Document:

Exhibit 10.1

 

	
  

  	
  Electro
  Scientific Industries, Inc.

  
	
  13900 NW Science Park Dr.

  
	
  Portland OR  97229

  

 

Notice of Grant of Stock Options

and Option Agreement

 

	
  John A
  Corr

  	
   

  	
  Option
  Number:

  	
   

  	
  00009594

  
	
  17585
  S.W. 111th Ave.

  	
   

  	
   

  	
   

  	
   

  
	
  Tualatin,
  OR United States 97062

  	
   

  	
   

  	
   

  	
   

  

 

Effective 8/16/2004 (the
Grant Date), you (Optionee) have been granted a Non-Qualified Stock Option to
buy 25,000 shares of Common Stock of Electro Scientific Industries, Inc. (the
Company) at $20.2500 per share.

 

The total option price of
this option is $506,250.00.

 

Shares in each period will
become fully vested on the date shown.

 

	
  Shares

  	
   

  	
  Vest Type

  	
   

  	
  Full Vest

  	
   

  	
  Expiration

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6,250

  	
   

  	
  On Vest Date

  	
   

  	
  8/16/2005

  	
   

  	
  8/15/2014

  	
   

  
	
  6,250

  	
   

  	
  On Vest Date

  	
   

  	
  8/16/2006

  	
   

  	
  8/15/2014

  	
   

  
	
  6,250

  	
   

  	
  On Vest Date

  	
   

  	
  8/16/2007

  	
   

  	
  8/15/2014

  	
   

  
	
  6,250

  	
   

  	
  On Vest Date

  	
   

  	
  8/16/2008

  	
   

  	
  8/15/2014

  	
   

  

 

By your signature and the
Company’s signature below, you and the Company agree that this option is
governed by the terms and conditions of the attached Option Terms and
Conditions which are incorporated into and made a part of this agreement.

 

	
  /s/ Nicholas Konidaris

  	
   

  	
  September 14,
  2004

  
	
  Nicholas Konidaris

  	
  Date

  	
   

  
	
  President and Chief
  Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ John A Corr

  	
   

  	
  September 29,
  2004

  
	
  John A Corr

  	
  Date

  	
   

  

 

 

OPTION TERMS AND CONDITIONS 

John A Corr

Non-Qualified Stock Option

 

The Compensation Committee
of the Board of Directors has voted in favor of granting to the Optionee an
option to purchase Common Stock of the Company (the “Option”) in the amount
indicated on the attached notice.

 

1.                                       The Option is granted upon the following
terms:

 

1.1                                 Duration of Options.  Subject to reductions in the Option period as
hereinafter provided in the event of termination of employment or death of the
Optionee, the Option shall continue in effect for a period of 10 years from the
Grant Date.

 

1.2                                 Time of Exercise.  Except as provided in paragraph 1.5, the
Option may be exercised from time to time in the following amounts: (a) none
during the first year following the Grant Date (b) thereafter not to exceed in
any one year 25 percent of the total number of shares covered by the Option,
but if the Optionee does not exercise the Option in any one year for the full
number of shares to which the Optionee is entitled, the rights shall be
cumulative and the Optionee may exercise the Option for such shares in any
subsequent year during the term of the Option.

 

1.3                                 Limitations on Rights to Exercise.  Except as provided in paragraph 1.5, the
Option may not be exercised unless at the time of such exercise the Optionee is
employed by the Company or any parent or subsidiary of the Company and shall
have been so employed continuously since the date such option was granted.

 

1.4                                 Nonassignability.  The Option is nonassignable and
nontransferable by the Optionee except by will or by the laws of descent and
distribution of the state or country of the Optionee’s domicile at the time of
death, and is exercisable during the Optionee’s lifetime only by the Optionee.

 

1.5                                 Termination of Employment.

 

(a) Unless otherwise determined
by the Board of Directors, if an optionee’s employment or service with the
Company terminates for any reason other than in the circumstances specified in
subsection (b),  (c) or (d) below,
his or her option may be exercised at any time before the expiration date of
the option or the expiration of three months after the date of termination,
whichever is the shorter period, but only if and to the extent the optionee was
entitled to exercise the option at the date of termination.

 

(b) Unless otherwise
determined by the Board of Directors, if an optionee’s employment or service
with the Company terminates because of total disability, his or her option may
be exercised at any time before the expiration date of the option or before the
date 12 months after the date of termination, whichever is the shorter period,
but only if and to the extent the optionee was entitled to exercise the option
at the date of termination.  The term
“total disability” means a medically determinable mental or physical impairment
that is expected to result in death or has lasted or is expected to last for a
continuous period of 12 months or more and that, in the opinion of the Company
and two independent physicians, causes the optionee to be unable to perform his
or her duties as an employee, director, officer or consultant of the Employer
and unable to be engaged in any substantial gainful activity.  Total disability shall be deemed to have
occurred on the first day after the two independent physicians have furnished
their written opinion of total disability to the Company and the Company has
reached an opinion of total disability.

 

(c) Unless otherwise
determined by the Board of Directors, if an optionee dies while employed by or
providing service to the Company, his or her option may be exercised at any
time before the expiration date of the option or before the date 12 months
after the date of death, whichever is the shorter period, but only if and to
the extent the optionee was entitled to exercise the option at the date of death
and only by the person or persons to whom the optionee’s rights under the
option shall pass by the optionee’s will or by the laws of descent and
distribution of the state or country of domicile at the time of death.

 

(d) In the event an
optionee’s employment by the Company or by any parent or subsidiary of the
Company terminates within one year after a change in control of the Company for
any reason other than Portlnd2 -4486137.1 0026860-00001

 

 

retirement, death, or
physical disability (as defined in Section 1.5(b)), any option held by
such optionee may be exercised with respect to all remaining shares subject
thereto, free of any limitation on the number of shares with respect to which
the option may be exercised in any one year, at any time prior to its
expiration date or the expiration of three months after the date of such
termination of employment, whichever is the shorter period.  A “change in control of the Company” shall
mean a change in control of a nature that would be required to be reported in
response to item 6(e) of Schedule 14A of Regulation 14A promulgated under
the Securities Exchange Act of 1934, as amended (“Exchange Act”); provided
that, without limitation, such a change in control shall be deemed to have
occurred if (1) any “person” (as such term is used in Sections 13(d) or
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 20 percent or more of the
combined voting power of the Company’s then outstanding securities; or (2)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company cease for any
reason to constitute at least a majority thereof unless the election, or the nomination
for election by the Company’s shareholders, of each new director was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period. 
A change in control of the Company shall not include any change in
control pursuant to a written agreement between the Company and another person,
which agreement is approved and adopted by the Board of Directors of the
Company or pursuant to any tender offer or exchange offer which the Board of
Directors has in any manner recommended acceptance of to the shareholders of
the Company.

 

(e) To the extent the Option
held by any deceased Optionee or by the Optionee whose employment is terminated
shall not have been exercised within the limited periods provided above, all
further rights to purchase shares pursuant to the Option shall cease and
terminate at the expiration of such periods.

 

(f) Absence on leave
approved by the Employer or on account of illness or disability shall not be
deemed a termination or interruption of employment or service.  Unless otherwise determined by the Board of
Directors, vesting of options shall continue during a medical, family, military
or other leave of absence, whether paid or unpaid.

 

1.6                                 Purchase of Shares.  Shares may be purchased or acquired pursuant
to the Option only upon receipt by the Company of notice in writing from the
Optionee of the Optionee’s intention to exercise, specifying the number of
shares as to which the Optionee desires to exercise the Option and the date on
which the Optionee desires to complete the transaction, which shall not be more
than 30 days after receipt of the notice, and, unless in the opinion of counsel
for the Company such a representation is not required in order to comply with
the Securities Act of 1933, as amended, containing a representation that it is
the Optionee’s present intention to acquire the shares for investment and not
with a view to distribution.  On or
before the date specified for completion of the purchase of shares pursuant to
the Option, the Optionee must have paid the Company the full purchase price of
such shares in cash, or in shares of Common Stock of the Company previously
acquired and held by the optionee for at least six months and valued at fair
market value of the Common Stock of the Company on the date of exercise, or in
any combination of cash and shares of Common Stock of the Company.  No shares shall be issued until full payment
therefor has been made, and the Optionee shall have none of the rights of a
shareholder until a certificate for shares is issued to the Optionee.  The Optionee shall, upon notification of the
amount due, if any, and prior to or concurrently with delivery of the
certificates representing the shares with respect to which the Option was
exercised, pay to the Company amounts necessary to satisfy any applicable
federal, state and local withholding tax requirements.  If additional withholding becomes required
beyond any amount deposited before delivery of the certificates, the Optionee
shall pay such amount to the Company on demand.

 

1.7                                 Changes in Capital Structure.  In the event that the outstanding shares of
Common Stock of the Company are hereafter increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company or another corporation, by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares, or dividend payable in shares, appropriate adjustment shall be made by
the Board of Directors in the number and kind of shares for purchase pursuant
to the Option and the corresponding Option price.  Any such adjustment made by the Board of
Directors shall be conclusive.

 

1.8                                 Mergers, Reorganizations, Etc.  In the event of a merger, consolidation, plan
of exchange, acquisition of property or stock, split-up, split-off, spin-off,
reorganization or liquidation to which the Company is a party or a sale of all
or substantially all of the Company’s assets (each, a “Transaction”), the Board
of Directors shall, in its sole discretion and to the extent possible under the
structure of the Transaction, select one of the following alternatives for
treating the Option:

 

(a) The Option shall remain
in effect in accordance with its terms.

 

 

(b) The Option shall be
converted into an option to purchase stock in one or more of the corporations,
including the Company, that are the surviving or acquiring corporations in the
Transaction.  The amount, type of securities
subject thereto and exercise price of the converted option shall be determined
by the Board of Directors of the Company, taking into account the relative
values of the companies involved in the Transaction and the exchange rate, if
any, used in determining shares of the surviving corporation(s) to be held by
holders of shares of the Company following the Transaction.  Unless otherwise determined by the Board of
Directors, the converted option shall be vested only to the extent that the
vesting requirements relating to the Option granted hereunder have been
satisfied.

 

(c) The Board of Directors
shall provide a period of 30 days or less before the completion of the
Transaction during which the Option may be exercised to the extent then
exercisable, and upon the expiration of that period the unexercised portion of
the Option shall immediately terminate. 
The Board of Directors may, in its sole discretion, accelerate the
exercisability of the Option so that it is exercisable in full during that period.

 

1.9                                 Dissolution of the Company.  In the event of dissolution of the Company,
the Option shall be treated in accordance with Section 1.8.

 

2.                                       The obligations of the Company under this
Agreement are subject to the approval of such state or federal authorities or
agencies, if any, as may have jurisdiction in the matter.  The Company will use its reasonable best
efforts to take such steps as may be required by state or federal law or
applicable regulations, including rules and regulations of the Securities and
Exchange Commission and any stock exchange on which the Company’s shares may
then be listed, in connection with the issuance or sale of any shares purchased
upon the exercise of the Option.

 

3.                                       Nothing in this Agreement shall confer upon
the Optionee any right to be continued in the employment of the Company or any
subsidiary of the Company, or to interfere in any way with the right of the
Company or any subsidiary by whom the Optionee is employed to terminate the
Optionee’s employment at any time, with or without cause.

 

4.                                       This Agreement shall be binding upon and
shall inure to the benefit of any successor or successors of the Company but
except as hereinabove provided the Option herein granted shall not be assigned
or otherwise disposed of by the Optionee.Exhibit 10.1

 

LOAN AGREEMENT

 

This Loan
Agreement (the “Agreement”) is entered into as of September 23,
2004, by and among WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association (the “Bank”), FOSSIL PARTNERS, L.P.(the “Borrower”), FOSSIL, INC. (the “Company”), FOSSIL
INTERMEDIATE, INC. (“Fossil Intermediate”), FOSSIL TRUST
(“Fossil Trust”), FOSSIL STORES I, INC. (“Fossil I”), INTERMEDIATE LEASING, INC. (“Intermediate
Leasing”), ARROW MERCHANDISING, INC.
(“Arrow Merchandising”), FOSSIL HOLDINGS,
LLC (“Fossil Holdings”) and FMW
ACQUISITION, INC. (“FMW”) (the Company, Fossil Intermediate,
Fossil Trust, Fossil I, Intermediate Leasing, Arrow Merchandising, Fossil
Holdings and FMW are sometimes referred to herein individually as a “Guarantor”
and collectively as the “Guarantors”).

 

R E C I T A L S

 

WHEREAS, the
Borrower and the Guarantors have requested that the Bank make available to the
Borrower a revolving line of credit of up to $50,000,000 and the Bank has
agreed to do so subject to the terms and conditions set forth herein.

 

NOW, THEREFORE, in
consideration of the foregoing, the Bank’s making the following described
loans, the mutual covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties hereto, the Bank, the Borrower and the Guarantors agree as
follows:

 

A G R E E M E N T

 

1.             The Line of Credit.  Subject to,
and upon the terms, conditions, covenants and agreements contained herein and
in the Revolving Note (as hereinafter defined), the Bank agrees to loan the
Borrower, at any time, and from time to time prior to the maturity of the
Revolving Note, such amounts as the Borrower may request, up to but not
exceeding at any time, the aggregate principal amount of $50,000,000 (the “Total
Commitment”); within such limits and during such period, the Borrower may
borrow, repay, and re-borrow hereunder (the “Line of Credit”).  All loans under the Line of Credit shall be
evidenced by the a Revolving Line of Credit Note (the “Revolving Note”),
substantially in form and substance satisfactory to the Bank, executed by the
Borrower and payable to the order of the Bank, and bearing interest upon the
terms provided therein (but in no event to exceed the maximum non-usurious
interest rate permitted by law).  The
principal of, and interest on, the Revolving Note shall be due and payable as
provided in the Revolving Note. 
Notation by the Bank on its records shall constitute prima facie
evidence of the amount and date of any payment or borrowing thereunder.

 

(a)           Renewals and Extensions.  All
renewals, extensions, modifications and rearrangements of the Revolving Note,
if any, shall be deemed to be made pursuant to this Agreement, and accordingly,
shall be subject to the terms and provisions hereof, and the Borrower and the
Guarantors shall be deemed to have ratified, as of such renewal,

 

 

extension,
modification or rearrangement date, all of the representations, covenants and
agreements herein set forth.

 

(b)           Letters of Credit.  Advances
under the Line of Credit may be utilized by the Borrower to fund drawings under
any Documentary or Stand-by Letters of Credit (as hereinafter defined) that are
issued by the Bank for the account of the Borrower.  In the event the Borrower fails to reimburse the Bank for any
such drawings, the Bank may, in its own discretion, advance funds under the
Line of Credit to fund such drawings and all such advances shall be added to
the principal amount of the Revolving Note.

 

2.             Documentary and Stand-by Letters of Credit. 
Subject to the terms and conditions contained herein, the Bank shall (a)
from time to time, at the request of the Borrower, issue documentary or
stand-by letters of credit to Borrower’s or its subsidiaries’ vendors for the
acquisition of inventory for the Borrower or its subsidiaries (the “Inventory
Acquisition Letters of Credit”) and (b) issue a stand-by letter of credit
in an aggregate amount up to ¥400,000,000 in favor of any Japanese domestic
bank for the account of the Borrower (the “JDB Letter of Credit”) (the
Inventory Acquisition Letters of Credit and the JDB Letter of Credit are
hereinafter collectively referred to as the “Documentary or Stand-by Letters
of Credit”).  The fees for issuance
of all Inventory Acquisition Letters of Credit shall be in accordance with the
Bank’s schedule of fees for issuance of letters of credit existing as of
the time of issuance.  No fees shall be
charged directly by the Bank to the Borrower in connection with the issuance of
the JDB Letter of Credit.  Immediately
upon issuance, the undrawn face amount of any such Documentary and Stand-by
Letters of Credit shall be considered in computing the amount of funds
available to the Borrower under the Line of Credit, as provided in Section 5
hereof.  The Bank shall not be obligated
to: (w) issue any Documentary or Stand-by Letter of Credit for the account of
the Borrower or its subsidiaries if the issuance of same would cause the
Outstanding Revolving Credit to exceed the Total Commitment; (x) issue any
Documentary or Stand-by Letter of Credit with an expiration date that is more
than one hundred eighty (180) days after the maturity date of the Revolving
Note; (y) extend the expiration date of any Documentary or Stand-by Letter of
Credit to a date that is more than one hundred eighty (180) days after the
maturity date of the Revolving Note; or (z) issue any Documentary or Stand-by
Letter of Credit if the face amount of such letter of credit, combined with the
aggregate undrawn face amount of all other Documentary and Stand-by Letters of
Credit then outstanding, would exceed $50,000,000.  If any Documentary or Stand-by Letters of Credit are outstanding
on the maturity date of the Revolving Note, the Borrower shall deposit with the
Bank, as cash collateral, an amount equal to the undrawn face amount of all
such Documentary or Stand-by Letters of Credit then outstanding (such cash
collateral to be maintained in a deposit account at the Bank pursuant to
documentation in form and substance mutually acceptable to the Borrower and the
Bank (the “Cash Collateral Account”)). 
The Cash Collateral Account shall be in the name of Borrower, and shall
be pledged to, and subject to the control of, the Bank in a manner satisfactory
to the Bank.  The Borrower hereby pledges
and grants to the Bank a security interest in all such funds held in the Cash
Collateral Account from time to time and all proceeds thereof, as security for
the payment of any drawings under any and all such Documentary or Stand-by
Letters of Credit.

 

3.             [Intentionally
Deleted]

 

2

 

4.             Use of Proceeds.  The proceeds
of the Line of Credit shall be used for the Borrower’s working capital needs
and for general corporate purposes.  No
part of the proceeds received hereunder will be used, directly or indirectly,
for the purpose of purchasing or carrying, or the payment in full or in part,
of indebtedness which was incurred for the purposes of purchasing or carrying
margin of stock, as such term is defined in Regulation U of the Board of
Governors of the Federal Reserve System, as now or from time to time
hereinafter in effect.

 

5.             Availability.

 

(a)           Revolving Note.  The
aggregate principal amount at any time outstanding under the Revolving Note, plus
one hundred percent (100%) of the face amount of the JDB Letter of Credit
(calculated by reference to the amount of United States of America dollars into
which the Bank determines it could, in accordance with its practice from time
to time in the interbank foreign exchange market, convert such amount of Yen at
its spot rate of exchange in effect at approximately 8:00 a.m. (Dallas, Texas
time) on the date of determination), plus one hundred percent (100%) of
the face amount of all outstanding Documentary and Stand-by Letters of Credit
(other than the JDB Letter of Credit) issued for the account of the Borrower, plus
one hundred percent (100%) of the Bank’s participation interest in all letters
of credit issued for the account of the Borrower, the Company or any of their
respective subsidiaries pursuant to that certain Hongkong and Shanghai Banking
Corporation Limited Uncommitted Letter of Credit Facility, as the same may be
amended, modified or extended from time to time (said sum being herein referred
to as the “Outstanding Revolving Credit”), shall not at any time exceed
the Total Commitment.

 

(b)           Total Commitment Compliance. 
In the event the Outstanding Revolving Credit at any time exceeds the
Total Commitment, then, upon notice from the Bank to the Borrower, the Borrower
shall immediately make such payments to the Bank as are necessary to reduce the
Outstanding Revolving Credit to an amount such that the Outstanding Revolving
Credit is less than or equal to the Total Commitment.

 

6.             Advances.  Advances
under the Line of Credit may be made by written or facsimile request signed by
an authorized officer of the Borrower or by telephone oral request or
electronic request by an authorized officer of the Borrower (unless such
authority for telephone oral request, electronic or facsimile request is
revoked in writing by an authorized officer of the Borrower, and such
revocation is actually received by the Bank (the “Revocation”)),
provided that any such advance shall be deposited in an account of the
Borrower.  In consideration of the
Bank’s permitting the Borrower to make telephone oral requests, electronic and
facsimile requests for advances under the Revolving Note until Revocation, the
Borrower covenants and agrees to assume liability for and to protect, indemnify
and hold harmless the Bank, its predecessors, agents, officers, directors,
employees, successors and assigns (individually and collectively, an “Indemnified
Party”) from any and all liabilities, obligations, damages, penalties,
claims, causes of action, costs, charges and expenses, including attorneys’
fees and expenses of employees, which may be imposed, incurred by or asserted
against any Indemnified Party by reason of any loss, damage or claim howsoever
arising or incurred because of or out of or in

 

3

 

connection
with (i) any action of any Indemnified Party pursuant to telephone oral
requests, electronic requests or facsimile requests for advances under the Line
of Credit, (ii) the breach of any provisions of this Agreement by the Borrower,
(iii) the transfer of funds pursuant to such telephone oral requests,
electronic requests or facsimile requests, or (iv) any Indemnified Party’s
honoring or failing to honor any telephone oral request, electronic request or
facsimile request for any reason.  The
Bank is entitled to rely upon and act upon telephone oral requests, electronic
requests and facsimile requests made or purportedly made by any of the officers
or employees specified in the resolutions delivered to the Bank of even date
herewith, as supplemented in writing from time to time and accepted by the
Bank, and the Borrower shall be unconditionally and absolutely estopped from
denying (i) the authenticity and validity of any such transaction so acted upon
by the Bank once the Bank has advanced funds under the Line of Credit and
deposited or transferred such funds as requested in any such telephone oral
request, electronic request or facsimile request, and (ii) the Borrower’s
liability and responsibility therefore.

 

7.             Payments; Prepayments.  Any payment
or prepayment of the outstanding principal amount of, or accrued interest on,
the Revolving Note shall be paid at the office of the Bank designated in the
Revolving Note (or at such other place or to such account as the Bank may from
time to time designate in writing to the Borrower).  The Borrower shall be entitled to repay and/or prepay the
outstanding principal balance of, and accrued interest on, the Revolving Note
from time to time and at any time, in whole or in part, without notice or
penalty of any kind, except as otherwise set forth in the Revolving Note.  The Borrower may re-borrow all or any
portion of the principal amount of the Line of Credit so repaid or prepaid subject
to the terms and conditions the Revolving Note and this Agreement (including,
without limitation, Section 5(a) hereof).  All payments and prepayments on the Revolving Note shall be
applied first to accrued interest and then to principal in the order of
maturity.  No prepayment shall relieve the
Borrower of the obligation to pay the principal and interest on the Revolving
Note until such time as all obligations are paid in full.

 

8.             Collateral for the Loans. 
The Line of Credit shall be secured by the collateral described in the
Stock Pledge Agreement (as hereinafter defined) and, if applicable, by the cash
collateral maintained in the Cash Collateral Account.  Except as specifically provided in the preceding sentence or as
contemplated by Section 12(m) hereof, the Line of Credit shall be
unsecured.

 

9.             Conditions Precedent to Initial Loans. 
The Borrower shall execute and deliver, or cause to be executed and
delivered, to the Bank the following described documents:

 

(a)           In connection with and as a condition precedent to the
Bank’s obligation to make initial advances under the Line of Credit or
otherwise extend any credit accommodations hereunder, the Borrower shall
execute and deliver to the Bank, or cause to be executed and delivered to the
Bank, the following documents and instruments, each of which shall be in form
and substance satisfactory to the Bank (and the Bank shall have no obligation
to make initial advances under the Line of Credit or otherwise extend any
credit accommodations hereunder until each of said documents and instruments are
so executed and delivered to the Bank):

 

4

 

(i)            This Agreement;

 

(ii)           The Revolving Note; 

 

(iii)          A Guaranty Agreement, duly executed by each of the
Guarantors, pursuant to which the Guarantors shall guarantee the prompt payment
and performance by the Borrower of its obligations hereunder (collectively, the
“Guaranty Agreement”);

 

(iv)          A Stock Pledge Agreement, duly executed by the
Company, pursuant to which the Company shall pledge to the Bank, as collateral
security for the Borrower’s obligations to the Bank hereunder, a security
interest in sixty-five percent (65%) of any and all issued and outstanding
shares of stock of Fossil Europe B.V. and Fossil (East) Limited, whether now or
hereafter issued by such subsidiaries of the Company (the “Stock Pledge
Agreement”); and

 

(v)           Ordinary and customary certificates and documents
satisfactory to the Bank and its counsel.

 

(b)           In connection with the Bank’s issuance of each
Documentary or Stand-by Letter of Credit, the Borrower shall, in addition to
the documents required in Section 9(a) above, execute and deliver
to the Bank a Letter of Credit Application and Agreement (herein so called),
provided the Bank shall have no obligation to issue a Documentary or Stand-by
Letter of Credit for the account of the Borrower until a Letter of Credit
Application and Agreement has been executed by the Borrower and delivered to
the Bank.

 

10.           Conditions Precedent to each Loan and Issuance of each
Documentary or Stand-by Letter of Credit. 
Notwithstanding any other provision of this Agreement or any other Loan
Document to the contrary, it is understood and agreed that the Bank’s
obligation to make any advance or extension of credit hereunder on any date
(including the issuance of any Documentary or Stand-by Letter of Credit) is
subject to the satisfaction of the following conditions precedent:

 

(a)           The Borrower shall have executed and delivered, or
cause to have been executed and delivered, to the Bank this Agreement and the
other loan documentation referred to in Section 9 and, if
applicable, Section 12(m) hereof;

 

(b)           There shall have been no material adverse change in
the financial condition of the Borrower, individually, or the Guarantors, taken
as a whole;

 

(c)           There shall be no material adverse litigation, either
pending or threatened, against the Borrower or any Guarantor that could
reasonably be expected to have a material adverse effect on the Borrower,
individually, or the Guarantors, taken as a whole;

 

5

 

(d)           The representations and warranties contained herein
and in the other Loan Documents (as hereinafter defined) shall be true and
correct on and as of such date; and

 

(e)           No default or event of default shall have occurred and
be continuing hereunder or under any of the other Loan Documents.

 

11.           Representations and Warranties. 
The Borrower and each of the Guarantors hereby jointly and severally
represent, warrant and covenant that:

 

(a)           The Borrower and each of the Guarantors is a limited
partnership, corporation, limited liability company or business trust, as the
case may be, duly organized, validly existing and in good standing under the
laws of the state, of its organization and is duly licensed, qualified to do
business and in good standing in each jurisdiction in which the ownership of
its property or the conduct of its business requires such licensing and
qualification and where the failure to be so licensed or qualified would have a
material adverse effect upon (i) its business, operations, properties, assets
or condition (financial or otherwise), or (ii) its ability to perform, or of
the Bank to enforce, its obligations under the Loan Documents to which it is a
party.  Borrower and each of the
Guarantors has all powers and all permits consents and authorizations necessary
to own and operate properties and to carry on its business as presently
conducted.  The execution, delivery and
performance of this Agreement and the Guaranty Agreement by the Guarantors and
the execution, delivery and performance of this Agreement by the Borrower, the
borrowings hereunder and the execution and delivery of the Revolving Note, the
Letter of Credit Applications, the Guaranty Agreement, the Stock Pledge
Agreement, and the several agreements and instruments contemplated thereby, (i)
have been duly authorized by proper corporate, partnership or trust
proceedings, as appropriate, and (ii) will not contravene, or constitute a
default under, any provision of applicable law or regulation or of the Agreement
of Limited Partnership, Articles of Incorporation, By-Laws or Trust Agreement,
as applicable, of the Borrower or any Guarantor, or of any mortgage, indenture,
contract, agreement or other instrument, or any judgment, order or decree,
binding upon the Borrower or any Guarantor. 
To the best of Borrower’s and Guarantors’ knowledge, no consent or
authorization of, filing with or other act by or in respect of, any
governmental authority or any other person (other than the Bank) is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of any of the Loan Documents, except
for such consents, authorizations, filings or acts as have been obtained, filed
or taken by the Borrower and the Guarantors prior to the date hereof.  This Agreement, the Revolving Note, the
Letter of Credit Applications, the Guaranty Agreement, the Stock Pledge
Agreement, and any other agreements, documents and instruments contemplated
herein and thereby, or in any way related thereto whether executed
simultaneously herewith or hereafter (all of same being hereinafter sometimes
called the “Loan Documents”), when duly executed and delivered in
accordance with this Agreement, will each constitute a legal, valid and binding
obligation of each of the Borrower and the Guarantors, if a party thereto,
enforceable against each such party in accordance with its respective terms.

 

6

 

(b)           The audited balance sheet of the Company at January 3,
2004, the related statement of income and retained earnings for the period then
ended, copies of which have been delivered to the Bank, accurately represent
the financial position of the Company at January 3, 2004, and the results
of its operations for the periods then ended materially prepared in conformity
with generally accepted accounting principles applied on a basis consistent
with the preceding year.  No material
adverse change has occurred since January 3, 2004 position or in the
results of operations of the Company or in its business.

 

(c)           No approvals or consents of any governmental
department, administrative agency or instrumentality having jurisdiction over
the Borrower or any Guarantor are necessary to permit the Borrower or any Guarantor
to enter into the Loan Documents to which it is a party, except for such
approvals and covenants as have been obtained.

 

(d)           There is no action, suit or proceeding pending or, to
the knowledge of the Borrower or any Guarantor, threatened against the Borrower
or any Guarantor or the Collateral (hereinafter defined) before any court,
governmental department, administrative agency or instrumentality which, if
such action, suit or proceeding were adversely determined, would materially
affect the financial position or the results of operations of the Borrower or
any Guarantor or its business or the ability of the Borrower or any Guarantor
to perform its obligations under the Loan Documents.

 

(e)           To the best of the Company’s management’s knowledge,
no default or Event of Default (hereinafter defined) has occurred and is
continuing.

 

(f)            To the best of the Company’s management’s knowledge,
each of the Borrower and the Guarantors has good and indefeasible title to all
of its assets and properties, free and clear of all security interests,
mortgages, liens or encumbrances, except as otherwise permitted under this
Agreement.

 

(g)           Neither the Borrower nor any Guarantor is an
investment company within the meaning of the Investment Company Act of 1940.

 

(h)           To the best of the Company’s management’s knowledge,
each of the Borrower and the Guarantors has filed all United States federal
returns and all material State and foreign tax returns required to be filed by
it and paid all sums required thereby to the extent the same have become due
and before they may have become delinquent in accordance with such returns, or
is contesting the payment of same diligently and in good faith before the
proper taxing authority.  To the best of
the Company’s management’s knowledge, all other material tax returns required
to be filed by the Borrower and the Guarantors with any taxing jurisdiction
have been filed and all tax liabilities shown thereon to be due have been paid
to the extent the same have become due and before they may have become
delinquent in accordance with such returns, or the payment of such tax
liabilities is being contested diligently and in good faith before the proper
taxing authority, and such returns properly reflect the taxes of the Borrower
and the Guarantors, as applicable, for the periods covered thereby in all
material respects.

 

7

 

(i)            Borrower and each Guarantor (a) is solvent and will
continue to be solvent after giving effect to the transactions contemplated hereunder,
and (b) is able to pay its debts as they mature and has (and has reason to
believe it will continue to have) sufficient capital (and not unreasonably
small capital) to carry on its business and all businesses in which it is about
to engage.  The assets and properties of
Borrower and each Guarantor at a fair valuation and at their present fair
salable value are, and will be, greater than the indebtedness of Borrower and
each such Guarantor, respectively (including subordinated and contingent liabilities
computed at the amount which, to the best of the Company’s management’s
knowledge, represents an amount which can reasonably be expected to become an
actual or matured liability).

 

12.           Affirmative Covenants.  The Borrower
and the Company hereby agree that, at all times during the term of this
Agreement and until payment and performance in full of the Revolving Note,
unless the Borrower receives prior written approval of a deviation therefrom
from the Bank, the Borrower and the Company shall, and except in the case of
delivery of financial information, reports and notices, shall cause each of the
Guarantors to:

 

(a)           Annual Financial Statements. 
Furnish the Bank, within one hundred (100) days after the end of each
fiscal year of the Company, (i) a copy of the Company’s audited consolidated
financial statements, consisting of at least a balance sheet and related
statement of income, retained earnings and changes in financial condition of
the Company prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the preceding year, and
certified by an independent certified public accountant selected by the Company
and reasonably satisfactory to the Bank, (ii) a copy of the consolidating
financial statements of the Company prepared by the Company, and (iii) a copy
of the Form 10-K of the Company for such fiscal year.

 

(b)           Quarterly Financial Statements. 
Furnish the Bank, upon request, within fifty (50) days after the end of
any fiscal quarter of the Company during the term hereof, (i) a copy of its
unaudited consolidating financial statements for such fiscal quarter,
consisting of at least a balance sheet and related statement of income,
materially prepared in conformity with generally accepted accounting principles
and certified by an authorized officer of the Company, and (ii) a copy of the
Form 10-Q of the Company for such fiscal quarter.

 

(c)           Compliance Certificate.  Furnish the
Bank, concurrently with the delivery of the financial statements required to be
delivered pursuant to clauses (a) and (b) above, a Compliance Certificate in a
form similar to the Compliance Certificate attached hereto as Exhibit B,
but including all representations and warranties to the satisfaction of the
Bank, signed by an authorized officer of the Borrower and the Company.

 

(d)           Accounts Receivable Agings, Accounts Payable Agings
and Inventory Summaries.  Furnish the Bank, within ten
(10) days of any request by the Bank, accounts receivable agings, accounts
payable agings and/or inventory summaries in form and detail acceptable to the
Bank.

 

8

 

(e)           Insurance.  Maintain and
keep in full force and effect insurance of the kinds customarily carried or
maintained by persons of established reputation engaged in similar lines of
business to that of the Borrower and Company, with all such insurance to be
carried in amounts and provided by insurance companies reasonably acceptable to
the Bank.  The Borrower and the Company
agree to deliver to the Bank from time to time at the Bank’s request schedules
setting forth all insurance then in effect.

 

(f)            Taxes.  Pay and
discharge all material taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its property prior to
the date on which such taxes, assessments and governmental charges or levies
become due and payable; provided, however, that neither the
Borrower nor any Guarantor shall be required to pay and discharge or cause to
be paid and discharged any such taxes, assessments and governmental charges or
levies if (and for so long as) the validity or amount thereof are being
contested in good faith by appropriate proceedings diligently pursued and
appropriate reserves have been provided therefor; provided further, however,
that the Borrower and each of the Guarantors shall, in any event, pay and
discharge all material taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its property prior to
the fifteenth (15th) day following the date that any liens securing
same are filed of public record.

 

(g)           Litigation.  Promptly
give notice to the Bank of all litigation and all proceedings before
governmental or regulatory agencies affecting the Borrower or any Guarantor
except litigation or proceedings that could not reasonably be expected to have
material adverse effect upon the financial condition of the Borrower,
individually, or the Guarantors, taken as a whole.

 

(h)           Further Assurances.  At any time
and from time to time, execute and deliver such further instruments and take
such further action as may reasonably be requested by the Bank, in order to
cure any defects in the execution and delivery of, or to comply with or
accomplish the covenants and agreements contained in the Loan Documents.

 

(i)            Books and Records.  Make
available to the Bank during normal business hours at the Borrower’s main
office its books and records, including, but not limited to, the subsidiary
journals, accounts receivable files, inventory records, general ledger, and
correspondence files.  The Bank shall
have the right to examine its collateral at any reasonable time without prior
notice.

 

(j)            Existence.  Continue to
be a limited partnership, corporation, limited liability company or business
trust, as the case may be, duly organized and existing in good standing under
the law of the jurisdiction under which it is organized and continue to be duly
licensed or qualified as a foreign limited partnership, corporation, limited
liability company or business trust, as the case may be, in all jurisdictions
wherein the character of the property owned or leased by it or the nature of
the business transacted by it makes licensing or qualification necessary by a
foreign limited partnership, corporation,

 

9

 

limited
liability company or business trust, as the case may be, except where the
failure to be so licensed or qualified would not have a material adverse affect
on its business or operations taken as a whole.

 

(k)           Expenses.  Pay
reasonable expenses, including reasonable legal expenses and attorney’s fees,
of the Bank which have been or may be incurred by the Bank in connection with
the preparation of this Agreement and the lending and incurring of obligations
or liabilities hereunder, the collection of any note authorized hereby, or for
the enforcement of the Borrower’s or any Guarantor’s obligations hereunder and
under any document executed to secure the payment of any note authorized
hereunder and for the recording and filing and recording and refiling of any
such document.

 

(l)            Default; Name Change; Casualty. 
Give notice to the Bank in writing of the occurrence of any default or
Event of Default under this Agreement, any change in name, identity or
structure of the Borrower or any Guarantor, and any uninsured or partially
uninsured loss in excess of $5,000,000 through fire, theft, liability or
property damage.

 

(m)          Domestic Subsidiary Guarantees/Stock Pledges. 
At the discretion of the Company, either (i) cause each majority-owned
subsidiary of the Company or the Borrower which is incorporated or formed in
the United States of America and which owns or holds tangible assets having an
aggregate book value of $50,000,000 or more (each, a “Significant Domestic
Subsidiary”) to execute a Guaranty Agreement in the form of Exhibit A
attached hereto, or (ii) pledge to the Bank, as collateral security for the
Borrower’s obligations to the Bank hereunder, a security interest in one
hundred percent (100%) of the stock of each such Significant Domestic
Subsidiary which is owned by the Borrower or the Company by executing a Stock
Pledge Agreement in the form of Exhibit B attached hereto.

 

13.           Negative Covenants.  The Borrower
and the Guarantors hereby agree that, at all times during the term of this
Agreement and until payment and performance in full of the Revolving Note,
unless the Borrower receives prior written approval of a deviation therefrom
from the Bank, the Borrower and the Guarantors shall not directly or
indirectly:

 

(a)           Debt.  Create,
incur, assume or suffer to exist any debt for borrowed money, whether by way of
loan, or the issuance or sale of bonds, debentures, notes or securities,
including deferred debt for the purchase price of assets, except for (i) the
loans described herein, (ii) revolving credit loans in an aggregate principal
amount of up to ¥400,000,000 from any Japanese domestic bank, provided  that
the only security for such revolving credit loans shall be the JDB Letter of
Credit, (iii) loans from one or more Guarantors to the Borrower or another
Guarantor, so long as the indebtedness in respect of such loans is unsecured
and fully subordinated to the indebtedness owing to the Bank pursuant to a
written subordination agreement in form and substance satisfactory to the Bank,
(iv) current accounts payable and other current obligations (other than for
borrowed

 

10

 

money)
arising out of transactions in the ordinary course of business and (v) indebtedness
or obligations permitted pursuant to Section 13 (b) hereof.

 

(b)           Liabilities.  Assume,
guarantee, endorse, suffer to exist or otherwise become liable upon, or agree
to purchase or otherwise furnish funds for the payment of, the obligations of any
person, firm or corporation, except for

 

(i)            the obligations hereunder;

 

(ii)           endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;

 

(iii)          obligations under operating leases;

 

(iv)          obligations for indebtedness secured by purchase money
liens not to exceed $10,000,000 in the aggregate at any time outstanding;

 

(v)           obligations under foreign currency exchange contracts,
so long as such obligations are incurred in the ordinary course of its
business;

 

(vi)          indebtedness to shareholders, officers or partners, so
long as such indebtedness is unsecured, fully subordinated to the indebtedness
owing to the Bank in form and substance satisfactory to the Bank, and evidenced
by debt instruments satisfactory in form and substance to the Bank;

 

(vii)         obligations under guaranties securing indebtedness not
to exceed $10,000,000 in the aggregate at any time outstanding; and

 

(viii)        any other unsecured indebtedness which is subordinated
to the indebtedness owing to the Bank pursuant to a written subordination
agreement in form and substance satisfactory to the Bank.

 

(c)           Encumbrances.  Create,
incur, assume or suffer to exist any mortgage, deed of trust, pledge,
encumbrance, lien or security interest of any kind, upon any of its property
now owned or hereafter acquired, except (i) liens, mortgages, encumbrances or
security interest to secure payment of the borrowings authorized hereunder;
(ii) pledges or deposits to secure obligations under workmen’s compensation
laws or of similar legislation; (iii) deposits to secure public or statutory
obligations; (iv) statutory mechanics’, carriers’, workmen’s, repairmen’s liens
or other like items in the ordinary course of business in respect to
obligations which are not overdue or are being contested in good faith; (v)
existing liens disclosed to the Bank in writing prior to the date of this
Agreement or otherwise consented to in writing by the Bank; (vi) liens for
taxes, assessments or other governmental charges or levies not yet due or liens
which are being contested in good faith by appropriate proceedings for sums not
exceeding $100,000 in the aggregate; (vii) legal or equitable encumbrances not
in excess of $1,000,000 in the aggregate deemed to exist by reason of the
existence of any litigation or other legal

 

11

 

proceeding
or arising out of a judgment or award with respect to which an appeal is being
prosecuted; and (viii) liens securing purchase money indebtedness permitted
under Section 13(b)(iv) hereof.

 

(d)           Purchase of Assets and Investments; Consolidations,
Mergers and Sales of Assets.  Form any new
subsidiary or merge or invest in or consolidate with any corporation or other
entity, or sell, lease, assign, transfer, or otherwise dispose of (whether in
one transaction or as a series of related transactions) all or substantially
all of its assets, whether now owned or hereafter acquired; or acquire by
purchase or otherwise, all or substantially all of the assets of any
corporation or other entity; provided, however, that (i) the
Borrower and the Company may form new subsidiaries, so long as (A) the Borrower
or the Company provides the Bank with prior written notice of such formation
and (B) the Borrower and the Company comply with their obligations pursuant to Section 12(m)
hereof, and (ii) the Company may merge or consolidate one or more of its
wholly-owned subsidiaries (other than the Borrower) with or into (A) the
Company (provided that the Company shall be the surviving corporation) or (B)
any one or more of its wholly-owned subsidiaries, (iii) the Company may merge
or consolidate one or more of its wholly-owned subsidiaries with or into the
Borrower (provided that the Borrower shall be the surviving corporation), and
(iv) the Company or the Borrower may invest in or acquire by purchase or
otherwise, all or substantially all of the assets of any corporation or other
entity, so long as (A) the consideration utilized by the Company or the
Borrower to effect any such investment or acquisition consists solely of cash
and/or capital stock of the Company or any subsidiary of the Company and (B) no
default or Event of Default then exists or would exist after giving effect to
such investment or acquisition.

 

(e)           Business.  Change the
nature of its business or engage in a kind of business different from that
which it presently conducts.

 

(f)            Loans to Officers.  Make any
loans or advances to its shareholders or officers in excess of $500,000 to any
individual officer or shareholder or $2,000,000 in the aggregate to all
officers and shareholders.

 

14.           Financial Covenants.  The Company
covenants and agrees that, at all times during the term of this Agreement and
until payment and performance in full of the Revolving Note, the Company will,
on a consolidated basis:

 

(a)           Quick Ratio.  Maintain, at
all times, a ratio of (i) (A) cash, plus (B) cash equivalents, plus
(C) account receivables to (ii) current liabilities of not less than 1.0
to 1.0.  Cash, cash equivalents,
accounts receivable and current liabilities are defined according to generally
accepted accounting principles, with the exception that current liabilities
will include all indebtedness of the Borrower under the Revolving Note.

 

(b)           [Intentionally Deleted]

 

(c)           Fixed Charge Coverage Ratio. 
Maintain a ratio of Cash Flow to Fixed Charges of not less than 2.0 to
1.0 throughout the term hereof.  “Cash
Flow” is defined as

 

12

 

the
Company’s net income, plus depreciation and amortization, plus interest
expense, plus rental expense, all on a consolidated basis, and each determined
in accordance with generally accepted accounting principles.  “Fixed Charges” is defined as the
Company’s current portion of long-term debt and capitalized leases, plus
interest expense, plus rental expense, plus dividends, all on a consolidated
basis, and each determined in accordance with generally accepted accounting
principles.  Cash Flow and Fixed Charges
shall be determined as of the end of the immediately preceding fiscal quarter
for the twelve-month period ended as of the end of such fiscal quarter for
which the determination is being made (i.e., on a rolling four-quarter basis).

 

(d)           Minimum Net Income.  Achieve net
income of not less than $5,000,000 for each fiscal quarter of the Company,
commencing with the fiscal quarter ending October 2, 2004 (with net income
to be determined in accordance with generally accepted accounting principles).

 

15.           Default.  The Borrower
shall be in default hereunder if any one of the following events of default (“Events
of Default”) shall occur and be continuing, namely:

 

(a)           The Borrower, any Guarantor or any other party to the
Loan Documents shall fail to pay, when due, any sums owing to the Bank; or

 

(b)           The Borrower, any Guarantor or any other party to the
Loan Documents shall fail to pay, when due, any sums owing to others for
borrowed money or the deferred payment of goods or services (excluding trade
payables) in excess of $5,000,000 (hereinafter referred to as “Other
Indebtedness”) or if the holder of any such Other Indebtedness declares or
may declare such Other Indebtedness due prior to the stated maturity because of
any default thereunder; or

 

(c)           Any representation, statement, warranty, projection,
or certificate made by the Borrower or any Guarantor in the Loan Documents, or
in any agreement, document or instrument executed pursuant hereto or
concurrently herewith, or hereafter furnished to the Bank in connection with
any loan or loans hereunder, shall prove to have been incorrect in any material
respect at the time of making or issuance thereof; or

 

(d)           The Borrower or any Guarantor, as applicable, shall
fail or neglect to perform, keep or observe any covenant contained in Section 12(i),
12(j), 12(l),  13 or 14 hereof on the date that the
Borrower or any such Guarantor, as applicable, is required to perform, keep or
observe such covenant; or

 

(e)           The Company shall fail or neglect to perform, keep or
observe any covenant contained in Section 3 of the Stock Pledge
Agreement on the date that the Company is required to perform, keep or observe
such covenant; or

 

(f)            The Borrower, any Guarantor or any other party to the
Loan Documents shall fail or neglect to perform, keep or observe any covenant
or agreements set forth in the Loan Documents or in any other agreement,
document or instrument executed

 

13

 

pursuant
hereto (other than a covenant or agreement the performance of which is dealt
with specifically elsewhere in this Section 15), and such default
is not cured to the Bank’s satisfaction within thirty (30) days of the
occurrence thereof; provided, however, that the provisions of this Agreement
shall control in the event that any of such provisions are in conflict with the
provisions of any other agreement, mortgage, indenture or instrument executed
pursuant hereto and all of such provisions in such other instruments shall be
deemed to be cumulative of the provisions hereof to the extent such provisions
are not inconsistent herewith; or

 

(g)           The Borrower, any Guarantor or any other party to the
Loan Documents shall apply for or consent to, or acquiesce in the appointment
of a receiver, trustee, or liquidator of itself or himself or of its or his
property, or admit in writing its or his inability to pay its or his debts as
they mature, or make a general assignment for the benefit of creditors or an
Order of Relief be entered with respect to the Borrower, any guarantor or any
other party to the Loan Documents by any court having competent jurisdiction in
the premises, or file a voluntary petition in bankruptcy or a petition or
answer seeking reorganization, composition, readjustment or arrangement, or
similar relief with creditors, under any present or future statute, law or
regulation, or otherwise, or take advantage of any insolvency law or file an
answer admitting the material allegations of a petition filed against it or him
in bankruptcy, reorganization, or insolvency proceedings, or corporate action
shall be taken by it or him for the purpose of effecting any of the foregoing,
or it or he shall have a receiver or trustee or assignee in bankruptcy or
insolvency appointed for it or him, or its or his property, without its or his
application or consent.

 

Upon the occurrence
and during the continuance of any Event of Default (other than an Event of
Default specified in Section 15 (g) above), the obligation of the Bank to
make any advance or extend any credit hereunder (including the issuance of
Documentary or Stand-by Letters of Credit) to or for the account of the
Borrower shall, upon notice by the Bank to the Borrower, immediately terminate
and the Bank shall be entitled to each and every remedy and to take each and
every action permitted by the Loan Documents. 
Upon the occurrence and during the continuance of any Event of Default
specified in Section 15 (g) above, the obligation of the Bank to make any
advance or extend any credit hereunder (including the issuance of Documentary
or Stand-by Letters of Credit) to or for the account of the Borrower shall
automatically terminate, all indebtedness, liabilities and obligations of the
Borrower to the Bank under this Agreement and the other Loan Documents shall
immediately become due and payable (without presentment, demand, protest or
other or other notice of any kind, all of which are waived by the Borrower and
the Guarantors) and the Bank shall be entitled to each and every remedy and to
take each and every action permitted by the Loan Documents.

 

16.           Notice.  All notices
required or permitted hereunder shall be in writing and shall be deemed to have
been given or made as follows: 
(a) if sent by hand delivery, upon delivery; (b) if sent by
registered or certified mail, return receipt requested, upon receipt (as
indicated on the return receipt); and (c) if sent by facsimile, upon
receipt (which shall be confirmed by a confirmation report from the sender’s
facsimile machine), addressed to the parties at their

 

14

 

respective
addresses set forth below or such other address as any such party may from time
to time designate by written notice to the other:

 

	
  if to the Bank:

  	
   

  	
  Wells Fargo Bank, National Association

  
	
   

  	
   

  	
  1445 Ross Avenue, 3rd Floor

  
	
   

  	
   

  	
  MAC T5303-031

  
	
   

  	
   

  	
  Dallas, Texas 75202

  
	
   

  	
   

  	
  Attention:

  	
  Susan K. Nugent

  
	
   

  	
   

  	
   

  	
  Assistant Vice President

  
	
   

  	
   

  	
  Fax:  (214) 969-0370

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Patton Boggs LLP

  
	
   

  	
   

  	
  2001 Ross Avenue, Suite 3000

  
	
   

  	
   

  	
  Dallas, Texas 75201

  
	
   

  	
   

  	
  Attention:  Robert Jeffery
  Cole, Esq.

  
	
   

  	
   

  	
  Fax:  (214) 758-1550

  
	
   

  	
   

  	
   

  
	
  if to the Borrower:

  	
   

  	
  Fossil Partners, L.P.

  
	
   

  	
   

  	
  2280 N. Greenville Avenue

  
	
   

  	
   

  	
  Richardson, Texas 75082-4412

  
	
   

  	
   

  	
  Attention:  Mike L. Kovar

  
	
   

  	
   

  	
  Fax:  (972) 498-9448

  
	
   

  	
   

  	
   

  
	
  if to Guarantors:

  	
   

  	
  c/o Fossil, Inc.

  
	
   

  	
   

  	
  2280 N. Greenville Avenue

  
	
   

  	
   

  	
  Richardson, Texas 75082-4412

  
	
   

  	
   

  	
  Attention:  Mike L. Kovar

  
	
   

  	
   

  	
  Fax:  (972) 498-9448

  

 

17.           Waiver.  No failure
to exercise and no delay in exercising on the part of the Bank of any right,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder, preclude
any other or further exercise thereof, or the exercise of any other right,
power or privilege.  The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law or in any other agreement.

 

18.           Survival of Agreements.  All
agreements, representations and warranties herein made shall survive the
execution and delivery of the Revolving Note, and the making and renewal
thereof.

 

19.           Amendment.  This
Agreement may not be amended except in writing signed by the Borrower, the
Guarantors and the Bank.

 

20.           Successors.  This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Guarantors, the Bank and the successors and assigns of each party hereto.

 

15

 

21.           Severability.  In the case
any one or more of the provisions contained in the Loan Documents should be
invalid, illegal, or unenforceable, in any respect, the validity, legality, and
enforceability of the remaining provisions contained therein shall not in any
way be affected thereby.

 

22.           Interest.  It is the
intention of the parties hereto to comply with the laws of the State of Texas
accordingly, it is agreed that notwithstanding any provisions to the contrary
in the Loan Documents, in no event shall said Loan Documents require the
payment or permit the collection of interest, as defined under the laws of the
State of Texas, in excess of the maximum amount permitted by such laws.  If any such excess of interest is contracted
for, charged or received, under the Loan Documents, or in the event the
maturity of the indebtedness evidenced by the Revolving Note or is accelerated
in whole or in part, or in the event that all or part of the principal or
interest of the Revolving Note shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, charged, or received under
the Loan Documents on the amount of principal actually outstanding from time to
time thereunder shall exceed the maximum amount of interest permitted by the
laws of the State of Texas, then in any such event (a) the provisions of this
section shall govern and control, (b) neither the Borrower nor any other
person or entity now or hereafter liable for the payment of the Revolving Note
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum amount of interest permitted to be contracted for by,
charged to or received from the party obligated thereon under the laws of the
State of Texas, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal amount on the
Revolving Note or refunded to the person paying the same, at the holder’s
option, and (d) the effective rate of interest shall be automatically reduced
to the maximum lawful rate of interest permitted to be contracted for by,
charged to or received from the party obligated thereon under the laws of the
State of Texas as now or hereafter construed by the courts having jurisdiction
thereof.  It is further agreed that
without limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received under the Loan Documents, for the purpose
of determining whether such rate exceeds the maximum lawful rate of interest,
shall be made, to the extent permitted by the laws of the State of Texas, by
amortizing, prorating, allocating and spreading in equal parts during the
period of the full stated terms of the Revolving Note all interest at any time
contracted for, charged or received from the undersigned or otherwise by the
holder or holders thereof in connection with such Revolving Note.  To the extent that Chapter 1D of
Article 5069 of the Texas Revised Civil Statutes is relevant to the Bank
for the purpose of determining the maximum rate of interest, the Bank hereby
elects to determine the applicable rate ceiling under such Article by the
weekly rate ceiling from time to time in effect, subject to Bank’s right
subsequently to change such method in accordance with applicable law, as the
same may be amended or modified from time to time.

 

23.           Participations, Etc.  The Borrower
expressly recognizes and agrees that, so long as the total indebtedness of the
Borrower to the Bank is $50,000,000 or less, upon the mutual consent of the
Borrower and the Bank (unless an Event of Default has occurred hereunder in
which case no consent of the Borrower shall be necessary), the Bank may sell to
other lenders participations in the loans incurred by the Borrower pursuant
hereto.  The Borrower expressly
recognizes and agrees that, if the total indebtedness of the Borrower to the
Bank is more than

 

16

 

$50,000,000,
the Bank, without the consent of the Borrower, may sell to other lenders
participations in the loans incurred by the Borrower pursuant hereto.  Therefore, as security for the due payment
and performance of all indebtedness and other liabilities and obligations of
the Borrower to the Bank under the Loan Documents and any other obligation of
the Borrower to the Bank, whether now existing or hereafter arising, and to
such lenders arising now by reason of such participations or otherwise, the
Borrower hereby grants to the Bank and to such lenders, a lien on and security
interest in any and all deposits or other sums at any time credited by or due
from the Bank and such lenders or either or any of them to the Borrower,
whether in regular or special depository accounts or otherwise, and any and all
monies, securities and other property of the Borrower, and the proceeds thereof
now or hereafter held or received by or in transit to the Bank and such lenders
or either or any of them, from or for the Borrower whether for safekeeping,
custody, pledge, transmission, collection or otherwise and any such deposit,
sums, monies securities and other property may at any time after Default be
set-off, appropriated and applied by the Bank and by such lenders, or either or
any of them, against any indebtedness, liabilities or other obligations,
whether now existing or hereafter arising, of the Borrower or any of them,
under this Agreement, the Revolving Note, or otherwise whether or not such
indebtedness, liabilities or other obligation is then due or secured by any indebtedness,
liabilities or other obligation is then due or secured by any collateral or if
it is so secured whether or not such collateral held by the Bank or such
lenders is considered to be adequate.

 

24.           This Agreement is being executed and delivered, and is
intended to be performed in the State of Texas.  Except to the extent that the laws of the United States may apply
to the terms hereof, the substantive laws of the State of Texas shall govern
the validity, construction, enforcement and interpretation of this Agreement.
In the event of a dispute involving this Guaranty or any other instruments
executed in connection herewith, the undersigned irrevocably agrees that venue
for such dispute shall lie in any court of competent jurisdiction in Dallas County,
Texas to the extent such dispute is not resolved by binding arbitration
pursuant to the Bank’s current Arbitration Program described in paragraph 28
below.

 

25.           Judgment Currency.

 

(a)           If, for the purposes of obtaining judgment in any
court, it is necessary to convert a sum due hereunder or under the Revolving
Note from a currency (the “Original Currency”) into another currency (the “Other
Currency”), the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be the rate of exchange
prevailing on the business day immediately preceding the day on which final
judgment is given.

 

(b)           The obligation of the Borrower in respect of any sum
due in the Original Currency from it to Bank hereunder or under the Revolving
Note shall, notwithstanding any judgment in any Other Currency, be discharged
only if and to the extent that on the business day following receipt by Bank of
any sum adjudged to be so due in such Other Currency Bank may in accordance
with normal banking procedures purchase such amount of the Original Currency
with such Other Currency at the rate of exchange prevailing on the business day
preceding the day on which the final judgment referred to

 

17

 

in Section 25
(a) is given; if the amount of the Original Currency so purchased is less
than the amount of the Original Currency which the Bank could have purchased at
the rate of exchange prevailing on the business day preceding the day on which
such final judgment is given, the Borrower agrees, as a separate obligation of
the Borrower to the Bank and notwithstanding any such judgment, to indemnify
Bank against such difference, and if the amount of the Original Currency so
purchased exceeds the amount of the Original Currency which the Bank could have
purchased at the rate of exchange prevailing on the business day preceding the
day on which such final judgment is given, Bank agrees to remit to the Borrower
such excess.

 

26.           [Intentionally Deleted]

 

27.           NOTICE:  THIS
AGREEMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS CONSTITUTE A
WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.  THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE
INDEBTEDNESS.

 

28.           AGREEMENT
FOR BINDING ARBITRATION.  The parties agree to be bound
by the terms and provisions of the Bank’s current Arbitration Program which is
incorporated by reference herein and is acknowledged as received by the parties
pursuant to which any and all disputes shall be resolved by mandatory binding
arbitration upon the request of any party.

 

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT
BLANK]

 

18

 

EXECUTED as of the day and year first above written.

 

	
   

  	
  BANK:

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
  Susan K. Nugent

  
	
   

  	
  Title:

  	
  Assistant Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  FOSSIL PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Fossil, Inc., its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Randy S. Kercho

  
	
   

  	
   

  	
  Executive Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
  FOSSIL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Randy S. Kercho

  
	
   

  	
   

  	
  Executive Vice President

  
	
   

  	
   

  
	
   

  	
  FOSSIL INTERMEDIATE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Mike L. Kovar, Treasurer

  
					

 

 

	
   

  	
  FOSSIL TRUST

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Mike L. Kovar, Treasurer

  
	
   

  	
   

  
	
   

  	
  FOSSIL STORES I, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Mike L. Kovar, Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INTERMEDIATE LEASING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ARROW
  MERCHANDISING, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  FOSSIL HOLDINGS,
  LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
							

 

 

	
   

  	
  FMW ACQUISITION, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  
	
  Exhibits:

  
	
  A—Guaranty Agreement

  
	
  B—Stock Pledge Agreement

  
					

 

 

EXHIBIT A

 

GUARANTY AGREEMENT

 

(See Attached)

 

 

EXHIBIT B

 

STOCK PLEDGE AGREEMENT

 

(See Attached)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00072-of-00352.parquet"}]]