Document:

Exhibit 10.6

 

EXECUTION COPY

 

 

FINANCING
AGREEMENT

 

 

The
CIT Group/Business Credit, Inc.

 

(as
Agent and Lender)

 

 

And

 

 

Viewsonic
Corporation

 

(as
Company)

 

 

Dated:  December 18, 2001

 

 

THE CIT
GROUP/BUSINESS CREDIT, INC., a New York corporation, with offices
located at 300 South Grand Avenue, Third Floor, Los Angeles, California 90071
(hereinafter “CIT”), and CIT as agent for the lenders (the “Agent”), and any
other party which now or hereafter becomes a lender hereunder pursuant to
Section 13 hereof (individually a “Lender” and collectively the “Lenders”) are
pleased to confirm the terms and conditions under which the Agent shall make
revolving loans and other financial accommodations to Viewsonic Corporation, a
Delaware corporation with a principal place of business at 381 Brea Canyon
Road, Walnut, California 91789 (herein the “Company”).

 

SECTION 1.                            Definitions

 

Accounts
shall mean all of the Company’s now existing and future: (a) accounts (as
defined in the UCC), and any and all other receivables (whether or not
specifically listed on schedules furnished to the Agent), including, without
limitation, all accounts created by, or arising from, all of the Company’s
sales, leases, rentals of goods or renditions of services to its customers,
including but not limited to, those accounts arising under any of the Company’s
trade names or styles, or through any of the Company’s divisions; (b) any and
all instruments, documents, chattel paper (including electronic chattel paper)
(all as defined in the UCC); (c) unpaid seller’s or lessor’s rights
(including rescission, replevin, reclamation, repossession and stoppage in
transit) relating to the foregoing or arising therefrom; (d) rights to any
goods represented by any of the foregoing, including rights to returned, reclaimed
or repossessed goods; (e) reserves and credit balances arising in connection
with or pursuant hereto; (f) guarantees, supporting obligations, payment
intangibles and letter of credit rights (all as defined in the UCC); (g)
insurance policies or rights relating to any of the foregoing; (h) general
intangibles pertaining to any and all of the foregoing (including all rights to
payment, including those arising in connection with bank and non-bank credit
cards), and including books and records and any electronic media and software
thereto; (i) notes, deposits or property of account debtors securing the
obligations of any such account debtors to the Company; and (j) cash and
non-cash proceeds (as defined in the UCC) of any and all of the foregoing.

 

Affiliate
shall mean, with respect to any person or entity, any other person or entity
which directly or indirectly, is in control of, is controlled by, or is under
common control with such person or entity, or which owns, directly or
indirectly, ten percent (10%) or more of the outstanding equity interest of
such entity. A person or entity shall be deemed to control another entity if
the controlling person or entity possesses, directly or indirectly, the power
to direct or cause the direction of the management and policies of the other
entity, whether through ownership of voting securities, by contract or
otherwise.

 

Anniversary
Date shall mean the date occurring three (3) years from
the Closing Date and the same date in every year thereafter.

 

Approved
Foreign Accounts shall mean Trade Accounts Receivable
which are otherwise Eligible Accounts Receivable at any one time and which are
otherwise subject to review by, approval of and assignment to Agent of
Company’s foreign credit insurance. Trade Accounts Receivable owed by foreign
subsidiaries of Ingram Micro, Inc. and Tech Data Corporation shall

 

 

be Approved
Foreign Accounts only to the extent these accounts are guaranteed by their
respective U.S. parent corporation in form satisfactory to Agent.

 

Availability
shall mean at any time the amount by which: 
(a) the Borrowing Base exceeds (b) the outstanding aggregate amount of
all Obligations, including without limitation, all Obligations with respect to
Revolving Loans, but excluding the Letters of Credit.

 

Availability
Reserve shall mean the sum of:  (a) (i) three months rental payments or similar charges for any
of the Company’s leased premises or other Collateral locations for which the
Company has not delivered to the Agent a landlord’s waiver in form and substance
reasonably satisfactory to the Agent, plus (ii) three (3) months estimated
payments plus any other fees or charges owing by the Company to any applicable
warehousemen or third party processor (as determined by the Agent in its
reasonable business judgment), provided that any of the foregoing amounts shall
be adjusted from time to time hereafter upon (x) delivery to the Agent of any
such acceptable waiver, (y) the opening or closing of a Collateral location
and/or (z) any change in the amount of rental, storage or processor payments or
similar charges; and (b) any reserve which the Agent may reasonably require
from time to time pursuant to this Financing Agreement, including without
limitation, for Letters of Credit pursuant to Paragraph 5.1 of Section 5
hereof, or as a result of (x) negative forecasts and/or trends in the Company’s
business, industry, prospects, profits, operations or financial condition or
(y) other issues, circumstances or facts that could otherwise negatively impact
the Company, its business, prospects, operations, industry, financial condition
or assets. Without limiting the foregoing, Agent may in its sole discretion
establish a reserve for Company’s accrued warranty liability to be calculated
in the following manner, subject however to Agent’s right to change such
calculation in accordance with Section 7.14 or in its discretion,
reasonably exercised:

 

Book warranty liability times 65% less 85% of the orderly liquidation
value of the In Transit Inventory.

 

Borrowing
Base shall mean the sum of (a) eighty five percent (85%)
of the Company’s aggregate outstanding Eligible Accounts Receivable less the
greater of (i) that portion of dilution (excluding inter-company accounts)
exceeding 5% calculated on a rolling three month average (if dilution does
exceed 5% as determined by Agent, the advance rate shall be reduced by 1% for
each percentage of dilution in excess of 5%) or (ii) Company’s accrued
promotional expense liability balance, plus (b) the least of (i) sixty five
percent (65%) of the aggregate value of the Company’s Eligible Inventory,
valued at the lower of cost or market, on a first in, first out basis, (ii)
eighty five percent (85%) of the net orderly liquidation value of the Company’s
Eligible Inventory (as determined by appraisal pursuant to Section 6.3), or
(iii) the Inventory Loan Cap, less (c) any applicable Availability Reserves. In
no event shall the Borrowing Base exceed at any time one hundred percent (100%)
of the Company’s cash collections for the prior forty day period.

 

Borrowing
Base Certificate shall have the meaning specified in
Paragraph 2.1(p) of Section 2 of this Financing Agreement.

 

Business
Day shall mean any day on which the Agent and The Chase
Bank are open for business.

 

2

 

Capital
Expenditures shall mean, for any period, the aggregate
expenditures of the Company during such period on account of, property, plant,
equipment or similar fixed assets that, in conformity with GAAP, are required
to be reflected in the balance sheet of the Company.

 

Capital
Improvements shall mean operating Equipment and
facilities (other than land) acquired or installed for use in the Company’s
business operations.

 

Capital
Lease shall mean any lease of property (whether real, personal
or mixed) which, in conformity with GAAP, is accounted for as a capital lease
or a Capital Expenditure in the balance sheet of the Company.

 

Chase
Bank Rate shall mean the rate of interest per annum
announced by The Chase Bank from time to time as its prime rate in effect at
its principal office in New York City. (The prime rate is not intended to be
the lowest rate of interest charged by The Chase Bank to its borrowers).

 

Chase
Bank Rate Loans shall mean any loans or advances pursuant
to this Financing Agreement made or maintained at a rate of interest based upon
the Chase Bank Rate.

 

Closing
Date shall mean December 18, 2001.

 

Collateral
shall mean all present and future Accounts, Equipment, Inventory, Documents of
Title, General Intangibles, Real Estate, investment property (including stock
of the Company’s Subsidiaries and venture capital investments which are subject
to a pledge agreement in favor of Agent) and Other Collateral.

 

Collection
Day shall have the meaning provided for in Section 3.4 of
this Financing Agreement.

 

Commitment
shall mean each Lender’s commitment in accordance with this Financing Agreement
to make Revolving Loans (the “Revolving Credit Commitment”), in the amount of
their respective pro rata share set forth in schedules prepared by the Agent or
the Assignment and Transfer Agreement executed by each such Lender.

 

Commitment
Letter shall mean the Commitment Letter, dated November
26, 2001, issued by the Agent to, and accepted by, the Company.

 

Company
shall mean Viewsonic Corporation, a Delaware corporation. In all cases
hereunder, the term “Company” shall not be deemed to include any of the
Company’s Subsidiaries.

 

Consolidated
Balance Sheet shall mean a consolidated or compiled, as
applicable, balance sheet for the Company and its consolidated Subsidiaries,
eliminating all inter-company transactions and prepared in accordance with
GAAP.

 

Consolidating
Balance Sheet shall mean a Consolidated Balance Sheet
plus individual balance sheets for the Company and its consolidated Subsidiaries,
showing all eliminations of intercompany transactions, including a balance
sheet for the Company exclusively, all prepared in accordance with GAAP.

 

3

 

Copyrights
shall mean all present and hereafter acquired copyrights, copyright
registrations, recordings, applications, designs, styles, licenses, marks,
prints and labels bearing any of the foregoing, goodwill, any and all general
intangibles, intellectual property and rights pertaining thereto, and all cash
and non-cash proceeds thereof.

 

Default
shall mean any event specified in Section 10 hereof, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.

 

Default
Rate of Interest shall mean a rate of interest per annum
on any Obligations hereunder, equal to the sum of:  (a) two percent (2%) and (b) the applicable increment over the
Chase Bank Rate (as set forth in paragraph 8.1 hereof) plus the Chase Bank
Rate, or the applicable increment over the LIBOR (as set forth in paragraph
8.13 hereof) plus the LIBOR, which the Agent shall be entitled to charge the
Company on all Obligations due the Agent on behalf of the Lenders by the
Company, as further set forth in Paragraph 10.2 of Section 10 of this Financing
Agreement.

 

Depository
Accounts shall mean the collection accounts, which are
subject to the Agent’s instructions, as specified in Paragraph 3.4 of Section 3
of this Financing Agreement.

 

Documentation
Fee shall mean the Agent’s reasonable fees relating to
any and all modifications, waivers, releases, amendments or additional
collateral with respect to this Financing Agreement, the Collateral and/or the
Obligations.

 

Documents
of Title shall mean all present and future documents (as
defined in the UCC), and any and all warehouse receipts, bills of lading,
shipping documents, chattel paper, instruments and similar documents, all
whether negotiable or not and all goods and Inventory relating thereto and all
cash and non-cash proceeds of the foregoing.

 

Early
Termination Date shall mean the date on which the Company
or the Agent terminates this Financing Agreement or the Revolving Line of
Credit which date is prior to an Anniversary Date.

 

Early
Termination Fee shall: 
(a) mean the fee the Agent on behalf of the Lenders is entitled to
charge the Company in the event the Revolving Line of Credit or this Financing
Agreement is terminated on any Early Termination Date; and (b) be determined by
multiplying the average outstanding Revolving Loans and Letters of Credit for
the 180 day period preceding the Early Termination Date by (x) two percent (2%)
if the Early Termination Date occurs on or before one (1) year from the Closing
Date, and (y) one half of one percent (0.5%) if the Early Termination Date
occurs after one (1) year from the Closing Date but on or before two (2) years
from the Closing Date.

 

EBITDA
shall mean, in any period, all earnings of the Company before all (i) interest
and tax obligations, (ii) depreciation, (iii) amortization for said period,
(iv) reserves for doubtful accounts and (v) loss on investments, all determined
in accordance with GAAP on a consistent basis with the latest audited financial
statements of the Company, but excluding the effect of extraordinary and/or
non-reoccurring gains or losses for such period.

 

4

 

Eligible
Accounts Receivable shall mean the gross amount of the
Company’s Trade Accounts Receivable that are subject to a valid, exclusive,
first priority and fully perfected security interest in favor of the Agent, on
behalf of the Lenders, which conform to the warranties contained herein and
which, at all times, continue to be acceptable to the Agent in the exercise of
its reasonable business judgment, less, without duplication, the sum of: (a)
any returns, discounts, claims, credits and allowances of any nature (whether
issued, owing, granted, claimed or outstanding), and (b) reserves for any such
Trade Accounts Receivable that arise from or are subject to or include: (i)
sales to the United States of America, any state or other governmental entity
or to any agency, department or division thereof, except for any such sales as
to which the Company has complied with the Assignment of Claims Act of 1940 or
any other applicable statute, rules or regulation, to the Agent’s satisfaction
in the exercise of its reasonable business judgment; (ii) foreign sales, other
than sales which otherwise comply with all of the other criteria for
eligibility hereunder and (x) are secured by letters of credit (in form and
substance satisfactory to the Agent) issued or confirmed by, and payable at,
banks having a place of business in the United States of America, (y) to
customers residing in Canada provided such Accounts do not exceed $4,000,000 in
the aggregate at any time or (z) Approved Foreign Accounts; provided, that
loans made against Approved Foreign Accounts shall not exceed a maximum
aggregate amount of $5,000,000; (iii) Accounts that remain unpaid more than ninety
(90) days from invoice date or sixty (60) days from the due date; (iv) contra
accounts; (v) sales to any Subsidiary, or to any Affiliate of the Company in
any way; (vi) bill and hold (deferred shipment) or consignment sales; (vii)
sales to any customer which is: (A) insolvent, (B) the debtor in any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law, (C) negotiating, or has called a
meeting of its creditors for purposes of negotiating, a compromise of its
debts, or (D) financially unacceptable to the Agent or has a credit rating
unacceptable to the Agent; (viii) all sales to any customer if fifty percent
(50%) or more of the aggregate dollar amount of all outstanding invoices to
such customer are unpaid more than ninety (90) days from invoice date; (ix)
pre-billed receivables and receivables arising from progress billing; (x) an
amount representing the Company’s accruals for returns, discounts, claims,
credits, allowances and applicable terms; (xi) sales not payable in United
States currency; (xii) the total obligations of any customer to the extent such
obligations exceed thirty five percent (35%) of all Accounts and (xiii) any
other reasons deemed necessary by the Agent in its reasonable judgment, and
which are customary either in the commercial finance industry or in the lending
practices of the Agent and/or the Lenders.

 

Eligible
Inventory shall mean the gross amount of the Company’s
Inventory that is subject to a valid, exclusive, first priority and fully
perfected security interest in favor of the Agent, on behalf of the Lenders,
and which conforms to the warranties contained herein and which, at all times,
continues to be acceptable to the Agent in the exercise of its reasonable business
judgment, less, without duplication, any (a) work-in-process, (b) supplies
(other than raw materials), (c) Inventory not present in the United States of
America, (d) Inventory returned or rejected by the Company’s customers (other
than goods that are undamaged and resalable in the normal course of business)
and goods to be returned to the Company’s suppliers, (e) Inventory in
transit, and (f) less any reserves required by the Agent in its reasonable
discretion, including without limitation for special order goods, discontinued,
slow-moving and obsolete Inventory, market value declines, bill and hold
(deferred shipment), consignment sales, shrinkage and any applicable customs,
freight, duties and Taxes.

 

5

 

Equipment
shall mean all present and hereafter acquired equipment (as defined in the UCC)
including, without limitation, all machinery, equipment, furnishings and
fixtures, and all additions, substitutions and replacements thereof, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto and all proceeds thereof of
whatever sort.

 

ERISA
shall mean the Employee Retirement Income Security Act or 1974, as amended from
time to time and the rules and regulations promulgated thereunder from time to
time.

 

Eurocurrency
Reserve Requirements for any day, as applied to a LIBOR
Loan, shall mean the aggregate (without duplication) of the maximum rates of
reserve requirements (expressed as a decimal fraction) in effect with respect
to the Agent and/or any present or future Lender or participant on such day
(including, without limitation, basic, supplemental, marginal and emergency
reserves under Regulation D or any other applicable regulations of the Board of
Governors of the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto, as now and from time to time in effect,
dealing with reserve requirements prescribed for Eurocurrency funding
(currently referred to as “Eurocurrency Liabilities” in Regulation D of such
Board) maintained by the Agent and/or any such Lenders or participants (such
rate to be adjusted to the nearest one sixteenth of one percent (1/16 of 1%)
or, if there is not a nearest one sixteenth of one percent (1/16 of 1%), to the
next higher one sixteenth of one percent (1/16 of 1 %)).

 

European
Subsidiaries shall mean ViewSonic Europe Limited,
ViewSonic SARL and ViewSonic Technology GMBH.

 

Event(s)
of Default shall have the meaning provided for in Section
10 of this Financing Agreement.

 

Financing
Agreement shall mean this Financing Agreement dated as of
December 18, 2001 by and among the Company, the Agent and the Lenders
party hereto from time to time, and all amendments, modifications and supplements
hereto.

 

Fiscal
Quarter shall mean, with respect to the Company, each
three (3) month period ending on March 31, June 30, September 30, and December
31 of each Fiscal Year.

 

Fiscal
Year shall mean each twelve (12) month period commencing
on January 1 of each year and ending on the following December 31.

 

GAAP
shall mean generally accepted accounting principles in the United States of
America as in effect from time to time and for the period as to which such
accounting principles are to apply, provided that in the event the Company
modifies its accounting principles and procedures as applied as of the Closing
Date, the Company shall provide to the Agent and the Lenders such statements of
reconciliation as shall be in form and substance acceptable to the Agent.

 

General
Intangibles shall mean all present and hereafter acquired
general intangibles (as defined in the UCC), and shall include, without
limitation, all present and future right, title and interest in and to: (a) all
Trademarks, tradenames, corporate names, business names, logos and any other
designs or sources of business identities, (b) Patents, together with any
improvements

 

6

 

on said Patents,
utility models, industrial models, and designs, (c) Copyrights, (d) trade
secrets, (e) licenses, permits and franchises, (f) all applications with
respect to the foregoing, (g) all right, title and interest in and to any and
all extensions and renewals, (h) goodwill with respect to any of the
foregoing, (i) any other forms of similar intellectual property, (j) all
customer lists, distribution agreements, supply agreements, blueprints,
indemnification rights and tax refunds, together with all monies and claims for
monies now or hereafter due and payable in connection with any of the foregoing
or otherwise, and all cash and non-cash proceeds thereof, including, without
limitation, the proceeds or royalties of any licensing agreements between the
Company and any licensee of any of the Company’s General Intangibles.

 

Indebtedness
shall mean, without duplication, all liabilities, contingent or otherwise,
which are any of the following: (a) obligations in respect of borrowed money or
for the deferred purchase price of property, services or assets, other than
Inventory, or (b) lease obligations which, in accordance with GAAP, have been,
or which should be capitalized.

 

Insurance
Proceeds shall mean proceeds or payments from an
insurance carrier with respect to any loss, casualty or damage to Collateral.

 

Interest
Expense shall mean the total interest obligations (paid
or accrued) of the Company, determined in accordance with GAAP, on a consistent
basis with the latest audited statements of the Company.

 

Interest
Period shall mean:

 

(a)                                  with
respect to any initial request by the Company for a LIBOR Loan, a one month,
two month, three month or six month period commencing on the borrowing or
conversion date with respect to a LIBOR Loan and ending one, two, three or six
months thereafter, as applicable; and

 

(b)                                  thereafter
with respect to any continuation of, or conversion to, a LIBOR Loan, at the
option of the Company, any one month, two month, three month or six month
period commencing on the last day of the immediately preceding Interest Period
applicable to such LIBOR Loan and ending one, two, three or six months
thereafter, as applicable;

 

provided that,
the foregoing provisions relating to Interest Periods are subject to the
following:

 

(i)                                    if
any Interest Period would otherwise end on a day which is not a Working Day,
that Interest Period shall be extended to the next succeeding Working Day,
unless the result of such extension would extend such payment into another
calendar month in which event such Interest Period shall end on the immediately
preceding Working Day;

 

(ii)                                any
Interest Period that begins on the last Working Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar
month, at the end of such Interest Period) shall end on the last Working Day of
a calendar month; and

 

(iii)                            for
purposes of determining the availability of Interest Periods, such Interest
Periods shall be deemed available if (x) The Chase Bank quotes an applicable
rate

 

7

 

or the Agent determines LIBOR,
as provided in the definition of LIBOR, (y) the LIBOR determined by The Chase
Bank or the Agent will adequately and fairly reflect the cost of maintaining or
funding its loans bearing interest at LIBOR, for such Interest Period, and (z)
such Interest Period will end on or before the earlier of Anniversary Date or
the last day of the then current term of this Financing Agreement. If a
requested Interest Period shall be unavailable in accordance with the foregoing
sentence, the Company shall continue to pay interest on the Obligations at the
applicable per annum rate based upon the Chase Bank Rate.

 

In
Transit Inventory shall mean that portion of the
Company’s Inventory which the Agent shall not consider to be Eligible Inventory
but which also satisfies the following additional requirements: (i) such
Inventory is insured against loss, damage, hazards and risks and in amount
satisfactory to Agent in its discretion and the benefits of the insurance have
been assigned to Agent, (ii) Agent has received appropriate documentation
evidencing title in such inventory and all other relevant shipping documents
(such documents, at a minimum, to include clean negotiable on-board bills of
lading issued by the relevant carrier naming Company, or at Agent’s request,
Agent as consignee, together with a commercial invoice describing such
Inventory and, if applicable, a Certificate of Inspection and Certificate of
Origin, and any originals of such documents have been delivered to Agent upon
Agent’s request (iii) Agent has received a Custom Broker’s Consent Agreement in
form and substance acceptable to Agent and, if requested by Agent, a Freight
Forwarder’s Consent Agreement in form and substance acceptable to Agent (iv)
such Inventory has not yet arrived at a port in the United States, and (v)
Agent has filed ail documents necessary to establish or maintain a first
priority perfected security interest in such Inventory including, without
limitation, financing statements in the jurisdictions in which the ports of
entry of such Inventory in the United States are located.

 

Inventory
shall mean all of the Company’s present and hereafter acquired inventory (as
defined in the UCC) and including, without limitation, all merchandise,
inventory and goods, and all additions, substitutions and replacements thereof,
wherever located, together with all goods and materials used or usable in
manufacturing, processing, packaging or shipping same in all stages of
production from raw materials through work-in-process to finished goods and all
proceeds thereof of whatever sort.

 

Inventory
Loan Cap shall mean the lesser of (x) $25,000,000 and (y)
sixty five percent (65%) of the Availability set forth in clause (a) in the
definition of Borrowing Base.

 

Issuing
Bank shall mean the bank issuing Letters of Credit for
the Company.

 

Letters
of Credit shall mean all letters of credit issued with
the assistance of the Agent, on behalf of the Lenders, in accordance with
Section 5 hereof by the Issuing Bank for or on behalf of the Company.

 

Letter
of Credit Guaranty shall mean the guaranty delivered by
the Agent, on behalf of the Lenders, to the Issuing Bank of the Company’s
reimbursement obligations under the Issuing Bank’s reimbursement agreement,
application for Letter of Credit or other like document.

 

Letter
of Credit Guaranty Fee shall mean the fee the Agent, on
behalf of the Lenders, may charge the Company under Paragraph 8.2 of Section 8
of this Financing Agreement for: (a)

 

8

 

issuing a Letter
of Credit Guaranty, and/or (b) otherwise aiding the Company in obtaining
Letters of Credit, all pursuant to Section 5 hereof.

 

Letter
of Credit Sub-Line shall mean the commitment of the
Lenders to assist the Company in obtaining Letters of Credit, pursuant to
Section 5 hereof, in an aggregate amount of $10,000,000.

 

LIBOR
shall mean, at any time of determination, and subject to availability, for each
applicable Interest Period, a variable rate of interest equal to: (i) the
applicable LIBOR offered rates published in the eastern edition of the Wall
Street Journal under “Money Rates” on the day which is two (2) Business Days
prior to the first day of such Interest Period, or if such rate is not
published or available (ii) the LIBOR rate offered to Agent by the Chase Bank on
the day which is two (2) Business Days prior to the first day of such Interest
Period.

 

LIBOR
Lending Office with respect to the Agent, shall mean the
office of The Chase Bank, or any successor thereof, maintained at 270 Park
Avenue, New York, NY 10017.

 

LIBOR
Loan shall mean any loans made pursuant to this Financing
Agreement which are made or maintained at a rate of interest based upon LIBOR,
provided that (i) no Default or Event of Default has occurred hereunder, which
has not been waived in writing by the Required Lenders, and (ii) no LIBOR Loan
shall be made with an Interest Period that ends subsequent to an Anniversary
Date or any applicable Early Termination Date.

 

Line
of Credit shall mean the aggregate commitment of the
Lenders to (a) make Revolving Loans pursuant to Section 3 of this Financing
Agreement and (b) assist the Company in opening Letters of Credit pursuant to
Section 5 of this Financing Agreement, in the aggregate amount equal to
$50,000,000; provided that nothing herein shall be deemed to increase any
Lenders commitment hereunder, and which commitment shall be set forth in the
applicable schedules maintained by the Agent or the Assignment and Transfer
Agreements executed by such Lender.

 

Line
of Credit Fee shall: 
(a) mean the fee due the Agent at the end of each month for the Line of
Credit (based on $50,000,000), and (b) be determined by multiplying the
difference between (i) the Revolving Line of Credit, and (ii) the sum, for said
month, of (x) the average daily balance of Revolving Loans plus (y) the average
daily balance of Letters of Credit outstanding for said month, by three eighths
of one percent (.375 %) per annum for the number of days in said month.

 

Loan
Documents shall mean this Financing Agreement, the
Revolving Credit Note, the Pledge Agreements, the Subordination Agreement, the
other closing documents and any other ancillary loan and security agreements
executed from time to time in connection with this Financing Agreement, all as
may be renewed, amended, extended, increased or supplemented from time to time.

 

Obligations
shall mean all loans, advances and extensions of credit made or to be made by
the Agent and/or the Lenders to the Company pursuant to the Loan Documents, or
to others for the Company’s account (including, without limitation, all
Revolving Loans, Letter of Credit Guaranties; any and all indebtedness and
obligations which may at any time be owing by the Company to the Agent and/or
the Lenders pursuant to the Loan Documents, howsoever arising, whether now in existence
or incurred by the Company from time to time hereafter; whether

 

9

 

principal,
interest, fees, costs, expenses or otherwise; whether secured by pledge, lien
upon or security interest in any of the Company’s Collateral, assets or
property or the assets or property of any other person, firm, entity or
corporation; whether such indebtedness is absolute or contingent, joint or
several, matured or unmatured, direct or indirect and whether the Company is liable
to the Agent and/or the Lenders for such indebtedness as principal, surety,
endorser, guarantor or otherwise. Obligations shall also include indebtedness
owing to the Agent and/or the Lenders by the Company under any Loan Document;
indebtedness or obligations incurred by, or imposed on, the Agent and/or the
Lenders as a result of environmental claims arising out of the Company’s
operations, premises or waste disposal practices or sites in accordance with
paragraph 7.7 hereof the Company’s liability to the Agent and/or the Lenders as
maker or endorser of any promissory note or other instrument for the payment of
money; the Company’s liability to the Agent and/or the Lenders under any
instrument of guaranty or indemnity, or arising under any guaranty, endorsement
or undertaking which the Agent and/or the Lenders may make or issue to others
for the Company’s account, including any Letter of Credit Guaranty or other
accommodation extended by CIT with respect to applications for Letters of
Credit, the Agent’s and/or the Lenders’ acceptance of drafts or the Agent’s
and/or the Lenders’ endorsement of notes or other instruments for the Company’s
account and benefit pursuant to the Loan Documents.

 

Other
Collateral shall mean all now owned and hereafter
acquired lockbox, blocked account and any other deposit accounts maintained
with any bank or financial institutions into which the proceeds of Collateral
are or may be deposited; all cash and other monies and property in the
possession or control of the Agent and/or any of the Lenders; all books,
records, ledger cards, disks and related data processing software at any time
evidencing or containing information relating to any of the Collateral
described herein or otherwise necessary or helpful in the collection thereof or
realization thereon; and all cash and non-cash proceeds of the foregoing.

 

Out-of-Pocket
Expenses shall mean all of the Agent’s (and the Lenders
upon the occurrence of an Event of Default which is not waived by the Required
Lenders) present and future expenses incurred relative to this Financing
Agreement or any other Loan Documents, whether incurred heretofore or
hereafter, which expenses shall include, without being limited to:  the cost of record searches, all costs and
expenses incurred by the Agent in opening bank accounts, depositing checks,
receiving and transferring funds, and wire transfer charges, any charges
imposed on the Agent due to returned items and “insufficient funds” of
deposited checks and the Agent’s standard fees relating thereto, any amounts
paid by, incurred by or charged to, the Agent and/or the Lenders by the Issuing
Bank under a Letter of Credit Guaranty or the Company’s reimbursement
agreement, application for Letters of Credit or other like document which
pertain either directly or indirectly to such Letters of Credit, and the
Agent’s standard fees relating to the Letters of Credit and any drafts
thereunder, travel, lodging and similar expenses of the Agent’s personnel in
connection with inspecting and monitoring the Collateral from time to time
hereunder, any reasonable counsel fees and disbursements, whether or not suit
if filed and whether incurred before or after the initiation of a bankruptcy or
insolvency proceeding by or against the Company, fees and taxes relative to the
filing of financing statements, all expenses, costs and fees set forth in
Paragraph 10.3 of Section 10 of this Financing Agreement.

 

10

 

Overadvance
Rate shall mean a rate equal to one-half of one percent (1/2%)
per annum in excess of the applicable contract rate of interest determined in
accordance with Section 8, Paragraph 8.1(b) of this Financing Agreement.

 

Overadvances
shall mean the amount by which (a) the sum of all outstanding Revolving Loans,
Letters of Credit and advances made hereunder exceed (b) the Borrowing Base.

 

Patents
shall mean all of the Company’s present and hereafter acquired patents, patent
applications, registrations, any reissues or renewals thereof, licenses, any
inventions and improvements claimed thereunder, and all general intangible,
intellectual property and patent rights with respect thereto of the Company,
and all income, royalties, cash and non-cash proceeds thereof.

 

Permitted
Encumbrances shall mean: 
(a) liens existing on the date hereof on specific items of Equipment and
other liens expressly permitted, or consented to in writing by the Agent and/or
the Required Lenders; (b) Purchase Money Liens; (c) liens of local or state
authorities for franchise or other like Taxes, provided that the aggregate
amounts of such liens shall not exceed $250,000.00 in the aggregate at any one
time; (d) statutory liens of landlords and liens of carriers, warehousemen,
bailees, mechanics, materialmen and other like liens imposed by law, created in
the ordinary course of business and for amounts not yet due (or which are being
contested in good faith, by appropriate proceedings or other appropriate
actions which are sufficient to prevent imminent foreclosure of such liens) and
with respect to which adequate reserves or other appropriate provisions are
being maintained by the Company in accordance with GAAP; (e) deposits made (and
the liens thereon) in the ordinary course of business of the Company
(including, without limitation, security deposits for leases, indemnity bonds,
surety bonds and appeal bonds) in connection with workers’ compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money or purchase money obligations), statutory
obligations and other similar obligations arising as a result of progress
payments under government contracts; (f) easements (including, without
limitation, reciprocal easement agreements and utility agreements),
encroachments, minor defects or irregularities in title, variation and other
restrictions, charges or encumbrances (whether or not recorded) affecting the
Real Estate, if applicable, and which in the aggregate (A) do not materially
interfere with the occupation, use or enjoyment by the Company of its business
or property so encumbered and (B) in the reasonable business judgment of
the Agent do not materially and adversely affect the value of such Real Estate;
and (g) liens granted the Agent by the Company; (h) liens of judgment creditors
provided such liens do not exceed, in the aggregate, at any time, $500,000.00
(other than liens bonded or insured to the reasonable satisfaction of the
Agent); and (i) tax liens representing taxes not yet delinquent or which are
being diligently contested in good faith by the Company by appropriate
proceedings, and which liens are not (x) filed on any public records, (y) other
than with respect to Real Estate, senior to the liens of the Agent or (z) for
Taxes due the United States of America or any state thereof having similar
priority statutes, as further set forth in paragraph 7.6 hereof.

 

Permitted
Indebtedness shall mean: 
(a) current Indebtedness maturing in less than one year and incurred in
the ordinary course of business for raw materials, supplies, equipment,
services, Taxes or labor; (b) the Indebtedness secured by Purchase Money Liens;
(c) Subordinated Debt;

 

11

 

(d) Indebtedness
arising under the Letters of Credit and this Financing Agreement;
(e) deferred Taxes and other expenses incurred in the ordinary course of
business; (f) other unsecured Indebtedness in an amount not to exceed
$1,000,000 and (g) Indebtedness existing on the date of execution of this
Financing Agreement and listed in the most recent financial statement delivered
to the Agent and the Lenders or otherwise disclosed to the Agent and the
Lenders in writing prior to the Closing Date.

 

Pledge
Agreement shall mean the pledge agreement required to be
delivered pursuant to the terms of Section 2.l(m) of this Financing Agreement.

 

Promissory
Notes shall mean the notes, in the form of Exhibit A
attached hereto, delivered by the Company to the Agent repayable in accordance
with the provisions of Section 3 of this Financing Agreement.

 

Purchase
Money Liens shall mean liens on any item of Equipment
acquired after the date of this Financing Agreement provided that (a) each such
lien shall attach only to the property to be acquired, (b) a description of the
Equipment so acquired is furnished to the Agent, and (c) the debt incurred in
connection with such acquisitions shall not exceed, in the aggregate,
$2,000,000 in any Fiscal Year.

 

Real
Estate shall mean the Company’s fee and/or leasehold
interests in the real property.

 

Required
Lenders shall mean the Lenders holding aggregate
commitments under this Financing Agreement in an amount of 51% or more.

 

Revolving
Line of Credit shall mean the aggregate commitment of the
Lenders to make loans and advances pursuant to Section 3 of this Financing
Agreement and issue Letters of Credit Guaranties pursuant to Section 5 hereof
to the Company, in the aggregate amount of $50,000,000, not to exceed the Line
of Credit.

 

Revolving
Loan Account shall mean the account on the Agent’s books,
in the Company’s name, in which the Company will be charged with all
Obligations under this Financing Agreement.

 

Revolving
Loans  shall mean the loans and advances made, from time
to time, to or for the account of the Company by the Agent, on behalf of the
Lenders, pursuant to Section 3 of this Financing Agreement.

 

Settlement
Date shall mean the date, weekly, and more frequently, at
the discretion of the Agent, upon the occurrence of an Event of Default or a
continuing decline or increase of the Revolving Loans that the Agent and the
Lenders shall settle amongst themselves so that (a) the Agent shall not have,
as the Agent, any money at risk and (b) on such Settlement Date the Lenders
shall have a pro rata amount of all outstanding Revolving Loans and Letters of
Credit, provided that each Settlement Date for a Lender shall be a Business Day
on which such Lender and its bank are open for business.

 

Subordinated
Debt shall mean the debt due a Subordinating Creditor
(and the note(s) evidencing such) which has been subordinated, by a
Subordination Agreement, to the prior

 

12

 

payment and
satisfaction of the Obligations of the Company to the Agent and the Lenders (in
form and substance satisfactory to the Agent and/or the Required Lenders).

 

Subordinating
Creditor shall mean James Chu and any other party
hereafter executing a Subordination Agreement.

 

Subordination
Agreement shall mean the agreement (in form and substance
satisfactory to the Agent) among the Company, a Subordinating Creditor and the
Agent, pursuant to which Subordinated Debt is subordinated to the prior payment
and satisfaction of the Company’s Obligations to the Agent and the Lenders (in
form and substance satisfactory to the Agent).

 

Subsidiaries
shall mean Advanced Digital Optics, Inc., ViewAire Corporation, VisionBank
Corporation, ViewSonic Europe Limited, ViewSonic SARL, ViewSonic Technology
GMBH, ViewSonic International Corporation, ViewSonic Japan KK, ViewSonic Cayman
Islands, Ltd., ViewSonic Hong Kong, Ltd., ViewSonic Singapore PTE Ltd.,
ViewSonic China Ltd. and ViewSonic Corporation (Australia).

 

Taxes
shall mean all federal, state, municipal and other governmental taxes, levies,
charges, claims and assessments which are or may be due by the Company with
respect to its business, operations, Collateral or otherwise.

 

Total
Assets shall mean total assets determined in accordance
with GAAP, on a basis consistent with the latest audited financial statements
of the Company.

 

Total
Liabilities shall mean total liabilities determined in
accordance with GAAP, on a basis consistent with the latest audited financial
statements of the Company.

 

Trade
Accounts Receivable shall mean that portion of the
Company’s Accounts which arises from the sale of Inventory or the rendition of
services in the ordinary course of the Company’s business.

 

Trademarks
shall mean all present and hereafter acquired trademarks, trademark
registrations, recordings, applications, tradenames, trade styles, service
marks, prints and labels (on which any of the foregoing may appear), licenses,
reissues, renewals, and any other intellectual property and trademark rights
pertaining to any of the foregoing, together with the goodwill associated
therewith, and all cash and non-cash proceeds thereof.

 

UCC
shall mean the Uniform Commercial Code as the same may be amended and in effect
from time-to-time in the state of California.

 

Working
Day shall mean any Business Day on which dealings in
foreign currencies and exchanges between banks may be transacted.

 

SECTION 2.                            Conditions
Precedent

 

2.1                               The
obligation of the Agent and the Lenders to make the initial loans hereunder is
subject to the satisfaction of, extension of or waiver of (in writing), on or
prior to, the Closing Date, the following conditions precedent:

 

13

 

(a)                                  Lien Searches - The Agent shall
have received tax, judgment and Uniform Commercial Code searches satisfactory
to the Agent for all locations presently occupied or used by the Company.

 

(b)                                  Casualty Insurance - The Company
shall have delivered to the Agent evidence satisfactory to the Agent that
casualty insurance policies listing the Agent as additional insured, loss payee
or mortgagee, as the case may be, are in full force and effect, all as set
forth in Paragraph 7.5 of Section 7 of this Financing Agreement.

 

(c)                                  UCC Filings - Any financing
statements required to be filed in order to create, in favor of the Agent, on
behalf of the Lenders, a first perfected security interest in the Collateral,
subject only to the Permitted Encumbrances, shall have been properly filed in
each office in each jurisdiction required in order to create in favor of the
Agent for the benefit of the Lenders a perfected lien on the Collateral. The
Agent shall have received acknowledgment copies of all such filings (or, in
lieu thereof, the Agent shall have received other evidence satisfactory to the
Agent that all such filings have been made) and the Agent shall have received
evidence that all necessary filing fees and all taxes or other expenses related
to such filings have been paid in full. 
Without limiting the foregoing, Agent, on behalf of Lender’s shall also
have a first priority security interest in all venture capital investments of
Company subject to release provisions if such investments are sold in
accordance with the procedures set forth in Section 7.9(g).

 

(d)                                  Board Resolution - The Agent shall
have received a copy of the resolutions of the Board of Directors of the
Company authorizing the execution, delivery and performance of (i) this
Financing Agreement, (ii) and any related agreements, in each case certified by
the Secretary or Assistant Secretary of the Company as of the date hereof,
together with a certificate of the Secretary or Assistant Secretary of the
Company as to the incumbency and signature of the officers of the Company
executing such Loan Documents and any certificate or other documents to be
delivered by them pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary.

 

(e)                                  Corporate Organization - The Agent
shall have received (i) a copy of the Certificate of Incorporation of the
Company certified by the Secretary of State of the state of its incorporation,
and (ii) a copy of the By-Laws of the Company certified by the Secretary or
Assistant Secretary thereof, all as amended through the date hereof.

 

(f)                                    Officer’s Certificate - The Agent
shall have received an executed Officer’s Certificate of the Company, satisfactory
in form and substance to the Agent, certifying that (i) the representations and
warranties contained herein are true and correct in all material respects on
and as of the Closing Date; (ii) the Company is in compliance with all of the
terms and provisions set forth herein; and (iii) no Default or Event of Default
has occurred.

 

(g)                                 Opinions - Counsel for the Company
shall have delivered to the Agent on behalf of the Lenders opinions
satisfactory to the Agent opining, inter alia and to the extent applicable,
that, subject to the (i) filing, priority and remedies provisions of the
Uniform Commercial Code, (ii) the provisions of the Bankruptcy Code, insolvency
statutes or other like laws, (iii) the equity powers of a court of law and (iv)
such other matters as may be agreed upon

 

14

 

with the Agent: (x) this
Financing Agreement and all other Loan Documents of the Company are (A) valid,
binding and enforceable according to their terms, (B) are duly authorized,
executed and delivered, and (C) do not violate any terms, provisions,
representations or covenants in the charter or By-Laws of the Company or, to
the best knowledge of such counsel, of any loan agreement, mortgage, deed of
trust, note, security or pledge agreement, indenture or other contract to which
the Company are signatories or by which the Company or their assets are bound.
In addition, counsel to the Subordinating Creditor(s) shall have delivered an
opinion satisfactory to the Agent that the Subordination Agreement(s) have been
duly authorized, executed and delivered and constitute valid and binding
agreements enforceable against such Subordinating Creditor(s) in accordance
with the terms thereof.

 

(h)                                 Absence of Default - No Default or
Event of Default shall have occurred and no material adverse change shall have
occurred in the financial condition, business, prospects, profits, operations
or assets of the Company or the Subsidiaries.

 

(i)                                    Legal Restraints/Litigation - As
of the Closing Date, there shall be no: (x) litigation, investigation or
proceeding (judicial or administrative) pending or threatened against the
Company or its assets, by any agency, division or department of any county,
city, state or federal government arising out of this Financing Agreement; (y)
injunction, writ or restraining order restraining or prohibiting the financing
arrangements contemplated under this Financing Agreement; or (z) suit, action,
investigation or proceeding (judicial or administrative) pending against the
Company or its assets, which, in the opinion of the Agent, if adversely
determined, could have a material adverse effect on the business, operation,
assets, financial condition or Collateral of the Company.

 

(j)                                    Intentionally
Deleted

 

(k)                                Subordination Agreement - The
Subordinating Creditor shall have executed and delivered to the Agent, on
behalf of the Lenders, a Subordination Agreement, in form and substance
satisfactory to the Agent, subordinating the debt due the Subordinating
Creditor by the Company to the prior payment and satisfaction of the
Obligations of the Company to the Agent and the Lenders.

 

(l)                                    Cash Budget Projections - The
Agent shall have received, reviewed and been satisfied with a twelve (12) month
cash budget projection prepared by the Company on the form provided by the
Agent.

 

(m)                              Pledge Agreement - The Company, as
the case may be, shall (i) execute and deliver to the Agent, on behalf of the
Lenders, a pledge and security agreement pledging to the Agent, on behalf of
the Lenders, as additional collateral for the Obligations of the Company not
less than one hundred percent of the stock of all domestic Subsidiaries and
sixty five percent of the stock of all foreign Subsidiaries of the Company,
(ii) execute and deliver to the Agent, on behalf of the Lenders, a pledge and
security agreement pledging to the Agent, on behalf of the Lenders, as
additional collateral for the Obligations of the Company not less than one
hundred percent of the stock of all venture capital investments of the Company
and (iii) deliver to the Agent, on behalf of the Lenders to the extent
applicable, the stock certificates evidencing all such stock (other than
Lightune Ltd., ViewSonic International Corporation and ViewSonic Cayman

 

15

 

Islands, Ltd. to be delivered
in accordance with Section 7.15 below), together with duly executed stock
powers (undated and in blank) with respect thereto, all in form and substance
satisfactory to Agent.

 

(n)                                 Additional Documents - The Company
shall have executed and delivered to the Agent all Loan Documents reasonably
requested by the Agent to consummate the lending arrangement contemplated
between the Company, the Agent and the Lenders.

 

(o)                                  Disbursement Authorization - The
Company shall have delivered to the Agent all information necessary for the
Agent and the Lenders to issue wire transfer instructions on behalf of the
Company for the initial and subsequent loans and/or advances to be made under
this Financing Agreement including, but not limited to, disbursement
authorizations in form acceptable to the Agent.

 

(p)                                  Examination & Verification -
The Agent and each of the Lenders shall have completed, to their respective
satisfaction, an examination and verification of the Accounts, Inventory,
financial statements, books and records of the Company which examination shall
indicate that, after giving effect to all Revolving Loans, advances and
extensions of credit to be made at closing, the Company shall have an opening
additional Availability of at least $25,000,000, as evidenced by a Borrowing
Base certificate in the form of Exhibit B hereto (the “Borrowing Base
Certificate”) and delivered by the Company to the Agent as of the Closing Date,
all as more fully required by the Agent Commitment Letter. It is understood
that such requirement contemplates that all debts and obligations are current,
and that all payables are being handled in the normal course of the Company’s
business and consistent with its past practice.

 

(q)                                  Depository Accounts - The Company
shall have established a system of lockbox and bank accounts with respect to
the collection of Accounts and the deposit of proceeds of Collateral as shall
be acceptable to the Agent in all respects. Such accounts shall be subject to
three party agreements (between the Company, the Agent and the depository
bank), which shall be in form and substance satisfactory to the Agent.

 

(r)                                  Existing Revolving Credit Agreement
- The Company’s existing credit agreement with Bank of America (the “Existing Lender”)
shall be: (i) terminated; (ii) all loans and obligations of the Company
thereunder shall be paid or satisfied in full, including through utilization of
the proceeds of the initial Revolving Loans to be made under this Financing
Agreement; and (iii) all liens or security interests in favor of the Existing
Lender on the Collateral and otherwise in connection therewith shall be
terminated and/or released upon such payment.

 

(s)                                  Intentionally
Deleted

 

(t)                                    Appraisals - The Agent shall have
received a satisfactory updated appraisal of the Company’s Inventory, which
appraisal: (i) shall be by an appraiser acceptable to the Agent, and (ii) shall
be in form and substance acceptable to Agent in its discretion.

 

(u)                                 Schedules - The Company or its
counsel shall provide the Agent with schedules of: (a) any of the Company’s and
its Subsidiaries (i) Trademarks, (ii) Patents, and (iii)

 

16

 

Copyrights, as applicable and
all in such detail as to provide appropriate recording information with respect
thereto, (b) any tradenames, (c) monthly rental payments for any leased
premises or any other premises where any Collateral may be stored or processed,
and (d) Permitted Liens, all of the foregoing in form and substance satisfactory
to the Agent.

 

(v)                                   The Agent Commitment Letter/Fee Letter
- The Company shall have fully complied, to the reasonable satisfaction of the
Agent, with all of the terms and conditions of the Agent Commitment Letter and
shall have executed and returned to Agent a fee letter in form and substance
satisfactory to Agent.

 

(w)                                No Material Change - The Company
shall not have suffered any material adverse change in its financial condition,
business, prospects, profitability, assets or operations since September 30,
2001. It is understood and agreed that any adverse change in the terms,
conditions, assumptions or projections supplied to Agent by Company and on
which Agent based its decision to issue the Commitment Letter may, in Agent’s
reasonable business judgment, be construed by Agent as a material adverse
change.

 

(x)                                  Reference Checks - Agent shall
have been satisfied with its reference checks of the Company’s ten largest
customers and a reference and background check of Mr. James Chu.

 

Upon the execution
of this Financing Agreement and the initial disbursement of loans hereunder,
all of the above Conditions Precedent shall have been deemed satisfied except
as otherwise set forth hereinabove or as the Company and the Agent shall
otherwise agree in writing.

 

2.2                               Conditions to Each Extension of Credit.  Subject to the terms of this Financing
Agreement, including without limitation the Agent’s rights pursuant to
paragraph 10.2 of Section 10 hereof, the agreement of the Agent on behalf
of the Lenders to make any extension of credit requested to be made by it to
the Company on any date (including without limitation, the initial extension of
credit) is subject to the satisfaction of the following conditions precedent:

 

(a)                                  Representations and Warranties -
Each of the representations and warranties made by the Company in or pursuant
to this Financing Agreement shall be true and correct in all material respects
on and as of such date as if made on and as of such date.

 

(b)                                  No Default - No Default or Event
of Default shall have occurred and be continuing on such date or after giving
effect to the extension of credit requested to be made on such date.

 

(c)                                  Borrowing Base - Except as may be
otherwise agreed to from time to time by the Agent and the Company in writing,
after giving effect to the extension of credit requested to be made by the
Company on such date, the aggregate outstanding balance of the Revolving Loans
and outstanding Letters of Credit owing by the Company will not exceed the
lesser of (i) the Revolving Line of Credit or (ii) the Borrowing Base.

 

Each borrowing by
the Company hereunder shall constitute a representation and warranty by the
Company as of the date of such loan or advance that each of the
representations, warranties and covenants contained in the Financing Agreement
have been satisfied and are true and correct,

 

17

 

except as the
Company and the Agent and/or the Required Lenders shall otherwise agree herein
or in a separate writing.

 

SECTION 3.                            Revolving
Loans

 

3.1                               (a)                                  The
Agent and the Lenders agree, subject to the terms and conditions of this
Financing Agreement, from time to time (but subject to the Agent’s and the
Lenders’ right to make “Overadvances”), to make loans and advances to the
Company on a revolving basis (i.e. subject to the limitations set forth herein,
the Company may borrow, repay and reborrow Revolving Loans). Such requests for
loans and advances shall be in amounts not to exceed the lesser of (a) the
Availability or (b) the Revolving Line of Credit. All requests for loans and
advances must be received by an officer of the Agent no later than
(i) 1:00 p.m., New York time, of the Business Day on which any such Chase
Bank Rate Loans and advances are required or (ii) three Business Days
prior to any requested LLBOR Loan. Should the Agent for any reason honor
requests for Overadvances, any such Overadvances shall be made in the Agent’s
sole discretion and subject to any additional terms the Agent and/or the
Required Lenders deem necessary.

 

(b)  (i)                Whenever the
Company requests the Agent, on behalf of the Lenders, to make a Revolving Loan
pursuant to this Section 3, it shall give the Agent notice in writing or
irrevocable telephonic notice confirmed promptly in writing, specifying (A) the
amount to be borrowed, and (B) the requested borrowing date (which shall be a
business day and shall be prior to: the Anniversary Date, and if applicable,
any Early Termination Date, or prior to any effective termination date of this
Financing Agreement, all as further set forth herein), and (C) specify whether
the requested Revolving Loan shall bear interest at the Chase Bank Rate or at
the LIBOR, as further set forth herein. All requests for loans and advances
must be received by an officer of the Agent no later than 1:00 P.M. New York
time on any borrowing date. The procedure for Revolving Loans to be made on a
requested borrowing date may be such other procedure as is mutually
satisfactory to the Company, the Agent and/or the Lenders. The Agent shall make
loans and advances to the Depository Account (as hereinafter defined) of the
Company.

 

(ii)          Subject
to paragraph 14.10 hereof, should the Agent, on behalf of the Lenders, for any
reason honor requests for Overadvances, such Overadvance shall be made in the
Agent’s sole discretion, subject to any additional terms the Agent and/or the
Required Lenders deem necessary. Requests for loans and advances shall be made
solely by the Company and shall be directed solely to the Agent.

 

(c)                                  The
Agent shall on any Settlement Date, and upon notice given by the Agent no later
than 2:00 P.M. New York time, request each Lender to make, and each Lender
hereby agrees to make, a Revolving Loan in an amount equal to such Lender’s
Revolving Credit Commitment percentage (calculated with respect to the
aggregate Revolving Credit Commitments then outstanding) of the aggregate
amount of the Revolving Loans made by the Agent from the preceding Settlement
Date to the date of such notice. Each Lender’s obligation to make the Revolving
Loans referred to in subsection (a) and to make the settlements pursuant to
this subsection (c) shall be absolute and unconditional and shall not be
affected by any circumstance, including without limitation (i) any set-off,
counterclaim, recoupment, defense or

 

18

 

other right which any such
Lender or the Company may have against the Agent, the Company, any other Lender
or any other person for any reason whatsoever; (ii) the occurrence or
continuance of a Default or an Event of Default; (iii) any adverse change in
the condition (financial or otherwise) of the Company; (iv) any breach of this
Financing Agreement or any other loan document by the Company or any other
Lender; or (v) any other circumstance, happening or event whatsoever, whether
or not similar to any of the foregoing. Without limiting the liability and
obligation of each Lender to make such advances, the Company authorizes the
Agent to charge the Company’s Revolving Loan Account with the Agent to the
extent amounts received from the Lenders are not sufficient to repay in full
the amount of any such deficiency.

 

(d)                                  The
Company’s Revolving Loan Obligations hereunder shall be evidenced by the
Promissory Note in the form of Exhibit A attached hereto.

 

3.2                               In
furtherance of the continuing assignment and security interest in the Company’s
Accounts and Inventory, the Company will, upon the creation of Accounts and
purchase or acquisition of Inventory, execute and deliver to the Agent in such
form and manner as the Agent may reasonably require, solely for the Agent’s
convenience in maintaining records of Collateral, such confirmatory schedules
of Accounts and Inventory as the Agent may reasonably request, including,
without limitation, weekly schedules of Accounts and monthly schedules of
Inventory, all in form and substance satisfactory to the Agent, and such other
appropriate reports designating, identifying and describing the Accounts and
Inventory as the Agent may reasonably request, and provided further that the
Agent may request any such information more frequently, from time to time, upon
its reasonable prior request. In addition, upon the Agent’s request, the
Company shall provide the Agent with copies of agreements with, or purchase
orders from, the Company’s customers, and copies of invoices to customers,
proof of shipment or delivery, access to its computers, electronic media and
software programs associated therewith (including any electronic records,
contracts and signatures) and such other documentation and information relating
to said Accounts and other Collateral as the Agent may reasonably require.
Failure to provide the Agent with any of the foregoing shall in no way affect,
diminish, modify or otherwise limit the security interests granted herein. The
Company hereby authorizes the Agent to regard the Company’s printed name or
rubber stamp signature on assignment schedules or invoices as the equivalent of
a manual signature by one of the Company’s authorized officers or agents.

 

3.3                               The
Company hereby represents and warrants that: each Trade Account Receivable is
based on an actual and bona fide sale and delivery of Inventory or rendition of
services to its customers, made by the Company in the ordinary course of its
business; the Inventory being sold, and the Trade Accounts Receivable created,
are the exclusive property of the Company and are not and shall not be subject
to any lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever, other than the Permitted Encumbrances; the
invoices evidencing such Trade Accounts Receivable are in the name of the
Company; and the customers of the Company have accepted the Inventory or
services, owe and are obligated to pay the full amounts stated in the invoices
according to their terms, without dispute, offset, defense, counterclaim or
contra, except for disputes and other matters arising in the ordinary course of
business with respect to which the Company has complied with the notification
requirements of Paragraph 3.5 of this Section 3. The Company confirms to the
Agent that any and all Taxes or fees relating to its business, its sales, the
Accounts or Inventory relating

 

19

 

thereto, are its sole
responsibility and that same will be paid by the Company when due, subject to
Paragraph 7.6 of Section 7 of this Financing Agreement, and that none of said
Taxes or fees represent a lien on or claim against the Accounts. The Company
hereby further represents and warrants that it shall not acquire any Inventory
on a consignment basis, nor commingle its Inventory with any of its customers
or any other person, including pursuant to any bill and hold sale or otherwise,
and that its Inventory is marketable to its customers in the ordinary course of
business of the Company, except as it may otherwise report in writing to the
Agent pursuant to Paragraph 3.5 hereof from time to time. The Company also
warrants and represents that it is a duly and validly existing corporation and
is qualified in all states where the failure to so qualify would have an
adverse effect on the business of the Company or the ability of the Company to
enforce collection of Accounts due from customers residing in that state. The
Company agrees to maintain such books and records regarding Accounts and
Inventory as the Agent may reasonably require in accordance with GAAP. All of
the books and records of the Company will be available to the Agent at normal
business hours, including any records handled or maintained for the Company by
any other company or entity.

 

3.4                               (a)                                  Until
the Agent has advised the Company to the contrary after the occurrence of an
Event of Default, the Company, at its expense, will enforce, collect and
receive all amounts owing on the Accounts in the ordinary course of its
business and any proceeds it so receives shall be subject to the terms hereof,
and held on behalf of and in trust for the Agent on behalf of the Lenders. Such
privilege shall terminate at the election of the Agent, upon the occurrence of
an Event of Default, until such Event of Default is waived in writing by the
Required Lenders or cured to the Agents and/or the Required Lenders
satisfaction. Any checks, cash, credit card sales and receipts, notes or other
instruments or property received by the Company with respect to any Collateral,
including Accounts, shall be held by the Company in trust for the Agent, on
behalf of the Lenders, separate from the Company’s own property and funds, and
promptly turned over to the Agent with proper assignments or endorsements by
deposit to the Depository Accounts. The Company shall:  (i) indicate on all of its invoices that
funds should be delivered to and deposited in a Depository Account; (ii) direct
all of its account debtors to deposit any and all proceeds of Collateral into
the Depository Accounts; (iii) irrevocably authorize and direct any banks
which maintain the Company’s initial receipt of cash, checks and other items to
promptly wire transfer all available funds to a Depository Account; and (iv)
advise all such banks of the Agent’s security interest in such funds. The
Company shall provide the Agent with prior written notice of any and all
deposit accounts opened or to be opened subsequent to the Closing Date. All
amounts received by the Agent in payment of Accounts will be credited to the
Revolving Loan Account when the Agent is advised by its bank of its receipt of
“collected funds” at the Agent’s bank account in New York, New York on the
Business Day of such advise if advised no later than 1:00 p.m. EST or on the
next succeeding Business Day if so advised after 1:00 PM EST.  However, the Company’s Revolving Loan
Account will be charged monthly with the cost of one (1) additional Business
Day on all such Collections (a “Collection Day”) at the interest rate (based
upon the Chase Bank Rate) applicable to Revolving Loans. No checks, drafts or
other instrument received by the Agent shall constitute final payment to the
Agent and/or the Lenders unless and until such instruments have actually been
collected.

 

(b)                                  The
Company shall establish and maintain, in its name and at its expense, deposit
accounts with such banks as are acceptable to the Agent (the “Lockbox
Accounts”) into

 

20

 

which the Company shall
promptly cause to be deposited: (i) all proceeds of Collateral received by the
Company, including all amounts payable to the Company from credit card issuers
and credit card processors, and (ii) all amounts on deposit in deposit accounts
used by the Company at each of its locations, all as further provided in
Paragraph 3.4(a) above. The banks at which the Lockbox Accounts are established
shall enter into an agreement, in form and substance satisfactory to the Agent
(the “Lockbox Account Agreements”), providing that all cash, checks and items
received or deposited in the Lockbox Accounts are the property of the Agent,
that the depository bank has no lien upon, or right of set off against, the
Lockbox Accounts and any cash, checks, items, wires or other funds from time to
time on deposit therein, except as otherwise provided in the Lockbox Account
Agreements, and that upon instruction from Agent, automatically, on a daily
basis the depository bank will wire, or otherwise transfer, in immediately
available funds, all funds received or deposited into the Lockbox Accounts to
such bank account as the Agent may from time to time designate for such
purpose. In any month that the Company does not have outstanding loans under
this Agreement, the Company may keep such funds in the Lockbox Account without
an automatic transfer to Agent’s bank account; provided, however, that the
Company shall pay a monthly float fee to Agent equal to $7,500 for each such
month (and if the Company requests an advance hereunder in such month, the
Company shall be charged (i) a pro rata portion of the $7,500 float fee for the
portion of the month in which the Company did not borrow plus (ii) the
Collection Days of interest charged in accordance with Section 3.4(a) above,
and the Company shall not be entitled for that month to keep the funds in the
lockbox). The Company hereby confirms and agrees that all amounts deposited in
such Lockbox Accounts and any other funds received and collected by the Agent,
whether as proceeds of Inventory or other Collateral or otherwise, shall be the
property of the Agent.

 

3.5                               The
Company agrees to notify the Agent: (a) of any matters affecting the value,
enforceability or collectibility of any Account and of all customer disputes,
offsets, defenses, counterclaims, returns, rejections and all reclaimed or
repossessed merchandise or goods, and of any adverse effect in the value of its
Inventory, in its weekly and monthly collateral reports (as applicable)
provided to the Agent hereunder, in such detail and format as the Agent may
reasonably require from time to time; provided, that the Company shall
only be required to notify the Agent of customer disputes to the extent the
amount in dispute does not exceed $100,000 for any individual dispute and
$250,000 in the aggregate provided  further, that such amounts may
be changed or eliminated by the Agent in its reasonable business judgment and
(b) promptly of any such matters which are material, as a whole, to the
Accounts and/or the Inventory. The Company agrees to issue credit memoranda
promptly (with duplicates to the Agent upon request after the occurrence of an
Event of Default) upon accepting returns or granting allowances.  Upon the occurrence of an Event of Default
(which is not waived in writing by the Required Lenders) and on notice from the
Agent, the Company agrees that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by the Company, marked with the Agent’s
name (as secured party) and held by the Company for the Agent’s account.

 

3.6                               The
Agent shall maintain a Revolving Loan Account on its books in which the Company
will be charged with all loans and advances made by the Agent to it or for its
account, and with any other Obligations, including any and all costs, expenses
and reasonable attorney’s fees which the Agent may incur in connection with the
exercise by or for the Agent of any of the rights or powers herein conferred
upon the Agent, or in the prosecution or defense of any action

 

21

 

or proceeding to enforce or
protect any rights of the Agent in connection with this Financing Agreement,
the other Loan Documents or the Collateral assigned hereunder, or any
Obligations owing by the Company. The Company will be credited with all amounts
received by the Agent and/or the Lenders from the Company or from others for
the Company’s account, including, as above set forth, all amounts received by
the Agent in payment of Accounts, and such amounts will be applied to payment
of the Obligations as set forth herein. In no event shall prior recourse to any
Accounts or other security granted to or by the Company be a prerequisite to
the Agent’s right to demand payment of any Obligation. Further, it is
understood that the Agent and/or the Lenders shall have no obligation
whatsoever to perform in any respect any of the Company’s contracts or
obligations relating to the Accounts.

 

3.7                               After
the end of each month, the Agent shall promptly send the Company a statement
showing the accounting for the charges, loans, advances and other transactions
occurring between the Agent and the Company during that month. The monthly
statements shall be deemed correct and binding upon the Company and shall
constitute an account stated between the Company and the Agent unless the Agent
receives a written statement of the exceptions within forty-five (45) days of
the date of the monthly statement.

 

3.8                               In
the event that any requested advance exceeds Availability or that (a) the sum
of (i) the outstanding balance of Revolving Loans and (ii) outstanding
balance of Letters of Credit exceeds (b)(x) the Borrowing Base or (y) the
Revolving Line of Credit, any such nonconsensual Overadvance shall be due and
payable to the Agent on behalf of the Lenders immediately upon the Agent’s
demand therefor.

 

SECTION 4.                            (not
applicable)

 

SECTION 5.                            Letters
of Credit  

 

In order to assist the
Company in establishing or opening Letters of Credit with an Issuing Bank, the
Company has requested the Agent, on behalf of the Lenders, to join in the
applications for such Letters of Credit, and/or guarantee payment or
performance of such Letters of Credit and any drafts or acceptances thereunder
through the issuance of the Letters of Credit Guaranty, thereby lending the
Agent’s credit to the Company and the Agent has agreed to do so.  These arrangements shall be handled by the
Agent subject to the terms and conditions set forth below.

 

5.1                               Within
the Revolving Line of Credit and Availability, the Agent on behalf of the
Lenders shall assist the Company in obtaining Letter(s) of Credit in an amount
not to exceed the outstanding amount of the Letter of Credit Sub-Line. The
Agent’s assistance for amounts in excess of the limitation set forth herein
shall at all times and in all respects be in the Agent’s sole discretion. It is
understood that the tern, form and purpose of each Letter of Credit and all
documentation in connection therewith, and any amendments, modifications or
extensions thereof, must be mutually acceptable to the Agent, the Issuing Bank
and the Company, provided that Letters of Credit shall not be used for the
purchase of domestic Inventory or to secure present or future debt of domestic
Inventory suppliers. Any and all outstanding Letters of Credit shall be
reserved dollar for dollar from Availability as an Availability Reserve.

 

22

 

5.2                               The
Agent shall have the right, without notice to the Company, to charge the
Company’s Revolving Loan Account with the amount of any and all indebtedness, liability
or obligation of any kind incurred by the Agent and/or the Lenders under the
Letters of Credit Guaranty at the earlier of (a) payment by the Agent under the
Letters of Credit Guaranty; or (b) the occurrence of an Event of Default
which has not been waived in writing by the Required Lenders. Any amount
charged to Company’s Revolving Loan Account shall be deemed a Revolving Loan
hereunder and shall incur interest at the rate provided in Paragraph 8.1 of
Section 8 of this Financing Agreement.

 

5.3                               The
Company unconditionally indemnifies the Agent and the Lenders and holds the
Agent and the Lenders harmless from any and all loss, claim or liability
incurred by the Agent arising from any transactions or occurrences relating to
Letters of Credit established or opened for the Company’s account, the
collateral relating thereto and any drafts or acceptances thereunder, and all
Obligations thereunder, including any such loss or claim due to any errors,
omissions, negligence, misconduct or action taken by any Issuing Bank (if the
Issuing Bank is not a Lender), other than for any such loss, claim or liability
arising out of the gross negligence or willful misconduct by the Agent and/or
the Lenders under the Letters of Credit Guaranty. This indemnity shall survive
termination of this Financing Agreement. The Company agrees that any charges
incurred by the Agent and/or the Lenders for the Company account by the Issuing
Bank shall be conclusive on the Agent and may be charged to the Company’s
Revolving Loan Account.

 

5.4                               The
Agent shall not be responsible for: (a) the existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting to be
represented by any documents; (b) any difference or variation in the character,
quality, quantity, condition, packing, value or delivery of the goods from that
expressed in the documents; (c) the validity, sufficiency or genuineness of any
documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
(d) the time, place, manner or order in which shipment is made; (e) partial or
incomplete shipment, or failure or omission to ship any or all of the goods
referred to in the Letters of Credit or documents; (f) any deviation from
instructions; (g) delay, default, or fraud by the shipper and/or anyone else in
connection with the goods or the shipping thereof; or (h) any breach of
contract between the shipper or vendors and the Company.

 

5.5                               The
Company agrees that any action taken by the Agent and/or the Lenders, if taken
in good faith, or any action taken by any Issuing Bank, under or in connection
with the Letters of Credit, the Letter of Credit Guarantees, the drafts or
acceptances, or the Collateral, shall be binding on the Company and shall not
result in any liability whatsoever of CIT to the Company. In furtherance
thereof, during such time that any Default or Event of Default is continuing
unless cured to the extent expressly permitted under this Agreement, the Agent
shall have the full right and authority to: 
(a) clear and resolve any questions of non-compliance of documents; (b)
give any instructions as to acceptance or rejection of any documents or goods;
(c) execute any and all steamship or airways guaranties (and applications
therefore), indemnities or delivery orders; (d) grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances, or documents; and (e) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the applications, Letters of Credit, drafts or acceptances; all in the
Agent’s sole name.

 

23

 

The Issuing Bank shall be
entitled to comply with and honor any and all such documents or instruments
executed by or received solely from the Agent, all without any notice to or any
consent from the Company. Notwithstanding any prior course of conduct or
dealing with respect to the foregoing including amendments and non-compliance
with documents and/or the Company’s instructions with respect thereto, the
Agent may exercise its rights hereunder in its sole and reasonable judgment. In
addition, without the Agent’s express consent and endorsement in writing, the
Company agrees: (a) not to execute any and all applications for steamship or
airway guaranties, indemnities or delivery orders; to grant any extensions of
the maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents; or to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the applications, Letters of Credit, drafts or acceptances; and
(b) after the occurrence of in Event of Default which is not cured within
any applicable grace period, if any, or waived by the Agent, not to (i) clear
and resolve any questions of non-compliance of documents, or (ii) give any
instructions as to acceptances or rejection of any documents or goods.

 

5.6                               The
Company agrees that:  (a) any necessary
import, export or other licenses or certificates for the import or handling of
the Collateral will have been promptly procured; (b) all foreign and domestic
governmental laws and regulations in regard to the shipment and importation of
the Collateral, or the financing thereof will have been promptly and fully
complied with; and (c) any certificates in that regard that the Agent may at
any time request will be promptly furnished. In connection herewith, the
Company warrants and represents that all shipments made under any such Letters
of Credit are in accordance with the laws and regulations of the countries in
which the shipments originate and terminate, and are not prohibited by any such
laws and regulations. The Company assumes all risk, liability and
responsibility for, and agrees to pay and discharge, all present and future
local, state, federal or foreign Taxes, duties, or levies. Any embargo,
restriction, laws, customs or regulations of any country, state, city, or other
political subdivision, where the Collateral is or may be located, or wherein
payments are to be made, or wherein drafts may be drawn, negotiated, accepted,
or paid, shall be solely the Company’s risk, liability and responsibility.

 

5.7                               Upon
any payments made to the Issuing Bank under the Letter of Credit Guaranty, the
Agent on behalf of the Lenders shall acquire by subrogation, any rights,
remedies, duties or obligations granted or undertaken by the Company to the
Issuing Bank in any application for Letters of Credit, any standing agreement
relating to Letters of Credit or otherwise, all of which shall be deemed to
have been granted to the Agent on behalf of the Lenders and apply in all
respects to the Agent and shall be in addition to any rights, remedies, duties
or obligations contained herein.

 

SECTION 6.                            Collateral

 

6.1                               As
security for the prompt payment in full of all Obligations, the Company hereby
pledges and grants to the Agent, on behalf of the Lenders, a continuing general
lien upon, and security interest in, all of its:

 

(a)                                  Accounts;

 

24

 

(b)                                  Inventory;

 

(c)                                  General
Intangibles;

 

(d)                                  Documents
of Title;

 

(e)                                  Other
Collateral;

 

(f)                                    Equipment;

 

(g)                                 Real
Estate; and

 

(h)                                 Investment
Property (as defined in the UCC).

 

6.2                               The
security interests granted hereunder shall extend and attach to:

 

(a)                                  All
Collateral which is owned by the Company or in which the Company has any
interest, whether held by the Company or others for its account, and, if any
Collateral is Equipment, whether the Company’s interest in such Equipment is as
owner, finance lessee or conditional vendee;

 

(b)                                  All
Equipment, whether the same constitutes personal property or fixtures,
including, but without limiting the generality of the foregoing, all dies,
jigs, tools, benches, molds, tables, accretions, component parts thereof and
additions thereto, as well as all accessories, motors, engines and auxiliary
parts used in connection with, or attached to, the Equipment; and

 

(c)                                  All
Inventory and any portion thereof which may be returned, rejected, reclaimed or
repossessed by either the Agent or the Company from the Company’s customers, as
well as to all supplies, goods, incidentals, packaging materials, labels and
any other items which contribute to the finished goods or products manufactured
or processed by the Company, or to the sale, promotion or shipment thereof.

 

6.3                               The
Company agrees to safeguard, protect and hold all Inventory for the Agent’s
account and make no disposition thereof except in the ordinary course of its
business of the Company, as herein provided. The Company represents and
warrants that except for Inventory which is transferred in connection with
inter-company sales (subject to Section 7.13), such as samples or demonstration
models delivered to customers in exchange for products of the Company requiring
repair or scrapped in accordance with the Company’s normal and customary
business practices, all Inventory will be sold and shipped by the Company to
its customers only in the ordinary course of the Company’s business, and then
only on open account and on terms currently being extended by the Company to
its customers, provided that, absent the prior written consent of the Agent,
the Company shall not sell Inventory on a consignment basis nor retain any lien
or security interest in any sold Inventory. The Inventory shall be appraised by
Emerald Technology LLC or other appraiser chosen by Agent as frequently as
Agent may request, provided, that so long as no Event of Default has
occurred, no more than four (4) such appraisals per year shall be at the
Company’s expense. Upon the sale, exchange, or other disposition of Inventory,
as herein provided, the security interest in the Inventory provided for herein
shall,

 

25

 

without break in continuity and
without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, Trade Accounts Receivable,
documents of title, shipping documents, chattel paper and all other cash and
non-cash proceeds of such sale, exchange or disposition. As to any such sale,
exchange or other disposition, the Agent shall have all of the rights of an
unpaid seller, including stoppage in transit, replevin, rescission and
reclamation. The Company hereby agrees to immediately forward any and all
proceeds of Collateral to the Depository Account, and to hold any such proceeds
(including any notes and instruments), in trust for the Agent, on behalf of the
Lenders, pending delivery to the Agent. Irrespective of the Agent’s perfection
status in any and all of the General Intangibles, including, without
limitations, any Patents, Trademarks, Copyrights or licenses with respect
thereto, the Company hereby irrevocably grants the Agent a royalty free license
to sell, or otherwise dispose or transfer, in accordance with Paragraph 10.3 of
Section 10 of this Financing Agreement, and the applicable terms hereof, of any
of the Inventory upon the occurrence of an Event of Default which has not been
waived in writing by the Agent.

 

6.4                               The
Company agrees at its own cost and expense to keep the Equipment in as good and
substantial repair and condition as the same is now or at the time the lien and
security interest granted herein shall attach thereto, reasonable wear and tear
excepted, making any and all repairs and replacements when and where necessary.
The Company also agrees to safeguard, protect and hold all Equipment in
accordance with the terms hereof and subject to the Agent’s security interest.
Absent the Agent’s prior written consent, any sale, exchange or other
disposition of any Equipment shall be made by the Company in the ordinary
course of business and as set forth herein. The Company may, in the ordinary
course of its business, sell, exchange or otherwise dispose of obsolete or
surplus Equipment provided, however, that: 
(a) the then value of the Equipment so disposed of in any Fiscal Year
does not exceed $1,000,000 in the aggregate; and (b) the proceeds of any such
sales or dispositions shall be held in trust by the Company for the Agent and
shall be immediately delivered to the Agent by deposit to the Depository
Account, except that the Company may retain and use such proceeds to purchase
forthwith replacement Equipment which the Company determines in its reasonable
business judgment to have a collateral value at least equal to the Equipment so
disposed of or sold; provided, however, that the aforesaid right shall
automatically cease upon the occurrence of a Default or an Event of Default
which is not waived in writing by the Agent. Upon the sale, exchange, or other
disposition of the Equipment, as herein provided, the security interest
provided for herein shall, without break in continuity and without further
formality or act, continue in, and attach to, all proceeds, including any
instruments for the payment of money, Accounts, documents of title, shipping
documents, chattel paper and all other cash and non-cash proceeds of such sales,
exchange or disposition. As to any such sale, exchange or other disposition,
the Agent and the Lenders shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, rescission and reclamation.

 

6.5                               The
rights and security interests granted to the Agent and the Lenders hereunder
are to continue in full force and effect, notwithstanding the termination of
this Financing Agreement or the fact that the Revolving Loan Account may from
time to time be temporarily in a credit position, until the final payment in
full to the Agent of all Obligations and the termination of this Financing
Agreement. Any delay, or omission by the Agent to exercise any right hereunder
shall not be deemed a waiver thereof, or be deemed a waiver of any other right,

 

26

 

unless such waiver shall be in
writing and signed by the Agent. A waiver on any one occasion shall not be
construed as a bar to, or waiver of, any right or remedy on any future
occasion.

 

6.6                               Notwithstanding
the Agent’s security interest in the Collateral and to the extent that the
Obligations are now or hereafter secured by any assets or property other than
the Collateral or by the guarantee, endorsement, assets or property of any
other person, the Agent shall have the right in its sole discretion to
determine which rights, liens, security interests or remedies the Agent shall
at any time pursue, foreclose upon, relinquish, subordinate, modify or take any
other action with respect to, without in any way modifying or affecting any of
them, or any of the Agent’s and/or the Lenders’ rights hereunder.

 

6.7                               Any
balances to the credit of the Company and any other property or assets of the
Company in the possession or control of the Agent and/or the Lenders may be
held by the Agent as security for any Obligations and applied in whole or
partial satisfaction of such Obligations when due. The liens and security
interests granted herein, and any other lien or security interest the Agent
and/or the Lenders may have in any other assets of the Company, shall secure
payment and performance of all now existing and future Obligations. The Agent
may, in its discretion, charge any or all of the Obligations to the Revolving
Loan Account when due.

 

6.8                               The
Company possesses all General Intangibles and rights thereto necessary to
conduct its business as conducted as of the Closing Date and the Company shall
maintain its rights in, and the value of, the foregoing in the ordinary course
of its business, including, without limitation, by making timely payment with
respect to any applicable licensed rights. The Company shall deliver to the
Agent, and/or shall cause the appropriate party to deliver to the Agent, from
time to time such pledge or security agreements with respect to General
Intangibles (now or hereafter acquired) of the Company as the Agent shall
reasonably require to obtain valid first liens thereon. In furtherance of the
foregoing, the Company shall provide timely notice to the Agent of any
additional Patents, Trademarks, tradenames, service marks, Copyrights, brand
names, trade names, logos and other trade designations acquired or applied for
subsequent to the Closing Date and the Company shall execute such documentation
as the Agent may reasonably require to obtain and perfect its lien thereon. The
Company hereby confirms that it shall deliver, or cause to be delivered, any
pledged stock issued subsequent to the Closing Date to the Agent in accordance
with the applicable terms of the Pledge Agreement and prior to such delivery,
shall hold any such stock in trust for the Agent. The Company hereby
irrevocably grants to the Agent a royalty-free, non-exclusive license in the
General Intangibles, including tradenames, Trademarks, Copyrights, Patents,
licenses, and any other proprietary and intellectual property rights and any
and all right, title and interest in any of the foregoing, for the sole
purpose, upon the occurrence of an Event of Default, of the right to: (i)
advertise for sale and sell or transfer any Inventory bearing any of the
General Intangibles, and (ii) make, assemble, prepare for sale or complete, or
cause others to do so, any applicable raw materials or Inventory bearing any of
the General Intangibles, including use of the Equipment and Real Estate for the
purpose of completing the manufacture of unfinished goods, raw materials or
work-in-process comprising Inventory, and apply the proceeds thereof to the
Obligations hereunder, all as further set forth in this Financing Agreement and
irrespective of the Agent’s lien and perfection in any General Intangibles.

 

27

 

SECTION 7.                            Representations,
Warranties and Covenants

 

7.1                               The
Company hereby warrants, represents and covenants that:  (a) the fair value of the Total Assets
exceeds the book value of the Total Liabilities; (b) the Company is generally
able to pay its debts as they become due and payable; and (c) the Company does
not have unreasonably small capital to carry on its business as it is currently
conducted absent extraordinary and unforeseen circumstances. The Company
further warrants and represents that: (i) Schedule 1 hereto correctly and
completely sets forth the Company’s (A) chief executive office, (B) Collateral
locations, (C) tradenames, and (D) all the other information listed on said
Schedule; (ii) except for the Permitted Encumbrances, after filing of financing
statements in the applicable filing clerks office at the locations set forth in
Schedule 1, this Financing Agreement creates a valid, perfected and first
priority security interest in the Collateral and the security interests granted
herein constitute and shall at all times constitute the first and only liens on
the Collateral; (iii) except for the Permitted Encumbrances, the Company is, or
will be, at the time additional Collateral is acquired by it, the absolute
owner of the Collateral with full right to pledge, sell, consign, transfer and
create a security interest therein, free and clear of any and all claims or
liens in favor of others; (iv) the Company will, at its expense, forever
warrant and, at the Agent’s request, defend the same from any and all claims
and demands of any other person other than a holder of a Permitted Encumbrance;
(v) the Company will not grant, create or permit to exist, any lien upon, or
security interest in, the Collateral, or any proceeds thereof, in favor of any
other person other than the holders of the Permitted Encumbrances; and that the
Equipment does not comprise a part of the Inventory of the Company; and (vi)
the Equipment is and will only be used by the Company in its business and will
not be held for sale or lease, or removed from its premises, or otherwise
disposed of by the Company except as otherwise permitted in this Financing
Agreement.

 

7.2                               The
Company agrees to maintain books and records pertaining to the Collateral in
accordance with GAAP and in such additional detail, form and scope as the Agent
shall reasonably require. The Company agrees that the Agent or its agents, and
any of the Lenders who may wish to accompany the Agent at their own cost
expense, may enter upon the Company’s premises at any time during normal
business hours, and from time to time in its reasonable business judgment, for
the purpose of inspecting the Collateral and any and all records pertaining
thereto. The Company agrees to afford the Agent thirty (30) days prior written
notice of any change in the location of any Collateral, other than to
locations, that as of the Closing Date, are known to the Agent and at which the
Agent has filed financing statements and otherwise fully perfected its liens
thereon. The Company is also to advise the Agent promptly, in sufficient
detail, of any material adverse change relating to the type, quantity or
quality of the Collateral or on the security interests granted to the Agent
therein.

 

7.3                               The
Company agrees to: execute and deliver to the Agent, from time to time, solely
for the Agent’s convenience in maintaining a record of the Collateral, such
written statements, and schedules as the Agent may reasonably require,
designating, identifying or describing the Collateral. The Company’s failure,
however, to promptly give the Agent such statements, or schedules shall not
affect, diminish, modify or otherwise limit the Agent’s and/or the Lenders’
security interests in the Collateral.

 

28

 

7.4                               The
Company agrees to comply with the requirements of all state and federal laws in
order to grant to the Agent valid and perfected first security interests in the
Collateral, subject only to the Permitted Encumbrances. The Agent is hereby
authorized by the Company to file (including pursuant to the applicable terms
of the UCC) from time to time any financing statements, continuations or
amendments covering the Collateral whether or not the Company’s signature
appears thereon. The Company hereby consents to and ratifies any and all
execution and/or filing of financing statements on or prior to the Closing Date
by the Agent. The Company agrees to do whatever the Agent may reasonably
request, from time to time, by way of: 
(a) filing notices of liens, financing statements, amendments,
renewals and continuations thereof (b) cooperating with the Agent’s agents
and employees; (c) keeping Collateral records; (d) transferring
proceeds of Collateral to the Agent’s possession; and (e) performing such
further acts as the Agent and/or the Lenders may reasonably require in order to
effect the purposes of this Financing Agreement.

 

7.5                               (a)                                  The
Company agrees to maintain insurance on its Real Estate, Equipment and
Inventory under such policies of insurance, including without limitation marine
cargo insurance covering any loss associated with the In Transit Inventory,
with such insurance companies, in such reasonable amounts and covering such
insurable risks as are at all times reasonably satisfactory to the Agent. All
policies covering the Real Estate, Equipment and Inventory are, subject to the
rights of any holders of Permitted Encumbrances holding claims senior to the
Agent, to be made payable to the Agent, on behalf of the Lenders, in case of
loss, under a standard non-contributory “mortgagee”, “lender” or “secured
party” clause and are to contain such other provisions as the Agent may require
to fully protect the Agent’s interest in the Real Estate, Inventory and
Equipment and to any payments to be made under such policies. All original
policies or true copies thereof are to be delivered to the Agent, premium
prepaid, with the loss payable endorsement in the Agent’s favor, and shall
provide for not less than thirty (30) days prior written notice to the Agent of
the exercise of any right of cancellation. At the Company’s request, or if the
Company fails to maintain such insurance, the Agent may arrange for such
insurance, but at the Company’s expense and without any responsibility on the
Agent’s part for: (i) obtaining the insurance; (ii) the solvency of the
insurance companies; (iii) the adequacy of the coverage; or (iv) the collection
of claims. Upon the occurrence of an Event of Default which is not waived in
writing by the Required Lenders, the Agent shall, subject to the rights of any
holders of Permitted Encumbrances holding claims senior to the Agent, have the
sole right, and at its option, in the name of the Agent or the Company, to file
claims under any insurance policies, to receive, receipt and give acquittance
for any payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.

 

(b)  (i)                In the event of
any loss or damage by fire or other casualty, insurance proceeds relating to
Inventory shall reduce, without prepayment penalty or premium so long as this
Agreement is not terminated concurrently therewith, the Company’s Revolving
Loan, then the balance of the Obligations. Upon the occurrence of a Default or
Event of Default, such Insurance Proceeds may be applied to the Obligations in
such order as the Agent may elect;

 

(ii)        In
the event any part of the Company’s Real Estate or Equipment is damaged by fire
or other casualty and the Insurance Proceeds for such damage or other casualty

 

29

 

is less than or equal to
$250,000, the Agent shall promptly apply such Proceeds to reduce, without
prepayment penalty or premium so long as this Agreement is not terminated
concurrently therewith, the Company’s outstanding balance in the Revolving Loan
Account. Upon the occurrence of a Default or Event of Default, such Insurance
Proceeds may be applied to the Obligations in such order as the Agent may
elect;

 

(iii)    Absent
the occurrence of an Event of Default (which has not been waived in writing by
the Required Lenders), and provided that (x) the Company has sufficient
business interruption insurance to replace the lost profits of any of the
Company’s facilities, and (y) the Insurance Proceeds are in excess of $250,000,
the Company may elect (by delivering written notice to the Agent) to replace,
repair or restore such Real Estate or Equipment to substantially the equivalent
condition prior to such fire or other casualty as set forth herein. If the
Company does not, or cannot, elect to use the Insurance Proceeds as set forth
above, the Agent may, subject to the rights of any holders of Permitted
Encumbrances holding claims senior to the Agent, apply the Insurance Proceeds
to the payment of the Obligations in such manner and in such order as the Agent
may reasonably elect; and

 

(iv)       If
the Company elects to use the Insurance Proceeds for the repair, replacement or
restoration of any Real Estate and/or Equipment, and there is then no Event of
Default, (x) Insurance Proceeds for any loss in excess of $250,000 on Equipment
and/or Real Estate will be applied to the reduction of the Revolving Loans and
(y) the Agent may set up an Availability Reserve for an amount equal to said
Insurance Proceeds. The Availability Reserve will be reduced dollar-for-dollar
upon receipt of non-cancelable executed purchase orders, delivery receipts or
contracts for the replacement, repair or restoration of Equipment and/or the
Real Estate and disbursements in connection therewith. Prior to the
commencement of any material restoration, repair or replacement of Real Estate,
the Company shall provide the Agent with a restoration plan and a total budget
certified by an independent third party experienced in construction costing. If
there are insufficient Insurance Proceeds to cover the cost of restoration as
so determined, the Company shall be responsible for the amount of any such
insufficiency, prior to the commencement of restoration and shall demonstrate
evidence of such before the reserve will be reduced. Completion of restoration
shall be evidenced by a final, unqualified certification of the design
architect employed, if any; an unconditional Certificate of Occupancy, if
applicable; such other certification as may be required by law; or if none of
the above is applicable, a written good faith determination of completion by
the Company (herein collectively the “Completion”). Upon Completion, any
remaining reserve as established hereunder will be automatically released.

 

(c)                                  In
the event the Company fails to provide the Agent with timely evidence,
acceptable to the Agent, of its maintenance of insurance coverage required
pursuant to paragraph 7.5(a) above, the Agent may purchase, at the
Company’s expense, insurance to protect the Agent’s interests in the
Collateral. The insurance acquired by the Agent may, but need not, protect the
Company’s interest in the Collateral, and therefore such insurance may not pay
claims which the Company may have with respect to the Collateral or pay any
claim which may be made against the Company in connection with the Collateral.
In the event the Agent purchases, obtains or acquires insurance covering all or
any portion of the Collateral, the Company shall be responsible for all of the
applicable costs of such insurance, including premiums, interest (at the
applicable Chase Bank Rate for Revolving Loans set forth in

 

30

 

paragraph 8.1 of Section 8
hereof), fees and any other charges with respect thereto, until the effective
date of the cancellation or the expiration of such insurance. The Agent may
charge all of such premiums, fees, costs, interest and other charges to the
Company’s Revolving Loan Account. The Company hereby acknowledges that the
costs of the premiums of any insurance acquired by the Agent may exceed the
costs of insurance which the Company may be able to purchase on its own. In the
event that the Agent purchases such insurance, the Agent will notify the
Company of said purchase within thirty (30) days of the date of such purchase.
If, within thirty (30) days after the date of such notice, the Company provides
the Agent with proof that the Company had the insurance coverage required
pursuant to 7.5(a) above (in form and substance satisfactory to the Agent) as
of the date on which the Agent purchased insurance and the Company continued at
all times to have such insurance, then the Agent agrees to cancel the insurance
purchased by the Agent and credit the Company’s Revolving Loan Account with the
amount of all costs, interest and other charges associated with any insurance
purchased by the Agent, including with any amounts previously charged to the
Revolving Loan Account.

 

7.6                               The
Company agrees to pay, when due, all Taxes, including sales taxes, assessments,
claims and other charges lawfully levied or assessed upon the Company or the
Collateral unless such Taxes are being diligently contested in good faith by
the Company by appropriate proceedings and adequate reserves are established in
accordance with GAAP. Notwithstanding the foregoing, if any lien shall be filed
or claimed thereunder (a) for Taxes due the United States of America, or (b)
which in the Agent’s opinion might create a valid obligation having priority
over the rights granted to the Agent herein (exclusive of Real Estate), such
lien shall not be deemed to be a Permitted Encumbrance hereunder and the
Company shall immediately pay such tax and remove the lien of record. If the
Company fails to do so promptly, then at the Agent’s election, the Agent may
(i) create an Availability Reserve in such amount as it may deem appropriate in
its business judgment, or (ii) upon the occurrence of a Default or Event of
Default, imminent risk of seizure, filing of any priority lien, forfeiture, or
sale of the Collateral, pay Taxes on the Company’s behalf, and the amount
thereof shall be an Obligation secured hereby and due on demand.

 

7.7                               The
Company: (a) agrees to comply with all acts, rules, regulations and orders of
any legislative, administrative or judicial body or official, which the failure
to comply with would have a material and adverse impact on the Collateral, or
any material part thereof, or on the business or operations of the Company,
provided that the Company may contest any acts, rules, regulations, orders and
directions of such bodies or officials in any reasonable manner which will not,
in the Agent’s reasonable opinion, materially and adversely effect the Agent’s
and/or the Lender’s rights or priority in the Collateral; (b) agrees to comply
with all environmental statutes, acts, rules, regulations or orders as
presently existing or as adopted or amended in the future, applicable to the
Collateral, the ownership and/or use of its real property and operation of its
business, which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the operation of
the business of the Company; and (c) shall not be deemed to have breached any
provision of this Paragraph 7.7 if (i) the failure to comply with the
requirements of this Paragraph 7.7 resulted from good faith error or innocent
omission, (ii) the Company promptly commences and diligently pursues a cure of
such breach, and (iii) such failure is cured within (30) days following the
Company’s receipt of notice of such failure, or if such cannot in good faith be
cured within thirty (30) days, then such breach is cured within a reasonable
time frame based upon the extent

 

31

 

and nature of the breach and
the necessary remediation, and in conformity with any applicable consent order,
consensual agreement and applicable law.

 

7.8                               Until
termination of this Financing Agreement and payment and satisfaction of all
Obligations due hereunder, the Company agrees that, unless the Agent shall have
otherwise consented in writing, the Company will furnish to the Agent and each
Lender:  (a) within ninety (90) days
after the end of each Fiscal Year of the Company, an audited Consolidated
Balance Sheet, with an unaudited Consolidating Balance Sheet prepared by the
Company attached thereto, as at the close of such year, and statements of
profit and loss, cash flow and reconciliation of surplus of the Company and all
Subsidiaries of the Company on a consolidated basis for such year, audited by independent
public accountants selected by the Company and reasonably satisfactory to the
Agent together with statements of profit and loss, cash flow and reconciliation
of surplus of the Company and all Subsidiaries of the Company on a
consolidating basis for such year, prepared by the Company and reasonably
satisfactory to the Agent; (b) within sixty (60) days after the end of
each Fiscal Quarter (other than each Fiscal Quarter ending December 31) a
Consolidated Balance Sheet and Consolidating Balance Sheet as at the end of
such period and statements of profit and loss, cash flow and surplus of the
Company and all Subsidiaries of the Company, certified by an authorized
financial or accounting officer of the Company; (c) within thirty (30) days
after the end of each month a Consolidated Balance Sheet as at the end of such
period and statements of profit and loss, cash flow and surplus of the Company
and all Subsidiaries for such period, certified by an authorized financial or
accounting officer of the Company and upon request of Agent, a monthly
projection on a prospective basis in form satisfactory to Agent; and (d) from
time to time, such further information regarding the business affairs and
financial condition of the Company and/or any Subsidiaries thereof as the Agent
may reasonably request, including, without limitation (i) the accountant’s
management practice letter, (ii) annual cash flow projections in form
satisfactory to the Agent and (iii) together with such financial
statements to be delivered in subsection (c) above, the summary of inward and
outward of investments and inventory in the channel report. Each financial
statement which the Company is required to submit hereunder must be accompanied
by an officer’s certificate, signed by the President, Vice President, Chief
Executive Officer, Chief Financial Officer, Controller, or Treasurer, pursuant
to which any one such officer must certify that: (x) the financial statement(s)
fairly and accurately represent(s) the Company’s financial condition at the end
of the particular accounting period, as well as the Company’s operating results
during such accounting period, subject to year-end audit adjustments; and (y)
during the particular accounting period: (A) there has been no Default or Event
of Default under this Financing Agreement, provided, however, that if any such
officer has knowledge that any such Default or Event of Default, has occurred
during such period, the existence of and a detailed description of same shall
be set forth in such officer’s certificate; (B) the Company has not received
any notice of cancellation with respect to its property insurance policies; (C)
the Company has not received any notice that could result in a material adverse
effect on the value of the Collateral taken as a whole; and (D) the exhibits
attached to such financial statement(s) constitute detailed calculations
showing compliance with all financial covenants contained in this Financing
Agreement.

 

7.9                               Until
termination of the Financing Agreement and payment and satisfaction of all
Obligations hereunder, the Company agrees that, without the prior written
consent of the Agent, except as otherwise herein provided, the Company will
not:

 

32

 

(a)                                  Mortgage,
assign, pledge, transfer or otherwise permit any lien, charge, security
interest, encumbrance or judgment, (whether as a result of a purchase money or
title retention transaction, or other security interest, or otherwise) to exist
on any of the Company’s Collateral or any other assets, whether now owned or
hereafter acquired, except for the Permitted Encumbrances;

 

(b)                                  Incur
or create any Indebtedness other than the Permitted Indebtedness;

 

(c)                                  Sell,
lease, assign, transfer or otherwise dispose of (i) Collateral, except as otherwise
specifically permitted by (x) Section 6.3 or 6.4 of this Financing Agreement or
(y) by the Loan Documents or (ii) either all or substantially all of the
Company’s assets, which do not constitute Collateral;

 

(d)                                  Merge,
consolidate or otherwise alter or modify its corporate name, principal place of
business, structure, or existence, reincorporate or reorganize, or enter into
or engage in any operation or activity materially different from that presently
being conducted by the Company, except that the Company may change its
corporate name or address; provided that: (i) the Company shall give the Agent
thirty (30) days prior written notice thereof and (ii) the Company shall
execute and deliver, prior to or simultaneously with any such action, any and
all documents and agreements requested by the Agent to confirm the continuation
and preservation of all security interests and liens granted to the Agent
hereunder;

 

(e)                                  Assume,
guarantee, endorse, or otherwise become liable upon the obligations of any
person, firm, entity or corporation, except by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;

 

(f)                                    Declare
or pay any dividend or distributions of any kind on, or purchase, acquire, redeem
or retire, any of the capital stock or equity interest, of any class
whatsoever, whether now or hereafter outstanding, except that the Company may
declare and pay dividends or distributions on its capital stock in an amount
sufficient to enable the Company to (i) redeem the capital stock owned by (x)
retired, deceased or terminated officers of the Company or (y) shareholders of
the Company, provided (x) the Company is contractually obligated to
redeem such stock or the Company decides that such redemption would be in the
best interest of the Company, (y) no Default has occurred and is continuing and
no Event of Default has occurred unless, in the case of an Event of Default,
such Event of Default has been cured to the extent expressly curable under the
terms of this Agreement and (z) that in no event shall the aggregate amount of
such cash dividends or redemptions under this clause (i) exceed $250,000 in the
aggregate in any Fiscal Year; (ii) pay income or franchise Taxes of the Company
due as a result of the filing of a consolidated, combined or unitary tax return
in which the operations of the Company are included or (iii) redeem capital
stock owned by Intel Corporation the Company’s Fiscal Years ending December 31,
2003 and December 31, 2004 only; provided  (w) the Company is contractually obligated to redeem such
stock, (x) no Default has occurred and is continuing and no Event of Default
has occurred unless, in the case of an Event of Default, such Event of Default
has been cured to the extent expressly curable under the terms of this
Agreement, (y) in no event shall the aggregate amount of such redemptions under
this clause (iii) exceed $7,500,000 for each such Fiscal Year and (2) both
before and after giving effect to any such redemption, the Company shall have
not less than $15,000,000 in excess Availability;

 

33

 

(g)                                 Make
any advance or loan to, or any investment in, any firm, entity, person or
corporation or purchase or acquire all or substantially all of the stock or
assets of any entity, person or corporation; provided, that
notwithstanding anything to the contrary herein, so long as no Event of Default
has occurred (unless cured if expressly permitted by the terms herein) or will
occur as a result of a payment permitted below, the Company may (i) utilize the
net proceeds from permanent equity capital received by the Company subsequent
to January 1, 2001 and the net proceeds (after taxes) from the sale of its
venture capital investments (reduced by investments made or committed to by the
Company as detailed in the Summary of Inward and Outward Investments dated as
of December 31, 2000, a copy of which has been delivered to Agent) so long as
(x) the Company has at least $10,000,000 in excess Availability immediately
after the use of such proceeds, (y) all debts and obligations are current and
that all payables are being handled in the normal course of the Company’s
business and consistent with its past practice and (z) the proceeds are used
for general business purposes, including, without limitation, venture capital
investments (so long as such venture capital investments do not violate
Regulation T, Regulation U, or Regulation X of the Board of Governors of the
Federal Reserve System or any other regulation of such board), and none of such
proceeds are used to pay any principal on the Subordinated Debt; (ii) pay to
Mr. James Chu regularly scheduled payments of interest only on the Subordinated
Debt and (iii) make advances or loans to Viewsonic Europe Ltd. not to exceed
$10,000,000 in the aggregate at any time outstanding and to Advanced Digital
Optics, Inc. not to exceed $5,000,000 in the aggregate at any time outstanding;

 

(h)                                 Pay
any management, consulting or other similar fees to any Affiliate of the Company
except (i) to the extent any such fee shall be paid in the ordinary course of
its business, pursuant to the reasonable requirements of the Company, and upon
standard terms and conditions and fair and reasonable terms no less favorable
to the Company than the Company could obtain in a comparable arms length
transaction with an unrelated third party and (ii) such fees shall not exceed
$2,500,000 in the aggregate for any fiscal year; or

 

(i)                                    Without
the prior written consent of the Agent, the Company will not contract for,
purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise
incur obligations with respect to Capital Expenditures (whether subject to a
security interest or otherwise) in the aggregate amount in excess of $5,000,000
each Fiscal Year, beginning with the Fiscal Year ending December 31, 2002.

 

7.10                        If
at any time after the Closing Date the Company shall fail to have at least
$15,000,000 in excess Availability, to be measured on the last Business Day of
each calendar week based on the average excess Availability for the five
Business Days prior to and including such Business day (“Average Availability
Test”), the Company shall be required to maintain minimum cumulative EBITDA of
the amount set forth below for the period beginning on the Closing Date and
ending on September 30, 2002, measured on a quarterly basis:

 

	
  Period

  	
   

  	
  EBITDA

  	
   

  
	
  Fiscal Quarter ended December 31, 2001

  	
   

  	
  $

  	
  3,800,000

  	
   

  
	
  Two Fiscal Quarters ended March 31, 2002

  	
   

  	
  $

  	
  7,500,000

  	
   

  
	
  Three Fiscal Quarters ended June 30, 2002

  	
   

  	
  $

  	
  11,300,000

  	
   

  
	
  Four Fiscal Quarters ended September 30,
  2002

  	
   

  	
  $

  	
  15,000,000

  	
   

  

 

34

 

After September
30, 2002 and until the termination of the Financing Agreement and payment and
satisfaction in full of all Obligations hereunder, the Company shall maintain
minimum EBITDA of at least $15,000,000 on a trailing four quarter basis and
shall also maintain EBITDA of not less than zero on a trailing three month
basis (“Trailing Three Month EBITDA Covenant”). If the Company at any time
fails to achieve the Average Availability Test, the Company shall thereafter
not be subject to further testing of the EBITDA covenants hereunder if for six
consecutive weeks: (i) there is at all times excess Availability of at least
$15,000,000, (ii) no Event of Default Exists, (iii) all debts and
obligations are then current and (iv) all payables are being paid in the normal
course of the Company’s business and consistent with past practice. The EBITDA
covenants hereunder will be measured on a monthly basis based on the Company’s
most recently issued (x) monthly financial statements in the case of the
Trailing Three Month EBITDA Covenant and (y) quarter end financial statements
in the case of the quarterly EBITDA covenant. With respect only to the Trailing
Three Month EBITDA Covenant, EBITDA will be calculated to add back any
write-downs for Inventory that have been reflected on the Borrowing Base
Certificate delivered to the Agent by the Company during the three month period
for which the Trailing Three Month EBITDA Covenant is being tested.

 

7.11                        The
Company agrees to advise the Agent in writing of:  (a) all expenditures (actual or anticipated) in excess of
$150,000.00 from the budgeted amount therefor in any Fiscal Year for (i)
environmental clean-up, (ii) environmental compliance or (iii) environmental
testing and the impact of said expenses on the Company’s working capital; and
(b) any written notices the Company receives from any local, state or federal
authority advising the Company of any environmental liability (real or
potential) stemming from the Company’s operations, its premises, its waste
disposal practices, or waste disposal sites used by the Company and to provide
the Agent with copies of all such notices if so required.

 

7.12                        The
Company hereby agrees to indemnify and hold harmless the Agent and its
officers, directors, employees, attorneys and agents (each an “Indemnified
Party”) from, and holds each of them harmless against, any and all losses,
liabilities, obligations, claims, actions, damages, costs and expenses
(including attorney’s fees) and any payments made by the Agent pursuant to any
indemnity provided by the Agent with respect to or to which any Indemnified
Party could be subject insofar as such losses, liabilities, obligations,
claims, actions, damages, costs, fees or expenses with respect to the Loan
Documents, including without limitation those which may arise from or relate
to: (a) the Depository Account, the Lockbox Accounts, the lockbox and/or any other
depository account and/or the agreements executed in connection therewith; (b)
any and all claims or expenses asserted against the Agent as a result of any
environmental pollution, hazardous material or environmental clean-up relating
to the Real Estate; or any claim or expense which results from the Company’s
operations (including, but not limited to, the Company’s off-site disposal
practices) and use of the Real Estate, which the Agent may sustain or incur
(other than solely as a result of the physical actions of the Agent on the
Company’s premises which are determined to constitute gross negligence or
willful misconduct by a court of competent jurisdiction), all whether through
the alleged or actual negligence of such person or otherwise, except and to the
extent that the same results solely and directly from

 

35

 

the gross negligence or willful
misconduct of such Indemnified Party as finally determined by a court of
competent jurisdiction and (c) any claim of Crutchfield as broker or otherwise
arising from the lending transaction of Lenders to the Company. The Company
hereby agrees that this indemnity shall survive termination of this Financing
Agreement, as well as payments of Obligations which may be due hereunder. The
Agent may, in its sole business judgment, establish such Availability Reserves
with respect thereto as it may deem advisable under the circumstances and, upon
any termination hereof, hold such reserves as cash reserves for any such contingent
liabilities.

 

7.13                        Without
the prior written consent of the Agent, the Company agrees that it will not
enter into any transaction, including, without limitation, any purchase, sale,
lease, loan, advance of cash or property, increase of accounts receivable due
from or exchange of property with any Subsidiary or Affiliate of the Company, provided
that, the Company may make (i) loans or advances permitted by Section
7.09(g) and (ii) except as otherwise set forth in this Financing Agreement and
so long as no Default or Event of Default exists or will occur hereunder prior
to and after giving effect to any such loan or transaction, the Company may
enter into sale and service transactions in the ordinary course of its
business, pursuant to the reasonable requirements of the Company, and upon
standard terms and conditions and fair and reasonable terms no less favorable
to the Company than the Company could obtain in a comparable arms length
transaction with an unrelated third party, including the payment of intercompany
receivables net of intercompany payables.

 

7.14                        The
Company agrees to provide the Agent with all information relevant to evaluate
its accruals or liability balances for Accrued Promotional Expenses and
Warranty on a monthly basis or as more frequently should CIT so request, and,
if such accruals or balances are reduced by more than ten percent (10%) from
those indicated in the Borrowing Base Certificate delivered by the Company to
CIT on the Closing Date, CIT in its reasonable business judgment may increase
any reserves relating to such accruals or balances as set forth in the
definition of Availability Reserve.

 

7.15                        The
Company agrees to provide the Agent on behalf of the Lenders with (i) the stock
certificates of Lightune Ltd., ViewSonic International Corporation and
ViewSonic Cayman Islands, Ltd., together with duly executed stock powers
(undated and in blank) with respect thereto, all in form and substance
satisfactory to Agent, within 10 days after the Closing Date and (ii) do all
things required by the Agent to (x) effectuate any necessary registration of
the pledge of its stock in a foreign country, and (y) obtain control agreements
with any securities intermediary holding the stock pledged to Agent on behalf
of the Lenders, each fully executed and in a form satisfactory to Agent within
30 days after the Closing Date.

 

7.16                        If
requested by Agent in its discretion, the Company agrees to provide the Agent
on behalf of the Lenders with licensor’s consents in form and substance
reasonably satisfactory to Agent from a person or entity licensing intellectual
property to the Company within 60 days after the Closing Date.

 

7.17                        The
Company agrees to provide the Agent on behalf of the Lenders with a warehouse
agreement executed by GATX Logistics, Inc., in form and substance reasonably
satisfactory to Agent, within 30 days after the Closing Date.

 

36

 

SECTION 8.                            Interest,
Fees and Expenses

 

8.1                               (a)                                  Interest
on the Revolving Loans shall be payable monthly as of the end of each month.
Chase Bank Rate Loans shall accrue interest at a rate equal to the Chase Bank
Rate plus three quarters of one percent (.75%) per annum on the average of the
net balances owing by the Company to the Agent in the Revolving Loan Account at
the close of each day during such month. In the event of any change in said
Chase Bank Rate, the rate hereunder for Chase Bank Rate Loans shall change, as
of the date of such change. The rate hereunder for Chase Bank Rate Loans shall
be calculated based on a 360-day year. The Agent shall be entitled to charge
the Company’s Revolving Loan Account at the rate provided for herein when due
until all Obligations have been paid in full.

 

(b)                                  Notwithstanding
any provision to the contrary contained in this section 8, in the event that
the sum of (i) the outstanding Revolving Loans and (ii) the outstanding Letters
of Credit exceed the lesser of either (x) the maximum aggregate amount
available under Sections 3 and 5 of this Financing Agreement or (y) the
Revolving Line of Credit:  (A) as a
result of Revolving Loans advanced by the Agent at the request of the Company
(herein “Requested Overadvances”), for any one (1) or more days in any month,
or (B) for any other reason whatsoever (herein “Other Overadvances”) and such
Other Overadvances continue for five (5) or more days in any month , the
average net balance of all Revolving Loans for such month shall bear interest
at the Overadvance Rate.

 

(c)                                  Upon
and after the occurrence of an Event of Default and the giving of any required
notice by the Agent in accordance with the provisions of Section 10, Paragraph
10.2 hereof, all Obligations shall bear interest at the Default Rate of
Interest.

 

The rate hereunder
shall be calculated based on a 360 day year. The Agent shall be entitled
to charge the Revolving Loan Account at the rate provided for herein when due
until all Obligations have been paid in full.

 

8.2                               In
consideration of the Letter of Credit Guaranty of the Agent, the Company shall
pay the Agent the Letter of Credit Guaranty Fee which shall be an amount equal
to (a) two percent (2%) per annum on the face amount of each Letter of Credit
outstanding, payable monthly.

 

8.3                               Any
and all charges, fees, commissions, costs and expenses charged to the Agent for
the Company’s account by any Issuing Bank in connection with, or arising out
of, Letters of Credit or out of transactions relating thereto will be charged
to the Revolving Loan Account in full when charged to, or paid by the Agent, or
as may be due upon any termination of this Financing Agreement hereof, and when
made by any such Issuing Bank shall be conclusive on the Agent.

 

8.4                               The
Company shall reimburse or pay the Agent, as the case may be, for:  (a) all Out-of-Pocket Expenses and (b) any
applicable Documentation Fee.

 

8.5                               Upon
the last Business Day of each month, commencing on December 31, 2001, the
Company shall pay to the Agent (i) the Line of Credit Fee and (ii) interest on
the Collection

 

37

 

Day. Interest will be computed
at the rate, and in the manner, set forth in Paragraph 8.1 of this Financing
Agreement.

 

8.6                               To
induce the Agent to enter into this Financing Agreement and to extend to the
Company the Revolving Loan and the Letters of Credit Guaranties, the Company
shall pay to the Agent such fees as are referenced in a fee letter executed
concurrently with the consummation of this financing transaction on the Closing
Date or as otherwise provided in such fee letter.

 

8.7                               The
Company shall pay the Agent’s standard charges and fees for the Agent’s
personnel used by the Agent for reviewing the books and records of the Company
and for verifying, testing, protecting, safeguarding, preserving or disposing
of all or any part of the Collateral (which fees shall be in addition to any
administrative management fee and any Out-of- Pocket Expenses).

 

8.8                               The
Company hereby authorizes the Agent to charge the Revolving Loan Account with
the amount of all payments due hereunder as such payments become due. The
Company confirms that any charges which the Agent may so make to the Revolving
Loan Account as herein provided will be made as an accommodation to the Company
and solely at the Agent’s discretion. Agent shall deliver written notice of
such charges as part of Agent’s monthly account statement.

 

8.9                               In
the event that the Agent or any participant hereunder (or any financial
institution which may from time to time become a participant or lender
hereunder) shall have determined in the exercise of its reasonable business judgment
that, subsequent to the Closing Date, any change in applicable law, rule,
regulation or guideline regarding capital adequacy, or any change in the
interpretation or administration thereof, or compliance by the Agent or such
participant with any new request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Agent’s or such participant’s capital as a consequence of its
obligations hereunder to a level below that which the Agent or such participant
could have achieved but for such adoption, change or compliance (taking into
consideration the Agent or such participant’s policies with respect to capital adequacy)
by an amount reasonably deemed by the Agent or such participant to be material,
then, from time to time, the Company shall pay no later than five (5) days
following demand to the Agent or such participant such additional amount or
amounts as will compensate the Agent’s or such participant’s for such
reduction. In determining such amount or amounts, the Agent or such participant
may use any reasonable averaging or attribution methods. The protection of this
Paragraph 8.9 shall be available to the Agent or such participant regardless of
any possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition. A certificate of the Agent or such
participant setting forth such amount or amounts as shall be necessary to
compensate the Agent or such participant with respect to this Section 8 and the
calculation thereof when delivered to the Company shall be conclusive on the
Company absent manifest error. Notwithstanding anything in this paragraph to
the contrary, in the event the Agent or such participant has exercised its
rights pursuant to this paragraph, and subsequent thereto determines that the
additional amounts paid by the Company in whole or in part exceed the amount
which the Agent or such participant actually required to be made whole, the
excess, if any, shall be returned to the Company by the Agent or such
participant.

 

38

 

8.10                        In
the event that any applicable law, treaty or governmental regulation, or any
change therein or in the interpretation or application thereof, or compliance
by the Agent or such participant with any request or directive (whether or not
having the force of law) from any central bank or other financial, monetary or
other authority, shall:

 

(a)                                  subject
the Agent or such participant to any tax of any kind whatsoever with respect to
this Financing Agreement or change the basis of taxation of payments to the
Agent or such participant of principal, fees, interest or any other amount payable
hereunder or under any other documents (except for changes in the rate of tax
on the overall net income of the Agent or such participant by the federal
government or the jurisdiction in which it maintains its principal office);

 

(b)                                  impose,
modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of,
advances or loans by, or other credit extended by the Agent or such participant
by reason of or in respect to this Financing Agreement and the Loan Documents,
including (without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or

 

(c)                                  impose
on the Agent or such participant any other condition with respect to this
Financing Agreement or any other document, and the result of any of the
foregoing is to increase the cost to the Agent or such participant of making,
renewing or maintaining its loans hereunder by an amount that the Agent or such
participant deems to be material in the exercise of its reasonable business
judgment or to reduce the amount of any payment (whether of principal, interest
or otherwise) in respect of any of the loans by an amount that the Agent or
such participant deems to be material in the exercise of its reasonable
business judgment, then, in any case the Company shall pay the Agent or such
participant, within five (5) days following its demand, such additional cost or
such reduction, as the case may be. The Agent or such participant shall certify
the amount of such additional cost or reduced amount to the Company and the
calculation thereof and such certification shall be conclusive upon the Company
absent manifest error. Notwithstanding anything in this paragraph to the
contrary, in the event the Agent or such participant has exercised its rights
pursuant to this paragraph, and subsequent thereto determine that the
additional amounts paid by the Company in whole or in part exceed the amount
which the Agent or such participant actually required pursuant hereto, the
excess, if any, shall be returned to the Company by the Agent or such
participant.

 

8.11                        The
Company may request LIBOR Loans on the following terms and conditions:

 

(a)                                  The
Company may elect, subsequent to the Closing Date and from time to time thereafter
(i) to request any loan made hereunder to be a LIBOR Loan as of the date of
such loan or (ii) to convert Chase Bank Rate Loans to LIBOR Loans, and may
elect from time to time to convert LIBOR Loans to Chase Bank Rate Loans by
giving the Agent at least three (3) Business Days’ prior irrevocable notice of
such election, provided  that
any such conversion of LIBOR Loans to Chase Bank Rate Loans shall only be made,
subject to the second following sentence, on the last day of an Interest Period
with respect thereto. Should the Company elect to convert Chase Bank Rate Loans
to LIBOR Loans, it shall give the Agent at least three Business Days’ prior
irrevocable notice of such election. If the last day of an Interest Period with
respect to a loan that is to be converted is not a Business Day or Working Day,
then such conversion

 

39

 

shall be made on the next
succeeding Business Day or Working Day, as the case may be, and during the
period from such last day of an Interest Period to such succeeding Business
Day, as the case may be, such loan shall bear interest as if it were an Chase
Bank Rate Loan. All or any part of outstanding Chase Bank Rate Loans then
outstanding with respect to Revolving Loans may be converted to LIBOR Loans as
provided herein, provided  that
partial conversions shall be in multiples in an aggregate principal amount of
$1,000,000 or more. The Agent shall be entitled to charge the Company a $500
fee upon the first effective day of any such election for a LIBOR Loan.

 

(b)                                  Any
LIBOR Loans may be continued as such upon the expiration of an Interest Period,
provided the Company so notifies the Agent, at least three (3) Business Days’
prior to the expiration of said Interest Period, and provided  further  that no LIBOR Loan may be continued as such upon the
occurrence of any Default or Event of Default under this Financing Agreement,
but shall be automatically converted to a Chase Bank Rate Loan on the last day
of the Interest Period during which occurred such Default or Event of Default.
Absent such notification, LIBOR Loans shall convert to Chase Bank Rate Loans on
the last day of the applicable Interest Period. Each notice of election,
conversion or continuation furnished by the Company pursuant hereto shall
specify whether such election, conversion or continuation is for a one, two, or
three month period. Notwithstanding anything to the contrary contained herein,
the Agent (or any participant, if applicable) shall not be required to purchase
United States Dollar deposits in the London interbank market or from any other
applicable LIBOR market or source or otherwise “match fund” to fund LIBOR
Loans, but any and all provisions hereof relating to LIBOR Loans shall be
deemed to apply as if the Agent (and any participant, if applicable) had
purchased such deposits to fund any LIBOR Loans.

 

(c)                                  The
Company may request a LIBOR Loan, convert any Chase Bank Rate Loan or continue
any LIBOR Loan provided there is then no Default or Event of Default in effect.

 

8.12                        (a)                                  The
LIBOR Loans shall bear interest for each Interest Period with respect thereto
on the unpaid principal amount thereof at a rate per annum equal to the LIBOR
determined for each Interest Period in accordance with the terms hereof plus:

 

(i)                                    3.25%
with respect to Revolving Loans.

 

(b)                                  If
all or a portion of the outstanding principal amount of the Obligations shall
not be paid when due (whether at the stated maturity, by acceleration or
otherwise), such outstanding amount, to the extent it is a LIBOR Loan, shall be
converted to a Chase Bank Rate Loan at the end of the last Interest Period
therefor.

 

(c)                                  The
Company may not have more than three (3) LIBOR Loans outstanding at any given
time.

 

8.13                        (a)                                  Interest
in respect of the LIBOR Loans shall be calculated on the basis of a 360 day
year and shall be payable as of the end of each month.

 

40

 

(b)                                  The
Agent shall, at the request of the Company, deliver to the Company a statement
showing the quotations given by The Chase Bank and the computations used in
determining any interest rate pursuant to the terms of this Financing
Agreement.

 

8.14                        As
further set forth in paragraph 8.11 above, in the event that the Agent (or any
financial institution which may become a participant hereunder) shall have
determined in the exercise of its reasonable business judgment (which
determination shall be conclusive and binding upon the Company) that by reason
of circumstances affecting the interbank LIBOR market, adequate and reasonable
means do not exist for ascertaining LIBOR applicable for any Interest Period
with respect to: (a) a proposed loan that the Company has requested be made as
a LIBOR Loan; (b) a LIBOR Loan that will result from the requested conversion
of a Chase Bank Rate Loan into a LIBOR Loan; or (c) the continuation of LIBOR
Loans beyond the expiration of the then current Interest Period with respect
thereto, the Agent shall forthwith give written notice of such determination to
the Company at least one day prior to, as the case may be, the requested
borrowing date for such LIBOR Loan, the conversion date of such Chase Bank Rate
Loan or the last day of such Interest Period. If such notice is given (i) any
requested LIBOR Loan shall be made as a Chase Bank Rate Loan, (ii) any Chase
Bank Rate Loan that was to have been converted to a LIBOR Loan shall be
continued as a Chase Bank Rate Loan, and (iii) any outstanding LIBOR Loan shall
be converted, on the last day of then current Interest Period with respect
thereto, to a Chase Bank Rate Loan. Until such notice has been withdrawn by the
Agent, no further LIBOR Loan shall be made nor shall the Company have the right
to convert a Chase Bank Rate Loan to a LIBOR Loan.

 

8.15                        If
any payment on a LIBOR Loan becomes due and payable on a day other than a
Business Day or Working Day, the maturity thereof shall be extended to the next
succeeding Business Day or Working Day unless the result of such extension
would be to extend such payment into another calendar month in which event such
payment shall be made on the immediately preceding Business Day or Working Day.

 

8.16                        Notwithstanding
any other provisions herein, if any law, regulation, treaty or directive or any
change therein or in the interpretation or application thereof, shall make it
unlawful for the Agent to make or maintain LIBOR Loans as contemplated herein,
the then outstanding LIBOR Loans, if any, shall be converted automatically to
Chase Bank Rate Loans as of the end of such month, or within such earlier
period as required by law. The Company hereby agrees promptly to pay the Agent,
upon demand, any additional amounts necessary to compensate the Agent for any
costs incurred by the Agent in making any conversion in accordance with this
Section 8 including, but not limited to, any interest or fees payable by -the
Agent to lenders of funds obtained by the Agent in order to make or maintain
LIBOR Loans hereunder.

 

8.17                        The
Company agrees to indemnify and to hold the Agent (including any participant)
harmless from any loss or expense which the Agent or such participant may
sustain or incur as a consequence of: 
(a) Default by the Company in payment of the principal amount of or
interest on any LIBOR Loans, as and when the same shall be due and payable in
accordance with the terms of this Financing Agreement, including, but not
limited to, any such loss or expense arising from interest or fees paid by the
Agent or such participant to lenders of funds obtained by either of them in
order to maintain the LIBOR Loans hereunder; (b) default by the

 

41

 

Company in making a borrowing
or conversion after the Company has given a notice in accordance with Paragraph
8.11 of Section 8 hereof; (c) any prepayment of LIBOR Loans on a day which is
not the last day of the Interest Period applicable thereto, including, without
limitation, prepayments arising as a result of the application of the proceeds
of Collateral to the Revolving Loans; and (d) default by the Company in making
any prepayment after the Company had given notice to the Agent thereof. The
determination by the Agent of the amount of any such loss or expense, when set
forth in a written notice to the Company, containing the Agent’s calculations
thereof in reasonable detail, shall be conclusive on the Company in the absence
of manifest error. Calculation of all amounts payable under this paragraph with
regard to LIBOR Loans shall be made as though the Agent had actually funded the
LIBOR Loans through the purchase of deposits in the relevant market and
currency, as the case may be, bearing interest at the rate applicable to such
LIBOR Loans in an amount equal to the amount of the LIBOR Loans and having a
maturity comparable to the relevant interest period; provided, however, that
the Agent may fund each of the LIBOR Loans in any manner the Agent sees fit and
the foregoing assumption shall be used only for calculation of amounts payable
under this paragraph. In addition, notwithstanding anything to the contrary
contained herein, the Agent shall apply all proceeds of Collateral and all
other amounts received by it from or on behalf of the Company
(i) initially to the Chase Bank Rate Loans and (ii) subsequently to LIBOR
Loans; provided, however, (x) upon the occurrence of an Event of Default or (y)
in the event the aggregate amount of outstanding LIBOR Loans exceeds
Availability or the applicable maximum levels set forth therefor, the Agent may
apply all such amounts received by it to the payment of Obligations in such
manner and in such order as the Agent may elect in its reasonable business
judgment. In the event that any such amounts are applied to Revolving Loans
which are LIBOR Loans, such application shall be treated as a prepayment of
such loans and the Agent shall be entitled to indemnification hereunder. This
covenant shall survive termination of this Financing Agreement and payment of
the outstanding Obligations.

 

8.18                        Notwithstanding
anything to the contrary in this Agreement, in the event that, by reason of any
Regulatory Change (for purposes hereof “Regulatory Change” shall mean, with
respect to the Agent, any change after the date of this Financing Agreement in
United States federal, state or foreign law or regulations (including, without
limitation, Regulation D) or the adoption or making after such date of any
interpretation, directive or request applying to a class of banks including the
Agent of or under any United States federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful), the Agent either (a) incurs any
material additional costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of such bank
which includes deposits by reference to which the interest rate on LIBOR Loans
is determined as provided in this Financing Agreement or a category of
extensions of credit or other assets of the Agent which includes LIBOR Loans,
or (b) becomes subject to any material restrictions on the amount of such a
category of liabilities or assets which it may hold, then, if the Agent so
elects by notice to the Company, the obligation of the Agent to make or
continue, or to convert Chase Bank Rate Loans into LIBOR Loans hereunder shall
be suspended until such Regulatory Change ceases to be in effect.

 

8.19                        For
purposes of this Financing Agreement and Section 8 thereof, any reference to
the Agent shall include any financial institution which may become a
participant or co-lender subsequent to the Closing Date.

 

42

 

8.20                        Notwithstanding
anything to the contrary in this Section 8, the Chase Bank Rate Loans and the
LIBOR Loans shall equal the following based on the pricing grid:

 

Upon Agent’s receipt of the audited Consolidated Balance Sheet and the
Consolidating Balance Sheet for Fiscal Year ending 12/31/02, the applicable
interest rate spread shall be adjusted according to the following pricing grid.
Thereafter the interest rate spread shall be adjusted at the end of each Fiscal
Quarter.

 

	
  Interest
  Rate Pricing Grid

  
	
  EBITDA*

  	
   

  	
  Rate
  Branch Loans

  	
   

  	
  LIBOR
  Loans

  
	
  Less than or
  equal to $16,000,000

  	
   

  	
  Chase Bank Rate
  plus 1.00%

  	
   

  	
  LIBOR plus 3.50%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Greater than
  $16,000,000 and less than or equal to $18,000,000

  	
   

  	
  Chase Bank Rate
  plus .75%

  	
   

  	
  LIBOR plus 3.25%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Greater than
  $18,000,000 and less than $20,000,000

  	
   

  	
  Chase Bank Rate
  plus .50%

  	
   

  	
  LIBOR plus 3%

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Greater than or
  equal to $20,000,000

  	
   

  	
  Chase Bank Rate
  plus .25%

  	
   

  	
  LIBOR plus 2.75%

  

 

*                 EBITDA
will be measured on a trailing four Fiscal Quarters basis excluding the results
of the Subsidiaries.

 

SECTION 9.                            Powers  

 

The Company hereby
constitutes the Agent, or any person or agent the Agent may designate, as its
attorney-in-fact, at the Company’s cost and expense, to exercise all of the
following powers, which being coupled with an interest, shall be irrevocable
until all Obligations to the Agent have been paid in full:

 

(a)                                  To
receive, take, endorse, sign, assign and deliver, all in the name of the Agent
or the Company, any and all checks, notes, drafts, and other documents or
instruments relating to the Collateral;

 

(b)                                  To
receive, open and dispose of all mail addressed to the Company, other than mail
which may contain privileged communications, including communications which are
subject to the attorney-client privilege, and to notify postal authorities to
change the address for delivery thereof to such address as the Agent may
designate;

 

(c)                                  To
request from customers indebted on Accounts at any time, in the name of the
Agent information concerning the amounts owing on the Accounts;

 

43

 

(d)                                  To
request from customers indebted on Accounts at any time, in the name of the
Company, in the name of certified public accountant designated by the Agent or
in the name of the Agent’s designee, information concerning the amounts owing
on the Accounts;

 

(e)                                  To
transmit to customers indebted on Accounts notice of the Agent’s interest
therein and to notify customers indebted on Accounts to make payment directly
to the Agent for the Company’s account; and

 

(f)                                    To
take or bring, in the name of the Agent or the Company, all steps, actions,
suits or proceedings deemed by the Agent necessary or desirable to enforce or
effect collection of the Accounts.

 

Notwithstanding anything
hereinabove contained to the contrary, the powers set forth in (b), (c), (e)
and (f) above may only be exercised after the occurrence of an Event of Default
and until such time as such Event of Default is waived in writing by the Agent.

 

SECTION 10.                     Events
of Default and Remedies

 

10.1                        Notwithstanding
anything hereinabove to the contrary, the Agent may terminate this Financing
Agreement immediately upon the occurrence of any of the following Events of
Default:

 

(a)                                  cessation
of the business of the Company or the calling of a meeting of the creditors of
the Company for purposes of compromising the debts and obligations of the
Company;

 

(b)                                  the
failure of the Company to generally meet its debts as they mature;

 

(c)                                  (i)
the commencement by the Company of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or state
law; (ii) the commencement against the Company of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceeding under any
federal or state law by creditors of the Company, provided that such Default
shall not be deemed an Event of Default if such proceeding is controverted
within ten (10) Business Days and dismissed and vacated within forty five (45)
days of commencement, except in the event that any of the actions sought in any
such proceeding shall occur or the Company shall take action to authorize or
effect any of the actions in any such proceeding; or (iii) the commencement (x)
by the Company’s Subsidiaries, or any one of them, of any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceeding
under any applicable state law, or (y) against the Company’s Subsidiaries, or
any one of them, of any involuntary bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceeding under applicable law,
provided that such Default shall not be deemed an Event of Default if such
proceeding is controverted within ten (10) days and dismissed or vacated within
thirty (30) days of commencement, except in the event that any of the actions
sought in any such proceeding shall occur or the Company’s Subsidiaries, or any
one of them, shall take action to authorize or effect any of the actions in any
such proceeding;

 

(d)                                  breach
by the Company of any warranty, representation or covenant contained herein
(other than those referred to in subparagraph e below) or in any other written

 

44

 

agreement between the Company
or the Agent, provided that such Default by the Company of any of the
warranties, representations or covenants referred in this clause (d) shall not
be deemed to be an Event of Default unless and until such Default shall remain
unremedied to the Agent’s satisfaction for a period of ten (10) Business Days
from the date of such breach;

 

(e)                                  breach
by the Company of any warranty, representation or covenant of Paragraphs 3.3
(other than the fourth sentence of Paragraph 3.3) and 3.4 of Section 3 hereof;
Paragraphs 6.3 and 6.4 (other than the first sentence of Paragraph 6.4) of
Section 6 hereof Paragraphs 7.1, 7.5, 7.6, and 7.8 through 7.14 hereof;

 

(f)                                    failure
of the Company to pay any of the Obligations within five (5) Business Days of the
due date thereof, provided that nothing contained herein shall prohibit the
Agent from charging such amounts to the Revolving Loan Account on the due date
thereof;

 

(g)                                 the
Company shall (i) engage in any “prohibited transaction” as defined in ERISA,
(ii) have any “accumulated funding deficiency” as defined in ERISA, (iii) have
any “reportable event” as defined in ERISA, (iv) terminate any “plan”, as
defined in ERISA or (v) be engaged in any proceeding in which the Pension
Benefit Guaranty Corporation shall seek appointment, or is appointed, as
trustee or administrator of any “plan”, as defined in ERISA, and with respect
to this subparagraph (h) such event or condition (x) remains uncured for a
period of thirty (30) days from date of occurrence and (y) could, in the
reasonable opinion of the Agent, subject the Company to any tax, penalty or
other liability material to the business, operations or financial condition of
the Company;

 

(h)                                 without
the prior written consent of the Agent and, except as permitted in the
Subordination Agreement or this Financing Agreement, the Company shall (x)
amend or modify the Subordinated Debt, (y) make any payment on account of the
Subordinated Debt or (z) grant any lien or security interest in the Company’s
assets to any Subordinating Creditor;

 

(i)                                    the
occurrence of any default or event of default (after giving effect to any
applicable grace or cure periods) under any instrument or agreement evidencing
(x) Subordinated Debt or (y) any other Indebtedness of the Company having a
principal amount in excess of $500,000; or

 

(j)                                    (i)
James Chu ceases for any reason whatsoever (other than as a result of death,
disability or other incapacity) to be actively engaged in the management of the
Company or (ii) James Chu, the spouse of James Chu, the issue of James Chu,
revocable trusts established by or for the benefit of any of the foregoing
persons and/or Affiliates of James Chu shall not own, in the aggregate, at
least 51% of the issued and outstanding shares of common stock of the Company
or (iii) the stock of any of the Subsidiaries of the Company is transferred.

 

(k)                                the
occurrence of an event of default (after the expiration of any cure period
expressly permitted thereunder) by any of the Company’s Subsidiaries under any
lending agreement to which any of them are bound to the extent such lending
agreement has an unpaid outstanding balance in excess of $250,000.

 

10.2                        Upon
the occurrence of a Default and/or an Event of Default, the Agent in its sole
discretion may, or upon the written direction of the Required Lenders the Agent
shall, declare

 

45

 

that, all loans, advances and
extensions of credit provided for in Sections 3, 4 and 5 of this Financing
Agreement shall be thereafter in the Agent’s or the Required Lenders’ sole
discretion, and the obligation of the Agent and/or the Lenders to make
Revolving Loans, and open Letters of Credit and provide Letters of Credit
Guaranties shall cease unless such Default or Event of Default is waived in
writing by the Required Lenders or cured to the Agent’s or the Required
Lenders’ satisfaction in the exercise of the Agent’s and the Lenders’
reasonable judgement. Upon the occurrence of an Event of Default, the Agent in
its sole discretion may, or upon the written direction of the Required Lenders
the Agent shall, declare that: (a) all Obligations shall become immediately due
and payable; (b) the Agent may charge the Company the Default Rate of Interest
on all then outstanding or thereafter incurred Obligations in lieu of the
interest provided for in Section 8 of this Financing Agreement, provided that,
with respect to this clause “(b)” the Agent has given the Company written
notice of the Event of Default, provided further however, that no notice is required
if the Event of Default is the Event listed in Paragraph 10.1(c) of this
Section 10; and (c) the Agent may immediately terminate this Financing
Agreement upon notice to the Company; provided, however, that upon the
occurrence of an Event of Default listed in Paragraph 10.1(c) of this Section
10, this Financing Agreement shall automatically terminate and all Obligations
shall become due and payable, without any action, declaration, notice or demand
by the Agent. The exercise of any option is not exclusive of any other option,
which may be exercised at any time by the Agent.

 

10.3                        Immediately
upon the occurrence of any Event of Default, the Agent may, to the extent
permitted by law:  (a) remove from any
premises where same may be located any and all books and records, computers,
electronic media and software programs associated with any Collateral
(including any electronic records, contracts and signatures pertaining
thereto), documents, instruments, files and records, and any receptacles or
cabinets containing same, relating to the Accounts, or the Agent may use, at
the Company’s expense, such of the Company’s personnel, supplies or space at
the Company’s places of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon, provided that (i) Agent shall not remove any of the
foregoing items if Borrower shall provide copies of such items to Agent on a
consensual basis, and (ii) in the event any such items are removed from any
premises of the Company by Agent, Agent shall provide to representatives of the
Company access to such items during regular business hours on reasonable prior
notice; (b) bring suit, in the name of the Company or the Agent, and generally
shall have all other rights respecting said Accounts, including without
limitation the right to: accelerate or extend the time of payment, settle,
compromise, release in whole or in part any amounts owing on any Accounts and
issue credits in the name of the Company or the Agent; (c) sell, assign and
deliver the Collateral and any returned, reclaimed or repossessed Inventory,
with or without advertisement, at public or private sale, for cash, on credit
or otherwise, at the Agent’s sole option and discretion, and the Agent may bid
or become a purchaser at any such sale, free from any right of redemption,
which right is hereby expressly waived by the Company; (d) foreclose the
security interests in the Collateral created herein or by the Loan Documents by
any available judicial procedure, or to take possession of any or all of the
Collateral, including any Inventory, Equipment and/or Other Collateral without
judicial process, and to enter any premises where any Inventory and Equipment
and/or Other Collateral may be located for the purpose of taking possession of
or removing the same; and (e) exercise any other rights and remedies provided
in law, in equity, by contract or otherwise. The Agent shall have the right,
without notice or advertisement, to sell, lease, or otherwise dispose of all or
any part of the Collateral, whether in

 

46

 

its then condition or after
further preparation or processing, in the name of the Company or the Agent, or
in the name of such other party as the Agent may designate, either at public or
private sale or at any broker’s board, in lots or in bulk, for cash or for
credit, with or without warranties or representations, and upon such other
terms and conditions as the Agent in its sole discretion may deem advisable,
and the Agent shall have the right to purchase at any such sale. If any
Inventory and Equipment shall require rebuilding, repairing, maintenance or
preparation, the Agent shall have the right, at its option, to do such of the
aforesaid as is necessary, for the purpose of putting the Inventory and
Equipment in such saleable form as the Agent shall deem appropriate and any
such costs shall be deemed an Obligation hereunder. The Company agrees, at the
request of the Agent, to assemble the Inventory and Equipment and to make it
available to the Agent at premises of the Company or elsewhere and to make
available to the Agent the premises and facilities of the Company for the
purpose of the Agent’s taking possession of, removing or putting the Inventory
and Equipment in saleable form. If notice of intended disposition of any
Collateral is required by law, it is agreed that ten (10) days notice shall
constitute reasonable notification and full compliance with the law. The net
cash proceeds resulting from the Agent’s exercise of any of the foregoing
rights, (after deducting all charges, costs and expenses, including reasonable
attorneys’ fees) shall be applied by the Agent to the payment of the
Obligations, whether due or to become due, in such order as the Agent may
elect, and the Company shall remain liable to the Agent for any deficiencies,
and the Agent in turn agrees to remit to the Company or its successors or
assigns, any surplus resulting therefrom. 
The enumeration of the foregoing rights is not intended to be exhaustive
and the exercise of any right shall not preclude the exercise of any other
rights, all of which shall be cumulative. The Company hereby indemnifies the
Agent and holds the Agent harmless from any and all costs, expenses, claims, liabilities,
Out-of-Pocket Expenses or otherwise, incurred or imposed on the Agent by reason
of the exercise of any of its rights, remedies and interests hereunder,
including, without limitation, from any sale or transfer of Collateral,
preserving, maintaining or securing the Collateral, defending its interests in
Collateral (including pursuant to any claims brought by the Company, the
Company as debtor-in-possession, any secured or unsecured creditors of the
Company, any trustee or receiver in bankruptcy, or otherwise), and the Company
hereby agrees to so indemnify and hold the Agent harmless, absent the Agent’s
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction. The foregoing indemnification shall survive termination
of this Financing Agreement until such time as all Obligations (including the
foregoing) have been finally and indefeasibly paid in full. In furtherance
thereof the Agent, may establish such reserves for Obligations hereunder
(including any contingent Obligations) as it may deem advisable in its
reasonable business judgment. Any applicable mortgage(s), deed(s) of trust or
assignment(s) issued to the Agent on the Real Estate shall govern the rights
and remedies of the Agent thereto.

 

SECTION 11.                     Termination

 

Except as otherwise
permitted herein, the Agent may terminate this Financing Agreement only as of
the initial or any subsequent Anniversary Date and then only by giving the
Company at least sixty (60) days prior written notice of termination. Notwithstanding
the foregoing the Agent may terminate the Financing Agreement immediately upon
the occurrence of an Event of Default, provided, however, that if the Event of
Default is an event listed in Paragraph 10.1(c) of Section 10 of this Financing
Agreement, this Financing Agreement shall terminate in accordance with
paragraph 10.2 of Section 10. This Financing Agreement, unless terminated as
herein

 

47

 

provided, shall automatically
continue from Anniversary Date to Anniversary Date. The Company may terminate
this Financing Agreement at any time upon sixty (60) days’ prior written notice
to the Agent. Upon any termination of this Financing Agreement on any Early
Termination Date, the Company shall pay to the Agent immediately on demand an
Early Termination Fee. All Obligations shall become due and payable as of any
termination hereunder or under Section 10 hereof and, pending a final
accounting, the Agent may withhold any balances in the Company’s account (unless
supplied with an indemnity satisfactory to the Agent) to cover all of the
Obligations, whether absolute or contingent, including, but not limited to,
cash reserves for any contingent Obligations, including an amount of 110% of
the face amount of any outstanding Letters of Credit with an expiry date on, or
within thirty (30) days of the effective date of termination of this Financing
Agreement; provided that if Agent shall hold cash collateral in the
Agent’s account sufficient to cover all of the Obligations, whether absolute or
contingent, including, but not limited to, cash reserves for any contingent
Obligations, including an amount of at least 110% of all outstanding Letters of
Credit, Agent shall release all other liens securing the Obligations regardless
of whether all outstanding Letters of Credit have been returned, canceled or
expired. Upon the return, cancellation or expiration of all such Letters of
Credit, Agent shall return to the Company all funds held in the Agent’s
account, provided that the Obligations have been paid and satisfied in full.
All of the Agent’s rights, liens and security interests shall continue after
any termination until all Obligations have been paid and satisfied in full.

 

SECTION 12.                     Miscellaneous

 

12.1                        The
Company hereby waives diligence, notice of intent to accelerate, notice of
acceleration, demand, presentment and protest and any notices thereof as well
as notice of nonpayment. No delay or omission of the Agent or the Company to
exercise any right or remedy hereunder, whether before or after the happening
of any Event of Default, shall impair any such right or shall operate as a
waiver thereof or as a waiver of any such Event of Default. No single or
partial exercise by the Agent of any right or remedy precludes any other or
further exercise thereof, or precludes any other right or remedy.

 

12.2                        This
Financing Agreement and the Loan Documents executed and delivered in connection
therewith constitute the entire agreement between the Company and the Agent;
supersede any prior agreements; can be changed only by a writing signed by both
the Company and the Agent; and shall bind and benefit the Company and the Agent
and their respective successors and assigns.

 

12.3                        In
no event shall the Company, upon demand by the Agent for payment of any
Indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement made
in connection herewith, the Agent shall never be entitled to receive, charge or
apply, as interest on any indebtedness relating hereto, any amount in excess of
the maximum amount of interest permissible under applicable law. If the Agent
ever receives, collects or applies any such excess, it shall be deemed a
partial repayment of principal and treated as such; and if principal is paid in
full, any remaining excess shall be refunded to the Company. This paragraph
shall control every other provision hereof, the Loan Documents and of any other
agreement made in connection herewith.

 

48

 

12.4                        If
any provision hereof or of any other agreement made in connection herewith is
held to be illegal or unenforceable, such provision shall be fully severable,
and the remaining provisions of the applicable agreement shall remain in full
force and effect and shall not be affected by such provision’s severance.
Furthermore, in lieu of any such provision, there shall be added automatically
as a part of the applicable agreement a legal and enforceable provision as
similar in terms to the severed provision as may be possible.

 

12.5                        THE
COMPANY, THE LENDERS AND THE AGENT EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREUNDER. THE COMPANY HEREBY IRREVOCABLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED. IN NO EVENT WILL THE AGENT BE LIABLE
FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES. IN THE EVENT OF AN
ACTION TO ENFORCE THE TERMS OF THIS FINANCING AGREEMENT, THE PREVAILING PARTY
SHALL BE ENTITLED TO REIMBURSEMENT OF ITS COSTS AND REASONABLE ATTORNEYS’ FEES.

 

12.6                        Except
as otherwise herein provided, any notice or other communication required
hereunder shall be in writing (provided that, any electronic communications
from the Company with respect to any request, transmission, document,
electronic signature, electronic mail or facsimile transmission shall be deemed
binding on the Company for purposes of this Financing Agreement, provided
further that any such transmission shall not relieve the Company from any other
obligation hereunder to communicate further in writing), and shall be deemed to
have been validly served, given or delivered when hand delivered or sent by
facsimile, or three days after deposit in the United State mails, with proper
first class postage prepaid and addressed to the party to be notified or to
such other address as any party hereto may designate for itself by like notice,
as follows:

 

(A)                              if
to CIT, at:

 

The CIT
Group/Business Credit, Inc.

300 South Grand
Avenue, Third Floor

Los Angeles,
California 90071

Attn:  Regional Credit Manager

Fax No.:
213/612-2566

 

(B)                                if
to the Company, at:

 

381 Brea Canyon
Road

Walnut, California
91789

Attn:  Chief Financial Officer

Fax No.:
909/869-7958

 

49

 

With a courtesy
copy of any material notice to the Company’s counsel at:

 

Snell & Wilmer

1920 Main Street, Suite 1200

Irvine, California 92614

Attn:  Joseph Coleman Esq.

Fax No.: 949/955-2507

 

provided, however,
that the failure of the Agent to provide the Company’s counsel with a copy of
such notice shall not invalidate any notice given to the Company and shall not
give the Company any rights, claims or defenses due to the failure of the Agent
to provide such additional notice.

 

12.7                        THE
VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT AND THE
OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA,
EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES AN EXPRESS ELECTION
TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION.

 

SECTION 13.                     Agreement
Between the Lenders

 

13.1                        (a)                                  The
Agent, for the account of the Lenders, shall disburse all loans and advances to
the Company and shall handle all collections of Collateral and repayment of
Obligations. It is understood that for purposes of advances to the Company and
for purposes of this Section 13 the Agent is using the funds of the Agent.

 

(b)                                  Unless
the Agent shall have been notified in writing by any Lender prior to any
advance to the Company that such Lender will not make the amount which would
constitute its share of the borrowing on such date available to the Agent, the
Agent may assume that such Lender shall make such amount available to the Agent
on a Settlement Date, and the Agent may, in reliance upon such assumption, make
available to the Company a corresponding amount. A certificate of the Agent
submitted to any Lender with respect to any amount owing under this subsection
shall be conclusive, absent manifest error. If such Lender’s share of such
borrowing is not in fact made available to the Agent by such Lender on the
Settlement Date, the Agent shall be entitled to recover such amount with
interest thereon at the rate per annum applicable to Revolving Loans hereunder,
on demand, from the Company without prejudice to any rights which the Agent may
have against such Lender hereunder. Nothing contained in this subsection shall
relieve any Lender which has failed to make available its ratable portion of
any borrowing hereunder from its obligation to do so in accordance with the
terms hereof. Nothing contained herein shall be deemed to obligate the Agent to
make available to the Company the full amount of a requested advance when the
Agent has any notice (written or otherwise) that any of the Lenders will not
advance its ratable portion thereof.

 

13.2                        On
the Settlement Date, the Agent and the Lenders shall each remit to the other,
in immediately available funds, all amounts necessary so as to ensure that, as
of the Settlement Date, the Lenders shall have their proportionate share of all
outstanding Obligations.

 

50

 

13.3                        The
Agent shall forward to each Lender, at the end of each month, a copy of the
account statement rendered by the Agent to the Company.

 

13.4                        The
Agent shall, after receipt of any interest and fees earned under this Financing
Agreement, promptly remit to the Lenders: 
(a) their pro rata portion of all fees, provided, however, that the
Lenders (other than CIT in its role as the Agent) shall (i) not share in any
administrative management fee or Documentation Fees or the fees provided for in
Section 8, Paragraph 8.12; and (ii) receive their share of any loan facility
fee in accordance with their respective agreements with the Agent; and (b)
interest computed at the rate and as provided for in Section 8 of this Financing
Agreement on all outstanding amounts advanced by the Lenders on each Settlement
Date, prior to adjustment, that are subsequent to the last remittance by the
Agent to the Lenders of the Company’s interest.

 

13.5                        (a)                                  The
Company acknowledge that the Lenders with the prior written consent of the
Agent may sell participation in the loans and extensions of credit made and to
be made to the Company hereunder. The Company further acknowledge that in doing
so, the Lenders may grant to such participants certain rights which would
require the participant’s consent to certain waivers, amendments and other
actions with respect to the provisions of this Financing Agreement, provided
that the consent of any such participant shall not be required except for
matters requiring the consent of all Lenders hereunder as set forth in Section
14, Paragraph 14.10 hereof.

 

(b)                                  The
Company authorize each Lender to disclose to any participant or purchasing
lender (each, a “Transferee”) and any prospective Transferee any and all
financial information in such Lender’s possession concerning the Company and
their Affiliates which has been delivered to such Lender by or on behalf of the
Company pursuant to this Agreement or which has been delivered to such Lender
by or on behalf of the Company in connection with such Lender’s credit
evaluation of the Company and their Affiliates prior to entering into this
Agreement, provided that such Transferee agrees to hold such information in
confidence in the ordinary course of its business.

 

13.6                        The
Company hereby agree that each Lender is solely responsible for its portion of
the Line of Credit and that neither the Agent nor any Lender shall be
responsible for, nor assume any obligations for the failure of any Lender to
make available its portion of the Line of Credit. Further, should any Lender
refuse to make available its portion of the Line of Credit, then the other
Lender may, but without obligation to do so, increase, unilaterally, its
portion of the Line of Credit in which event the Company is so obligated to
that other Lender.

 

13.7                        In
the event that the Agent, the Lenders or any one of them is sued or threatened
with suit by the Company or any one of them, or by any receiver, trustee,
creditor or any committee of creditors on account of any preference, voidable
transfer or lender liability issue, alleged to have occurred or been received
as a result of, or during the transactions contemplated under this Financing
Agreement, then in such event any money paid in satisfaction or compromise of such
suit, action, claim or demand and any expenses, costs and attorneys’ fees paid
or incurred in connection therewith, whether by the Agent, the Lenders or any
one of them, shall be shared proportionately by the Lenders. In addition, any
costs, expenses, fees or disbursements incurred by outside agencies or
attorneys retained by the Agent to effect

 

51

 

collection or enforcement of
any rights in the Collateral, including enforcing, preserving or maintaining
rights under this Financing Agreement shall be shared proportionately between
and among the Lenders to the extent not reimbursed by the Company or from the
proceeds of Collateral. The provisions of this paragraph shall not apply to any
suits, actions, proceedings or claims that (x) predate the date of this
Financing Agreement or (y) are based on transactions, actions or omissions that
predate the date of this Financing Agreement.

 

13.8                        Each
of the Lenders agrees with each other Lender that any money or assets of the
Company held or received by such Lender, no matter how or when received, shall
be applied to the reduction of the Obligations (to the extent permitted
hereunder) after (x) the occurrence of an Event of Default and (y) the election
by the Required Lenders to accelerate the Obligations. In addition, the Company
authorizes, and the Lenders shall have the right following an Event of Default,
without notice, upon any amount becoming due and payable hereunder, to set-off
and apply against any and all property held by, or in the possession of such
Lender the Obligations due such Lenders.

 

13.9                        The
Agent shall have the right at any time to assign to one or more commercial
banks, commercial finance lenders or other financial institutions all or a
portion of its rights and obligations under this Financing Agreement
(including, without limitation, its obligations under the Line of Credit, the
Revolving Loans and its rights and obligations with respect to Letters of
Credit). Upon execution of an Assignment and Transfer Agreement (a copy of
which shall be provided to the Company), (a) the assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such assignment, have the rights and obligations of
the Agent as the case may be hereunder and (b) the Agent shall, to the extent
that rights and obligations hereunder have been assigned by it pursuant to such
assignment, relinquish its rights and be released from its obligations under
this Financing Agreement. The Company shall, if necessary, execute any
documents reasonably required to effectuate the assignments. No other Lender
may assign its interest in the loans and advances and extensions of credit
hereunder without the prior written consent of the Agent. In the event that the
Agent consents to any such assignment by any other Lenders (i) the amount being
assigned shall in no event be less than the lesser of (x) $5,000,000 or (y) the
entire interest of such Lender hereunder, (ii) such assignment shall be of a
pro-rata portion of all of such assigning Lender’s loans and commitments
hereunder and (iii) the parties to such assignment shall execute and deliver to
the Agent an Assignment and Transfer Agreement, and, at the Agent’s election, a
processing and recording fee of $1,000 payable by the Company to the Agent for
its own account.

 

SECTION 14.                     Agency

 

14.1                        Each
Lender hereby irrevocably designates and appoints CIT as the Agent for the
Lenders under this Financing Agreement and any ancillary loan documents and
irrevocably authorizes CIT as the Agent for such Lender, to take such action on
its behalf under the provisions of this Financing Agreement and all ancillary
documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Financing Agreement and all
ancillary documents together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Financing Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set

 

52

 

forth herein, or any fiduciary
relationship with any Lender and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Financing Agreement and the ancillary documents or otherwise exist against the
Agent.

 

14.2                        The
Agent may execute any of its duties under this Financing Agreement and all
ancillary documents by or through agents or attorneys-in-fact and shall be
entitled to the advice of counsel concerning all matters pertaining to such
duties.

 

14.3                        Neither
the Agent nor any of its officers, directors, employees, agents, or
attorneys-in-fact shall be (i) liable to any Lender for any action lawfully
taken or omitted to be taken by it or such person under or in connection with
this Financing Agreement and all ancillary documents (except for its or such
person’s own gross negligence or willful misconduct), or (ii) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Company or any officer thereof contained in this
Financing Agreement and all ancillary documents or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Financing Agreement and all ancillary
documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Financing Agreement and all ancillary
documents or for any failure of the Company to perform their obligations
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Financing Agreement and all
ancillary documents or to inspect the properties, books or records of the
Company.

 

14.4                        The
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Financing Agreement and all ancillary documents unless it shall first
receive such advice or concurrence of the Lenders, or the Required Lenders, as
the case may be, as it deems appropriate or it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Financing Agreement and all ancillary
documents in accordance with a request of the Lenders, or the Required Lenders,
as the case may be, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders.

 

14.5                        The
Agent shall not be deemed to have knowledge or notice of the occurrence of any
Default or Event of Default hereunder unless the Agent has received written
notice from a Lender or the Company describing such Default or Event of
Default. In the event that the Agent receives such a notice, the Agent shall
promptly give notice thereof to the Lenders. The Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably
directed by the Lenders, or Required Lenders, as the case may be; provided that
unless and until the Agent shall have received such direction, the Agent may in
the interim (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or

 

53

 

Event of Default as it shall
deem advisable and in the best interests of the Lenders. In the event the Agent
in its sole discretion, or at the request of the Required Lenders, continues to
make Revolving Loans and advances under this Financing Agreement upon the
occurrence of a Default or Event of Default, any such Revolving Loans and
advances may be in such amounts (subject to Paragraph 14.10 hereof) and on such
additional terms and conditions as the Agent or the Required Lenders may deem
appropriate.

 

14.6                        Each
Lender expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents or attorneys-in-fact has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Company shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents
to the Agent that it has, independently and without reliance upon the Agent or
any other Lender and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Company and made its own decision to enter into this Financing Agreement. Each
Lender also represents that it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under the Financing
Agreement and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial and other condition or
creditworthiness of the Company. The Agent, however, shall provide the Lenders
with copies of all financial statements, projections and business plans which
come into the possession of the Agent or any of its officers, employees, agents
or attorneys-in-fact.

 

14.7                        (a)                                  The
Lenders agree to indemnify the Agent in its capacity as such (to the extent not
reimbursed by the Company and without limiting the obligation of the Company to
do so), from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
(including, without limitation, all Out-of- Pocket Expenses) of any kind
whatsoever (including negligence on the part of the Agent) which may at any
time be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Financing Agreement or any ancillary
documents or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted by the Agent
under or in connection with any of the foregoing; provided that no Lender shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting solely from the Agent’s gross negligence or willful
misconduct. The agreements in this paragraph shall survive the payment of the
Obligations.

 

(b)                                  The
Agent will use its reasonable business judgment in handling the collection of
the Accounts, enforcement of its rights hereunder and realization upon the
Collateral but shall not be liable to the Lenders for any action taken or
omitted to be taken in good faith or on the written advice of counsel. The
Lenders expressly release the Agent from any and all liability and
responsibility (express or implied), for any loss, depreciation of or delay in
collecting or failing to realize on any Collateral, the Obligations or any
guaranties therefor and for any mistake, omission or error in judgment in
passing upon or accepting any Collateral or in making (or in failing to make)
examinations or audits or for granting indulgences or extensions

 

54

 

to the Company, any account
debtor or any guarantor, other than resulting from the Agent’s gross negligence
or willful misconduct.

 

14.8                        The
Agent may make loans to, and generally engage in any kind of business with the
Company as though the Agent were not the Agent hereunder. With respect to its
loans made or renewed by it or loan obligations hereunder as Lender, the Agent
shall have the same rights and powers, duties and liabilities under this
Financing Agreement as any Lender and may exercise the same as though it was
not the Agent and the terms “Lender” and “Lenders” shall include the Agent in
its individual capacity.

 

14.9                        The
Agent may resign as the Agent upon 30 days’ notice to the Lenders and such
resignation shall be effective upon the appointment of a successor Agent. If
the Agent shall resign as Agent, then the Lenders shall appoint a successor
Agent for the Lenders whereupon such successor Agent shall succeed to the
rights, powers and duties of the Agent and the term “Agent” shall mean such
successor agent effective upon its appointment, and the former Agent’s rights,
powers and duties as Agent shall be terminated, without any other or further
act or deed on the part of such former Agent or any of the parties to this
Financing Agreement. After any retiring Agent’s resignation hereunder as the
Agent the provisions of this Section 14 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Agent.

 

14.10                 Notwithstanding
anything contained in this Financing Agreement to the contrary, the Agent will
not, without the prior written consent of all Lenders: (a) amend the Financing
Agreement to (i) increase the Line of Credit; (ii) reduce the interest rates;
(iii) reduce or waive (x) any fees in which the Lenders share hereunder, or (y)
the repayment of any Obligations due the Lenders; (iv) extend the maturity of
the Obligations; or (v) alter or amend (x) this Paragraph 14.10 or (y) the
definitions of Eligible Accounts Receivable, Eligible Inventory, Inventory Loan
Cap, Collateral or Required Lenders, or (vi) increase the advance percentages
against Eligible Accounts Receivable or Eligible Inventory or alter or amend
the Agent’s criteria for determining compliance with such definitions of
Eligible Accounts Receivable and/or Eligible Inventory if the effect thereof is
to increase Availability; (b) except as otherwise required in this Financing
Agreement, release any guaranty or Collateral in excess of $1,000,000 during
any year, or (c) knowingly make any Revolving Loan or assist in opening any
Letter of Credit hereunder if after giving effect thereto the total of
Revolving Loans and Letters of Credit hereunder for the Company would exceed
one hundred and ten percent (110%) of the maximum amount available under this
Financing Agreement (the portion in excess of 100% of such maximum available
amount shall be referred to herein as the “Agent Permitted Overadvances”),
provided that the Agent shall not be entitled to continue to knowingly make
such Agent Permitted Overadvances for a period in excess of ninety (90) days
without the Lenders’ consent, and provided further that the foregoing
limitations shall not prohibit or restrict advances by the Agent to preserve
and protect Collateral. Subject to the provisions of Section 12, Paragraph 12.2
and the provisions of this Paragraph 14.10 of Section 14 of this Financing
Agreement, in all other respects the Agent is authorized by each of the Lenders
to take such actions or fail to take such actions under this Financing
Agreement if the Agent, in its reasonable discretion, deems such to be
advisable and in the best interest of the Lenders. Notwithstanding any
provision to the contrary contained in this Financing Agreement (including the
provisions of Section 12, Paragraph 12.2 and Section 14, Paragraph 14.10
hereof) the Agent is authorized to take such actions or fail to take such
actions in connection with (a) the exercise of (i) any and all rights and

 

55

 

remedies under this Financing
Agreement (including but not limited to the exercise of rights and remedies
under Section 10, Paragraph 10.2 of this Financing Agreement) and (ii) its
discretion in (x) determining compliance with the eligibility requirements of
Eligible Accounts Receivable and/or Eligible Inventory and establishing
reserves against Availability in connection therewith and/or (y) the making of
Agent Permitted Overadvances, and/or (b) the release of Collateral not to
exceed $500,000 in the aggregate during any Fiscal Year, and/or (c) curing any
ambiguity, defect or inconsistency in the terms of this Financing Agreement;
provided that the Agent, in its reasonable discretion, deems such to be
advisable and in the best interests of the Lenders. In the event the Agent
terminates this Financing Agreement pursuant to the terms hereof, the Agent
will cease making any loans or advances upon the effective date of termination
except for any loans or advances which the Agent deems, in its sole discretion,
are reasonably required to maintain, protect or realize upon the Collateral.

 

14.11                 In
the event any Lender’s consent is required pursuant to the provisions of this
Financing Agreement and such Lender does not respond to any request by the
Agent for such consent within 10 days after such request is made to such Lender
such failure to respond shall be deemed a consent. In addition, in the event
that any Lender declines to give its consent to any such request, it is hereby
mutually agreed that the Agent and/or any other Lender shall have the right
(but not the obligation) to purchase such Lender’s share of the Loans for the
full amount thereof together with accrued interest thereon to the date of such
purchase.

 

14.12                 Each
Lender agrees that notwithstanding the provisions of Section 11 of this
Financing Agreement any Lender may terminate this Financing Agreement and the
Line of Credit only as of the initial or any subsequent Anniversary Date and
then only by giving the Agent 90 days prior written notice thereof. Within 30
days after receipt of any such termination notice, the Agent shall, at its
option, either (i) give notice of termination to the Company hereunder or (ii)
purchase, or arrange for the purchase of, the Lender’s share of the Obligations
hereunder for the full amount thereof plus accrued interest thereon. Unless so
terminated this Financing Agreement and the Line of Credit shall be
automatically extended from Anniversary Date to Anniversary Date. Termination
of this Financing Agreement by any of the Lenders as herein provided shall not
affect the Lenders’ respective rights and obligations under this Financing
Agreement incurred prior to the effective date of termination as set forth in
the preceding sentence.

 

14.13                 If
the Agent is required at any time to return to the Company or to a trustee,
receiver, liquidator, custodian or other similar official any portion of the
payments made by the Company to the Agent as result of a bankruptcy or similar
proceeding with respect to the Company, any guarantor or any other person or
entity or otherwise, then each Lender shall, on demand of the Agent, forthwith
return to the Agent its ratable share of any such payments made to such Lender
by the Agent, together with its ratable share of interest and/or penalties, if
any, payable by the Lenders; this provision shall survive the termination of
this Financing Agreement.

 

14.14                 The
Lenders agree to maintain the confidentiality of any non-public information
provided by the Company to them, in the ordinary course of their business,
provided that the foregoing confidentiality provision shall terminate one (1)
year after the termination date of this Financing Agreement, and provided
further that any such Lenders may disclose such information

 

56

 

(i) to any applicable bank
regulatory and auditor personnel and (ii) upon the advise of their counsel.

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Financing Agreement to be effective, executed, accepted and delivered at Los
Angeles, California by their proper and duly authorized officers as of the date
set forth above.

 

	
  VIEWSONIC
  CORPORATION

  	
  THE CIT GROUP/BUSINESS CREDIT, INC.

  (as Agent and Lender)

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ James A.
  Morlan

  	
   

  	
  By: 

  	
  /s/ Kelly Wu

  	
   

  
	
  Title: CFO

  	
  Title: Vice
  President

  
	
   

  	
   

  
						

 

57Exhibit 10.7

 

BUILD TO SUIT INDUSTRIAL LEASE

 

	
   

  	
  Effective Date: June 25, 1996

  
	
   

  	
  (The date set forth below Landlord’s
  signature.)

  

 

BASIC LEASE INFORMATION

 

	
  Landlord:

  	
   

  	
  CATELLUS DEVELOPMENT
  CORPORATlON, a Delaware corporation

  
	
   

  	
   

  	
   

  
	
  Landlord’s Address

  For Notice:

  	
   

  	
  1065 N. PacifiCenter Drive, Suite 200

  Anaheim, CA 92806

  Attn: Asset Management

  Telephone: (714) 630-8100

  Fax: (714) 237-7416

  
	
   

  	
   

  	
   

  
	
  Landlord’s Address

  For Payment of Rent:

  	
   

  	
  File #53694

  Los Angeles, CA 90074-3694

  
	
   

  	
   

  	
   

  
	
  Tenant:

  	
   

  	
  VIEWSONIC CORPORATION, a California
  corporation

  
	
   

  	
   

  	
   

  
	
  Tenant’s Address

  For Notice:

  	
   

  	
  Prior to the Commencement Date:

  

  ViewSonic Corporation

  20480 Business Parkway

  Walnut, CA 91789

  Ann: Ms. Dawn Andersen

  Telephone: (909) 444-8875

  Fax: (909) 468-3757

  

  After
  the Commencement Date:

  
At the
  Premises

  
	
   

  	
   

  	
   

  
	
  Real Property:

  	
   

  	
  That certain 16± acre parcel of
  real property situated in the City of Industry, County of Los Angeles, State
  of California, as more particularly described in Exhibit A, attached
  hereto.

  
	
   

  	
   

  	
   

  
	
  Project:

  	
   

  	
  Catellus Commerce Center

  
	
   

  	
   

  	
   

  
	
  Improvements:

  	
   

  	
  An office/warehouse building (the
  “Building”) to contain approximately 300,000 rentable square feet and all
  related facilities and improvements now or hereafter located at the Real
  Property.

  
	
   

  	
   

  	
   

  
	
  Term:

  	
   

  	
  Sixty (60) months

  
	
   

  	
   

  	
   

  
	
  Estimated Commencement

  Date:

  	
   

  	
  Three hundred thirty (330) days from the
  Effective Date.

  

 

 

	
  Base Rent Per Month:

  	
   

  	
  Ninety thousand dollars ($90,000.00),
  subject to adjustment pursuant to Section 3.4.

  
	
   

  	
   

  	
   

  
	
  Security Deposit:

  	
   

  	
  Waived, subject to Section 3.3.

  
	
   

  	
   

  	
   

  
	
  Broker:

  	
   

  	
  Landlord shall pay a brokerage commission
  in connection with this Lease to The Seeley Company who shall be responsible
  for any commission due Cushman & Wakefield in connection with this Lease.

  
	
   

  	
   

  	
   

  
	
  Permitted Uses:

  	
   

  	
  Warehousing, distribution, service, repair,
  office and all other lawful related purposes.

  

 

	
  EXHIBITS

  
	
  A

  	
  -

  	
  Legal Description

  
	
  B

  	
  -

  	
  Work Letter

  
	
  C

  	
  -

  	
  Site  Plan

  
	
  D

  	
  -

  	
  Commencement Date Memorandum

  
	
  E

  	
  -

  	
  Prohibited Uses

  
	
  F

  	
  -

  	
  Estoppel Certificate

  
	
  G

  	
  -

  	
  Depiction of Building Land/Excess Land

  
	
  H

  	
  -

  	
  Subordination, Non-Disturbance and
  Attornment Agreement

  

 

The
Basic Lease lnformation set forth above and the Exhibits attached hereto are
incorporated into and made a part of the following Lease.  Each reference in this Lease to any of the
Basic Lease lnformation shall mean the respective information above and shall
be construed to incorporate all of the terms provided under the particular
Lease paragraph pertaining to such information.  In the event of any conflict between the Basic Lease lnformation
and the provisions of the Lease, the latter shall control.

 

	
   

  	
  *

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
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  *

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  *

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
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  *

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  LANDLORD’S INITIALS

  	
  /s/
  GA

  	
   

  	
  TENANT’S INITIALS

  	
  /s/
  JC

  	
   

  
								

 

 

1.                                       PREMISES.

 

1.1           Premises.  Landlord
hereby leases to Tenant the Real Property. 
The Real Property will be improved with the lmprovements to be
constructed by Landlord as more fully described in the Work Letter attached
hereto as Exhibit B.  The
Real Property and the lmprovements are hereinafter collectively referred to as
the “Premises.”  A Site Plan of the
Premises is attached hereto as Exhibit C.

 

1.2           Reserved Rights. 
Landlord reserves the right to enter the Premises upon not less than
24-hours notice to Tenant (except in case of an emergency) to inspect the
Premises and/or the performance by Tenant of the terms and conditions
hereof.  In addition, Landlord reserves
the right upon not less than 24-hours notice to Tenant (except in case of an
emergency) to undertake the following: (i) install, use, maintain, repair,
alter, relocate or replace any pipes, ducts, conduits, wires, equipment and
other facilities in the Building; (ii) grant easements encumbering the Project
and dedicate for public use portions thereof; (iii) record covenants, conditions
and restrictions (“CC&R’s”) affecting the Project and/or amendments to
existing CC&R’s; change the name of the Project; (v) affix reasonable signs
and displays; and (vi) during the last six (6) months of the Term, show the
Premises to prospective tenants, provided that no such activity shall increase
Tenant’s obligations or decrease Tenant’s rights hereunder or unreasonably
interfere with Tenant’s access to, or use of, the Premises.

 

1.3           Compliance with Law. 
Landlord represents and warrants to Tenant that the Premises, in its
state existing of the Commencement Date, does not violate any statute, law,
building code, regulation, ordinance, covenant, or restriction of record in
effect on such Commencement Date, including, without limitation, the Americans
With Disabilities Act.  In the event that it the
Premises are not in compliance with the requirements of the representation and
warranty, Landlord, after notice from Tenant, shall promptly and at its sole
cost and expense rectify any such condition of non-compliance.  In the event that Tenant fails to give
Landlord written notice of any such condition of non-compliance within thirty
(30) days after Tenant discovers such condition on non-compliance, the correct
of such condition shall be the obligation of Tenant, at Tenant’s expense.

 

1.4           Condition of Premises. 
Landlord shall deliver the Premises to Tenant clean and free of debris
on the Commencement Date and Landlord further represents and warrants to Tenant
that the heating, ventilation, air conditioning, plumbing, Iighting,
life-safety, mechanical and electrical systems in the Premises and the roof,
windows and sewer components of the Building shall be in good operating
condition of the Commencement Date.  In
the event that it the Premises are not in compliance with the requirements of
the representation and warranty, Landlord, after notice from Tenant, shall
promptly and at its sole cost and expense rectify any such condition of
non-compliance.  In the event that
Tenant falls to give Landlord written notice of any such condition of
non-compliance within thirty (30) days after Tenant discovers such condition on
non-compliance, the correct of such condition shall be the obligation of
Tenant, at Tenant’s expense.

 

2.                                       TERM.

 

2.1           Commencement Date. 
The Term of the Lease shall commence (“Commencement Date”) on the first
day of the first full month following the date on which the Premises are
Substantially Complete (as hereinafter defined) except that if Substantial
Completion occurs on the first day of a month, that date shall be the
Commencement Date, and the Lease shall continue in full force and effect for
the period of time specified as the Term or until this Lease is terminated as
otherwise provided herein.  The
Premises shall be deemed to be “Substantially Complete” on the date on
which all of the following events have occurred: (1) Landlord files or causes
to be filed with the City in which the Premises are located (if required) and
delivers to Tenant an architect’s notice of substantial completion, or similar
written notice that the premises are substantially complete in accordance with
the Approved Working Drawings (as defined in the Work Letter), (2) a temporary
or permanent certificate of occupancy is issued for the Premises, (3) all of
the Building systems are operational, and (4) Landlord tenders possession of
the Premises to Tenant.  In the event,
however, that Tenant commences its usual and customary business operations in
the Premises prior to the last of such events, the date on which Tenant commences
such operations shall be the date on which the Premises are deemed to be
Substantially Complete for purposes of determining the Commencement Date and
Landlord shall continue its obligations hereunder until each of such events has
been accomplished.  On the Commencement
Date, Tenant shall execute and deliver to Landlord a Commencement Date
Memorandum in the form attached hereto as Exhibit D acknowledging
(i) the Commencement Date, (ii) the final square footage of the Premises, and
(iii) Tenant’s acceptance of the Premises. 
If the Premises are not Substantially Complete on the Estimated
Commencement Date as extended by events of Force Majeure (as hereinafter
defined) and Tenant Delays (as defined in the Work Letter), this Lease shall
remain in effect, Landlord shall not be subject to any liability (except as
provided in Section 2.1.1), and the Commencement Date shall be delayed until
the date the Premises are Substantially Complete.  In the event that the Real Property is encumbered by a deed of
trust or other mortgage instrument on

 

1

 

the Effective Date, Landlord shall deliver to Tenant,
on or before the Commencement Date, a non-disturbance agreement in a form
reasonably acceptable to Landlord, Tenant and the beneficiary under such deed
of trust or mortgage.

 

2.1.1        Delay in Reaching Substantial Completion. 
In the event that the Premises are not Substantially Complete on or
before the Estimated Completion Date (as may be extended for Force Majeure and
Tenant Delays), Tenant shall be entitled to one (1) day of free rent for each
one (1) day by which Substantial Completion occurs after the Estimated
Commencement Date (as so extended).  In
the event that the Premises are not Substantially Complete on or before
September 1, 1997 (also subject to extension for Force Majeure and Tenant
Delays), Tenant shall be entitled to one and one-half (1-1/2) day of free rent
for each one (1) day by which Substantial Completion occurs after September 1,
1997 (as so extended), plus a rental credit equal to $4,000 per month (or
portion thereof) if Tenant is required to pay such amount to its existing
landlord as a penalty or consideration for holding over in its existing
space.  In
the event that the Premises are not Substantially Complete on or before January
1, 1998 (as may be extended for Force Majeure and Tenant Delays), Tenant shall
have the right to terminate this lease by giving Landlord written notice
thereof within ten (10) business days following such date (as the same may have
been extended).  If Tenant delivers
timely written notice of termination, this lease shall thereupon terminate and
the parties shall have no further rights or duties pursuant to this Lease.  If Tenant fails to deliver timely written
notice of termination, this Lease shall continue in full force and effect and
Landlord shall diligently pursue its obligations hereunder until Substantial
Completion of the Premises is achieved.

 

2.2           Tenant’s Entry During Construction. 
Tenant shall have the right to enter the Premises no later than thirty
(30) days prior to the anticipated Commencement Date, as reasonably determined
by Landlord during the course of construction, and perform work necessary to
prepare the Premises for Tenant’s use and occupancy.  Tenant shall not, however, conduct its customary business
operations in the Premises during such period. 
Tenant’s entry and use of the Premises during such period shall not
advance the Commencement Date, but shall otherwise be subject to all of the
terms and provisions of this Lease except for the payment of Rent (as defined
in Section 3.1).  Tenant, its agents,
employees, and contractors shall not unreasonably interfere with, or delay the
work of, Landlord and its contractors in the construction and completion of the
Premises.

 

2.3           Possession.  Tenant’s
possession of the Premises during the period of time, if any, from the date on
which Landlord tenders possession of the Premises to Tenant in a Substantially
Completed condition (the “Possession Date”) to the Commencement Date, shall be
subject to all the provisions of this Lease and shall not advance the
expiration date.  Rent shall be paid for
such period at the rate stated in the Basic Lease Information, prorated on the
basis of a thirty (30) day month, and shall be due and payable to Landlord on
or before the Commencement Date.  Tenant
shall acknowledge in writing the Possession Date in the form attached hereto as
Exhibit D.

 

3.                                       RENT.

 

3.1           Rent.  Tenant shall
pay to Landlord, at Landlord’s Address for Payment of Rent designated in the
Basic Lease Information, or at such other address as Landlord may from time to
time designate in writing to Tenant for the payment of Rent, the Base Rent,
without notice, demand, offset or deduction, in advance, on the first day of each
calendar month.  Upon the execution of
this Lease, Tenant shall pay to Landlord the first month’s Base Rent.  If the Term ends on a date other than the
last day of a month, Base Rent shall be prorated on the basis of a thirty (30)
day month.  All sums other than Base
Rent which Tenant is obligated to pay under this Lease including, without
limitation the amount, if any, which represents the amortization of tenant
improvement cost pursuant to Section 4.1 of the Work Letter, shall be deemed to
be additional rent due hereunder, whether or not such sums are designated
“additional rent.”  The term “Rent”
means the Base Rent and all additional rent payable hereunder.

 

3.2           Late Charge and lnterest. 
The late payment of any Rent will cause Landlord to incur additional
costs, including administration and collection costs and processing and
accounting expenses and increased debt service (“Delinquency Costs”).  If Landlord has not received any installment
of Rent within five (5) days after such amount is due, Tenant shall pay a late
charge of six percent (6%) of the delinquent amount, which is agreed to
represent a reasonable estimate of the Delinquency Costs incurred by
Landlord.  In addition, all such
delinquent amounts shall bear interest from the date such amount was due until
paid in full at a rate per annum (“Applicable lnterest Rate”) equal to the
lesser of (a) the maximum interest rate permitted by law or (b) three percent
(3%) above the rate publicly announced by Bank of America, N.A. (or if Bank of
America, N.A. ceases to exist, the largest bank then headquartered in the State
of California) (“Bank”) as its “Reference Rate.”  If the use of the announced Reference Rate is discontinued by the
Bank, then the term Reference Rate shall mean the

 

2

 

announced rate charged by the Bank which is, from time
to time, substituted for the Reference Rate. 
Landlord and Tenant recognize that the damage which Landlord shall
suffer as a result of Tenant’s failure to pay such amounts is difficult to
ascertain and said late charge and interest are the best estimate of the damage
which Landlord shall suffer in the event of late payment.

 

3.3           Security Deposit. 
Landlord hereby waives Tenant’s obligation to deliver a Security Deposit
provided that Tenant’s line of credit provided by Bank of America (or a
successor banking institution) is not less than $50 million.  In the event that such line of credit is
reduced below the amount of $50 million, Tenant shall give written notice
thereof to Landlord within three (3) business days and shall concurrently
deliver to Landlord a Security Deposit equal to the lesser of $90,000 or one
(1) month’s then-current Rent.  The
Security Deposit shall secure the full and faithful performance of each provision
of this Lease to be performed by Tenant. 
Landlord shall not be required to pay interest on the Security Deposit
or to keep the Security Deposit separate from Landlord’s own funds.  If an Event of Default (as defined in
Section 14) occurs and remains uncured, Landlord may, but without obligation,
apply all or any portion of the Security Deposit toward fulfillment of Tenant’s
unperformed covenants and/or obligations. 
If Landlord does so apply any portion of the Security Deposit, Tenant
shall immediately pay Landlord sufficient cash to restore the Security
Deposit.  After Tenant vacates the
Premises, upon the expiration or sooner termination of this Lease, if Tenant is
not then in default, Landlord shall return to Tenant any unapplied balance of
the Security Deposit.

 

3.4           Rental Adjustment. 
Upon completion of the construction of the Building, Landlord shall
obtain from the Architect (as defined in the work letter) a computation of the
rentable square footage contained within the Building determined in accordance
with the “drip line” method of calculation. 
In the event that such rentable square footage is less than 300,000
square feet, the Base Rent per Month shall be adjusted, as of the Commencement
Date, to the product of (i) $0.30, times (ii) the actual number of rentable
square feet as so determined.

 

4.             UTILITIES.  Landlord shall provide connections for
utilities in accordance with the Approved Working Drawings (as defined in the
Work Letter).  Tenant shall make all
arrangements for and pay all charges for water, sewer, telephone, gas,
electricity and other utilities supplied or used on the Premises including,
without limitation, paying any deposits and “hook up charges.”  Landlord shall not be liable to Tenant for
interruption in or curtailment of any utility service, except to the extent
such interruption or curtailment arises out of the gross negligence or wilful
misconduct of Landlord, nor shall any such interruption or curtailment
constitute constructive eviction or grounds for rental abatement.

 

5.                                       TAXES.

 

5.1           Real Property Taxes. 
Landlord shall pay to the proper taxing authorities as the same become
due all Real Property Taxes applicable to the Premises, subject to
reimbursement by Tenant as provided below. 
The term “Real Property Taxes” shall be the sum of the following: any
form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Real Property and/or the Building by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Landlord in the Real Property and/or the Building, Landlord’s right
to rent or other income therefrom, and/or Landlord’s business of leasing the
Premises.  The term Real Property Taxes
shall also include any tax, fee, levy, assessment or charge, or any increase
therein, imposed by reason of any event occurring, or change in any law
applicable to the Premises taking effect during the term of this Lease,
including but not limited to a change in the ownership of the Premises or in
the Improvements, the execution of this Lease, or any modification, amendment
or transfer thereof, and whether or not contemplated by the Parties.

 

5.1.1        Tax
Protection.  Notwithstanding anything to the contrary
contained herein, Tenant shall not be liable for any increase in Real Property
Taxes (whether the increases result from increased rate and/or valuation)
attributable to any change of ownership (as defined in the California Revenue
and Taxation Code) or development of the Excess Land (as defined in Section
21).  In addition, Tenant shall not be
liable for any increase in Real Property Taxes, during the initial sixty (60)
month only, attributable to any change of ownership of the Building Land (as
defined in Section 21) occurring at any time prior to the first (1st) day of
the thirty-first (31st) month of the Term of this Lease, unless such change of
ownership is the result of a foreclosure by Landlord’s lender or a transfer to
such lender (or its designee) by deed in lieu of foreclosure.  The provisions of this Section 5.1.1 shall
be personal to the original Tenant and to a permitted transferee under Section
15.2 only and shall not apply to any other assignee or other transferee of Tenant.

3

 

5.1.2        Reimbursement
By Tenant.  Tenant shall pay to Landlord an amount equal
to the Real Property Taxes then due not less than fifteen (15) days prior to
the due date thereof, provided that Landlord has provided to Tenant a statement
therefor.  Landlord may, at Landlord’s
option, deliver statements from different taxing authorities at different times
or deliver all such statements at one time. 
In the event that Tenant fails to pay any Real Properly Taxes as and
when due pursuant to this Section 5.1.2, Landlord may, at its option, collect
from Tenant the estimated Real Property Taxes in advance.  In such event, Landlord shall bill Tenant
monthly for one-twelve (1/12th) of the estimated Real Property Taxes for the
applicable tax year and Tenant shall pay such amount monthly together with Base
Rent.  Such payment shall be reconciled
not less than annually and Tenant shall pay any underpayment of Real Property
Taxes, or Landlord shall credit Tenant’s account for any overpayment of Real
Properly Taxes, within twenty (20) days after completion and notice of such
reconciliation.

 

5.1.3        Partial
Years.  Real Properly Taxes for partial tax fiscal
years, if any, falling within the Term, shall be prorated.  Tenant’s obligations for Real Property Taxes
for the last full or partial year of the Term shall survive the expiration or
earlier termination of this Lease.

 

5.2           Personal Property Taxes. 
Prior to delinquency, Tenant shall pay all taxes and assessments levied
upon trade fixtures, alterations, additions, improvements, inventories and
other personal property located and/or installed on the Premises by
Tenant.  To the extent any such taxes
are not separately assessed or billed to Tenant, Tenant shall pay the amount
thereof as mutually determined by Landlord and Tenant.

 

6.             TRIPLE NET LEASE.  It is intended that this Lease be a “triple
net lease,” and that the Rent to be paid hereunder by Tenant will be received
by Landlord without any deduction or offset whatsoever by Tenant, foreseeable
or unforeseeable.  Except as expressly
provided to the contrary in this Lease, Landlord shall not be required to make
any expenditure, incur any obligation, or incur any liability of any kind
whatsoever in connection with this Lease or the ownership, construction (except
to the extent specifically agreed to by Landlord as set forth in the Work
Letter), maintenance, operation or repair of the Premises.

 

7.                                       INSURANCE.

 

7.1           Landlord.  Landlord
shall maintain insurance insuring the Building against fire and extended
coverage (including, if Landlord elects, “all risk” coverage,
earthquake/volcanic action, flood and/or surface water insurance) for the full
replacement cost of the Building, with deductibles and the form and
endorsements of such coverage as selected by Landlord, provided that such
insurance coverages, limits, and deductibles are consistent with those
customarily maintained by a prudent, institutional landlord owning a national
portfolio of investment-grade industrial properties, together with rental
abatement insurance against loss of Rent in an amount equal to the amount of
Rent for a period of at least twelve (12) months commencing on the date of
loss.  Landlord may also carry such
other insurance as Landlord may deem prudent or advisable, including, without
limitation, liability insurance in such amounts and on such terms as Landlord
shall determine, provided that such insurance coverages, limits, and
deductibles are consistent with those customarily maintained by a prudent,
institutional landlord owning a national portfolio of investment-grade
industrial properties.  Tenant shall pay
to Landlord an amount equal to the premiums then due within fifteen (15) days
after delivery to Tenant by Landlord of an invoice for any such premiums.  Landlord may, at Landlord’s option, elect to
collect such premiums from Tenant in advance, on a monthly or quarterly basis,
based upon Landlord’s reasonable estimate of such premiums.  If the amount of monthly or quarterly
payments for estimated premiums received by Landlord from Tenant are more or
less than the actual premiums due, an appropriate adjustment shall be made by
Landlord and Tenant.

 

7.2           Tenant.  Tenant
shall, at Tenant’s expense, obtain and keep in force at all times the following
insurance:

 

7.2.1        Commercial General Liability Insurance
(Occurrence Form).  A policy of commercial general liability
insurance (occurrence form) having a combined single limit of not less than Two
Million Dollars ($2,000,000) per occurrence and Two Million Dollars
($2,000,000) aggregate per location if Tenant has multiple locations, providing
coverage for, among other things, blanket contractual liability, premises,
products/completed operations and personal and advertising injury coverage,
with deletion of (a) the exclusion for operations within fifty (50) feet of a
railroad track (railroad protective liability), applicable, and (b) the
exclusion for explosion, collapse or underground hazard, if applicable, and, if necessary, Tenant shall provide for restoration of
the aggregate limit;

4

 

7.2.2        Automobile
Liability Insurance.  Comprehensive automobile liability insurance
having a combined single limit of not less than One Million Dollars
($1,000,000) per occurrence and insuring Tenant against liability for claims
arising out of the ownership, maintenance, or use of any owned, hired or
non-owned automobiles;

 

7.2.3        Workers’
Compensation and Employer’s Liability Insurance.  Workers’
compensation insurance having limits not less than those required by state
statute and federal statute, if applicable, and covering all persons employed
by Tenant in the conduct of its operations on the Premises (including the all
states endorsement and, if applicable, the volunteers endorsement), together
with employer’s liability insurance coverage in the amount of at least One
Million Dollars ($1,000.000); and

 

7.2.4        Property
Insurance.  “All risk” property Insurance including
boiler and machinery comprehensive form, if applicable, covering damage to or
loss of any of Tenant’s personal property, fixtures, equipment and alterations,
including electronic data processing equipment (collectively “Tenant’s
property”) (and coverage for the full replacement cost thereof including
business interruption of Tenant), together with, if the property of Tenant’s
invitees is to be kept in the Premises, warehouser’s legal liability or bailee
customers insurance for the full replacement cost of the property belonging to
invitees and located in the Premises.

 

7.3           General.

 

7.3.1        Insurance
Companies.  Insurance required to be maintained by
Landlord and Tenant shall be written by companies licensed to do business in
the state in which the Premises are located and having a “General Policyholders
Rating” of at least A Vlll (or such higher rating as may be required by a
lender having a lien on the Premises) as set forth in the most current issue of
“Best’s lnsurance Guide.”

 

7.3.2        Certificates
of Insurance.  Tenant shall deliver to Landlord
certificates of insurance for all insurance required to be maintained by Tenant
under Section 7.2, in the form of the ACORD standard certificate of insurance,
no later than seven (7) days prior to the date of possession of the
Premises.  Tenant shall, at least ten
(10) days prior to expiration of the policy, furnish Landlord with certificates
of renewal or “binders” thereof.  Each
certificate shall expressly provide that such policies shall not be cancelable
or otherwise subject to modification except after thirty (30) days prior
written notice to the parties named as additional insureds as required in this
Lease (except in the case of cancellation for nonpayment of premium in which
case cancellation shall not take effect until at least ten (10) days’ notice
has been given to the parties named as additional insureds).  If either party fails to maintain any
insurance required by this Lease by such party, such party shall be liable for
all losses and cost resulting from said failure.

 

7.3.3        Additional
Insureds.  Landlord and any property management company
of Landlord for the Premises shall be named as additional insureds on the
policy as required by Section 7.2.1.  An
additional insureds endorsement naming such parties as additional insured(s)
shall be attached to the certificate of insurance.  The policies required under Section 7.2.1 shall provide for
severability of interest.

 

7.3.4        Primary
Coverage. 
All insurance to be maintained by Tenant shall, except for workers’
compensation and employer’s liability insurance, be primary, without right of
contribution from insurance of Landlord.

 

7.3.5        Umbrella/Excess
Insurance.  Any umbrella liability policy or excess
liability policy (which shall be in “following form”) shall provide that if the
underlying aggregate is exhausted, the excess coverage will drop down as
primary insurance.  The limits of
insurance maintained by Tenant shall not limit Tenant’s liability under this
Lease.

 

7.3.6        Waiver
of Subrogation.  Tenant waives any right to recover against
Landlord for claims for damages to Tenant’s Property to the extent covered (or
required by this Lease to be covered) by insurance.  Landlord waives any right to recover against Tenant for damages
to Landlord’s property to the extent covered (or required by this Lease to be
covered) by Landlord’s property insurance. 
This provision is intended to waive fully, and for the benefit of
Landlord and Tenant, any rights and/or claims which might give rise to a right
of subrogation in favor of any insurance carrier.  The coverage obtained by Landlord and Tenant pursuant to this
Lease shall include, without limitation, a waiver of subrogation endorsement
attached to the certificate of insurance.

 

5

 

7.3.7        Notification of Incidents. 
Tenant shall notify Landlord within twenty-four (24) hours after Tenant
obtains knowledge of the occurrence of any accident or incident in the
Premises, the Building or the Project which could give rise to a claim against
any of the insurance policies required under this Section 7.

 

7.4           Indemnity.

 

7.4.1        Tenant
shall indemnify, protect, defend by counsel reasonably acceptable to Landlord,
and hold harmless Landlord and its partners, directors, officers, employees,
shareholders, lenders, agents, contractors and each of their successors and
assigns from and against any and all claims, judgments, causes of action,
damages, penalties, costs, liabilities, and expenses, including all costs,
attorneys’ fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon (collectively, “Claims”),
arising at any time during or after the Term as a result (directly or
indirectly) of or in connection with (i) any default in the performance of any
obligation on Tenant’s part to be performed under the terms of this Lease, or
(ii) Tenant’s use of the Premises, the conduct of Tenant’s business or any
activity, work or things done, permitted or suffered by Tenant in or about the
Premises, the Building or other portions of the Project, except to the extent
such Claims are caused by Landlord’s gross negligence or wilful
misconduct.  The obligations of Tenant
under this Section 7.4 shall survive the termination of this Lease with respect
to any claims or liability arising prior to such termination.

 

7.4.2        Landlord
shall indemnify, protect, defend by counsel reasonably acceptable to Tenant,
and hold harmless Tenant and its partners, directors, officers, employees,
shareholders, lenders, agents, contractors and each of their successors and
assigns from and against any and all Claims to the extent that such Claims are
caused by (i) any default in the performance of any obligation on Landlord’s
part to be performed under the terms of this Lease, or (ii) Landlord’s gross
negligence or wilful misconduct.  The
obligations of Landlord under this Section 7.4 shall survive the termination of
this Lease with respect to any claims or liability arising prior to such
termination.

 

7.5           Exemption of Landlord from Liability. 
Tenant, as a material part of the consideration to Landlord, hereby
releases Landlord from all risk of damage to property including, but not
limited to, Tenant’s fixtures, equipment, furniture and alterations or injury
to persons in, upon or about the Premises, the Building or other portions of
the Project arising from any cause, and Tenant hereby waives all claims in
respect thereof against Landlord, except to the extent that such claims as are
caused by Landlord’s gross negligence or wilful misconduct.  Tenant hereby agrees that Landlord shall not
be liable for injury to Tenant’s business or any loss of income therefrom or
for damage to the property of Tenant, or
injury to or death of Tenant, Tenant’s employees, invitees, customers, agents
or contractors or any other person in or about the Premises, the Building or
the Project, whether such damage or injury is caused by fire, steam,
electricity, gas, water or rain, or from the breakage, leakage or other defects
of sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises, upon other portions of the Building or
from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible to Tenant,
except to the extent that such damage or injury is caused by Landlord’s gross
negligence or wilful misconduct. 
Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the Building or the Project or
Landlord’s failure to enforce the terms of any agreements with parties other
than Tenant.

 

8.                                       REPAIRS
AND MAINTENANCE.

 

8.1           Landlord.  Landlord
shall, subject to the following sentence, maintain, repair, and replace the
structural portions of the roof (which excludes the roof membrane), foundation,
and load-bearing portions of walls (excluding wall coverings, painting, glass
and doors) of the Premises.  Landlord
shall not be required to make any repair resulting from (i) any alteration or
modification to the Premises or to mechanical equipment within the Premises
performed by, for or because of Tenant or to special equipment or systems
installed by, for or because of Tenant, (ii) the installation, use or operation
of Tenant’s property, fixtures and equipment, (iii) the moving of Tenant’s
property in or out of the Premises, (iv) Tenant’s use or occupancy of the
Premises in violation of Section 10 of this Lease or in the manner not
contemplated by the parties at the time of the execution of this Lease, (v) the
negligent acts or omissions of Tenant and Tenant’s employees, agents, invitees,
subtenants, licensees or contractors, (vi) fire and other casualty, except as
provided by Section 12 of this Lease or (vii) condemnation, except as provided
in Section 13 of this Lease.  Landlord
shall have no obligation to make repairs under this Section 8.1 until a
reasonable time after receipt of written notice from Tenant of the need for
such repairs.  Tenant waives any right
to repair at the expense of Landlord under any applicable governmental laws,
ordinances, statutes, orders or regulations now or hereafter in effect
respecting the Premises.

 

6

 

8.2           Tenant.  Except for
the portions of the Premises expressly required to be maintained by Landlord
under Section 8.1 and subject to Section 8.2.1 below, Tenant, at Tenant’s
expense, shall maintain (including repair and replacement, as necessary) the
Premises in good order, condition and repair, including, without limitation,
subfloors and floor coverings, walls and wall coverings, mechanical,
electrical, and plumbing systems, doors, windows, parking lots, and truck
aprons, gutters and downspouts, landscaping and any signage; provided, however,
that Tenant shall not be required to make any repair resulting from the
negligent acts or omissions of Landlord and its employees, agents, and
contractors.  Tenant shall procure and
maintain, at Tenant’s expense, regularly scheduled preventive
maintenance/service contracts with maintenance contractors reasonably
acceptable to Landlord for (i) servicing all hot water and heating and air
conditioning systems and equipment (“HVAC”) in the Premises, (ii) the landscape
maintenance, (iii) the maintenance and repair of the fire detection and
sprinkler system, and (iv) the annual inspection of the roof membrane.  Tenant shall provide Landlord with a copy of
(a) each of the foregoing maintenance/service contracts and (b) all reports and
correspondence involving the condition of such equipment and the condition of
the landscaping.  Notwithstanding the
foregoing, Landlord reserves the right to procure and maintain the foregoing
maintenance/service contracts in the event that Tenant fails to do so, and
Tenant shall promptly reimburse Landlord upon thirty (30) days written notice
for the reasonable cost thereof.  The
parties acknowledge and agree that Landlord intends to arrange for and maintain
the service contract pertaining to the monitoring and servicing of the
sprinkler and fire detection system, subject to reimbursement for the
reasonable cost thereof by Tenant.  In
the event Tenant fails, in the reasonable judgment of Landlord, to maintain the
Premises in good order, condition and repair, and such failure shall have
continued unremedied after the giving of notice and the expiration of any
applicable cure period, Landlord shall have the right to perform such
maintenance, repairs or refurbishing at Tenant’s expense.

 

8.2.1        System
Replacement in Final Year of Term. 
Notwithstanding anything to the contrary contained in Section 8.2 above,
in the event that the electrical, plumbing, and/or HVAC system of the Building
requires replacement during the final year of the Term of this Lease for any
reason other than Tenant’s failure properly to repair and maintain such system,
the cost of replacement thereof shall be prorated between Landlord and Tenant
based upon the average life expectancy of such system (as reasonably determined
by the manufacturer thereof) and the remaining Term of this Lease.  In the event that Landlord pays a prorated
share of the cost of replacement of a building system pursuant to this Section
8.2.1 and the Term of this Lease is subsequently extended pursuant to an option
to extend set forth in Section 20, Tenant shall repay to Landlord, upon
commencement of such option, any such amount paid by Landlord.  This Section 8.2.1 applies to replacement of
an applicable system only and not to any cost of repair, maintenance, or other
service.

 

8.3           Excess Land. 
Notwithstanding any provision of this Section 8, Tenant shall have no
obligation to perform any repair or maintenance upon, or to reimburse Landlord
for the cost of repair or maintenance in connection with, the Excess Land, as
defined in Section 21.  Landlord shall
be solely responsible for the repair and maintenance of the Excess land.

 

9.                                       ALTERATIONS.

 

9.1           Trade Fixtures; Alterations. 
Tenant may install necessary trade fixtures, equipment, furniture, and
non-structural improvements having a construction cost of less than $15,000 in
the Premises, provided that such items are installed and are removable without
structural or material damage to the Premises. 
Except as permitted pursuant to the preceding sentence, Tenant shall not
construct, nor allow to be constructed, any alterations or physical additions
in, about or to the Premises without obtaining the prior written consent of
Landlord, which consent shall be conditioned upon Tenant’s compliance with all
laws, ordinances, regulations, codes and other governmental requirements and
with Landlord’s reasonable requirements regarding construction of improvements
and alterations but such consent otherwise shall not be unreasonably
withheld.  With respect to alterations
requiring the consent of Landlord, Tenant shall submit plans and specifications
to Landlord with Tenant’s request for approval and shall reimburse Landlord for
all reasonable costs which Landlord may incur in connection with granting
approval to Tenant for any such alterations and additions, including any reasonable costs or expenses which Landlord may incur in
electing to have outside architects and engineers review said matters.  Landlord’s approval of the plans,
specifications and working drawings for Tenant’s alterations and additions
shall create no responsibility or liability on the part of Landlord for their
completeness, design sufficiency or compliance with alI laws, rules and
regulations of governmental agencies or authorities.  Tenant shall file a notice of completion after completion of such
work and provide Landlord with a copy thereof. 
Tenant shall provide Landlord with a set of “as-built” drawings for any
such work.

 

9.2           Standard of Work. 
All work to be performed by or for Tenant pursuant hereto shall be
performed diligently and in a first-class, workmanlike manner, and in
compliance with all applicable laws, ordinances, regulations and rules of any
public authority having jurisdiction over the Premises and/or Tenant and

 

7

 

Landlord’s insurance carriers.  Landlord shall have the right, but not the
obligation, to inspect periodically the work on the Premises and Landlord may
require changes in the method or quality of the work as necessary to comply
with such laws, ordinances, regulations, and rules.

 

9.3           Damage; Removal. 
Tenant shall repair all damage to the Premises and/or the Building
caused by the installation or removal of Tenant’s fixtures, equipment,
furniture and alterations.  Upon the
termination of this Lease, Tenant shall remove its furniture, cubicle
partitions, equipments and fixtures, and any or all alterations, additions, improvements and partitions made or installed by Tenant and restore the
Premises to its condition existing prior to the construction of any such items
and perform any closure work, investigation and environmental remedial work
required by any Environmental Laws (as hereinafter defined) or by any other
applicable laws, ordinances, regulations or permits by any governmental
authority having jurisdiction; provided, however, Landlord may permit, upon
written notice to Tenant, any such items designated by Landlord to remain on
the Premises, in which event they shall be and become the property of Landlord
upon the termination of this Lease.  All
such removals and restoration shall be accomplished in a good and workmanlike
manner so as not to cause any damage to the Premises, the Building or the
Project whatsoever and in strict accordance with all applicable laws,
regulations and governmental orders. 
Notwithstanding any provision hereof, Tenant shall not be required to remove,
upon expiration of this Lease, any portion of the Improvements including,
without limitation, the initial tenant improvements constructed by Landlord
pursuant to the Work Letter.

 

9.4           Liens. Tenant shall promptly pay and discharge
all claims for labor performed, supplies furnished and services rendered at the
request of Tenant and shall keep the Premises free of all mechanics’ and
materialmen’s liens in connection therewith. 
Tenant shall provide at least ten (10) days prior written notice to
Landlord before any labor is performed, supplies furnished or services rendered
on or at the Premises by third parties at a cost in excess of $5,000, and
Landlord shall have the right to post on the Premises notices of
non-responsibility.  If any lien is
filed, Tenant shall cause such lien to be released and removed within ten (10)
days after the date of filing, and if Tenant fails to do so, Landlord may take
such action as may be necessary to remove such lien and Tenant shall pay
Landlord such amounts reasonably expended by Landlord together with interest
thereon at the Applicable Interest Rate from the date of expenditure.

 

10.           USE.
The Premises shall be used only for the Permitted Uses set forth in the Basic
Lease Information and for no other uses without the prior written consent of
Landlord.  Tenant, at Tenant’s expense,
shall comply with any CC&R’s (except for any requirement thereof pertaining
to the initial installation of landscaping materials, which requirement shall
be an obligation of Landlord) or supplement thereto (provided that no such
supplement recorded after the Effective Date shall increase Tenant’s
obligations or decrease Tenant’s rights hereunder or unreasonably interfere
with Tenant’s access to, or use of, the Premises) recorded in any official or
public records with respect to the Project or any portion thereof and with all
laws, rules, orders, ordinances, directions, regulations and requirements of
federal, state, county and municipal authorities (collectively, “Laws”) now in
force or which may hereafter be in force, and which relate to Tenant’s use,
occupancy or alteration (including, without limitation, substantial, material
and/or structural modifications) of the Premises.  Landlord shall be responsible for compliance with all Laws which
are not the responsibility of Tenant pursuant to the preceding sentence.  Tenant shall be responsible for obtaining
any permit, business license, certificate of occupancy, or other permits or
licenses required by any governmental agency permitting Tenant’s use or
occupancy of the Premises.  In no event
shall the Premises be used for any of the Prohibited Uses set forth on Exhibit E
attached hereto.  Tenant shall not
commit waste, overload the floors or structure of the Building, subject the
Premises, the Building or the Project to any use which would damage the same or
increase the risk of loss or violate any insurance coverage, permit any
unreasonable odors, smoke, dust, gas, substances, noise or vibrations to
emanate from the Premises, take any action which would constitute a nuisance or
would disturb, obstruct or endanger any other tenants, take any action which
would abrogate any warranties, or use or allow the Premises to be used for any
unlawful purpose.  Landlord shall not
be liable to Tenant, nor shall this Lease be affected, by the enactment of any
Laws affecting or regulating car-pools, ride-sharing, vehicle occupancy, or
parking.  Landlord shall use
commercially reasonable efforts (which does not include an obligation to
institute litigation) to obtain compliance by any other tenants or occupants of
the Project with any of the CC&R’s or any other terms or provisions of such
tenant’s or occupant’s lease, but Landlord shall have no liability to Tenant as
result of such tenant’s or occupant’s failure or refusal to so comply.  Tenant shall promptly comply with the
reasonable requirements of any board of fire insurance underwriters or other
similar body now or hereafter constituted. 
Tenant shall not do any act which shall in any way encumber the title of
Landlord in and to the Premises or the Project.

 

8

 

11.                                 ENVIRONMENTAL
MATTERS.

 

11.1         Definitions.

 

11.1.1      Environmental
Condition.  “Environmental Condition” means any adverse
condition relating to any Hazardous Materials or the environment, including
surface water, groundwater, drinking water supply, land, soil, surface or
subsurface strata or the ambient air and includes air, land and water
pollutants, noise, vibration, light and odors.

 

11.1.2      Environmental
Laws.  “Environmental Laws”‘ means any and all
federal, state or local environmental, health and/or safety-related laws,
regulations, standards, decisions of courts, ordinances, rules, codes, orders,
decrees, directives, guidelines, permits or permit conditions, currently
existing and as amended, enacted, issued or adopted in the future relating to
the environment or to any Hazardous Material (including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. § 9601 et  seq.)), which are or become applicable to
Tenant, the Premises, the Building or the Project.

 

11.1.3      Hazardous
Materials.  “Hazardous Materials” means any chemical,
substance, material, controlled substance, object, condition, waste, living
organism or combination thereof which is or may be hazardous to human health or
safety or to the environment (whether potentially injurious to persons and
property and whether potentially injurious by themselves or in combination with
other materials) due to its radioactivity, ignitability, corrosivity,
reactivity, explosivity, toxicity, carcinogenicity, mutagenicity,
phytotoxicity, infectiousness or other harmful or potentially harmful
properties or effects, including, without limitation, petroleum and petroleum
products, asbestos, radon, polychlorinated biphenyls (PCBs) and all of those
chemicals, substances, materials, controlled substances, objects, conditions,
wastes, living organisms or combinations thereof which are now or become in the
future listed in the United States Department of Transportation Hazardous
Materials Table (49 C.F.R. § 172.101), as amended from time to time, or listed,
defined or regulated in any manner by any Environmental Law.

 

11.2         Environmental Compliance. 
Tenant shall not cause, permit or allow any of Tenant’s employees,
agents, customers, visitors, invitees, licensees, contractors, assignees or
subtenants (collectively, “Tenant’s Parties”) to cause or permit any Hazardous
Materials to be brought upon, stored, manufactured, generated, blended,
handled, recycled, treated, disposed or used on, under or about the Premises,
the Building or the Project, except for routine office and janitorial supplies
in usual and customary quantities, and cleaning solvents, paint remover, and
similar products in reasonable and customary quantities for Tenant’s business
operations, all of which shall be stored, used and disposed of in accordance
with all applicable Environmental Laws. 
Tenant and Tenant’s Parties shall comply with all Environmental Laws and
promptly notify Landlord in writing of (a) the presence of any Hazardous
Materials, other than office and janitorial supplies as permitted above, on the
Premises of which Tenant is aware; (b) any notices of violation or potential or
alleged violation of any Environmental Law which are received by Tenant from
any governmental agency; (c) any and all inquiry, investigation, enforcement,
clean-up, removal or other governmental or regulatory actions instituted or
threatened relating to Tenant or the Premises or the Project of which Tenant is
aware: and (d) all claims made or threatened by any third party against Tenant
or the Premises or Project relating to any Hazardous Materials of which Tenant
is aware.  Landlord shall have the
right, upon not less than forty-eight (48) hours notice to Tenant, to enter
upon and inspect the Premises and to conduct tests, monitoring and
investigations.  Such right of entry
shall include the right to test for soil and groundwater contamination.  If such tests indicate the presence of any
Environmental Condition which occurred as a result of any act or omission of
Tenant or Tenant’s Parties, Tenant shall reimburse Landlord for the cost of
conducting such tests.  In the event of
any such Environmental Condition, Tenant shall promptly take any and all steps
necessary to rectify the same to Landlord’s reasonable satisfaction or, should
Tenant fair to take such necessary steps, Tenant shall, at Landlord’s election,
reimburse Landlord, upon demand, for the cost to Landlord of performing
rectifying work.  The reimbursement
shall be paid to Landlord in advance of Landlord’s performing such work, based
upon Landlord’s reasonable estimate of the cost thereof; and upon completion of
such work by Landlord, Tenant shall pay to Landlord any shortfall within thirty
(30) days after Landlord bills Tenant therefor or Landlord shall within thirty
(30) days refund to Tenant any excess deposit, as the case may be.  In addition, Tenant shall comply, at its sole
cost and expense, with such recommendations contained in any environmental
assessment as Landlord may reasonably require including, without limitation,
any recommendations with respect to precautions which should be taken with
respect to activities on the Premises, and additional testing and studies to
detect the presence of Hazardous Materials. 
Notwithstanding any provision to the contrary contained herein.  Tenant shall have no responsibility for any
Environmental Condition (i) existing as of the Commencement Date, or (ii) not
caused or resulting from, or exacerbated by, any act or omission of Tenant or
Tenant’s Parties, including, without limitation, any Environmental Condition
caused by any party other than Tenant or one of Tenant’s Parties.

 

9

 

11.3         Tenant’s Indemnification. 
Tenant shall indemnify, protect, defend by counsel acceptable to
Landlord and hold harmless Landlord and its partners, directors, officers,
employees, shareholders, lenders, agents, contractors and each of their respective
successors and assigns (individually and collectively, “Indemnitees”) from and
against any and all claims, judgments, causes of action, damages, penalties,
fines, taxes, costs, liabilities, losses and expenses (including, without
limitation, reasonable attorneys’ fees and court costs) or death or injury to
any person or damage to any property whatsoever, arising from or in connection
with, or caused in whole or in part, directly or indirectly, by (a) Tenant
and/or any of Tenant’s Parties’ breach of any prohibition or provision of this
Section 11; (b) Tenant and/or any of Tenant’s Parties breach of any
Environmental Law; or (c) the presence of Hazardous Materials on, under or
about the Premises or other properties as a result (directly or indirectly) of Tenant’s
and/or any of Tenant’s Parties’ activities, or failure to act, in connection
with the Premises.  This indemnity shall
include the cost of any required or necessary repair, response, removal,
cleanup or detoxification, and the preparation and implementation of any
closure, monitoring or other required plans, whether such action is required or
necessary prior to or following the termination of this Lease.  This indemnification is intended to
constitute an indemnity agreement within the meaning of Section 9607(e)(i) of
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. § 9607(e)(i)).  Neither
the written consent by Landlord to the presence of Hazardous Materials on,
under or about the Premises, nor the strict compliance by Tenant with all
Environmental Laws, shall excuse Tenant from Tenant’s obligation of indemnification pursuant hereto. 
Tenant’s obligations pursuant to the foregoing indemnity shall survive
the termination of this Lease.

 

11.4         Landlord’s Representation and
lndemnification.

 

11.4.1      Landlord
hereby represents to Tenant that, to the best of its current actual knowledge
(but without any investigation or inquiry), no Environmental Condition (as
defined in paragraph 11.1) presently exists as of the Effective Date on, under,
or within the Premises (a “Pre-existing Condition”).

 

11.4.2      Landlord
shall indemnify, protect, defend (by counsel reasonably acceptable to Tenant)
and hold harmless Tenant and its directors, officers, employees, shareholders,
lenders, and each of their respective successors and assigns, from and against
any and all claims, judgments, causes of action, damages, penalties, fines,
taxes, costs, liabilities, losses and expenses (collectively, a “Claim”)
arising at any time during or after the Term to the extent that such Claim
results from any Pre-existing Condition which (i) constitutes a breach of the
representation set forth in paragraph 11.4.1, or (ii) was authorized by
Landlord or caused by the acts or omissions of Landlord (but not the agents or
contractors of Landlord or any other third party), except to the extent that
such Pre-existing Condition is exacerbated by the act or omission of Tenant
and/or Tenants Parties.  Landlord’s
obligations pursuant to the foregoing Indemnity shall survive the termination
of this Lease for a period of one (1) year and shall not apply to any claim not
presented to Landlord in writing within said one (1) year period.

 

11.4.3      Landlord
shall indemnify, protect, defend (by counsel reasonably acceptable to Tenant)
and hold harmless Tenant and its directors, officers, employees, shareholders,
and lenders, and each of their respective successors and assigns, from and
against any and all orders, penalties, fines, administrative actions, or other
proceedings (collectively, a “Compliance Obligation”) commenced by any
governmental agency including, without limitation, the United States
Environmental Protection Agency and the California Environmental Protection
Agency as a result of any Environmental Condition (except to the extent that
such Environmental Condition is caused or exacerbated by the act or omission of
Tenant and/or Tenant’s Parties).  The
indemnity obligation set forth in this paragraph 11.4.3 is limited to Compliance
Obligations and shall not include any consequential damages including, without
limitation, any relocation expenses, loss of revenue, or other losses incurred
by any party.  Landlord’s obligations
pursuant to the foregoing indemnity shall survive the termination of this Lease
for a period of one (1) year and shall not apply to any Compliance Obligation
not presented to Landlord in writing within said one (1) year period.

 

11.4.4      The
indemnity obligations of Landlord set forth in paragraphs 11.4.2 and 11.4.3
above shall not be binding upon any lender acquiring Landlord’s interest in the
Premises and/or this Lease pursuant to any foreclosure proceeding, deed in lieu
of foreclosure, or other enforcement action taken pursuant to a deed of trust
or mortgage encumbering the Premises.

 

12.                                 DAMAGE
AND DESTRUCTION.

 

12.1         Casualty. 
If the
Improvements should be damaged or destroyed by fire or other casualty, Tenant
shall give immediate written notice to Landlord.  As soon as practicable, but no later than thirty (30) days

 

10

 

after receipt thereof, Landlord
shall notify Tenant whether the necessary repairs can reasonably be made: (a)
within ninety (90) days from the date of such damage or destruction; (b) in
more than ninety (90) days but in less than one hundred eighty (180) days from
the date of such damage or destruction; or (c) in more than one hundred eighty
(180) days from the date of such damage or destruction.

 

12.1.1      Less
Than 90 Days.  If the Improvements should be damaged only
to such extent that rebuilding or repairs can reasonably be completed within
ninety (90) days from the date of such damage or destruction, this Lease shall
not terminate and Landlord shall repair the Premises, except that Landlord
shall not be required to rebuild, repair or replace any alterations,
partitions, fixtures, additions and other improvements which may have been
placed in, on or about the Premises by or for the benefit of Tenant other than
the Improvements.  If Tenant is required
to vacate all or a portion of the Premises during Landlord’s repair thereof,
the Base Rent payable hereunder shall be abated proportionately from the date
Tenant vacates all or a portion of the Premises and during the period the
Premises are unfit for occupancy.

 

12.1.2      Greater Than 90 Days. 
If the Improvements should be damaged only to such extent that
rebuilding or repairs can reasonably be completed in more than ninety (90) days
but in less than one hundred eighty (180) days from the date of such damage or
destruction, this Lease shall not terminate (subject to the following sentence)
and Landlord shall repair the Premises, except that Landlord shall not be
required to rebuild, repair or replace any part of the
improvements which may have been placed in, on or about the Premises by or for
the benefit of Tenant other than the Improvements.  In the event that Landlord’s lender holding the beneficiary’s
interest under a deed of trust encumbering the Real Property has succeeded to
the interest of Landlord by foreclosure (or deed in lieu thereof) or in the
event that such lender requires, pursuant to the applicable loan documents,
that available insurance proceeds be applied to reduce or retire the
indebtedness secured by such deed of trust rather than applied to the cost of
repair of the Premises, then Landlord shall have the option of terminating the
Lease effective upon the occurrence of such damage, in which event the Rent
shall be abated from the date of such damage or destruction.  If Tenant is required to vacate all or a
portion of the Premises during Landlord’s repair thereof, the Base Rent payable
hereunder shall be abated proportionately from the date on which Tenant is
unable to use and occupy all or a portion of the Premises and during the period
the Premises are unfit for occupancy. 
in the event that Landlord should fail to substantially complete such
repairs within one hundred eighty days (180) days after the date upon which
Landlord is notified by Tenant of the casualty (such period to be extended for
delays caused by Tenant, to the extent Landlord has given Tenant reasonably
prompt written notice of such delays, or because of any events of Force Majeure
(as hereinafter defined)) and Tenant has not re-occupied the damaged or
destroyed portion of the Premises, Tenant shall have the right, as Tenant’s
exclusive remedy, within ten (10) days after the expiration of such one hundred
eighty (180) day period, to terminate this Lease by delivering written notice
to Landlord, whereupon all rights hereunder shall cease and terminate as of the
date of Landlord’s receipt of such notice and the parties shall be relieved of
all further obligations under this Lease except for those obligations, of
indemnity or otherwise, accruing at any time prior to the date of termination.

 

12.1.3      Greater
Than 180 Days.  If the Improvements should be so damaged
that rebuilding or repairs cannot be completed within one hundred eighty (180)
days from the date of such damage or destruction, either Landlord or Tenant may
terminate this Lease by giving written notice within ten (10) days after notice
from Landlord specifying such time period of repair; and this Lease shall
terminate and the Rent shall be abated from the date on which Tenant is unable
to use and occupy all or a portion of the Premises.  If this Lease is terminated by either party, all rights hereunder
shall cease and terminate as of the date of such termination and the parties
shall be relieved of all further obligations under this Lease except for those
obligations, of indemnity or otherwise, accruing at any time prior to the date
of termination.  In the event that
neither party elects to terminate this Lease, Landlord shall promptly commence
and diligently prosecute to completion the repairs to the Premises (except that
Landlord shall not be required to rebuild, repair or replace any improvements
which may have been placed in, on or about the Premises by or for the benefit
of Tenant other than the Improvements). 
If Tenant is required to vacate all or a portion of the Premises during
Landlord’s repair thereof, the Base Rent payable hereunder shall be abated
proportionately from the date Tenant of such damage or destruction and during
the period that the Premises are unfit for occupancy.

 

12.2         Tenant’s Fault. 
If the Improvements are damaged resulting from the gross negligence,
wilful misconduct, or breach of this Lease by Tenant or any of Tenant’s
Parties, Rent shall not be reduced during the repair of such damage (except to
the extent insurance proceeds are payable to Landlord therefor) and Tenant
shall be liable to Landlord for the cost of the repair caused thereby to the
extent such cost is not covered by insurance proceeds.

 

11

 

12.3         Uninsured Casualty. 
Tenant shall be responsible for and shall pay to Landlord any deductible
amount payable under the property insurance for the Improvements.  In the event that the Improvements are
damaged to the extent Tenant is unable to use the Premises and such damage is
not covered by insurance proceeds received by Landlord, then Landlord shall
have the right at Landlord’s option either (i) to repair such damage as soon as
reasonably possible at Landlord’s expense, or (ii) to give written notice to
Tenant within thirty (30) days after the date of the occurrence of such damage
of Landlord’s intention to terminate this Lease as of the date of the
occurrence of such damage.  In the event
Landlord elects to terminate this Lease, Tenant shall have the right within ten
(10) days after receipt of such notice to give written notice to Landlord of
Tenant’s intention to pay the cost of repair of such damage, in which event
this Lease shall continue in full force and effect, Landlord shall make such
repairs as soon as reasonably possible and Tenant shall reimburse Landlord for
such repairs within fifteen (15) days after receipt of an invoice from
Landlord.  If Tenant does not give such
notice within the ten (10) day period, this Lease shall terminate automatically
as of the date of the occurrence of the damage and the parties shall be relieved
of all further obligations under this Lease except for those obligations, of
indemnity or otherwise, accruing at any time prior to the date of
termination.  If Tenant is required to
vacate all or a portion of the Premises during Landlord’s repair thereof, the
Base Rent payable hereunder shall be abated proportionately from the date
Tenant of such damage or destruction and during the period that the Premises
are unfit for occupancy.

 

12.4         Waiver. 
With respect to any damage or destruction which Landlord is obligated to
repair or may elect to repair, Tenant waives all rights to terminate this Lease
pursuant to rights otherwise presently or hereafter accorded by law.

 

13.                                 EMINENT
DOMAIN.

 

13.1         Total Condemnation. 
If all of the Premises is condemned by eminent domain, inversely
condemned or sold under threat of condemnation for any public or quasi-public
use or purpose (“Condemned”), this Lease shall terminate as of the earlier of
the date the condemning authority takes title to or possession of the Premises,
and Rent shall be adjusted to the date of termination.

 

13.2         Partial Condemnation. 
If any portion of the Premises is Condemned and such partial
condemnation materially impairs Tenant’s ability to use the Premises for
Tenant’s business, Tenant shall have the option to terminate this Lease as of
the earlier of the date title vests in the condemning authority or as of the
date an order of immediate possession is issued and Rent shall be adjusted to
the date of termination.  If such
partial condemnation does not materially impair Tenant’s ability to use the
Premises for the business of Tenant, Landlord shall promptly restore the
Premises to the extent of any condemnation proceeds recovered by Landlord,
excluding the portion thereof lost in such condemnation, and this Lease shall
continue in full force and effect except that after the date of such title
vesting Rent shall be equitably adjusted.

 

13.3         Award. 
If the Premises are wholly or partially Condemned, Landlord shall be
entitled to the entire award paid for such condemnation, and Tenant waives any
claim to any part of the award from Landlord or the condemning authority;
provided, however, Tenant shall have the right to recover from the condemning
authority such compensation as may be separately awarded to Tenant in
connection with costs of moving and relocation expenses, and/or loss of
Tenant’s merchandise, furniture, fixtures, leasehold improvements and
equipment.  No condemnation of any kind
shall be construed to constitute an actual or constructive eviction of Tenant
or a breach of any express or implied covenant of quiet enjoyment.

 

13.4         Temporary Condemnation. 
In the event of a temporary condemnation not extending beyond the Term,
this Lease shall remain in effect. 
Tenant shall continue to pay Rent and Tenant shall receive any award
made for such condemnation except damages to any of Landlord’s property.  If a temporary condemnation is for a period
which extends beyond the Term, this Lease shall terminate as of the date of
initial occupancy by the condemning authority and
any such award shall be distributed in accordance with the preceding
section.  If a temporary condemnation
remains in effect at the expiration or earlier termination of this Lease,
Tenant shall pay Landlord the reasonable cost of performing any obligations
which would have been required of Tenant under the terms of this Lease with
respect to the surrender of the Premises.

 

14.                                 DEFAULT.

 

14.1         Events of Defaults. 
The occurrence of any of the following events shall, at Landlord’s option,
constitute an “Event of Default”:

 

12

 

14.1.1      Abandonment
of the Premises for a period of thirty (30) consecutive days;

 

14.1.2      Failure
to pay Rent on the date when due and the failure continuing for a period of
five (5) days after Tenant’s receipt of written notice of such failure;

 

14.1.3      Failure
to perform Tenant’s covenants and obligations hereunder (except default in the
payment of Rent) where such failure continues for a period of thirty (30) days after
written notice from Landlord; provided, however, if the nature of the default
is such that more than thirty (30) days are reasonably required for its cure,
Tenant shall not be deemed to be in default if Tenant commences the cure within
the thirty (30) day period and diligently prosecutes such cure to completion;

 

14.1.4      The
making of a general assignment by Tenant for the benefit of creditors; the
filing of a voluntary petition by Tenant or the filing of an involuntary
petition by any of Tenant’s creditors seeking the rehabilitation, liquidation
or reorganization of Tenant under any law relating to bankruptcy, insolvency or
other relief of debtors and, in the case of an involuntary action, the failure
to remove or discharge the same within sixty (60) days of such filing; the
appointment of a receiver or other custodian to take possession of
substantially all of Tenant’s assets or this leasehold; Tenant’s insolvency or
inability to pay Tenant’s debts or failure generally to pay Tenant’s debts when
due; any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenant’s assets; Tenant taking
any action toward the dissolution or winding up of Tenant’s affairs; the
cessation or suspension of Tenant’s use of the Premises; or the attachment,
execution or other judicial seizure of substantially all of Tenant’s assets or
this leasehold;

 

14.1.5      The
making of any material misrepresentation or omission by Tenant or any successor
in interest of Tenant in any materials delivered by or on behalf of Tenant to
Landlord or Landlord’s lender pursuant to this Lease; or

 

14.2         Remedies.

 

14.2.1      Termination. 
In the event of the occurrence of any Event of Default, Landlord shall
have the right to give a written termination notice to Tenant and, on the date
specified in such notice, this Lease shall terminate unless on or before such
date all arrears of Rent and all other sums payable by Tenant under this Lease
and all costs and expenses incurred by or on behalf of Landlord hereunder shall
have been paid by Tenant and all other Events of Default at the time existing
shall have been fully remedied to the satisfaction of Landlord.

 

14.2.1.1   Repossession. 
Following termination, without prejudice to other remedies Landlord may
have, Landlord may (i) peaceably re-enter the Premises upon voluntary surrender
by Tenant or remove Tenant therefrom and any other persons occupying the
Premises, using such legal proceedings as may be available; (ii) repossess the
Premises or relet the Premises or any part thereof for such term (which may be
for a term extending beyond the Term), at such rental and upon such other terms
and conditions as Landlord in Landlord’s sole discretion shall determine, with
the right to make reasonable alterations and repairs to the Premises; and (iii)
remove all personal property therefrom.

 

14.2.1.2   Unpaid
Rent.  Landlord shall have all the rights and
remedies of a landlord provided by applicable law, including the right to
recover from Tenant: (a) the worth, at the time of award, of the unpaid Rent
that had been earned at the time of termination, (b) the worth, at the time of
award, of the amount by which the unpaid Rent that would have been earned after
the date of termination until the time of award exceeds the amount of loss of
rent that Tenant proves could have been reasonably avoided, (c) the worth, at
the time of award, of the amount by which the unpaid Rent for the balance of
the Term after the time of award exceeds the amount of the loss of rent that
Tenant proves could have been reasonably avoided, and (d) any other amount, and
court costs, necessary to compensate Landlord for all detriment proximately
caused by Tenant’s default.  The phrase
“worth, at the time of award,” as used in (a) and (b) above, shall be computed
at the Applicable Interest Rate, and as used in (c) above, shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).

 

14.2.2      Continuation. 
Even though an Event of Default may have occurred, this Lease shall
continue in effect for so long as Landlord does not terminate Tenant’s right to
possession; and Landlord may enforce all of Landlord’s rights and remedies
under this Lease, including the right to recover Rent as it becomes due.  Tenant shall continue to pay the Rent on the
date the same is due.  No act by
Landlord hereunder, including acts of maintenance, preservation
or efforts to lease the Premises or the appointment of a receiver

 

13

 

upon
application of Landlord to protect Landlord’s interest under this Lease, shall
terminate this Lease unless Landlord notifies Tenant that Landlord elects to
terminate this Lease.  So long as this
Lease is not terminated, Landlord shall have the right to remedy any default of
Tenant, to maintain or improve the Premises, to cause a receiver to be
appointed to administer the Premises and existing subleases and to add to the
Rent payable hereunder all of Landlord’s reasonable costs in so doing, with
interest at the Applicable Interest Rate from the date of such expenditure.

 

14.3         Cumulative.  Each right
and remedy of Landlord provided for herein or now or hereafter existing at law,
in equity, by statute or otherwise shall be cumulative and shall not preclude
Landlord from exercising any other rights or remedies provided for in this
Lease or now or hereafter existing at law or in equity, by statute or
otherwise.  No payment by Tenant of a
lesser amount than the Rent nor any endorsement on any check or letter
accompanying any check or payment as Rent shall be deemed an accord and
satisfaction of full payment of Rent; and Landlord may accept such payment
without prejudice to Landlord’s right to recover the balance of such Rent or to
pursue other remedies.

 

15.                                 ASSIGNMENT
AND SUBLETTING.

 

15.1         Tenant shall not assign, sublet or
otherwise transfer, whether voluntarily or involuntarily or by operation of
law, the Premises or any part thereof without Landlord’s prior written approval,
which shall not be unreasonably withheld. 
Landlord’s consent to one assignment or subletting shall not be deemed a
consent to subsequent assignments and/or sublettings.  If Tenant desires to assign this Lease or sublet any or all of
the Premises, Tenant shall give Landlord written notice thereof with copies of
all related documents and agreements associated with the assignment or
sublease, including without limitation, the financial statements of any
proposed assignee or subtenant, thirty (30) days prior to the anticipated
effective date of the assignment or sublease. 
Tenant shall pay Landlord’s reasonable attorneys’ fees incurred in the
review of such documentation plus an administrative fee of Three Hundred Fifty
Dollars ($350.00) for each proposed transfer. 
Landlord shall have a period of twenty (20) days following receipt of
such notice and all related documents and agreements to notify Tenant in
writing of Landlord’s approval or disapproval of the proposed assignment or
sublease.  The parties agree that it
shall be reasonable for Landlord to withhold its consent to a proposed
assignment or subletting if the proposed assignee or sublessee or its business
is subject to compliance with additional requirements of the Americans with
Disabilities Act (42 U.S.C. § 12101 et  seq.) (including related regulations) beyond those requirements which are
applicable to the tenant desiring to assign or sublease or if the proposed
assignee’s or subtenant’s activities in, on or about the Premises or the
Project involve the use, analysis, handling, storage, transport, discharge,
release, generation or disposal of any Hazardous Materials.  This Lease may not be assigned by operation
of law.  Any purported assignment or
subletting contrary to the provisions hereof shall be void and shall constitute
an Event of Default hereunder.  In
connection with any assignment or sublease of this Lease (other than a
permitted assignment under Section 15.2), if Tenant receives rent or other
consideration for any such transfer in excess of the sum of (i) the Rent, (ii)
any direct expenses reasonably incurred by Tenant in connection with such
assignment or sublease, and (iii) any payments of Rent made by Tenant to
Landlord during a period when the Premises are vacant and Tenant is actively
pursuing an assignment or sublease thereof, or in case of the sublease of a
portion of the Premises, in excess of such Rent that is fairly allocable to
such portion, Tenant shall pay Landlord fifty percent (50%) of the difference
between each such payment of rent or other consideration and the Rent required
hereunder.  Landlord may, without
waiving any rights or remedies, collect rent from the assignee, subtenant or
occupant and apply the net amount collected to the Rent herein reserved and
apportion any excess rent so collected in accordance with the terms of the
preceding sentence.  Tenant shall
continue to be liable as a principal and not as a guarantor or surety to the
same extent as though no assignment or subletting had been made.  In addition, Tenant shall make all legally
required disclosures to the proposed assignee or subtenant.  Landlord may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to the
Lease by assignees of Tenant without notifying Tenant or any successor of
Tenant and without obtaining their consent. 
No permitted transfer shall be effective until there has been delivered
to Landlord a counterpart of the transfer instrument in which the transferee
agrees to be and remain jointly and severally liable with Tenant for the
payment of Rent pertaining to the Premises and for the performance of all the
terms and provisions of this Lease relating thereto arising on or after the
date of the transfer.

 

15.2         Notwithstanding the provisions of Section
15.1, Tenant shall have the right, without Landlord’s consent, to assign this
Lease or sublease all or any portion of the Premises to (i) a corporation with
which Tenant merges or consolidates, (ii) any entity which now owns or acquires
all or substantially all of the stock of Tenant, (iii) any entity which acquires all or substantially all of the assets of Tenant, or (iv)
any corporation which is wholly owned by Tenant or which is wholly owned by a
corporation which owns the stock of Tenant; provided, that in any such event,
Landlord shall receive written notice, with reasonably detailed information
concerning the

 

14

 

proposed
assignment or sublease, not less than twenty (20) days prior to the effective
date thereof, and any such assignment shall not release Tenant from any
obligation hereunder.

 

16.                                 ESTOPPEL,
ATTORNMENT AND SUBORDINATION.

 

16.1         Estoppel. 
Within ten (10) days after request by Landlord, Tenant shall deliver an
estoppel certificate duly executed (and acknowledged if required by any lender
or purchaser), in the form attached hereto as Exhibit F, to any proposed
mortgagee, purchaser or Landlord. 
Tenant’s failure to deliver said statement in such time period shall be
conclusive upon Tenant that (a) this Lease is in full force and effect, without
modification except as may be represented by Landlord; (b) there are no uncured
defaults in Landlord’s performance and Tenant has no right of offset,
counterclaim or deduction against Rent hereunder; and (c) no more than one
month’s Base Rent has been paid in advance. 
Landlord reserves the right to substitute a
different form of estoppel certificate upon the request of any proposed
mortgagee or purchaser.  Within ten (10)
days after request by Tenant, Landlord shall deliver an estoppel certificate
duly executed (and acknowledged if required by any lender), to any proposed
mortgagee, purchaser, or assignee of Tenant.

 

16.2         Subordination. 
Provided that Tenant receives a non-disturbance agreement in the form
hereinafter described, this Lease shall be subject and subordinate to all
ground leases and the lien of all mortgages and deeds of trust which now or
hereafter affect the Premises or the Project or Landlord’s interest therein,
and all amendments thereto, all without the necessity of Tenant’s executing
further instruments to effect such subordination.  If requested, Tenant shall
execute and deliver to Landlord within ten (10) days after Landlord’s request
whatever documentation, in a form reasonably acceptable to Tenant, that may
reasonably be required to further effect the provisions of this paragraph;
provided, however that as a condition to executing such subordination
documentation, Tenant may require an agreement from such lender or holder of
the ground lease that in connection with such subordination Tenant’s right to
quiet possession of the Premises shall not be disturbed if Tenant is not in
default under the Lease and so long as Tenant shall pay all Rent due hereunder
and otherwise observe and perform all of the provisions of this Lease unless
this Lease is otherwise terminated pursuant to its terms.  A sample form of subordination agreement
with non-disturbance language, all of which has been approved and acceptable to
Tenant, is attached hereto as Exhibit H.

 

16.3         Attornment.  In the event
of a foreclosure proceeding, the exercise of the power of sale under any
mortgage or deed of trust or the termination of a ground lease, Tenant shall,
if requested, attorn to the purchaser thereupon and recognize such purchaser as
Landlord under this Lease; provided, however, Tenant’s obligation to attorn to
such purchaser shall be conditioned upon Tenant’s receipt of a non-disturbance
agreement in substantially the form of the sample attached as Exhibit H.

 

17.                                 MISCELLANEOUS.

 

17.1         General.

 

17.1.1      Entire
Agreement.  This Lease sets forth all the agreements
between Landlord and Tenant concerning the Premises; and there are no
agreements either oral or written other than as set forth herein.

 

17.1.2      Time
of Essence.  Time is of the essence of this Lease.

 

17.1.3      Attorneys’
Fees.  In any action or proceeding which either
party brings against the other to enforce its rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party,
including reasonable attorneys’ fees, which amounts shall be a part of the
judgment in said action or proceeding.

 

17.1.4      Severability. 
If any provision of this Lease or the application of any such provision
shall be held by a court of competent jurisdiction to be invalid, void or
unenforceable to any extent, the remaining provisions of this Lease and the
application thereof shall remain in full force and effect and shall not be
affected, impaired or invalidated.

 

17.1.5      Law. 
This Lease shall be construed and enforced in accordance with the laws
of the state in which the Premises are located.

 

15

 

17.1.6      No
Option.  Submission of this Lease to Tenant for
examination or negotiation does not constitute an option to lease, offer to
lease or a reservation of, or option for, the Premises; and this document shall
become effective and binding only upon the execution and delivery hereof by
Landlord and Tenant.

 

17.1.7      Successors
and Assigns.  This Lease shall be binding upon and inure
to the benefit of the successors and assigns of Landlord and, subject to
compliance with the terms of Section 16, Tenant.

 

17.1.8      Third
Party Beneficiaries.  Nothing herein is intended to create any
third party benefit.

 

17.1.9      Memorandum
of Lease.  Tenant shall not record this Lease or a
short form memorandum hereof without Landlord’s prior written consent.

 

17.1.10    Agency,
Partnership or Joint Venture.  Nothing
contained herein nor any acts of the parties hereto shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture by
the parties hereto or any relationship other than the relationship of landlord
and tenant.

 

17.1.11    Merger. 
The voluntary or other surrender of this Lease by Tenant or a mutual
cancellation thereof or a termination by Landlord shall not work a merger and
shall, at the option of Landlord, terminate all or any existing subtenancies or
may, at the option of Landlord, operate as an assignment to Landlord of any or
all of such subtenancies.

 

17.1.12    Headings. 
Section headings have been inserted solely as a matter of convenience
and are not intended to define or limit the scope of any of the provisions
contained therein.

 

17.2         Signs.  All signs
and graphics of every kind visible in or from public view or corridors or the
exterior of the Premises shall be subject to Landlord’s prior written approval,
which shall not be unreasonably withheld or delayed, and shall be subject to any applicable governmental laws, ordinances, and
regulations and in compliance with Landlord’s signage program.  Tenant shall remove all such signs and
graphics prior to the termination of this Lease.  Such installations and removals shall be made in such manner as to
avoid injury or defacement of the Premises; and Tenant shall repair any injury
or defacement, including without limitation, discoloration caused by such
installation or removal.

 

17.3         Waiver.  No waiver of
any default or breach hereunder shall be implied from any omission to take
action on account thereof, notwithstanding any custom and practice or course of
dealing.  No waiver by either party of
any provision under this Lease shall be effective unless in writing and signed
by such party.  No waiver shall affect
any default other than the default specified in the waiver and then such waiver
shall be operative only for the time and to the extent therein stated.  Waivers of any covenant shall not be
construed as a waiver of any subsequent breach of the same.

 

17.4         Financial Statements. 
Tenant shall provide to any lender, purchaser or Landlord, within ten
(10) days after request, the most recent certified annual financial statement
for Tenant prepared under generally accepted accounting principles consistently
applied and such other financial information or informational tax returns as
may be reasonably required by Landlord, purchaser or any lender of either.  Landlord shall not deliver or disclose
Tenant’s financial statement to any person other than Landlord’s actual or
proposed lenders, accountants, investment advisors, and related parties.  Landlord shall execute and deliver to Tenant
a confidentiality agreement in reasonable form and substance and shall use its
best efforts to obtain such written agreement from any third-party to whom such
financial statement or information is delivered.  Landlord shall endeavor to provide Tenant with a courtesy copy of
any announcements or publications by Landlord which contain references to
Tenant, except such announcements and disclosures as are required by law.

 

17.5         Limitation of Liability. 
The obligations of Landlord under this Lease are not personal
obligations of the individual partners, directors, officers, shareholders,
agents or employees of Landlord; and Tenant shall look solely to the Premises
for satisfaction of any liability of Landlord and shall not look to other
assets of Landlord nor seek recourse against the assets of the individual
partners, directors, officers, shareholders, agents or employees of Landlord.  Whenever
Landlord transfers its interest, Landlord shall be automatically released from
all obligations under this Lease arising from and after the effective date of
such transfer and the transferee of Landlord’s interest shall assume all
liabilities and obligations of Landlord hereunder from the date of such
transfer.

 

16

 

17.6         Notices.  All notices
to be given hereunder shall be in writing and mailed postage prepaid by
certified or registered mail, return receipt requested, or delivered by
personal or courier delivery, or sent by facsimile (immediately followed by one
of the preceding methods), to Landlord’s Address and Tenant’s Address, or to
such other place as Landlord or Tenant may designate in a written notice given
to the other party.  Notices shall be
deemed served upon the earlier of receipt or three (3) days after the date of
mailing.

 

17.7         Brokerage Commission. 
Landlord shall pay a brokerage commission to Broker in accordance with a
separate agreement between Landlord and Broker.  Landlord and Tenant warrant to each other that Tenant’s sole
contact with Landlord or with the Premises in connection with this transaction
has been directly with Landlord and Broker, and that no other broker or finder
can properly claim a right to a commission or a finder’s fee based upon
contacts between the claimant and Landlord or Tenant.  Tenant agrees to indemnify and hold Landlord harmless from any
claims or liability, including reasonable attorneys’ fees, in connection with a
claim by any person for a real estate broker’s commission, finder’s fee or
other compensation based upon any statement, representation or agreement of
Tenant, and Landlord agrees to indemnify and hold Tenant harmless from any such
claims or liability, including reasonable attorneys’ fees, based upon any
statement, representation or agreement of Landlord.

 

17.8         Authorization. 
Each individual executing this Lease on behalf of Tenant represents and
warrants that he or she is duly authorized to execute and deliver this Lease on
behalf of Tenant and that such execution is binding upon Tenant.

 

17.9         Holding Over; Surrender.

 

17.9.1      Holding
Over.  If Tenant holds over the Premises or any
part thereof after expiration or earlier termination of the Term, such holding
over shall constitute a month-to-month tenancy, at a rent equal to one hundred
twenty-five percent (125%) of the Base Rent in effect immediately prior to such
holding over and shall otherwise be on all the other terms and conditions of this
Lease.  This paragraph shall not be
construed as Landlord’s permission for Tenant to hold over.  Acceptance of Rent by Landlord following
expiration or termination shall not constitute a renewal of this Lease or
extension of the Term except as specifically set forth above.  If Tenant fails to surrender the Premises
upon expiration or earlier termination of this Lease, Tenant shall indemnify
and hold Landlord harmless from and against all loss or liability resulting
from or arising out of Tenant’s failure to surrender the Premises, including,
but not limited to, any amounts required to be paid to any tenant or
prospective tenant who was to have occupied the Premises after the expiration
or earlier termination of this Lease and any related attorneys’ fees and
brokerage commissions.

 

17.9.2      Surrender. 
Upon the termination of this Lease or Tenant’s right to possession of
the Premises, Tenant will surrender the Premises, together with all keys, in
good condition and repair, reasonable wear and tear excepted.  Conditions existing because of Tenant’s
failure to perform maintenance, repairs or replacements shall not be deemed
“reasonable wear and tear.”

 

17.10       Joint
and Several.  If Tenant consists of more than one person,
the obligation of all such persons shall be joint and several.

 

17.11       Covenants
and Conditions.  Each provision to be performed by Tenant
hereunder shall be deemed to be both a covenant and a condition.

 

17.12       Force
Majeure.  For purposes of this Lease, the term “Force
Majeure” shall mean and include the following: any delay caused by any action,
inaction, order, ruling, moratorium, regulation, statute, condition or other
decision of any governmental agency having jurisdiction over any portion of the
Project, over the construction anticipated to occur thereon or over any uses
thereof, or any period required to obtain required approvals and/or permits
pertaining to the development of the Improvements from any such governmental
agency beyond a total of thirty (30) days in the aggregate, or by fire, flood,
inclement weather, strikes, lockouts or other labor or industrial disturbance
(whether or not on the part of agents or employees of either party hereto
engaged in the construction of the Premises), civil disturbance, order of any
government, court or regulatory body claiming jurisdiction or otherwise, act of
public enemy, war, riot, sabotage, blockade, embargo, failure or inability to
secure materials, supplies or labor through ordinary sources by reason of
shortages or priority, discovery of hazardous or toxic materials, earthquake,
or other natural disaster, or any cause whatsoever beyond the reasonable
control (excluding financial inability) of the party whose performance is
required, or any of its contractors or other representatives, whether or not
similar to any of the causes hereinabove stated.

 

17

 

17.13       Addendum. 
The Addendum attached hereto, if any, and identified with this Lease is
incorporated herein by this reference as if fully set forth herein.

 

IN
WITNESS WHEREOF, the parties have executed this Lease as of the date set forth
above.

 

	
  “Landlord”

  	
  “Tenant”

  
	
   

  	
   

  
	
  CATELLUS DEVELOPMENT CORPORATION,

  	
  VIEWSONIC CORPORATION,

  
	
  a Delaware corporation

  	
  a California corporation

  
	
   

  	
   

  
	
  By:

  	
  /s/ Glen Allen

  	
   

  	
  By:

  	
  /s/
  James Chu

  	
   

  
	
   

  	
  Glen Allen

  	
   

  	
   

  	
   

  
	
  Its:

  	
  Vice President

  	
   

  	
  Its:

  	
  President

  
	
   

  	
  Development

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Date:

  	
  June
  25, 1996

  	
   

  	
  Date:

  	
  June
  13, 1996

  	
   

  
									

 

18

 

ADDENDUM
TO LEASE

 

THIS
ADDENDUM TO LEASE (“Addendum”) is attached to and constitutes an integral part
of the Lease between CATELLUS DEVELOPMENT CORPORATION, as Landlord, and
VIEWSONIC CORPORATION, as Tenant.  The
terms of this Addendum shall be incorporated in the Lease for all
purposes.  In the event of a conflict between
the provisions of the Lease and the provisions of this Addendum, this Addendum
shall control.

 

The following new Sections
are hereby added to the Lease which state in their entirety as follows:

 

18.           Free Rent Period.  Tenant’s obligation to pay Base Rent shall
be conditionally abated during months two (2) and four (4) of the Term (“Free
Rent Period”).  Such abatement shall
apply to Base Rent only and shall not apply to any other sums payable under
this Lease including, without limitation, any amortization of tenant
improvement costs under Section 4 of the Work Letter.  The abatement of Base Rent described above is expressly
conditioned on Tenant’s performance of its obligations under the Lease
throughout the initial Term; and the amount of the abated Base Rent is based in
part on the amount of Base Rent due under the Lease for the full initial
Term.  If Tenant defaults under the
Lease and such default results in a termination of the Lease prior to the
expiration of the initial Term, then Tenant shall pay to Landlord on the date
of such termination, in addition to all other amounts and damages to which
Landlord is entitled, the unamortized balance of the amount of Base Rent which
would otherwise have been due and payable during the Free Rent Period.

 

19.           CPI Adjustment.  Effective as of the first day of the
thirty-first (31st) month of the initial Term (the “CPI Adjustment Date”), the
Base Rent in effect immediately before the CPI Adjustment Date shall be
increased, in accordance with the percentage increase, if any, in the Consumer
Price Index, to an amount which is equal to the product of (i) the Index (as
hereinafter defined) for the third month preceding the CPI Adjustment Date,
multiplied by (ii) the initial Base Rent (specifically excluding the amount, if
any, which represents the amortization of the cost of tenant improvements
pursuant to Section 4.1 of the Work Letter) set forth in the Basic Lease
Information, divided by (iii) the Basic Index (as hereinafter defined);
provided, however, in no event shall the Base Rent (as adjusted) in effect
immediately prior to the CPI Adjustment Date be decreased, nor shall it be
increased as a result of a CPI adjustment by more than five percent (5%) per
lease year, simple interest.  The
“Index” shall mean the Consumer Price Index, All Items, 1982-1984 = 100, All
Urban Consumers, for the Los Angeles/Riverside/Anaheim Area, as published by
the United States Department of Labor, Bureau of Labor Statistics, or its
successor index, and the “Basic Index” shall mean the Index published for the
third month preceding the Commencement Date. 
The adjusted Base Rent shall be rounded to the nearest $1.00.  If the Index required for the calculation specified
in this subsection is not available on the CPI Adjustment Date in question,
Tenant shall continue to pay the same amount of Base Rent payable during the
period immediately preceding the CPI Adjustment Date until the Index is
available and the necessary calculation is made.  As soon as such calculation is made, Tenant shall immediately pay
to Landlord the amount of any underpayment of Base Rent for the month(s) that
may have elapsed.  In the event the
compilation or publication of the Index shall be transferred to any other
governmental department, bureau or agency or shall be discontinued, the index
most nearly the same as the Index shall be used to make such calculation.

 

20.                                 Options
to Extend.

 

20.1         Terms of Options. 
Provided (i) there is no Event of Default under the terms of this Lease
at the time each renewal option is exercised or at the commencement of the
applicable Extension Term (as hereinafter defined), and (ii) Landlord has not
given more than two (2) notices of default in the immediately preceding twelve
(12) month period for nonpayment of monetary obligations.  Tenant shall have two (2) options to renew
this Lease for an additional period of sixty (60) months each (the “First and
Second Extension Terms”).  The Extension
Terms shall be on all the terms and conditions of this Lease, except that
Landlord shall have no additional obligation for free rent, leasehold
improvements or for any other tenant inducements for the Extension Terms.  Base Rent shall be increased (but not
decreased) as set forth below.  There
shall be no additional extension terms beyond the Extension Terms set forth
herein.  Tenant must exercise its
options to extend this Lease by giving Landlord written notice of its election
to do so not less than one hundred eighty (180) days prior to the end of the
initial Term, or the First Extension Term, as applicable.  Any notice not given in a timely manner
shall be void, and Tenant shall be deemed to have waived its extension rights.

 

20.2         Base Rent During First and Second
Extension Terms.  Effective as of the first day of each
Extension Term, and on the first day of the thirty-first (31st) month of each
Extension Term (the “Extension CPI Adjustment Date(s)”), the monthly Base Rent
shall be increased in accordance with the percentage increase, if any, in the
Consumer Price Index, to an amount which is equal to the product of (i) the
Index for the third month preceding the applicable Extension CPI Adjustment
Date, multiplied by (ii) the Base Rent in effect for the

 

19

 

calendar month immediately preceding such Extension
CPI Adjustment Date, divided by the Index for the third month immediately
preceding the most previous rental adjustment (CPI Adjustment Date or Extension
CPI Adjustment Date, as applicable); provided, however, in no event shall the
Base Rent (as adjusted) in effect immediately prior to the applicable Extension
CPI Adjustment Date be increased as a result of a CPI adjustment by less than
two percent (2%) nor more than eight percent (8%) per lease year, simple
interest.

 

21.                                 Building
Land and Excess Land.

 

21.1         Parcelization of the Real Property. 
Tenant agrees and acknowledges that the Real Property includes land
which is reasonably required for the construction, operation, and occupancy of
the Improvements (the “Building Land”) and land which exceeds the amount of
land reasonably required for the construction, operation, and occupancy of the
Improvements (the “Excess Land”).  The
Building Land and the Excess Land are depicted on Exhibit G.  Tenant further acknowledges and agrees that
the Excess Land is not subject to this Lease and shall be and remain available
for Landlord to develop, lease, or sell. 
Tenant shall have no obligation to pay, or reimburse Landlord for, any
insurance cost, Real Property Taxes, utilities, or
other charges related to the Excess Land at any time during the term of this
Lease, as the same may be extended. 
Landlord may at any time change the boundaries of the Real Property by
deleting thereof all or any portion of the Excess Land.  Landlord and Tenant agree that upon ten (10)
days written notice from Landlord to Tenant, Landlord may subdivide or delete
from the Real Property all or any portion of the Excess Land which subdivision
or deletion shall be effective upon the recordation of a Lot Line Adjustment,
Parcel Map, or other instrument executed and recorded in accordance with the
California Subdivision Map Act (the “Act”) and which effects the subdivision or
severance of the Excess Land from the Real Property (the “Parcelization”).  Tenant covenants and agrees that it will promptly,
without cost or compensation to Tenant, and in good faith cooperate with
Landlord in the Parcelization by, among other things, executing and delivering
to Landlord (i) any such reasonable instrument to be recorded pursuant to the
Act to effect the Parcelization, (ii) any other document reasonably necessary
or convenient for Landlord to effect the Parcelization, (iii) any quitclaim
deed or other instrument reasonably required or convenient to remove or
terminate any effect or application of this Lease from the Excess Land, and
(iv) an appropriate amendment to this Lease and/or estoppel certificate
memorializing the Parcelization and the deletion of the Excess Land from this
Lease.  Landlord shall bear all costs
incurred in connection with the Parcelization. 
Tenant further acknowledges that the Real Property includes land which
is owned by a governmental agency as public street or is encumbered by a public
street easement.  Landlord intends to
obtain a vacation of such public street and a conveyance of the corresponding
interest of the applicable governmental agency prior to or as part of the
Parcelization so that the Real Property will not include or be encumbered by
the public street.

 

21.2         Financial Burdens of the Excess Land. 
Landlord shall bear all costs incurred in connection with the ownership
and maintenance of the Excess Land. 
Notwithstanding any provision of this Lease, Tenant shall not be
responsible for any Real Property Taxes, maintenance costs, insurance costs, or
other expenses pertaining to the Excess Land. 
In the event that any cost payable by Tenant hereunder including,
without limitation, Real Property Taxes, includes all or any portion of the
Excess Land, such costs shall be equitable adjusted to give effect to the
parties’ intent that Tenant shall not bear any expense fairly attributable to
the Excess Land.  Landlord, at its sole
cost and expense, shall keep the Excess Land in good order and repair and shall
comply with the terms of the CC&R’s as they pertain to the Excess Land.

 

22.           Contingency
(Developmental Plan Approval).  The
parties recognize that this Lease has been entered into prior to any
developmental plan approval, or other such approvals, which may be required
from the City of Industry (“City”), which approval(s) the parties anticipate to
take thirty (30) to forty-five (45) days from the Effective Date to
obtain.  Accordingly, Landlord’s
obligations are subject to and contingent upon approval by the City of the Site
Plan, the Preliminary Plans and Specifications, and any other documentation
required by the City (collectively, the “Approval”).  Nothing herein shall be construed as obligating Landlord to
pursue obtaining the approval of the City provided that Landlord shall make an
initial good faith attempt to obtain such approval as is necessary.  In the event that Landlord fails to obtain
the Approval on or before sixty (60) days following the Effective Date, either
Landlord or Tenant shall have the right, in its sole discretion, to terminate
this Lease.  If Landlord or Tenant so
elects, this lease shall thereupon terminate and the parties shall have no
further rights or duties pursuant to this Lease.  I

 

	
  LANDLORD’S INITIALS

  	
  /s/ GA

  	
   

  	
  TENANT’S INITIALS

  	
  /s/ JC

  	
   

  

 

20

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