Document:

Exhibit 10.4

 

 

 

October 20, 2004

 

 

Board of Directors

Vista Exploration Corporation  D/B/A ICOP Digital, Inc

11011 King Street, Suite 260

Overland Park, KS 
66210

 

Gentlemen:

 

In recognition of the Company’s need for working
capital, I hereby voluntarily agree to reduce my annual salary to $125,000,
effective as of October 20, 2004 (the “Effective Date”), with all other terms
of my employment agreement dated April 1, 2004 remaining unchanged.  I agree that my salary will remain at this reduced
level until the Company reaches accumulated gross revenues of $8 million, at which
time my annual salary should be restored to $180,000, and any salary or
compensation accrued but unpaid as of the Effective Date ($118,172) will be
paid in full.

 

Sincerely,

 

/s/ David C. Owen

 

David C. OwenExhibit 10.5

 

 

 

October 20, 2004

 

 

Board of Directors

Vista Exploration Corporation  D/B/A ICOP Digital, Inc

11011 King Street, Suite 260

Overland Park, KS 
66210

 

Gentlemen:

 

In recognition of the Company’s need for working
capital, I hereby voluntarily agree to reduce my annual salary to $125,000,
effective as of October 20, 2004 (the “Effective Date”), with all other terms
of my employment agreement dated April 1, 2004 remaining unchanged.  I agree that my salary will remain at this
reduced level until the Company reaches accumulated gross revenues of $8
million, at which time my annual salary should be restored to $150,000, and any
salary or compensation accrued but unpaid as of the Effective Date ($85,561)
will be paid in full.

 

Sincerely,

 

/s/ Laura E. Owen

 

Laura E. OwenExhibit 10.17

 

CREDIT AGREEMENT

 

Dated as
of August 6, 2004

 

Between

 

BANK OF
AMERICA, N.A.

 

as the
Lender

 

and

 

AVIZA
TECHNOLOGY, INC.

 

as the
Borrower

 

 

TABLE OF CONTENTS

 

	
  Section

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 1
  LOANS AND LETTERS OF CREDIT

  	
   

  
	
   

  	
   

  	
  1

  
	
  1.1

  	
  Total Facility

  	
  1

  
	
  1.2

  	
  Revolving Loans

  	
  3

  
	
  1.3

  	
  Intentionally Deleted

  	
  3

  
	
  1.4

  	
  Letters of Credit

  	
  6

  
	
  1.5

  	
  Bank Products

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2 INTEREST AND FEES

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Interest

  	
  6

  
	
  2.2

  	
  Intentionally Deleted

  	
  7

  
	
  2.3

  	
  Maximum Interest Rate

  	
  7

  
	
  2.4

  	
  Closing Fee

  	
  7

  
	
  2.5

  	
  Unused Line Fee

  	
  7

  
	
  2.6

  	
  Letter of Credit Fee

  	
  7

  
	
  2.7

  	
  Administrative Fee

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3
  PAYMENTS AND PREPAYMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Revolving Loans

  	
  8

  
	
  3.2

  	
  Termination of Facility

  	
  8

  
	
  3.3

  	
  Intentionally Deleted

  	
  8

  
	
  3.4

  	
  Intentionally Deleted

  	
  8

  
	
  3.5

  	
  Intentionally Deleted

  	
  8

  
	
  3.6

  	
  Payments by the Borrower

  	
  9

  
	
  3.7

  	
  Payments as Revolving Loans

  	
  9

  
	
  3.8

  	
  Apportionment, Application
  and Reversal of Payments

  	
  9

  
	
  3.9

  	
  Indemnity for Returned
  Payments

  	
  10

  
	
  3.10

  	
  Lender’s Books and Records;
  Monthly Statements

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4 TAXES and
  YIELD PROTECTION

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Taxes.

  	
  11

  
	
  4.2

  	
  Intentionally Deleted

  	
  12

  
	
  4.3

  	
  Reduction of Return

  	
  12

  
	
  4.4

  	
  Intentionally Deleted

  	
  12

  
	
  4.5

  	
  Intentionally Deleted

  	
  12

  
	
  4.6

  	
  Certificates of Lender

  	
  12

  
	
  4.7

  	
  Survival

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5 BOOKS AND
  RECORDS; FINANCIAL INFORMATION; NOTICES

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Books and Records

  	
  12

  
	
  5.2

  	
  Financial Information

  	
  12

  
	
  5.3

  	
  Notices to the Lender

  	
  15

  

 

i

 

	
  ARTICLE 6
  GENERAL WARRANTIES AND REPRESENTATIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Authorization, Validity, and
  Enforceability of this Agreement and the Loan Documents

  	
  17

  
	
  6.2

  	
  Validity and Priority of
  Security Interest

  	
  18

  
	
  6.3

  	
  Organization and
  Qualification

  	
  18

  
	
  6.4

  	
  Corporate Name; Prior
  Transactions

  	
  18

  
	
  6.5

  	
  Subsidiaries and Affiliates

  	
  18

  
	
  6.6

  	
  Financial Statements and
  Projections

  	
  18

  
	
  6.7

  	
  Capitalization

  	
  19

  
	
  6.8

  	
  Solvency

  	
  19

  
	
  6.9

  	
  Debt

  	
  19

  
	
  6.10

  	
  Distributions

  	
  19

  
	
  6.11

  	
  Real Estate; Leases

  	
  19

  
	
  6.12

  	
  Proprietary Rights

  	
  19

  
	
  6.13

  	
  Trade Names

  	
  20

  
	
  6.14

  	
  Litigation

  	
  20

  
	
  6.15

  	
  Labor Disputes

  	
  20

  
	
  6.16

  	
  Environmental Laws

  	
  20

  
	
  6.17

  	
  No Violation of Law

  	
  21

  
	
  6.18

  	
  No Default

  	
  21

  
	
  6.19

  	
  ERISA Compliance

  	
  21

  
	
  6.20

  	
  Taxes

  	
  22

  
	
  6.21

  	
  Regulated Entities

  	
  22

  
	
  6.22

  	
  Use of Proceeds; Margin
  Regulations

  	
  22

  
	
  6.23

  	
  Copyrights, Patents,
  Trademarks and Licenses, etc.

  	
  22

  
	
  6.24

  	
  No Material Adverse Change

  	
  23

  
	
  6.25

  	
  Full Disclosure

  	
  23

  
	
  6.26

  	
  Material Agreements

  	
  23

  
	
  6.27

  	
  Bank Accounts

  	
  23

  
	
  6.28

  	
  Governmental Authorization

  	
  23

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7 AFFIRMATIVE
  AND NEGATIVE COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Taxes and Other Obligations

  	
  23

  
	
  7.2

  	
  Legal Existence and Good
  Standing

  	
  24

  
	
  7.3

  	
  Compliance with Law and
  Agreements; Maintenance of Licenses

  	
  24

  
	
  7.4

  	
  Maintenance of Property;
  Inspection of Property

  	
  24

  
	
  7.5

  	
  Insurance

  	
  24

  
	
  7.6

  	
  Insurance and Condemnation
  Proceeds

  	
  25

  
	
  7.7

  	
  Environmental Laws

  	
  26

  
	
  7.8

  	
  Compliance with ERISA

  	
  27

  
	
  7.9

  	
  Mergers, Consolidations or
  Sales

  	
  27

  
	
  7.10

  	
  Distributions; Capital
  Change; Restricted Investments

  	
  27

  
	
  7.11

  	
  Transactions Affecting
  Collateral or Obligations

  	
  27

  
	
  7.12

  	
  Guaranties

  	
  27

  
	
  7.13

  	
  Debt

  	
  28

  

 

ii

 

	
  7.14

  	
  Prepayment

  	
  28

  
	
  7.15

  	
  Transactions with Affiliates

  	
  28

  
	
  7.16

  	
  Investment Banking and
  Finder’s Fees

  	
  28

  
	
  7.17

  	
  Business Conducted

  	
  29

  
	
  7.18

  	
  Liens

  	
  29

  
	
  7.19

  	
  Sale and Leaseback
  Transactions

  	
  29

  
	
  7.20

  	
  New Subsidiaries

  	
  29

  
	
  7.21

  	
  Fiscal Year

  	
  30

  
	
  7.22

  	
  Intentionally Omitted.

  	
  30

  
	
  7.23

  	
  Fixed Charge Coverage Ratio

  	
  30

  
	
  7.24

  	
  Adjusted Tangible Net Worth

  	
  31

  
	
  7.25

  	
  Intentionally Deleted

  	
  31

  
	
  7.26

  	
  Hedge Agreement

  	
  31

  
	
  7.27

  	
  Use of Proceeds

  	
  31

  
	
  7.28

  	
  Further Assurances

  	
  31

  
	
  7.29

  	
  Registered Copyrights

  	
  32

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8 CONDITIONS OF
  LENDING

  	
   

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Conditions Precedent to
  Making of Loans on the Closing Date

  	
  32

  
	
  8.2

  	
  Conditions Precedent to Each Loan

  	
  33

  
	
  8.3

  	
  Conditions Subsequent to
  Making of Loans on the Closing Date

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9 DEFAULT;
  REMEDIES

  	
   

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Events of Default

  	
  34

  
	
  9.2

  	
  Remedies

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10 TERM AND
  TERMINATION

  	
   

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Term and Termination

  	
  38

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11 AMENDMENTS;
  WAIVERS; PARTICIPATIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  11.1

  	
  Amendments and Waivers

  	
  39

  
	
  11.2

  	
  Participations

  	
  39

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12 MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  12.1

  	
  No Waivers; Cumulative
  Remedies

  	
  40

  
	
  12.2

  	
  Severability

  	
  40

  
	
  12.3

  	
  Governing Law; Choice of
  Forum; Service of Process

  	
  40

  
	
  12.4

  	
  WAIVER OF JURY TRIAL

  	
  42

  
	
  12.5

  	
  Survival of Representations
  and Warranties

  	
  42

  
	
  12.6

  	
  Other Security and
  Guaranties

  	
  42

  
	
  12.7

  	
  Fees and Expenses

  	
  42

  
	
  12.8

  	
  Notices

  	
  43

  
	
  12.9

  	
  Waiver of Notices

  	
  44

  
	
  12.10

  	
  Binding Effect

  	
  44

  
	
  12.11

  	
  Indemnity of the Lender by
  the Borrower

  	
  45

  
	
  12.12

  	
  Limitation of Liability

  	
  45

  

 

iii

 

	
  12.13

  	
  Final Agreement

  	
  46

  
	
  12.14

  	
  Counterparts

  	
  46

  
	
  12.15

  	
  Captions

  	
  46

  
	
  12.16

  	
  Right of Setoff

  	
  46

  
	
  12.17

  	
  Confidentiality

  	
  46

  
	
  12.18

  	
  Conflicts with Other Loan
  Documents

  	
  47

  
	
  12.19

  	
  Release of Real Estate
  Collateral

  	
  47

  

 

iv

 

ANNEXES, EXHIBITS AND SCHEDULES

 

	
  ANNEX A

  	
  -

  	
  DEFINED TERMS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT B

  	
  -

  	
  FORM OF BORROWING BASE CERTIFICATE

  	
   

  
	
  EXHIBIT C

  	
  -

  	
  FINANCIAL STATEMENTS

  	
   

  
	
  EXHIBIT D

  	
  -

  	
  FORM OF NOTICE OF BORROWING

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 1.2

  	
  –

  	
  LENDER’S COMMITMENTS

  	
   

  
	
  SCHEDULE 6.3

  	
  –

  	
  ORGANIZATION AND QUALIFICATIONS

  	
   

  
	
  SCHEDULE 6.4

  	
  –

  	
  CORPORATE NAME; PRIOR TRANSACTIONS

  	
   

  
	
  SCHEDULE 6.5

  	
  –

  	
  SUBSIDIARIES AND AFFILIATES

  	
   

  
	
  SCHEDULE 6.7

  	
  –

  	
  CAPITALIZATION

  	
   

  
	
  SCHEDULE 6.9

  	
  –

  	
  DEBT

  	
   

  
	
  SCHEDULE 6.11

  	
  –

  	
  REAL ESTATE; LEASES

  	
   

  
	
  SCHEDULE 6.12

  	
  –

  	
  PROPRIETARY RIGHTS

  	
   

  
	
  SCHEDULE 6.13

  	
  –

  	
  TRADE NAMES

  	
   

  
	
  SCHEDULE 6.14

  	
  –

  	
  LITIGATION

  	
   

  
	
  SCHEDULE 6.15

  	
  –

  	
  LABOR DISPUTES

  	
   

  
	
  SCHEDULE 6.16

  	
  –

  	
  ENVIRONMENTAL LAW

  	
   

  
	
  SCHEDULE 6.26

  	
  –

  	
  MATERIAL AGREEMENTS

  	
   

  
	
  SCHEDULE 6.27

  	
  –

  	
  BANK ACCOUNTS

  	
   

  

 

v

 

CREDIT AGREEMENT

 

This Credit Agreement, dated as of August 6, 2004, (this “Agreement”)
between BANK OF AMERICA, N.A. with an office at 55 South Lake Avenue, Pasadena,
California 91101 (the “Lender”), and, AVIZA TECHNOLOGY, INC., a Delaware
corporation, with offices at 440 Kings Village Road, Scotts Valley, California
95066 (the “Borrower”).

 

W
I  T  N  E  S  S  E  T  H:

 

WHEREAS, the Borrower has requested that the Lender make available to
the Borrower revolving lines of credit for loans and letters of credit in an
aggregate amount not to exceed $40,000,000, and which extensions of credit the
Borrower will use for the purposes permitted hereunder;

 

WHEREAS, capitalized terms used in this Agreement and not otherwise
defined herein shall have the meanings ascribed thereto in Annex A which is
attached hereto and incorporated herein; the rules of construction
contained therein shall govern the interpretation of this Agreement, and all
Annexes, Exhibits and Schedules attached hereto are incorporated herein by
reference;

 

WHEREAS, the Lender has agreed to make available to the Borrower
revolving credit facilities upon the terms and conditions set forth in this
Agreement.

 

NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable
consideration, the receipt of which is hereby acknowledged, the Lender and the
Borrower hereby agree as follows.

 

ARTICLE 1

LOANS AND LETTERS OF CREDIT

 

1.1                                 Total Facility.   Subject
to all of the terms and conditions of this Agreement, the Lender agrees to make
available a total credit facility of up to $40,000,000 (the “Total Facility”)
to the Borrower from time to time during the term of this Agreement.  The Total Facility shall be composed of (i) a
revolving line of credit of up to $20,000,000 for revolving loans (the “Revolver A”),
(ii) a revolving line of credit of up to $20,000,000 for revolving loans
(the “Revolver B”), and (iii) the Letters of Credit described
herein.  Collectively, the revolving
loans made under Revolver A and the revolving loans made under
Revolver B shall be referred to herein as the “Revolving Loans”.

 

1.2                                 Revolving Loans.

 

(a)                                  Amounts. 
Subject to the satisfaction of the conditions precedent set forth in Article 8,
the Lender agrees, upon the Borrower’s request from time to time on any
Business Day during the period from the Closing Date to the Termination Date,
to make Revolving Loans to the Borrower in amounts not to exceed
Availability.  The Lender, however, in
its discretion, may elect to make Revolving Loans or issue or arrange to have
issued Letters of

 

1

 

Credit in excess of Availability on one or more occasions,
but if it does so, the Lender shall not be deemed thereby to have changed the
limits of the Availability or to be obligated to exceed such limits on any
other occasion.  If any Borrowing would
exceed Availability, the Lender may refuse to make or may otherwise restrict
the making of Revolving Loans as the Lender determines until such excess has
been eliminated.

 

(b)                                 Procedure for Borrowing.

 

(1)                                  Each Borrowing shall be made upon
the Borrower’s irrevocable written notice delivered to the Lender in the form
of a notice of borrowing (“Notice of Borrowing”), which must be received by the
Lender prior to 11:00 a.m. (Los Angeles time) on the requested Funding
Date, specifying:

 

(A) the amount of the Borrowing;
and

 

(B) the requested Funding Date,
which must be a Business Day.

 

(2)                                  In lieu of delivering a Notice of
Borrowing, the Borrower may give the Lender telephonic notice of such request
for advances to the Designated Account on or before the deadline set forth
above.  The Lender at all times shall be
entitled to rely on such telephonic notice in making such Revolving Loans,
regardless of whether any written confirmation is received.

 

(c)                                  Reliance upon Authority. 
Prior to the Closing Date, the Borrower shall deliver to the Lender, a
notice setting forth the account of the Borrower (“Designated Account”) to
which the Lender is authorized to transfer the proceeds of the Revolving Loans
requested hereunder.  The Borrower may
designate a replacement account from time to time by written notice.  All such Designated Accounts must be
reasonably satisfactory to the Lender. 
The Lender is entitled to rely conclusively on any person’s request for
Revolving Loans on behalf of the Borrower, so long as the proceeds thereof are
to be transferred to the Designated Account. 
The Lender has no duty to verify the identity of any individual
representing himself or herself as a person authorized by the Borrower to make
such requests on its behalf.

 

(d)                                 No Liability. 
The Lender shall not incur any liability to the Borrower as a result of
acting upon any notice referred to in Sections 1.2(b) and (c),
which the Lender believes in good faith to have been given by an officer or
other person duly authorized by the Borrower to request Revolving Loans on its
behalf.  The crediting of Revolving Loans
to the Designated Account conclusively establishes the obligation of the
Borrower to repay such Revolving Loans as provided herein.

 

(e)                                  Notice Irrevocable. 
Any Notice of Borrowing (or telephonic notice in lieu thereof) made
pursuant to Section 1.2(b) shall be irrevocable.  The Borrower shall be bound to borrow the
funds requested therein in accordance therewith.

 

(f)                                    Making of Revolving Loans. 
Promptly after receipt of a Notice of Borrowing or telephonic notice in
lieu thereof, the Lender shall make the proceeds of such 

 

2

 

Revolving Loans available to the Borrower on the applicable
Funding Date by transferring same day funds to the account designated by the
Borrower; provided, however, that the amount of Revolving Loans
so made on any date shall not exceed the Availability on such date.

 

1.3                                 Intentionally
Deleted.

 

1.4                                 Letters
of Credit.

 

(a)                                  Agreement to Issue or Cause To Issue. 
Subject to the terms and conditions of this Agreement, the Lender agrees
(i) to cause the Letter of Credit Issuer to issue for the account of the
Borrower one or more commercial/documentary and standby letters of credit (“Letter
of Credit”) and/or (ii) to provide credit support or other enhancement to
a Letter of Credit Issuer acceptable to Lender, which issues a Letter of Credit
for the account of the Borrower (any such credit support or enhancement being
herein referred to as a “Credit Support”) from time to time during the term of
this Agreement.

 

(b)                                 Amounts; Outside Expiration Date. 
The Lender shall not have any obligation to issue or cause to be issued
any Letter of Credit or to provide Credit Support for any Letter of Credit at
any time if: (i) the maximum face amount of the requested Letter of Credit
is greater than the Unused Letter of Credit Subfacility at such time; (ii) the
maximum undrawn amount of the requested Letter of Credit and all commissions,
fees, and charges due from the Borrower in connection with the opening thereof
would exceed Availability at such time; or (iii) such Letter of Credit has
an expiration date less than 30 days prior to the Stated Termination Date or
more than 12 months from the date of issuance for standby letters of credit and
180 days for documentary letters of credit.

 

(c)                                  Other Conditions. 
In addition to conditions precedent contained in Article 8,
the obligation of the Lender to issue or to cause to be issued any Letter of
Credit or to provide Credit Support for any Letter of Credit is subject to the
following conditions precedent having been satisfied in a manner reasonably
satisfactory to the Lender:

 

(1)                                  The Borrower shall have delivered to
the Letter of Credit Issuer, at such times and in such manner as such Letter of
Credit Issuer may prescribe, an application in form and substance satisfactory
to such Letter of Credit Issuer and reasonably satisfactory to the Lender for
the issuance of the Letter of Credit and such other documents as may be
required pursuant to the terms thereof, and the form, terms and purpose of the
proposed Letter of Credit shall be reasonably satisfactory to the Lender and
the Letter of Credit Issuer; and

 

(2)                                  As of the date of issuance, no order
of any court, arbitrator or 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 the proposed Letter of Credit Issuer refrain from, the issuance
of letters of credit generally or the issuance of such Letters of Credit.

 

3

 

(d)                                 Issuance of Letters of Credit.

 

(1)                                  Request for Issuance. 
Borrower must notify the Lender of a requested Letter of Credit at least
three (3) Business Days prior to the proposed issuance date.  Such notice shall be irrevocable and must
specify the original face amount of the Letter of Credit requested, the
Business Day of issuance of such requested Letter of Credit, whether such
Letter of Credit may be drawn in a single or in partial draws, the Business Day
on which the requested Letter of Credit is to expire, the purpose for which
such Letter of Credit is to be issued, and the beneficiary of the requested
Letter of Credit.  The Borrower shall
attach to such notice the proposed form of the Letter of Credit.

 

(2)                                  Responsibilities of the Lender;
Issuance.  As of the Business Day immediately preceding
the requested issuance date of the Letter of Credit, the Lender shall determine
the amount of the applicable Unused Letter of Credit Subfacility and
Availability.  If (i) the face
amount of the requested Letter of Credit is less than the Unused Letter of
Credit Subfacility and (ii) the amount of such requested Letter of Credit
and all commissions, fees, and charges due from the Borrower in connection with
the opening thereof would not exceed Availability, the Lender shall cause the
Letter of Credit Issuer to issue the requested Letter of Credit on the
requested issuance date so long as the other conditions hereof are met.

 

(3)                                  No Extensions or Amendment. 
The Lender shall not be obligated to cause the Letter of Credit Issuer
to extend or amend any Letter of Credit issued pursuant hereto unless the
requirements of this Section 1.4 are met as though a new Letter of
Credit were being requested and issued.

 

(e)                                  Payments Pursuant to Letters of
Credit.  The Borrower agrees to reimburse immediately
the Letter of Credit Issuer for any draw under any Letter of Credit and the
Lender upon any payment pursuant to any Credit Support, and to pay the Letter
of Credit Issuer the amount of all other charges and fees payable to the Letter
of Credit Issuer in connection with any Letter of Credit immediately when due,
irrespective of any claim, setoff, defense or other right which the Borrower
may have at any time against the Letter of Credit Issuer or any other Person.  Each drawing under any Letter of Credit shall
constitute a request by the Borrower to the Lender for a Borrowing of a
Revolving Loan in the amount of such drawing. 
The Funding Date with respect to such borrowing shall be the date of
such drawing.

 

(f)                                    Indemnification; Exoneration; Power
of Attorney.

 

(1)                                  Indemnification. 
In addition to amounts payable as elsewhere provided in this Section 1.4,
the Borrower agrees to protect, indemnify, pay and save the Lender harmless
from and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable attorneys’ fees) which the
Lender (other than in its capacity as Letter of Credit Issuer) may incur or be
subject to as a consequence, direct or indirect, of the issuance of any Letter
of Credit or the provision of any Credit Support or enhancement in connection
therewith.  The Borrower’s obligations
under this Section shall survive payment of all other Obligations.

 

4

 

(2)                                  Assumption of Risk by the Borrower. 
As between the Borrower and the Lender, the Borrower assumes all risks
of the acts and omissions of, or misuse of any of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit.  In furtherance and not in limitation of the
foregoing, the Lender shall not be responsible for:  (A) the form, validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any Person
in connection with the application for and issuance of and presentation of
drafts with respect to any of the Letters of Credit, even if it should prove to
be in any or all respects invalid, insufficient, inaccurate, fraudulent or
forged; (B) the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (C) the failure of
the beneficiary of any Letter of Credit to comply duly with conditions required
in order to draw upon such Letter of Credit; (D) errors, omissions,
interruptions, or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher;
(E) errors in interpretation of technical terms; (F) any loss or
delay in the transmission or otherwise of any document required in order to
make a drawing under any Letter of Credit or of the proceeds thereof;
(G) the misapplication by the beneficiary of any Letter of Credit of the
proceeds of any drawing under such Letter of Credit; (H) any consequences
arising from causes beyond the control of the Lender, including any act or
omission, whether rightful or wrongful, of any present or future de  jure
or de  facto Governmental Authority or (I) the Letter of Credit
Issuer’s honor of a draw for which the draw or any certificate fails to comply
in any respect with the terms of the Letter of Credit.  None of the foregoing shall affect, impair or
prevent the vesting of any rights or powers of the Lender under this Section 1.4(f).

 

(3)                                  Exoneration. 
Without limiting the foregoing, no action or omission whatsoever by the
Lender (excluding the Lender in its capacity as a Letter of Credit Issuer)
shall result in any liability of the Lender to the Borrower, or relieve the
Borrower of any of its obligations hereunder to any such Person.

 

(4)                                  Rights Against
Letter of Credit Issuer.  Nothing
contained in this Agreement is intended to limit the Borrower’s rights, if any,
with respect to the Letter of Credit Issuer which shall be governed by the
letter of credit application and related documents executed by and between the
Borrower and the Letter of Credit Issuer.

 

(5)                                  Account Party. 
The Borrower hereby authorizes and directs any Letter of Credit Issuer
to name the Borrower as the “Account Party” therein and to deliver to the
Lender all instruments, documents and other writings and property received by
the Letter of Credit Issuer pursuant to the Letter of Credit, and to accept and
rely upon the Lender’s instructions and agreements with respect to all matters
arising in connection with the Letter of Credit or the application therefor.

 

(g)                                 Supporting Letter of Credit; Cash
Collateral.  If, notwithstanding the provisions of Section 1.4(b) and
Section 10.1, any Letter of Credit or Credit Support is outstanding
upon the termination of this Agreement, then upon such
termination the Borrower shall deposit with the Lender, with respect to each
Letter of Credit or Credit Support then outstanding, a standby letter of credit
(a “Supporting Letter of Credit”) in form and substance 

 

5

 

satisfactory
to the Lender, issued by an issuer satisfactory to the Lender in an amount
equal to the greatest amount for which such Letter of Credit or such Credit
Support may be drawn plus any fees and expenses associated with such Letter of
Credit or such Credit Support, under which Supporting Letter of Credit the
Lender is entitled to draw amounts necessary to reimburse the Lender for
payments to be made by the Lender under such Letter of Credit or Credit Support
and any fees and expenses associated with such Letter of Credit or Credit
Support.  Such Supporting Letter of
Credit shall be held by the Lender as security for, and to provide for the
payment of, the aggregate undrawn amount of such Letters of Credit or such
Credit Support remaining outstanding.

 

1.5                                 Bank
Products.   The Borrower may
request and the Lender may, in its sole and absolute discretion, arrange for
the Borrower to obtain from the Bank or the Bank’s Affiliates Bank Products
although the Borrower is not required to do so. 
If Bank Products are provided by an Affiliate of the Bank, the Borrower
agrees to indemnify and hold the Lender and the Bank harmless from any and all
costs and obligations now or hereafter incurred by the Bank or the Lender which
arise from any indemnity given by the Lender to its Affiliates related to such
Bank Products; provided, however, nothing contained herein is
intended to limit the Borrower’s rights, with respect to the Bank or its
Affiliates, if any, which arise as a result of the execution of documents by
and between the Borrower and the Bank which relate to Bank Products.  The agreement contained in this Section shall
survive termination of this Agreement. 
The Borrower acknowledges and agrees that the obtaining of Bank Products
from the Bank or the Bank’s Affiliates (a) is in the sole and absolute
discretion of the Bank or the Bank’s Affiliates, and (b) is subject to all
rules and regulations of the Bank or the Bank’s Affiliates.

 

ARTICLE 2

INTEREST AND FEES

 

2.1                                 Interest.

 

(a)                                  Interest Rates. 
All outstanding Obligations shall bear interest on the unpaid principal
amount thereof (including, to the extent permitted by law, on interest thereon
not paid when due) from the date made until paid in full in cash at a rate
equal to the Base Rate minus one-quarter of one percent (0.25%), but not to
exceed the Maximum Rate.  Each change in
the Base Rate shall be reflected in the interest rate applicable to Revolving
Loans as of the effective date of such change. 
All interest charges shall be computed on the basis of a year of 360
days and actual days elapsed (which results in more interest being paid than if
computed on the basis of a 365-day year). 
The Borrower shall pay to the Lender interest accrued on all Revolving
Loans in arrears on the first day of each month hereafter and on the
Termination Date.

 

(b)                                 Default Rate. 
If any Default or Event of Default occurs and is continuing and the
Lender in its discretion so elects, then, while any such Default or Event of
Default is continuing, all of the Obligations shall bear interest at the
Default Rate applicable thereto.

 

6

 

2.2                                 Intentionally
Deleted.

 

2.3                                 Maximum Interest Rate.   In no event shall any interest rate provided
for hereunder exceed the maximum rate legally chargeable by the Lender under
applicable law with respect to loans of the type provided for hereunder (the “Maximum
Rate”).  If, in any month, any interest
rate, absent such limitation, would have exceeded the Maximum Rate, then the
interest rate for that month shall be the Maximum Rate, and, if in future
months, that interest rate would otherwise be less than the Maximum Rate, then
that interest rate shall remain at the Maximum Rate until such time as the
amount of interest paid hereunder equals the amount of interest which would
have been paid if the same had not been limited by the Maximum Rate.  In the event that, upon payment in full of
the Obligations, the total amount of interest paid or accrued under the terms
of this Agreement is less than the total amount of interest which would, but
for this Section 2.3, have been paid or accrued if the interest rate
otherwise set forth in this Agreement had at all times been in effect, then the
Borrower shall, to the extent permitted by applicable law, pay the Lender an
amount equal to the excess of (a) the lesser of (i) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
been in effect or (ii) the amount of interest which would have accrued had
the interest rate otherwise set forth in this Agreement, at all times, been in
effect over (b) the amount of interest actually paid or accrued under this
Agreement.  If a court of competent
jurisdiction determines that the Lender has received interest and other charges
hereunder in excess of the Maximum Rate, such excess shall be deemed received
on account of, and shall automatically be applied to reduce, the Obligations
other than interest, in the inverse order of maturity, and if there are no
Obligations outstanding, the Lender shall refund to the Borrower such excess.

 

2.4                                 Closing Fee.   The Borrower agrees to pay the Lender on the
Closing Date a closing fee (the “Closing Fee”) in the amount of $650,000.

 

2.5                                 Unused
Line Fee.   On the first day of
each month and on the Termination Date the Borrower agrees to pay to the Lender
an unused line fee (the “Unused Line Fee”) equal to 0.375% per annum times the
amount by which the Maximum Revolver Amount exceeded the sum of the average
daily outstanding amount of Revolving Loans and the average daily undrawn face
amount of outstanding Letters of Credit, during the immediately preceding month
or shorter period if calculated for the first month hereafter or on the
Termination Date.  The Unused Line Fee
shall be computed on the basis of a 360-day year for the actual number of days
elapsed.  All principal payments received
by the Lender shall be deemed to be credited to the Borrower’s Loan Account
immediately upon receipt for purposes of calculating the Unused Line Fee
pursuant to this Section 2.5.

 

2.6                                 Letter of Credit Fee.   The Borrower agrees to pay to the Lender for
each Letter of Credit, a fee (the “Letter of Credit Fee”) equal to 2.50% per
annum and to the Lender for the benefit of the Letter of Credit Issuer a
fronting fee of 0.125% of the undrawn face amount of each Letter of Credit, and
to the Letter of Credit Issuer, all out-of-pocket costs, fees and expenses
incurred by the Letter of Credit Issuer in connection with the application for,
processing of, issuance of, or amendment to any Letter of Credit.  The Letter of Credit Fee shall be payable
monthly in arrears on the first day of each month following any month in which
a Letter of Credit is outstanding and on the Termination Date.  The Letter of Credit Fee shall be computed on
the basis of a 360-day year for the actual number of days elapsed.

 

7

 

2.7                                 Administrative
Fee.   On the Closing Date and on
each anniversary of the Closing Date up to but not including the Termination
Date, an administrative fee (the “Administrative Fee”) of $25,000.

 

ARTICLE 3

PAYMENTS AND PREPAYMENTS

 

3.1                                 Revolving Loans.   The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, on the Termination Date.  The
Borrower may prepay Revolving Loans at any time, and reborrow subject to the
terms of this Agreement; provided, however, that all such
prepayments shall be applied in accordance with Section 3.8.  In addition, and without limiting the
generality of the foregoing, upon demand the Borrower shall pay to the Lender
the amount, without duplication, by which the Aggregate Revolver Outstandings
exceeds the lesser of the Borrowing Base or the Maximum Revolver Amount.

 

3.2                                 Termination of Facility.   The Borrower may terminate this Agreement
upon at least ten (10) Business Days’ notice to the Lender, upon (a) the
payment in full of all outstanding Revolving Loans, together with accrued
interest thereon, and the cancellation and return of all outstanding Letters of
Credit, (b) the payment of the early termination fee set forth below, and
(c) the payment in full in cash of all reimbursable expenses and other
Obligations.  If this Agreement is
terminated at any time prior to the Stated Termination Date, whether pursuant
to this Section or pursuant to Section 9.2, the Borrower shall
pay to the Lender an early termination fee determined in accordance with the
following table:

 

	
  Period during which

  early termination occurs

  	
   

  	
  Early Termination Fee

  
	
   

  	
   

  	
   

  
	
  On or prior to the
  first Anniversary Date

  	
   

  	
  2.00% of the Maximum
  Revolver Amount

  
	
   

  	
   

  	
   

  
	
  After the first Anniversary Date but on or
  prior to the second Anniversary Date

  	
   

  	
  1.00% of the Maximum Revolver Amount

  
	
   

  	
   

  	
   

  
	
  After the second Anniversary Date but prior
  to the Stated Termination Date

  	
   

  	
  0.50% of the Maximum Revolver Amount;

  

 

provided, however,
that the early termination fee described in this Section 3.2 shall
not be payable in the event that Borrower repays the Obligations (i) from
the proceeds of a credit facility provided in whole by, or with respect to
which the sole administrative agent is, another lending department of the Bank
or any of its Affiliates, or (ii) from the proceeds of an initial public
offering of Borrower.

 

3.3                                 Intentionally
Deleted.

 

3.4                                 Intentionally
Deleted.

 

3.5                                 Intentionally
Deleted.

 

8

 

3.6                                 Payments
by the Borrower.

 

(a)                                  All payments to be made by the
Borrower shall be made without set-off, recoupment or counterclaim.  Except as otherwise expressly provided
herein, all payments by the Borrower shall be made to the Lender, at the account
designated by the Lender and shall be made in Dollars and in immediately
available funds, no later than 12:00 noon (Los Angeles time) on the date
specified herein.  Any payment received
by the Lender after such time shall be deemed (for purposes of calculating
interest only) to have been received on the following Business Day and any
applicable interest shall continue to accrue.

 

(b)                                 Whenever any payment is due on a day
other than a Business Day, such payment shall be due on the following Business
Day, and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be.

 

3.7                                 Payments
as Revolving Loans.   At the election
of the Lender, all payments of principal, interest, reimbursement obligations
in connection with Letters of Credit and Credit Support for Letters of Credit,
fees, premiums, reimbursable expenses and other sums payable hereunder, may be
paid from the proceeds of Revolving Loans made hereunder.  The Borrower hereby irrevocably authorizes
the Lender to charge the Loan Account for the purpose of paying all amounts
from time to time due hereunder and agrees that all such amounts charged shall
constitute Revolving Loans.

 

3.8                                 Apportionment,
Application and Reversal of Payments.  
Principal and interest payments and payments of the fees shall be
payable solely to the Lender (except for fees payable to the Letter of Credit
Issuer if different than the Lender). 
All payments shall be remitted to the Lender and all such payments not relating
to principal or interest of specific Loans, or not constituting payment of
specific fees, and all proceeds of Accounts or other Collateral received by the
Lender, shall be applied, ratably, subject to the provisions of this Agreement,
(a) so long as no Event of Default then exists,  first, to pay any fees, indemnities,
or expense reimbursements (including any amounts relating to Bank Products)
then due to the Lender from the Borrower; second, to pay interest due in
respect of all Loans; with such payments being applied first to the Loans advanced
in respect of Revolver B and second with respect to the Loans advanced in
respect of Revolver A; third, to pay or prepay unpaid reimbursement
obligations in respect of Letters of Credit; fourth, to pay or prepay
principal of the Loans, with such payments being applied first to the Loans
advanced in respect of Revolver B and second with respect to the Loans advanced
in respect of Revolver A; fifth, to pay an amount to Lender equal to all
outstanding Letter of Credit Obligations to be held as cash collateral for such
Obligations; and sixth, to the payment of any other Obligation due to
the Lender by the Borrower; or (b) if any Event of Default then exists, first,
to pay any fees, indemnities, or expense reimbursements (including any amounts
relating to Bank Products) then due to the Lender from the Borrower; second,
to pay interest due in respect of Loans advanced in respect of Revolver B; third,
to pay or prepay unpaid reimbursement obligations in respect of Letters of
Credit; fourth, to pay or prepay principal of the Loans advanced in
respect of Revolver B; fifth, to pay an amount to Lender equal to all
outstanding Letter of Credit Obligations then reserved against Revolver B, to
be held as cash collateral for such Obligations; sixth, to pay interest due
in respect of Loans advanced in respect of Revolver A; seventh, to pay
or prepay 

 

9

 

principal of the Loans advanced
in respect of Revolver A;  eighth,
to pay an amount to Lender equal to all outstanding Letter of Credit
Obligations then reserved against Revolver A, to be held as cash collateral for
such Obligations and ninth, to the payment of any other Obligation due
to the Lender by the Borrower. The Lender shall have the continuing and
exclusive right to apply and reverse and reapply any and all such proceeds and
payments to any portion of the Obligations.

 

3.9                                 Indemnity
for Returned Payments.   If after
receipt of any payment which is applied to the payment of all or any part of
the Obligations, the Lender, the Bank or any Affiliate of the Bank is for any
reason compelled to surrender such payment or proceeds to any Person because
such payment or application of proceeds is invalidated, declared fraudulent,
set aside, determined to be void or voidable as a preference, impermissible
setoff, or a diversion of trust funds, or for any other reason, then the
Obligations or part thereof intended to be satisfied shall be revived and
continued and this Agreement shall continue in full force as if such payment or
proceeds had not been received by the Lender and the Borrower shall be liable
to pay to the Lender, and hereby does indemnify the Lender and hold the Lender
harmless for the amount of such payment or proceeds surrendered.  The provisions of this Section 3.9
shall be and remain effective notwithstanding any contrary action which may
have been taken by the Lender in reliance upon such payment or application of
proceeds, and any such contrary action so taken shall be without prejudice to
the Lender’s rights under this Agreement and shall be deemed to have been
conditioned upon such payment or application of proceeds having become final
and irrevocable.  The provisions of this Section 3.9
shall survive the termination of this Agreement.

 

3.10                           Lender’s
Books and Records; Monthly Statements.  
The Lender shall record the principal amount of the Loans owing to the
Lender, the undrawn face amount of all outstanding Letters of Credit and the
aggregate amount of unpaid reimbursement obligations outstanding with respect
to the Letters of Credit from time to time on its books.  In addition, the Lender may note the date and
amount of each payment or prepayment of principal of the Loans in its books and
records.  Failure by the Lender to make
such notation shall not affect the obligations of the Borrower with respect to
the Loans or the Letters of Credit.  The
Borrower agrees that the Lender’s books and records showing the Obligations and
the transactions pursuant to this Agreement and the other Loan Documents shall
be admissible in any action or proceeding arising therefrom, and shall
constitute rebuttably presumptive proof thereof, irrespective of whether any
Obligation is also evidenced by a promissory note or other instrument.  The Lender will provide to the Borrower a monthly
statement of Loans, payments, and other transactions pursuant to this
Agreement.  Such statement shall be
deemed correct, accurate, and binding on the Borrower and an account stated
(except for reversals and reapplications of payments made as provided in Section 3.8
and corrections of errors discovered by the Lender), unless the Borrower
notifies the Lender in writing to the contrary within thirty (30) days after
such statement is rendered.  In the event
a timely written notice of objections is given by the Borrower, only the items
to which exception is expressly made will be considered to be disputed by the
Borrower.

 

10

 

ARTICLE 4

TAXES AND YIELD PROTECTION 

 

4.1                                 Taxes.

 

(a)                                  Any and all payments by the Borrower
to the Lender under this Agreement and any other Loan Document shall be made
free and clear of, and without deduction or withholding for any Taxes.  In addition, the Borrower shall pay all Other
Taxes.

 

(b)                                 The Borrower agrees to indemnify and
hold harmless the Lender for the full amount of Taxes or Other Taxes (including
any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under
this Section) paid by the Lender and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted.  Payment under this
indemnification shall be made within 30 days after the date the Lender makes
written demand therefor.

 

(c)                                  If the Borrower shall be required by
law to deduct or withhold any Taxes or Other Taxes from or in respect of any
sum payable hereunder to the Lender, then:

 

(i)                                     the sum payable shall be increased
as necessary so that after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums payable
under this Section) the Lender, receives an amount equal to the sum it would
have received had no such deductions or withholdings been made;

 

(ii)                                  the Borrower shall make such deductions
and withholdings;

 

(iii)                               the Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and

 

(iv)                              the Borrower shall also pay to the
Lender, at the time interest is paid, all additional amounts which the Lender
specifies as necessary to preserve the after-tax yield the Lender would have
received if such Taxes or Other Taxes had not been imposed.

 

(d)                                 At the Lender’s request, within 30
days after the date of any payment by the Borrower of Taxes or Other Taxes, the
Borrower shall furnish the Lender the original or a certified copy of a receipt
evidencing payment thereof, or other evidence of payment satisfactory to the
Lender.

 

(e)                                  If the Borrower is required to pay
additional amounts to the Lender pursuant to subsection (c) of
this Section, then the Lender shall use reasonable efforts (consistent with
legal and regulatory restrictions) to change the jurisdiction of its lending
office so as to eliminate any such additional payment by the Borrower which may
thereafter accrue, if such change in the judgment of the Lender is not
otherwise disadvantageous to the Lender.

 

11

 

4.2                                 Intentionally
Deleted.

 

4.3                                 Reduction
of Return.   If the Lender shall have
determined that (i) the introduction of any Capital Adequacy Regulation,
(ii) any change in any Capital Adequacy Regulation, (iii) any change
in the interpretation or administration of any Capital Adequacy Regulation by
any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Lender
or any corporation or other entity controlling the Lender with any Capital
Adequacy Regulation, affects or would affect the amount of capital required or
expected to be maintained by the Lender or any corporation or other entity
controlling the Lender and (taking into consideration its policies with respect
to capital adequacy and the Lender’s desired return on capital) determines that
the amount of such capital is increased as a consequence of its Commitments,
loans, credits or obligations under this Agreement, then, upon demand of the
Lender to the Borrower, the Borrower shall pay to the Lender, from time to time
as specified by the Lender, additional amounts sufficient to compensate the
Lender for such increase.

 

4.4                                 Intentionally
Deleted.

 

4.5                                 Intentionally
Deleted.

 

4.6                                 Certificates
of Lender.   If the Lender claims
reimbursement or compensation under this Article 4, it shall determine the
amount thereof and shall deliver to the Borrower a certificate setting forth in
reasonable detail the amount payable to the Lender, and such certificate shall
be conclusive and binding on the Borrower in the absence of manifest error.

 

4.7                                 Survival.   The agreements and obligations of the
Borrower in this Article 4 shall survive the payment of all other
Obligations.

 

ARTICLE 5

BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES

 

5.1                                 Books and Records.   The Borrower shall maintain, at all times,
correct and complete books, records and accounts in which complete, correct and
timely entries are made of its transactions in accordance with GAAP applied
consistently with the audited Financial Statements required to be delivered pursuant
to Section 5.2(a).  The
Borrower shall, by means of appropriate entries, reflect in such accounts and
in all Financial Statements proper liabilities and reserves for all taxes and
proper provision for depreciation and amortization of property and bad debts,
all in accordance with GAAP.  The
Borrower shall maintain at all times books and records pertaining to the
Collateral in such detail, form and scope as the Lender shall reasonably
require, including, but not limited to, records of (a) all payments
received and all credits and extensions granted with respect to the Accounts;
(b) the return, rejection, repossession, stoppage in transit, loss,
damage, or destruction of any Inventory; and (c) all other dealings
affecting the Collateral.

 

5.2                                 Financial Information.   The Borrower shall promptly furnish to the
Lender all such financial information as the Lender shall reasonably request.
Without limiting the foregoing, the Borrower will furnish to the Lender in such
detail as the Lender shall request, the following:

 

12

 

(a)                                  As soon as available, but in any
event not later than ninety (90) days after the close of each Fiscal Year (One
Hundred Fifty (150) days for fiscal year 2004), consolidated audited and consolidating
unaudited balance sheets, and income statements, cash flow statements and
changes in stockholders’ equity for the Borrower and its Subsidiaries for such
Fiscal Year, and the accompanying notes thereto (except in the case of the
consolidating statement), setting forth in each case in comparative form
figures for the previous Fiscal Year, all in reasonable detail, fairly
presenting the financial position and the results of operations of the Borrower
and its consolidated Subsidiaries as at the date thereof and for the Fiscal
Year then ended, and prepared in accordance with GAAP.  Such statements shall be examined in
accordance with generally accepted auditing standards by and, in the case of
such statements performed on a consolidated basis, accompanied by a report
thereon unqualified in any respect of independent certified public accountants
selected by the Borrower and reasonably satisfactory to the Lender. The
Borrower hereby authorizes the Lender to communicate directly with its
certified public accountants and, by this provision, authorizes those
accountants to disclose to the Lender any and all financial statements and
other supporting financial documents and schedules relating to the Borrower and
to discuss directly with the Lender the finances and affairs of the Borrower.

 

(b)                                 As soon as available, but in any
event not later than (30) days after the end of each fiscal quarter of
Borrower, unaudited balance sheets of the Borrower and its consolidated
Subsidiaries as at the end of such quarter, and consolidated unaudited income
statements and cash flow statements for the Borrower and its consolidated
Subsidiaries for such quarter and for the period from the beginning of the
Fiscal Year to the end of such quarter, all in reasonable detail, fairly presenting
the financial position and results of operations of the Borrower and its
consolidated Subsidiaries as at the date thereof, and for such periods, and, in
each case, in comparable form, figures in the Borrower’s budget, and
(commencing with the quarterly statements delivered for the quarter ending in
December 2004) for the corresponding period in the prior Fiscal Year, and
prepared in accordance with GAAP applied consistently with the audited
Financial Statements required to be delivered pursuant to Section 5.2(a).  The Borrower shall certify by a certificate
signed by its chief financial officer that all such statements have been
prepared in accordance with GAAP and present fairly the Borrower’s financial
position as at the dates thereof and its results of operations for the periods
then ended, subject to normal year-end adjustments.

 

(c)                                  As soon as available, but in any
event not later than thirty (30) days after the end of each month, consolidated
unaudited balance sheets of the Borrower (without the inclusion of its
consolidated Subsidiaries) as at the end of such month, and unaudited income
statements and cash flow statements for the Borrower (without the inclusion of
its consolidated Subsidiaries) for such month and for the period from the beginning
of the Fiscal Year to the end of such month, all in reasonable detail, fairly
presenting the financial position and results of operations of the Borrower
(without the inclusion of its consolidated Subsidiaries) as at the date thereof
and for such periods, and, in each case, in comparable form, figures for the
corresponding period in the prior Fiscal Year (commencing on
November 2004), and prepared in accordance with GAAP applied consistently
with the audited Financial Statements required to be delivered pursuant to Section 5.2(a).  The Borrower shall certify by a certificate
signed by its chief financial officer that all such statements have been
prepared in accordance with GAAP and 

 

13

 

present fairly the Borrower’s financial
position as at the dates thereof and its results of operations for the periods
then ended, subject to normal year-end adjustments.

 

(d)                                 Intentionally Omitted.

 

(e)                                  With each of the annual audited
Financial Statements delivered pursuant to Section 5.2(a), and
within thirty (30) days after the end of each month, a
certificate of the chief financial officer of the Borrower setting forth in
reasonable detail the calculations required to establish that the Borrower was
in compliance with the covenants set forth in Sections 7.23 through
7.24 during the period covered in
such Financial Statements and as at the end thereof.  Within thirty (30) days after the end of each
month, a certificate of the chief financial officer of the Borrower stating
that, except as explained in reasonable detail in such certificate,
(A) all of the representations and warranties of the Borrower contained in
this Agreement and the other Loan Documents are correct and complete in all
material respects as at the date of such certificate as if made at such time,
except for those that speak as of a particular date, (B) the Borrower is,
at the date of such certificate, in compliance in all material respects with
all of its respective covenants and agreements in this Agreement and the other
Loan Documents, (C) no Default or Event of Default then exists or existed
during the period covered by the Financial Statements for such month,
(D) describing and analyzing in reasonable detail all material trends,
changes, and developments in each and all Financial Statements; and (E) on
a quarterly basis and only with respect to fiscal quarters on and after the
first calendar quarter of 2004, explaining the material variances of the
figures in the corresponding budgets and prior Fiscal Year financial
statements.  If such certificate
discloses that a representation or warranty is not correct or complete, or that
a covenant has not been complied with, or that a Default or Event of Default
existed or exists, such certificate shall set forth what action the Borrower
has taken or proposes to take with respect thereto.

 

(f)                                    No sooner than sixty (60) days and
not less than thirty (30) days prior to the beginning of each Fiscal Year,
annual forecasts (to include forecasted consolidated balance sheets, income
statements and cash flow statements) for the Borrower and its Subsidiaries as
at the end of and for each quarter of such Fiscal Year.

 

(g)                                 Promptly after filing with the PBGC
and the IRS, a copy of each annual report or other filing filed with respect to
each Plan of the Borrower.

 

(h)                                 Promptly upon the filing thereof,
copies of all reports, if any, to or other documents filed by the Borrower or
any of its Subsidiaries with the Securities and Exchange Commission under the
Exchange Act, and all reports, notices, or statements sent or received by the
Borrower or any of its Subsidiaries to or from the holders of any equity
interests of the Borrower (other than routine non-material correspondence sent
by shareholders of the Borrower to the Borrower) or any such Subsidiary or of
any Debt of the Borrower or any of its Subsidiaries registered under the
Securities Act of 1933 or to or from the trustee under any indenture under
which the same is issued.

 

14

 

(i)                                     As soon as available, but in any
event not later than 15 days after the Borrower’s receipt thereof, a copy of
all management reports and management letters prepared for the Borrower by any
independent certified public accountants of the Borrower.

 

(j)                                     If the Borrower’s shares become
available for trading on any public securities exchange, then promptly after
their preparation, copies of any and all proxy statements, financial
statements, and reports which the Borrower makes available to its public shareholders.

 

(k)                                  If requested by the Lender, promptly
after filing with the IRS, a copy of each tax return filed by the Borrower or
by any of its Subsidiaries.

 

(l)                                     As soon as available, but in any
event no later than the third Business Day of each week, a weekly Borrowing
Base Certificate as of the last Business Day of the preceding week, supporting
information in accordance with Section 9 of the Security Agreement.  Borrower shall deliver a Borrowing Base
Certificate to Lender more frequently than on a weekly basis upon Lender’s
reasonable request.

 

(m)                               Such additional information as the
Lender may from time to time reasonably request regarding the financial and
business affairs of the Borrower or any Subsidiary.

 

5.3                                 Notices to the Lender.   The Borrower shall notify the Lender in
writing of the following matters at the following times:

 

(a)                                  Immediately after becoming aware of
any Default or Event of Default;

 

(b)                                 Immediately after becoming aware of
the assertion by the holder of any capital stock of the Borrower or of any
Subsidiary or the holder of any Debt of the Borrower or any Subsidiary in a
face amount in excess of $100,000 that a default by Borrower or any Subsidiary
exists with respect thereto or that the Borrower or such Subsidiary is not in
compliance with the terms thereof, or the threat or commencement by such holder
of any enforcement action because of such asserted default or non-compliance;

 

(c)                                  Immediately after senior management
or the board of directors of Borrower become aware of any event or circumstance
which they believe would be reasonably expected to have a Material Adverse
Effect;

 

(d)                                 Immediately after becoming aware of
any pending or threatened action, suit, or proceeding, by any Person, or any
pending or threatened investigation by a Governmental Authority, which could
reasonably be expected to have a Material Adverse Effect;

 

(e)                                  Immediately after becoming aware of
any pending or threatened strike, work stoppage, unfair labor practice claim,
or other labor dispute affecting the Borrower or any of its Subsidiaries in a
manner which could reasonably be expected to have a Material Adverse Effect;

 

15

 

(f)                                    Immediately after becoming aware of
any violation of any law, statute, regulation, or ordinance of a Governmental
Authority affecting the Borrower or any Subsidiary which could reasonably be
expected to have a Material Adverse Effect;

 

(g)                                 Immediately after receipt of any
notice of any violation by the Borrower or any of its Subsidiaries of any
Environmental Law which could reasonably be expected to have a Material Adverse
Effect or that any Governmental Authority has asserted in writing that the
Borrower or any Subsidiary is not in compliance with any Environmental Law or
is investigating the Borrower’s or such Subsidiary’s compliance therewith;

 

(h)                                 Immediately after receipt of any
written notice that the Borrower or any of its Subsidiaries is or may be liable
to any Person as a result of the Release or threatened Release of any Contaminant
or that the Borrower or any Subsidiary is subject to investigation by any
Governmental Authority evaluating whether any remedial action is needed to
respond to the Release or threatened Release of any Contaminant which, in
either case, is reasonably likely to give rise to liability in excess of
$500,000;

 

(i)                                     Immediately after receipt of any
written notice of the imposition of any Environmental Lien against any property
of the Borrower or any of its Subsidiaries;

 

(j)                                     Any change in the Borrower’s name as
it appears in the state of its incorporation or other organization, state of
incorporation or organization, type of entity, organizational identification
number, locations of Collateral, or form of organization, trade names under
which the Borrower will sell Inventory or create Accounts, or to which
instruments in payment of Accounts may be made payable, in each case at least
thirty (30) days prior thereto;

 

(k)                                  Within ten (10) Business Days
after the Borrower or any ERISA Affiliate knows or has reason to know, that an
ERISA Event or a prohibited transaction (as defined in Sections 406 of ERISA
and 4975 of the Code) has occurred, and, when known, any action taken or
threatened by the IRS, the DOL or the PBGC with respect thereto;

 

(l)                                     Upon request, or, in the event that
such filing reflects a significant change with respect to the matters covered
thereby, within three (3) Business Days after the filing thereof with the
PBGC, the DOL or the IRS, as applicable, copies of the following:  (i) each annual report (form 5500
series), including Schedule B thereto, filed with the PBGC, the DOL or the
IRS with respect to each Plan, (ii) a copy of each funding waiver request
filed with the PBGC, the DOL or the IRS with respect to any Plan and all
communications received by the Borrower or any ERISA Affiliate from the PBGC,
the DOL or the IRS with respect to such request, and (iii) a copy of each
other filing or notice filed with the PBGC, the DOL or the IRS, with respect to
each Plan by either the Borrower or any ERISA Affiliate;

 

(m)                               Upon request, copies of each
actuarial report for any Plan or Multi-employer Plan and annual report for any
Multi-employer Plan; and within three (3) Business Days after receipt
thereof by the Borrower or any ERISA Affiliate, copies of the following:  (i) any notices of the PBGC’s intention
to terminate a Plan or to have a trustee appointed to administer such Plan; (ii) any
favorable or unfavorable determination letter from the IRS 

 

16

 

regarding the qualification of a Plan under Section 401(a) of
the Code; or (iii) any notice from a Multi-employer Plan regarding the
imposition of withdrawal liability;

 

(n)                                 Within three (3) Business Days
after the occurrence thereof: (i) any changes in the benefits of any
existing Plan which increase the Borrower’s annual costs with respect thereto
by an amount in excess of $500,000, or the establishment of any new Plan or the
commencement of contributions to any Plan to which the Borrower or any ERISA
Affiliate was not previously contributing; or (ii) any failure by the
Borrower or any ERISA Affiliate to make a required installment or any other
required payment under Section 412 of the Code on or before the due date
for such installment or payment; or

 

(o)                                 Within three (3) Business Days
after the Borrower or any ERISA Affiliate knows or has reason to know that any
of the following events has or will occur: 
(i) a Multi-employer Plan has been or will be terminated; (ii) the
administrator or plan sponsor of a Multi-employer Plan intends to terminate a
Multi-employer Plan; or (iii) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate a Multi-employer
Plan.

 

Each notice given under this Section shall describe the subject
matter thereof in reasonable detail, and shall set forth the action that the
Borrower, its Subsidiary, or any ERISA Affiliate, as applicable, has taken or
proposes to take with respect thereto.

 

ARTICLE 6

GENERAL WARRANTIES AND REPRESENTATIONS

 

The Borrower warrants and represents to the Lender that except as
hereafter disclosed to and accepted by the Lender in writing:

 

6.1                                 Authorization,
Validity, and Enforceability of this Agreement and the Loan Documents.   The Borrower has the power and authority to
execute, deliver and perform this Agreement and the other Loan Documents to
which it is a party, to incur the Obligations, and to grant to the Lender Liens
upon and security interests in the Collateral. 
The Borrower has taken all necessary action (including obtaining
approval of its stockholders if necessary) to authorize its execution,
delivery, and performance of this Agreement and the other Loan Documents to
which it is a party.  This Agreement and
the other Loan Documents to which it is a party have been duly executed and
delivered by the Borrower, and constitute the legal, valid and binding
obligations of the Borrower, enforceable against it in accordance with their
respective terms.  The Borrower’s
execution, delivery, and performance of this Agreement and the other Loan
Documents to which it is a party do not and will not conflict with, or
constitute a violation or breach of, or result in the imposition of any Lien
upon the property of the Borrower or any of its Subsidiaries, by reason of the
terms of (a) any contract, mortgage, lease, agreement, indenture, or
instrument to which the Borrower is a party or which is binding upon it, (b) any
Requirement of Law applicable to the Borrower or any of its Subsidiaries, or (c) the
certificate or articles of incorporation or by-laws or the limited
liability company or limited partnership agreement of the Borrower or any of
its Subsidiaries.

 

17

 

6.2                                 Validity
and Priority of Security Interest.  
The provisions of this Agreement, the Mortgage, and the other Loan
Documents create legal and valid Liens on all the Collateral in favor of the
Lender, and such Liens constitute perfected and continuing Liens on all the
Collateral, having priority over all other Liens on the Collateral, except for
those Liens identified in clauses (c), (d) and (e) of
the definition of Permitted Liens securing all the Obligations, and enforceable
against the Borrower and all third parties.

 

6.3                                 Organization
and Qualification.   The Borrower (a) is
duly organized or incorporated and validly existing in good standing under the
laws of the state of its organization or incorporation, (b) is qualified
to do business and is in good standing in the jurisdictions set forth on Schedule 6.3
which are the only jurisdictions in which qualification is necessary in order
for it to own or lease its property and conduct its business and (c) has
all requisite power and authority to conduct its business and to own its
property.

 

6.4                                 Corporate
Name; Prior Transactions.   Except as
set forth on Schedule 6.4, the Borrower has not, during the past five (5) years,
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 outside of the ordinary
course of business.

 

6.5                                 Subsidiaries
and Affiliates.   Schedule 6.5
is a correct and complete list of the name and relationship to the Borrower of
each and all of the Borrower’s Subsidiaries and other Affiliates.  Each Subsidiary is (a) duly incorporated
or organized and validly existing in good standing under the laws of its state
of incorporation or organization set forth on Schedule 6.5, and (b) qualified
to do business and in good standing in each jurisdiction in which the failure
to so qualify or be in good standing could reasonably be expected to have a
material adverse effect on any such Subsidiary’s business, operations,
prospects, property, or condition (financial or otherwise) and (c) has all
requisite power and authority to conduct its business and own its property.

 

6.6                                 Financial
Statements and Projections.

 

(a)                                  The Borrower has delivered to the
Lender the preliminary Fiscal Year end Financial Statements as of October 9,
2003.  The Borrower has also delivered to
the Lender the unaudited balance sheet and related statements
of income and cash flows for the Borrower and its consolidated
Subsidiaries as of June 25, 2004. 
Such financial statements are attached hereto as Exhibit C.  All such financial statements have been
prepared in accordance with GAAP and present accurately and fairly in all
material respects the financial position of the Borrower and its consolidated
Subsidiaries as at the dates thereof and their results of operations for the
periods then ended.

 

(b)                                 The Latest Projections when
submitted to the Lender as required herein represent the Borrower’s best
estimate of the future financial performance of the Borrower and its
consolidated Subsidiaries for the periods set forth therein.  The Latest Projections have been prepared on
the basis of the assumptions set forth therein, which the 

 

18

 

Borrower believes are fair and reasonable in light of current
and reasonably foreseeable business conditions at the time submitted to the
Lender.

 

6.7                                 Capitalization.   The Borrower’s authorized capital stock
consists of 17,000,000 shares of common stock, par value $0.001 per share, of
which 247,600 shares are validly issued and outstanding, fully paid and
non-assessable and are owned beneficially and of record by the stockholders set
forth on Schedule 6.7; and 10,000,000 shares of Series A
preferred stock, par value $0.001 per share, of which 5,804,446 shares are
validly issued and outstanding, fully paid and non-assessable and are owned
beneficially and of record by the stockholders set forth on Schedule 6.7.

 

6.8                                 Solvency.   The Borrower is Solvent prior to and after
giving effect to the Borrowings to be made on the Closing Date and the issuance
of the Letters of Credit to be issued on the Closing Date, and shall remain
Solvent during the term of this Agreement.

 

6.9                                 Debt.   After giving effect to the making of the
Revolving Loans to be made on the Closing Date, the Borrower and its Subsidiaries
have no Debt, except (a) the Obligations, and (b) Debt described on Schedule 6.9.

 

6.10                           Distributions.   Since October 10, 2003, no Distribution
has been declared, paid, or made upon or in respect of any capital stock or
other securities of the Borrower or any of its Subsidiaries.

 

6.11                           Real
Estate; Leases.   Schedule 6.11
sets forth, as of the Closing Date, a correct and complete list of all Real
Estate owned by the Borrower and all Real Estate owned by any of its
Subsidiaries, all leases and subleases of real or personal property held by the
Borrower as lessee or sublessee (other than leases of personal property as to
which the Borrower is lessee or sublessee for which the value of such personal
property in the aggregate is less than $1,000,000), and all leases and
subleases of real or personal property held by the Borrower as lessor, or
sublessor.  Each of such leases and
subleases is valid and enforceable in accordance with its terms and is in full
force and effect, and no default by any party to any such lease or sublease
exists.  The Borrower has good and
marketable title in fee simple to the Real Estate identified on Schedule 6.11
as owned by the Borrower, or valid leasehold interests in all Real Estate
designated therein as “leased” by the Borrower and the Borrower has good,
indefeasible, and merchantable title to all of its other property reflected on
the June 30, 2004 Financial Statements delivered to the Lender, except as
disposed of in the ordinary course of business since the date thereof, free of
all Liens except Permitted Liens.

 

6.12                           Proprietary
Rights.   Schedule 6.12
sets forth a correct and complete list of all of the Borrower’s patents,
trademarks and copyrights.  None of the
patents, trademarks and copyrights is subject to any licensing agreement or
similar arrangement except as set forth on Schedule 6.12.  To the best of the Borrower’s knowledge, none
of the patents, trademarks and copyrights infringes on or conflicts with any
other Person’s property, and no other Person’s property infringes on or
conflicts with the patents, trademarks and copyrights.  The patents, trademarks and copyrights
described on Schedule 6.12 constitute all of the property of such
type necessary to the current and anticipated future conduct of the Borrower’s
business.

 

19

 

6.13                           Trade Names.   All trade names or styles under which the
Borrower or any of its Subsidiaries will sell Inventory or create Accounts, or
to which instruments in payment of Accounts may be made payable, are listed on Schedule 6.13.

 

6.14                           Litigation.   Except as set forth on Schedule 6.14,
there is no pending, or to the best of the Borrower’s knowledge threatened,
action, suit, proceeding, or counterclaim by any Person, or to the best of the
Borrower’s knowledge, investigation by any Governmental Authority, or any basis
for any of the foregoing, which could reasonably be expected to have a Material
Adverse Effect.

 

6.15                           Labor
Disputes.   Except as set forth on Schedule 6.15,
as of the Closing Date (a) there is no collective bargaining agreement or
other labor contract covering employees of the Borrower or any of its
Subsidiaries, (b) no such collective bargaining agreement or other labor
contract is scheduled to expire during the term of this Agreement, (c) no
union or other labor organization is seeking to organize, or to be recognized
as, a collective bargaining unit of employees of the Borrower or any of its
Subsidiaries or for any similar purpose, and (d) there is no pending or
(to the best of the Borrower’s knowledge) threatened, strike, work stoppage,
material unfair labor practice claim, or other material labor dispute against
or affecting the Borrower or its Subsidiaries or their employees.

 

6.16                           Environmental
Laws.   Except as otherwise disclosed
on Schedule 6.16:

 

(a)                                  The Borrower and its Subsidiaries
have complied in all material respects with all Environmental Laws and neither
the Borrower nor any Subsidiary nor any of its presently owned real property or
presently conducted operations, nor its previously owned real property or prior
operations, is subject to any enforcement order from or liability agreement
with any Governmental Authority or private Person respecting (i) compliance
with any Environmental Law or (ii) any potential liabilities and costs or
remedial action arising from the Release or threatened Release of a
Contaminant.

 

(b)                                 The Borrower and its Subsidiaries
have obtained all permits necessary for their current operations under
Environmental Laws, and all such permits are in good standing and the Borrower
and its Subsidiaries are in compliance with all material terms and conditions
of such permits.

 

(c)                                  Neither the Borrower nor any of its
Subsidiaries, nor, to the best of the Borrower’s knowledge, any of its
predecessors in interest, has in violation of applicable law stored, treated or
disposed of any hazardous waste.

 

(d)                                 Neither the Borrower nor any of its
Subsidiaries has received any summons, complaint, order or similar written
notice indicating that it is not currently in compliance with, or that any
Governmental Authority is investigating its compliance with, any Environmental
Laws or that it is or may be liable to any other Person as a result of a
Release or threatened Release of a Contaminant.

 

(e)                                  To the best of the Borrower’s
knowledge, none of the present or past operations of the Borrower and its
Subsidiaries is the subject of any investigation by any 

 

20

 

Governmental Authority evaluating
whether any remedial action is needed to respond to a Release or threatened
Release of a Contaminant.

 

(f)                                    There is not now, nor to the best of
the Borrower’s knowledge has there ever been on or in the Real Estate:

 

(1)                                  any underground storage tanks or
surface impoundments,

 

(2)                                  any asbestos-containing material, or

 

(3)                                  any polychlorinated biphenyls (PCBs)
used in hydraulic oils, electrical transformers or other equipment.

 

(g)                                 Neither the Borrower nor any of its
Subsidiaries has filed any notice under any requirement of Environmental Law
reporting a spill or accidental and unpermitted Release or discharge of a
Contaminant into the environment.

 

(h)                                 Neither the Borrower nor any of its
Subsidiaries has entered into any negotiations or settlement agreements with
any Person (including the prior owner of its property) imposing material
obligations or liabilities on the Borrower or any of its Subsidiaries with
respect to any remedial action in response to the Release of a Contaminant or
environmentally related claim.

 

(i)                                     None of the products manufactured,
distributed or sold by the Borrower or any of its Subsidiaries contain asbestos
containing material.

 

(j)                                     No Environmental Lien has attached
to the Real Estate.

 

6.17                           No
Violation of Law.   Neither the
Borrower nor any of its Subsidiaries is in violation of any law, statute,
regulation, ordinance, judgment, order, or decree applicable to it which
violation could reasonably be expected to have a Material Adverse Effect.

 

6.18                           No
Default.   Neither the Borrower nor
any of its Subsidiaries is in default with respect to any note, indenture, loan
agreement, mortgage, lease, deed, or other agreement to which the Borrower or
such Subsidiary is a party or by which it is bound, which default could
reasonably be expected to have a Material Adverse Effect.

 

6.19                           ERISA
Compliance.

 

(a)                                  Each Plan is in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law.  Each Plan which is
intended to qualify under Section 401(a) of the Code has received a
favorable determination letter from the IRS and to the best knowledge of the
Borrower, nothing has occurred which would cause the loss of such
qualification.  The Borrower and each
ERISA Affiliate has 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.

 

21

 

(b)                                 There are
no pending or, to the best knowledge of Borrower, threatened claims, actions or
lawsuits, or action by any Governmental Authority, with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect.  There has been no
prohibited transaction or violation of the fiduciary responsibility rules with
respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect.

 

(c)                                  (i)  No ERISA Event has
occurred or is reasonably expected to occur; (ii) no Pension Plan has any
Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA
Affiliate has incurred, or reasonably expects to incur, any liability under
Title IV of ERISA with respect to any Pension Plan (other than premiums due and
not delinquent under Section 4007 of ERISA); (iv) neither the
Borrower nor any ERISA Affiliate has incurred, or reasonably expects 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 Multi-employer Plan; and (v) neither
the Borrower nor any ERISA Affiliate has engaged in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA.

 

6.20                           Taxes.   The Borrower and its Subsidiaries have filed
all federal and other tax returns and reports required to be filed, and have
paid all federal and other taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable unless such unpaid taxes and assessments would
constitute a Permitted Lien.

 

6.21                           Regulated
Entities.   None of the Borrower, any
Person controlling the Borrower, or any Subsidiary, is an “Investment Company”
within the meaning of the Investment Company Act of 1940.  The Borrower is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act,
the Interstate Commerce Act, any state public utilities code or law, or any
other federal or state statute or regulation limiting its ability to incur
indebtedness.

 

6.22                           Use
of Proceeds; Margin Regulations.  
The proceeds of the Loans are to be used solely for working capital
purposes.  Neither the Borrower nor any
Subsidiary is engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.

 

6.23                           Copyrights,
Patents, Trademarks and Licenses, etc.  
The Borrower owns or is licensed or otherwise has the right to use all
of the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, licenses, rights of way, authorizations and other rights that are
reasonably necessary for the operation of its businesses, without conflict with
the rights of any other Person.  To the
best knowledge of the Borrower, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed, by the Borrower or any Subsidiary infringes upon
any rights held by any other Person.  No
claim or litigation regarding any of the foregoing is pending or threatened,
and no patent, invention, device, application, principle or any statute, law,
rule, regulation, standard or code is pending or, to the knowledge of the
Borrower, proposed, which, in either case, could reasonably be expected to have
a Material Adverse Effect.

 

22

 

6.24                           No Material Adverse Change.   No Material Adverse Effect has occurred since
the latest date of the Financial Statements delivered to the Lender.

 

6.25                           Full
Disclosure.   None of the
representations or warranties made by the Borrower or any Subsidiary in the
Loan Documents as of the date such representations and warranties are made or
deemed made, and none of the statements contained in any exhibit, report,
statement or certificate furnished by or on behalf of the Borrower or any
Subsidiary in connection with the Loan Documents (including the offering and
disclosure materials delivered by or on behalf of the Borrower to the Lender
prior to the Closing Date), contains any untrue statement of a material fact or
omits any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.

 

6.26                           Material
Agreements.   Schedule 6.26
hereto sets forth as of the Closing Date all material agreements and contracts
to which the Borrower or any of its Subsidiaries is a party or is bound as of
the date hereof.

 

6.27                           Bank
Accounts.   Schedule 6.27
contains as of the Closing Date a complete and accurate list of all bank
accounts maintained by the Borrower with any bank or other financial
institution.

 

6.28                           Governmental
Authorization.   No approval,
consent, exemption, authorization, or other action by, or notice to, or filing
with, any Governmental Authority or other Person is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, the Borrower or any of its Subsidiaries of this Agreement or any other
Loan Document.

 

ARTICLE 7

AFFIRMATIVE AND NEGATIVE COVENANTS

 

The Borrower covenants to the Lender that so long as any of the
Obligations remain outstanding or this Agreement is in effect:

 

7.1                                 Taxes
and Other Obligations.   The Borrower
shall, and shall cause each of its Subsidiaries to, (a) file when due all
tax returns and other reports which it is required to file; (b) pay, or
provide for the payment, when due, of all taxes, fees, assessments and other
governmental charges against it or upon its property, income and franchises,
make all required withholding and other tax deposits, and establish adequate
reserves for the payment of all such items, and provide to the Lender, upon
request, satisfactory evidence of its timely compliance with the foregoing; and
(c) pay when due all Debt owed by it and all claims of materialmen,
mechanics, carriers, warehousemen, landlords, processors and other like
Persons, and all other indebtedness owed by it and perform and discharge in a
timely manner all other obligations undertaken by it; provided, however,
so long as the Borrower has notified the Lender in writing, neither the
Borrower nor any of its Subsidiaries need pay any tax, fee, assessment, or
governmental charge (i) it is contesting in good faith by appropriate
proceedings diligently pursued, (ii) as to which the Borrower or its
Subsidiary, as the case may be, has established 

 

23

 

proper reserves
as required under GAAP, and (iii) the nonpayment of which does not result
in the imposition of a Lien (other than a Permitted Lien).

 

7.2                                 Legal
Existence and Good Standing.   The
Borrower shall, and shall cause each of its Subsidiaries to, maintain its legal
existence and its qualification and good standing in all jurisdictions in which
the failure to maintain such existence and qualification or good standing could
reasonably be expected to have a Material Adverse Effect.

 

7.3                                 Compliance
with Law and Agreements; Maintenance of Licenses.   The Borrower shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of
Law of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act and all Environmental
Laws).  The Borrower shall, and shall
cause each of its Subsidiaries to, obtain and maintain all licenses, permits,
franchises, and governmental authorizations necessary to own its property and
to conduct its business as conducted on the Closing Date.  The Borrower shall not modify, amend or alter
its certificate or articles of incorporation, or its limited liability company
operating agreement or limited partnership agreement, as applicable, other than
in a manner which does not adversely affect the rights of the Lender.

 

7.4                                 Maintenance
of Property; Inspection of Property.

 

(a)                                  The Borrower shall, and shall cause
each of its Subsidiaries to, maintain all of its property necessary and useful
in the conduct of its business, in good operating condition and repair,
ordinary wear and tear excepted.

 

(b)                                 The Borrower shall permit
representatives and independent contractors of the Lender (at the expense of
the Borrower not to exceed four (4) times per year unless an Event of
Default has occurred and is continuing) to visit and inspect any of its
properties, to examine its corporate, financial and operating records, and make
copies thereof or abstracts therefrom and to discuss its affairs, finances and
accounts with its directors and officers at such reasonable times during normal
business hours and as soon as may be reasonably desired, upon reasonable
advance notice to the Borrower; provided, however, when an Event
of Default exists, the Lender may do any of the foregoing at the expense of the
Borrower at any time during normal business hours and without advance notice.

 

7.5                                 Insurance.

 

(a)                                  The Borrower shall maintain, and
shall cause each of its Subsidiaries to maintain, with financially sound and reputable
insurers having a rating of at least A or better by Best Rating Guide,
insurance with respect to its business and properties against loss or damage
customarily insured against by Persons engaged in the same or similar business
or as the Lender, in its reasonable discretion, shall specify, which insurance
shall be in amounts and under policies as are reasonably acceptable to the
Lender.  It is understood that the
insurance policies maintained by the Borrower on the Closing Date are
acceptable to the Lender in coverage, amount and carrier as of the Closing
Date.  Without limiting the foregoing, in
the event that any improved Real Estate covered by the Mortgage is determined
to be located within 

 

24

 

an area that has been identified by
the Director of the Federal Emergency Management Agency as a Special Flood
Hazard Area (“SFHA”), the Borrower shall purchase and maintain flood insurance
on the improved Real Estate and any Equipment and Inventory located on such
Real Estate.  The amount of said flood
insurance will be reasonably determined by the Lender, and shall, at a minimum,
comply with applicable federal regulations as required by the Flood Disaster
Protection Act of 1973, as amended.  The
Borrower shall also maintain flood insurance for its Inventory and Equipment
which is, at any time, located in a SFHA.

 

(b)                                 The Borrower shall cause the Lender
to be named as secured party or mortgagee and sole loss payee or additional
insured, in a manner acceptable to the Lender. 
Each policy of insurance shall contain a clause or endorsement requiring
the insurer to give not less than thirty (30) days’ prior written notice to the
Lender in the event of cancellation of the policy for any reason whatsoever and
endorsement Form 438 BFU, or equivalent, stating that the interest of the
Lender shall not be impaired or invalidated by any act or neglect of the
Borrower or any of its Subsidiaries or the owner of any Real Estate for
purposes more hazardous than are permitted by such policy.  All premiums for such insurance shall be paid
by the Borrower when due, and certificates of insurance and, if requested by
the Lender, photocopies of the policies (other than policies for any foreign
Subsidiary of Borrower which are not material insurance policies), shall be
delivered to the Lender.  If the Borrower fails to procure such insurance or to pay the
premiums therefor when due, the Lender may do so from the proceeds of Revolving
Loans.

 

7.6                                 Insurance
and Condemnation Proceeds.   The
Borrower shall promptly notify the Lender of any loss, damage, or destruction
to the Collateral in excess of $250,000, whether or not such loss, damage or
destruction is covered by insurance,.  The Lender is hereby authorized to collect
all insurance and condemnation proceeds in respect of Collateral directly and
to apply or remit them as follows:

 

(a)                                  With respect to insurance and
condemnation proceeds relating to Collateral other than Fixed Assets, after
deducting from such proceeds the reasonable expenses, if any, incurred by the
Lender in the collection or handling thereof, the Lender shall apply such
proceeds, ratably, to the reduction of the Obligations in the order provided
for in Section 3.8.

 

(b)                                 With respect to
insurance and condemnation proceeds relating to Collateral consisting of Fixed
Assets, the Lender shall permit or require the Borrower to use such proceeds,
or any part thereof, to replace, repair, restore or rebuild the relevant Fixed
Assets in a diligent and expeditious manner with materials and workmanship of
substantially the same quality as existed before the loss, damage or
destruction so long as (1) no Default or Event of Default has occurred and
is continuing, (2) the aggregate proceeds do not exceed $3,000,000 and (3) the
Borrower first (i) provides the Lender with plans and specifications for
any such repair or restoration which shall be reasonably satisfactory to the
Lender and (ii) demonstrates to the reasonable satisfaction of the Lender
that the funds available to it will be sufficient to complete such project in
the manner provided therein.  In all
other circumstances, the Lender shall apply such insurance and condemnation
proceeds, ratably, to the reduction of the Obligations in the order provided for in Section 3.8.

 

25

 

7.7                                 Environmental
Laws.

 

(a)                                  The Borrower shall, and shall cause
each of its Subsidiaries to, conduct its business in compliance with all
Environmental Laws applicable to it, including those relating to the
generation, handling, use, storage, and disposal of any Contaminant.  The Borrower shall, and shall cause each of
its Subsidiaries to, take prompt and appropriate action to respond to any
non-compliance with Environmental Laws and shall regularly report to the Lender
on such response.

 

(b)                                 Without limiting the generality of
the foregoing, the Borrower shall submit to the Lender annually, commencing on
the first Anniversary Date, and on each Anniversary
Date thereafter, an update of the status of each environmental compliance or
liability issue.  The Lender may request
copies of technical reports prepared by the Borrower and its communications
with any Governmental Authority to determine whether the Borrower or any of its
Subsidiaries is proceeding reasonably to correct, cure or contest in good faith
any alleged non-compliance or environmental liability.  The Borrower shall, at the Lender’s request
and at the Borrower’s expense, (i) retain an independent environmental
engineer acceptable to the Lender to evaluate the site, including tests if
appropriate, where the non-compliance or alleged non-compliance with
Environmental Laws has occurred and prepare and deliver to the Lender a report
setting forth the results of such evaluation, a proposed plan for responding to
any environmental problems described therein, and an estimate of the costs
thereof, and (ii) provide to the Lender a supplemental report of such
engineer whenever the scope of the environmental problems, or the response
thereto or the estimated costs thereof, shall increase in any material respect.

 

(c)                                  The Lender and its representatives
will have the right at any reasonable time to enter and visit the Real Estate
and any other place where any property of the Borrower is located for the
purposes of observing the Real Estate, taking and removing soil or groundwater
samples, and conducting tests on any part of the Real Estate.  The Lender is under no duty, however, to
visit or observe the Real Estate or to conduct tests, and any such acts by the
Lender will be solely for the purposes of protecting the Lender’s Liens and
preserving the Lender’s rights under the Loan Documents.  No site visit, observation or testing by the
Lender will result in a waiver of any default of the Borrower or impose any
liability on the Lender.  In no event
will any site visit, observation or testing by the Lender be a representation
that hazardous substances are or are not present in, on or under the Real
Estate, or that there has been or will be compliance with any Environmental
Law.  Neither the Borrower nor any other
party is entitled to rely on any site visit, observation or testing by the
Lender.  The Lender owes no duty of care
to protect the Borrower or any other party against, or to inform the Borrower
or any other party of, any hazardous substances or any other adverse condition
affecting the Real Estate.  The Lender
may in its discretion disclose to the Borrower or to any other party if so
required by law any report or findings made as a result of, or in connection
with, any site visit, observation or testing by the Lender.  The Borrower understands and agrees that the
Lender makes no warranty or representation to the Borrower or any other party
regarding the truth, accuracy or completeness of any such report or findings
that may be disclosed.  The Borrower also
understands that depending on the results of any site visit, observation or
testing by the Lender and disclosed to the Borrower, the Borrower may have a
legal obligation to notify one or more 

 

26

 

environmental agencies of the results, that such
reporting requirements are site-specific, and are to be evaluated by the
Borrower without advice or assistance from the Lender.  In each instance, the Lender will give the Borrower
reasonable notice before entering the Real Estate or any other place the Lender
is permitted to enter under this Section 7.7(c).  The Lender will make reasonable efforts to
avoid interfering with the Borrower’s use of the Real Estate or any other property
in exercising any rights provided hereunder.

 

7.8                                 Compliance
with ERISA.   The Borrower 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 or state law;
(b) cause each Plan which is qualified under Section 401(a) of
the Code to maintain such qualification; (c) make all required
contributions to any Plan subject to Section 412 of the Code; (d) not
engage in a prohibited transaction or violation of the fiduciary responsibility
rules with respect to any Plan; and (e) not engage in a transaction
that could be subject to Section 4069 or 4212(c) of ERISA.

 

7.9                                 Mergers,
Consolidations or Sales.   Neither
the Borrower nor any of its Subsidiaries shall enter into any transaction of
merger, reorganization, or consolidation, or transfer, sell, assign, lease, or
otherwise dispose of all or any part of its property, or wind up, liquidate or
dissolve, or agree to do any of the foregoing, except for (i) sales of
obsolete Inventory, to the extent already reserved-against, at the best sales
price obtainable by Borrower, (ii) sales of Inventory in the ordinary
course of its business, (iii) sales or other dispositions of Equipment in
the ordinary course of business that is obsolete or no longer useable by
Borrower in its business with the net sales proceeds from the sale of such
Equipment not to exceed $250,000 in any Fiscal Year, (iv) sale of the HTR
Product Line, and (v) Permitted Acquisitions consummated as a merger or
consolidation.

 

7.10                           Distributions;
Capital Change; Restricted Investments.  
Neither the Borrower nor any of its Subsidiaries shall (i) directly
or indirectly declare or make, or incur any liability to make, any Distribution,
except Distributions to the Borrower by its Subsidiaries, (ii) make any
change in its capital structure which could reasonably be expected to have a
Material Adverse Effect or (iii) make any Restricted Investment; provided
that the Borrower may enter into any Subsidiary Transaction, and the Borrower
may make an initial capital investment in connection with each Permitted
Subsidiary Formation.

 

7.11                           Transactions
Affecting Collateral or Obligations.  
Neither the Borrower nor any of its Subsidiaries shall enter into any
transaction which senior management or the board of directors
of Borrower or such Subsidiary believe would be reasonably expected to
have a Material Adverse Effect.

 

7.12                           Guaranties.   Neither the Borrower nor any of its
Subsidiaries shall make, issue, or become liable on any Guaranty, except
(i) Guaranties of the Obligations in favor of the Lender,
(ii) unsecured Guaranties by Borrower of the obligations of any of its
Subsidiaries so long as the aggregate amount of such guaranteed obligations
does not exceed $1,000,000 at any time, and (iii) Guaranties of Borrower’s
reimbursement obligations owed to VPVP as a result of payments made by VPVP to
the Lender under the VPVP Guaranty, so long as the same are fully subordinated
to the Obligations as set forth in the Subordination Agreement.

 

27

 

7.13                           Debt.   Neither the Borrower nor any of its
Subsidiaries shall incur or maintain any Debt, other than:  (a) the Obligations; (b) Debt
described on Schedule 6.9; (c) Capital Leases of Equipment and
purchase money secured Debt incurred to purchase Equipment provided that
(i) Liens securing the same attach only to the Equipment acquired by the
incurrence of such Debt, and (ii) the aggregate amount of such Debt
(including Capital Leases) outstanding does not exceed $500,000 at any time;
(d) the Borrower’s reimbursement obligations and any Subsidiary’s guaranty
obligations owed to VPVP arising as a result of payments made by VPVP to the
Lender under the VPVP Guaranty so long as the same are fully subordinated to
the Obligations as set forth in the Subordination Agreement; (e) Debt
incurred in connection with the refinancing of the Mortgage on the Scotts
Valley Real Estate, provided that such Debt meets the conditions set
forth in Section 12.19; and (f) Debt evidencing a refunding,
renewal or extension of the Debt described on Schedule 6.9; provided
that (i) the principal amount thereof is not increased, (ii) the
Liens, if any, securing such refunded, renewed or extended Debt do not attach
to any assets in addition to those assets, if any, securing the Debt to be
refunded, renewed or extended, (iii) no Person that is not an obligor or
guarantor of such Debt as of the Closing Date shall become an obligor or guarantor
thereof, and (iv) the terms of such refunding, renewal or extension are
not materially less favorable to the Borrower or the Lender than the original
Debt.

 

7.14                           Prepayment.   Neither the Borrower nor any of its
Subsidiaries shall voluntarily prepay any Debt, except (i) the Obligations
in accordance with the terms of this Agreement, and (ii) payments by Aviza
Technology, K.K. of the Japanese Subsidiary Debt in accordance with the terms
thereof.

 

7.15                           Transactions
with Affiliates.   Except as set
forth below, neither the Borrower nor any of its Subsidiaries shall, sell,
transfer, distribute, or pay any money or property, including, but not limited
to, any fees or expenses of any nature (including, but not limited to, any fees
or expenses for management services), to any Affiliate, or lend or advance
money or property to any Affiliate, or invest in (by capital contribution or
otherwise) or purchase or repurchase any stock or indebtedness, or any
property, of any Affiliate, or become liable on any Guaranty of the
indebtedness, dividends, or other obligations of any Affiliate.  Notwithstanding the foregoing, while no Event
of Default has occurred and is continuing, (i) the Borrower and its
Subsidiaries may engage in transactions with Affiliates in the ordinary course
of business consistent with past practices, in amounts and upon terms fully
disclosed to the Lender, and no less favorable to the Borrower and its
Subsidiaries than would be obtained in a comparable arm’s-length transaction
with a third party who is not an Affiliate, (ii) the Borrower may enter
into any Subsidiary Transactions, and (iii) the Borrower may invest in
Subsidiaries in connection with any Permitted Subsidiary Formation.

 

7.16                           Investment
Banking and Finder’s Fees.   Neither
the Borrower nor any of its Subsidiaries shall pay or agree to pay, or
reimburse any other party with respect to, any investment banking or similar or
related fee, underwriter’s fee, finder’s fee, or broker’s fee to any Person in
connection with this Agreement.  The
Borrower shall defend and indemnify the Lender against and hold it harmless
from all claims of any Person that the Borrower is obligated to pay for any
such fees, and all costs and expenses (including attorneys’ fees) incurred by
the Lender in connection therewith.

 

28

 

7.17                           Business
Conducted.   The Borrower shall not
and shall not permit any of its Subsidiaries to, engage directly or indirectly,
in any line of business other than the businesses in which the Borrower is
engaged on the Closing Date.

 

7.18                           Liens.   Neither the Borrower nor any of its
Subsidiaries shall create, incur, assume, or permit to exist any Lien on any
property now owned or hereafter acquired by any of them, except Permitted
Liens, and Liens, if any, in effect as of the Closing Date described in Schedule 6.9
securing Debt described in Schedule 6.9 and Liens securing Capital
Leases and purchase money Debt permitted in Section 7.13.

 

7.19                           Sale
and Leaseback Transactions.   Neither
the Borrower nor any of its Subsidiaries shall, directly or indirectly, enter
into any arrangement with any Person providing for the Borrower or such
Subsidiary to lease or rent property that the Borrower or such Subsidiary has
sold or will sell or otherwise transfer to such Person.

 

7.20                           New
Subsidiaries.   The Borrower shall
not, directly or indirectly, organize, create, acquire or permit to exist any Subsidiary other than those listed on Schedule 6.5,
unless such new Subsidiary is formed to effect, or is acquired in, a Permitted
Acquisition or is formed as a Permitted Subsidiary Formation, in which case
within 10 days after such formation or acquisition, the Borrower shall:

 

(a)                                  pledge the capital stock of such
additional Subsidiary to the Lender: provided, however, that if
any such additional Subsidiary is not a domestic Subsidiary, in no event shall
more than 66% of the capital stock of any such Subsidiary be required to be so
pledged;

 

(b)                                 execute and deliver to the Lender
stock transfer powers executed in blank with signatures guaranteed as the
Lender shall request, such UCC-1 financing statements (as furnished by the
Lender) in any jurisdiction in which such filing is necessary to perfect the
Lender’s Liens in such capital stock;

 

(c)                                  deliver such other items as are reasonably
requested by the Lender in connection with the foregoing, including
resolutions, incumbency and officers’ certificates, opinions of counsel, search
reports and other certificates and documents;

 

(d)                                 if such additional Subsidiary is a
domestic Subsidiary, cause such domestic Subsidiary to furnish each of the
following to the Lender:

 

(i)                                     a Subsidiary Guaranty and a
Subsidiary Security Agreement, or if such documents already exist, a duly
executed notice and assumption agreement in form and substance acceptable to
Lender, pursuant to which such Subsidiary becomes a party to the Subsidiary
Guaranty and the Subsidiary Security Agreement (an “Additional Guarantor
Assumption Agreement”);

 

(ii)                                  (A) copies of the resolutions
of the board of directors (or equivalent governing body) of such Subsidiary
approving and authorizing 

 

29

 

the execution, delivery and
performance by such Subsidiary of its Subsidiary Guaranty or the Additional
Guarantor Assumption Agreement and this Agreement and any other applicable Loan
Documents, certified as of the date of such Additional Guarantor Assumption
Agreement (the “Additional Guarantor Accession Date”) by the Secretary or an
Assistant Secretary (or other appropriate officer) of such Subsidiary;
(B) a certificate of the Secretary or Assistant Secretary (or other
appropriate officer) of such Subsidiary certifying the names and true
signatures of the officers of such Subsidiary authorized to execute and deliver
and perform, as applicable, its Additional Guarantor Assumption Agreement, this
Agreement and all other Loan Documents to be delivered hereunder;
(C) copies of the articles or certificate of incorporation and bylaws (or
other applicable organizational documents) of such Subsidiary as in effect on
the Additional Guarantor Accession Date, certified by the Secretary or
Assistant Secretary (or other appropriate officer) of such Subsidiary as of the
Additional Guarantor Accession Date; and (D) an opinion of counsel to such
Subsidiary and addressed to the Lender, in form and substance acceptable to
Lender; and

 

(iii)                               (A) such amendments to the
schedules to any Loan Documents as shall be required in connection with the
accession of such Subsidiary thereto; and (B) executed UCC-1 financing
statements in any jurisdiction in which such filing is necessary to perfect the
Lender’s Liens in the personal property assets of such Subsidiary and in which
the Lender shall request that such filing be made; and

 

(e)                                  have executed and delivered to the
Lender such other items as reasonably requested by the Lender in connection
with the foregoing, including officers’ certificates, search reports and other
certificates and documents.

 

7.21                           Fiscal
Year.   The Borrower shall not change
its Fiscal Year.

 

7.22                           Intentionally
Omitted.

 

7.23                           Fixed
Charge Coverage Ratio.   The Borrower
will maintain a Fixed Charge Coverage Ratio as of the last day of each fiscal
quarter set forth below of not less than the ratio set forth below opposite
each such fiscal quarter:

 

30

 

	
  Measurement Date

  	
   

  	
  Fixed Charge Coverage Ratio

  
	
   

  	
   

  	
   

  
	
  end of fourth fiscal
  quarter 2004 (for the fiscal quarter then ending)

  	
   

  	
  0.50:1.00

  
	
   

  	
   

  	
   

  
	
  end of first fiscal quarter 2005 (for the
  fiscal quarter then ending)

  	
   

  	
  1.00:1.00

  
	
   

  	
   

  	
   

  
	
  end of second fiscal quarter 2005 (for the
  2 consecutive fiscal quarters then ending)

  	
   

  	
  1.25:1.00

  
	
   

  	
   

  	
   

  
	
  end of third fiscal
  quarter 2005 (for the 3
  consecutive fiscal quarters then ending)

  	
   

  	
  1.50:1.00

  
	
   

  	
   

  	
   

  
	
  end of fourth fiscal quarter 2005 and the
  last day of each fiscal quarter thereafter (in each case for the four
  consecutive fiscal quarters then ending)

  	
   

  	
  1.50:1.00

  

 

7.24                           Adjusted
Tangible Net Worth.   The Borrower
will maintain Adjusted Tangible Net Worth, determined as of the last day of
each month commencing August 31, 2004, of at least $4,000,000 (less any
reductions to Adjusted Tangible Net Worth made at the end of the Borrower’s
Fiscal Year 2004 as a result of purchase price accounting adjustments required
by the Borrower’s certified public accountants), plus
50% of the aggregate amount of any Adjusted Net Earnings From Operations for
each fiscal quarter of Borrower (as set forth in the quarterly Financial
Statements of Borrower delivered to Lender pursuant to Section 5.2(b) hereof)
completed after the Closing Date and before such date of determination, but
excluding any fiscal quarter for which the Adjusted Net Earnings From
Operations is less than $0.

 

7.25                           Intentionally
Deleted.

 

7.26                           Hedge
Agreement.   The Borrower shall have
entered into and at all times during the term of this Agreement shall continue
to have, an interest rate cap Hedge Agreement, on terms acceptable to the
Lender, in the amount of at least $10,000,000.

 

7.27                           Use
of Proceeds.   The Borrower shall
not, and shall not suffer or permit any Subsidiary to, use any portion of the
Loan proceeds, directly or indirectly, (i) to purchase or carry Margin
Stock, (ii) to repay or otherwise refinance indebtedness of the Borrower
or others incurred to purchase or carry Margin Stock, (iii) to extend
credit for the purpose of purchasing or carrying any Margin Stock, or
(iv) to acquire any security in any transaction that is subject to
Section 13 or 14 of the Exchange Act.

 

7.28                           Further
Assurances.   The Borrower shall
execute and deliver, or cause to be executed and delivered, to the Lender such
documents and agreements, and shall take or cause to be taken such actions, as
the Lender may, from time to time, request to carry out the terms and
conditions of this Agreement and the other Loan Documents.

 

31

 

7.29                           Registered
Copyrights.   The Borrower shall not
obtain any registered copyrights or register any copyrights without giving
written notice to Lender within thirty (30) days of obtaining a registered
copyright or registering a copyright.

 

ARTICLE 8

CONDITIONS OF LENDING

 

8.1                                 Conditions
Precedent to Making of Loans on the Closing Date.   The obligation of the
Lender to make the initial Revolving Loans on the Closing Date, and the obligation
of the Lender to cause the Letter of Credit Issuer to issue any Letter of
Credit on the Closing Date, are subject to the following conditions
precedent having been satisfied in a manner satisfactory to the Lender:

 

(a)                                  This Agreement and the other Loan
Documents shall have been executed by each party thereto and the Borrower shall
have performed and complied with all covenants, agreements and conditions
contained herein and the other Loan Documents which are required to be
performed or complied with by the Borrower before or on such Closing Date.

 

(b)                                 Upon making the Revolving Loans
(including such Revolving Loans made to finance the Closing Fee, the
Administrative Fee, or otherwise as reimbursement for fees, costs and expenses
then payable under this Agreement) and with all its obligations current, the
Borrower shall have Availability of at least $12,000,000 if the Mortgage
Conditions have been satisfied as of the Closing Date or $9,000,000 if the
Mortgage Conditions have not been satisfied as of the Closing Data.

 

(c)                                  All representations and warranties
made hereunder and in the other Loan Documents shall be true and correct as if
made on such date.

 

(d)                                 No Default or Event of Default shall
have occurred and be continuing after giving effect to the Loans to be made and
the Letters of Credit to be issued on the Closing Date.

 

(e)                                  The Borrower shall have entered into
an interest rate cap Hedge Agreement, on terms acceptable to the Lender, in the
amount of at least $10,000,000.

 

(f)                                    The Lender shall have received such
opinions of counsel for the Borrower and its Subsidiaries as the Lender shall
request, each such opinion to be in a form, scope, and substance satisfactory
to the Lender, and its counsel.

 

(g)                                 The Lender shall have received:

 

(i)                                     acknowledgment copies of proper
financing statements, duly filed on or before the Closing Date under the UCC of
all jurisdictions that the Lender may deem necessary or desirable in order to
perfect the Lender’s Liens; and

 

32

 

(ii)                                  duly executed UCC-3 Termination
Statements and such other instruments, in form and substance satisfactory to
the Lender, as shall be necessary to terminate and satisfy all Liens on the
Property of the Borrower and its Subsidiaries except Permitted Liens.

 

(h)                                 The Borrower shall have paid all
fees and expenses of the Lender and the Attorney Costs incurred in connection
with any of the Loan Documents and the transactions contemplated thereby to the
extent invoiced.

 

(i)                                     The Lender shall have received
evidence, in form, scope, and substance, reasonably satisfactory to the Lender,
of all insurance coverage as required by this Agreement.

 

(j)                                     The Lender shall have had an
opportunity, if they so choose, to examine the books of account and other
records and files of the Borrower and to make copies thereof, and to conduct a
pre-closing audit which shall include, without limitation, verification of
Inventory, Accounts, and the Borrowing Base, and the results of such
examination and audit shall have been satisfactory to the Lender in all
respects.

 

(k)                                  All proceedings taken in connection
with the execution of this Agreement, all other Loan Documents and all
documents and papers relating thereto shall be satisfactory in form, scope, and
substance to the Lender.

 

(l)                                     Without limiting the generality of
the items described above, the Borrower and each Person guarantying or securing
payment of the Obligations shall have delivered or caused to be delivered to
the Lender (in form and substance reasonably satisfactory to the Lender), the
financial statements, instruments, resolutions, documents, agreements,
certificates, opinions and other items set forth on the “Closing Checklist”
delivered by the Lender to the Borrower prior to the Closing Date.

 

The acceptance by the Borrower of any Loans made or Letters of Credit
issued on the Closing Date shall be deemed to be a representation and warranty
made by the Borrower to the effect that all of the conditions precedent to the
making of such Loans or the issuance of such Letters of Credit have been
satisfied, with the same effect as delivery to the Lender of a certificate
signed by a Responsible Officer of the Borrower, dated the Closing Date, to
such effect.

 

8.2                                 Conditions Precedent to Each Loan.   The obligation of the Lender to make each
Loan, including the initial Revolving Loans on the Closing Date, and the
obligation of the Lender to cause the Letter of Credit Issuer to issue any
Letter of Credit shall be subject to the further conditions precedent that on
and as of the date of any such extension of credit:

 

(a)                                  The following statements shall be
true, and the acceptance by the Borrower of any extension of credit shall be
deemed to be a statement to the effect set forth in clauses (i), (ii) and
(iii) with the same effect as the delivery to the Lender of a
certificate signed by a Responsible Officer, dated the date of such extension
of credit, stating that:

 

33

 

(i)                                     The representations and warranties
contained in this Agreement and the other Loan Documents are correct in all
material respects on and as of the date of such extension of credit as though
made on and as of such date, other than any such representation or warranty
which relates to a specified prior date and except to the extent the Lender has
been notified in writing by the Borrower that any representation or warranty is
not correct and the Lender has explicitly waived in writing compliance with
such representation or warranty; and

 

(ii)                                  No event has occurred and is
continuing, or would result from such extension of credit, which constitutes a
Default or an Event of Default; and

 

(iii)                               No event has occurred and is
continuing, or would result from such extension of credit, which has had or
would have a Material Adverse Effect.

 

(b)                                 No such Borrowing shall exceed
Availability.

 

8.3                                 Conditions
Subsequent to Making of Loans on the Closing Date.   The Borrower shall deliver the following to
Lender:

 

(a)                                  Within sixty (60) days of the
Closing Date, the Borrower shall deliver to the Lender the audited balance
sheets and related statements of income, retained earnings, cash flows, and
changes in stockholders’ equity for the Borrower and its consolidated
Subsidiaries as of the fiscal period ending October 9, 2003, and for the
Fiscal Year then ended, accompanied by the report thereon of the Borrower’s
independent certified public accountants, Deloitte & Touche.  Such Financial Statements shall not reflect a
net investment of less than $29,000,000, or a net loss for such fiscal period
of more than $43,000,000.

 

(b)                                 Within thirty (30) days of the
Closing Date, the Borrower shall deliver to the Lender the stock certificates
along with a fully executed stock power with respect to each of the Borrower’s
Subsidiaries.

 

Borrower’s failure to deliver each of the above in form and substance
satisfactory to Lender and within the prescribed time period shall constitute
an Event of Default hereunder.

 

ARTICLE 9

DEFAULT; REMEDIES

 

9.1                                 Events
of Default.   It shall constitute an
event of default (“Event of Default”) if any one or more of the
following shall occur for any reason:

 

(a)                                  any failure by the Borrower to pay
the principal of or interest or premium on any of the Obligations or any fee or
other amount owing hereunder when due, whether upon demand or otherwise;

 

34

 

 

(b)                                 any representation or warranty made
or deemed made by the Borrower in this Agreement or by the Borrower or any of
its Subsidiaries in any of the other Loan Documents, any Financial Statement,
or any certificate furnished by the Borrower or any of its Subsidiaries at any
time to the Lender shall prove to be untrue in any material respect as of the
date on which made, deemed made, or furnished;

 

(c)                                  (i)  any default shall
occur in the observance or performance of any of the covenants and agreements
contained in Sections 5.2(l), 7.2, 7.5, 7.9-7.27,
or Section 11 of the Security Agreement, (ii) any default
shall occur in the observance or performance of any of the covenants and
agreements contained in Sections 5.2 (other than 5.2(l)) or 5.3 and such
default shall continue for three (3) days or more; or (iii) any
default shall occur in the observance or performance of any of the other
covenants or agreements contained in any other Section of this Agreement
or any other Loan Document, any other Loan Documents, or any other agreement
entered into at any time to which the Borrower or any Subsidiary and the Lender
are party (including in respect of any Bank Products) and such default shall
continue for thirty (30) days or more;

 

(d)                                 any default shall occur with respect
to any Debt (other than the Obligations) of the Borrower or any of its
Subsidiaries in an outstanding principal amount which exceeds $250,000, or
under any agreement or instrument under or pursuant to which any such Debt may
have been issued, created, assumed, or guaranteed by the Borrower or any of its
Subsidiaries, and such default shall continue for more than the period of
grace, if any, therein specified, if the effect thereof (with or without the
giving of notice or further lapse of time or both) is to accelerate, or to
permit the holders of any such Debt to accelerate, the maturity of any such
Debt; or any such Debt shall be declared due and payable or be required to be
prepaid (other than by a regularly scheduled required prepayment) prior to the
stated maturity thereof;

 

(e)                                  the Borrower or any of its
Subsidiaries shall (i) file a voluntary petition in bankruptcy or file a
voluntary petition or an answer or otherwise commence any action or proceeding
seeking reorganization, arrangement or readjustment of its debts or for any
other relief under the federal Bankruptcy Code, as amended, or under any other
bankruptcy or insolvency act or law, state or federal, now or hereafter
existing, or consent to, approve of, or acquiesce in, any such petition, action
or proceeding; (ii) apply for or acquiesce in the appointment of a
receiver, assignee, liquidator, sequestrator, custodian, monitor, trustee or
similar officer for it or for all or any part of its property; (iii) make
an assignment for the benefit of creditors; or (iv) be unable generally to
pay its debts as they become due;

 

(f)                                    an involuntary petition shall be
filed or an action or proceeding otherwise commenced seeking reorganization,
arrangement, consolidation or readjustment of the debts of the Borrower or any
of its Subsidiaries or for any other relief under the federal Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency act or law, state or
federal, now or hereafter existing and such petition or proceeding shall not be
dismissed within sixty (60) days after the filing or commencement thereof or an order of relief shall be entered with respect
thereto;

 

35

 

(g)                                 a receiver, assignee, liquidator,
sequestrator, custodian, monitor, trustee or similar officer for the Borrower
or any of its Subsidiaries or for all or any part of its property shall be
appointed or a warrant of attachment, execution or similar process shall be
issued against any part of the property of the Borrower or any of its
Subsidiaries;

 

(h)                                 the Borrower or any of its material
Subsidiaries shall file a certificate of dissolution under applicable state law
or shall be liquidated, dissolved or wound-up or shall commence or have
commenced against it any action or proceeding for dissolution, winding-up or
liquidation, or shall take any corporate action in furtherance thereof;

 

(i)                                     all or any material part of the
property of the Borrower or any of its material Subsidiaries shall be
nationalized, expropriated or condemned, seized or otherwise appropriated, or
custody or control of such property or of the Borrower or such material
Subsidiary shall be assumed by any Governmental Authority or any court of
competent jurisdiction at the instance of any Governmental Authority, except
where contested in good faith by proper proceedings diligently pursued where a
stay of enforcement is in effect;

 

(j)                                     the VPVP Guaranty or any other Loan
Document shall be terminated, revoked or declared void or invalid or
unenforceable or challenged by the Borrower or any other obligor;

 

(k)                                  one or more judgments, orders,
decrees or arbitration awards is entered against the Borrower involving in the
aggregate liability (to the extent not covered by independent third-party
insurance as to which the insurer does not dispute coverage) as to any single
or related or unrelated series of transactions, incidents or conditions, of
$250,000 or more, and the same shall remain unsatisfied, unvacated and unstayed
pending appeal for a period of thirty (30) days after the entry thereof;

 

(l)                                     any loss, theft, damage or destruction
of any item or items of Collateral or other property of the Borrower or any
Subsidiary occurs which could reasonably be expected to cause a Material
Adverse Effect and is not adequately covered by insurance;

 

(m)                               there is filed against the Borrower
or any of its Subsidiaries any action, suit or proceeding under any federal or
state racketeering statute (including the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (i) is not
dismissed within one hundred twenty (120) days, and (ii) could reasonably
be expected to result in the confiscation or forfeiture of any material portion
of the Collateral;

 

(n)                                 for any reason other than the
failure of the Lender to take any action available to it to maintain perfection
of the Lender’s Liens, pursuant to the Loan Documents, any Loan Document ceases
to be in full force and effect or any Lien with respect to any material portion
of the Collateral intended to be secured thereby ceases to be, or is not,
valid, perfected and prior to all other Liens (other than Permitted Liens) or
is terminated, revoked or declared void;

 

(o)                                 an ERISA Event shall occur with
respect to a Pension Plan or Multi-employer Plan which has resulted or could
reasonably be expected to result in liability of 

 

36

 

the
Borrower under Title IV of ERISA to the Pension Plan, Multi-employer Plan or
the PBGC in an aggregate amount in excess of $250,000; (ii) the aggregate
amount of Unfunded Pension Liability among all Pension Plans at any time
exceeds $250,000; or (iii) the Borrower or any ERISA Affiliate shall fail
to pay when due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under Section 4201 of
ERISA under a Multi-employer Plan in an aggregate amount in excess of $250,000;

 

(p)                                 there occurs a Change of Control;

 

(q)                                 there occurs an event having a Material
Adverse Effect; or

 

(r)                                    (i) there shall occur an Event
of Default under the VPVP Credit Facility (as Event of Default is defined
therein) or the Debt thereunder shall be declared due and payable or be
required to be prepaid (other than by a regularly scheduled required prepayment)
prior to the stated maturity thereof; provided that any cure under the
VPVP Credit Facility shall be deemed a cure hereunder, (ii) less than 60
days shall remain until the VPVP Credit Facility will be terminated (either as
a result of the scheduled maturity thereof or the early termination thereof by
the borrowers thereunder); (iii) or the VPVP Credit Facility shall be
refinanced in whole or in part by any financial institution other than Bank or
Fleet National Bank.

 

9.2                                 Remedies.

 

(a)                                  If a Default or an Event of Default
exists, the Lender may, in its discretion, do one or more of the following at
any time or times and in any order, without notice to or demand on the
Borrower:  (i) reduce the Maximum
Revolver Amount, or the advance rate against Eligible Accounts used in
computing the Borrowing Base, or reduce one or more of the other elements used
in computing the Borrowing Base; (ii) restrict the amount of or refuse to
make Revolving Loans; and (iii) restrict or refuse to provide Letters of
Credit or Credit Support.  If an Event of
Default exists, the Lender may, in its discretion, do one or more of the
following, in addition to the actions described in the preceding sentence, at
any time or times and in any order, without notice to or demand on the Borrower:  (A) terminate the Commitments and this
Agreement; (B) declare any or all Obligations to be immediately due and
payable; provided, however, that upon the occurrence of any Event
of Default described in Sections 9.1(e), 9.1(f), 9.1(g), or 9.1(h),
the Commitments shall automatically and immediately expire and all Obligations
shall automatically become immediately due and payable without notice or demand
of any kind; (C) require the Borrower to cash collateralize all
outstanding Letter of Credit Obligations; and (D) pursue its other rights
and remedies under the Loan Documents and applicable law.

 

(b)                                 If an Event of Default has occurred
and is continuing:  (i) the Lender
shall have in addition to all other rights of the Lender, the rights and
remedies of a secured party under the Loan Documents and the UCC; (ii) the
Lender may, at any time, take possession of the Collateral and keep it on the
Borrower’s premises, at no cost to the Lender, or remove any part of it to such
other place or places as the Lender may desire, or the Borrower shall, upon the
Lender’s demand, at the Borrower’s cost, assemble the Collateral and make it
available to the Lender at a place reasonably convenient to the Lender; and
(iii) the Lender may 

 

37

 

sell and
deliver any Collateral at public or private sales, for cash, upon credit or
otherwise, at such prices and upon such terms as the Lender deems advisable, in
its sole discretion, and may, if the Lender deems it reasonable, postpone or
adjourn any sale of the Collateral by an announcement at the time and place of
sale or of such postponed or adjourned sale without giving a new notice of
sale.  Without in any way requiring
notice to be given in the following manner, the Borrower agrees that any notice
by the Lender of sale, disposition or other intended action hereunder or in
connection herewith, whether required by the UCC or otherwise, shall constitute
reasonable notice to the Borrower if such notice is mailed by registered or
certified mail, return receipt requested, postage prepaid, or is delivered
personally against receipt, at least five (5) Business Days prior to such
action to the Borrower’s address specified in or pursuant to Section 12.8.   If any Collateral is sold on terms other
than payment in full at the time of sale, no credit shall be given against the
Obligations until the Lender receives payment, and if the buyer defaults in
payment, the Lender may resell the Collateral without further notice to the
Borrower.  In the event the Lender seeks
to take possession of all or any portion of the Collateral by judicial process,
the Borrower irrevocably waives: 
(A) the posting of any bond, surety or security with respect
thereto which might otherwise be required; (B) any demand for possession
prior to the commencement of any suit or action to recover the Collateral; and
(C) any requirement that the Lender retain possession and not dispose of
any Collateral until after trial or final judgment.  The Borrower agrees that the Lender has no
obligation to preserve rights to the Collateral or marshal any Collateral for
the benefit of any Person.  The Lender is
hereby granted a license or other right to use, without charge, the Borrower’s
labels, patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production of,
advertising or selling any Collateral, and the Borrower’s rights under all
licenses and all franchise agreements shall inure to the Lender’s benefit for
such purpose.  The proceeds of sale shall
be applied first to all expenses of sale, including attorneys’ fees, and then
to the Obligations.  The Lender will
return any excess to the Borrower and the Borrower shall remain liable for any
deficiency.

 

(c)                                  If an Event of Default occurs, the
Borrower hereby waives all rights to notice and hearing prior to the exercise
by the Lender of the Lender’s rights to repossess the Collateral without
judicial process or to reply, attach or levy upon the Collateral without notice
or hearing.

 

ARTICLE 10

TERM AND TERMINATION

 

10.1                           Term
and Termination.   The term of this
Agreement shall end on the Stated Termination Date unless sooner terminated in
accordance with the terms hereof.  The
Lender may terminate this Agreement without notice upon the occurrence of an
Event of Default.  Upon the effective
date of termination of this Agreement for any reason whatsoever, all
Obligations (including all unpaid principal, accrued and unpaid interest and
any early termination or prepayment fees or penalties) shall become immediately
due and payable and the Borrower shall immediately arrange for the cancellation
and return of Letters of Credit then outstanding.  Notwithstanding the termination of this Agreement,
until all Obligations are indefeasibly paid and performed in full in cash, the
Borrower shall remain bound by the terms of this Agreement and shall not be
relieved of any of its Obligations hereunder or under any other 

 

38

 

Loan Document,
and the Lender shall retain all its rights and remedies hereunder (including
the Lender’s Liens in and all rights and remedies with respect to all then
existing and after-arising Collateral).

 

ARTICLE 11

AMENDMENTS; WAIVERS; PARTICIPATIONS

 

11.1                           Amendments
and Waivers.   No amendment or waiver
of any provision of this Agreement or any other Loan Document, and no consent
with respect to any departure by the Borrower therefrom, shall be effective
unless the same shall be in writing and signed by the Lender and the Borrower
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

 

11.2                           Participations.

 

(a)                                  The Lender may at any time sell to
one or more commercial banks, financial institutions, or other Persons not
Affiliates of the Borrower (a “Participant”) participating interests in
any Loans, the Commitment of the Lender and the other interests of the Lender
hereunder and under the other Loan Documents; provided, however,
that (i) the Lender’s obligations under this Agreement shall remain
unchanged, (ii) the Lender shall remain solely responsible for the
performance of such obligations, (iii) the Borrower shall continue to deal
solely and directly with the Lender in connection with the Lender’s rights and
obligations under this Agreement and the other Loan Documents, (iv) the
Lender shall not transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document except with respect
to (1) an increase or extension of the Commitment of Lender or
(2) postponement or delay of any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to Lender hereunder or under any other Loan Document and (v) all amounts
payable by the Borrower hereunder shall be determined as if the Lender had not
sold such participation; except that, if amounts outstanding under this Agreement
are due and unpaid, or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of
set-off in respect of its participating interest in amounts owing under this
Agreement to the same extent and subject to the same limitation as if the
amount of its participating interest were owing directly to it as a Lender
under this Agreement.

 

(b)                                 Notwithstanding any other provision
in this Agreement, the Lender may at any time create a security interest in, or
pledge, all or any portion of its rights under and interest in this Agreement
in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Regulation 31 CFR §203.14, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.

 

39

 

ARTICLE 12

MISCELLANEOUS

 

12.1                           No Waivers;
Cumulative Remedies.   No failure by
the Lender to exercise any right, remedy, or option under this Agreement or any
present or future supplement thereto, or in any other agreement between the
Borrower and the Lender, or delay by the Lender in exercising the same, will
operate as a waiver thereof.  No waiver
by the Lender will be effective unless it is in writing, and then only to the
extent specifically stated.  No waiver by
the Lender on any occasion shall affect or diminish the Lender’s rights
thereafter to require strict performance by the Borrower of any provision of
this Agreement.  The Lender may proceed
directly to collect the Obligations without any prior recourse to the
Collateral.  The Lender’s rights under
this Agreement will be cumulative and not exclusive of any other right or
remedy which the Lender may have.

 

12.2                           Severability.   The illegality or unenforceability of any
provision of this Agreement or any Loan Document or any instrument or agreement
required hereunder shall not in any way affect or impair the legality or
enforceability of the remaining provisions of this Agreement or any instrument
or agreement required hereunder.

 

12.3                           Governing
Law; Choice of Forum; Service of Process.

 

(a)                                  THIS AGREEMENT SHALL BE INTERPRETED
AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE
WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS PROVIDED
THAT PERFECTION ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE
EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW RULES SET FORTH IN
ARTICLE 9 OF THE UCC) OF THE STATE OF CALIFORNIA; PROVIDED THAT THE LENDER
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

 

(b)                                 ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES OF AMERICA LOCATED IN
LOS ANGELES COUNTY, CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE BORROWER AND THE LENDER CONSENTS, FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.  EACH OF THE BORROWER AND THE LENDER
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN
SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED
HERETO.  NOTWITHSTANDING THE
FOREGOING:  (1) THE LENDER SHALL
HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE LENDER DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE 

 

40

 

OBLIGATIONS
AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE
COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.

 

(c)                                  THE BORROWER HEREBY WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS MAY BE MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED
TO THE BORROWER AT ITS ADDRESS SET FORTH IN SECTION 12.8 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 POSTAGE PREPAID.  NOTHING CONTAINED HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY
LAW.

 

(d)                                 NOTWITHSTANDING ANY OTHER PROVISION
OF THIS AGREEMENT TO THE CONTRARY, ANY CONTROVERSY OR CLAIM BETWEEN THE
PARTIES, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT
THE REQUEST OF EITHER PARTY HERETO BE DETERMINED BY BINDING ARBITRATION.  The arbitration shall be conducted in accordance
with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding
any choice of law provision in this Agreement, and under the Commercial
Rules of the American Arbitration Association (“AAA”).  The arbitrator(s) shall give effect to
statutes of limitation in determining any claim.  Any controversy concerning whether an issue
is arbitrable shall be determined by the arbitrator(s).  Judgment upon the arbitration award may be
entered in any court having jurisdiction. 
The institution and maintenance of an action for judicial relief or
pursuant to a provisional or ancillary remedy shall not constitute a waiver of
the right of either party, including the plaintiff, to submit the controversy
or claim to arbitration if any other party contests such action for judicial
relief.

 

(e)                                  Notwithstanding the provisions of
(d) above, no controversy or claim shall be submitted to arbitration
without the consent of all parties if, at the time of the proposed submission,
such controversy or claim arises from or related to an obligation to the Lender
which is secured by real estate property collateral (exclusive of real estate
space lease assignments).  If all the
parties do not consent to submission of such a controversy or claim to
arbitration, the controversy or claim shall be determined as provided in Section 12.3(f).

 

(f)                                    At the request of either party a
controversy or claim which is not submitted to arbitration as provided and
limited in Section 12.3(d) and (e) shall be
determined by judicial reference.  If
such an election is made, the parties shall designate to the court a referee or
referees selected under the auspices of the AAA in the same manner as
arbitrators are selected in AAA-sponsored proceedings.  The presiding referee of the panel, or the referee
if there is a single referee, shall be an active attorney or retired
judge.  Judgment upon the award rendered
by such referee or referees shall be entered in the court in which such
proceeding was commenced.

 

41

 

(g)                                 No provision of Sections (d) through
(g) shall limit the right of the Lender to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or obtaining provisional or ancillary remedies
from a court of competent jurisdiction before, after, or during the pendency of
any arbitration or other proceeding.  The
exercise of a remedy does not waive the right of either party to resort to
arbitration or reference.  At the Lender’s
option, foreclosure under a deed of trust or mortgage may be accomplished
either by exercise of power of sale under the deed of trust or mortgage or by
judicial foreclosure.

 

12.4                           WAIVER
OF JURY TRIAL.   SUBJECT TO THE
PROVISIONS OF SECTION 12.3(d), THE
BORROWER AND THE LENDER EACH IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION
OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY
LENDER-RELATED PERSON OR PARTICIPANT, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE.  THE BORROWER
AND THE LENDER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED
BY A COURT TRIAL WITHOUT A JURY.  WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT
TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF.  THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

 

12.5                           Survival
of Representations and Warranties.  
All of the Borrower’s representations and warranties contained in this
Agreement shall survive the execution, delivery, and acceptance thereof by the
parties, notwithstanding any investigation by the Lender or its agents.

 

12.6                           Other
Security and Guaranties.   The
Lender, may, without notice or demand and without affecting the Borrower’s
obligations hereunder, from time to time: 
(a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof; and (b) accept and
hold any endorsement or guaranty of payment of all or any part of the Obligations
and release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or
any part of the Obligations, or any other Person in any way obligated to pay
all or any part of the Obligations.

 

12.7                           Fees
and Expenses.   The Borrower agrees
to pay to the Lender, for its benefit, on demand, all costs and expenses that
Lender pays or incurs in connection with the negotiation, preparation,
consummation, administration, enforcement, and termination of this 

 

42

 

Agreement or any of the other
Loan Documents, including: (a) Attorney Costs; (b) costs and expenses
(including attorneys’ and paralegals’ fees and disbursements) for any amendment,
supplement, waiver, consent, or subsequent closing in connection with the Loan
Documents and the transactions contemplated thereby; (c) costs and
expenses of lien and title searches and title insurance; (d) taxes, fees
and other charges for recording the Mortgage, filing financing statements and
continuations, and other actions to perfect, protect, and continue the Lender’s
Liens (including costs and expenses paid or incurred by the Lender in
connection with the consummation of Agreement); (e) sums paid or incurred
to pay any amount or take any action required of the Borrower under the Loan
Documents that the Borrower fails to pay or take; (f) costs of appraisals,
inspections, and verifications of the Collateral, including travel, lodging,
and meals for inspections of the Collateral and the Borrower’s operations by
the Lender plus the Lender’s then customary charge for field examinations and
audits and the preparation of reports thereof (such charge is currently $850
per day (or portion thereof) for each Person retained or employed by the Lender
with respect to each field examination or audit); and (g) costs and
expenses of forwarding loan proceeds, collecting checks and other items of
payment, and establishing and maintaining Payment Accounts and lock boxes, and
costs and expenses of preserving and protecting the Collateral.  In addition, the Borrower agrees to pay costs
and expenses incurred by the Lender (including Attorneys’ Costs) to the Lender,
on demand, paid or incurred to obtain payment of the Obligations, enforce the
Lender’s Liens, sell or otherwise realize upon the Collateral, and otherwise
enforce the provisions of the Loan Documents, or to defend any claims made or
threatened against the Lender arising out of the transactions contemplated hereby
(including preparations for and consultations concerning any such
matters).  The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs
and expenses to be paid by the Borrower. 
All of the foregoing costs and expenses shall be charged to the Borrower’s
Loan Account as Revolving Loans as described in Section 3.7.

 

12.8                           Notices.   Except as otherwise provided herein, all
notices, demands and requests that any party is required or elects to give to
any other shall be in writing, or by a telecommunications device capable of
creating a written record, and any such notice shall become effective
(a) upon personal delivery thereof, including, but not limited to,
delivery by overnight mail and courier service, (b) four (4) days
after it shall have been mailed by United States mail, first class, certified
or registered, with postage prepaid, or (c) in the case of notice by such
a telecommunications device, when properly transmitted, in each case addressed
to the party to be notified as follows:

 

	
  If to the Lender or to the Bank:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Bank of America, N.A.

  	
   

  	
   

  
	
  55 South Lake Ave.

  	
   

  	
   

  
	
  Suite. 900

  	
   

  	
   

  
	
  Pasadena, California 91101

  
	
  Attention:

  	
   

  	
  Business Capital

  
	
   

  	
   

  	
  Account Executive

  
	
  Telecopier:

  	
   

  	
  626.397.1273

  
					

 

43

 

	
  With copies to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Buchalter, Nemer, Fields & Younger

  	
   

  	
   

  
	
  601 South Figueroa, Suite 2400

  	
   

  	
   

  
	
  Los Angeles, California 90017

  
	
  Attention:

  	
   

  	
  Robert J. Davidson, Esq.

  
	
  Telecopier:

  	
   

  	
  213.896.0400

  
	
   

  
	
  If to the Borrower:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Aviza Technology, Inc.

  	
   

  	
   

  
	
  440 Kings Village Road

  	
   

  	
   

  
	
  Scotts Valley, California 95066

  
	
  Attention:

  	
   

  	
  Pat O’Connor

  
	
  Telecopier:

  	
   

  	
  (831) 439-0320

  
	
   

  
	
  With a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Latham & Watkins

  	
   

  	
   

  
	
  505 Montgomery Street, Suite 1900

  	
   

  	
   

  
	
  San Francisco, California 94111

  
	
  Attention:

  	
   

  	
  John Kenney, Esq.

  
	
  Telecopier:

  	
   

  	
  415.395.8095

  
							

 

or to such other address as each
party may designate for itself by like notice. 
Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
above to receive copies shall not adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.

 

12.9                           Waiver of Notices.   Unless otherwise expressly provided herein,
the Borrower waives presentment, and notice of demand or dishonor and protest
as to any instrument, notice of intent to accelerate the Obligations and notice
of acceleration of the Obligations, as well as any and all other notices to
which it might otherwise be entitled.  No
notice to or demand on the Borrower which the Lender may elect to give shall
entitle the Borrower to any or further notice or demand in the same, similar or
other circumstances.

 

12.10                     Binding
Effect.   The provisions of this
Agreement shall be binding upon and inure to the benefit of the respective
representatives, successors, and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by the Borrower without
prior written consent of the Lender.  The
rights and benefits of the Lender hereunder shall, if such Persons so agree, inure to any party acquiring any interest in the
Obligations or any part thereof.

 

44

 

12.11                     Indemnity
of the Lender by the Borrower.

 

(a)                                  The Borrower agrees to defend,
indemnify and hold the Lender-Related Persons, and the Lender and each of its
respective officers, directors, employees, counsel, representatives, agents and
attorneys-in-fact (each, an “Indemnified Person”) harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, charges, expenses and disbursements
(including Attorney Costs) of any kind or nature whatsoever which may at any
time (including at any time following repayment of the Loans and the
termination or replacement of the Lender) 
be imposed on, incurred by or asserted against any such Person in any
way relating to or arising out of this Agreement or any document contemplated
by or referred to herein, or the transactions contemplated hereby, or any
action taken or omitted by any such Person under or in connection with any of
the foregoing, including with respect to any investigation, litigation or proceeding
(including any Insolvency Proceeding or appellate proceeding) related to or
arising out of this Agreement, any other Loan Document, or the Loans or the use
of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the “Indemnified Liabilities”);
provided, that the Borrower shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities resulting solely
from the willful misconduct of such Indemnified Person. The agreements in this Section shall
survive payment of all other Obligations.

 

(b)                                 The Borrower agrees to indemnify,
defend and hold harmless the Lender from any loss or liability directly or
indirectly arising out of the use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal or presence of a
hazardous substance relating to the Borrower’s operations, business or
property.  This indemnity will apply
whether the hazardous substance is on, under or about the Borrower’s property
or operations or property leased to the Borrower.  The indemnity includes but is not limited to
Attorneys Costs.  The indemnity extends
to the Lender, its parents, affiliates, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.  “Hazardous substances” means any substance,
material or waste that is or becomes designated or regulated as “toxic,” “hazardous,”
“pollutant,” or “contaminant” or a similar designation or regulation under any
federal, state or local law (whether under common law, statute, regulation or
otherwise) or judicial or administrative interpretation of such, including
petroleum or natural gas.  This indemnity
will survive repayment of all other Obligations.

 

12.12                     Limitation
of Liability.   NO CLAIM MAY BE
MADE BY THE BORROWER OR OTHER PERSON AGAINST THE LENDER, OR ITS AFFILIATES,
DIRECTORS, OFFICERS, EMPLOYEES, COUNSEL, REPRESENTATIVES, AGENTS OR
ATTORNEYS-IN-FACT FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES
IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY
ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION
THEREWITH, AND THE BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON
ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR
SUSPECTED TO EXIST IN ITS FAVOR.

 

45

 

12.13                     Final
Agreement.   This Agreement and the
other Loan Documents are intended by the Borrower and the Lender to be the
final, complete, and exclusive expression of the agreement between them.  This Agreement supersedes any and all prior
oral or written agreements relating to the subject matter hereof.  No modification, rescission, waiver, release,
or amendment of any provision of this Agreement or any other Loan Document
shall be made, except by a written agreement signed by the Borrower and a duly
authorized officer of the Lender.

 

12.14                     Counterparts.   This Agreement may be executed in any number
of counterparts, and by the Lender and the Borrower in separate counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.

 

12.15                     Captions.   The captions contained in this Agreement are
for convenience of reference only, are without substantive meaning and should
not be construed to modify, enlarge, or restrict any provision.

 

12.16                     Right of
Setoff.   In addition to any rights
and remedies of the Lender provided by law, if an Event of Default exists or the
Loans have been accelerated, the Lender is authorized at any time and from time
to time, without prior notice to the Borrower, any such notice being waived by
the Borrower to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held by, and other indebtedness at any time owing by, the Lender or
any Affiliate of the Lender to or for the credit or the account of the Borrower
against any and all Obligations owing to such Lender, now or hereafter
existing, irrespective of whether or not the Lender shall have made demand
under this Agreement or any Loan Document and although such Obligations may be
contingent or unmatured.  The Lender
agrees promptly to notify the Borrower after any such set-off and application
made by the Lender; provided, however, that the failure to give
such notice shall not affect the validity of such set-off and application.

 

12.17                     Confidentiality.

 

(a)                                  After obtaining advance written
consent from Borrower, such consent not to be unreasonably withheld, Lender may
issue and disseminate to the public general information describing the credit
accommodation entered into pursuant to this Agreement, including the name and
address of the Borrower and a general description of the Borrower’s business
and may use the Borrower’s name in advertising and other promotional material.

 

(b)                                 The Lender severally agrees to take
normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information identified as “confidential” or “secret” by
the Borrower (or that, in Lender’s reasonable judgment, appear to be “confidential”
or “secret” irrespective of whether so marked) and provided to the Lender by or
on behalf of the Borrower, under this Agreement or any other Loan Document,
except to the extent that such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Lender, or (ii) was
or becomes available on a nonconfidential basis 

 

46

 

from a source other than the Borrower, provided that such
source is not bound by a confidentiality agreement with the Borrower known to
the Lender; provided, however, that the Lender may disclose such information
(1) at the request or pursuant to any requirement of any Governmental
Authority to which the Lender is subject or in connection with an examination
of the Lender by any such Governmental Authority; (2) pursuant to subpoena
or other court process; (3) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (4) to the extent
reasonably required in connection with any litigation or proceeding (including,
but not limited to, any bankruptcy proceeding) to which the Lender or its
respective Affiliates may be party; (5) to the extent reasonably required
in connection with the exercise of any remedy hereunder or under any other Loan
Document; (6) to the Lender’s independent auditors, accountants, attorneys
and other professional advisors; (7) to any prospective Participant,
actual or potential, provided that such prospective Participant agrees to keep
such information confidential to the same extent required of the Lender
hereunder;  (8) as expressly
permitted under the terms of any other document or agreement regarding
confidentiality to which the Borrower is party or is deemed party with the
Lender, and (9) to its Affiliates.

 

12.18                     Conflicts
with Other Loan Documents.   Unless
otherwise expressly provided in this Agreement (or in another Loan Document by
specific reference to the applicable provision contained in this Agreement), if
any provision contained in this Agreement conflicts with any provision of any
other Loan Document, the provision contained in this Agreement shall govern and
control.

 

12.19                     Release of
Real Estate Collateral.   The Lender
agrees that, at any time that no Default or Event of Default exists and is
continuing, upon the Borrower’s request the Lender shall release the Mortgage
on the Scotts Valley Real Estate, provided that:  (a) such Real Estate is being sold or
refinanced on terms and conditions disclosed to the Lender at least 30 days in
advance of such sale or refinance, and all material terms and conditions of
such sale or disposition are acceptable to the Lender in its reasonable
discretion; (b) as of the effective date of such sale or refinance, the
Aggregate Revolver Outstandings shall not exceed the Borrowing Base (with
Borrowing Base defined for purposes of this Section 12.19 as if the
Eligible Acceptance Amount were $0).

 

47

 

IN WITNESS WHEREOF, the parties have entered into this Agreement on the
date first above written.

 

	
   

  	
  “BORROWER”

  
	
   

  	
   

  
	
   

  	
  AVIZA TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Patrick C. O’Connor

  
	
   

  	
  Title:

  	
  Chief Financial Officer and Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “LENDER” 

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen King

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  

 

S-1

 

ANNEX A

to

Credit
Agreement

Definitions

 

1.                                       Capitalized
terms used in the Loan Documents shall have the following respective meanings
(unless otherwise defined therein), and all section references in the
following definitions shall refer to sections of the Agreement:

 

“Accounts” means all of the Borrower’s now owned or hereafter
acquired or arising accounts, as defined in the UCC, including any rights to
payment for the sale or lease of goods or rendition of services, whether or not
they have been earned by performance.

 

“Account Debtor” means each Person obligated in any way on or in
connection with an Account, Chattel Paper or General Intangibles (including a
payment intangible).

 

“ACH Transactions” means any cash management or related services
including the automatic clearing house transfer of funds by the Bank for the
account of the Borrower pursuant to agreement or overdrafts.

 

“Acquisition” means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in (a) the
acquisition of all or substantially all of the assets of a Person, or of any
business or division of a Person, (b) the acquisition of in excess of 50%
of the capital stock, partnership interests, membership interests or equity of
any Person, or otherwise causing any Person to become a Subsidiary of such
Person, or (c) a merger or consolidation or any other combination with
another Person.

 

“Adjusted Net Earnings from Operations” means, with respect to
any fiscal period of the Borrower, the Borrower’s net income after provision
for income taxes for such fiscal period, as determined in accordance with GAAP
and reported on the Financial Statements for such period, excluding any and all
of the following included in such net income: 
(a) gain or loss arising from the sale of any capital assets; (b) gain
arising from any write-up in the book value of any asset; (c) earnings of
any Person, substantially all the assets of which have been acquired by the
Borrower in any manner, to the extent realized by such other Person prior to
the date of acquisition; (d) earnings of any Person in which the Borrower
has an ownership interest unless (and only to the extent) such earnings shall
actually have been received by the Borrower in the form of cash distributions; (e) earnings
of any Person to which assets of the Borrower shall have been sold, transferred
or disposed of, or into which the Borrower shall have been merged, or which has
been a party with the Borrower to any consolidation or other form of
reorganization, prior to the date of such transaction; (f) gain arising
from the acquisition of debt or equity securities of the Borrower or from
cancellation or forgiveness of Debt; and (g) gain arising from
extraordinary items, as determined in accordance with GAAP, or from any other
non-recurring transaction.

 

 “Adjusted Tangible Assets”
means all of the Borrower’s domestic assets except: (a) deferred assets,
other than (i) prepaid insurance, (ii) prepaid taxes, and (iii) deferred
taxes; (b) Proprietary 

 

1

 

Rights and other similar intangibles; (c) Restricted Investments; (d) unamortized
debt discount and expense; (e) assets of the Borrower constituting
intercompany accounts; (f) fixed assets to the extent of any write up in
the book value thereof resulting from a revaluation effective after the Closing
Date.

 

“Adjusted Tangible Net Worth” means, at any date:  (a) the book value (after deducting
related depreciation, obsolescence, amortization, valuation, and other proper
reserves as determined in accordance with GAAP) at which the Adjusted Tangible
Assets would be shown on a balance sheet of the Borrower at such date prepared
in accordance with GAAP, less (b) the amount at which the Borrower’s
liabilities would be shown on such balance sheet, including as liabilities all
reserves for contingencies and other potential liabilities which would be
required to be shown on such balance sheet in accordance with GAAP.

 

“Administrative Fee” has the meaning specified in Section 2.7.

 

“Affiliate” means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person or which owns, directly or indirectly, five percent
(5%) or more of the outstanding equity interest of such Person. A Person shall
be deemed to control another Person if the controlling Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the ownership of
voting securities, by contract, or otherwise.

 

“Affiliate Guaranty” means that certain Guaranty, dated as of
the Closing Date, by VPVP and/or its Affiliates in favor of Lender.

 

“Aggregate Revolver Outstandings” means, at any date of
determination:  the sum of (a) the
unpaid balance of Revolving Loans, (b) the aggregate amount of Pending
Revolving Loans, (c) one hundred percent (100%) of the aggregate undrawn
face amount of all outstanding Letters of Credit, and (d) the aggregate
amount of any unpaid reimbursement obligations in respect of Letters of Credit.

 

“Agreement” means the Credit Agreement to which this Annex A is
attached, as from time to time amended, modified or restated.

 

“Anniversary Date” means each anniversary of the Closing Date.

 

“Approved Foreign Account Debtor” means an Account Debtor which (i) is
not a Domestic Account Debtor, and (ii) Lender has determined, in its sole
discretion, is acceptable for purposes of including Accounts generated by it as
Eligible Domestic Accounts in view of its creditworthiness and its having a
significant operating presence in and assets in the United States of America.

 

“ATI” means Aviza Technology International, Inc., a
Delaware corporation.

 

“Attorney Costs” means and includes all reasonable fees,
expenses and disbursements of any law firm or other counsel engaged by the
Lender, the reasonably allocated costs and expenses of internal legal services
of the Lender.

 

2

 

“Availability” means, at any time (a) the lesser of (i) the
Maximum Revolver Amount or (ii) the Borrowing Base, minus (b) Reserves
other than Reserves deducted in the calculation of the Borrowing Base, minus
(c) in each case, the Aggregate Revolver Outstandings.

 

“Bank” means Bank of America, N.A., a national banking association,
or any successor entity thereto.

 

“Bank Products” means any one or more of the following types of
services or facilities extended to the Borrower by the Bank or any affiliate of
the Bank in reliance on the Bank’s agreement to indemnify such affiliate:  (i) credit cards; (ii) ACH
Transactions; (iii) cash management, including controlled disbursement
services; and (iv) Hedge Agreements.

 

“Bank Product Reserves” means all reserves which the Lender from
time to time establishes in its reasonable discretion for the Bank Products
then provided or outstanding.

 

“Bankruptcy Code” means Title 11 of the United States Code (11
U.S.C. § 101 et  seq.).

 

“Base Rate” means, for any day, the rate of interest in effect
for such day as publicly announced from time to time by the Bank in Charlotte,
North Carolina as its “prime rate” (the “prime rate” being a rate set by the
Bank based upon various factors including the Bank’s costs and desired return,
general economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate).  Any change in the prime rate
announced by the Bank shall take effect at the opening of business on the day
specified in the public announcement of such change.  Each Interest Rate based upon the Base Rate
shall be adjusted simultaneously with any change in the Base Rate.

 

“Blocked Account Agreement” means an agreement among the
Borrower, the Lender and a Clearing Bank, in form and substance reasonably
satisfactory to the Lender, concerning the collection of payments which
represent the proceeds of Accounts or of any other Collateral.

 

“Borrowing” means a borrowing hereunder consisting of Revolving
Loans made on the same day by the Lender to the Borrower or the issuance of
Letters of Credit hereunder.

 

“Borrowing Base” means, at any time, an amount equal to (a) the
sum of the Revolver A Borrowing Base plus the Revolver B Borrowing Base,
minus (b) Reserves from time to time established by the Lender in its
reasonable credit judgment, without duplication of any Reserves already taken
in calculating the Revolver B Borrowing Base.

 

“Borrowing Base Certificate” means a certificate by a
Responsible Officer of the Borrower, substantially in the form of Exhibit B
(or another form acceptable to the Lender) setting forth the calculation of the
Borrowing Base, including a calculation of each component thereof, all in such
detail as shall be reasonably satisfactory to the Lender.  All calculations of the Borrowing Base in
connection with the preparation of any Borrowing Base Certificate shall
originally be made by the Borrower and certified to the Lender; provided, that
the Lender shall have the right to review and adjust, in the exercise of its
reasonable credit judgment, any such calculation (1) to reflect its
reasonable estimate of declines in value of any of the Collateral described
therein, and (2) to the extent that such calculation is not in accordance
with this Agreement.

 

3

 

“Business Day” means any day that is not a Saturday, Sunday, or
a day on which banks in Los Angeles, California or Charlotte, North Carolina
are required or permitted to be closed.

 

“Capital Adequacy Regulation” means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation controlling
a bank.

 

“Capital Expenditures” means all payments due (whether or not
paid during any fiscal period) in respect of the cost of any fixed asset or
improvement, or replacement, substitution, or addition thereto, which has a
useful life of more than one year, including, without limitation, those costs
arising in connection with the direct or indirect acquisition of such asset by
way of increased product or service charges or in connection with a Capital
Lease.

 

“Capital Lease” means any lease of property by the Borrower
which, in accordance with GAAP, should be reflected as a capital lease on the
balance sheet of the Borrower.

 

“Change of Control” shall occur in the event that either (a) VPVP
ceases to own, directly or indirectly, and control a number of shares of
outstanding voting capital stock of the Borrower at least as great as the
number of such shares that it owns as of the Closing Date; or (b) any
person (as such term is used in Section 13(d) and Section 14(d)(2) of
the Exchange Act), or related persons constituting a group (as such term is
used in Rule 13d-5 under the Exchange Act) other than VPVP, owns, directly
or indirectly, and controls more than the lesser of (i) 25% of the
outstanding voting capital stock of the Borrower, or (ii) the percentage
of the outstanding voting capital stock of the Borrower held by VPVP.

 

“Chattel Paper” means all of the Borrower’s now owned or
hereafter acquired chattel paper, as defined in the UCC, including electronic
chattel paper.

 

“Clearing Bank” means the Bank or any other banking institution
with whom a Payment Account has been established pursuant to a Blocked Account
Agreement.

 

“Closing Date” means the date of this Agreement.

 

“Closing Fee” has the meaning specified in Section 2.4.

 

“Code” means the Internal Revenue Code of 1986.

 

“Collateral” means all of the Borrower’s real and personal
property and all other assets of any Person from time to time subject to Lender’s
Liens securing payment or performance of the Obligations.

 

“Commitment” means, at any time the principal amount set forth
beside the Lender’s name under the heading “Commitment” on Schedule 1.2
attached to the Agreement and “Commitments” means, collectively, the
aggregate amount of the commitments of the Lender.

 

4

 

“Contaminant” means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated
biphenyls (“PCBs”), or any constituent of any such substance or waste.

 

 “Credit Support” has the
meaning specified in Section 1.4(a).

 

“Debt” means, without duplication, all liabilities, obligations
and indebtedness of the Borrower to any Person, of any kind or nature, now or
hereafter owing, arising, due or payable, howsoever evidenced, created,
incurred, acquired or owing, whether primary, secondary, direct, contingent,
fixed or otherwise, consisting of indebtedness for borrowed money or the
deferred purchase price of property, excluding trade payables, but including (a) all
Obligations; (b) all obligations and liabilities of any Person secured by
any Lien on the Borrower’s property, even though the Borrower shall not have
assumed or become liable for the payment thereof; provided, however,
that all such obligations and liabilities which are limited in recourse to such
property shall be included in Debt only to the extent of the book value of such
property as would be shown on a balance sheet of the Borrower prepared in
accordance with GAAP; (c) all obligations or liabilities created or
arising under any Capital Lease or conditional sale or other title retention
agreement with respect to property used or acquired by the Borrower, even if
the rights and remedies of the lessor, seller or lender thereunder are limited
to repossession of such property; provided, however, that all
such obligations and liabilities which are limited in recourse to such property
shall be included in Debt only to the extent of the book value of such property
as would be shown on a balance sheet of the Borrower prepared in accordance
with GAAP; (d) all obligations and liabilities under Guaranties and (e) the
present value (discounted at the Base Rate) of lease payments due under
synthetic leases.

 

“Default” means any event or circumstance which, with the giving
of notice, the lapse of time, or both, would (if not cured, waived, or
otherwise remedied during such time) constitute an Event of Default.

 

“Default Rate” means a fluctuating per annum interest rate
at all times equal to the sum of (a) the otherwise applicable Interest
Rate plus (b) 2% per annum. 
Each Default Rate shall be adjusted simultaneously with any change in
the applicable Interest Rate.  In
addition, the Default Rate shall result in an increase in the Letter of Credit
Fee by 2 percentage points per annum.

 

“Deposit Accounts” means all “deposit accounts” as such term is
defined in the UCC, now or hereafter held in the name of Borrower.

 

“Designated Account” has the meaning specified in Section 1.2(c).

 

“Dilution” means, for Borrower (as determined by the Lender at
any time in its sole discretion), based upon the experience of the immediately
prior 12 months, the result of dividing the Dollar amount of (a) bad debt
write-downs, discounts, advertising allowances, returns, rebates, promotional
allowances, credits, or other dilutive items with respect to the Accounts of
Borrower, by (b) the aggregate amount of cash collections from Borrower’s
Accounts plus the amount in clause (a) for such period.

 

5

 

“Dilution Reserve” means a reserve equal to (a) the total
Dollar amount of Eligible Accounts of Borrower times two-tenths of one
percentage point for each one-tenth of one percentage point by which Dilution
is in excess of 7.5%.  By way of example,
Dilution of 9.6% would require a Dilution Reserve of 4.2% of the amount of
Borrower’s Eligible Accounts.

 

“Distribution” means, in respect of any corporation: (a) the
payment or making of any dividend or other distribution of property in respect
of capital stock (or any options or warrants for, or other rights with respect
to, such stock) of such corporation, other than distributions in capital stock
(or any options or warrants for such stock) of the same class; or (b) the
redemption or other acquisition by such corporation of any capital stock (or
any options or warrants for such stock) of such corporation.

 

“Documents” means all documents as such term is defined in the
UCC, including bills of lading, warehouse receipts or other documents of title,
now owned or hereafter acquired by the Borrower.

 

“DOL” means the United States Department of Labor or any
successor department or agency.

 

“Dollar” and “$” means dollars in the lawful currency of
the United States.  Unless otherwise
specified, all payments under the Agreements shall be made in Dollars.

 

“Domestic Account Debtor” means an Account Debtor which (i) maintains
its chief executive office in the United States of America or Canada, and (ii) is
organized under the laws of the United States of America or Canada or any state
or province thereof.

 

“EBITDA” means, with respect to any fiscal period of the
Borrower, Adjusted Net Earnings from Operations, plus, to the extent
deducted in the determination of Adjusted Net Earnings from Operations for that
fiscal period, interest expenses, Federal, state, local and foreign income
taxes, depreciation and amortization.

 

“Eligible Acceptance Amount” means, with respect to any invoices
that (a) evidence an Eligible Domestic Account or Eligible Foreign
Account, and (b) contain “acceptance” billing or “retention” billing
provisions (as those terms are used in the ordinary course of the Borrower’s
business as conducted on the Closing Date), the portions of such invoices that
are due following, and contingent upon, the Account Debtor’s acceptance of the
goods shipped; provided, however, that no such portion shall be
considered for eligibility hereunder if it remains outstanding more than 60
days after the Account Debtor’s acceptance of the goods related thereto.

 

“Eligible Accounts” means, collectively, Eligible Domestic
Accounts and Eligible Foreign Accounts.

 

“Eligible Domestic Accounts” means
the Accounts which the Lender in the exercise of its reasonable commercial
discretion determines to be Eligible Domestic Accounts.  Without limiting the discretion of the Lender
to establish other criteria of ineligibility, Eligible Domestic Accounts shall
not, unless the Lender in its sole discretion elects, include any Account:

 

6

 

(a)                                  with
respect to which more than 90 days have elapsed since the date of the original
invoice therefor (provided, however, that Lender may from time to
time in the future, in its sole discretion, include as Eligible Accounts the
Accounts owing by creditworthy Account Debtors for which as many as 110 days
have elapsed since the date of the original invoice therefor or which is more
than 60 days past due;

 

(b)                                 with respect to which any of the representations,
warranties, covenants, and agreements contained in the Security Agreement are
incorrect or have been breached;

 

(c)                                  with
respect to which Account (or any other Account due from such Account Debtor),
in whole or in part, a check, promissory note, draft, trade acceptance or other
instrument for the payment of money has been received, presented for payment
and returned uncollected for any reason;

 

(d)                                 which
represents a progress billing (as hereinafter defined) or as to which the
Borrower has extended the time for payment without the consent of the Lender;
for the purposes hereof, “progress billing” means any invoice for goods sold or
leased or services rendered under a contract or agreement pursuant to which the
Account Debtor’s obligation to pay such invoice is conditioned upon the
Borrower’s completion of any further performance under the contract or
agreement;

 

(e)                                  with
respect to which any one or more of the following events has occurred to the
Account Debtor on such Account:  death or
judicial declaration of incompetency of an Account Debtor who is an individual;
the filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as
a bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors; the appointment
of a receiver or trustee for the Account Debtor or for any of the assets of the
Account Debtor, including, without limitation, the appointment of or taking
possession by a “custodian,” as defined in the Federal Bankruptcy Code; the
institution by or against the Account Debtor of any other type of insolvency
proceeding (under the bankruptcy laws of the United States or otherwise) or of
any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the Account Debtor;
the sale, assignment, or transfer of all or any material part of the assets of
the Account Debtor; the nonpayment generally by the Account Debtor of its debts
as they become due; or the cessation of the business of the Account Debtor as a
going concern;

 

(f)                                    if
50% or more of the aggregate Dollar amount of outstanding Accounts owed at such
time by the Account Debtor thereon is classified as ineligible under clause (a) above;

 

(g)                                 owed
by an Account Debtor which is neither a Domestic Account Debtor nor an Approved
Foreign Account Debtor, except to the extent that such Account is secured or
payable by a letter of credit satisfactory to the Lender in its discretion;

 

(h)                                 owed by an Account Debtor which is an Affiliate or employee
of the Borrower;

 

7

 

(i)                                     except
as provided in clause (k) below, with respect to which either the
perfection, enforceability, or validity of the Lender’s Liens in such Account,
or the Lender’s right or ability to obtain direct payment to the Lender of the
proceeds of such Account, is governed by any federal, state, or local statutory
requirements other than those of the UCC;

 

(j)                                     owed
by an Account Debtor to which the Borrower or any of its Subsidiaries, is
indebted in any way, or which is subject to any right of setoff or recoupment
by the Account Debtor, unless the Account Debtor has entered into an agreement
acceptable to the Lender to waive setoff rights; or if the Account Debtor
thereon has disputed liability or made any claim with respect to any other
Account due from such Account Debtor; but in each such case only to the extent
of such indebtedness, setoff, recoupment, dispute, or claim;

 

(k)                                  owed
by the government of the United States of America, or any department, agency,
public corporation, or other instrumentality thereof, unless the Federal
Assignment of Claims Act of 1940, as amended (31 U.S.C. § 3727 et  seq.),
and any other steps necessary to perfect the Lender’s Liens therein, have been
complied with to the Lender’s satisfaction with respect to such Account;

 

(l)                                     owed
by (i) any state, municipality or other political subdivision of the
United States of America, or any department, agency, public corporation, or
other instrumentality thereof and as to which the Lender determines that its
Lien therein is not or cannot be perfected, or (ii) the government of any
foreign country or sovereign state, or of any state, province, municipality or
other political subdivision thereof, or of any department, agency, public
corporation or other instrumentality thereof;

 

(m)                               which represents a sale on a bill-and-hold, guaranteed sale,
sale and return, sale on approval, consignment, or other repurchase or return
basis;

 

(n)                                 which is evidenced by a promissory note or other instrument
or by chattel paper;

 

(o)                                 if the Lender believes, in the exercise of its reasonable
judgment, that the prospect of collection of such Account is impaired or that
the Account may not be paid by reason of the Account Debtor’s financial
inability to pay;

 

(p)                                 with
respect to which the Account Debtor is located in any state requiring the
filing of a Notice of Business Activities Report or similar report in order to
permit the 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;

 

(q)                                 which arises out of a sale not made in the ordinary course
of the Borrower’s business;

 

(r)                                    with
respect to which the goods giving rise to such Account have not been shipped
and delivered to and accepted by the Account Debtor or the services giving rise
to such Account have not been performed by the Borrower, and, if applicable,
accepted by the Account Debtor, or the Account Debtor revokes its acceptance of
such goods or services;

 

8

 

(s)                                  owed
by an Account Debtor which is obligated to the Borrower respecting Accounts the
aggregate unpaid balance of which exceeds 10% (or 60% in the case of Account
Debtors identified by the Lender in its sole discretion from time to time) of
the aggregate unpaid balance of all Accounts owed to the Borrower at such time
by all of the Borrower’s Account Debtors, but only to the extent of such excess;

 

(t)                                    which
represents the sale of spare or replacement parts or demo machines, or the
provision of maintenance/refurbishment services on installed systems; and

 

(u)                                 which is not subject to a first priority and perfected
security interest in favor of the Lender.

 

Notwithstanding anything in the foregoing paragraphs (a) through
(u) to the contrary, the fact that an invoice contains “acceptance” billing or “retention”
billing provisions (as those terms are used in the ordinary course of the
Borrower’s business as conducted on the Closing Date) shall not in and of
itself render an Account ineligible under this definition, provided that
the amount of any such Account that may be considered for eligibility under
this definition shall exclude the portion that is due following, and contingent
upon, the Account Debtor’s acceptance of the goods related thereto.  If any Account at any time ceases to be an
Eligible Domestic Account, then such Account shall promptly be excluded from
the calculation of Eligible Domestic Accounts.

 

“Eligible Foreign Accounts” mean Accounts which are owed by
Account Debtors that are neither Domestic Account Debtors nor Approved Foreign
Account Debtors, and which in all other respects constitute Eligible Accounts, provided
that the amount of any such Account that may be considered for eligibility
under this definition shall exclude the portion that is due following, and
contingent upon, the Account Debtor’s acceptance of the goods related
thereto.  If any Account at any time
ceases to be an Eligible Foreign Account, then such Account shall promptly be
excluded from the definition of Eligible Foreign Accounts.

 

“Environmental Claims” means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for a Release or
injury to the environment.

 

“Environmental Compliance Reserve” means any reserve
which the Lender establishes in its reasonable discretion after prior written
notice to the Borrower from time to time for amounts that are reasonably likely
to be expended by the Borrower in order for the Borrower and its operations and
property (a) to comply with any notice from a Governmental Authority
asserting material non-compliance with Environmental Laws, or (b) to
correct any such material non-compliance identified in a report delivered to
the Lender pursuant to Section 7.7.

 

“Environmental Laws” means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, licenses, authorizations and
permits of, and agreements with, any Governmental Authority, in each case
relating to environmental, health, safety and land use matters.

 

“Environmental Lien” means a Lien in favor of any
Governmental Authority for (a) any liability under Environmental Laws, or (b) damages
arising from, or costs incurred by such 

 

9

 

Governmental Authority in response to, a Release
or threatened Release of a Contaminant into the environment.

 

“Equipment” means all of the Borrower’s now owned and hereafter
acquired machinery, equipment, furniture, furnishings, fixtures, and other
tangible personal property (except Inventory), including embedded software,
motor vehicles with respect to which a certificate of title has been issued,
aircraft, dies, tools, jigs, molds and office equipment, as well as all of such
types of property leased by the Borrower and all of the Borrower’s rights and
interests with respect thereto under such leases (including, without
limitation, options to purchase); together with all present and future
additions and accessions thereto, replacements therefor, component and
auxiliary parts and supplies used or to be used in connection therewith, and
all substitutes for any of the foregoing, and all manuals, drawings,
instructions, warranties and rights with respect thereto; wherever any of the
foregoing is located.

 

“ERISA” means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.

 

“ERISA Affiliate” means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).

 

“ERISA Event” means (a) a Reportable Event with respect to
a Pension Plan, (b) a withdrawal by the Borrower or any ERISA Affiliate
from a Pension Plan subject to Section 4063 of ERISA during a plan year in
which it was a substantial employer (as defined in Section 4001(a)(2) of
ERISA) or a cessation of operations which is treated as such a withdrawal under
Section 4062(e) of ERISA, (c) a complete or partial withdrawal
by the Borrower or any ERISA Affiliate from a Multi-employer Plan or
notification that a Multi-employer Plan is in reorganization, (d) the
filing of a notice of intent to terminate, the treatment of a Plan amendment as
a termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multi-employer Plan, (e) the
occurrence of an event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Pension Plan or Multi-employer
Plan, or (f) the imposition of any liability under Title IV of ERISA,
other than for PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Borrower or any ERISA Affiliate.

 

“Event of Default” has the meaning specified in Section 9.1.

 

“Exchange Act” means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.

 

“FDIC” means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.

 

“Federal Funds Rate” means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100  of 1%) equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on 

 

10

 

such day, as published by the Federal Reserve Bank of New York on the
Business Day next succeeding such day; provided that (a) if such
day is not a Business Day, the Federal Funds Rate for such day shall be such
rate on such transactions on the next preceding Business Day as so published on
the next succeeding Business Day, and (b) if no such rate is so published
on such next succeeding Business Day, the Federal Funds Rate for such day shall
be the average rate charged to the Bank on such day on such transactions as
determined by the Lender.

 

“Federal Reserve Board” means the Board of Governors of the
Federal Reserve System or any successor thereto.

 

“Financial Statements” means, according to the context in which
it is used, the financial statements referred to in Sections 5.2 and
6.6 or any other financial statements required to be given to the Lender
pursuant to this Agreement.

 

“Fiscal Year” means the Borrower’s fiscal year for financial
accounting purposes.  The current Fiscal
Year of the Borrower will end on September 24, 2004.

 

“Fixed Assets” means the Equipment and Real Estate of the
Borrower.

 

“Fixed Charge Coverage Ratio” means, with respect to any fiscal
period of Borrower, the ratio of EBITDA to Fixed Charges.

 

“Fixed Charges” means, with respect to any fiscal period of the
Borrower on a consolidated basis, without duplication, interest expense,
Capital Expenditures (excluding Capital Expenditures funded with Debt other
than Revolving Loans, but including, without duplication, principal payments
with respect to such Debt), scheduled principal payments of Debt, and Federal,
state, local and foreign income taxes, excluding deferred taxes.

 

“Funding Date” means the date on which a Borrowing occurs.

 

“GAAP” means generally accepted accounting principles and
practices set forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to the
circumstances as of the Closing Date.

 

“General Intangibles” means all of the Borrower’s now owned or
hereafter acquired general intangibles, choses in action and causes of action
and all other intangible personal property of the Borrower of every kind and
nature (other than Accounts), including, without limitation, all contract
rights, payment intangibles, Proprietary Rights, corporate or other business
records, inventions, designs, blueprints, plans, specifications, patents,
patent applications, trademarks, service marks, trade names, trade secrets,
goodwill, copyrights, computer software, customer lists, registrations,
licenses, franchises, tax refund claims, any funds which may become due to the
Borrower in connection with the termination of any Plan or other employee
benefit plan or any rights thereto and any other amounts payable to the
Borrower from any Plan or other employee benefit plan, rights and claims
against carriers and shippers, rights to indemnification, 

 

11

 

business interruption insurance and proceeds thereof, property,
casualty or any similar type of insurance and any proceeds thereof, proceeds of
insurance covering the lives of key employees on which the Borrower is beneficiary,
rights to receive dividends, distributions, cash, Instruments and other
property in respect of or in exchange for pledged equity interests or
Investment Property and any letter of credit, guarantee, claim, security
interest or other security held by or granted to the Borrower.

 

“Goods” means all “goods” as defined in the UCC, now owned or
hereafter acquired by Borrower, wherever located, including embedded software
to the extent included in “goods” as defined in the UCC, manufactured homes,
standing timber that is cut and removed for sale and unborn young of animals.

 

“Governmental Authority” means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.

 

“Guaranty” means, with respect to any Person, all obligations of
such Person which in any manner directly or indirectly guarantee or assure, or
in effect guarantee or assure, the payment or performance of any indebtedness,
dividend or other obligations of any other Person (the “guaranteed obligations”),
or assure or in effect assure the holder of the guaranteed obligations against
loss in respect thereof, including any such obligations incurred through an
agreement, contingent or otherwise: (a) to purchase the guaranteed
obligations or any property constituting security therefor; (b) to advance
or supply funds for the purchase or payment of the guaranteed obligations or to
maintain a working capital or other balance sheet condition; or (c) to
lease property or to purchase any debt or equity securities or other property
or services.

 

“Hedge Agreement” means any and all transactions, agreements or
documents now existing or hereafter entered into, which provides for an
interest rate, credit, commodity or equity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross currency rate swap, currency
option, or any combination of, or option with respect to, these or similar
transactions, for the purpose of hedging the Borrower’s exposure to fluctuations
in interest or exchange rates, loan, credit exchange, security or currency
valuations or commodity prices.

 

“HTR Product Line” means the right, title and interest of the
Borrower in the assets necessary to the design, manufacture, installation, parts
and maintenance of horizontal furnaces for batch configuration currently or
previously marketed by the Borrower or its predecessors under the “Thermco”, “Silicon
Valley Group”, “SVG”, “ASM Lithography” or “Aviza” names, as reflected by the
Borrower’s current installed base for horizontal furnace products (“HTR”), and
includes the PC MUX under development, and services related to the Borrower’s
HTR horizontal furnaces, including HTR equipment, retrofits, parts, technical
support, service and training, all as conducted by the Borrower.  The foregoing assets do not include Accounts
or Real Property.

 

“Instruments” means all instruments as such term is defined in
the UCC, now owned or hereafter acquired by the Borrower.

 

12

 

“Interest Rate” means each or any of the interest rates,
including the Default Rate, set forth in Section 2.1.

 

“Inventory” means all of the Borrower’s now owned and hereafter
acquired inventory, goods and merchandise, wherever located, to be furnished
under any contract of service or held for sale or lease, all returned goods,
raw materials, work-in-process, finished goods (including embedded software),
other materials and supplies of any kind, nature or description which are used
or consumed in the Borrower’s business or used in connection with the packing,
shipping, advertising, selling or finishing of such goods, merchandise, and all
documents of title or other Documents representing them.

 

“Investment Property” means all of the Borrower’s right title
and interest in and to any and all: (a) securities whether certificated or
uncertificated; (b) securities entitlements; (c) securities accounts;
(d) commodity contracts; or (e) commodity accounts.

 

“IRS” means the Internal Revenue Service and any Governmental
Authority succeeding to any of its principal functions under the Code.

 

“Japanese Subsidiary Debt” means the credit facility provided to
Aviza Technology K.K., a Japanese company, as more particularly set forth in Schedule 6.9.

 

“Latest Projections” means: 
(a) on the Closing Date and thereafter until the Lender receives
new projections pursuant to Section 5.2(f), the projections of the
Borrower’s financial condition, results of operations, and cash flows, for the
period commencing on April 1, 2004 and ending on September 31, 2006
and delivered to the Lender prior to the Closing Date; and (b) thereafter,
the projections most recently received by the Lender pursuant to Section 5.2(g).

 

“Lender” means the Bank, solely in its capacity as a lender.

 

“Lender’s Liens” means the Liens in the
Collateral granted to the Lender, for the benefit of the Lender and Bank
pursuant to this Agreement and the other Loan Documents.

 

“Lender-Related Persons” means the Lender, together with its
Affiliates, and the officers, directors, employees, counsel, representatives,
agents and attorneys-in-fact of the Lender and such Affiliates.

 

“Letter of Credit” has the meaning specified in Section 1.4(a).

 

“Letter of Credit Fee” has the meaning specified in Section 2.6.

 

“Letter of Credit Issuer” means the Bank, any affiliate of the
Bank or any other financial institution that issues any Letter of Credit
pursuant to this Agreement.

 

“Letter-of-Credit Rights” means “letter-of-credit rights” as
such term is defined in the UCC, now owned or hereafter acquired by Borrower,
including rights to payment or performance under a letter of credit, whether or
not Borrower, as beneficiary, has demanded or is entitled to demand payment or
performance.

 

13

 

“Letter of Credit Subfacility” means $7,000,000.

 

“Lien” means:  (a) any
interest in property securing an obligation owed to, or a claim by, a Person
other than the owner of the property, whether such interest is based on the
common law, statute, or contract, and including a security interest, charge,
claim, or lien arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, agreement, security agreement,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes; (b) to the extent not included under clause (a),
any reservation, exception, encroachment, easement, right-of-way, covenant,
condition, restriction, lease or other title exception or encumbrance affecting
property; and (c) any contingent or other agreement to provide any of the
foregoing.

 

“Loan Account” means, individually and collectively, the loan
accounts of the Borrower, in respect of the Revolver A Facility and the
Revolver B Facility, respectively, which accounts shall be maintained by the
Lender; provided, however, that for the purposes of charges to the “Loan
Account” pursuant to Section 3.7, Lender shall determine in its
sole discretion to which of the aforementioned loan accounts such charges shall
be made.

 

“Loan Documents” means this Agreement, the Security Agreement,
the Mortgage, the Stock Pledge, the Subsidiary Stock Pledge, the VPVP Guaranty,
any Subsidiary Guaranty, the Subsidiary Security Agreement, the Subordination
Agreement and any other agreements, instruments, and documents heretofore, now
or hereafter evidencing, securing, guaranteeing or otherwise relating to the
Obligations, the Collateral, or any other aspect of the transactions
contemplated by this Agreement.

 

“Loans” means, collectively, all loans and advances provided for
in Article 1.

 

“Margin Stock” means “margin stock” as such term is defined in
Regulation T, U or X of the Federal Reserve Board.

 

“Material Adverse Effect” means (a) a material adverse
change in, or a material adverse effect upon, the operations, business,
properties or condition (financial or otherwise) of the Borrower, the
Collateral or any guarantor of the Obligations; (b) a material impairment
of the ability of the Borrower or any Affiliate of Borrower to perform under
any Loan Document to which it is a party; or (c) a material adverse effect
upon the legality, validity, binding effect or enforceability against the
Borrower of any Loan Document to which it is a party.

 

“Maximum Revolver Amount” means $40,000,000.

 

“Mortgage” means and includes any and all of the mortgages,
deeds of trust, deeds to secure debt, assignments and other instruments
executed and delivered by the Borrower to or for the benefit of the Lender by
which the Lender acquires a Lien on the Real Estate or a collateral assignment
of the Borrower’s interest under leases of Real Estate, and all amendments,
modifications and supplements thereto.

 

14

 

“Mortgage Conditions” means the following conditions, all of
which have to be satisfied before Lender has any obligation to make Revolving
Loans supported by the Eligible Acceptance Amount under the Revolver B
Borrowing Base:

 

(a)                                  The Lender shall have received a
Mortgage respecting the Scotts Valley Real Estate executed by Borrower and in
form and substance acceptable to Lender;

 

(b)                                 The Lender shall have received an
ALTA title policy, in form and substance acceptable to Lender, with respect to
such Mortgage;

 

(c)                                  The Lender shall have received such
environmental reports as it may request with respect to any environmental
conditions set forth on Schedule 6.16, which reports shall be in
form and substance satisfactory to Lender; and

 

(d)                                 The Lender shall have received all
documents and agreements evidencing the indemnification of Borrower by any
predecessor-in-interest to the Real Estate with respect to any liabilities of
Borrower arising from environmental conditions set forth on Schedule 6.16,
which documents and agreements shall be in form and substance satisfactory to
Lender.

 

“Multi-employer Plan” means 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
the Borrower or any ERISA Affiliate.

 

“Net Amount” with respect to any type of Eligible Accounts
means, at any time, the gross amount of such type of Eligible Accounts less
sales, excise or similar taxes, and less returns, discounts, claims, credits
and allowances accrued rebates, offsets, deductions, counterclaims, disputes
and other defenses of any nature at any time issued, owing, granted,
outstanding, available or claimed with respect to such type of Eligible
Accounts.

 

“Notice of Borrowing” has the meaning specified in Section 1.2(b).

 

“Obligations” means all present and future loans, advances,
liabilities, obligations, covenants, duties, and debts owing by the Borrower to
the Lender, arising under or pursuant to this Agreement or any of the other
Loan Documents, whether or not evidenced by any note, or other instrument or
document, whether arising from an extension of credit, opening of a letter of
credit, acceptance, loan, guaranty, indemnification or otherwise, whether
direct or indirect, absolute or contingent, due or to become due, primary or
secondary, as principal or guarantor, and including all principal, interest,
charges, expenses, fees, attorneys’ fees, filing fees and any other sums
chargeable to the Borrower hereunder or under any of the other Loan
Documents.  “Obligations” includes,
without limitation, (a) all debts, liabilities, and obligations now or
hereafter arising from or in connection with the Letters of Credit and (b) all
debts, liabilities and obligations now or hereafter arising from or in
connection with Bank Products.

 

“Other Taxes” means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.

 

15

 

“Participant” means any Person who shall have been granted the
right by the Lender to participate in the financing provided by the Lender
under this Agreement, and who shall have entered into a participation agreement
in form and substance satisfactory to the Lender.

 

“Payment Account” means each bank account established pursuant
to the Security Agreement, to which the proceeds of Accounts and other
Collateral are deposited or credited, and which is maintained in the name of
the Lender or the Borrower, as the Lender may determine, on terms acceptable to
the Lender.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any
Governmental Authority succeeding to the functions thereof.

 

“Pending Revolving Loans” means, at any time, the aggregate
principal amount of all Revolving Loans requested in any Notice of Borrowing
received by the Lender which have not yet been advanced.

 

“Pension Plan” means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower sponsors, maintains, or
to which it makes, is making, or is obligated to make contributions, or in the
case of a Multi-employer Plan has made contributions at any time during the
immediately preceding five (5) plan years.

 

“Permitted Acquisition” means any Acquisition that conforms to
the following requirements:  (i) the
assets, Person, division or line of business to be acquired is primarily in a
substantially similar or ancillary line of business as the Borrower, (ii) all
transactions related to such Acquisition shall be consummated in accordance
with applicable Requirements of Law, (iii) such Acquisition shall be
non-hostile in nature, (iv) the prior, effective written consent or
approval of such Acquisition by the board of directors or equivalent governing
body or management having the appropriate level of authority of the acquiree is
obtained, (v) with respect to any such Acquisition that is a merger or
consolidation affecting the Borrower, Borrower shall be the surviving entity,
and (vi) immediately after giving effect to such Acquisition:  (A) no Default or Event of Default
exists or would result therefrom, and, for purposes of this clause, the Borrower
shall deliver a certificate, signed by a Responsible Officer of the Borrower,
demonstrating that the Borrower will continue to be in compliance with its
financial covenants hereunder on a pro forma basis, taking such Acquisition
into account, (B) 100% of the capital stock of any acquired or newly
formed corporation, partnership, limited liability company or other business
entity or, as the case may be, the assets, division or line of business
acquired, is owned directly by the Borrower, (C) all actions required to
be taken with respect to any such acquired or newly formed Subsidiary under Section 7.20
shall have been taken, and (D) with respect to any Acquisition where some
or all of the consideration paid by the Borrower or any of its Subsidiaries is other
than capital stock of the Borrower, (i) the aggregate amount of such
consideration paid for all such Acquisitions since the Closing Date would not
exceed $5,000,000 plus any new capital contributed to Borrower for the
purpose of, and substantially concurrent with, any such Acquisition, and (ii) the
Borrower would have Availability of not less than $12,000,000 (with all
obligations of the Borrower and its Subsidiaries being current) after giving
effect to any such Acquisition.

 

16

 

“Permitted Liens” means:

 

(a)                                  Liens
for taxes not delinquent or statutory Liens for taxes in an amount not to
exceed $100,000 provided that the payment of such taxes which are due and
payable is being contested in good faith and by appropriate proceedings
diligently pursued and as to which adequate financial reserves have been
established on Borrower’s books and records and a stay of enforcement of any
such Lien is in effect;

 

(b)                                 the Lender’s Liens;

 

(c)                                  Liens
consisting of deposits made in the ordinary course of business in connection
with, or to secure payment of, obligations under worker’s compensation,
unemployment insurance, social security and other similar laws, or to secure
the performance of bids, tenders or contracts (other than for the repayment of
Debt) or to secure indemnity, performance or other similar bonds for the
performance of bids, tenders or contracts (other than for the repayment of
Debt) or to secure statutory obligations (other than liens arising under ERISA
or Environmental Liens) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds;

 

(d)                                 Liens
securing the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons, provided that if any
such Lien arises from the nonpayment of such claims or demand when due, such
claims or demands do not exceed $100,000 in the aggregate;

 

(e)                                  Liens
constituting encumbrances in the nature of reservations, exceptions,
encroachments, easements, rights of way, covenants running with the land, and
other similar title exceptions or encumbrances affecting any Real Estate; provided
that they do not in the aggregate materially detract from the value of the Real
Estate or materially interfere with its use in the ordinary conduct of the Borrower’s
business;

 

(f)                                    Liens
arising from judgments and attachments in connection with court proceedings
provided that the attachment or enforcement of such Liens would not result in
an Event of Default hereunder and such Liens are being contested in good faith
by appropriate proceedings, adequate reserves have been set aside and no
material Property is subject to a material risk of loss or forfeiture and the
claims in respect of such Liens are fully covered by insurance (subject to
ordinary and customary deductibles) and a stay of execution pending appeal or
proceeding for review is in effect;

 

(g)                                 Liens
on the Scotts Valley Real Estate securing the Debt described in clause (e) of
Section 7.13;

 

(h)                                 Liens
on the assets of Aviza Technology K.K., a Japanese company, securing the
Japanese Subsidiary Debt; and

 

(i)                                     Liens
on the personal property assets of the Borrower and any Subsidiary in favor of
VPVP securing the Borrower’s reimbursement obligations or such Subsidiary’s
guaranty obligations owed to VPVP arising as a result of payments made by VPVP
to the Lender under 

 

17

 

the VPVP Guaranty, so long as
such Lien is subordinated to the Lender as set forth in the Subordination
Agreement.

 

(j)                                     Liens
on specific tangible assets where such assets are acquired in Permitted
Acquisitions after the Closing Date; provided, that (A) such Liens
existed at the time of the Permitted Acquisition and were not created in
anticipation thereof, (B) any such Lien does not by its terms cover any
assets after the time of the Permitted Acquisition which were not covered
immediately prior thereto, and (C) any such Lien does not by its terms
secure any Debt other than Debt existing immediately prior to the time of the
Permitted Acquisition.

 

“Permitted Subsidiary Formation” means the creation of a new
Subsidiary by the Borrower for which the Borrower may provide initial capital
so long as, (a) at the time of the formation and capitalization of such
Subsidiary, no Default or Event of Default exists or would result therefrom; (b) all
of the conditions set forth in Section 7.20 have been met; (c) the
aggregate amount of initial capital provided to all such new Subsidiaries by
the Borrower for such purpose does not exceed $1,500,000 in any Fiscal Year;
and (d) the aggregate amount of initial capital provided for the formation
of any new Subsidiary by the Borrower for such purpose does not exceed
$500,000; provided that the amount of any new capital contributed by
VPVP to Borrower or any such new Subsidiary for the purpose of, and
substantially concurrent with, the initial capitalization of such new
Subsidiary shall not be counted toward calculating the limitations under
clause (c).

 

“Person” means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, Governmental Authority, or any other entity.

 

“Plan” means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower sponsors or maintains or to which the Borrower makes,
is making, or is obligated to make contributions and includes any Pension Plan.

 

“Proprietary Rights” means all of the Borrower’s now owned and
hereafter arising or acquired:  licenses,
franchises, permits, patents, patent rights, copyrights, works which are the
subject matter of copyrights, trademarks, service marks, trade names, trade
styles, patent, trademark and service mark applications, and all licenses and
rights related to any of the foregoing, including those patents, trademarks,
service marks, trade names and copyrights set forth on Schedule 6.12
hereto, and all other rights under any of the foregoing, all extensions,
renewals, reissues, divisions, continuations, and continuations-in-part of any
of the foregoing, and all rights to sue for past, present and future
infringement of any of the foregoing.

 

“Real Estate” means all of the Borrower’s now or hereafter owned
or leased estates in real property, including, without limitation, all fees,
leaseholds and future interests, together with all of the Borrower’s now or
hereafter owned or leased interests in the improvements thereon, the fixtures
attached thereto and the easements appurtenant thereto.

 

“Reconveyance” has the meaning specified in Section 8.4.

 

18

 

“Release” means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any Real
Estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or Real Estate or other property.

 

“Reportable Event” means, any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder, other than any such event for which the 30-day
notice requirement under ERISA has been waived in regulations issued by the
PBGC.

 

“Requirement of Law” means, as to any Person, any law (statutory
or common), treaty, rule or regulation or determination of an arbitrator
or of a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property is
subject.

 

“Reserves” means reserves that limit the availability of credit
hereunder, consisting of reserves against Availability or Eligible Accounts,
established by Lender from time to time in Lender’s reasonable credit
judgment.  Without limiting the
generality of the foregoing, the following reserves shall be deemed to be a
reasonable exercise of Lender’s credit judgment:  (a) the Bank Product Reserves, (b) a
reserve for accrued, unpaid interest on the Obligations, (c) reserves for
rent at leased locations subject to statutory or contractual landlord liens, (d) customs
charges, (e) the Dilution Reserve, (f) warehousemen’s or bailees’
charges, and (g) the Environmental Compliance Reserve.

 

“Responsible Officer” means the chief executive officer or the
president of the Borrower, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants and the preparation of the Borrowing Base Certificate, the chief
financial officer or the treasurer of the Borrower, or any other officer having
substantially the same authority and responsibility.

 

“Restricted Investment” means, as to the Borrower, any
acquisition of property by the Borrower in exchange for cash or other property,
whether in the form of an acquisition of stock, debt, or other indebtedness or
obligation, or the purchase or acquisition of any other property, or a loan,
advance, capital contribution, or subscription, except the following:  (a) acquisitions of Equipment to be used
in the business of the Borrower so long as the acquisition costs thereof
constitute Capital Expenditures permitted hereunder; (b) acquisitions of
Inventory in the ordinary course of business of the Borrower; (c) acquisitions
of current assets acquired in the ordinary course of business of the Borrower; (d) direct
obligations of the United States of America, or any agency thereof, or
obligations guaranteed by the United States of America, provided that
such obligations mature within one year from the date of acquisition thereof; (e) acquisitions
of certificates of deposit maturing within one year from the date of
acquisition, bankers’ acceptances, Eurodollar bank deposits, or overnight bank
deposits, in each case issued by, created by, or with a bank or trust company
organized under the laws of the United States of America or any state thereof
having capital and surplus aggregating at least $100,000,000; (f) acquisitions
of commercial paper given a rating of “A2” or better by Standard &
Poor’s 

 

19

 

Corporation or “P2” or better by Moody’s Investors Service, Inc.
and maturing not more than 90 days from the date of creation thereof; (g) Hedge
Agreements; and (h) Permitted Acquisitions.

 

“Revolver A” has the meaning specified in Section 1.1.

 

“Revolver A Borrowing Base” means (a) $20,000,000 minus
(b) the Bank Products Reserves.

 

“Revolver B” has the meaning specified in Section 1.1.

 

“Revolver B Borrowing Base” means (a) the sum of (A) 85%
of the Net Amount of Eligible Domestic Accounts, plus (B) 75% of
the Net Amount of Eligible Foreign Accounts (provided that the aggregate
Revolving Loans advanced against Eligible Foreign Accounts shall not exceed 10%
of the Revolver B Borrowing Base), plus (C) from and after the date
that the Mortgage Conditions have been met to the Lender’s satisfaction (but
only if such date is not more than 90 days after the Closing Date) through and
including the date on which the Mortgage on the Scotts Valley Real Estate has
been released or reconveyed, 40% of the Eligible Acceptance Amount (provided
that the aggregate Revolving Loans advanced against the Eligible Acceptance
Amount shall not exceed $4,000,000), minus (b) Reserves from time
to time established by the Lender in its reasonable credit judgment.

 

“Revolving Loans” has the meaning specified in Section 1.1.

 

“Scotts Valley Real Estate” means that certain Real Estate of
Borrower commonly known as 440 King’s Village Road, Scotts Valley, California.

 

“Security Agreement” means the Security Agreement of even date
herewith among Borrower and Lender.

 

“Settlement” and “Settlement Date” have the meanings specified
in Section 12.15(a)(ii).

 

“Software” means all “software” as such term is defined in the
UCC, now owned or hereafter acquired by the Borrower, other than software
embedded in any category of Goods, including all computer programs and all
supporting information provided in connection with a transaction related to any
program.

 

“Solvent” means, when used with respect to any Person, that at
the time of determination:

 

(a)                                  the assets of such Person, at a fair valuation, are in
excess of the total amount of its debts (including contingent liabilities); and

 

(b)                                 the present fair saleable value of its assets is greater
than its probable liability on its existing debts as such debts become absolute
and matured; and

 

(c)                                  it is then able and expects to be able to pay its debts
(including contingent debts and other commitments) as they mature; and

 

20

 

(d)                                 it has capital sufficient to carry on its business as conducted
and as proposed to be conducted.

 

For purposes of determining whether a Person is Solvent, the amount of
any contingent liability shall be computed as the amount that, in light of all
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.

 

“Stated Termination Date” means August 6, 2007.

 

“Stock Pledge” means that certain Stock Pledge, dated as of the
Closing Date, between the Borrower and the Lender.

 

“Subordination Agreement” means the Subordination Agreement,
dated as of the Closing Date, executed by VPVP in favor of Lender.

 

“Subsidiary” of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof.  Unless the context otherwise clearly
requires, references herein to a “Subsidiary” refer to a Subsidiary of the
Borrower.

 

“Subsidiary Guaranty” means the Guaranty from each domestic
Subsidiary of the Borrower to the Lender.

 

“Subsidiary Security Agreement” means the Security Agreement of
even date herewith among ATI and Lender.

 

“Subsidiary Stock Pledge” means that certain Stock Pledge, dated
as of the Closing Date, between ATI and the Lender.

 

“Subsidiary Transaction” means, so long as in the ordinary
course of the Borrower’s business consistent with practices established (and
disclosed to the Lender) as of the Closing Date:  (a) the incurrence by the Borrower of
accounts payable owing to its Subsidiaries and the incurrence by Borrower’s
Subsidiaries of accounts payable owing to the Borrower or another Subsidiary,
in each case in connection with provision of services or sales or returns of
Inventory, (b) the payment and receipt of payment by the Borrower or
Subsidiary, as applicable, of the accounts payable set forth in the foregoing clause (a) and
the payment by the Borrower of operating expenses of the Borrower’s
Subsidiaries, and (c) the making of intercompany advances by the Lender to
one or more of its Subsidiaries; provided that (y) the Borrower
shall not make any of the payments or advances described in the foregoing clauses (b) or
(c) if a Default exists or would result therefrom and Lender has
notified Borrower of such Default, or if an Event of Default then exists or
would result therefrom, and (z) the Borrower shall not make any of the advances
described in the foregoing clause (c) if the aggregate amount
of all such advances outstanding at any one time would exceed $2,000,000.

 

21

 

“Supporting Obligations” means all supporting obligations as
such term is defined in the UCC, including letters of credit and guaranties
issued in support of Accounts, Chattel Paper, Documents, General Intangibles,
Instruments, or Investment Property.

 

“Taxes” means any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of Lender such taxes (including income taxes or
franchise taxes) as are imposed on or measured by the Lender’s or each Lender’s
net income in any the jurisdiction (whether federal, state or local and
including any political subdivision thereof) under the laws of which the Lender
is organized or maintains a lending office.

 

“Termination Date” means the earliest to occur of (i) the
Stated Termination Date, (ii) the date the Total Facility is terminated
either by the Borrower pursuant to Section 3.2 or by the Lender
pursuant to Section 9.2, and (iii) the date this Agreement is
otherwise terminated for any reason whatsoever pursuant to the terms of this
Agreement.

 

“Total Facility” has the meaning specified in Section 1.1.

 

“UCC” means the Uniform Commercial Code, as in effect from time
to time, of the State of California or of any other state the laws of which are
required as a result thereof to be applied in connection with the issue of
perfection of security interests; provided, that to the extent that the
UCC is used to define any term herein or in any other documents and such term
is defined differently in different Articles or Divisions of the UCC, the
definition of such term contained in Article or Division 9 shall govern.

 

“Unfunded Pension Liability” means the excess of a Plan’s
benefit liabilities under Section 4001(a)(16) of
ERISA, over the current value of that Plan’s assets, determined in accordance
with the assumptions used for funding the Pension Plan pursuant to Section 412
of the Code for the applicable plan year.

 

“Unused Letter of Credit Subfacility” means an amount equal to
$7,000,000 minus the sum of (a) the aggregate undrawn amount of all
outstanding Letters of Credit plus, without duplication, (b) the
aggregate unpaid reimbursement obligations with respect to all Letters of
Credit.

 

“Unused Line Fee” has the meaning specified in Section 2.5.

 

“VPVP” means individually and collectively, VantagePoint Venture
Partners (IV), L.P., a Delaware limited partnership and VantagePoint Venture
Partners (IV)(Q), L.P., a Delaware limited
partnership.

 

“VPVP Credit Facility” means that certain credit facility in the
maximum amount of $110,000,000 provided to VPVP by Fleet National Bank and
various other lenders pursuant to a Revolving Credit Agreement, dated as of December 28,
2000 by and among VPVP, Fleet National Bank, Union Bank of California, N.A. and
First Republic Bank.

 

“VPVP Guaranty” means the Guaranty from VPVP to the Lender.

 

22

 

2.                                       Accounting Terms.  Any accounting term used in the Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations in
the Agreement shall be computed, unless otherwise specifically provided
therein, in accordance with GAAP as consistently applied and using the same method
for inventory valuation as used in the preparation of the Financial Statements.

 

3.                                       Interpretive
Provisions.  (a)  The meanings
of defined terms are equally applicable to the singular and plural forms of the
defined terms.

 

(b)                                 The
words “hereof,” “herein,” “hereunder” and similar words refer to the Agreement
as a whole and not to any particular provision of the Agreement; and
Subsection, Section, Schedule and Exhibit references are to the
Agreement unless otherwise specified.

 

(c)                                  (i)                                     The
term “documents” includes any and all instruments, documents, agreements,
certificates, indentures, notices and other writings, however evidenced.

 

(ii)                                  The term “including”
is not limiting and means “including without limitation.”

 

(iii)                               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.”

 

(iv)                              The
word “or” is not exclusive.

 

(d)                                 Unless
otherwise expressly provided herein, (i) references to agreements
(including the Agreement) and other contractual instruments shall be deemed to
include all subsequent amendments and other modifications thereto, but only to
the extent such amendments and other modifications are not prohibited by the
terms of any Loan Document, and (ii) references to any statute or
regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting
the statute or regulation.

 

(e)                                  The
captions and headings of the Agreement and other Loan Documents are for
convenience of reference only and shall not affect the interpretation of the
Agreement.

 

(f)                                    The
Agreement and other Loan Documents 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.

 

(g)                                 For
purposes of Section 9.1, a breach of a financial covenant contained in
Sections 7.23-7.25 shall be deemed to have occurred as of any date of
determination thereof by the Lender or as of the last day of any specified
measuring period, regardless of when the Financial Statements reflecting such
breach are delivered to the Lender.

 

(h)                                 The
Agreement and the other Loan Documents are the result of negotiations among and
have been reviewed by counsel to the Lender, the Borrower and the other
parties, and are the products of all parties. 
Accordingly, they shall not be construed against the Lender merely
because of the Lender’s involvement in their preparation.

 

23

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