applied to the prepayment of the installments of principal of
the Term Loans in the inverse order of maturity, and any such Net Cash Proceeds
in excess of such amount shall be applied to the Revolving Loans, and (D) as of
the date of such sale or other disposition and after giving effect thereto, no
Default or Event of Default shall exist or have occurred and be continuing,

 

(iv) the sale by Parent of its right, title and interest in and to its fee
simple interest in the Real Property of Parent located at 3700 24th Avenue,
Forest Grove, Oregon; provided, that, (A) if such sale occurs at any time on and
after a Cash Dominion Event, (1) Agent shall have received all of the Net Cash
Proceeds in respect of the sale of such Real Property to be received by Parent,
for application to the Revolving Loans, (2) such sale shall be in a bona fide
arms’ length transaction with a person that is not an Affiliate on commercially
reasonable prices and terms, (3) Agent shall have received a complete copy of
the purchase agreement with respect to such Real Property, an executed copy of
the Deed by Parent transferring such Real Property and a copy of the Closing
Statement executed by Parent and the purchaser of such Real Property, and (4) as
of the date of any such sale and after giving effect thereto, no Default or
Event of Default shall exist or have occurred and be continuing, and
(B) notwithstanding anything to the contrary contained herein, in the event that
such Real Property of Parent has not been sold prior to May 31, 2006, at the
option of Agent, Parent shall execute and deliver to Agent a modification and
spreader of the Line of Credit Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing, by Parent in favor of Agent with respect
to such Real Property and related assets of Parent located on such Real
Property, in form and substance satisfactory to Agent and a UCC-1 financing
statement to be filed in the real estate records of Washington County, Oregon,
together with environmental assessments of such property conducted by an
independent environmental engineering firm acceptable to Agent, and in form,
scope and methodology satisfactory to Agent, the results of which shall be
satisfactory to Agent and a valid and effective title insurance policy, in form
and substance satisfactory to Agent issued by a company and agent acceptable to
Agent;

 

(v) the sale by Parent of its right, title and interest in and to its fee simple
interest in forty-five and seven-tenths (45.7) acres of the unimproved portion
of the Real Property subject to the Mortgage, on terms and conditions
satisfactory to Agent and Parent; provided, that, (A) Agent shall have received
evidence that such portion of the Real Property to be sold has been legally
subdivided, including a subdivision endorsement issued by the company issuing
the title insurance policy pursuant to Section 4.1(l) hereof, (B) Agent shall
have received all of the Net Cash Proceeds in respect of the sale of such
portion of the Real Property subject to the Mortgage to be received by Parent,
which Net Cash Proceeds shall in no event be less than

 

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the amount equal to: (1) $4,800,000 minus (2) the amount equal to: (aa) the
fraction, the numerator of which $4,800,000 and the denominator of which is
$26,381,000 multiplied by (bb) the aggregate amount of the payments received by
Agent in respect of the Term Loans as of the date of such sale or other
disposition; and such Net Cash Proceeds shall be applied to the prepayment of
the installments of principal of the Term Loans in the inverse order of
maturity, and any such Net Cash Proceeds in excess of such amount shall be
applied to the Revolving Loans, (C) Agent shall have received (1) a complete
copy of the purchase agreement with respect to such portion of the Real Property
subject to the Mortgage, (2) an executed copy of the Deed by Parent transferring
such portion of the Real Property subject to the Mortgage and (3) a copy of the
Closing Statement executed by Parent and the purchaser of such portion of the
Real Property subject to the Mortgage, and (D) on the date of such sale and
after giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing;

 

(vi) the issuance and sale by any Borrower or Guarantor of Capital Stock of such
Borrower or Guarantor after the date hereof; provided, that, (A) Agent shall
have received not less than ten (10) Business Days’ prior written notice of such
issuance and sale by such Borrower or Guarantor, which notice shall specify the
parties to whom such shares are to be sold, the terms of such sale, the total
amount which it is anticipated will be realized from the issuance and sale of
such stock and the net cash proceeds which it is anticipated will be received by
such Borrower or Guarantor from such sale, (B) such Borrower or Guarantor shall
not be required to pay any cash dividends or repurchase or redeem such Capital
Stock or make any other payments in respect thereof, except as otherwise
permitted in Section 9.11 hereof, (C) the terms of such Capital Stock, and the
terms and conditions of the purchase and sale thereof, shall not include any
terms that include any limitation on the right of any Borrower to request or
receive Loans or Letters of Credit or the right of any Borrower and Guarantor to
amend or modify any of the terms and conditions of this Agreement or any of the
other Financing Agreements or otherwise in any way relate to or affect the
arrangements of Borrowers and Guarantors with Agent and Lenders or are more
restrictive or burdensome to any Borrower or Guarantor than the terms of any
Capital Stock in effect on the date hereof, (D) except as Agent may otherwise
agree in writing, if as of the date of such issuance and sale or after giving
effect thereto, a Cash Dominion Event has occurred and is continuing, all of the
proceeds of the sale and issuance of such Capital Stock shall be paid to Agent
for application to the Obligations in such order and manner as Agent may
determine;

 

(vii) the issuance of Capital Stock of any Borrower or Guarantor consisting of
common stock pursuant to an employee stock option or grant or similar equity
plan or 401(k) plans of such Borrower or Guarantor for the benefit of its
employees, directors and consultants, provided, that, in no event shall such
Borrower or Guarantor be required to issue, or shall such Borrower or Guarantor
issue, Capital Stock pursuant to such stock plans or 401(k) plans which would
result in a Change of Control or other Event of Default,

 

(viii) the grant by any Borrower or Guarantor of a non-exclusive license or an
exclusive license after the date hereof to any Foreign Subsidiary for the use of
any Intellectual Property consisting of trademarks or patents owned by any
Borrower or Guarantor; provided, that, as to any such license, each of the
following conditions is satisfied: (A) within ten (10) Business Days after the
end of each month, or at any time an Event of Default exists or has occurred and
is continuing more frequently as Agent may request, Borrowers and Guarantors

 

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shall provide to Agent a list of the licenses, if any, entered into during the
immediately preceding month (or such shorter period), together with such other
information with respect thereto as Agent may reasonably request, (B) each such
license shall be in a bona fide arms’-length transaction, (C) such license shall
not include any limitations or restrictions on the use of such trademarks or
patents that would adversely affect the ability of Agent to use such trademarks
or patents in order to sell or otherwise realize upon any of the Inventory, or
if such license does include any such limitations or restrictions, any Inventory
bearing the trademark or using the patent that is subject to such license or for
which such trademark or patent is used in the manufacture, distribution or sale
thereof shall cease to be Eligible Inventory to the extent that such Inventory
can no longer be sold using such trademark or patent or is not reasonably
anticipated to be sold during the remaining period that any Borrower or
Guarantor may use such trademark prior to the termination of its rights to do so
in accordance with the terms of the applicable agreement, (D) upon Agent’s
request, Borrowers and Guarantors shall deliver to Agent true, correct and
complete copies of such agreements, documents and instruments in connection with
such license as Agent may specify, and (E) at the time of the grant of the
license and after giving effect thereto, no Default or Event of Default shall
exist or have occurred and be continuing,

 

(c) wind up, liquidate or dissolve except that (i) any Guarantor wind up,
liquidate and dissolve, provided, that, each of the following conditions is
satisfied, (A) the winding up, liquidation and dissolution of such Guarantor
shall not violate any law or any order or decree of any court or other
Governmental Authority in any material respect and shall not conflict with or
result in the breach of, or constitute a default under, any indenture, mortgage,
deed of trust, or any other agreement or instrument to which any Borrower or
Guarantor is a party or may be bound, (B) such winding up, liquidation or
dissolution shall be done in accordance with the requirements of all applicable
laws and regulations, (C) effective upon such winding up, liquidation or
dissolution, all of the assets and properties of such Guarantor shall be duly
and validly transferred and assigned to a Borrower, free and clear of any liens,
restrictions or encumbrances other than Permitted Liens and the security
interest and liens of Agent (and Agent shall have received such evidence thereof
as Agent may require) and Agent shall have received such deeds, assignments or
other agreements as Agent may request to evidence and confirm the transfer of
such assets of such Guarantor to a Borrower, (D) Agent shall have received all
documents and agreements that any Borrower or Guarantor has filed with any
Governmental Authority or as are otherwise required to effectuate such winding
up, liquidation or dissolution, (E) no Borrower or Guarantor shall assume any
Indebtedness, obligations or liabilities as a result of such winding up,
liquidation or dissolution, or otherwise become liable in respect of any
obligations or liabilities of the entity that is winding up, liquidating or
dissolving, unless such Indebtedness is otherwise expressly permitted hereunder,
(F) Agent shall have received not less than ten (10) Business Days prior written
notice of the intention of such Guarantor to wind up, liquidate or dissolve, and
(G) as of the date of such winding up, liquidation or dissolution and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing and (ii) any Foreign Subsidiary may wind up,
liquidate and dissolve, provided, that, (A) Agent shall have received not less
than ten (10) Business Days prior written notice of the intention of such
Foreign Subsidiary to wind up, liquidate or dissolve, and (B) as of the date of
such winding up, liquidation or dissolution and after giving effect thereto, no
Default or Event of Default shall exist or have occurred and be continuing; or

 

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(d) agree to do any of the foregoing.

 

9.8 Encumbrances. Each Borrower and Guarantor shall not, and shall not permit
any Subsidiary to, create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets or properties, including the Collateral, or file
or permit the filing of, or permit to remain in effect, any financing statement
or other similar notice of any security interest or lien with respect to any
such assets or properties, except the following (collectively, “Permitted
Liens”):

 

(a) the security interests and liens of Agent for itself and the benefit of
Secured Parties and the rights of setoff of Secured Parties provided for herein
or under applicable law;

 

(b) liens securing the payment of taxes, assessments or other governmental
charges or levies either not yet overdue or the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower, or Guarantor or Domestic Subsidiary, as the case may
be and with respect to which adequate reserves have been set aside on its books;

 

(c) non-consensual statutory liens (other than liens securing the payment of
taxes) arising in the ordinary course of such Borrower’s, Guarantor’s or
Domestic Subsidiary’s business to the extent: (i) such liens secure Indebtedness
which is not overdue or (ii) such liens secure Indebtedness relating to claims
or liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to such Borrower,
Guarantor or such Domestic Subsidiary, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books;

 

(d) zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of Real Property which do not interfere in any material
respect with the use of such Real Property or ordinary conduct of the business
of such Borrower, Guarantor or such Domestic Subsidiary as presently conducted
thereon or materially impair the value of the Real Property which may be subject
thereto;

 

(e) purchase money security interests in Equipment (including Capital Leases)
and purchase money mortgages on Real Property to secure Indebtedness permitted
under Section 9.9(b) hereof;

 

(f) pledges and deposits of cash by any Borrower or Guarantor after the date
hereof in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other types of social security benefits
consistent with the current practices of such Borrower or Guarantor as of the
date hereof;

 

(g) pledges and deposits of cash by any Borrower or Guarantor after the date
hereof to secure the performance of tenders, bids, leases, trade contracts
(other than for the repayment of Indebtedness), statutory obligations and other
similar obligations in each case in the ordinary course of business consistent
with the current practices of such Borrower or Guarantor as of the date hereof;
provided, that, in connection with any performance bonds issued by a surety or
other person, the issuer of such bond shall have waived in writing any rights in
or to, or other interest in, any of the Collateral in an agreement, in form and
substance satisfactory to Agent;

 

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(h) liens arising from (i) operating leases and the precautionary UCC financing
statement filings in respect thereof and (ii) equipment or other materials which
are not owned by any Borrower or Guarantor located on the premises of such
Borrower or Guarantor (but not in connection with, or as part of, the financing
thereof) from time to time in the ordinary course of business and consistent
with current practices of such Borrower or Guarantor and the precautionary UCC
financing statement filings in respect thereof;

 

(i) judgments and other similar liens arising in connection with court
proceedings that do not constitute an Event of Default, provided, that, (i) such
liens are being contested in good faith and by appropriate proceedings
diligently pursued, (ii) adequate reserves or other appropriate provision, if
any, as are required by GAAP have been made therefor, (iii) a stay of
enforcement of any such liens is in effect, and (iv) Agent may establish a
Reserve with respect thereto; and

 

(j) the security interests and liens set forth on Schedule 8.4 to the
Information Certificate.

 

9.9 Indebtedness. Each Borrower and Guarantor shall not, and shall not permit
any Subsidiary to, incur, create, assume, become or be liable in any manner with
respect to, or permit to exist, any Indebtedness, or guarantee, assume, endorse,
or otherwise become responsible for (directly or indirectly), the Indebtedness,
performance, obligations or dividends of any other Person, except:

 

(a) the Obligations;

 

(b) purchase money Indebtedness (including Capital Leases) arising after the
date hereof to the extent secured by purchase money security interests in
Equipment (including Capital Leases) and purchase money mortgages on Real
Property not to exceed $5,000,000 in the aggregate at any time outstanding so
long as such security interests and mortgages do not apply to any property of
such Borrower, Guarantor or Domestic Subsidiary other than the Equipment or Real
Property so acquired, and the Indebtedness secured thereby does not exceed the
cost of the Equipment or Real Property so acquired, as the case may be;

 

(c) guarantees by any Borrower or Guarantor of the Obligations of the other
Borrowers or Guarantors in favor of Agent for the benefit of the Secured Parties

 

(d) the Indebtedness of any Borrower or Guarantor to any other Borrower or
Guarantor arising after the date hereof pursuant to loans by any Borrower or
Guarantor permitted under Section 9.10(g) or the Indebtedness of any Borrower or
Guarantor to any Foreign Subsidiary arising after the date hereof pursuant to
loans by any Foreign Subsidiary permitted under Section 9.10(h) hereof;

 

(e) Indebtedness of any Borrower or Guarantor entered into in the ordinary
course of business pursuant to a Hedge Agreement; provided, that, (i) such
arrangements are not for speculative purposes, (ii) such Indebtedness shall be
unsecured, except to the extent such

 

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Indebtedness constitutes part of the Obligations arising under or pursuant to
Hedge Agreements with any Bank Product Provider that are secured under the terms
hereof or except to the extent secured by pledges or deposits of cash as
permitted under Section 9.8 hereof and (iii) the terms and amounts of such
Indebtedness shall be reasonably acceptable to Agent;

 

(f) Indebtedness of any Foreign Subsidiary arising after the date hereof,
provided, that, (i) as to any such Indebtedness, Borrower shall not be directly
or indirectly liable (by virtue of Borrower being the primary obligor on,
guarantor of, or otherwise liable in any respect of such Indebtedness), and
(ii) any default by a Foreign Subsidiary in respect of such Indebtedness shall
not constitute a default in respect of any Indebtedness of a Borrower or
Guarantor;

 

(g) unsecured Indebtedness of any Borrower or Guarantor arising after the date
hereof to any third person (but not to any other Borrower or Guarantor),
provided, that, each of the following conditions is satisfied as determined by
Agent: (i) such Indebtedness shall be on terms and conditions acceptable to
Agent and shall be subject and subordinate in right of payment to the right of
Agent and Lenders to receive the prior indefeasible payment and satisfaction in
full payment of all of the Obligations pursuant to the terms of an intercreditor
agreement between Agent and such third party, in form and substance satisfactory
to Agent, (ii) Agent shall have received not less than ten (10) days prior
written notice of the intention of such Borrower or Guarantor to incur such
Indebtedness, which notice shall set forth in reasonable detail satisfactory to
Agent the amount of such Indebtedness, the person or persons to whom such
Indebtedness will be owed, the interest rate, the schedule of repayments and
maturity date with respect thereto and such other information as Agent may
request with respect thereto, (iii) Agent shall have received true, correct and
complete copies of all agreements, documents and instruments evidencing or
otherwise related to such Indebtedness, (iv) except as Agent may otherwise agree
in writing, on and after a Cash Dominion Event and for so long as the same is
continuing, all of the proceeds of the loans or other accommodations giving rise
to such Indebtedness shall be paid to Agent for application to the Obligations
in such order and manner as Agent may determine or at Agent’s option, to be held
as cash collateral for the Obligations, (v) in no event shall the aggregate
principal amount of such Indebtedness incurred during the term of this Agreement
exceed $500,000, (vi) such Borrower and Guarantor shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or
any agreement, document or instrument related thereto, except, that, such
Borrower or Guarantor may, after prior written notice to Agent, amend, modify,
alter or change the terms thereof so as to extend the maturity thereof, or defer
the timing of any payments in respect thereof, or to forgive or cancel any
portion of such Indebtedness (other than pursuant to payments thereof), or to
reduce the interest rate or any fees in connection therewith, or (B) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness (except
pursuant to regularly scheduled payments permitted herein), or set aside or
otherwise deposit or invest any sums for such purpose, and (vii) Borrowers and
Guarantors shall furnish to Agent all notices or demands in connection with such
Indebtedness either received by any Borrower or Guarantor or on its behalf
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf concurrently with the sending thereof, as the case may be;

 

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(h) Indebtedness of Parent evidenced by or arising under the Merix 6.5%
Debenture (as in effect on the date hereof), provided, that:

 

(i) the principal amount of such Indebtedness shall be not more than $25,000,000
at any time, less the aggregate amount of all repayments, repurchases or
redemptions thereof, whether optional or mandatory, plus interest thereon at the
rate provided in the Merix 6.5% Debenture as in effect on the date hereof,

 

(ii) Borrowers and Guarantors shall not, directly or indirectly, make any
payments of principal or interest in respect of such Indebtedness, except, that,
(A) Parent may make regularly scheduled payments of principal and interest when
due in accordance with the terms of the Merix 6.5% Debenture (as in effect on
the date hereof) and (B) Parent may prepay, redeem or retire such Indebtedness
to the extent permitted under Section 9.9(h)(iv) below,

 

(iii) Borrowers and Guarantors shall not, directly or indirectly, amend, modify,
alter or change any of the material terms of such Indebtedness or the Merix 6.5%
Debenture (as in effect on the date hereof), except, that, Parent may, after
prior written notice to Agent, amend, modify, alter or change the terms thereof
so as to extend the maturity thereof or defer the timing of any payments in
respect thereof or to forgive or cancel any portion of such indebtedness other
than pursuant to payments thereof, or to reduce the interest rate or any fees in
connection therewith, to make any covenant or event of default less restrictive
or burdensome to Borrowers and Guarantors

 

(iv) Borrowers and Guarantors shall not, directly or indirectly, prepay, redeem,
retire, defease, purchase or otherwise acquire such indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, except that:

 

(A) Parent may prepay, redeem or retire such Indebtedness with Refinancing
Indebtedness with respect thereto permitted under Section 9.9(j) hereof,

 

(B) Parent may prepay, redeem or retire such Indebtedness with the net proceeds
of the issuance and sale of Capital Stock of Parent permitted hereunder received
by Parent in cash or other immediately available funds, provided, that, the
prepayment, redemption or retirement of such Indebtedness shall be substantially
contemporaneous with the issuance and sale of the Capital Stock of Parent and as
of the date of any such payment and after giving effect thereto, there shall be
Excess Availability and no Default or Event of Default shall exist or have
occurred and be continuing,

 

(C) Parent may convert such Indebtedness to shares of Capital Stock of Parent in
accordance with the terms of the Merix 6.5% Debenture (as in effect on the date
hereof),

 

(D) Parent may prepay, redeem or retire such Indebtedness in cash or other
immediately available funds (other than with proceeds of the issuance and sale
of Capital Stock of Parent as provided in clause (B) above or with proceeds of
Refinancing Indebtedness as provided in clause (A) above); provided, that, as of
the date of any such prepayment, redemption or retirement, Agent shall have
received not less than two (2) Business Days’ prior written notice of the
intention of Borrowers to so prepay, redeem or retire such Indebtedness, the
Excess Availability for each of the immediately preceding ten (10) consecutive
days prior to the date of any payment in respect thereof shall have been not
less than $20,000,000 and as of the date of

 

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any such payment and after giving effect thereto, the Excess Availability shall
be not less than $20,000,000 and no Default or Event of Default shall exist or
have occurred and be continuing; and

 

(v) Borrowers and Guarantors shall furnish to Agent all material notices or
demands in connection with such Indebtedness either received by any Borrower or
Guarantor or on its behalf promptly after the receipt thereof, or sent by any
Borrower or Guarantor or on its behalf concurrently with the sending thereof, as
the case may be;

 

(i) Indebtedness of Parent evidenced by or arising under the Merix $2,000,000
Note (as in effect on the date hereof), provided, that:

 

(i) the principal amount of such Indebtedness shall be not more than $2,000,000
at any time, less the aggregate amount of all repayments, repurchases or
redemptions thereof, whether optional or mandatory, plus interest thereon at the
rate provided in the Merix $2,000,000 Note as in effect on the date hereof,

 

(ii) Borrowers and Guarantors shall not, directly or indirectly, make any
payments of principal or interest in respect of such Indebtedness, except, that,
(A) Parent may make regularly scheduled payments of principal and interest when
due in accordance with the terms of the Merix $2,000,000 Note (as in effect on
the date hereof) and (B) Parent may prepay, redeem or retire such Indebtedness
to the extent permitted under Section 9.9(i)(iv) below,

 

(iii) Borrowers and Guarantors shall not, directly or indirectly, amend, modify,
alter or change any of the material terms of such Indebtedness or the Merix
$2,000,000 Note (as in effect on the date hereof), except, that, Parent may,
after prior written notice to Agent, amend, modify, alter or change the terms
thereof so as to extend the maturity thereof or defer the timing of any payments
in respect thereof or to forgive or cancel any portion of such indebtedness
other than pursuant to payments thereof, or to reduce the interest rate or any
fees in connection therewith, to make any covenant or event of default less
restrictive or burdensome to Borrowers and Guarantors

 

(iv) Borrowers and Guarantors shall not, directly or indirectly, prepay, redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, except that Borrowers
or Guarantors may prepay, redeem or retire all or any part of such Indebtedness,
provided, that, as of the date of any such prepayment, redemption or purchase or
any payment in respect thereof and after giving effect thereto, (A) Agent shall
have received not less than two (2) Business Days’ prior written notice of the
intention of Borrowers to so prepay, redeem or retire all or any part of such
Indebtedness, (B) the Excess Availability for each of the immediately preceding
ten (10) consecutive days prior to the date of any payment in respect thereof
shall have been not less than $10,000,000 and as of the date of any such payment
and after giving effect thereto, the Excess Availability shall be not less than
$10,000,000, and (C) as of the date of any such payment and after giving effect
thereto, no Default or Event of Default shall exist or have occurred and be
continuing; and

 

(v) Borrowers and Guarantors shall furnish to Agent all material notices or
demands in connection with such Indebtedness either received by any Borrower or
Guarantor or on its behalf promptly after the receipt thereof, or sent by any
Borrower or Guarantor or on its behalf concurrently with the sending thereof, as
the case may be;

 

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(j) Indebtedness of Parent arising after the date hereof issued in exchange for,
or the proceeds of which are used to extend, refinance, replace or substitute
for Indebtedness permitted under Section 9.9(h) hereof (the “Refinancing
Indebtedness”); provided, that, as to any such Refinancing Indebtedness, each of
the following conditions is satisfied: (i) Agent shall have received not less
than ten (10) Business Days’ prior written notice of the intention to incur such
Indebtedness, which notice shall set forth in reasonable detail the amount of
such Indebtedness, the schedule of repayments and maturity date with respect
thereto and such other information with respect thereto as Agent may reasonably
request, (ii) promptly upon Agent’s request, Agent shall have received true,
correct and complete copies of all agreements, documents and instruments
evidencing or otherwise related to such Indebtedness, as duly authorized,
executed and delivered by the parties thereto, (iii) the Refinancing
Indebtedness shall not require any payments of, or in respect of, principal
prior to the Maturity Date (including any sinking fund payments or similar type
of payments), (iv) the Refinancing Indebtedness shall be unsecured, (v) the
Refinancing Indebtedness shall not include terms and conditions with respect to
any Borrower or Guarantor which are more burdensome or restrictive in any
material respect than those included in the Indebtedness so extended,
refinanced, replaced or substituted for, (vi) such Indebtedness incurred by any
Borrower or Guarantor shall be at rates and with fees or other charges that are
commercially reasonable and be owing to a person or persons that are not
Affiliates, (vii) the incurring of such Indebtedness shall not result in an
Event of Default, (viii) the principal amount of such Refinancing Indebtedness
shall not exceed the principal amount of $35,000,000 (plus the amount of
refinancing fees and expenses incurred in connection therewith outstanding on
the date of such event), provided that all amounts thereof in excess of the
Indebtedness being extended, refinanced, replaced or substituted for shall be
paid to Agent for application to the Obligations in such order and manner Agent
may determine, (ix) Borrowers and Guarantors shall not, directly or indirectly,
(A) amend, modify, alter or change any terms of the agreements with respect to
such Refinancing Indebtedness, except that Borrowers and Guarantors may, after
prior written notice to Agent, amend, modify, alter or change the terms thereof
to the extent permitted with respect to the Indebtedness so extended,
refinanced, replaced or substituted for, or (B) redeem, retire, defease,
purchase or otherwise acquired such Indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose (other than with Refinancing
Indebtedness to the extent permitted herein and to the extent permitted with
respect to the Indebtedness so extended, refinanced, replaced or substituted
for), and (x) Borrowers and Guarantors shall furnish to Agent copies of all
material notices or demands in connection with Indebtedness received by any
Borrower or Guarantor or on its behalf promptly after the receipt thereof or
sent by any Borrower or Guarantor or on its behalf concurrently with the sending
thereof, as the case may be; and

 

(k) the Indebtedness set forth on Schedule 9.9 to the Information Certificate;
provided, that, (i) Borrowers and Guarantors may only make regularly scheduled
payments of principal and interest in respect of such Indebtedness in accordance
with the terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof, (ii) Borrowers and Guarantors
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such Indebtedness or any agreement, document or instrument related thereto as
in effect on the date hereof except, that, Borrowers and Guarantors may, after
prior

 

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written notice to Agent, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof, or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or (B) redeem, retire, defease, purchase or otherwise
acquire such Indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, (iii) Borrowers and Guarantors shall furnish to Agent all
notices or demands in connection with such Indebtedness either received by any
Borrower or Guarantor or on its behalf, promptly after the receipt thereof, or
sent by any Borrower or Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be.

 

9.10 Loans, Investments, Etc. Each Borrower and Guarantor shall not, and shall
not permit any Subsidiary to, directly or indirectly, purchase, hold or acquire
(including pursuant to any merger with any Person that was not a wholly owned
Subsidiary immediately prior to such merger) any Capital Stock, evidences of
indebtedness or other securities (including any option, warrant or other right
to acquire any of the foregoing) of, make or permit to exist any loans or
advances to, or make or permit to exist any investment or any other interest in,
any other Person, or purchase or otherwise acquire (in one transaction or a
series of transactions) any assets of any other Person constituting a business
unit or all or a substantial part of the assets or property of any other Person
(whether through purchase of assets, merger or otherwise), or form or acquire
any Subsidiaries, or agree to do any of the foregoing (each of the foregoing an
“Investment”), except:

 

(a) the endorsement of instruments for collection or deposit in the ordinary
course of business;

 

(b) Investments in cash or Cash Equivalents, provided, that, the terms and
conditions of Section 5.2 hereof shall have been satisfied with respect to the
deposit account, investment account or other account in which such cash or Cash
Equivalents are held;

 

(c) the existing equity investments of each Borrower and Guarantor as of the
date hereof in its Subsidiaries, provided, that, no Borrower or Guarantor shall
have any further obligations or liabilities to make any capital contributions or
other additional investments or other payments to or in or for the benefit of
any of such Subsidiaries;

 

(d) loans and advances by any Borrower or Guarantor to employees of such
Borrower or Guarantor not to exceed the principal amount of $50,000 in the
aggregate at any time outstanding for: (i) reasonably and necessary work-related
travel or other ordinary business expenses to be incurred by such employee in
connection with their work for such Borrower or Guarantor and (ii) reasonable
and necessary relocation expenses of such employees (including home mortgage
financing for relocated employees);

 

(e) stock or obligations issued to any Borrower or Guarantor by any Person (or
the representative of such Person) in respect of Indebtedness of such Person
owing to such Borrower or Guarantor in connection with the insolvency,
bankruptcy, receivership or reorganization of such Person or a composition or
readjustment of the debts of such Person; provided, that, the original of any
such stock or instrument evidencing such obligations shall be promptly delivered
to Agent, upon Agent’s request, together with such stock power, assignment or
endorsement by such Borrower or Guarantor as Agent may request;

 

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(f) obligations of account debtors to any Borrower or Guarantor arising from
Accounts which are past due evidenced by a promissory note made by such account
debtor payable to such Borrower or Guarantor; provided, that, promptly upon the
receipt of the original of any such promissory note by such Borrower or
Guarantor, such promissory note shall be endorsed to the order of Agent by such
Borrower or Guarantor and promptly delivered to Agent as so endorsed;

 

(g) loans by a Borrower or Guarantor to another Borrower or Guarantor after the
date hereof, provided, that,

 

(i) as to all of such loans, (A) within thirty (30) days after the end of each
fiscal month, Borrowers shall provide to Agent a report in form and substance
satisfactory to Agent of the outstanding amount of such loans as of the last day
of the immediately preceding month and indicating any loans made and payments
received during the immediately preceding month, (B) the Indebtedness arising
pursuant to any such loan shall not be evidenced by a promissory note or other
instrument, unless the single original of such note or other instrument is
promptly delivered to Agent upon its request to hold as part of the Collateral,
with such endorsement and/or assignment by the payee of such note or other
instrument as Agent may require, (C) as of the date of any such loan and after
giving effect thereto, the Borrower or Guarantor making such loan shall be
Solvent, and (D) as of the date of any such loan and after giving effect
thereto, no Default or Event of Default shall exist or have occurred and be
continuing,

 

(ii) as to loans by a Guarantor to a Borrower, (A) the Indebtedness arising
pursuant to such loan shall be subject to, and subordinate in right of payment
to, the right of Agent and Lenders to receive the prior final payment and
satisfaction in full of all of the Obligations on terms and conditions
acceptable to Agent, (B) promptly upon Agent’s request, Agent shall have
received a subordination agreement, in form and substance satisfactory to Agent,
providing for the terms of the subordination in right of payment of such
Indebtedness of such Borrower to the prior final payment and satisfaction in
full of all of the Obligations, duly authorized, executed and delivered by such
Guarantor and such Borrower, and (C) such Borrower shall not, directly or
indirectly make, or be required to make, any payments in respect of such
Indebtedness prior to the end of the then current term of this Agreement;

 

(h) loans by a Borrower or Guarantor to a Foreign Subsidiary after the date
hereof (other than the loan by Parent to Merix Cayman Trading Company Limited
after the date hereof provided for in Section 9.10(m) below) not to exceed the
principal amount of $10,000,000 in the aggregate at any time outstanding,
provided, that, as of the date of any such loan and after giving effect thereto,
(i) Agent shall have received not less than two (2) Business Days’ prior written
notice of the intention of Borrowers to make such loan, (ii) the Excess
Availability for each of the immediately preceding ten (10) consecutive days
prior to the date of any such loan shall have been not less than $15,000,000 and
as of the date of any such loan and after giving effect thereto, the Excess
Availability shall be not less than $10,000,000, (iii) as of the date of such
loan and after giving effect thereto, the Fixed Charge Coverage Ratio for Parent
and its Subsidiaries determined on a pro forma basis as of such date, shall be
not less than 1.10 to 1.0 and Agent shall

 

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have received such evidence thereof as Agent may require, including a
certificate of the chief financial officer of Parent with respect thereto, in
form and substance satisfactory to Agent, (iv) as of the date of any such loan
and after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing, and (v) the Indebtedness arising pursuant to
any such loan shall not be evidenced by a promissory note or other instrument
unless the single original of such note or other instrument shall have been
promptly delivered to Agent upon its request to hold as part of the Collateral,
with such endorsement and/or assignment by the payee of such note or other
instrument as Agent may require;

 

(i) Investments by any Foreign Subsidiary after the date hereof to or in any
Person, provided, that, (i) in no event shall any Borrower or Guarantor make, or
be required to make, any payment or incur any obligation or liability
(contingent or otherwise) in connection with any such Investment, and (ii) in
the case of any Investment constituting a loan or advance to a Borrower or
Guarantor (A) the Indebtedness arising pursuant to such loan shall be subject
to, and subordinate in right of payment to, the right of Agent and Lenders to
receive the prior final payment and satisfaction in full of all of the
Obligations on terms and conditions acceptable to Agent, (B) promptly upon
Agent’s request, Agent shall have received a subordination agreement, in form
and substance satisfactory to Agent, providing for the terms of the
subordination in right of payment of such Indebtedness of such Borrower to the
prior final payment and satisfaction in full of all of the Obligations, duly
authorized, executed and delivered by such Guarantor and such Borrower, and
(C) such Borrower shall not, directly or indirectly make, or be required to
make, any payments in respect of such Indebtedness prior to the end of the then
current term of this Agreement;

 

(j) the EPC Acquisition;

 

(k) the loan by Parent to Merix Caymans Trading Company Limited on the date
hereof in an amount not to exceed $55,000,000, all of the proceeds of which will
be used by Merix Caymans Trading Company Limited to (i) pay a portion of the
purchase price in connection with the EPC Acquisition, (ii) pay certain fees,
costs and expenses in connection with the EPC Acquisition and the credit
facility obtained by Merix Caymans Trading Company Limited from certain lenders
for whom Standard Chartered Bank (Hong Kong) Limited is the facility agent upon
the consummation of the EPC Acquisition and (iii) provide up to $6,000,000 of
cash for working capital of Merix Caymans Trading Company Limited and its
subsidiaries; provided, that, the Indebtedness arising pursuant to such loan
shall not be evidenced by a promissory note or other instrument unless the
single original of such note or other instrument shall have been promptly
delivered to Agent upon its request to hold as part of the Collateral, with such
endorsement and/or assignment by the payee of such note or other instrument as
Agent may require;

 

(l) the equity capital contribution by Parent to Asia on the date hereof in the
amount not to exceed of $30,000,000, all of the proceeds of which will be used
by Asia on the date hereof to make a cash equity capital contribution to Merix
Caymans Holding Limited and by Merix Caymans Holding Limited on the date hereof
to make a cash equity capital contribution to Merix Caymans Trading Company
Limited, all of the proceeds of which Merix Caymans Trading Company Limited will
use to pay a portion of the purchase price in connection with the EPC
Acquisition;

 

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(m) the loan by Parent to Merix Caymans Trading Company Limited within one
hundred twenty (120) days after the date hereof in an amount not to exceed
$2,000,000, all of the proceeds of which will be used by Merix Caymans Trading
Company Limited to pay the working capital purchase price adjustment, if any,
required to be paid by it under the EPC Acquisition Documents (as in effect on
the date hereof); provided, that, (i) Parent shall only make such loan in the
amount of, and to the extent that, it is required to make any payment of such
working capital purchase price adjustment and (ii) the Indebtedness arising
pursuant to such loan shall not be evidenced by a promissory note or other
instrument unless the single original of such note or other instrument shall
have been promptly delivered to Agent upon its request to hold as part of the
Collateral, with such endorsement and/or assignment by the payee of such note or
other instrument as Agent may require;

 

(n) the loans and advances set forth on Schedule 9.10 to the Information
Certificate; provided, that, as to such loans and advances, Borrowers and
Guarantors shall not, directly or indirectly, amend, modify, alter or change the
terms of such loans and advances or any agreement, document or instrument
related thereto and Borrowers and Guarantors shall furnish to Agent all notices
or demands in connection with such loans and advances either received by any
Borrower or Guarantor or on its behalf, promptly after the receipt thereof, or
sent by any Borrower or Guarantor or on its behalf, concurrently with the
sending thereof, as the case may be.

 

9.11 Dividends and Redemptions. Each Borrower and Guarantor shall not, directly
or indirectly, declare or pay any dividends on account of any shares of any
class of its Capital Stock now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of its Capital
Stock (or set aside or otherwise deposit or invest any sums for such purpose)
for any consideration or apply or set apart any sum, or make any other
distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except that:

 

(a) it may declare and pay such dividends or redeem, retire, defease, purchase
or otherwise acquire any shares of any class of its Capital Stock for
consideration in the form of shares of common stock (so long as after giving
effect thereto no Change of Control or other Default or Event of Default shall
exist or occur);

 

(b) it may pay dividends to the extent permitted in Section 9.12 below;

 

(c) any Foreign Subsidiary may pay any dividends to its shareholders;

 

(d) any other Subsidiary of Parent may pay dividends to its shareholders;

 

(e) it may repurchase Capital Stock consisting of common stock held by employees
pursuant to any employee stock option plan, or in the case of an employee stock
ownership plan upon the termination, retirement or death of any such employee in
accordance with the provisions of such employee stock ownership plan, provided,
that, as to any such repurchase, each of the following conditions is satisfied:
(i) as of the date of the payment for such repurchase and after giving effect
thereto, no Default or Event of Default shall exist or have occurred and be

 

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continuing, (ii) such repurchase shall be paid with funds legally available
therefor, (iii) such repurchase shall not violate any law or regulation or the
terms of any indenture, agreement or undertaking to which such Borrower or
Guarantor is a party or by which such Borrower or Guarantor or its or their
property are bound, and (iv) the aggregate amount of all payments for such
repurchases in any calendar year shall not exceed $100,000.

 

9.12 Transactions with Affiliates. Each Borrower and Guarantor shall not,
directly or indirectly:

 

(a) purchase, acquire or lease any property from, or sell, transfer or lease any
property to, any officer, director or other Affiliate of such Borrower or
Guarantor, except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower’s or Guarantor’s business (as the case may be) and
upon fair and reasonable terms no less favorable to such Borrower or Guarantor
than such Borrower or Guarantor would obtain in a comparable arm’s length
transaction with an unaffiliated person; or

 

(b) make any payments (whether by dividend, loan or otherwise) of management,
consulting or other fees for management or similar services, or of any
Indebtedness owing to any officer, employee, shareholder, director or any other
Affiliate of such Borrower or Guarantor, except reasonable compensation to
officers, employees and directors for services rendered to such Borrower or
Guarantor in the ordinary course of business.

 

9.13 Compliance with ERISA. Except as set forth on Schedule 8.9 hereto, each
Borrower and Guarantor shall, and shall cause each of its ERISA Affiliates to:
(a) maintain each Plan in compliance in all material respects with the
applicable provisions of ERISA, the Code and other Federal and State law;
(b) cause each Plan which is qualified under Section 401(a) of the Code to
maintain such qualification; (c) not terminate any Pension Plan so as to incur
any material liability to the Pension Benefit Guaranty Corporation; (d) not
allow or suffer to exist any prohibited transaction involving any Plan or any
trust created thereunder which would subject such Borrower, Guarantor or such
ERISA Affiliate to a material tax or other liability on prohibited transactions
imposed under Section 4975 of the Code or ERISA; (e) make all required
contributions to any Plan which it is obligated to pay under Section 302 of
ERISA, Section 412 of the Code or the terms of such Plan; (f) not allow or
suffer to exist any accumulated funding deficiency, whether or not waived, with
respect to any such Pension Plan; (g) not engage in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA; or (h) not allow or suffer to exist
any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any Plan that is a single employer plan, which termination could
result in any material liability to the Pension Benefit Guaranty Corporation.

 

9.14 End of Fiscal Years; Fiscal Quarters. Each Borrower and Guarantor shall,
for financial reporting purposes, cause its, and each of its Subsidiaries’
(a) fiscal years to end on the last Saturday in May of each year and (b) fiscal
quarters to end on the date for the end of each such fiscal quarter set forth on
Schedule 9.14 hereto.

 

9.15 Change in Business. Each Borrower and Guarantor shall not engage in any
business other than the business of such Borrower or Guarantor on the date
hereof and any business reasonably related, ancillary or complimentary to the
business in which such Borrower or Guarantor is engaged on the date hereof.

 

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9.16 Limitation of Restrictions Affecting Subsidiaries. Each Borrower and
Guarantor shall not, directly, or indirectly, create or otherwise cause or
suffer to exist any encumbrance or restriction which prohibits or limits the
ability of any Subsidiary of such Borrower or Guarantor to (a) pay dividends or
make other distributions or pay any Indebtedness owed to such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor; (b) make loans or
advances to such Borrower or Guarantor or any Subsidiary of such Borrower or
Guarantor, (c) transfer any of its properties or assets to such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor; or (d) create, incur,
assume or suffer to exist any lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, other than encumbrances and
restrictions arising under (i) applicable law, (ii) this Agreement,
(iii) customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of such Borrower or Guarantor or any Subsidiary
of such Borrower or Guarantor, (iv) customary restrictions on dispositions of
real property interests found in reciprocal easement agreements of such Borrower
or Guarantor or any Subsidiary of such Borrower or Guarantor, (v) any agreement
relating to permitted Indebtedness incurred by a Subsidiary of such Borrower or
Guarantor prior to the date on which such Subsidiary was acquired by such
Borrower or such Guarantor and outstanding on such acquisition date, and
(vi) the extension or continuation of contractual obligations in existence on
the date hereof; provided, that, any such encumbrances or restrictions contained
in such extension or continuation are no less favorable to Agent and Lenders
than those encumbrances and restrictions under or pursuant to the contractual
obligations so extended or continued.

 

9.17 Fixed Charge Coverage Ratio. At any time prior to the first anniversary of
the date hereof that the Excess Availability is less than $20,000,000 or at any
time thereafter that the Excess Availability is less than $15,000,000, the Fixed
Charge Coverage Ratio of Parent and its Domestic Subsidiaries (on a consolidated
basis) for the last twelve (12) consecutive fiscal month period most recently
ended for which Agent has received financial statements of Borrowers and
Guarantors, shall be not less than 1.10:1.00 (provided, that, for the period
prior to September 23, 2006, the Fixed Charges for purposes of calculating such
ratio shall be based on the Fixed Charges for the period from September 24, 2005
through the last day of the immediately preceding fiscal month on an annualized
basis, except for the principal payment in respect of the Merix $2,000,000 Note
due in December 2005 which shall not be annualized (but shall be included in the
Fixed Charges on and after the date such payment is due or paid and thereafter
for each applicable twelve (12) consecutive month period) and Capital
Expenditures which shall be based on the amount thereof for the same period for
which EBITDA is used for the calculation of the Fixed Charge Coverage Ratio at
any time).

 

9.18 License Agreements.

 

(a) With respect to a License Agreement applicable to Intellectual Property that
is owned by a third party and licensed to a Borrower or Guarantor and that is
affixed to or otherwise used in connection with the manufacture, sale or
distribution of any Inventory (other than an off-the-shelf product with a shrink
wrap license) having a value in excess of $500,000, at any time after the
Inventory Availability Date or at such other time or times as Agent may

 

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request, each Borrower and Guarantor shall (i) give Agent not less than ten
(10) Business Days’ prior written notice of its intention to not renew or to
terminate, cancel, surrender or release its rights under any such License
Agreement, or to amend any such License Agreement or related arrangements to
limit the scope of the right of such Borrower or Guarantor to use the
Intellectual Property subject to such License Agreement in any material respect,
either with respect to product, territory, term or otherwise, or to increase in
any material respect the amounts to be paid by such Borrower or Guarantor
thereunder or in connection therewith (and Agent may establish such Reserves as
a result of any of the foregoing as Agent may reasonably determine), (ii) give
Agent prompt written notice of any such License Agreement entered into by such
Borrower or Guarantor after the date hereof, or any material amendment to any
such License Agreement existing on the date hereof, in each case together with a
true, correct and complete copy thereof and such other information with respect
thereto as Agent may in good faith request, (iii) give Agent prompt written
notice of any material breach of any obligation, or any default, by the third
party that is the licensor or by the Borrower or Guarantor that is the licensee
or any other party under any such License Agreement, and deliver to Agent
(promptly upon the receipt thereof by such Borrower or Guarantor in the case of
a notice to such Borrower or Guarantor and concurrently with the sending thereof
in the case of a notice from such Borrower or Guarantor) a copy of each notice
of default and any other notice received or delivered by such Borrower or
Guarantor in connection with any such a License Agreement that relates to the
scope of the right, or the continuation of the right, of such Borrower or
Guarantor to use the Intellectual Property subject to such License Agreement or
the amounts required to be paid thereunder.

 

(b) With respect to a License Agreement applicable to Intellectual Property that
is owned by a third party and licensed to a Borrower or Guarantor and that is
affixed to or otherwise used in connection with the manufacture, sale or
distribution of any Inventory (other than an off-the-shelf product with a shrink
wrap license) having a value in excess of $500,000, at any time an Event of
Default shall exist or have occurred and be continuing or on and after the
Inventory Availability Date, if after giving effect to any Reserves, or the
reduction in the applicable Borrowing Base as a result of Eligible Inventory
using such licensed Intellectual Property ceasing to be Eligible Inventory, the
Excess Availability is less than $5,000,000, Agent shall have, and is hereby
granted, the irrevocable right and authority, at its option, to renew or extend
the term of such License Agreement, whether in its own name and behalf, or in
the name and behalf of a designee or nominee of Agent or in the name and behalf
of such Borrower or Guarantor, subject to and in accordance with the terms of
such License Agreement. Agent may, but shall not be required to, perform any or
all of such obligations of such Borrower or Guarantor under any of the License
Agreements, including, but not limited to, the payment of any or all sums due
from such Borrower or Guarantor thereunder. Any sums so paid by Agent shall
constitute part of the Obligations.

 

9.19 Foreign Assets Control Regulations, Etc. None of the requesting or
borrowing of the Loans or the requesting or issuance, extension or renewal of
any Letter of Credit or the use of the proceeds of any thereof will violate the
Trading With the Enemy Act (50 USC §1 et seq., as amended) (the “Trading With
the Enemy Act”) or any of the foreign assets control regulations of the United
States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) (the
“Foreign Assets Control Regulations”) or any enabling legislation or executive
order relating thereto (including, but not limited to (a) Executive order 13224
of September 21, 2001 Blocking Property and Prohibiting Transactions With
Persons Who Commit, Threaten to Commit, or

 

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Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and
(b) the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56).
None of Borrowers or any of their Subsidiaries or other Affiliates is or will
become a “blocked person” as described in the Executive Order, the Trading with
the Enemy Act or the Foreign Assets Control Regulations or engages or will
engage in any dealings or transactions, or be otherwise associated, with any
such “blocked person”.

 

9.20 After Acquired Real Property. If any Borrower or Guarantor hereafter
acquires any Real Property, fixtures or any other property that is of the kind
or nature described in the Mortgage and such Real Property, fixtures or other
property is adjacent to, contiguous with or necessary or related to or used in
connection with any Real Property then subject to a Mortgage, without limiting
any other rights of Agent or any Lender, or duties or obligations of any
Borrower or Guarantor, promptly upon Agent’s request, such Borrower or Guarantor
shall execute and deliver to Agent a mortgage, deed of trust or deed to secure
debt, as Agent may determine, in form and substance substantially similar to the
Mortgage and as to any provisions relating to specific state laws satisfactory
to Agent and in form appropriate for recording in the real estate records of the
jurisdiction in which such Real Property or other property is located granting
to Agent a first and only lien and mortgage on and security interest in such
Real Property, fixtures or other property (except as such Borrower or Guarantor
would otherwise be permitted to incur hereunder or under the Mortgage or as
otherwise consented to in writing by Agent), an environmental assessment thereof
acceptable to Required Lenders and such other agreements, documents and
instruments as Agent may require in connection therewith.

 

9.21 Merix B.V.

 

(a) Except as otherwise provided in Section 9.21(b) below, Borrowers and
Guarantors will not permit Merix B.V. to (i) engage in any business or conduct
any operations, (ii) own assets with a book value of more than $25,000 in the
aggregate and (iii) incur any obligations or liabilities in respect of any
Indebtedness or otherwise.

 

(b) In the event that Parent intends to have Merix B.V. commence any business or
operations or own assets with a book value of more than $25,000 in the aggregate
or incur any obligations or liabilities in respect of any Indebtedness or
otherwise, (i) Administrative Borrower shall give Agent not less than ten
(10) Business Days’ prior written notice thereof with reasonable detail and
specificity and such other information with respect thereto as Agent may request
and (ii) at any time thereafter, promptly upon the request of Agent,
Administrative Borrower shall cause Parent to execute and deliver to Agent, in
form and substance satisfactory to Agent, a pledge agreement in favor of Agent
providing among other things, the grant of a security interest in and lien upon,
and pledge of, the Capital Stock of Merix B.V., together with (i) certificates
evidencing all of the Capital Stock of Merix B.V., (ii) undated stock powers or
other appropriate instruments of assignment executed in blank with signature
guaranteed (provided, that, such pledge agreement shall not include more than
sixty-five (65%) percent of the Capital Stock entitled to vote of Merix B.V. to
secure the Obligations to the extent that the pledge of more than such
percentage thereof would result in repatriation of earnings under Section 956 of
the Code), (iii) to the extent required under applicable law the registration of
the pledge to Agent in the share registry of Merix B.V., the affixing of a
legend on the shares subject

 

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to such pledge and such other actions as may be required under applicable law in
connection therewith to establish the rights of Agent with respect thereto, and
(iv) such opinions of counsel and such approving certificate of Merix B.V. as
Agent may reasonably request in respect of complying with any legend on any such
certificate or any other matter relating to such shares

 

9.22 Costs and Expenses. Borrowers and Guarantors shall pay to Agent on demand
all costs, expenses, filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery, recording, syndication,
administration, collection, liquidation, enforcement and defense of the
Obligations, Agent’s rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including: (a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) costs and expenses and fees for insurance premiums, environmental audits,
title insurance premiums, surveys, assessments, engineering reports and
inspections, appraisal fees and search fees, background checks, costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Agent’s customary charges and fees with respect thereto; (c) charges, fees or
expenses charged by any Issuing Bank in connection with any Letter of Credit;
(d) costs and expenses of preserving and protecting the Collateral; (e) costs
and expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Agent, selling or
otherwise realizing upon the Collateral, and otherwise enforcing the provisions
of this Agreement and the other Financing Agreements or defending any claims
made or threatened against Agent or any Lender arising out of the transactions
contemplated hereby and thereby (including preparations for and consultations
concerning any such matters); (f) all out-of-pocket expenses and costs
heretofore and from time to time hereafter incurred by Agent during the course
of periodic field examinations of the Collateral and such Borrower’s or
Guarantor’s operations, plus a per diem charge at Agent’s then standard rate for
Agent’s examiners in the field and office (which rate as of the date hereof is
$1,000 per person per day); and (g) the reasonable fees and disbursements of
counsel (including legal assistants) to Agent in connection with any of the
foregoing.

 

9.23 Further Assurances. At the request of Agent at any time and from time to
time, Borrowers and Guarantors shall, at their expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done such further acts as may
be necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Financing
Agreements. Agent may at any time and from time to time request a certificate
from an officer of any Borrower or Guarantor representing that all conditions
precedent to the making of Loans and providing Letters of Credit contained
herein are satisfied. In the event of such request by Agent, Agent and Lenders
may, at Agent’s option, cease to make any further Loans or provide any further
Letters of Credit until Agent has received such certificate and, in addition,
Agent has determined that such conditions are satisfied.

 

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SECTION 10. EVENTS OF DEFAULT AND REMEDIES

 

10.1 Events of Default. The occurrence or existence of any one or more of the
following events are referred to herein individually as an “Event of Default”,
and collectively as “Events of Default”:

 

(a) (i) any Borrower fails to pay any of the Obligations when due or (ii) any
Borrower or Guarantor fails to perform any of the covenants contained in
Sections 9.3, 9.4, 9.13, 9.14, 9.15, and 9.16 of this Agreement and such failure
shall continue for fifteen (15) days; provided, that, such fifteen (15) day
period shall not apply in the case of: (A) any failure to observe any such
covenant which is not capable of being cured at all or within such fifteen
(15) day period or which has been the subject of a prior failure within a six
(6) month period or (B) an intentional breach by any Borrower or Guarantor of
any such covenant or (iii) any Borrower or Guarantor fails to perform any of the
terms, covenants, conditions or provisions contained in this Agreement or any of
the other Financing Agreements other than those described in Sections 10.1(a)(i)
and 10.1(a)(ii) above;

 

(b) any representation, warranty or statement of fact made by any Borrower or
Guarantor to Agent in this Agreement, the other Financing Agreements or any
other written agreement, schedule, confirmatory assignment or otherwise shall
when made or deemed made be false or misleading in any material respect;

 

(c) any Guarantor revokes or terminates or purports to revoke or terminate any
guarantee, endorsement or other agreement of such party in favor of Agent or any
Lender entered into in connection with the Obligations;

 

(d) any judgment for the payment of money is rendered against any Borrower or
Guarantor in excess of $250,000 in any one case or in excess of $500,000 in the
aggregate (to the extent not covered by insurance where the insurer has assumed
responsibility in writing for such judgment) and shall remain undischarged or
unvacated for a period in excess of thirty (30) days or execution shall at any
time not be effectively stayed, or any judgment other than for the payment of
money, or injunction, attachment, garnishment or execution is rendered against
any Borrower or Guarantor or any of the Collateral having a value in excess of
$250,000;

 

(e) any Borrower or Guarantor makes an assignment for the benefit of creditors,
makes or sends notice of a bulk transfer or calls a meeting of its creditors or
principal creditors in connection with a moratorium or adjustment of the
Indebtedness due to them;

 

(f) a case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at law or in equity) is
filed against any Borrower or Guarantor or all or any part of its properties and
such petition or application is not dismissed within sixty (60) days after the
date of its filing or any Borrower or Guarantor shall file any answer admitting
or not contesting such petition or application or indicates its consent to,
acquiescence in or approval of, any such action or proceeding or the relief
requested is granted sooner;

 

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(g) a case or proceeding under the bankruptcy laws of the United States of
America now or hereafter in effect or under any insolvency, reorganization,
receivership, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction now or hereafter in effect (whether at a law or equity) is
filed by any Borrower or Guarantor or for all or any part of its property;

 

(h) any default in respect of any Indebtedness of any Borrower or Guarantor
(other than Indebtedness owing to Agent and Lenders hereunder), in any case in
an amount in excess of $500,000, which default continues for more than the
applicable cure period, if any, with respect thereto or any default by any
Borrower or Guarantor under any Material Contract, which default continues for
more than the applicable cure period, if any, with respect thereto and/or is not
waived in writing by the other parties thereto;

 

(i) any material provision hereof or of any of the other Financing Agreements
shall for any reason cease to be valid, binding and enforceable with respect to
any party hereto or thereto (other than Agent) in accordance with its terms, or
any such party shall challenge the enforceability hereof or thereof, or shall
assert in writing, or take any action or fail to take any action based on the
assertion that any provision hereof or of any of the other Financing Agreements
has ceased to be or is otherwise not valid, binding or enforceable in accordance
with its terms, or any security interest provided for herein or in any of the
other Financing Agreements shall cease to be a valid and perfected first
priority security interest in any of the Collateral purported to be subject
thereto (except as otherwise permitted herein or therein);

 

(j) an ERISA Event shall occur which results in or could reasonably be expected
to result in liability of any Borrower in an aggregate amount in excess of
$500,000;

 

(k) any Change of Control;

 

(l) the indictment by any Governmental Authority, or as Agent may in good faith
determine, the threatened indictment by any Governmental Authority of any
Borrower or Guarantor of which any Borrower, Guarantor or Agent receives notice,
in either case, as to which there is a reasonable possibility of an adverse
determination, in the good faith determination of Agent under any criminal
statute, or commencement or threatened commencement, of criminal or civil
proceedings against such Borrower or Guarantor, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
(i) any of the Collateral having a value in excess of $250,000 or (ii) any other
property of any Borrower or Guarantor which is necessary or material to the
conduct of its business;

 

(m) Agent shall not have received on or before February 28, 2007 evidence that
either (i) the Indebtedness of Parent under the Merix 6.5% Debenture has been
paid in full in cash and Borrowers and Guarantors released from any obligations
in respect thereof or (ii) that each of the Persons to whom such Indebtedness is
then owing has executed and delivered a valid and enforceable agreement in
writing that the Indebtedness owing to it is not due and payable until a date
ninety (90) days after the Maturity Date, except that the failure of Agent to
receive such evidence on or before February 28, 2007 shall not be an Event of
Default if Excess Availability is equal to or greater than $45,000,000 at all
times during the period commencing on February 28, 2007 and ending on the date
that Agent has received such evidence (and in the event that Excess Availability
shall at any time during such period be less than $45,000,000, it shall be an
Event of Default);

 

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(n) there shall be a change after the date hereof that has a Material Adverse
Effect; or

 

(o) there shall be an event of default under any of the other Financing
Agreements.

 

10.2 Remedies.

 

(a) At any time an Event of Default exists or has occurred and is continuing,
Agent and Lenders shall have all rights and remedies provided in this Agreement,
the other Financing Agreements, the UCC and other applicable law, all of which
rights and remedies may be exercised without notice to or consent by any
Borrower or Guarantor, except as such notice or consent is expressly provided
for hereunder or required by applicable law. All rights, remedies and powers
granted to Agent and Lenders hereunder, under any of the other Financing
Agreements, the UCC or other applicable law, are cumulative, not exclusive and
enforceable, in Agent’s discretion, alternatively, successively, or concurrently
on any one or more occasions, and shall include, without limitation, the right
to apply to a court of equity for an injunction to restrain a breach or
threatened breach by any Borrower or Guarantor of this Agreement or any of the
other Financing Agreements. Subject to Section 12 hereof, Agent may, and at the
direction of the Required Lenders shall, at any time or times, proceed directly
against any Borrower or Guarantor to collect the Obligations without prior
recourse to the Collateral.

 

(b) Without limiting the generality of the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Agent may, at its option and
shall upon the direction of the Required Lenders, (i) upon notice to
Administrative Borrower, accelerate the payment of all Obligations and demand
immediate payment thereof to Agent for itself and the benefit of Lenders
(provided, that, upon the occurrence of any Event of Default described in
Sections 10.1(g) and 10.1(h), all Obligations shall automatically become
immediately due and payable), and (ii) terminate the Commitments whereupon the
obligation of each Lender to make any Loan and Issuing Bank to issue any Letter
of Credit shall immediately terminate (provided, that, upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h), the Commitments
and any other obligation of the Agent or a Lender hereunder shall automatically
terminate).

 

(c) Without limiting the foregoing, at any time an Event of Default exists or
has occurred and is continuing, Agent may, in its discretion (i) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (ii) require any Borrower or Guarantor, at Borrowers’
expense, to assemble and make available to Agent any part or all of the
Collateral at any place and time designated by Agent, (iii) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral,
(iv) remove any or all of the Collateral from any premises on or in which the
same may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (v) sell, lease, transfer, assign,
deliver or otherwise dispose of any and all Collateral (including entering into
contracts with respect thereto, public or

 

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private sales at any exchange, broker’s board, at any office of Agent or
elsewhere) at such prices or terms as Agent may deem reasonable, for cash, upon
credit or for future delivery, with the Agent having the right to purchase the
whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of any Borrower or
Guarantor, which right or equity of redemption is hereby expressly waived and
released by Borrowers and Guarantors and/or (vi) terminate this Agreement. If
any of the Collateral is sold or leased by Agent upon credit terms or for future
delivery, the Obligations shall not be reduced as a result thereof until payment
therefor is finally collected by Agent. If notice of disposition of Collateral
is required by law, ten (10) days prior notice by Agent to Administrative
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrowers and
Guarantors waive any other notice. In the event Agent institutes an action to
recover any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, each Borrower and Guarantor waives the posting of any bond which might
otherwise be required. At any time an Event of Default exists or has occurred
and is continuing, upon Agent’s request, Borrowers will either, as Agent shall
specify, furnish cash collateral to Issuing Bank to be used to secure and fund
the reimbursement obligations to Issuing Bank in connection with any Letter of
Credit Obligations or furnish cash collateral to Agent for the Letter of Credit
Obligations. Such cash collateral shall be in the amount equal to one hundred
five (105%) percent of the amount of the Letter of Credit Obligations plus the
amount of any fees and expenses payable in connection therewith through the end
of the latest expiration date of the Letters of Credit giving rise to such
Letter of Credit Obligations.

 

(d) At any time or times that an Event of Default exists or has occurred and is
continuing, Agent may, in its discretion, enforce the rights of any Borrower or
Guarantor against any account debtor, secondary obligor or other obligor in
respect of any of the Accounts or other Receivables. Without limiting the
generality of the foregoing, Agent may, in its discretion, at such time or times
(i) notify any or all account debtors, secondary obligors or other obligors in
respect thereof that the Receivables have been assigned to Agent and that Agent
has a security interest therein and Agent may direct any or all account debtors,
secondary obligors and other obligors to make payment of Receivables directly to
Agent, (ii) extend the time of payment of, compromise, settle or adjust for
cash, credit, return of merchandise or otherwise, and upon any terms or
conditions, any and all Receivables or other obligations included in the
Collateral and thereby discharge or release the account debtor or any secondary
obligors or other obligors in respect thereof without affecting any of the
Obligations, (iii) demand, collect or enforce payment of any Receivables or such
other obligations, but without any duty to do so, and Agent and Lenders shall
not be liable for any failure to collect or enforce the payment thereof nor for
the negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Agent may deem necessary or desirable for the protection
of its interests and the interests of Lenders. At any time that an Event of
Default exists or has occurred and is continuing, at Agent’s request, all
invoices and statements sent to any account debtor shall state that the Accounts
and such other obligations have been assigned to Agent and are payable directly
and only to Agent and Borrowers and Guarantors shall deliver to Agent such
originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Agent may require. In the
event any account debtor returns Inventory when an Event of Default exists or
has occurred and is continuing, Borrowers shall, upon Agent’s request, hold the
returned Inventory in trust for Agent, segregate all returned Inventory from all
of its

 

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other property, dispose of the returned Inventory solely according to Agent’s
instructions, and not issue any credits, discounts or allowances with respect
thereto without Agent’s prior written consent.

 

(e) To the extent that applicable law imposes duties on Agent or any Lender to
exercise remedies in a commercially reasonable manner (which duties cannot be
waived under such law), each Borrower and Guarantor acknowledges and agrees that
it is not commercially unreasonable for Agent or any Lender (i) to fail to incur
expenses reasonably deemed significant by Agent or any Lender to prepare
Collateral for disposition or otherwise to complete raw material or work in
process into finished goods or other finished products for disposition, (ii) to
fail to obtain third party consents for access to Collateral to be disposed of,
or to obtain or, if not required by other law, to fail to obtain consents of any
Governmental Authority or other third party for the collection or disposition of
Collateral to be collected or disposed of, (iii) to fail to exercise collection
remedies against account debtors, secondary obligors or other persons obligated
on Collateral or to remove liens or encumbrances on or any adverse claims
against Collateral, (iv) to exercise collection remedies against account debtors
and other persons obligated on Collateral directly or through the use of
collection agencies and other collection specialists, (v) to advertise
dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (vi) to contact other
persons, whether or not in the same business as any Borrower or Guarantor, for
expressions of interest in acquiring all or any portion of the Collateral,
(vii) to hire one or more professional auctioneers to assist in the disposition
of Collateral, whether or not the collateral is of a specialized nature,
(viii) to dispose of Collateral by utilizing Internet sites that provide for the
auction of assets of the types included in the Collateral or that have the
reasonable capability of doing so, or that match buyers and sellers of assets,
(ix) to dispose of assets in wholesale rather than retail markets, (x) to
disclaim disposition warranties, (xi) to purchase insurance or credit
enhancements to insure Agent or Lenders against risks of loss, collection or
disposition of Collateral or to provide to Agent or Lenders a guaranteed return
from the collection or disposition of Collateral, or (xii) to the extent deemed
appropriate by Agent, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist Agent in the collection
or disposition of any of the Collateral. Each Borrower and Guarantor
acknowledges that the purpose of this Section is to provide non-exhaustive
indications of what actions or omissions by Agent or any Lender would not be
commercially unreasonable in the exercise by Agent or any Lender of remedies
against the Collateral and that other actions or omissions by Agent or any
Lender shall not be deemed commercially unreasonable solely on account of not
being indicated in this Section. Without limitation of the foregoing, nothing
contained in this Section shall be construed to grant any rights to any Borrower
or Guarantor or to impose any duties on Agent or Lenders that would not have
been granted or imposed by this Agreement or by applicable law in the absence of
this Section.

 

(f) For the purpose of enabling Agent to exercise the rights and remedies
hereunder, each Borrower and Guarantor hereby grants to Agent, to the extent
assignable, an irrevocable, non-exclusive license (exercisable at any time an
Event of Default shall exist or have occurred and for so long as the same is
continuing) without payment of royalty or other compensation to any Borrower or
Guarantor, to use, assign, license or sublicense any of the trademarks,
service-marks, trade names, business names, trade styles, designs, logos and
other source of business identifiers and other Intellectual Property and general
intangibles now owned or hereafter

 

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acquired by any Borrower or Guarantor, wherever the same maybe located,
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer programs used for
the compilation or printout thereof.

 

(g) At any time an Event of Default exists or has occurred and is continuing,
Agent shall apply the cash proceeds of Collateral actually received by Agent
from any sale, lease, foreclosure or other disposition of the Collateral to
payment of the Obligations, in whole or in part and in accordance with the terms
hereof, whether or not then due and thereafter hold such proceeds as cash
collateral in connection with any contingent Obligations, including issued and
outstanding Letter of Credit Obligations and checks or other payments
provisionally credited to the Obligations and/or as to which Agent or any Lender
has not yet received final and indefeasible payment (and including any
contingent liability of Agent to any bank at which deposit accounts of Borrowers
and Guarantors are maintained under any Deposit Account Control Agreement) and
for any of the Obligations arising under or in connection with any Bank
Products. Borrowers and Guarantors shall remain liable to Agent and Lenders for
the payment of any deficiency with interest at the highest rate provided for
herein and all costs and expenses of collection or enforcement, including
reasonable attorneys’ fees and expenses.

 

(h) Without limiting the foregoing, upon the occurrence of a Default or an Event
of Default and for so long as the same is continuing, (i) Agent and Lenders may,
at Agent’s option, and upon the occurrence of an Event of Default at the
direction of the Required Lenders, Agent and Lenders shall, without notice,
(A) cease making Loans or arranging for Letters of Credit or reduce the lending
formulas or amounts of Loans and Letters of Credit available to Borrowers and/or
(B) terminate any provision of this Agreement providing for any future Loans to
be made by Agent and Lenders or Letters of Credit to be issued by Issuing Bank
and (ii) Agent may, at its option, establish such Reserves as Agent determines,
without limitation or restriction, notwithstanding anything to the contrary
contained herein.

 

SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW

 

11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.

 

(a) The validity, interpretation and enforcement of this Agreement and the other
Financing Agreements (except as otherwise provided therein) and any dispute
arising out of the relationship between the parties hereto, whether in contract,
tort, equity or otherwise, shall be governed by the internal laws of the State
of New York but excluding any principles of conflicts of law or other rule of
law that would cause the application of the law of any jurisdiction other than
the laws of the State of New York.

 

(b) Borrowers, Guarantors, Agent, Lenders and Issuing Bank irrevocably consent
and submit to the non-exclusive jurisdiction of the Supreme Court of the State
of New York for the County of New York and the United States District Court for
the Southern District of New York, whichever Agent may elect, and waive any
objection based on venue or forum non conveniens with respect to any action
instituted therein arising under this Agreement or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of the parties hereto in respect of this Agreement or any of the other Financing

 

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Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Agent and Lenders shall
have the right to bring any action or proceeding against any Borrower or
Guarantor or its or their property in the courts of any other jurisdiction which
Agent deems necessary or appropriate in order to realize on the Collateral or to
otherwise enforce its rights against any Borrower or Guarantor or its or their
property).

 

(c) Each Borrower and Guarantor hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth
herein and service so made shall be deemed to be completed five (5) days after
the same shall have been so deposited in the U.S. mails, or, at Agent’s option,
by service upon any Borrower or Guarantor (or Administrative Borrower on behalf
of such Borrower or Guarantor) in any other manner provided under the rules of
any such courts. Within sixty (60) days after such service, such Borrower or
Guarantor shall appear in answer to such process, failing which such Borrower or
Guarantor shall be deemed in default and judgment may be entered by Agent
against such Borrower or Guarantor for the amount of the claim and other relief
requested.

 

(d) BORROWERS, GUARANTORS, AGENT, LENDERS AND ISSUING BANK EACH HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
BORROWERS, GUARANTORS, AGENT, LENDERS AND ISSUING BANK EACH HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER, ANY GUARANTOR, AGENT, ANY
LENDER OR ISSUING BANK MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

(e) Agent and Secured Parties shall not have any liability to any Borrower or
Guarantor (whether in tort, contract, equity or otherwise) for losses suffered
by such Borrower or Guarantor in connection with, arising out of, or in any way
related to the transactions or relationships contemplated by this Agreement, or
any act, omission or event occurring in connection herewith, unless it is
determined by a final and non-appealable judgment or court order binding on
Agent, such Lender and Issuing Bank, that the losses were the result of acts or
omissions constituting gross negligence or willful misconduct. In any such
litigation, Agent, Lenders and Issuing Bank shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement. Each
Borrower and Guarantor: (i) certifies that neither Agent, any Lender, Issuing
Bank nor any representative, agent or attorney acting for or on behalf of Agent,
any

 

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Lender or Issuing Bank has represented, expressly or otherwise, that Agent,
Lenders and Issuing Bank would not, in the event of litigation, seek to enforce
any of the waivers provided for in this Agreement or any of the other Financing
Agreements and (ii) acknowledges that in entering into this Agreement and the
other Financing Agreements, Agent, Lenders and Issuing Bank are relying upon,
among other things, the waivers and certifications set forth in this
Section 11.1 and elsewhere herein and therein.

 

(f) If any action or proceeding is filed in a court of the State of California
by or against any party hereto in connection with any of the transactions
contemplated by the Loan Agreement or any other Financing Agreement, (i) the
court shall, and is hereby directed to, make a general reference pursuant to
California Code of Civil Procedure Section 638 to a referee or referees to hear
and determine all of the issues in such action or proceeding (whether of fact or
of law) and to report a statement of decision, provided that at the option of
Agent, any such issues pertaining to a ‘provisional remedy’ as defined in
California Code of Civil Procedure Section 1281.8 shall be heard and determined
by the court, and (ii) Borrowers shall be solely responsible to pay all fees and
expenses of any referee appointed in such action or proceeding.

 

11.2 Waiver of Notices. Each Borrower and Guarantor hereby expressly waives
demand, presentment, protest and notice of protest and notice of dishonor with
respect to any and all instruments and chattel paper, included in or evidencing
any of the Obligations or the Collateral, and any and all other demands and
notices of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for herein.
No notice to or demand on any Borrower or Guarantor which Agent or any Lender
may elect to give shall entitle such Borrower or Guarantor to any other or
further notice or demand in the same, similar or other circumstances.

 

11.3 Amendments and Waivers.

 

(a) Neither this Agreement nor any other Financing Agreement nor any terms
hereof or thereof may be amended, waived, discharged or terminated unless such
amendment, waiver, discharge or termination is in writing signed by Agent and
the Required Lenders (or as to the signatures of Required Lenders, Agent may, at
Agent’s option, instead of obtaining separate signatures of such Lenders, sign
on behalf of any such Lender with the authorization or consent of such Lender),
and as to amendments to any of the Financing Agreements (other than with respect
to any provision of Section 12 hereof), by Administrative Borrower and such
amendment, waiver, discharge or termination shall be effective and binding as to
all Lenders and Issuing Bank only in the specific instance and for the specific
purpose for which given; except, that, no such amendment, waiver, discharge or
termination shall:

 

(i) reduce the interest rate or any fees or extend the time of payment of
principal, interest or any fees or reduce the principal amount of any Loan or
Letters of Credit, in each case without the consent of each Lender directly
affected thereby,

 

(ii) increase the Maximum Credit or Revolving Loan Limit, without the consent of
Agent and all of Lenders,

 

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(iii) release any Collateral (except as expressly required hereunder or under
any of the other Financing Agreements or applicable law and except as permitted
under Section 12.11(b) hereof), or release any guarantee of the Obligations, in
each case without the consent of Agent and all of Lenders,

 

(iv) reduce any percentage specified in the definition of Required Lenders,
without the consent of Agent and all of Lenders,

 

(v) consent to the assignment or transfer by any Borrower or Guarantor of any of
their rights and obligations under this Agreement, without the consent of Agent
and all of Lenders,

 

(vi) amend, modify or waive any terms of this Section 11.3 hereof, without the
consent of Agent and all of Lenders, or

 

(vii) amend the definitions of Borrowing Base, Eligible Accounts, Eligible
Finished Goods Inventory, Eligible Gold Raw Material Inventory or Eligible
Inventory, in each case, only if the effect of such amendment is to increase the
amount of the Borrowing Base, or increase the Inventory Loan Limit or the Letter
of Credit Limit, or amend the definition of Cash Dominion Event, in each case,
without the consent of Agent and all of Lenders.

 

(b) Agent, Lenders and Issuing Bank shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its or their
rights, powers and/or remedies unless such waiver shall be in writing and signed
as provided herein. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Agent, any Lender or Issuing Bank of
any right, power and/or remedy on any one occasion shall not be construed as a
bar to or waiver of any such right, power and/or remedy which Agent, any Lender
or Issuing Bank would otherwise have on any future occasion, whether similar in
kind or otherwise.

 

(c) Notwithstanding anything to the contrary contained in Section 11.3(a) above,
in connection with any amendment, waiver, discharge or termination, in the event
that any Lender whose consent thereto is required shall fail to consent or fail
to consent in a timely manner (such Lender being referred to herein as a
“Non-Consenting Lender”), but the consent of any other Lenders to such
amendment, waiver, discharge or termination that is required are obtained, if
any, then Wachovia shall have the right, but not the obligation, at any time
thereafter, and upon the exercise by Wachovia of such right, such Non-Consenting
Lender shall have the obligation, to sell, assign and transfer to Wachovia or
such Eligible Transferee as Wachovia may specify, the Commitment of such
Non-Consenting Lender and all rights and interests of such Non-Consenting Lender
pursuant thereto. Wachovia shall provide the Non-Consenting Lender with prior
written notice of its intent to exercise its right under this Section, which
notice shall be delivered within ninety (90) days after the date of the failure
to consent and shall specify the date on which such purchase and sale shall
occur (which date shall be not more than thirty (30) days thereafter). Such
purchase and sale shall be pursuant to the terms of an Assignment and Acceptance
(whether or not executed by the Non-Consenting Lender), except that on the date
of such purchase and sale, Wachovia, or such Eligible Transferee specified by
Wachovia, shall pay to the Non-Consenting Lender (except as Wachovia and such
Non-Consenting Lender may

 

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otherwise agree) the amount equal to: (i) the principal balance of the Loans
held by the Non-Consenting Lender outstanding as of the close of business on the
business day immediately preceding the effective date of such purchase and sale,
plus (ii) amounts accrued and unpaid in respect of interest and fees payable to
the Non-Consenting Lender to the effective date of the purchase (but in no event
shall the Non-Consenting Lender be deemed entitled to any early termination
fee). Such purchase and sale shall be effective on the date of the payment of
such amount to the Non-Consenting Lender and the Commitment of the
Non-Consenting Lender shall terminate on such date.

 

(d) The consent of Agent shall be required for any amendment, waiver or consent
affecting the rights or duties of Agent hereunder or under any of the other
Financing Agreements, in addition to the consent of the Lenders otherwise
required by this Section and the exercise by Agent of any of its rights
hereunder with respect to Reserves or Eligible Accounts or Eligible Inventory
shall not be deemed an amendment to the advance rates provided for in this
Section 11.3. The consent of Issuing Bank shall be required for any amendment,
waiver or consent affecting the rights or duties of Issuing Bank hereunder or
under any of the other Financing Agreements, in addition to the consent of the
Lenders otherwise required by this Section, provided, that, the consent of
Issuing Bank shall not be required for any other amendments, waivers or
consents. Notwithstanding anything to the contrary contained in Section 11.3(a)
above, (i) in the event that Agent shall agree that any items otherwise required
to be delivered to Agent as a condition of the initial Loans and Letters of
Credit hereunder may be delivered after the date hereof, Agent may, in its
discretion, agree to extend the date for delivery of such items or take such
other action as Agent may deem appropriate as a result of the failure to receive
such items as Agent may determine or may waive any Event of Default as a result
of the failure to receive such items, in each case without the consent of any
Lender and (ii) Agent may consent to any change in the type of organization,
jurisdiction of organization or other legal structure of any Borrower, Guarantor
or any of their Subsidiaries and amend the terms hereof or of any of the other
Financing Agreements as may be necessary or desirable to reflect any such
change, in each case without the approval of any Lender.

 

(e) The consent of Agent and any Bank Product Provider that is providing Bank
Products and has outstanding any such Bank Products at such time that are
secured hereunder shall be required for any amendment to the priority of payment
of Obligations arising under or pursuant to any Hedge Agreements of a Borrower
or Guarantor or other Bank Products as set forth in Section 6.4(a) hereof. In no
event shall the consent or approval of any Bank Product Provider be required for
any other amendment or waiver and any such other amendment or waiver entered
into in accordance with Section 11.3(a) shall be binding upon all of the Secured
Parties.

 

11.4 Waiver of Counterclaims. Each Borrower and Guarantor waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.

 

11.5 Indemnification. Each Borrower and Guarantor shall, jointly and severally,
indemnify and hold Agent, each Lender and Issuing Bank, and their respective
officers, directors, agents, employees, advisors and counsel and their
respective Affiliates (each such

 

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person being an “Indemnitee”), harmless from and against any and all losses,
claims, damages, liabilities, costs or expenses (including attorneys’ fees and
expenses) imposed on, incurred by or asserted against any of them in connection
with any litigation, investigation, claim or proceeding commenced or threatened
related to the negotiation, preparation, execution, delivery, enforcement,
performance or administration of this Agreement, any other Financing Agreements,
or any undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel except that Borrowers and Guarantors shall not have any obligation under
this Section 11.5 to indemnify an Indemnitee with respect to a matter covered
hereby resulting from the gross negligence or wilful misconduct of such
Indemnitee as determined pursuant to a final, non-appealable order of a court of
competent jurisdiction (but without limiting the obligations of Borrowers or
Guarantors as to any other Indemnitee). To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrowers and Guarantors shall pay
the maximum portion which it is permitted to pay under applicable law to Agent
and Lenders in satisfaction of indemnified matters under this Section. To the
extent permitted by applicable law, no Borrower or Guarantor shall assert, and
each Borrower and Guarantor hereby waives, any claim against any Indemnitee, on
any theory of liability for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement, any of the other Financing Agreements or any
undertaking or transaction contemplated hereby. No Indemnitee referred to above
shall be liable for any damages arising from the use by unintended recipients of
any information or other materials distributed by it through telecommunications,
electronic or other information transmission systems in connection with this
Agreement or any of the other Financing Agreements or the transaction
contemplated hereby or thereby. All amounts due under this Section shall be
payable upon demand. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.

 

SECTION 12. THE AGENT

 

12.1 Appointment, Powers and Immunities. Each Secured Party irrevocably
designates, appoints and authorizes Wachovia to act as Agent hereunder and under
the other Financing Agreements with such powers as are specifically delegated to
Agent by the terms of this Agreement and of the other Financing Agreements,
together with such other powers as are reasonably incidental thereto. Agent
(a) shall have no duties or responsibilities except those expressly set forth in
this Agreement and in the other Financing Agreements, and shall not by reason of
this Agreement or any other Financing Agreement be a trustee or fiduciary for
any Secured Party; (b) shall not be responsible to Secured Parties for any
recitals, statements, representations or warranties contained in this Agreement
or in any of the other Financing Agreements, or in any certificate or other
document referred to or provided for in, or received by any of them under, this
Agreement or any other Financing Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Financing Agreement or any other document referred to or provided for
herein or therein or for any failure by any Borrower or any Guarantor or any
other Person to perform any of its obligations hereunder or thereunder; and
(c) shall not be responsible to Secured Parties for any action taken or omitted
to be taken by it hereunder or under any other Financing Agreement or under any
other document or instrument referred to or provided for herein or therein or in

 

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connection herewith or therewith, except for its own gross negligence or willful
misconduct as determined by a final non-appealable judgment of a court of
competent jurisdiction. Agent may employ agents and attorneys in fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys in fact selected by it in good faith. Agent may deem and treat the
payee of any note as the holder thereof for all purposes hereof unless and until
the assignment thereof pursuant to an agreement (if and to the extent permitted
herein) in form and substance satisfactory to Agent shall have been delivered to
and acknowledged by Agent.

 

12.2 Reliance by Agent. Agent shall be entitled to rely upon any certification,
notice or other communication (including any thereof by telephone, telecopy,
telex, telegram or cable) believed by it to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or Persons, and upon
advice and statements of legal counsel, independent accountants and other
experts selected by Agent. As to any matters not expressly provided for by this
Agreement or any other Financing Agreement, Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder or thereunder in
accordance with instructions given by the Required Lenders or all of Lenders as
is required in such circumstance, and such instructions of such Agents and any
action taken or failure to act pursuant thereto shall be binding on all Lenders.

 

12.3 Events of Default.

 

(a) Agent shall not be deemed to have knowledge or notice of the occurrence of a
Default or an Event of Default or other failure of a condition precedent to the
Loans and Letters of Credit hereunder, unless and until Agent has received
written notice from a Lender, or Borrower specifying such Event of Default or
any unfulfilled condition precedent, and stating that such notice is a “Notice
of Default or Failure of Condition”. In the event that Agent receives such a
Notice of Default or Failure of Condition, Agent shall give prompt notice
thereof to the Lenders. Agent shall (subject to Section 12.7) take such action
with respect to any such Event of Default or failure of condition precedent as
shall be directed by the Required Lenders to the extent provided for herein;
provided, that, unless and until Agent shall have received such directions,
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to or by reason of such Event of Default or
failure of condition precedent, as it shall deem advisable in the best interest
of Lenders. Without limiting the foregoing, and notwithstanding the existence or
occurrence and continuance of an Event of Default or any other failure to
satisfy any of the conditions precedent set forth in Section 4 of this Agreement
to the contrary, unless and until otherwise directed by the Required Lenders,
Agent may, but shall have no obligation to, continue to make Loans and Issuing
Bank may, but shall have no obligation to, issue or cause to be issued any
Letter of Credit for the ratable account and risk of Lenders from time to time
if Agent believes making such Loans or issuing or causing to be issued such
Letter of Credit is in the best interests of Lenders.

 

(b) Except with the prior written consent of Agent, no Secured Party may assert
or exercise any enforcement right or remedy in respect of the Loans, Letter of
Credit Obligations or other Obligations, as against any Borrower or Guarantor or
any of the Collateral or other property of any Borrower or Guarantor.

 

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12.4 Wachovia in its Individual Capacity. With respect to its Commitment and the
Loans made and Letters of Credit issued or caused to be issued by it (and any
successor acting as Agent), so long as Wachovia shall be a Lender hereunder, it
shall have the same rights and powers hereunder as any other Lender and may
exercise the same as though it were not acting as Agent, and the term “Lender”
or “Lenders” shall, unless the context otherwise indicates, include Wachovia in
its individual capacity as Lender hereunder. Wachovia (and any successor acting
as Agent) and its Affiliates may (without having to account therefor to any
Lender) lend money to, make investments in and generally engage in any kind of
business with Borrowers (and any of its Subsidiaries or Affiliates) as if it
were not acting as Agent, and Wachovia and its Affiliates may accept fees and
other consideration from any Borrower or Guarantor and any of its Subsidiaries
and Affiliates for services in connection with this Agreement or otherwise
without having to account for the same to Lenders.

 

12.5 Indemnification. Lenders agree to indemnify Agent and Issuing Bank (to the
extent not reimbursed by Borrowers hereunder and without limiting any
obligations of Borrowers hereunder) ratably, in accordance with their Pro Rata
Shares, for any and all claims of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against Agent (including by any Lender)
arising out of or by reason of any investigation in or in any way relating to or
arising out of this Agreement or any other Financing Agreement or any other
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that Agent is
obligated to pay hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided, that, no Lender shall be
liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined by
a final non-appealable judgment of a court of competent jurisdiction. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.

 

12.6 Non-Reliance on Agent and Other Lenders. Each Secured Party agrees that it
has, independently and without reliance on Agent or any other Secured Party, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of Borrowers and Guarantors and has made its own decision to
enter into this Agreement and that it will, independently and without reliance
upon Agent or any other Secured Party, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Financing Agreements. Agent shall not be required to keep
itself informed as to the performance or observance by any Borrower or Guarantor
of any term or provision of this Agreement or any of the other Financing
Agreements or any other document referred to or provided for herein or therein
or to inspect the properties or books of any Borrower or Guarantor. Agent will
use reasonable efforts to provide Lenders with any information received by Agent
from any Borrower or Guarantor which is required to be provided to Lenders or
deemed to be requested by Lenders hereunder and with a copy of any Notice of
Default or Failure of Condition received by Agent from any Borrower or any
Lender; provided, that, Agent shall not be liable to any Lender for any failure
to do so, except to the extent that such failure is attributable to Agent’s own
gross negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction. Except for notices, reports and
other documents expressly required to be furnished to Lenders by Agent or deemed
requested by Lenders hereunder, Agent shall not have any duty or responsibility
to provide any Lender with any other credit or other information concerning the
affairs, financial condition or business of any Borrower or Guarantor that may
come into the possession of Agent.

 

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12.7 Failure to Act. Except for action expressly required of Agent hereunder and
under the other Financing Agreements, Agent shall in all cases be fully
justified in failing or refusing to act hereunder and thereunder unless it shall
receive further assurances to its satisfaction from Lenders of their
indemnification obligations under Section 12.5 hereof against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any such action.

 

12.8 Additional Loans. Agent shall not make any Revolving Loans or Issuing Bank
provide any Letter of Credit to any Borrower on behalf of Lenders intentionally
and with actual knowledge that such Revolving Loans or Letter of Credit would
cause the aggregate amount of the total outstanding Revolving Loans and Letters
of Credit to such Borrower to exceed the Borrowing Base of such Borrower,
without the prior consent of all Lenders, except, that, Agent may make such
additional Revolving Loans or Issuing Bank may provide such additional Letter of
Credit on behalf of Lenders, intentionally and with actual knowledge that such
Revolving Loans or Letter of Credit will cause the total outstanding Revolving
Loans and Letters of Credit to such Borrower to exceed the Borrowing Base of
such Borrower, as Agent may deem necessary or advisable in its discretion,
provided, that: (a) the total principal amount of the additional Revolving Loans
or additional Letters of Credit to any Borrower which Agent may make or provide
after obtaining such actual knowledge that the aggregate principal amount of the
Revolving Loans equal or exceed the Borrowing Bases of Borrowers, plus the
amount of Special Agent Advances made pursuant to Section 12.11(a)(ii) hereof
then outstanding, shall not exceed the aggregate amount equal to ten (10%) of
the Revolving Loan Limit and shall not cause the total principal amount of the
Loans and Letters of Credit to exceed the Maximum Credit and (b) no such
additional Revolving Loan or Letter of Credit shall be outstanding more than
ninety (90) days after the date such additional Revolving Loan or Letter of
Credit is made or issued (as the case may be), except as the Required Lenders
may otherwise agree. Each Lender shall be obligated to pay Agent the amount of
its Pro Rata Share of any such additional Revolving Loans or Letters of Credit.

 

12.9 Concerning the Collateral and the Related Financing Agreements. Each
Secured Party authorizes and directs Agent to enter into this Agreement and the
other Financing Agreements. Each Secured Party agrees that any action taken by
Agent or Required Lenders in accordance with the terms of this Agreement or the
other Financing Agreements and the exercise by Agent or Required Lenders of
their respective powers set forth therein or herein, together with such other
powers that are reasonably incidental thereto, shall be binding upon all of the
Secured Parties.

 

12.10 Field Audit, Examination Reports and other Information; Disclaimer by
Lenders. By signing this Agreement, each Lender:

 

(a) is deemed to have requested that Agent furnish such Lender, promptly after
it becomes available, a copy of each field audit or examination report and
report with respect to the Borrowing Base prepared or received by Agent (each
field audit or examination report and report with respect to the Borrowing Base
being referred to herein as a “Report” and collectively, “Reports”), appraisals
with respect to the Collateral and financial statements with respect to Parent
and its Subsidiaries received by Agent;

 

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(b) expressly agrees and acknowledges that Agent (i) does not make any
representation or warranty as to the accuracy of any Report, appraisal or
financial statement or (ii) shall not be liable for any information contained in
any Report, appraisal or financial statement;

 

(c) expressly agrees and acknowledges that the Reports are not comprehensive
audits or examinations, that Agent or any other party performing any audit or
examination will inspect only specific information regarding Borrowers and
Guarantors and will rely significantly upon Borrowers’ and Guarantors’ books and
records, as well as on representations of Borrowers’ and Guarantors’ personnel;
and

 

(d) agrees to keep all Reports confidential and strictly for its internal use in
accordance with the terms of Section 13.5 hereof, and not to distribute or use
any Report in any other manner.

 

12.11 Collateral Matters.

 

(a) Agent may, at its option, from time to time, at any time on or after an
Event of Default and for so long as the same is continuing or upon any other
failure of a condition precedent to the Loans and Letters of Credit hereunder,
make such disbursements and advances (“Special Agent Advances”) which Agent, in
its sole discretion, (i) deems necessary or desirable either to preserve or
protect the Collateral or any portion thereof or (ii) to enhance the likelihood
or maximize the amount of repayment by Borrowers and Guarantors of the Loans and
other Obligations, provided, that, (A) the aggregate principal amount of the
Special Agent Advances pursuant to this clause (ii) outstanding at any time,
plus the then outstanding principal amount of the additional Loans and Letters
of Credit which Agent may make or provide as set forth in Section 12.8 hereof,
shall not exceed the amount equal to ten (10%) percent of the Revolving Loan
Limit and (B) the aggregate principal amount of the Special Agent Advances
pursuant to this clause (ii) outstanding at any time, plus the then outstanding
principal amount of the Loans, shall not exceed the Maximum Credit, except at
Agent’s option, provided, that, to the extent that the aggregate principal
amount of Special Agent Advances plus the then outstanding principal amount of
the Loans exceed the Maximum Credit the Special Agent Advances that are in
excess of the Maximum Credit shall be for the sole account and risk of Agent and
notwithstanding anything to the contrary set forth below, no Lender shall have
any obligation to provide its share of such Special Agent Advances in excess of
the Maximum Credit, or (iii) to pay any other amount chargeable to any Borrower
or Guarantor pursuant to the terms of this Agreement or any of the other
Financing Agreements consisting of (A) costs, fees and expenses and (B) payments
to Issuing Bank in respect of any Letter of Credit Obligations. The Special
Agent Advances shall be repayable on demand and together with all interest
thereon shall constitute Obligations secured by the Collateral. Special Agent
Advances shall not constitute Loans but shall otherwise constitute Obligations
hereunder. Interest on Special Agent Advances shall be payable at the Interest
Rate then applicable to Prime Rate Loans and shall be payable on demand. Without
limitation of its obligations pursuant to Section 6.11, each Lender agrees that
it shall make available to Agent, upon Agent’s demand, in immediately available
funds, the amount equal to

 

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such Lender’s Pro Rata Share of each such Special Agent Advance. If such funds
are not made available to Agent by such Lender, such Lender shall be deemed a
Defaulting Lender and Agent shall be entitled to recover such funds, on demand
from such Lender together with interest thereon for each day from the date such
payment was due until the date such amount is paid to Agent at the Federal Funds
Rate for each day during such period (as published by the Federal Reserve Bank
of New York or at Agent’s option based on the arithmetic mean determined by
Agent of the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York City time) on that day by each of the three leading
brokers of Federal funds transactions in New York City selected by Agent) and if
such amounts are not paid within three (3) days of Agent’s demand, at the
highest Interest Rate provided for in Section 3.1 hereof applicable to Prime
Rate Loans.

 

(b) Lenders hereby irrevocably authorize Agent, at its option and in its
discretion to release any security interest in, mortgage or lien upon, any of
the Collateral (i) upon termination of the Commitments and payment and
satisfaction of all of the Obligations and delivery of cash collateral to the
extent required under Section 13.1 below, or (ii) constituting property being
sold or disposed of if Administrative Borrower or any Borrower or Guarantor
certifies to Agent that the sale or disposition is made in compliance with
Section 9.7 hereof (and Agent may rely conclusively on any such certificate,
without further inquiry), or (iii) constituting property in which any Borrower
or Guarantor did not own an interest at the time the security interest, mortgage
or lien was granted or at any time thereafter, or (iv) having a value in the
aggregate in any twelve (12) month period of less than $4,000,000, and to the
extent Agent may release its security interest in and lien upon any such
Collateral pursuant to the sale or other disposition thereof, such sale or other
disposition shall be deemed consented to by Lenders and any proceeds from such
sale or other disposition shall be applied to the Obligations, or (v) if
required or permitted under the terms of any of the other Financing Agreements,
including any intercreditor agreement, or (vi) approved, authorized or ratified
in writing by all of Lenders. Except as provided above, Agent will not release
any security interest in, mortgage or lien upon, any of the Collateral without
the prior written authorization of all of Lenders. Upon request by Agent at any
time, Lenders will promptly confirm in writing Agent’s authority to release
particular types or items of Collateral pursuant to this Section. Nothing
contained herein shall be construed to require the consent of any Bank Product
Provider to any release of any Collateral or termination of security interests
in any Collateral.

 

(c) Without any manner limiting Agent’s authority to act without any specific or
further authorization or consent by the Required Lenders, each Lender agrees to
confirm in writing, upon request by Agent, the authority to release Collateral
conferred upon Agent under this Section. Agent shall (and is hereby irrevocably
authorized by Lenders to) execute such documents as may be necessary to evidence
the release of the security interest, mortgage or liens granted to Agent upon
any Collateral to the extent set forth above; provided, that, (i) Agent shall
not be required to execute any such document on terms which, in Agent’s opinion,
would expose Agent to liability or create any obligations or entail any
consequence other than the release of such security interest, mortgage or liens
without recourse or warranty and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any security interest, mortgage
or lien upon (or obligations of any Borrower or Guarantor in respect of) the
Collateral retained by such Borrower or Guarantor.

 

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(d) Agent shall have no obligation whatsoever to any Secured Party or any other
Person to investigate, confirm or assure that the Collateral exists or is owned
by any Borrower or Guarantor or is cared for, protected or insured or has been
encumbered, or that any particular items of Collateral meet the eligibility
criteria applicable in respect of the Loans or Letters of Credit hereunder, or
whether any particular reserves are appropriate, or that the liens and security
interests granted to Agent pursuant hereto or any of the Financing Agreements or
otherwise have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to Agent in this Agreement or in any of the other Financing
Agreements, it being understood and agreed that in respect of the Collateral, or
any act, omission or event related thereto, subject to the other terms and
conditions contained herein, Agent may act in any manner it may deem
appropriate, in its discretion, given Agent’s own interest in the Collateral as
a Lender and that Agent shall have no duty or liability whatsoever to any other
Secured Party.

 

12.12 Agency for Perfection. Each Secured Party hereby appoints Agent and each
other Secured Party as agent and bailee for the purpose of perfecting the
security interests in and liens upon the Collateral of Agent in assets which, in
accordance with Article 9 of the UCC can be perfected only by possession (or
where the security interest of a secured party with possession has priority over
the security interest of another secured party) and Agent and each Secured Party
hereby acknowledges that it holds possession of any such Collateral for the
benefit of Agent as secured party. Should any Secured Party obtain possession of
any such Collateral, such Secured Party shall notify Agent thereof, and,
promptly upon Agent’s request therefor shall deliver such Collateral to Agent or
in accordance with Agent’s instructions.

 

12.13 Successor Agent. Agent may resign as Agent upon thirty (30) days’ notice
to Lenders and Parent. If Agent resigns under this Agreement, the Required
Lenders shall appoint from among the Lenders a successor agent for Lenders. If
no successor agent is appointed prior to the effective date of the resignation
of Agent, Agent may appoint, after consulting with Lenders and Parent, a
successor agent from among Lenders. Upon the acceptance by the Lender so
selected of its appointment as successor agent hereunder, such successor agent
shall succeed to all of the rights, powers and duties of the retiring Agent and
the term “Agent” as used herein and in the other Financing Agreements shall mean
such successor agent and the retiring Agent’s appointment, powers and duties as
Agent shall be terminated. After any retiring Agent’s resignation hereunder as
Agent, the provisions of this Section 12 shall inure to its benefit as to any
actions taken or omitted by it while it was Agent under this Agreement. If no
successor agent has accepted appointment as Agent by the date which is thirty
(30) days after the date of a retiring Agent’s notice of resignation, the
retiring Agent’s resignation shall nonetheless thereupon become effective and
Lenders shall perform all of the duties of Agent hereunder until such time, if
any, as the Required Lenders appoint a successor agent as provided for above.

 

12.14 Other Agent Designations. Agent may at any time and from time to time
determine that a Lender may, in addition, be a “Co-Agent”, “Documentation Agent”
or similar designation hereunder and enter into an agreement with such Lender to
have it so identified for purposes of this Agreement. Any such designation shall
be effective upon written notice by Agent to Administrative Borrower of any such
designation. Any Lender that is so designated as a Co-Agent, Syndication Agent,
Documentation Agent or such similar designation by Agent

 

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shall have no right, power, obligation, liability, responsibility or duty under
this Agreement or any of the other Financing Agreements other than those
applicable to all Lenders as such. Without limiting the foregoing, the Lenders
so identified shall not have or be deemed to have any fiduciary relationship
with any Lender and no Lender shall be deemed to have relied, nor shall any
Lender rely, on a Lender so identified as a Co-Agent, Syndication Agent,
Documentation Agent or such similar designation in deciding to enter into this
Agreement or in taking or not taking action hereunder.

 

SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS

 

13.1 Term.

 

(a) This Agreement and the other Financing Agreements shall become effective as
of the date set forth on the first page hereof and shall continue in full force
and effect for a term ending on the date five (5) years from the date hereof
(the “Maturity Date”). Borrowers may terminate this Agreement at any time upon
ten (10) days prior written notice to Agent (which notice shall be irrevocable)
and Agent may, at its option, and shall at the direction of Required Lenders,
terminate this Agreement at any time on or after an Event of Default and for so
long as the same is continuing. Upon the Maturity Date or any other effective
date of termination of the Financing Agreements, Borrowers shall pay to Agent
all outstanding and unpaid Obligations and shall furnish cash collateral to
Agent (or at Agent’s option, a letter of credit issued for the account of
Borrowers and at Borrowers’ expense, in form and substance satisfactory to
Agent, by an issuer acceptable to Agent and payable to Agent as beneficiary) in
such amounts as Agent determines are reasonably necessary to secure Agent,
Lenders and Issuing Bank from loss, cost, damage or expense, including
attorneys’ fees and expenses, in connection with any contingent Obligations,
including issued and outstanding Letter of Credit Obligations and checks or
other payments provisionally credited to the Obligations and/or as to which
Agent or any Lender has not yet received final and indefeasible payment (and
including any contingent liability of Agent to any bank at which deposit
accounts of Borrowers and Guarantors are maintained under any Deposit Account
Control Agreement) and for any of the Obligations arising under or in connection
with any Bank Products in such amounts as the party providing such Bank Products
may require (unless such Obligations arising under or in connection with any
Bank Products are paid in full in cash and terminated in a manner satisfactory
to such other party). The amount of such cash collateral (or letter of credit,
as Agent may determine) as to any Letter of Credit Obligations shall be in the
amount equal to one hundred five (105%) percent of the amount of the Letter of
Credit Obligations plus the amount of any fees and expenses payable in
connection therewith through the end of the latest expiration date of the then
outstanding Letters of Credit. Such payments in respect of the Obligations and
cash collateral shall be remitted by wire transfer in Federal funds to the Agent
Payment Account or such other bank account of Agent, as Agent may, in its
discretion, designate in writing to Administrative Borrower for such purpose.
Interest shall be due until and including the next Business Day, if the amounts
so paid by Borrowers to the Agent Payment Account or other bank account
designated by Agent are received in such bank account later than 12:00 noon, Los
Angeles time.

 

(b) No termination of the Commitments, this Agreement or any of the other
Financing Agreements shall relieve or discharge any Borrower or Guarantor of its
respective duties, obligations and covenants under this Agreement or any of the
other Financing

 

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Agreements until all Obligations have been fully and finally discharged and
paid, and Agent’s continuing security interest in the Collateral and the rights
and remedies of Agent and Lenders hereunder, under the other Financing
Agreements and applicable law, shall remain in effect until all such Obligations
have been fully and finally discharged and paid. Accordingly, each Borrower and
Guarantor waives any rights it may have under the UCC to demand the filing of
termination statements with respect to the Collateral and Agent shall not be
required to send such termination statements to Borrowers or Guarantors, or to
file them with any filing office, unless and until this Agreement shall have
been terminated in accordance with its terms and all Obligations paid and
satisfied in full in immediately available funds.

 

13.2 Interpretative Provisions.

 

(a) All terms used herein which are defined in Article 1, Article 8 or Article 9
of the UCC shall have the meanings given therein unless otherwise defined in
this Agreement.

 

(b) All references to the plural herein shall also mean the singular and to the
singular shall also mean the plural unless the context otherwise requires.

 

(c) All references to any Borrower, Guarantor, Agent and Lenders pursuant to the
definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns.

 

(d) The words “hereof”, “herein”, “hereunder”, “this Agreement” and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not any particular provision of this Agreement and as this Agreement
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

 

(e) The word “including” when used in this Agreement shall mean “including,
without limitation” and the word “will” when used in this Agreement shall be
construed to have the same meaning and effect as the word “shall”.

 

(f) An Event of Default shall exist or continue or be continuing until such
Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Agent, if such Event of Default is capable of being cured
as determined by Agent.

 

(g) All references to the term “good faith” used herein when applicable to Agent
or any Lender shall mean, notwithstanding anything to the contrary contained
herein or in the UCC, honesty-in-fact in the conduct or transaction concerned
and observance of reasonable commercial standards of fair dealing based on how
an asset-based lender with similar rights providing a credit facility of the
type set forth herein would act in similar circumstances at the time with the
information then available to it.

 

(h) Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given in accordance with
GAAP, and all financial computations hereunder shall be computed unless
otherwise specifically provided herein, in accordance with GAAP as consistently
applied and using the same method for inventory valuation as used in the
preparation of the financial statements of Parent most recently received by
Agent prior to the date hereof. Notwithstanding anything to the contrary
contained

 

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in GAAP or any interpretations or other pronouncements by the Financial
Accounting Standards Board or otherwise, the term “unqualified opinion” as used
herein to refer to opinions or reports provided by accountants shall mean an
opinion or report that is unqualified and also does not include any explanation,
supplemental comment or other comment concerning the ability of the applicable
person to continue as a going concern or the scope of the audit.

 

(i) In the computation of periods of time from a specified date to a later
specified date, the word “from” means “from and including”, the words “to” and
“until” each mean “to but excluding” and the word “through” means “to and
including”.

 

(j) Unless otherwise expressly provided herein, (i) references herein to any
agreement, document or instrument shall be deemed to include all subsequent
amendments, modifications, supplements, extensions, renewals, restatements or
replacements with respect thereto, but only to the extent the same are not
prohibited by the terms hereof or of any other Financing Agreement, and
(ii) references to any statute or regulation are to be construed as including
all statutory and regulatory provisions consolidating, amending, replacing,
recodifying, supplementing or interpreting the statute or regulation.

 

(k) The captions and headings of this Agreement are for convenience of reference
only and shall not affect the interpretation of this Agreement.

 

(l) This Agreement and other Financing Agreements may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.

 

(m) This Agreement and the other Financing Agreements are the result of
negotiations among and have been reviewed by counsel to Agent and the other
parties, and are the products of all parties. Accordingly, this Agreement and
the other Financing Agreements shall not be construed against Agent or Lenders
merely because of Agent’s or any Lender’s involvement in their preparation.

 

13.3 Notices.

 

(a) All notices, requests and demands hereunder shall be in writing and deemed
to have been given or made: if delivered in person, immediately upon delivery;
if by telex, telegram or facsimile transmission, immediately upon sending and
upon confirmation of receipt if during normal business hours of the recipient,
otherwise on the next Business Day; if by nationally recognized overnight
courier service with instructions to deliver the next Business Day, one
(1) Business Day after sending; and if by certified mail, return receipt
requested, five (5) days after mailing. Notices delivered through electronic
communications shall be effective to the extent set forth in Section 13.3(b)
below. All notices, requests and demands upon the parties are to be given to the
following addresses (or to such other address as any party may designate by
notice in accordance with this Section):

 

If to any Borrower or Guarantor:     

c/o Merix Corporation

1521 Poplar Lane

Forest Grove, Oregon 97116

Attention: Chief Financial Officer

Telephone No.: (503) 359-9300

Telecopy No.: (503) 357-1504

 

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with a copy to:     

Perkins Coie LLP

1120 N.W. Couch Street

Tenth Floor

Portland, Oregon 97209-4128

Attention: George K. Fogg

Telephone No.: (503) 727-2022

Telecopy No.: (503) 346-2022

If to Agent or Issuing Bank:     

Wachovia Capital Finance Corporation

(Western)

251 South Lake Avenue

Suite 900

Pasadena, California 91101

Attention: Portfolio Manager

Telephone No.: (626) 304-4900

Telecopy No.: (626) 304-4949

 

(b) Notices and other communications to Lenders and Issuing Bank hereunder may
be delivered or furnished by electronic communication (including e-mail and
Internet or intranet websites) pursuant to procedures approved by Agent or as
otherwise determined by Agent, provided, that, the foregoing shall not apply to
notices to any Lender or Issuing Bank pursuant to Section 2 hereof if such
Lender or Issuing Bank, as applicable, has notified Agent that it is incapable
of receiving notices under such Section by electronic communication. Unless
Agent otherwise requires, (i) notices and other communications sent to an e-mail
address shall be deemed received upon the sender’s receipt of an acknowledgement
from the intended recipient (such as by the “return receipt requested” function,
as available, return e-mail or other written acknowledgement), provided, that,
if such notice or other communication is not given during the normal business
hours of the recipient, such notice shall be deemed to have been sent at the
opening of business on the next Business Day for the recipient, and (ii) notices
or communications posted to an Internet or intranet website shall be deemed
received upon the deemed receipt by the intended recipient at its e-mail address
as described in the foregoing clause (i) of notification that such notice or
communications is available and identifying the website address therefor.

 

13.4 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

 

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13.5 Confidentiality.

 

(a) Agent, each Lender and Issuing Bank shall use all reasonable efforts to keep
confidential, in accordance with safe and sound lending practices, any
non-public information supplied to it by any Borrower pursuant to this Agreement
which is clearly and conspicuously marked as confidential at the time such
information is furnished by such Borrower to Agent, such Lender or Issuing Bank,
provided, that, nothing contained herein shall limit the disclosure of any such
information: (i) to the extent required by statute, rule, regulation, subpoena
or court order, (ii) to bank examiners and other regulators, auditors and/or
accountants, in connection with any litigation to which Agent, such Lender or
Issuing Bank is a party, (iii) to any Lender or Participant (or prospective
Lender or Participant) or Issuing Bank or to any Affiliate of any Lender so long
as such Lender, Participant (or prospective Lender or Participant), Issuing Bank
or Affiliate shall have been instructed to treat such information as
confidential in accordance with this Section 13.5, or (iv) to counsel for Agent,
any Lender, Participant (or prospective Lender or Participant) or Issuing Bank.

 

(b) In the event that Agent, any Lender or Issuing Bank receives a request or
demand to disclose any confidential information pursuant to any subpoena or
court order, Agent or such Lender or Issuing Bank, as the case may be, agrees
(i) to the extent permitted by applicable law or if permitted by applicable law,
to the extent Agent or such Lender or Issuing Bank determines in good faith that
it will not create any risk of liability to Agent or such Lender or Issuing
Bank, Agent or such Lender or Issuing Bank will promptly notify Administrative
Borrower of such request so that Administrative Borrower may seek a protective
order or other appropriate relief or remedy and (ii) if disclosure of such
information is required, disclose such information and, subject to reimbursement
by Borrowers of Agent’s or such Lender’s or Issuing Bank’s expenses, cooperate
with Administrative Borrower in the reasonable efforts to obtain an order or
other reliable assurance that confidential treatment will be accorded to such
portion of the disclosed information which Administrative Borrower so
designates, to the extent permitted by applicable law or if permitted by
applicable law, to the extent Agent or such Lender or Issuing Bank determines in
good faith that it will not create any risk of liability to Agent or such Lender
or Issuing Bank.

 

(c) In no event shall this Section 13.5 or any other provision of this
Agreement, any of the other Financing Agreements or applicable law be deemed:
(i) to apply to or restrict disclosure of information that has been or is made
public by any Borrower, Guarantor or any third party or otherwise becomes
generally available to the public other than as a result of a disclosure in
violation hereof, (ii) to apply to or restrict disclosure of information that
was or becomes available to Agent, any Lender (or any Affiliate of any Lender)
or Issuing Bank on a non-confidential basis from a person other than a Borrower
or Guarantor, (iii) to require Agent, any Lender or Issuing Bank to return any
materials furnished by a Borrower or Guarantor to Agent, a Lender or Issuing
Bank or prevent Agent, a Lender or Issuing Bank from responding to routine
informational requests in accordance with the Code of Ethics for the Exchange of
Credit Information promulgated by The Robert Morris Associates or other
applicable industry standards relating to the exchange of credit information.
The obligations of Agent, Lenders and Issuing Bank under this Section 13.5 shall
supersede and replace the obligations of Agent, Lenders and Issuing Bank under
any confidentiality letter signed prior to the date hereof or any other
arrangements concerning the confidentiality of information provided by any
Borrower or Guarantor to Agent or any Lender. In addition, Agent and Lenders may
disclose information relating to the Credit Facility to Gold Sheets and other
similar bank trade publications, with such information to consist of deal terms
and other information customarily found in such publications.

 

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13.6 Successors. This Agreement, the other Financing Agreements and any other
document referred to herein or therein shall be binding upon and inure to the
benefit of and be enforceable by Agent, Secured Parties, Borrowers, Guarantors
and their respective successors and assigns, except that Borrower may not assign
its rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Agent and Lenders. Any such purported assignment without such express prior
written consent shall be void. No Secured Party may assign its rights and
obligations under this Agreement without the prior written consent of Agent,
except as provided in Section 13.7 below. The terms and provisions of this
Agreement and the other Financing Agreements are for the purpose of defining the
relative rights and obligations of Borrowers, Guarantors, Agent and Secured
Parties with respect to the transactions contemplated hereby and there shall be
no third party beneficiaries of any of the terms and provisions of this
Agreement or any of the other Financing Agreements.

 

13.7 Assignments; Participations.

 

(a) Each Lender may, with the prior written consent of Agent and Administrative
Borrower (which consent of Administrative Borrower shall not be unreasonably
withheld, conditioned or delayed), assign all or, if less than all, a portion
equal to at least $5,000,000 in the aggregate for the assigning Lender, of such
rights and obligations under this Agreement to one or more Eligible Transferees
(but not including for this purpose any assignments in the form of a
participation), each of which assignees shall become a party to this Agreement
as a Lender by execution of an Assignment and Acceptance; provided, that,
(i) the prior written consent of Administrative Borrower shall not be required
at any time a Default or Event of Default shall exist or have occurred and be
continuing, or in the case of a transfer or assignment to an existing Lender, to
any Affiliate or Approved Fund of an existing Lender or a transfer or assignment
upon the merger, consolidation, sale or transfer or other disposition of the
business of a Lender, (ii) such transfer or assignment will not be effective
until recorded by Agent on the Register and (iii) Agent shall have received for
its sole account payment of a processing fee from the assigning Lender or the
assignee in the amount of $5,000, other than for assignments to Affiliates or an
Approved Fund of the assigning Lender.

 

(b) Agent shall maintain a register of the names and addresses of Lenders, their
Commitments and the principal amount of their Loans (the “Register”). Agent
shall also maintain a copy of each Assignment and Acceptance delivered to and
accepted by it and shall modify the Register to give effect to each Assignment
and Acceptance. The entries in the Register shall be conclusive and binding for
all purposes, absent manifest error, and any Borrowers, Guarantors, Agent and
Lenders may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by Administrative Borrower and any Lender at any reasonable time
and from time to time upon reasonable prior notice.

 

(c) Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, the assignee
thereunder shall be a

 

115

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party hereto and to the other Financing Agreements and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations (including, without
limitation, the obligation to participate in Letter of Credit Obligations) of a
Lender hereunder and thereunder and the assigning Lender shall, to the extent
that rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement.

 

(d) By execution and delivery of an Assignment and Acceptance, the assignor and
assignee thereunder confirm to and agree with each other and the other parties
hereto as follows: (i) other than as provided in such Assignment and Acceptance,
the assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any of the other Financing
Agreements or the execution, legality, enforceability, genuineness, sufficiency
or value of this Agreement or any of the other Financing Agreements furnished
pursuant hereto, (ii) the assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any
Borrower, Guarantor or any of their Subsidiaries or the performance or
observance by any Borrower or Guarantor of any of the Obligations; (iii) such
assignee confirms that it has received a copy of this Agreement and the other
Financing Agreements, together with such other documents and information it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance, (iv) such assignee will, independently and
without reliance upon the assigning Lender, Agent and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement and the
other Financing Agreements, (v) such assignee appoints and authorizes Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement and the other Financing Agreements as are delegated to Agent by the
terms hereof and thereof, together with such powers as are reasonably incidental
thereto, and (vi) such assignee agrees that it will perform in accordance with
their terms all of the obligations which by the terms of this Agreement and the
other Financing Agreements are required to be performed by it as a Lender. Agent
and Lenders may furnish any information concerning any Borrower or Guarantor in
the possession of Agent or any Lender from time to time to assignees and
Participants.

 

(e) Each Lender may sell participations to one or more banks or other entities
in or to all or a portion of its rights and obligations under this Agreement and
the other Financing Agreements (including, without limitation, all or a portion
of its Commitments and the Loans owing to it and its participation in the Letter
of Credit Obligations, without the consent of Agent or the other Lenders);
provided, that, (i) such Lender’s obligations under this Agreement (including,
without limitation, its Commitment hereunder) and the other Financing Agreements
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, and Borrowers,
Guarantors, the other Lenders and Agent shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement and the other Financing Agreements, and
(iii) the Participant shall not have any rights under this Agreement or any of
the other Financing Agreements (the Participant’s rights against such Lender in
respect of such participation to be those set forth in the agreement executed by
such Lender in favor of the Participant relating thereto) and all amounts
payable by any Borrower or Guarantor hereunder shall be determined as if such
Lender had not sold such participation.

 

116

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(f) Nothing in this Agreement shall prevent or prohibit any Lender from pledging
its Loans hereunder to a Federal Reserve Bank in support of borrowings made by
such Lenders from such Federal Reserve Bank; provided, that, no such pledge
shall release such Lender from any of its obligations hereunder or substitute
any such pledgee for such Lender as a party hereto.

 

(g) Borrowers and Guarantors shall assist Agent or any Lender permitted to sell
assignments or participations under this Section 13.7 in whatever manner
reasonably necessary in order to enable or effect any such assignment or
participation, including (but not limited to) the execution and delivery of any
and all agreements, notes and other documents and instruments as shall be
requested and the delivery of informational materials, appraisals or other
documents for, and the participation of relevant management in meetings and
conference calls with, potential Lenders or Participants. Borrowers shall
certify the correctness, completeness and accuracy, in all material respects, of
all descriptions of Borrowers and Guarantors and their affairs provided,
prepared or reviewed by any Borrower or Guarantor that are contained in any
selling materials and all other information provided by it and included in such
materials.

 

(h) Any Lender that is an Issuing Bank may at any time assign all of its
Commitments pursuant to this Section 13.7. If such Issuing Bank ceases to be
Lender, it may, at its option, resign as Issuing Bank and such Issuing Bank’s
obligations to issue Letters of Credit shall terminate but it shall retain all
of the rights and obligations of Issuing Bank hereunder with respect to Letters
of Credit outstanding as of the effective date of its resignation and all Letter
of Credit Obligations with respect thereto (including the right to require
Lenders to make Revolving Loans or fund risk participations in outstanding
Letter of Credit Obligations), shall continue.

 

13.8 Entire Agreement. This Agreement, the other Financing Agreements, any
supplements hereto or thereto, and any instruments or documents delivered or to
be delivered in connection herewith or therewith represents the entire agreement
and understanding concerning the subject matter hereof and thereof between the
parties hereto, and supersede all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. In the event of any inconsistency between the terms of this
Agreement and any schedule or exhibit hereto, the terms of this Agreement shall
govern.

 

13.9 USA Patriot Act. Each Lender subject to the USA Patriot Act (Title III of
Pub.L. 107-56, signed into law October 26, 2001), (the “Act”) hereby notifies
Borrowers and Guarantors that pursuant to the requirements of the Act, it is
required to obtain, verify and record information that identifies each person or
corporation who opens an account and/or enters into a business relationship with
it, which information includes the name and address of Borrowers and Guarantors
and other information that will allow such Lender to identify such person in
accordance with the Act and any other applicable law. Borrowers and Guarantors
are hereby advised that any Loans or Letters of Credit hereunder are subject to
satisfactory results of such verification.

 

13.10 Counterparts, Etc. This Agreement or any of the other Financing Agreements
may be executed in any number of counterparts, each of which shall be an
original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement or any of the
other Financing Agreements by telefacsimile or other electronic method of
transmission shall have the same force and effect as the delivery of an original
executed counterpart of this Agreement or any of such other Financing
Agreements. Any party delivering an executed counterpart of any such agreement
by telefacsimile or other electronic method of transmission shall also deliver
an original executed counterpart, but the failure to do so shall not affect the
validity, enforceability or binding effect of such agreement.

 

117

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IN WITNESS WHEREOF, Agent, Lenders, Borrowers and Guarantors have caused these
presents to be duly executed as of the day and year first above written.

 

BORROWERS MERIX CORPORATION By:  

/s/ Janie S. Brown

--------------------------------------------------------------------------------

Title:   Chief Financial Officer MERIX SAN JOSE, INC. By:  

/s/ Janie S. Brown

--------------------------------------------------------------------------------

Title:   Chief Financial Officer GUARANTORS MERIX NEVADA, INC. By:  

/s/ Janie S. Brown

--------------------------------------------------------------------------------

Title:   Chief Financial Officer MERIX ASIA, INC. By:  

/s/ Janie S. Brown

--------------------------------------------------------------------------------

Title:   Chief Financial Officer DATA CIRCUIT HOLDINGS, INC. By:  

/s/ Janie S. Brown

--------------------------------------------------------------------------------

Title:   Chief Financial Officer

 

118

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AGENT

WACHOVIA CAPITAL FINANCE

CORPORATION (WESTERN), as Agent

By:  

/s/ Dan Cott

--------------------------------------------------------------------------------

Title:   Director ISSUING BANK

WACHOVIA BANK, NATIONAL

ASSOCIATION

By:  

/s/ Dan Cott

--------------------------------------------------------------------------------

Title:   Director LENDERS

WACHOVIA CAPITAL FINANCE

CORPORATION (WESTERN)

By:  

/s/ Dan Cott

--------------------------------------------------------------------------------

Title:   Director Commitment: $35,000,000 BANK OF AMERICA, N.A. By:  

/s/ Steve Sharp

--------------------------------------------------------------------------------

Title:   Vice President Commitment: $20,000,000

 

119

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EXHIBIT A

to

LOAN AND SECURITY AGREEMENT

 

ASSIGNMENT AND ACCEPTANCE AGREEMENT

 

This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this “Assignment and Acceptance”)
dated as of                     , 200   is made between                        
(the “Assignor”) and                          (the “Assignee”).

 

W I T N E S S E T H:

 

WHEREAS, Wachovia Capital Finance Corporation (Western), in its capacity as
agent pursuant to the Loan Agreement (as hereinafter defined) acting for and on
behalf of the financial institutions which are parties thereto as lenders (in
such capacity, “Agent”), and the financial institutions which are parties to the
Loan Agreement as lenders (individually, each a “Lender” and collectively,
“Lenders”) have entered or are about to enter into financing arrangements
pursuant to which Agent and Lenders may make loans and advances and provide
other financial accommodations to Merix Corporation and Merix San Jose, Inc.
(collectively, “Borrowers”) as set forth in the Loan and Security Agreement,
dated September 28, 2005, by and among Borrowers, certain of their affiliates,
Agent and Lenders (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, the “Loan Agreement”),
and the other agreements, documents and instruments referred to therein or at
any time executed and/or delivered in connection therewith or related thereto
(all of the foregoing, together with the Loan Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, being collectively referred to herein as the “Financing
Agreements”);

 

WHEREAS, as provided under the Loan Agreement, Assignor committed to making
Loans (the “Committed Loans”) to Borrowers in an aggregate amount not to exceed
$             (the “Commitment”);

 

WHEREAS, Assignor wishes to assign to Assignee [part of the] [all] rights and
obligations of Assignor under the Loan Agreement in respect of its Commitment in
an amount equal to $             (the “Assigned Commitment Amount”) on the terms
and subject to the conditions set forth herein and Assignee wishes to accept
assignment of such rights and to assume such obligations from Assignor on such
terms and subject to such conditions;

 

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:

 

A-1

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1. Assignment and Acceptance.

 

(a) Subject to the terms and conditions of this Assignment and Acceptance,
Assignor hereby sells, transfers and assigns to Assignee, and Assignee hereby
purchases, assumes and undertakes from Assignor, without recourse and without
representation or warranty (except as provided in this Assignment and
Acceptance) an interest in (i) the Commitment and each of the Committed Loans of
Assignor and (ii) all related rights, benefits, obligations, liabilities and
indemnities of the Assignor under and in connection with the Loan Agreement and
the other Financing Agreements, so that after giving effect thereto, the
Commitment of Assignee shall be as set forth below and the Pro Rata Share of
Assignee shall be             (    %) percent.

 

(b) With effect on and after the Effective Date (as defined in Section 5
hereof), Assignee shall be a party to the Loan Agreement and succeed to all of
the rights and be obligated to perform all of the obligations of a Lender under
the Loan Agreement, including the requirements concerning confidentiality and
the payment of indemnification, with a Commitment in an amount equal to the
Assigned Commitment Amount. Assignee agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Agreement
are required to be performed by it as a Lender. It is the intent of the parties
hereto that the Commitment of Assignor shall, as of the Effective Date, be
reduced by an amount equal to the Assigned Commitment Amount and Assignor shall
relinquish its rights and be released from its obligations under the Loan
Agreement to the extent such obligations have been assumed by Assignee;
provided, that, Assignor shall not relinquish its rights under Sections 2.2,
6.4, 6.9, 11.5 and 12.5 of the Loan Agreement to the extent such rights relate
to the time prior to the Effective Date.

 

(c) After giving effect to the assignment and assumption set forth herein, on
the Effective Date Assignee’s Commitment will be $            .

 

(d) After giving effect to the assignment and assumption set forth herein, on
the Effective Date Assignor’s Commitment will be $             (as such amount
may be further reduced by any other assignments by Assignor on or after the date
hereof).

 

2. Payments.

 

(a) As consideration for the sale, assignment and transfer contemplated in
Section 1 hereof, Assignee shall pay to Assignor on the Effective Date in
immediately available funds an amount equal to $            , representing
Assignee’s Pro Rata Share of the principal amount of all Committed Loans.

 

(b) Assignee shall pay to Agent the processing fee in the amount specified in
Section 13.7(a) of the Loan Agreement.

 

3. Reallocation of Payments. Any interest, fees and other payments accrued to
the Effective Date with respect to the Commitment, Committed Loans and
outstanding Letters of Credit shall be for the account of Assignor. Any
interest, fees and other payments accrued on and after the Effective Date with
respect to the Assigned Commitment Amount shall be for the account of Assignee.
Each of Assignor and Assignee 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.

 

A-2

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4. Independent Credit Decision. Assignee acknowledges that it has received a
copy of the Loan Agreement and the Schedules and Exhibits thereto, together with
copies of the most recent financial statements of                  and its
Subsidiaries, 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 and agrees that it will, independently and
without reliance upon Assignor, Agent or any 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 Loan
Agreement.

 

5. Effective Date; Notices.

 

(c) As between Assignor and Assignee, the effective date for this Assignment and
Acceptance shall be                     , 200   (the “Effective Date”);
provided, that, the following conditions precedent have been satisfied on or
before the Effective Date:

 

(i) this Assignment and Acceptance shall be executed and delivered by Assignor
and Assignee;

 

(ii) the consent of Agent as required for an effective assignment of the
Assigned Commitment Amount by Assignor to Assignee shall have been duly obtained
and shall be in full force and effect as of the Effective Date;

 

(iii) written notice of such assignment, together with payment instructions,
addresses and related information with respect to Assignee, shall have been
given to Administrative Borrower and Agent;

 

(iv) Assignee shall pay to Assignor all amounts due to Assignor under this
Assignment and Acceptance; and

 

(v) the processing fee referred to in Section 2(b) hereof shall have been paid
to Agent.

 

(d) Promptly following the execution of this Assignment and Acceptance, Assignor
shall deliver to Administrative Borrower and Agent for acknowledgment by Agent,
a Notice of Assignment in the form attached hereto as Schedule 1.

 

6. Agent. [INCLUDE ONLY IF ASSIGNOR IS AN AGENT]

 

(e) Assignee hereby appoints and authorizes Assignor in its capacity as Agent to
take such action as agent on its behalf to exercise such powers under the Loan
Agreement as are delegated to Agent by Lenders pursuant to the terms of the Loan
Agreement.

 

(f) Assignee shall assume no duties or obligations held by Assignor in its
capacity as Agent under the Loan Agreement.]

 

A-3

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7. Withholding Tax. Assignee (a) represents and warrants to Assignor, Agent and
Borrowers that under applicable law and treaties no tax will be required to be
withheld by Assignee, Agent or Borrowers with respect to any payments to be made
to Assignee hereunder or under any of the Financing Agreements, (b) agrees to
furnish (if it is organized under the laws of any jurisdiction other than the
United States or any State thereof) to Agent and Borrowers prior to the time
that Agent or Borrowers are required to make any payment of principal, interest
or fees hereunder, duplicate executed originals of either U.S. Internal Revenue
Service Form W-8BEN or W-8ECI, as applicable (wherein Assignee claims
entitlement to the benefits of a tax treaty that provides for a complete
exemption from U.S. federal income withholding tax on all payments hereunder)
and agrees to provide new such 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 Assignee,
and (c) agrees to comply with all applicable U.S. laws and regulations with
regard to such withholding tax exemption.

 

8. Representations and Warranties.

 

(a) Assignor represents and warrants that (i) it is the legal and beneficial
owner of the interest being assigned by it hereunder and that such interest is
free and clear of any security interest, lien, encumbrance or other adverse
claim, (ii) it is duly organized and existing and it has the full power and
authority to take, and has taken, all action necessary to execute and deliver
this Assignment and Acceptance and any other documents required or permitted to
be executed or delivered by it in connection with this Assignment and Acceptance
and to fulfill its obligations hereunder, (iii) no notices to, or consents,
authorizations or approvals of, any Person are required (other than any already
given or obtained) for its due execution, delivery and performance of this
Assignment and Acceptance, and apart from any agreements or undertakings or
filings required by the Loan Agreement, no further action by, or notice to, or
filing with, any Person is required of it for such execution, delivery or
performance, and (iv) this Assignment and Acceptance has been duly executed and
delivered by it and constitutes the legal, valid and binding obligation of
Assignor, enforceable against Assignor in accordance with the terms hereof,
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors’ rights and to general equitable principles.

 

(b) Assignor makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with the Loan Agreement or any of the other Financing Agreements or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Loan Agreement or any other instrument or document furnished
pursuant thereto. Assignor makes no representation or warranty in connection
with, and assumes no responsibility with respect to, the solvency, financial
condition or statements of Borrowers, Guarantors or any of their respective
Affiliates, or the performance or observance by Borrowers, Guarantors or any
other Person, of any of its respective obligations under the Loan Agreement or
any other instrument or document furnished in connection therewith.

 

(c) Assignee represents and warrants that (i) it is duly organized and existing
and it has full power and authority to take, and has taken, all action necessary
to execute and

 

A-4

--------------------------------------------------------------------------------

deliver this Assignment and Acceptance and any other documents required or
permitted to be executed or delivered by it in connection with this Assignment
and Acceptance, and to fulfill its obligations hereunder, (ii) no notices to, or
consents, authorizations or approvals of, any Person are required (other than
any already given or obtained) for its due execution, delivery and performance
of this Assignment and Acceptance, and apart from any agreements or undertakings
or filings required by the Loan Agreement, no further action by, or notice to,
or filing with, any Person is required of it for such execution, delivery or
performance; and (iii) this Assignment and Acceptance has been duly executed and
delivered by it and constitutes the legal, valid and binding obligation of
Assignee, enforceable against Assignee in accordance with the terms hereof,
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors’ rights to general equitable principles.

 

9. Further Assurances. Assignor and Assignee each hereby agree to execute and
deliver such other instruments, and take such other action, as either party may
reasonably request in connection with the transactions contemplated by this
Assignment and Acceptance, including the delivery of any notices or other
documents or instruments to Borrowers or Agent, which may be required in
connection with the assignment and assumption contemplated hereby.

 

10. Miscellaneous.

 

(d) Any amendment or waiver of any provision of this Assignment and Acceptance
shall be in writing and signed by the parties hereto. No failure or delay by
either party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof and any waiver of any breach of the provisions of
this Assignment and Acceptance shall be without prejudice to any rights with
respect to any other for further breach thereof.

 

(e) All payments made hereunder shall be made without any set-off or
counterclaim.

 

(f) Assignor and Assignee shall each pay its own costs and expenses incurred in
connection with the negotiation, preparation, execution and performance of this
Assignment and Acceptance.

 

(g) This Assignment and Acceptance may be executed in any number of counterparts
and all of such counterparts taken together shall be deemed to constitute one
and the same instrument.

 

(h) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF                     . Assignor and
Assignee each irrevocably submits to the non-exclusive jurisdiction of any State
or Federal court sitting in                  County,              over any suit,
action or proceeding arising out of or relating to this Assignment and
Acceptance and irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such                  State or Federal
court. Each party to this Assignment and Acceptance hereby irrevocably waives,
to the fullest extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of such action or proceeding.

 

A-5

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(i) ASSIGNOR AND ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT
AND ACCEPTANCE, THE LOAN AGREEMENT, ANY OF THE OTHER FINANCING AGREEMENTS OR ANY
RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR
STATEMENTS (WHETHER ORAL OR WRITTEN).

 

IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment and
Acceptance to be executed and delivered by their duly authorized officers as of
the date first above written.

 

[ASSIGNOR]

By:

 

 

--------------------------------------------------------------------------------

Title:

 

 

--------------------------------------------------------------------------------

[ASSIGNEE]

By:

 

 

--------------------------------------------------------------------------------

Title:

 

 

--------------------------------------------------------------------------------

 

A-6

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SCHEDULE 1

 

NOTICE OF ASSIGNMENT AND ACCEPTANCE

 

                    , 20    

 

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

Attn.:  

 

--------------------------------------------------------------------------------

 

Re:  

 

--------------------------------------------------------------------------------

 

Ladies and Gentlemen:

 

Wachovia Capital Finance Corporation (Western), in its capacity as agent
pursuant to the Loan Agreement (as hereinafter defined) acting for and on behalf
of the financial institutions which are parties thereto as lenders (in such
capacity, “Agent”), and the financial institutions which are parties to the Loan
Agreement as lenders (individually, each a “Lender” and collectively, “Lenders”)
have entered or are about to enter into financing arrangements pursuant to which
Agent and Lenders may make loans and advances and provide other financial
accommodations to Merix Corporation and Merix San Jose, Inc. (collectively,
“Borrowers”) as set forth in the Loan and Security Agreement, dated
                    , 2005, by and among Borrowers, certain of their affiliates,
Agent and Lenders (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, the “Loan Agreement”),
and the other agreements, documents and instruments referred to therein or at
any time executed and/or delivered in connection therewith or related thereto
(all of the foregoing, together with the Loan Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, being collectively referred to herein as the “Financing
Agreements”). Capitalized terms not otherwise defined herein shall have the
respective meanings ascribed thereto in the Loan Agreement.

 

1. We hereby give you notice of, and request your consent to, the assignment by
                         (the “Assignor”) to
                                     (the “Assignee”) such that after giving
effect to the assignment Assignee shall have an interest equal to             
(    %) percent of the total Commitments pursuant to the Assignment and
Acceptance Agreement attached hereto (the “Assignment and Acceptance”). We
understand that the Assignor’s Commitment shall be reduced by $            , as
the same may be further reduced by other assignments on or after the date
hereof.

 

2. Assignee agrees that, upon receiving the consent of Agent to such assignment,
Assignee will be bound by the terms of the Loan Agreement as fully and to the
same extent as if the Assignee were the Lender originally holding such interest
under the Loan Agreement.

 

A-7

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3. The following administrative details apply to Assignee:

 

  (A) Notice address:

 

Assignee name:

 

 

--------------------------------------------------------------------------------

Address:

 

 

--------------------------------------------------------------------------------

Attention:

 

 

--------------------------------------------------------------------------------

Telephone:

 

 

--------------------------------------------------------------------------------

Telecopier:

 

 

--------------------------------------------------------------------------------

 

  (B) Payment instructions:

 

Account No.:

 

 

--------------------------------------------------------------------------------

At:

 

 

--------------------------------------------------------------------------------

Reference:

 

 

--------------------------------------------------------------------------------

Attention:

 

 

--------------------------------------------------------------------------------

 

4. You are entitled to rely upon the representations, warranties and covenants
of each of Assignor and Assignee contained in the Assignment and Acceptance.

 

A-8

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IN WITNESS WHEREOF, Assignor and Assignee have caused this Notice of Assignment
and Acceptance to be executed by their respective duly authorized officials,
officers or agents as of the date first above mentioned.

 

Very truly yours, [NAME OF ASSIGNOR] By:  

 

--------------------------------------------------------------------------------

Title:  

 

--------------------------------------------------------------------------------

[NAME OF ASSIGNEE] By:  

 

--------------------------------------------------------------------------------

Title:  

 

--------------------------------------------------------------------------------

 

ACKNOWLEDGED AND ASSIGNMENT CONSENTED TO:

 

WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN), as Agent

 

By:  

 

--------------------------------------------------------------------------------

Title:  

 

--------------------------------------------------------------------------------

 

A-9

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EXHIBIT D

TO

LOAN AND SECURITY AGREEMENT

 

Compliance Certificate

 

To: Wachovia Capital Finance Corporation (Western), as Agent

  251 South Lake Avenue

  Suite 900

  Pasadena, California 91101

 

Ladies and Gentlemen:

 

I hereby certify to you pursuant to Section 9.6 of the Loan Agreement (as
defined below) as follows:

 

1. I am the duly elected Chief Financial Officer of Merix Corporation, an Oregon
corporation and Merix San Jose, Inc., a California corporation (collectively,
“Borrowers”). Capitalized terms used herein without definition shall have the
meanings given to such terms in the Loan and Security Agreement, dated
                , 2005, by and among Wachovia Capital Finance Corporation
(Western), as agent for the parties thereto as lenders (in such capacity,
“Agent”) and the financial institutions party thereto as lenders (collectively,
“Lenders”), Borrowers and certain of their affiliates (as such Loan and Security
Agreement is amended, modified or supplemented, from time to time, the “Loan
Agreement”).

 

2. I have reviewed the terms of the Loan Agreement, and have made, or have
caused to be made under my supervision, a review in reasonable detail of the
transactions and the financial condition of Borrowers and Guarantors, during the
immediately preceding fiscal month.

 

3. The review described in Section 2 above did not disclose the existence during
or at the end of such fiscal month, and I have no knowledge of the existence and
continuance on the date hereof, of any condition or event which constitutes a
Default or an Event of Default, except as set forth on Schedule I attached
hereto. Described on Schedule I attached hereto are the exceptions, if any, to
this Section 3 listing, in detail, the nature of the condition or event, the
period during which it has existed and the action which any Borrower or
Guarantor has taken, is taking, or proposes to take with respect to such
condition or event.

 

4. I further certify that, based on the review described in Section 2 above, no
Borrower or Guarantor has at any time during or at the end of such fiscal month,
except as specifically described on Schedule II attached hereto or as permitted
by the Loan Agreement, done any of the following:

 

(a) Changed its respective corporate name, or transacted business under any
trade name, style, or fictitious name, other than those previously described to
you and set forth in the Financing Agreements.

 

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(b) Changed the location of its chief executive office, changed its jurisdiction
of incorporation, changed its type of organization or changed the location of or
disposed of any of its properties or assets (other than pursuant to the sale of
Inventory in the ordinary course of its business or as otherwise permitted by
Section 9.7 of the Loan Agreement), or established any new asset locations.

 

(c) Materially changed the terms upon which it sells goods (including sales on
consignment) or provides services, nor has any vendor or trade supplier to any
Borrower or Guarantor during or at the end of such period materially adversely
changed the terms upon which it supplies goods to any Borrower or Guarantor.

 

(d) Permitted or suffered to exist any security interest in or liens on any of
its properties, whether real or personal, other than as specifically permitted
in the Financing Agreements.

 

(e) Received any notice of, or obtained knowledge of any of the following not
previously disclosed to Agent: (i) the occurrence of any event involving the
release, spill or discharge of any Hazardous Material in violation of applicable
Environmental Law in a material respect or (ii) any investigation, proceeding,
complaint, order, directive, claims, citation or notice with respect to: (A) any
non-compliance with or violation of any applicable Environmental Law by any
Borrower or Guarantor in any material respect or (B) the release, spill or
discharge of any Hazardous Material in violation of applicable Environmental Law
in a material respect or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials in violation of applicable Environmental Laws in a material respect or
(D) any other environmental, health or safety matter, which has a material
adverse effect on any Borrower or Guarantor or its business, operations or
assets or any properties at which such Borrower or Guarantor transported, stored
or disposed of any Hazardous Materials.

 

(f) Become aware of, obtained knowledge of, or received notification of, any
breach or violation of any material covenant contained in any instrument or
agreement in respect of Indebtedness for money borrowed by any Borrower or
Guarantor.

 

(g) Filed any application for the registration of a Trademark or Patent with the
United States Patent and Trademark Office or any similar office or agency in the
United States of America, any State thereof, any political subdivision thereof
or in any other country.

 

5. Attached hereto as Schedule III are the calculations used in determining, as
of the end of such fiscal month whether Borrowers and Guarantors are in
compliance with the covenants set forth in Section 9.17 of the Loan Agreement
for such fiscal month.

 

6. Attached hereto as Schedule IV are the calculations used in determining, as
of the end of such fiscal month, the Debt Ratio (as defined in the Merix 6.5%
Debenture) for such fiscal month.

 

The foregoing certifications are made and delivered this day of
                , 20    .

 

Very truly yours,

 

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By:  

 

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Title:  

 

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