-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oi933rp48V8g6iDLsWvac5tw5oRPZIXX8rAOJaRcTvRNIgcgxIIqvq/Y4t2xDh8S M63Q4TWQykoDrK2CXe3IDw== 0001095811-01-001012.txt : 20010213 0001095811-01-001012.hdr.sgml : 20010213 ACCESSION NUMBER: 0001095811-01-001012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20001229 FILED AS OF DATE: 20010212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNICATIONS & POWER INDUSTRIES HOLDING CORP CENTRAL INDEX KEY: 0001000654 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 770407395 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-96858-01 FILM NUMBER: 1533512 BUSINESS ADDRESS: STREET 1: 607 HANSEN WY CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154934000 MAIL ADDRESS: STREET 1: 607 HANSEN WAY M/S A2000 STREET 2: P O BOX 51110 CITY: PALO ALTO STATE: CA ZIP: 94303-1110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMUNICATIONS & POWER INDUSTRIES INC CENTRAL INDEX KEY: 0001000564 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 770405693 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-96858 FILM NUMBER: 1533513 BUSINESS ADDRESS: STREET 1: 607 HANSEN WAY CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154934000 MAIL ADDRESS: STREET 1: 607 HANSEN WAY M/S A200 STREET 2: P O BOX 51110 CITY: PALO ALTO STATE: CA ZIP: 94303-1110 10-Q 1 f69166e10-q.txt FORM 10-Q FOR QUARTERLY PERIOD ENDED 12/29/2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended December 29, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission File Number: 33-96858-01 Commission File Number: 33-96858 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION (Exact name of registrant as specified in its charter) COMMUNICATIONS & POWER INDUSTRIES, INC. DELAWARE (Exact name of registrant as specified in its charter) (State of Incorporation) DELAWARE 77-0407395 (State of Incorporation) (I.R.S. employer identification number) 77-0405693 607 HANSEN WAY (I.R.S. employer identification number) PALO ALTO, CALIFORNIA 94303-1110 607 HANSEN WAY (650) 846-2900 PALO ALTO, CALIFORNIA 94303-1110 (Address, including zip code, and telephone (650) 846-2900 number, including area code, of registrant's (Address, including zip code, and telephone number, principal executive offices) including area code, of registrant's Securities registered pursuant to Section principal executive offices) 12(b) of the Act: Securities registered pursuant to Section NONE 12(b) of the Act: Securities registered pursuant to Section NONE 12(g) of the Act: Securities registered pursuant to Section NONE 12(g) of the Act: NONE
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No . APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding for each of the Registrant's classes of Common Stock, as of the latest practicable date: COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION: 4,908,172 SHARES OF COMMON STOCK, $.01 PAR VALUE, AT DECEMBER 29, 2000. COMMUNICATIONS & POWER INDUSTRIES, INC.: 1 SHARE OF COMMON STOCK, $.01 PAR VALUE, AT DECEMBER 29, 2000. 2 PART I: FINANCIAL INFORMATION COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION Consolidated Condensed Balance Sheets, December 29, 2000 and September 29, 2000 ........... 2 Consolidated Condensed Statements of Operations for the 13-week periods ended December 29, 2000 and December 31, 1999 ............................................................ 3 Consolidated Condensed Statements of Cash Flows for the 13-week periods ended December 29, 2000 and December 31, 1999 ............................................................ 4 Notes to Consolidated Condensed Financial Statements ...................................... 8 Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 11 COMMUNICATIONS & POWER INDUSTRIES, INC. Consolidated Condensed Balance Sheets, December 29, 2000 and September 29, 2000 ........... 5 Consolidated Condensed Statements of Operations for the 13-week periods ended December 29, 2000 and December 31, 1999 ............................................................ 6 Consolidated Condensed Statements of Cash Flows for the 13-week periods ended December 29, 2000 and December 31, 1999 ............................................................ 7 Notes to Consolidated Condensed Financial Statements ...................................... 8 Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 11 PART II: OTHER INFORMATION Other Information ......................................................................... 15 SIGNATURES .................................................................................... 17
-1- 3 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands-unaudited)
December 29, September 29, ASSETS 2000 2000 ------------ ------------- CURRENT ASSETS Cash and cash equivalents $ 5,585 $ 4,766 Accounts receivable, net 40,057 42,434 Inventories 66,738 63,949 Deferred taxes 6,972 6,972 Other current assets 1,639 1,603 --------- --------- Total current assets 120,991 119,724 Property, plant, and equipment, net 66,870 68,656 Goodwill and other intangibles, net 25,437 26,090 Debt issue costs, net 6,178 4,627 Deferred taxes 7,889 7,888 --------- --------- Total assets $ 227,365 $ 226,985 ========= ========= LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Revolving credit facility $ 20,742 $ 39,800 Current portion of term loans -- 6,012 Current portion of capital leases 980 960 Accounts payable 15,251 18,462 Accrued expenses 19,300 16,903 Accrued dividends 1,041 -- Product warranty 2,981 2,978 Income taxes payable 9,765 9,518 Advance payments from customers 5,869 5,210 --------- --------- Total current liabilities 75,929 99,843 Senior term loans 20,000 10,000 Mortgage financing 18,000 -- Senior subordinated notes 100,000 100,000 Obligations under capital leases 647 895 --------- --------- Total liabilities 214,576 210,738 --------- --------- SENIOR REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 28,318 28,265 --------- --------- JUNIOR PREFERRED STOCK OF SUBSIDIARY 19,864 19,170 --------- --------- Commitments and contingencies STOCKHOLDERS' DEFICIT Common stock 49 49 Additional paid-in capital 19,111 19,111 Accumulated deficit (53,408) (49,215) Stockholder loans (1,145) (1,133) --------- --------- Net stockholders' deficit (35,393) (31,188) --------- --------- Total liabilities, preferred stock and stockholders' deficit $ 227,365 $ 226,985 ========= =========
See accompanying notes to the unaudited consolidated condensed financial statements. -2- 4 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands - unaudited)
13-Week 13-Week period ended period ended December 29, December 31, 2000 1999 ------------ ------------ Sales $ 60,376 $ 54,990 Cost of sales 47,578 42,838 -------- -------- Gross profit 12,798 12,152 -------- -------- Operating costs and expenses: Research and development 1,388 1,923 Selling and marketing 3,912 4,574 General and administrative 4,300 3,953 -------- -------- Total operating costs and expenses 9,600 10,450 -------- -------- Operating income 3,198 1,702 Foreign currency loss (186) (80) Interest expense (5,167) (4,550) -------- -------- Loss before taxes (2,155) (2,928) Income tax expense 250 195 -------- -------- Net loss (2,405) (3,123) Preferred dividends: Senior redeemable preferred stock 1,041 907 Junior preferred stock 694 605 -------- -------- Net loss attributable to common stock $ (4,140) $ (4,635) ======== ========
See accompanying notes to the unaudited consolidated condensed financial statements. -3- 5 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands - unaudited)
13-Week 13-Week period ended period ended December 29, December 31, 2000 1999 ------------ ------------ OPERATING ACTIVITIES Net cash provided by operating activities $ 1,203 $ 8,353 -------- -------- INVESTING ACTIVITIES Purchase of property, plant and equipment, net (896) (1,417) -------- -------- Net cash used in investing activities (896) (1,417) -------- -------- FINANCING ACTIVITIES Repayments on capital leases (228) (200) Payment of debt issue costs (2,153) -- Repayment of terminated revolving credit facility (40,000) (5,400) Proceeds from revolving credit facility 20,942 -- Repayments on terminated senior term loans (16,049) (1,825) Proceeds from senior term loan 20,000 -- Proceeds from mortgage financing 18,000 -- -------- -------- Net cash provided by (used in) financing activities 512 (7,425) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 819 (489) Cash and cash equivalents at beginning of period 4,766 4,247 -------- -------- Cash and cash equivalents at end of period $ 5,585 $ 3,758 ======== ========
See accompanying notes to the unaudited consolidated condensed financial statements. -4- 6 COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands-unaudited)
December 29, September 29, ASSETS 2000 2000 ------------ ------------- CURRENT ASSETS Cash and cash equivalents $ 5,129 $ 4,766 Accounts receivable, net 40,057 42,434 Inventories 66,738 63,949 Deferred taxes 6,972 6,972 Other current assets 1,674 1,603 --------- --------- Total current assets 120,570 119,724 Property, plant, and equipment, net 52,357 68,656 Goodwill and other intangibles, net 25,437 26,090 Debt issue costs, net 5,744 4,627 Note receivable from parent 5,750 -- Deferred taxes 7,889 7,888 --------- --------- Total assets $ 217,747 $ 226,985 ========= ========= LIABILITIES, REDEEMABLE PREFERRED STOCK AND DEFICIT CURRENT LIABILITIES Revolving credit facility $ 20,742 $ 39,800 Current portion of term loans -- 6,012 Current portion of capital leases 980 960 Accounts payable 15,157 18,462 Accrued expenses 19,633 16,903 Accrued dividends 1,041 -- Product warranty 2,981 2,978 Income taxes payable 9,765 9,518 Advance payments from customers 5,869 5,210 --------- --------- Total current liabilities 76,168 99,843 Senior term loans 20,000 10,000 Senior subordinated notes 100,000 100,000 Deferred income on sale-leaseback 8,052 -- Obligations under capital leases 647 895 --------- --------- Total liabilities 204,867 210,738 --------- --------- SENIOR REDEEMABLE PREFERRED STOCK 28,318 28,265 --------- --------- Commitments and contingencies STOCKHOLDERS' DEFICIT: Junior preferred stock 2 2 Common stock -- -- Additional paid-in capital 39,022 38,328 Accumulated deficit (53,317) (49,215) Stockholder loans (1,145) (1,133) --------- --------- Net stockholders' deficit (15,438) (12,018) --------- --------- Total liabilities, senior redeemable preferred stock and stockholders' defici$ $ 217,747 $ 226,985 ========= =========
See accompanying notes to the unaudited consolidated condensed financial statements. -5- 7 COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands - unaudited)
13-Week 13-Week period ended period ended December 29, December 31, 2000 1999 ------------ ------------ Sales $ 60,376 $ 54,990 Cost of sales 47,578 42,838 -------- -------- Gross profit 12,798 12,152 -------- -------- Operating costs and expenses: Research and development 1,388 1,923 Selling and marketing 3,912 4,574 General and administrative 4,289 3,953 -------- -------- Total operating costs and expenses 9,589 10,450 -------- -------- Operating income 3,209 1,702 Foreign currency loss (186) (80) Interest expense (5,087) (4,550) -------- -------- Loss before taxes (2,064) (2,928) Income tax expense 250 195 -------- -------- Net loss (2,314) (3,123) Preferred dividends: Senior redeemable preferred stock 1,041 907 Junior preferred stock 694 605 -------- -------- Net loss attributable to common stock $ (4,049) $ (4,635) ======== ========
See accompanying notes to the unaudited consolidated condensed financial statements. -6- 8 COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands - unaudited)
13-Week 13-Week period ended period ended December 29, December 31, 2000 1999 ------------ ------------ OPERATING ACTIVITIES Net cash provided by operating activities $ 1,053 $ 8,353 -------- -------- INVESTING ACTIVITIES Proceeds from sale of property to parent 17,250 -- Purchase of property, plant and equipment, net (896) (1,417) -------- -------- Net cash provided by (used in) investing activities 16,354 (1,417) -------- -------- FINANCING ACTIVITIES Repayments on capital leases (228) (200) Payment of debt issue costs (1,709) -- Repayments of terminated revolving credit facility (40,000) (5,400) Proceeds from revolving credit facility 20,942 -- Repayments of terminated senior term loans (16,049) (1,825) Proceeds from senior term loan 20,000 -- -------- -------- Net cash used by financing activities (17,044) (7,425) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 363 (489) Cash and cash equivalents at beginning of period 4,766 4,247 -------- -------- Cash and cash equivalents at end of period $ 5,129 $ 3,758 ======== ========
See accompanying notes to the unaudited consolidated condensed financial statements. -7- 9 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements of Communications & Power Industries Holding Corporation ("Holding") and Communications & Power Industries, Inc. ("CPI", both companies together referred to as the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted and, accordingly, these financial statements should be read in conjunction with the financial statements and the notes thereto contained in the Company's September 29, 2000 Annual Report on Form 10-K. Management believes that these unaudited interim condensed financial statements contain all adjustments, all of which are of a normal recurring nature, necessary to present fairly the financial position of the Company, and its results of operations and cash flows for the interim period presented. The results for the interim periods reported are not necessarily indicative of the results for the complete fiscal year 2001. 2. INVENTORIES Inventories are stated at the lower of average cost or market (net realizable value). The main components of inventories are as follows:
(Dollars in thousands) December 29, September 29, 2000 2000 ------- ------- Raw materials and parts $48,804 $46,859 Work in process 15,807 14,731 Finished goods 2,127 2,359 ------- ------- Total inventories $66,738 $63,949 ======= =======
3. SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest was $1.9 million and $1.3 million for the 13-week periods ended December 29, 2000 and December 31, 1999, respectively. Cash (refunded) paid for taxes was $(0.23) million and $0.04 million for the 13-week periods ended December 29, 2000 and December 31, 1999, respectively. Non-cash financing activities of CPI included the payment of preferred stock dividends on its Junior Preferred Stock through the issuance of 6,938 shares of its Junior Preferred Stock during the quarter ended December 29, 2000. 4. SEGMENTS AND RELATED INFORMATION The Company has two reportable segments: vacuum electronic devices ("VEDs") and satcom equipment. The CEO, identified as the Chief Operating Decision Maker, evaluates performance and allocates resources based on the Company's principle performance measure, earnings before income taxes, interest, depreciation and amortization ("EBITDA"). -8- 10 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) Summarized financial information concerning Holding's reportable segments is shown in the following table. Included in the "Other" column is financial information for the Company's Solid State Products Division, which did not meet the quantitative thresholds, and certain unallocated corporate-level operating expenses. Intersegment product transfers are recorded at cost. (Dollars in thousands)
Satcom 13-Week Period Ended VED's Equipment Other Total - -------------------- ----- --------- ----- ----- December 29, 2000: Revenues from external customers $ 47,344 $ 11,516 $ 1,516 $ 60,376 Intersegment product transfers 3,558 -- 414 3,972 EBITDA 7,460 (62) (1,050) 6,348 December 31, 1999: Revenues from external customers 41,141 12,055 1,794 54,990 Intersegment product transfers 2,588 -- 179 2,767 EBITDA 5,578 494 (695) 5,377
A reconciliation of EBITDA from reportable segments to Loss before Taxes is as follows:
Holding CPI --------------------------- ---------------------------- 13-Week Period Ended 13-Week Period Ended --------------------------- ---------------------------- (Dollars in thousands) December 29, December 31, December 29, December 31, 2000 1999 2000 1999 ------- ------- ------- ------- Segment EBITDA $ 6,348 $ 5,377 $ 6,348 $ 5,377 Less: Depreciation and amortization 3,336 3,755 3,325 3,755 Interest expense 5,167 4,550 5,087 4,550 ------- ------- ------- ------- Loss before taxes $(2,155) $(2,928) $(2,064) $(2,928) ======= ======= ======= =======
5. NEW CREDIT FACILITY On December 22, 2000, the Company terminated the Senior Credit Agreement and replaced it with a $61.0 million secured credit facility ("Credit Facility"). This new facility consists of a $41.0 million revolving line of credit, with a sub-facility of $10.0 million for letters of credit, which expires on December 22, 2004, and a $20.0 million term loan that expires on December 22, 2002. The Credit Facility is secured by substantially all of the assets of CPI and is guaranteed by Holding and all of CPI's subsidiaries. Availability under the revolving credit facility is based upon eligible receivables, machinery and equipment and certain real estate and, as of December 29, 2000, CPI had $16.4 million of availability. -9- 11 COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION and subsidiaries COMMUNICATIONS & POWER INDUSTRIES, INC., and subsidiaries (A wholly owned subsidiary of Communications & Power Industries Holding Corporation) The revolving line of credit provides for borrowings that will bear interest at a rate equal to LIBOR plus 3.25% per annum or Prime plus 1.75% per annum. The term loan provides for borrowings that will bear interest at rate equal to Prime plus 5.50% per annum. Additionally, the terms of the facility require the Company to maintain certain financial covenants and limit the payment of cash dividends on the Senior and Junior Preferred Stock. In addition to customary fronting and other fees, CPI will pay a fee equal to 1.25% per annum on outstanding but undrawn amounts of letters of credit; and additionally CPI will pay customary collateral management fees and a commitment fee of 0.375% per annum on unused facilities under the Credit Facility. 6. SALE-LEASEBACK TRANSACTION On December 22, 2000, a sale-leaseback transaction related to CPI's facilities in San Carlos, California was accomplished between CPI and Holding. Holding paid CPI aggregate consideration of $23.0 million for the San Carlos real estate, consisting of $17.25 million in cash and an unsecured promissory note in the principal amount of $5.75 million maturing in nine years, with interest-only payments on a quarterly basis at the rate of 15.5% per annum, with up to 35.25% of each interest payment payable in kind, at Holding's option, by its issuance of additional notes. CPI and Holding entered into a lease of the San Carlos real property for a term of twenty (20) years on a net basis with a fixed annual rent (payable in equal monthly installments) of $2.45 million. Holding financed the cash portion of the San Carlos purchase price and its fees and expenses with respect to the transaction by borrowing $18.0 million from Wells Fargo Bank, which loan matures June 1, 2002, bears interest at Prime or LIBOR plus 3.25%, and is secured on a non-recourse basis (subject to normal and customary exceptions) by the San Carlos real property. CPI realized a gain of approximately $8.5 million on the transaction that will be amortized over the term of the lease. The current portion of the unrealized gain of $0.4 million is included in CPI's accrued expenses. The unrealized gain is not shown for Holding as it is eliminated upon consolidation. 7. ADOPTION OF ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES As of September 30, 2000, the Company adopted Statement of Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that derivatives be recognized in the statement of financial position at fair value and specifies the accounting for changes in fair value. Historically, the Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. The adoption had no impact on the Company's current consolidated financial position, results of operations or cash flows. -10- 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion reflects the consolidated results of Communications & Power Industries Holding Corporation, which are materially consistent with those of CPI except as identified below. The Company serves the communications, radar, electronic countermeasures, industrial, medical and scientific markets. In addition, the Company divides the communications market into applications for ground-based satellite uplinks for military and commercial uses ("satcom") and broadcast sectors. The Company defines and discusses its orders and sales trends by the end markets to more clearly relate its business to outside investors. Internally, however, the Company is organized into six operating units that are differentiated based on products. Four of these operating units comprise the Company's vacuum electronic device ("VED") segment. The Company also has a satellite communications equipment segment and a solid state products segment. Segment data is included in Note 4 of the Notes to Consolidated Condensed Financial Statements. Orders during the first quarter of Fiscal 2001 were $67.8 million as compared to $61.6 million for the first quarter of Fiscal 2000. This increase of $6.2 million for the quarter reflects a higher demand for products in four of the Company's six markets. Communications orders increased by $3.9 million, or 18.2%, primarily due to higher orders for medium power satellite communication amplifiers and an increase in spare tube requirements for both military communication and satellite communication applications. Radar orders increased by $4.2 million, or 19.6%, due to higher demand for spare and rebuilt VED's primarily for military applications. Medical and industrial orders also increased by $2.8 million and $1.0 million, respectively. Orders for products sold to the electronic countermeasures market declined by $5.7 million from the comparable quarter of Fiscal 2000 due to an unusually high volume of orders in the first quarter of Fiscal 2000 caused by an exercise of a contract option for airborne decoy products. Orders in the scientific market were consistent with the first quarter of Fiscal 2000. Overall, incoming order levels fluctuate significantly on a quarterly basis and a particular quarter's order rate may not be indicative of future order levels. In addition, the Company's sales are highly dependent upon manufacturing scheduling, performance and shipments and, accordingly, it is not possible to accurately predict when these orders will be recognized as sales. As of December 29, 2000, the Company had an order backlog of $166.8 million, representing approximately seven-and-a-half months of sales, compared to order backlog of $153.3 million, or approximately seven months of sales, as of December 31, 1999. Order backlog increased during the first quarter of Fiscal 2001 by $5.2 million from $161.6 million at the end of Fiscal 2000. Sales for the first quarter of Fiscal 2001 were $60.4 million, an increase of $5.4 million, or 9.8%, compared to $55.0 million for the same period in Fiscal 2000. This increase was driven primarily by growth in the medical, radar and industrial markets of 53.6%, 10.3%, and 31.2% respectively. Medical sales increased significantly due to a new line of INDICO generators, used in x-ray applications, which were introduced in the second half of Fiscal 2000. Sales to the communications, electronic countermeasures and scientific markets were consistent with the first quarter of Fiscal 2000. -11- 13 Gross profit for the first quarter of Fiscal 2001 was $12.8 million, or 21.2% of sales, compared to $12.2 million, or 22.1% of sales, for the first quarter of Fiscal 2000. The slight decrease in gross profit, as a percent of sales, from the first quarter of Fiscal 2000 was due to changes in product mix and higher start-up costs on several new satcom products. Operating costs and expenses were $9.6 million, or 15.9 % of sales, for the first quarter of Fiscal 2001 as compared to $10.5 million, or 19% of sales, for the first quarter of Fiscal 2000. This improvement was primarily due to lower sales and marketing costs that resulted from cost control measures implemented in the latter half of Fiscal 2000 and lower research and development costs in the satcom equipment segment as that segment's engineering resources were predominantly focused on production ramp-up issues rather than new product development. Earnings before interest, income taxes, depreciation and amortization ("EBITDA")(1) for the first quarter of Fiscal 2001 were $6.3 million, or 10.5% of sales, compared to 5.4 million, or 9.8% of sales, for the first quarter of Fiscal 2000. This increase in EBITDA can be attributed to the improved sales volume coupled with the impact of lower research and development and sales and marketing expenses in the current quarter. FINANCIAL CONDITION For Holding, cash flows provided by operating activities for the first quarter of Fiscal 2001 were $1.2 million, a decrease of $7.2 million from the $8.4 million provided by operating activities during the first quarter of Fiscal 2000. This decrease was due primarily to changes in accounts receivable that contributed $6.3 million less cash flow in the first quarter of Fiscal 2001 compared to Fiscal 2000 as a result of shipments that were lower at the end of Fiscal Year 2000 compared to the end of Fiscal 1999. The credit worthiness of accounts receivable remains strong and days sales outstanding at the end of the first quarter of Fiscal 2001 was 60 days compared to 67 days at the end of the first quarter of Fiscal 2000. Other items contributing to the cash flow decrease were the timing of accounts payable payments and advanced payments from customers that reduced cash by $1.4 million and $0.6 million, respectively, in the first quarter of Fiscal 2001. Partially offsetting the above was higher earnings of $0.8 million in the first quarter of Fiscal 2001. For CPI, cash flows provided by operating activities for the first quarter of Fiscal 2001 were $1.1 million, a decrease of $7.3 million from the $8.4 million provided by operating activities during the first quarter of Fiscal 2000. This decrease was due primarily to changes in accounts receivable that contributed $6.3 million less cash flow in the first quarter of Fiscal 2001 compared to Fiscal 2000 (see detailed explanation in above paragraph). Other items contributing to the cash flow decrease were the timing of accounts payable payments and advanced payments from customers that reduced cash by $1.5 million and $0.6 million, respectively, in the first quarter of Fiscal 2001. Partially offsetting the above was higher earnings of $0.9 million in the first quarter of Fiscal 2001. - -------- (1) EBITDA is presented because some investors may use it as a financial indicator of the ability to service or incur indebtedness. EBITDA should not be considered as an alternative to net earnings (loss), as a measure of operating results, cash flows or liquidity. -12- 14 For Holding, investing activities decreased cash by $0.9 million in the first quarter of Fiscal 2001 compared to $1.4 million in the first quarter of Fiscal 2000 due to reduced spending on capital expenditures. For CPI, in addition to the capital expenditures discussed in the previous sentence, there were net proceeds of $17.25 million from the sale of CPI's facilities in San Carlos to its parent as part of a sale-leaseback transaction. The Company currently anticipates that capital expenditure requirements for Fiscal 2001 will be similar to the amount spent in Fiscal 2000, with the exception that consolidation efforts discussed below could add additional requirements of approximately $3.0 to $4.4 million. For Holding, financing activities during the first quarter of Fiscal 2001 were related primarily to repayments on its Senior Credit Agreement, which was terminated on December 22, 2000, and proceeds and expenses from its new $61.0 million secured credit facility ("Credit Facility"). This new facility consists of a $41.0 million revolving line of credit, with a sub-facility of $10.0 million for letters of credit, which expires December 22, 2004, and a $20.0 million term loan which expires December 22, 2002. The facility is secured by substantially all of the assets of CPI, and is guaranteed by Holding and all of CPI's subsidiaries. Availability under the revolving credit facility is based upon eligible receivables, machinery and equipment and certain real estate. Also on December 22, 2000, a sale-leaseback transaction related to CPI's facilities in San Carlos was accomplished between CPI and Holding. Holding paid CPI aggregate consideration of $23.0 million for the San Carlos real estate, consisting of $17.25 million in cash and an unsecured promissory note of $5.75 million maturing in nine years. CPI and Holding entered into a lease of the San Carlos real property for a term of twenty years on a net basis with a fixed annual rent of $2.45 million. Holding financed the cash portion of the San Carlos purchase price by borrowing $18.0 million, which loan matures June 1, 2002. For CPI, financing activities were similar to those discussed above for Holding with the exception that the $18.0 million of mortgage financing and its related debt issue costs of $0.4 million did not apply to CPI. The Company continues to focus on strategic consolidation efforts approved by the Company's Board of Directors on October 18, 2000. In a further effort to provide capital and liquidity in the long term and in an effort to decrease production costs and more efficiently use the Company's facilities, the Company has reorganized its manufacturing divisions under two co-Chief Operating Officers and has approved the relocation its Satcom Division's production operation from Palo Alto, California to its facility in Ontario, Canada. Concurrently, the Company plans to relocate its administrative offices into a single building in Palo Alto and will look to sublease up to 52,300 square feet of office space. The Company expects to complete this consolidation over the next 12 to 18 months. Although still under development, this new plan could add additional capital spending requirements of approximately $3.0 to $4.4 million. Management believes that as a result of its recent debt restructuring, the Company will have adequate capital resources and liquidity (including cash flow from operations and borrowing under its revolving credit facility) to meet its obligations, fund all required capital expenditures and pursue its business strategy related to consolidation efforts described above for at least the next twelve months. Market Risk The Company's market risk disclosures set forth in its Annual Report on Form 10-K for the fiscal year ended September 29, 2000, have not changed significantly. -13- 15 Forward-Looking Statements This document contains forward-looking statements that relate to future events or the Company's future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "except," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. All written and oral forward-looking statements made in connection with this report which are attributable to the Company or persons acting on the Company's behalf are expressly qualified in their entirety by the "risk factors" and other cautionary statements included herein. The Company is under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in the Company's expectations. The information in this report is not a complete description of the Company's business or the risks associated with an investment in the Company's securities. We urge you to carefully review and consider the various disclosures made by the Company in this report and in the Company's other reports filed with the SEC. Risk Factors You should carefully consider the various risks and uncertainties that impact the Company's business and the other information in this report and the Company's other filings with the SEC before you decide to invest in the Company or to maintain or increase your investment. Such risks and uncertainties include, but are not limited to, the following: product demand and market acceptance risks; the effect of general economic conditions; the impact of competitive products and pricing; new product development and commercialization; technological difficulties and ability to increase margins; U.S. Government export policies; changes in Governmental appropriations, national defense policies and availability of Government funds; changes in environmental regulation and legislation; availability of certain critical materials and raw material price fluctuations; the Company's ability to generate the significant amount of cash needed to service its debt; and the Company's ability to obtain financing in the future. If any of the following risks actually occur, the Company's business, results of operations, or financial condition would likely suffer and actual results could differ materially from those projected. -14- 16 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2: CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits are being filed as part of this report:
Exhibit No. Description ----------- ----------- 10.1 Loan and Security Agreement by and among CPI as borrower, the other obligors named therein, the lenders that are signatories hereto as the senders, and Foothill Capital Corporation as the arranger and administrative agent, dated as of December 15, 2000. 10.2 Intellectual Property Security Agreement between CPI and Foothill Capital Corporation as Agent for the Lenders dated December 15, 2000 10.3 Stock Pledge and Security Agreement by CPI to and in favor of Foothill Capital Corporation, as agent for itself and the other lenders dated December 15, 2000. 10.4 Stock Pledge and Security Agreement by Holding and various CPI subsidiaries to and in favor of Foothill Capital Corporation, as agent for itself and the other lenders, dated December 15, 2000. 10.5 Environmental Indemnity Agreement for the benefit of Foothill Capital Corporation, as agent for itself and the other lenders and the lenders, dated December 15, 2000.
-15- 17
Exhibit No. Description ----------- ----------- 10.6 Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing by and among CPI, First American Title Company and Foothill Capital Corporation, as agent for itself and the other lenders, dated December 15, 2000. 10.7 Guaranty and Security Agreement in favor of Foothill Capital Corporation as Agent for itself and the lenders and the other lenders pursuant to that certain Loan and Security Agreement by and among CPI, the other obligors, Foothill and the other lenders named herein, dated December 15, 2000. 10.8 Continuing Guaranty in favor of Foothill Capital Corporation, as agent for itself and the lenders and the other lenders pursuant to that certain Loan and Security Agreement by and among CPI, the other obligors named therein, Foothill and the other lenders named herein, dated December 15, 2000. 10.9 Intercreditor Agreement among the CPI Parties and Foothill Capital Corporation, as agent for itself and other lenders, dated December 15, 2000. 10.10 Fourth Amendment of Lease by and between The Board of Trustees of the Leland Stanford Junior University and CPI, dated December 15, 2000. 10.11 Loan Agreement between Holding and Wells Fargo Bank, National Association, executed as of December 15, 2000. 10.12 Promissory Note Secured by Deed of Trust by Holding in favor of Wells Fargo Bank, National Association, dated December 15, 2000. 10.13 Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing by and among Holding, American Securities Company and Wells Fargo Bank, National Association, dated December 15, 2000. 10.14 Subordination Agreement by CPI and Holding in favor of Wells Fargo Bank, National Association, dated December 15, 2000. 10.15 Hazardous Materials Indemnity Agreement by Holding in favor of Wells Fargo Bank, National Association, dated December 15, 2000. 10.16 Unsecured Promissory Note by Holding in favor of CPI, dated December 15, 2000. 10.17 Lease dated as of December 1, 2000 by and between Holding, as lessor, and CPI, as lessee.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter ended December 29, 2000. -16- 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMMUNICATIONS & POWER INDUSTRIES, INC. By: /s/ Bart F. Petrini ------------------------------------------------- Bart F. Petrini Chief Executive Officer and President Date: February 9, 2001 By: /s/ Lynn E. Harvey ------------------------------------------------- Lynn E. Harvey Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) Date: February 9, 2001 -17- 19 EXHIBIT INDEX
Exhibit No. Description ----------- ----------- 10.1 Loan and Security Agreement by and among CPI as borrower, the other obligors named therein, the lenders that are signatories hereto as the senders, and Foothill Capital Corporation as the arranger and administrative agent, dated as of December 15, 2000. 10.2 Intellectual Property Security Agreement between CPI and Foothill Capital Corporation as Agent for the Lenders dated December 15, 2000. 10.3 Stock Pledge and Security Agreement by CPI to and in favor of Foothill Capital Corporation, as agent for itself and the other lenders dated December 15, 2000. 10.4 Stock Pledge and Security Agreement by Holding and various CPI subsidiaries to and in favor of Foothill Capital Corporation, as agent for itself and the other lenders, dated December 15, 2000. 10.5 Environmental Indemnity Agreement for the benefit of Foothill Capital Corporation, as agent for itself and the other lenders and the lenders, dated December 15, 2000. 10.6 Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing by and among CPI, First American Title Company and Foothill Capital Corporation, as agent for itself and the other lenders, dated December 15, 2000. 10.7 Guaranty and Security Agreement in favor of Foothill Capital Corporation as Agent for itself and the lenders and the other lenders pursuant to that certain Loan and Security Agreement by and among CPI, the other obligors, Foothill and the other lenders named herein, dated December 15, 2000. 10.8 Continuing Guaranty in favor of Foothill Capital Corporation, as agent for itself and the lenders and the other lenders pursuant to that certain Loan and Security Agreement by and among CPI, the other obligors named therein, Foothill and the other lenders named herein, dated December 15, 2000. 10.9 Intercreditor Agreement among the CPI Parties and Foothill Capital Corporation, as agent for itself and other lenders, dated December 15, 2000. 10.10 Fourth Amendment of Lease by and between The Board of Trustees of the Leland Stanford Junior University and CPI, dated December 15, 2000. 10.11 Loan Agreement between Holding and Wells Fargo Bank, National Association, executed as of December 15, 2000. 10.12 Promissory Note Secured by Deed of Trust by Holding in favor of Wells Fargo Bank, National Association, dated December 15, 2000. 10.13 Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing by and among Holding, American Securities Company and Wells Fargo Bank, National Association, dated December 15, 2000. 10.14 Subordination Agreement by CPI and Holding in favor of Wells Fargo Bank, National Association, dated December 15, 2000. 10.15 Hazardous Materials Indemnity Agreement by Holding in favor of Wells Fargo Bank, National Association, dated December 15, 2000. 10.16 Unsecured Promissory Note by Holding in favor of CPI, dated December 15, 2000. 10.17 Lease dated as of December 1, 2000 by and between Holding, as lessor, and CPI, as lessee.
EX-10.1 2 f69166ex10-1.txt EXHIBIT 10.1 1 EXHIBIT 10.1 ================================================================================ LOAN AND SECURITY AGREEMENT BY AND AMONG COMMUNICATIONS & POWER INDUSTRIES, INC. AS BORROWER, THE OTHER OBLIGORS NAMED HEREIN, THE LENDERS THAT ARE SIGNATORIES HERETO AS THE LENDERS, AND FOOTHILL CAPITAL CORPORATION AS THE ARRANGER AND ADMINISTRATIVE AGENT DATED AS OF DECEMBER 15, 2000 ================================================================================ 2 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of December 15, 2000, between and among, on the one hand, the lenders identified on the signature pages hereof (such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a California corporation, as the arranger and administrative agent for the Lenders ("Agent"), and, on the other hand, COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation ("Borrower"), and the other Obligors identified on the signature pages hereof. WHEREAS, the Advances and Term Loan contemplated hereafter are "Senior Indebtedness" and "Senior Bank Indebtedness" as those terms are defined in the Senior Subordinated Debt Documents, and this Agreement constitutes the "Senior Credit Agreement" as defined in the Senior Subordinated Debt Documents; The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: "ABLECO" means Ableco Finance LLC, a Delaware limited liability company. "ACCOUNT DEBTOR" means any Person who is or who may become obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible. "ACCOUNTS" means all "accounts" (as that term is defined in the Code), and any and all supporting obligations in respect thereof. "ADDITIONAL DOCUMENTS" has the meaning set forth in Section 4.4. "ADVANCES" has the meaning set forth in Section 2.1. "AFFILIATE" means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise; provided, however, that, in any event: (a) any Person which owns directly or indirectly 10% or more of the securities having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed to control such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of -1- 3 such Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person. "AGENT" means Foothill, solely in its capacity as agent for the Lenders hereunder, and any successor thereto. "AGENT'S ACCOUNT" means a deposit account at a bank designated by Agent from time to time as the account into which Borrower shall make all payments to Agent for the benefit of the Lender Group and into which the Lender Group shall make all payments to Agent under this Agreement and the other Loan Documents; unless and until Agent notifies Borrower and the Lender Group to the contrary, Agent's Account shall be that certain deposit account bearing account number 323-266193 and maintained by Agent with The Chase Manhattan Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, ABA #021000021. "AGENT ADVANCES" has the meaning set forth in Section 2.3(e)(i). "AGENT'S LIENS" means the Liens granted by Obligors to Agent for the benefit of the Lender Group under this Agreement or the other Loan Documents. "AGENT-RELATED PERSONS" means Agent together with its Affiliates, officers, directors, employees, and agents. "AGREEMENT" has the meaning set forth in the preamble hereto. "APPLICABLE PREPAYMENT PREMIUM" means, as of any date of determination, an amount equal to (a) during the period of time from and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date, 2% times the Maximum Revolver Amount, and (b) during the period of time from and including the date that is the first anniversary of the Closing Date up to the date that is the third anniversary of the Closing Date, 1% times the Maximum Revolver Amount; provided, however, that the Applicable Prepayment Premium shall not in any event apply to the prepayment of the Term Loan. "ASSIGNEE" has the meaning set forth in Section 14.1. "ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance substantially in the form of Exhibit A-1. "AUTHORIZED PERSON" means any officer or other employee of Borrower. "AVAILABILITY" means, as of any date of determination, if such date is a Business Day, and determined at the close of business on the immediately preceding Business Day, if such date of determination is not a Business Day, the amount that Borrower is entitled to borrow as Advances under Section 2.1 (after giving effect to all then outstanding Obligations and all sublimits and reserves applicable hereunder). -2- 4 "BANKRUPTCY CODE" means the United States Bankruptcy Code, as in effect from time to time. "BASE LIBOR RATE" means the rate per annum, determined in good faith by Agent in accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/16%), on the basis of the rates at which Dollar deposits are offered to major banks in the London interbank market on or about 11:00 a.m. (California time) 2 Business Days prior to the commencement of the applicable Interest Period, for a term and in amounts comparable to the Interest Period and amount of the LIBOR Rate Loan requested by Borrower in accordance with this Agreement, which determination shall constitute prima facie evidence thereof. "BASE RATE" means, the rate of interest announced within Wells Fargo at its principal office in San Francisco as its "prime rate", with the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. Changes in the Base Rate shall be effective as of the effective date of the change in the "prime rate." "BASE RATE LOAN" means each portion of an Advance or the Term Loan that bears interest at a rate determined by reference to the Base Rate. "BASE RATE MARGIN" means the following margin based upon the applicable Debt Coverage Ratio, to be effective as of the first day of the calendar month immediately following the date of determination, and based on the most recent certification received by Agent pursuant to Section 6.3(b):
- ------------------------------------ -------------------------------------- DEBT COVERAGE RATIO APPLICABLE BASE RATE MARGIN - ------------------------------------ -------------------------------------- Greater than or equal to 4.40:1.00 1.75 percentage points - ------------------------------------ -------------------------------------- Less than 4.40:1.00 and greater 1.25 percentage points than or equal to 3.75:1.00 - ------------------------------------ -------------------------------------- Less than 3.75:1.00 0.75 percentage points - ------------------------------------ --------------------------------------
; provided, however, the failure to deliver the certificate of calculation of the Debt Coverage Ratio by the date required hereunder (after giving effect to any applicable grace period) shall automatically cause the Base Rate Margin to be the highest rate set forth above, effective as of the first day of the calendar month immediately following the date on which the delivery of the certificate of calculation of the Debt Coverage Ratio was otherwise required; and provided further, however, that for the period from the Closing Date through the last day of the calendar month during which the first anniversary of the Closing Date occurs and thereafter until such time as the Agent receives a -3- 5 certificate of calculation of the Debt Coverage Ratio delivered pursuant to Section 6.3(b) establishing that a different Base Rate Margin applies, the Base Rate Margin shall be 1.75 percentage points. "BENEFIT PLAN" means a "defined benefit plan" (as defined in Section 3(35) of ERISA) for which Borrower or any other Obligor organized under the laws of the United States or any state thereof has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years, other than a plan described in Section 4(b)(4) of ERISA. "BEVERLY REAL PROPERTY COLLATERAL" means the Real Property Collateral identified as such on Schedule R-1. "BOARD OF DIRECTORS" means the board of directors (or comparable managers) of a CPI Party or any committee thereof duly authorized to act on behalf of the board. "BOOKS" means a Person's now owned or hereafter acquired books and records (including all Records indicating, summarizing, or evidencing such Person's assets (including the Collateral) or liabilities, all Records relating to such Person's business operations or financial condition, and all of such Person's goods or General Intangibles related to such information). "BORROWER" has the meaning set forth in the preamble to this Agreement. "BORROWING" means a borrowing hereunder consisting of Advances (or term loans, in the case of the Term Loan) made on the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of an Agent Advance. "BORROWING BASE" has the meaning set forth in Section 2.1. "BORROWING BASE CERTIFICATE" means a certificate in the form of Exhibit B-1. "BUSINESS DAY" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term "Business Day" also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market. "CANADIAN LOAN DOCUMENTS" means, collectively, a general security agreement and a continuing guarantee in form and substance satisfactory to Agent, executed and delivered by CPI Canada. "CANADIAN REAL PROPERTY COLLATERAL" means the Real Property located in Ontario Canada and described as such on Schedule R-1. "CAPITAL LEASE" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "CAPITALIZED LEASE OBLIGATION" means any Indebtedness represented by obligations under a Capital Lease. -4- 6 "CASH EQUIVALENTS" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's, (c) commercial paper maturing no more than 1 year from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody's, and (d) certificates of deposit or bankers' acceptances maturing within 1 year from the date of acquisition thereof either (i) issued by any bank organized under the laws of the United States or any state thereof which bank has a rating of A or A2, or better, from S&P or Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation. "CASH MANAGEMENT ACCOUNT" has the meaning set forth in Section 2.7(a). "CASH MANAGEMENT AGREEMENTS" means those certain cash management service agreements, in form and substance satisfactory to Agent, each of which is among one or more Collateral Obligors, Agent, and one of the Cash Management Banks. "CASH MANAGEMENT BANK" has the meaning set forth in Section 2.7(a). "CHANGE OF CONTROL" means (a) any "person" or "group" (within the meaning of Sections 13(d) and 14(d) of the Exchange Act) other than Permitted Holder becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 35%, or more, of the Stock of Parent having the right to vote for the election of members of the Parent's Board of Directors, or (b) a majority of the members of the Parent's Board of Directors do not constitute Continuing Directors, or (c) any Obligor ceases to directly own and control 100% of the outstanding capital Stock of each of its Subsidiaries extant as of the Closing Date. "CLOSING DATE" means the date of the making of the initial Advance (or other extension of credit) hereunder. "CLOSING DATE BUSINESS PLAN" means the set of Projections of Borrower on a consolidated basis for the first two (2) fiscal year periods ending after the Closing Date (for the first such fiscal year, on a month by month basis, and on a quarter by quarter basis for the second such fiscal year), in form and substance (including as to scope and underlying assumptions) reasonably satisfactory to Agent. "CODE" means the New York Uniform Commercial Code, as in effect from time to time. "COLLATERAL" means all of a Person's now owned or hereafter acquired right, title, and interest in and to each of the following: -5- 7 (a) Accounts, (b) Books, (c) Equipment, (d) General Intangibles, (e) Inventory, (f) Investment Property, (g) Negotiable Collateral, (h) Real Property Collateral, (i) money or other assets that now or hereafter come into the possession, custody, or control of any member of the Lender Group, and (j) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any and all Accounts, Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof; provided, however, that Collateral shall not include: (x) any notes or other evidence of Indebtedness held by Parent from present, future or former employees of Parent or any of its Subsidiaries, which notes were issued in connection with such employees' purchase of capital stock of Parent; and (y) such General Intangibles: (i) which cannot be subject to a consensual security interest in favor of Agent without the consent of licensor or other party thereto, (ii) as to which any such restriction described in clause (i) is effective and enforceable under applicable law including Section 9318(4) of the Code or, from and after the effective date thereof, Section 9408 of the revised Article 9 of the Code, and (iii) and to which such consent described in clause (i) has not been obtained by the party granting the security interest after commercially reasonable efforts not involving the payment of money or the granting of other consideration. "COLLATERAL ACCESS AGREEMENT" means a landlord waiver, bailee letter, or acknowledgment agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance satisfactory to Agent. "COLLATERAL OBLIGORS" means, collectively, Borrower and CPI Canada. -6- 8 "COLLECTIONS" means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) of Obligors. "COMMITMENT" means, with respect to each Lender, its Revolver Commitment, its Term Loan Commitment, or its Total Commitment, as the context requires, and, with respect to all Lenders, their Revolver Commitments, their Term Loan Commitments, or their Total Commitments, as the context requires, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Borrower to Agent. "CONTINUING DIRECTOR" means (a) any member of the Board of Directors who was a director (or comparable manager) of any Obligor on the Closing Date, and (b) any individual who becomes a member of such Board of Directors after the Closing Date if such individual was appointed or nominated for election to such Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to such Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of any Obligor (as such terms are used in Rule 14a-11 under the Exchange Act) and whose initial assumption of office resulted from such contest or the settlement thereof. "CONTROL AGREEMENT" means a control agreement, in form and substance satisfactory to Agent, executed and delivered by an applicable Obligor, Agent, and the applicable securities intermediary with respect to a Securities Account or bank with respect to a deposit account. "CPI CANADA" means Communications & Power Industries Canada Inc., an Ontario corporation. "CPI PARTIES" means Borrower, Guarantors and all of their respective Subsidiaries. "CPI SUBSIDIARY HOLDINGS" means CPI Subsidiary Holdings Inc., a Delaware corporation. "DAILY BALANCE" means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such day. "DDA" means any checking or other demand deposit account maintained by any Obligor. -7- 9 "DEFAULT" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default. "DEBT COVERAGE RATIO" means, at any date of determination, the ratio of Funded Debt, as of the date of determination, to EBITDA for the four consecutive fiscal quarters of Borrower (taken as one accounting period) then ended. "DEFAULTING LENDER" means any Lender that fails to make any Advance (or other extension of credit) that it is required to make hereunder on the date that it is required to do so hereunder. "DEFAULTING LENDER RATE" means (a) the Base Rate for the first 3 days from and after the date the relevant payment is due, and (b) thereafter, at the interest rate then applicable to Advances that are Base Rate Loans (inclusive of the Base Rate Margin applicable thereto). "DESIGNATED ACCOUNT" means account number 4518100284 of Borrower maintained with Borrower's Designated Account Bank, or such other deposit account of Borrower (located within the United States) that has been designated as such, in writing, by Borrower to Agent. "DESIGNATED ACCOUNT BANK" means Wells Fargo, whose office is located at P.O. Box 63020, San Francisco, California 94163, and whose ABA number is 121000248. "DILUTION" means, as of any date of determination, a percentage, based upon the experience of the immediately prior 90 days, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other dilutive items with respect to the Accounts of the Collateral Obligors during such period, by (b) Collateral Obligors' Collections with respect to their Accounts during such period (excluding extraordinary items) plus the Dollar amount of clause (a). "DILUTION RESERVE" means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts by one percentage point for each percentage point by which Dilution is in excess of 5%. "DISBURSEMENT LETTER" means an instructional letter executed and delivered by Borrower to Agent regarding the extensions of credit to be made on the Closing Date, the form and substance of which is satisfactory to Agent. "DOLLARS" or "$" means United States dollars. "EBITDA" means, with respect to any fiscal period, Parent's consolidated net earnings (or loss), minus extraordinary gains for such period, plus all interest expense (including without limitation amortization of capitalized financing costs), income taxes, extraordinary or nonrecurring losses, non-cash charges (including, without limitation, non-cash compensation, write-off of fixed assets, and accrued but unpaid management fees), Moving Expenses, and depreciation and amortization for such period, in accordance with GAAP. -8- 10 "ELIGIBLE ACCOUNTS" means the Eligible Borrower Accounts, the Eligible Canadian Accounts and the Eligible Foreign Accounts. "ELIGIBLE BORROWER ACCOUNTS" means those Accounts created by Borrower in the ordinary course of its business, that arise out of Borrower's sale of goods or rendition of services, that comply with each of the representations and warranties respecting Eligible Accounts made by Borrower in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the criteria set forth below; provided, however, that such criteria may be fixed and revised from time to time by Agent in Agent's Permitted Discretion to address the results of any audit performed by Agent from time to time after the Closing Date. In determining the amount to be included, Eligible Accounts shall be calculated net of customer deposits; provided, however, that so long as Borrower is capable of providing periodic reports detailing such deposits by customer in accordance with Section 6.2 Eligible Accounts shall be calculated net of customer deposits on a customer-by-customer basis; and (y) Eligible Accounts shall be calculated net of unapplied cash remitted to Borrower. Eligible Accounts shall not include the following: (a) Accounts that the Account Debtor has failed to pay within 90 days of original invoice date or Accounts with selling terms of more than 60 days, (b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of all Accounts owed by that Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above, (c) Accounts with respect to which the Account Debtor is an employee, Affiliate, or agent of any Obligor, (d) Accounts arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold, or any other terms by reason of which the payment by the Account Debtor may be conditional; provided, however, that with respect to an Account which does not qualify as an Eligible Account solely because the Account arises in a transaction wherein goods are sold on a bill and hold basis, the Agent will, in its Permitted Discretion, treat such Accounts, not to exceed $1,000,000 in the aggregate at any time, as Eligible Accounts, so long as (w) the contract between the Account Debtor and the Collateral Obligor giving rise to the Account expressly provides that the goods from which the Account derives may be billed in advance on a bill and hold basis, (x) title to the goods from which the Account derives has passed to the Account Debtor, (y) such goods are readily identifiable, and (z) such goods have been physically segregated from the Collateral Obligors' Collateral. (e) Accounts that are not payable in Dollars, (f) Accounts with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States or Canada, or (ii) is not organized under the laws of the United States or Canada or any state of the United States or any Canadian province, or (iii) is the government of any foreign country or sovereign state, or of any state, province, -9- 11 municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable letter of credit satisfactory to Agent (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Agent and is directly drawable by Agent, or (z) the Account is an Eligible Foreign Account. (g) Subject to Agent's Permitted Discretion, Accounts with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive, however, of Accounts with respect to which the Collateral Obligor has complied, to the reasonable satisfaction of Agent, with the Assignment of Claims Act, 31 USC ' 3727), or (ii) any state of the United States (exclusive, however, of (y) Accounts owed by any state that does not have a statutory counterpart to the Assignment of Claims Act, or (z) Accounts owed by any state that does have a statutory counterpart to the Assignment of Claims Act as to which the Collateral Obligor has complied to Agent's satisfaction), (h) Accounts with respect to which the Account Debtor is a creditor of any Obligor, has or has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the Account, to the extent of such claim, right of setoff, or dispute, (i) Accounts with respect to an Account Debtor whose total obligations owing to the Collateral Obligor exceed 10% (or, only if U.S. DFAS Columbia Center is the Account Debtor, 20%) of all Eligible Accounts, to the extent of the obligations owing by such Account Debtor in excess of such percentage, (j) Accounts with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or as to which any Obligor has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor, (k) Accounts with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, or West Virginia (or any other state that requires a creditor to file a business activity report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such state), unless the Collateral Obligor has qualified to do business in New Jersey, Minnesota, West Virginia, or such other states, or has filed a business activities report with the applicable division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement, (l) Accounts, the collection of which, Agent, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial condition, (m) Accounts that are not subject to a valid and perfected first priority Agent's Lien, -10- 12 (n) Accounts with respect to which (i) the goods giving rise to such Account have not been shipped and billed to the Account Debtor, or (ii) the services giving rise to such Account have not been performed and billed to the Account Debtor, or (o) Accounts that represent the right to receive progress payments or other advance billings that are due prior to the completion of performance by the Obligor of the subject contract for goods or services. "ELIGIBLE CANADIAN ACCOUNTS" means any Account of CPI Canada as to which each of the following is applicable: (a) such Account does not qualify as an Eligible Borrower Account solely because of one or more of the following reasons: (x) such Account is an Account of CPI Canada rather than of Borrower, (y) such Account is payable in Canadian Dollars, or (z) the Account Debtor with respect to such Account maintains its chief executive office in Canada (other than Quebec and the Maritime provinces) rather than in the United States or is organized under the laws of Canada or a political subdivision thereof (other than Quebec and the Maritime provinces) rather than under the laws of the United States or any state thereof, and (b) Agent has a perfected first priority security interest in such Account. "ELIGIBLE FOREIGN ACCOUNTS" means an Account of a Collateral Obligor: (I) acceptable to Agent in its Permitted Discretion with respect to the size and payment history of the Account Debtor, the political instability of the jurisdiction in which the Account Debtor is located, and the credit quality of the Account Debtor, and (II) as to which each of the following is applicable: (a) such Account does not qualify as an Eligible Borrower Account or Eligible Canadian Account solely because the Account Debtor with respect to such Account maintains its chief executive office in a jurisdiction other than the United States or Canada (other than Quebec and the Maritime provinces) or is organized under the laws of a jurisdiction (or a political subdivision thereof) other than the United States or Canada (other than Quebec and the Maritime provinces) , and (b) Agent has a perfected first priority security interest in such Account. "ELIGIBLE EQUIPMENT" means (a) the Equipment identified in the most recent appraisal thereof, dated October 16, 2000 and effective September 25, 2000, and located at the locations set forth on Schedule E-1, and (b) any additional Equipment of Borrower identified by Borrower to Agent in the then most appraisal thereof, which Equipment (i) is held for use in the ordinary course of Borrower's business, (ii) is located at one of the locations set forth on Schedule E-1, and in which Agent has a perfected Lien of first priority, (iii) is acceptable in all respects to Agent in its Permitted Discretion, (iv) is not a fixture with the exception of Equipment affixed to Real Property Collateral, (v) is not intended to be affixed to Real Property other than Real Property Collateral, or to become installed in or affixed to other goods other than Real Property Collateral, (vi) is not subject to a Lien in favor of any Person other than Agent, (vii) is not subject to a lease agreement with any Person, (viii) has had its Net Orderly Liquidation Value established, and (ix) strictly complies with all of Borrower's representations and warranties to Agent; provided, however, that, with respect to additional items of Equipment, standards of eligibility may be fixed and revised from time to time by Agent in its Permitted Discretion. If and to the extent that an item of additional Equipment is identified by Borrower to Agent that meets each of the foregoing criteria, -11- 13 Schedule E-1 automatically shall be deemed to be amended to include such item of Equipment. Eligible Equipment shall not include obsolete items, damaged, defective, or destroyed items. "ELIGIBLE TRANSFEREE" means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $250,000,000, (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country and which has total assets in excess of $250,000,000, provided that such bank is acting through a branch or agency located in the United States, and further provided that, so long as no Event of Default has occurred and is continuing, such bank shall not be subject to U.S. federal withholding taxation, (c) a finance company, insurance company, or other financial institution or fund (which, so long as no Event of Default has occurred and is continuing, is organized under the laws of the United States or any state thereof) that is engaged in making, purchasing, or otherwise investing in commercial loans in the ordinary course of its business and having (together with its Affiliates) total assets in excess of $250,000,000, (d) any Affiliate (other than individuals) of a Lender that was party hereto as of the Closing Date, or any fund, money market account, investment account or other account managed by a Lender or an Affiliate of such Lender and which, so long as no Event of Default has occurred and is continuing, is not subject to U.S. federal withholding taxation, (e) so long as no Event of Default has occurred and is continuing, any other Person approved by Agent and Borrower, and (f) during the continuation of an Event of Default, any other Person not subject to U.S. federal withholding taxation approved by Agent. "ENVIRONMENTAL ACTIONS" means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from (a) any assets, properties, or businesses of any of the Obligors or any predecessor in interest, (b) adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Obligor or any predecessor in interest. "ENVIRONMENTAL INDEMNITY AGREEMENT" means that certain Environmental Indemnity Agreement with respect to the Palo Alto Real Property Collateral, in form and substance satisfactory to Agent. "ENVIRONMENTAL LAW" means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, to the extent binding on any Obligor, relating to the environment, employee health and safety, or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC ' 1251 et seq; the Toxic Substances Control Act, 15 USC, ' 2601 et seq; the Clean Air Act, 42 USC ' 7401 et seq.; the Safe Drinking Water Act, 42 USC. ' 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. ' 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC. ' 11001 et seq.; the Hazardous Material Transportation Act, 49 USC ' 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. -12- 14 '651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); any state and local or foreign counterparts or equivalents, in each case as amended from time to time. "ENVIRONMENTAL LIABILITIES AND COSTS" means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any Environmental Action. "ENVIRONMENTAL LIEN" means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs. "EQUIPMENT" means all of a Person's equipment, machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles (including motor vehicles), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto. "ERISA AFFILIATE" means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of any Obligor under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of any Obligor under IRC Section 414(c), (c) any organization subject to ERISA that is a member of an affiliated service group of which any Obligor is a member under IRC Section 414(m), or (d) any Person subject to ERISA that is a party to an arrangement with any Obligor and whose employees are aggregated with the employees of any Obligor under IRC Section 414(o). "ERISA EVENT" means (a) a Reportable Event (as defined in Section 4043 of ERISA) with respect to any Benefit Plan or Multiemployer Plan, (b) the withdrawal of any Obligor or any of their respective Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041(c) of ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e) any event or condition (i) that provides a basis under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of any Obligor , any of their respective Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or (g) providing any security to any Plan under Section 401(a)(29) of the IRC by any Obligor or their respective Subsidiaries or any of their ERISA Affiliates. -13- 15 "EVENT OF DEFAULT" has the meaning set forth in Section 8. "EXCESS AVAILABILITY" means the amount, as of the date any determination thereof is to be made, equal to Availability minus the aggregate amount, if any, of all trade payables of Obligors aged in excess of historical levels with respect thereto and all book overdrafts in excess of historical practices with respect thereto, in each case as determined by Agent in its Permitted Discretion. "EXCESS NET PROCEEDS" has the meaning set forth in Section 2.2(g). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as in effect from time to time. "EXISTING LENDER" means Bankers Trust Company, as agent for itself and other lenders. "FEIN" means Federal Employer Identification Number. "FOOTHILL" means Foothill Capital Corporation, a California corporation. "FOREIGN GUARANTORS" means Communications & Power Industries Italia S.R.L., an Italian company, Communications & Power Industries Europe Limited, an England and Wales company, and Communications & Power Industries Australia PTY Limited, an Australian company. "FOREIGN GUARANTIES" means the Guaranties, in form and substance satisfactory to Agent, executed by the Foreign Guarantors party thereto with respect to the Obligations. "FUNDED DEBT" means, at any date of determination, the sum of all Indebtedness (other than Indebtedness of the type described in clauses (d) and (f) of the definition of Indebtedness), including without limitation, and regardless of whether of any of the following has been converted or otherwise transmuted into another form of Indebtedness or Investment, the sum (without duplication) in Dollars of all of the following: the Obligations, Capital Lease Obligations, the Senior Subordinated Indebtedness, and the Indebtedness set forth on Schedule 5.20. "FUNDING DATE" means the date on which a Borrowing occurs. "FUNDING LOSSES" has the meaning set forth in Section 2.13(b)(ii). "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "GENERAL INTANGIBLES" means all of a Person's general intangibles (including payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, -14- 16 or regulations, choses or things in action, all rights to indemnity under the Stock Sale Agreement, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, money, deposit accounts (including Cash Management Accounts), insurance premium rebates, tax refunds, and tax refund claims), and any and all supporting obligations in respect thereof, and any other personal property other than goods, Accounts, Investment Property, and Negotiable Collateral. "GOVERNING DOCUMENTS" means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person. "GOVERNMENTAL AUTHORITY" means any foreign, federal, state, local, or other governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body. "GUARANTORS" means Parent, each direct Subsidiary of Parent (other than Borrower), each direct Subsidiary of Borrower and each direct Subsidiary of CPI Subsidiary Holdings that is a corporation organized under the laws of the United States or any state thereof, CPI Canada, and each other Person (other than the Foreign Guarantors) that has executed or hereafter executes a guaranty or a support, put or other similar agreement in favor of Agent and Lenders in connection with the transactions contemplated by the Agreement. "GUARANTY" means the Guaranty and Security Agreement, in form and substance satisfactory to Agent, executed and delivered by the Guarantors party thereto with respect to the Obligations. "HAZARDOUS MATERIALS" means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as"hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million. "INDEBTEDNESS" means (a) all obligations of any Obligor for borrowed money, (b) all obligations of any Obligor evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of any Obligor in respect of letters of credit, bankers acceptances, interest rate swaps, or other financial products, (c) all obligations of any Obligor under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of any Obligor, irrespective of whether such obligation or liability is assumed, (e) all obligations of any -15- 17 Obligor for the deferred purchase price of assets (other than trade debt incurred in the ordinary course of any Obligor's business and repayable in accordance with customary trade practices), and (f) all obligations of any Obligor guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to such Obligor) any Indebtedness of any other Person (other than another CPI Party). "INDEMNIFIED LIABILITIES" has the meaning set forth in Section 11.3. "INDEMNIFIED PERSON" has the meaning set forth in Section 11.3. "INDENTURE" shall mean the Indenture, dated as of August 11, 1995, between Borrower and U.S. Trust Company of California, N.A., as trustee. "INSOLVENCY PROCEEDING" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "INTANGIBLE ASSETS" means, with respect to any Person, that portion of the book value of all of such Person's assets that would be treated as intangibles under GAAP. "INTELLECTUAL PROPERTY" has the meaning set forth in Section 5.16(a). "INTELLECTUAL PROPERTY SECURITY AGREEMENT" means an intellectual property security agreement executed and delivered by Borrower and Agent, the form and substance of which is satisfactory to Agent. "INTERCREDITOR AGREEMENT" means an intercreditor agreement executed and delivered by the Obligors to Agent, the form and substance of which is satisfactory to Agent. "INTEREST PERIOD" means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan and ending 1, 2, or 3 months thereafter; provided, however, that (a) if any Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended (subject to clauses (c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (c) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (d) with respect to an Interest Period that begins on the last Business 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), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, or 3 months after the date on which the Interest Period began, as applicable, and (e) Borrower may not elect an Interest Period which will end after the Maturity Date. -16- 18 "INVENTORY" means all of a Person's right, title, and interest with respect to inventory, including goods held for sale or lease or to be furnished under a contract of service, goods that are leased by the owner thereof as lessor, goods that are furnished by the owner thereof under a contract of service, and raw materials, work in process, or materials used or consumed in such owner's business. "INVESTMENT" means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising from the sale of goods or rendition of services by such Person in the ordinary course of business consistent with past practice), purchases or other acquisitions for consideration of Indebtedness or Stock, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "INVESTMENT PROPERTY" means all of a Person's "investment property" as that term is defined in the Code, and any and all supporting obligations in respect thereof. "IRC" means the Internal Revenue Code of 1986, as in effect from time to time. "ISSUANCE" has the meaning set forth in Section 2.2(g). "ISSUING LENDER" means Foothill or any other Lender that, at the request of Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings pursuant to Section 2.12. "L/C" has the meaning set forth in Section 2.12(a). "L/C DISBURSEMENT" means a payment made by the Issuing Lender pursuant to a Letter of Credit. "L/C UNDERTAKING" has the meaning set forth in Section 2.12(a). "LENDER" and "LENDERS" have the respective meanings set forth in the preamble to this Agreement, and shall include any other Person made a party to this Agreement in accordance with the provisions of Section 14.1. "LENDER GROUP" means, individually and collectively, any or all of the Lenders (including the Issuing Lender) and Agent. "LENDER GROUP EXPENSES" means all (a) reasonable and documented out-of-pocket costs or expenses (including taxes, and insurance premiums) required to be paid by any Obligor under any of the Loan Documents that are paid or incurred by the Lender Group, (b) reasonable and documented out-of-pocket fees or charges paid or incurred by Agent in connection with the Lender -17- 19 Group's transactions with any Obligor, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, appraisal (including periodic Collateral appraisals or business valuations to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement), real estate surveys, real estate title policies and endorsements, and environmental audits, (c) reasonable and documented out-of-pocket costs and expenses incurred by Agent in the disbursement of funds to Borrower (by wire transfer or otherwise), (d) reasonable and documented out-of-pocket charges paid or incurred by Agent resulting from the dishonor of checks, (e) reasonable and documented out-of-pocket costs and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) audit fees and reasonable and documented out-of-pocket expenses of Agent related to audit examinations of the Books to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (g) reasonable and documented out-of-pocket costs and expenses of third party claims or any other suit paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or any Lender's relationship with any Obligor, (h) Agent's and each Lender's reasonable and documented out-of-pocket fees and expenses (including reasonable and documented out-of-pocket attorneys fees) incurred in advising, structuring, drafting, reviewing, administering, or amending the Loan Documents, and (i) Agent's and each Lender's reasonable and documented out-of-pocket fees and expenses (including reasonable and documented out-of-pocket attorneys fees) incurred in terminating, enforcing (including attorneys fees and expenses incurred in connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning any Obligor or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral. "LENDER-RELATED PERSON" means, with respect to any Lender, such Lender, together with such Lender's Affiliates, and the officers, directors, employees, and agents of such Lender. "LETTER OF CREDIT" means an L/C or an L/C Undertaking, as the context requires. "LETTER OF CREDIT USAGE" means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit. "LGP" means Leonard Green & Partners, L.P. "LIBOR DEADLINE" has the meaning set forth in Section 2.13(b)(i). "LIBOR NOTICE" means a written notice in the form of Exhibit L-1. "LIBOR RATE" means, for each Interest Period for each LIBOR Rate Loan, the rate per annum determined by Agent (rounded upwards, if necessary, to the next 1/16%) by dividing (a) -18- 20 the Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage. "LIBOR RATE LOAN" means each portion of an Advance that bears interest at a rate determined by reference to the LIBOR Rate. "LIBOR RATE MARGIN" means the following margin based upon the applicable Debt Coverage Ratio, to be effective as of the first day of the calendar month immediately following the date of determination, and based on the most recent certification received by Agent pursuant to Section 6.3(b):
- ------------------------------------ -------------------------------------- DEBT COVERAGE RATIO APPLICABLE LIBOR RATE MARGIN - ------------------------------------ -------------------------------------- Greater than or equal to 4.40:1.00 3.25% - ------------------------------------ -------------------------------------- Less than 4.40:1.00 and greater 2.75% than or equal to 3.75:1.00 - ------------------------------------ -------------------------------------- Less than 3.75:1.00 2.50% - ------------------------------------ --------------------------------------
; provided, however, the failure to deliver the certificate of calculation of the Debt Coverage Ratio by the date required hereunder (after giving effect to any applicable grace period) shall automatically cause the LIBOR Rate Margin to be the highest rate set forth above, effective as of the first day of the calendar month immediately following the date on which the delivery of the certificate of calculation of the Debt Coverage Ratio was otherwise required; and provided further, however, that for the period from the Closing Date through the last day of the calendar month during which the first anniversary of the Closing Date occurs and thereafter until such time as the Agent receives a certificate of calculation of the Debt Coverage Ratio delivered pursuant to Section 6.3(b) establishing that a different LIBOR Rate Margin applies, the LIBOR Rate Margin shall be 3.25 percentage points. "LIEN" means any interest in an asset securing an obligation owed to, or a claim by, any Person other than the owner of the asset, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property. "LOAN ACCOUNT" has the meaning set forth in Section 2.10. "LOAN DOCUMENTS" means this Agreement, the Canadian Loan Documents, the Cash Management Agreements, the Disbursement Letter, the Foreign Guaranties, the Guaranty, the -19- 21 Intercreditor Agreement, the Intellectual Property Security Agreement, the Letters of Credit, the Mortgages, the Officers' Certificate, the Stock Pledge Agreements, any note or notes executed by Borrower in connection with this Agreement and payable to a member of the Lender Group, and any other agreement entered into, now or in the future, by any Obligor and any Lender in connection with this Agreement. "MATERIAL ADVERSE CHANGE" means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of the CPI Parties, taken as a whole, (b) a material impairment of the ability of the Obligors, taken as a whole, to perform their obligations under the Loan Documents or of the Lender Group's ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of the Agent's Liens with respect to the Collateral as a result of an action or failure to act on the part of any Obligor. "MATURITY DATE" has the meaning set forth in Section 3.4. "MAXIMUM REVOLVER AMOUNT" means $41,000,000. "MAXIMUM TERM LOAN AMOUNT" means $20,000,000. "MORTGAGES" means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt, executed and delivered by an Obligor in favor of Agent, for the benefit of the Lender Group, in form and substance satisfactory to Agent, that encumber the Real Property Collateral and the related improvements thereto. "MOVING EXPENSES" means the following, all of which are not to exceed $11,600,000 in the aggregate: moving and related production and personnel expenses and capital expenditures arising in connection with (i) the relocation of Borrower's Satcom division from Palo Alto to Canada, (ii) the physical consolidation of Borrower's remaining Palo Alto operations, and (iii) Borrower's EIMAC division's space consolidation at the San Carlos Property. "MULTIEMPLOYER PLAN" means a "multiemployer plan" (as defined in Section 3(37) of ERISA) to which any Obligor organized under the laws of the United States or any state thereof or any ERISA Affiliate is making, is obligated to make, has made or has been obligated to make, contributions on behalf of participants who are or were employed by any of them, other than a plan described in Section 4(b)(4) of ERISA. "NEGOTIABLE COLLATERAL" means all now owned and hereafter acquired right, title, and interest with respect to letters of credit, letter of credit rights, instruments, promissory notes, drafts, documents, and chattel paper (including electronic chattel paper and tangible chattel paper), and any and all supporting obligations in respect thereof. "NET ORDERLY LIQUIDATION VALUE" means, with respect to an item of Eligible Equipment, as of any date of determination, the orderly liquidation value thereof as determined by Agent in its Permitted Discretion, which determination may be made by Agent in reliance on -20- 22 periodic appraisals by a qualified appraisal company selected by Agent in its Permitted Discretion; provided, however, that Emerald Technologies Valuation, LLC shall be acceptable to all parties hereto; "NET PROCEEDS" means, as to any Transaction, an amount equal to (i) the aggregate amount received (directly or indirectly) in cash (including any cash received by way of deferred payment pursuant to a note receivable, installment receivable, purchase price adjustment receivable, other non-cash consideration or otherwise, but only as and when such cash is so received) from such Transaction, less (ii) the sum of (A) the principal amount of any Indebtedness which is secured by any asset that is the subject of such Transaction (other than Indebtedness assumed by the purchaser of such asset) or which is required to be, and is, repaid in connection with the sale or other disposition thereof (other than Indebtedness hereunder), (B) the reasonable out-of-pocket expenses and fees incurred by Parent, Borrower, or their Subsidiaries in connection with such sale or other disposition, provided that all such expenses and fees are set forth on a certificate provided to the Agent, and (C) federal and state taxes incurred in connection with such sale or other disposition, whether payable at such time or thereafter. "OBLIGATIONS" means all loans (including the Term Loan), Advances, debts, principal, interest (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations with respect to outstanding Letters of Credit, premiums, liabilities (including all amounts charged to Borrower's Loan Account pursuant hereto), obligations (including indemnity obligations), fees (including the fees provided for in the Fee Letter), charges, costs, Lender Group Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and duties of any kind and description owing by Borrower to the Lender Group pursuant to or evidenced by the Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due, and all Lender Group Expenses that any Obligor is required to pay or reimburse by the Loan Documents, by law, or otherwise. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all amendments, changes, extensions, modifications, renewals replacements, substitutions, and supplements, thereto and thereof, as applicable, both prior and subsequent to any Insolvency Proceeding. "OBLIGORS" shall mean Borrower and all Guarantors. "OFFICERS' CERTIFICATE" means the representations and warranties of officers form submitted by Agent to Borrower, together with Borrower's completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Agent. "ORIGINATING LENDER" has the meaning set forth in Section 14.1(e). "OVERADVANCE" has the meaning set forth in Section 2.5. "PALO ALTO REAL PROPERTY COLLATERAL" means the Real Property Collateral identified as such on Schedule R-1. -21- 23 "PARENT" means Communications & Power Industries Holding Corporation, a Delaware corporation. "PARTICIPANT" has the meaning set forth in Section 14.1(e). "PAY-OFF LETTER" means a letter, in form and substance satisfactory to Agent, from Existing Lender to Agent respecting the amount necessary to repay in full all of the obligations of Borrower owing to Existing Lender and obtain a release of all of the Liens existing in favor of Existing Lender in and to the assets of Obligors. "PERMITTED DISCRETION" means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment. "PERMITTED DISPOSITIONS" means (a) sales or other dispositions by any Obligor of Equipment that is substantially worn, damaged, or obsolete in the ordinary course of such Obligor's business, (b) sales by any Obligor of Inventory to buyers in the ordinary course of business, (c) the use or transfer of money or Cash Equivalents by any Obligor in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (d) the licensing by any Obligor, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of such Obligor's business, and (e) sales of a portion of the Beverly Real Property Collateral as contemplated in Section 6.6. "PERMITTED HOLDER" means (i) Green Equity Investors II, L.P.; (ii) any Person that is a general partner of Green Equity Investors II, L.P. as of the date hereof and any Affiliate of such Person; (iii) any investment fund or investment partnership managed by any Person qualifying as a Permitted Holder under clause (ii) foregoing; (iv) any Person that is (a) a limited partner in Green Equity Investors II, L.P., (b) an investor in an investment fund or investment partnership qualifying as a Permitted Holder under clause (ii) foregoing, and, in each such case, has obtained its Stock of Parent either by virtue of a distribution of assets by Green Equity Investors II, L.P. or by such investment fund or investment partnership, or by co-investing in an investment transaction led by Green Equity Investors II, L.P. or by such investment fund or investment partnership, or (c) is an Affiliate of any Person qualifying as a Permitted Holder under clauses (iv)(a) and (b) foregoing; and (v) any present or former employee of Parent or any of its Subsidiaries who is a shareholder of Parent. "PERMITTED INVESTMENTS" means (a) investments in Cash Equivalents, (b) investments in negotiable instruments for collection, and (c) advances made in connection with purchases of goods or services in the ordinary course of business. "PERMITTED LIENS" means (a) Liens held by Agent for the benefit of Agent and the Lenders, (b) Liens for unpaid taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of lessors under operating leases, (e) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase -22- 24 Money Indebtedness and so long as such Lien attaches only to the asset purchased or acquired and the proceeds thereof, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business of Obligors and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests, (g) Liens arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (h) Liens or deposits to secure performance of bids, tenders, obligations for utilities, or leases incurred in the ordinary course of business of Obligors and not in connection with the borrowing of money, (i) Liens granted as security for surety or appeal bonds in connection with obtaining such bonds in the ordinary course of business of Obligors, (j) Liens resulting from any judgment or award that is not an Event of Default hereunder, (k) Liens with respect to the Real Property Collateral that are exceptions to the commitments for title insurance issued in connection with the Mortgages, as accepted by Agent, and (l) with respect to any Real Property that is not part of the Real Property Collateral, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof by Obligors. "PERMITTED PROTEST" means the right of any Obligor to protest any Lien or asserted obligation (other than (i) any such Lien that secures the Obligations, or (ii) any of the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on such Obligor's Books in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by such Obligor in good faith, and (c) Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Agent's Liens. "PERMITTED PURCHASE MONEY INDEBTEDNESS" means, as of any date of determination, Purchase Money Indebtedness incurred after the Closing Date in an aggregate principal amount outstanding at any one time not in excess of $2,000,000. "PERSON" means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof. "PLAN" means any employee benefit plan, program, or arrangement maintained or contributed to by any Obligor organized under the laws of the United States or any state thereof or with respect to which it may incur liability. "PERSONAL PROPERTY COLLATERAL" means all Collateral other than Real Property. "PROJECTIONS" means Obligors' forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a consolidated basis for Parent and its Subsidiaries and on a basis consistent with Parent's consolidated historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. -23- 25 "PRO RATA SHARE" means, as of any date of determination: (a) with respect to a Lender's obligation to make Advances and receive payments of principal, interest, fees, costs, and expenses with respect thereto, (x) prior to the Revolver Commitment being reduced to zero, the percentage obtained by dividing (i) such Lender's Revolver Commitment, by (ii) the aggregate Revolver Commitments of all Lenders, and (y) from and after the time that the Revolver Commitment has been terminated or reduced to zero, the percentage obtained by dividing (I) the aggregate principal amount of such Lender's Advances by (II) the aggregate principal amount of all Advances, (b) with respect to a Lender's obligation to participate in Letters of Credit, to reimburse the Issuing Lender, and to receive payments of fees with respect thereto, (x) prior to the Revolver Commitment being reduced to zero, the percentage obtained by dividing (i) such Lender's Revolver Commitment, by (ii) the aggregate Revolver Commitments of all Lenders, and (y) from and after the time that the Revolver Commitment has been terminated or reduced to zero, the percentage obtained by dividing (I) the aggregate principal amount of such Lender's Advances by (II) the aggregate principal amount of all Advances, (c) with respect to a Lender's obligation to make the Term Loan and receive payments of interest, fees, and principal with respect thereto, (i) prior to the making of the Term Loan, the percentage obtained by dividing (x) such Lender's Term Loan Commitment, by (y) the aggregate amount of all Lenders' Term Loan Commitments, and (ii) from and after the making of the Term Loan, the percentage obtained by dividing (x) the principal amount of such Lender's portion of the Term Loan Amount by (y) the Term Loan Amount, and (d) with respect to all other matters as to a particular Lender (including the indemnification obligations arising under Section 16.7), the percentage obtained by dividing (i) such Lender's Revolver Commitment, notwithstanding any termination of such Revolver Commitment as a result of an Event of Default, plus such Lender's Term Loan Commitment, notwithstanding any termination of such Term Loan Commitment as a result of the funding thereof, by (ii) the aggregate amount of Revolver Commitments of all Lenders, notwithstanding any termination of any Revolver Commitment as a result of an Event of Default, plus the aggregate of all Term Loan Commitments, notwithstanding any termination of any Term Loan Commitment as a result of the funding thereof. "PURCHASE MONEY INDEBTEDNESS" means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred up to 10 days prior or within 90 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof. "REALIZATION" has the meaning set forth in Section 2.2(g). "REAL PROPERTY" means any estates or interests in real property now owned or hereafter acquired by any Obligor and the improvements thereto. -24- 26 "REAL PROPERTY COLLATERAL" means the parcel or parcels of Real Property identified on Schedule R-1 and all Real Property hereafter acquired by any Obligor other than the San Carlos Property. "REAL PROPERTY COLLATERAL APPRAISED VALUE" means, as of any date of determination, the "quick sale" value of the Palo Alto Real Property Collateral, on which Agent's Lien is a first priority Lien, as determined by Agent in its Permitted Discretion, which determination may be made by Agent in reliance on periodic appraisals by a qualified appraisal company selected by Agent in its Permitted Discretion; provided, however, that CB Richard Ellis shall be acceptable to all parties hereto. "RECORD" means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form. "REFINANCING INDEBTEDNESS" means any Indebtedness incurred by Borrower, the proceeds of which are used to pay the Term Loan. "REFINANCING LENDER" means a Person makes a loan which constitutes Refinancing Indebtedness. "REMEDIAL ACTION" means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC ' 9601. "REPORT" has the meaning set forth in Section 16.17. "REQUIRED AVAILABILITY" means Excess Availability and unrestricted cash and Cash Equivalents in an amount of not less than $15,000,000. "REQUIRED LENDERS" means, at any time, Lenders whose Pro Rata Shares aggregate 66% as determined pursuant to clause (d) of the definition of "Pro Rata Share." "REQUIRED LIQUIDITY" means Excess Availability and unrestricted cash and Cash Equivalents less cash maintained by Obligors at a level consistent with their ordinary course of operations. "REQUIRED TERM LOAN LENDERS" means, as of any date of determination, so long as any Term Loan Amount is outstanding, Lenders holding 51% of the outstanding Term Loan Amount, and, if no Term Loan Amount is outstanding, means Required Lenders. "RESERVE PERCENTAGE" means, on any day, for any Lender, the maximum percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor -25- 27 Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that are in effect on such date with respect to Eurocurrency funding (currently referred to as "eurocurrency liabilities") of that Lender, but so long as such Lender is not required or directed under applicable regulations to maintain such reserves, the Reserve Percentage shall be zero. "REVOLVER COMMITMENT" means, with respect to each Lender, its Revolver Commitment, and, with respect to all Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "REVOLVER USAGE" means, as of any date of determination, the sum of (a) the then extant amount of outstanding Advances, plus (b) the then extant amount of the Letter of Credit Usage. "RISK PARTICIPATION LIABILITY" means, as to each Letter of Credit, all reimbursement obligations of Borrower to the Issuing Lender with respect to an L/C Undertaking, consisting of (a) the amount available to be drawn or which may become available to be drawn, (b) all amounts that have been paid by the Issuing Lender to the Underlying Issuer to the extent not reimbursed by Borrower, whether by the making of an Advance or otherwise, and (c) all accrued and unpaid interest, fees, and expenses payable with respect thereto. "SALE" has the meaning set forth in Section 2.2(g). "SAN CARLOS PROPERTY" means the Real Property described on Schedule R-2. "SEC" means the United States Securities and Exchange Commission and any successor thereto. "SECURITIES ACCOUNT" means a "securities account" as that term is defined in the Code. "SENIOR SUBORDINATED DEBT DOCUMENTS" shall mean the Indenture, together with the form of the Senior Subordinated Notes that are referenced therein. "SENIOR SUBORDINATED INDEBTEDNESS" shall mean the Indebtedness of Borrower and/or the other Obligors as evidenced by the Senior Subordinated Notes and the guaranties thereof. "SENIOR SUBORDINATED NOTES" shall mean Borrower's Senior Subordinated Notes due 2005, issued pursuant to the Indenture. "SETTLEMENT" has the meaning set forth in Section 2.3(f)(i). "SETTLEMENT DATE" has the meaning set forth in Section 2.3(f)(i). -26- 28 "SOLVENT" means, with respect to any Person on a particular date, that such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act). "STOCK" means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act). "STOCK PLEDGE AGREEMENTS" means stock agreements, in form and substance satisfactory to Agent, executed and delivered by Borrower and certain Guarantors, respectively, to Agent with respect to the pledge of the Stock owned by Borrower and such Guarantors, as applicable. "STOCK SALE AGREEMENT" means that certain Stock Sale Agreement, dated as of June 9, 1995, by and between Parent and Varian, as amended. "SUBORDINATED DEBT" means Indebtedness of Borrower, the terms and conditions of which (including the subordination provisions relative thereto) are satisfactory to Required Lenders and Required Term Loan Lenders in their discretion. "SUBSIDIARY" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Stock or other ownership interests having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity. "SWING LENDER" means Foothill or any other Lender that, at the request of Borrower and with the consent of Agent agrees, in such Lender's sole discretion, to become the Swing Lender hereunder. "SWING LOAN" has the meaning set forth in Section 2.3(d)(i). "TAXES" has the meaning set forth in Section 16.11. "TERM LOAN" has the meaning set forth in Section 2.2. "TERM LOAN AMOUNT" means, as of any date of determination, the outstanding principal amount of the Term Loan. "TERM LOAN COMMITMENT" means, with respect to each Lender, its Term Loan Commitment, and, with respect to all Lenders, their Term Loan Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. -27- 29 "TERM LOAN MATURITY DATE" means December 22, 2002. "TOTAL COMMITMENT" means, with respect to each Lender, its Total Commitment, and, with respect to all Lenders, their Total Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on Schedule C-1 attached hereto or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1. "TRANSACTION" means any Sale, Issuance or Realization. "TRIGGERING EVENT" means any one of the following: (i) any Default or Event of Default; (ii) the average Excess Availability during any 10 consecutive Business Days is less than $10,000,000; or (iii) the Excess Availability on any day is less than $9,000,000. "UNDERLYING ISSUER" means a third Person which is the beneficiary of an L/C Undertaking and which has issued a letter of credit at the request of the Issuing Lender for the benefit of Borrower. "UNDERLYING LETTER OF CREDIT" means a letter of credit that has been issued by an Underlying Issuer. "VARIAN" means Varian, Inc., a Delaware corporation, Varian Semiconductor Equipment Associates, Inc., a Delaware corporation, and Varian Medical Systems, Inc., a Delaware corporation, successors-in-interest to Varian Associates, Inc., a Delaware corporation. "VOIDABLE TRANSFER" has the meaning set forth in Section 17.7. "WELLS FARGO" means Wells Fargo Bank, National Association, a national banking association. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Parent" is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent and its Subsidiaries on a consolidated basis unless the context clearly requires otherwise. 1.3 CODE. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. -28- 30 1.4 CONSTRUCTION. Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the other Loan Documents to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). Any reference herein to any Person shall be construed to include such Person's successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein. 1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT. 2.1 REVOLVER ADVANCES. (a) Subject to the terms and conditions of this Agreement, and during the term of this Agreement, each Lender with a Revolver Commitment agrees (severally, not jointly or jointly and severally) to make advances ("Advances") to Borrower in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to the lesser of (i) the Maximum Revolver Amount less the Letter of Credit Usage, or (ii) the Borrowing Base less the Letter of Credit Usage. For purposes of this Agreement, "Borrowing Base," as of any date of determination, shall mean the result of: (w) (i) until March 30, 2001, 85% of the amount of Eligible Accounts, less the amount, if any of the Dilution Reserve; provided that in no event shall the amount of credit availability created by Eligible Foreign Accounts exceed $5,000,000; or (ii) following March 30, 2001, the lesser of (A) 85% of the amount of Eligible Accounts, less the amount, if any, of the Dilution Reserve; provided that in no event shall the amount of credit availability created by Eligible Foreign Accounts exceed $5,000,000; or -29- 31 (B) an amount equal to two-thirds of the Collateral Obligors' Collections with respect to Collateral Obligors' Accounts for the immediately preceding 13-week period; plus (x) the lower of (i) (A) from and after the Closing Date up to the first anniversary of the Closing Date, 80% of the Net Orderly Liquidation Value of Eligible Equipment, (B) from and after the first anniversary of the Closing Date up to the second anniversary of the Closing Date, 70% of the Net Orderly Liquidation Value of Eligible Equipment, (C) from and after the second anniversary of the Closing Date up to the third anniversary of the Closing Date, 60% of the Net Orderly Liquidation Value of Eligible Equipment, and (D) from and after the third anniversary of the Closing Date up to the fourth anniversary of the Closing Date, 50% of the Net Orderly Liquidation Value of Eligible Equipment, and (ii) $8,250,000, plus (y) the lowest of (i) $16,000,000, (ii) 30% of the Real Property Collateral Appraised Value, (iii) 100% of the amount of credit availability created under clause (w) above, and (iv) 50% of the Real Property Collateral Appraised Value less an amount equal to the Term Loan Amount; minus (z) the aggregate amount of reserves, if any, established by Agent under Section 2.1(b). (b) Anything to the contrary in this Section 2.1 notwithstanding, Agent shall have the right to establish reserves in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, against the Borrowing Base, with respect to (i) sums that any Obligor is required to pay (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and has failed to pay under any Section of this Agreement or any other Loan Document, (ii) amounts owing by any Obligor to any Person to the extent secured by a Lien on, or trust over, any of the Collateral (other than any existing Permitted Lien set forth on Schedule P-1 which is specifically identified thereon as entitled to have priority over the Agent's Liens), which Lien or trust, in the Permitted Discretion of Agent likely would have a priority superior to the Agent's Liens (such as Liens or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or other taxes where given priority under applicable law) in and to such item of the Collateral, (iii) if applicable, amounts as permitted pursuant to Section 3.2(e), and (iv) amounts as provided in Section 2.2(g). In addition to the foregoing, Agent shall have the right to have the Borrower's Equipment and the Real Property Collateral reappraised by a qualified appraisal company selected by Agent from time to time after the Closing Date for the purpose of redetermining the Net Orderly Liquidation Value of Eligible Equipment and the Real Property -30- 32 Collateral Appraised Value and, as a result, redetermining the Borrowing Base. Borrower shall reimburse Agent on demand for the Lender Group Expenses: (i) for annual appraisals of the Borrower's Equipment and the Real Property Collateral, so long as there has not occurred any Event of Default which is continuing; and (ii) for all appraisals of the Borrower's Equipment and the Real Property Collateral if there has occurred an Event of Default which is continuing. (c) The Lenders with Revolver Commitments shall have no obligation to make additional Advances hereunder to the extent such additional Advances would cause the Revolver Usage to exceed the Maximum Revolver Amount. (d) Amounts borrowed pursuant to this Section may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement. (e) In Agent's sole discretion, during the first calendar quarter of 2001, Agent shall review and appraise the Collateral Obligors' Inventory so as to determine whether a percentage of such Inventory should be considered part of the Borrowing Base. Nothing contained in this Section 2.1(e) shall constitute a commitment by any of the Lender Group to make advances against any Inventory. 2.2 TERM LOAN; CREATION OF ADDITIONAL RESERVE. (a) Subject to the terms and conditions of this Agreement, on the Closing Date each Lender with a Term Loan Commitment agrees (severally, not jointly or jointly and severally) to make term loans (collectively, the "Term Loan") to Borrower in an amount equal to such Lender's Pro Rata Share of the Maximum Term Loan Amount. (b) The Term Loan and all accrued and unpaid interest under the Term Loan shall be due and payable on the earliest to occur of (i) the date of termination of this Agreement by its terms, (ii) the date of termination of this Agreement by acceleration, or (iii) the Term Loan Maturity Date. All amounts outstanding under the Term Loan shall constitute Obligations. The inability of Borrower to refinance or prepay the Term Loan in accordance with subsections (c), (d), (e) or (f) below shall not relieve Borrower of its obligations under this subsection (b). (c) Borrower shall be permitted to refinance the Term Loan with proceeds of Refinancing Indebtedness, so long as: (y) there has not occurred any Event of Default which is continuing and (z) Borrower complies with the provisions of subsections (d) and (e) below. (d) Any payment of the principal of the Term Loan that involves the use of an Advance or existing cash and Cash Equivalents of the CPI Parties will require Borrower to have Required Liquidity of no less than $15,000,000 after such payment has been made. (e) The terms of any such Refinancing Indebtedness shall, at Borrower's election, either (i) grant to Refinancing Lender substantially the same rights and obligations (including Lien and payment priority) as those which the Lenders hereunder having Term Loan Commitments have under this Agreement and the other Loan Documents and with the maturity date of such Refinancing -31- 33 Indebtedness no earlier than the Maturity Date, and with no principal amortization prior to the maturity date of such Refinancing Indebtedness, or (ii) be secured by a first priority deed of trust encumbering the Palo Alto Real Property Collateral, senior in priority to the Mortgage encumbering the Palo Alto Real Property Collateral in favor of Agent, with such Refinancing Indebtedness having a maturity date no earlier than 6 months after the Maturity Date and having an amortization subject to Agent's approval, which approval shall not be unreasonably withheld, and with Borrower having Required Liquidity of no less than $15,000,000 at the time such Refinancing Indebtedness is incurred. Agent shall cooperate in good faith with Borrower's efforts in obtaining Refinancing Indebtedness complying with the provisions of this subsection (e). The Refinancing Lender and the terms of any collateral access provided to Agent for the benefit of the Lenders shall be subject to Agent's prior consent, not to be unreasonably withheld. (f) At Borrower's election, Borrower may prepay the Term Loan, in whole or in part, at any time, without premium or penalty, provided that: (i) after giving effect to the prepayment of the Term Loan, no Event of Default shall have occurred and be continuing; (ii) if Borrower uses the proceeds of an Advance or existing cash and Cash Equivalents of the CPI Parties to prepay the Term Loan in whole or in part, Borrower shall have Required Liquidity of no less than $15,000,000 after incurring such Advance; (iii) if Borrower prepays the Term Loan with the proceeds of a Refinancing Indebtedness, Borrower: (A) shall comply with subsection (e)(i) or (e)(ii) above, whichever is applicable; and (B) must prepay the Term Loan in full; (iv) Borrower shall give Agent no less than ten (10) days' prior written notice of such prepayment, including the amount and date thereof (it being expressly understood and agreed that Borrower shall have no liability for not effecting a contemplated prepayment, even if notice thereof has been given); (v) Borrower shall have paid accrued interest on the Term Loan to the date of prepayment; and (vi) any prepayment shall be in a minimum principal amount of $5,000,000. (g) If, prior to the repayment in full of the Term Loan, Parent, Borrower, or any of their Subsidiaries receives any Net Proceeds from (A) the voluntary or involuntary sale, assignment, transfer or other disposition (including takings as a result of condemnation or casualty losses) of any of their assets, other than in connection with a Permitted Disposition (each, a "Sale"), (B) the issuance and sale of any debt or equity securities (each, an "Issuance"), or (C) the collection (including by means of settlement) of any claim involving litigation or arbitration or threatened litigation or arbitration (each, a "Realization") and if the Net Proceeds received on account of any such Sale (whether in one or a series of -32- 34 related transactions), Issuance (whether in one or a series of related transactions), or Realization exceeds $1,000,000 or if the Net Proceeds received on account of all such Sales, Issuances, or Realizations exceeds $5,000,000 (in any such case, the "Excess Net Proceeds"), then Agent shall create and maintain (until repayment in full of the Term Loan) a reserve against the Maximum Revolver Amount and the Borrowing Base in an amount equal to the Excess Net Proceeds (whereupon, if and to the extent that an Overadvance is created by the creation of such reserve, Borrower shall pay so much of the Excess Net Proceeds to Agent as is necessary to eliminate the Overadvance, and Agent shall apply such Excess Net Proceeds first, to prepay the Advances and, second, to provide cash collateral to be held by Agent in an interest bearing account selected by Agent in its sole discretion for the benefit of those Lenders with a Revolver Commitment in an amount equal to 105% of the then extant Letter of Credit Usage). 2.3 BORROWING PROCEDURES AND SETTLEMENTS. (a) PROCEDURE FOR BORROWING. Each Borrowing shall be made by an irrevocable written request by an Authorized Person delivered to Agent (which notice must be received by Agent no later than 10:00 a.m. (California time) on the Business Day prior to the date that is the requested Funding Date in the case of a request for an Advance or the Term Loan specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day; provided, however, that in the case of a request for Swing Loan in an amount of $5,000,000 or less, such notice will be timely received if it is received by Agent no later than 10:00 a.m. (California time) on the Business Day that is the requested Funding Date) specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Agent's election, in lieu of delivering the above-described written request, any Authorized Person may give Agent telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of the giving of such notice. (b) AGENT'S ELECTION. Promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall elect, in its discretion, (i) to have the terms of Section 2.3(c) apply to such requested Borrowing, or (ii) if the Borrowing is for an Advance, to request Swing Lender to make a Swing Loan pursuant to the terms of Section 2.3(d) in the amount of the requested Borrowing; provided, however, that if Swing Lender declines in its sole discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall elect to have the terms of Section 2.3(c) apply to such requested Borrowing. (c) MAKING OF ADVANCES. (i) In the event that Agent shall elect to have the terms of this Section 2.3(c) apply to a requested Borrowing as described in Section 2.3(b), then promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent shall notify the Lenders, not later than 1:00 p.m. (California time) on the Business Day immediately preceding the Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender's Pro Rata Share of the requested Borrowing available to Agent in immediately available funds, to Agent's Account, not later than 10:00 a.m. (California time) on the Funding Date applicable thereto. After Agent's receipt of the proceeds of such Advances (or the Term Loan, as applicable), upon satisfaction of the applicable -33- 35 conditions precedent set forth in Section 3 hereof, Agent shall make the proceeds thereof available to Borrower on the applicable Funding Date by transferring immediately available funds equal to such proceeds received by Agent to Borrower's Designated Account; provided, however, that, subject to the provisions of Section 2.3(i), Agent shall not request any Lender to make, and no Lender shall have the obligation to make, any Advance (or its portion of the Term Loan) if Agent shall have actual knowledge that (1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (2) the requested Borrowing would exceed the Availability on such Funding Date. (ii) Unless Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least 1 Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of Borrower the amount of that Lender's Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to Agent in immediately available funds and Agent in such circumstances has made available to Borrower such amount, that Lender shall on the Business Day following such Funding Date make such amount available to Agent, together with interest at the Defaulting Lender Rate for each day during such period. A notice submitted by Agent to any Lender with respect to amounts owing under this subsection shall be conclusive, absent manifest error. If such amount is so made available, such payment to Agent shall constitute such Lender's portion of the requested Advance on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Borrower of such failure to fund and, upon demand by Agent, Borrower shall pay such amount to Agent for Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Advances composing such Borrowing. The failure of any Lender to make its portion of any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make available its portion of the requested Advance on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make available its portion of the requested Advance to be made by such other Lender on any Funding Date. (iii) Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrower to Agent for the Defaulting Lender's benefit, and, in the absence of such transfer to the Defaulting Lender, Agent shall transfer any such payments to each other non-Defaulting Lender member of the Lender Group ratably in accordance with their Commitments (but only to the extent that such Defaulting Lender's Advance was funded by the other members of the Lender Group) or, if so directed by Borrower and if no Default or Event of Default had occurred and is continuing (and to the extent such Defaulting Lender's Advance was not funded by the Lender Group), retain same to be re-advanced to Borrower as if such Defaulting Lender had made Advances to Borrower. Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrower for the account of such Defaulting Lender the amount of all such payments received and retained by it for the account of such Defaulting Lender. Solely for the purposes of voting or -34- 36 consenting to matters with respect to the Loan Documents, such Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Commitment and Total Commitment shall be deemed to be zero. This Section shall remain effective with respect to such Lender until (x) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable, (y) the non-Defaulting Lenders, Agent, and Borrower shall have waived such Defaulting Lender's default in writing, or (z) the Defaulting Lender makes its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing by Defaulting Lender in respect thereof. The operation of this Section shall not be construed to increase or otherwise affect the Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations hereunder, or to relieve or excuse the performance by Borrower of its duties and obligations hereunder to Agent or to the Lenders other than such Defaulting Lender. Any such failure to fund by any Defaulting Lender shall constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Borrower at its option, upon written notice to Agent, to arrange for a substitute Lender to assume the Commitment of such Defaulting Lender, such substitute Lender to be reasonably acceptable to Agent. In connection with the arrangement of such a substitute Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance Agreement in favor of the substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being repaid its share of the outstanding Obligations (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever; provided further, however, that any such assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a waiver of any of the Lender Groups' or Borrower's rights or remedies against any such Defaulting Lender arising out of or in relation to such failure to fund. (d) MAKING OF SWING LOANS. (i) In the event Agent shall elect, with the consent of Swing Lender, as a Lender, to have the terms of this Section 2.3(d) apply to a requested Borrowing as described in Section 2.3(b), Swing Lender as a Lender shall make such Advance in the amount of such Borrowing (any such Advance made solely by Swing Lender as a Lender pursuant to this Section 2.3(d) being referred to as a "Swing Loan" and such Advances being referred to collectively as "Swing Loans") available to Borrower on the Funding Date applicable thereto by transferring immediately available funds to Borrower's Designated Account. Each Swing Loan is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that no such Swing Loan shall be eligible for the LIBOR Option and all payments on any Swing Loan shall be payable to Swing Lender as a Lender solely for its own account (and for the account of the holder of any participation interest with respect to such Swing Loan). Subject to the provisions of Section 2.3(i), Agent shall not request Swing Lender as a Lender to make, and Swing Lender as a Lender shall not make, any Swing Loan if Agent has actual knowledge that (i) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such condition has been waived, or (ii) the requested Borrowing would exceed the Availability on such Funding Date. Swing Lender as a Lender shall not otherwise be required to determine whether the applicable conditions precedent set forth in Section 3 have been -35- 37 satisfied on the Funding Date applicable thereto prior to making, in its sole discretion, any Swing Loan. (ii) The Swing Loans shall be secured by the Agent's Liens, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances that are Base Rate Loans. (e) AGENT ADVANCES. (i) Agent hereby is authorized by Borrower and the Lenders, from time to time in Agent's sole discretion, (1) after the occurrence and during the continuance of a Default or an Event of Default, or (2) at any time that any of the other applicable conditions precedent set forth in Section 3 have not been satisfied, to make Advances to Borrower on behalf of the Lenders that Agent, in its Permitted Discretion deems necessary or desirable (A) to preserve or protect the Collateral, or any portion thereof, (B) to enhance the likelihood of repayment of the Obligations, or (C) to pay any other amount chargeable to Borrower pursuant to the terms of this Agreement, including Lender Group Expenses and the costs, fees, and expenses described in Section 10 (any of the Advances described in this Section 2.3(e) shall be referred to as "Agent Advances"); provided, that notwithstanding anything to the contrary contained in this Section 2.3(e), the aggregate principal amount of Agent Advances outstanding at any one time, when taken together with the aggregate principal amount of Overadvances made in accordance with Section 2.3(i) outstanding at any time, shall not exceed an amount equal to the lesser of (x) 10% of the Borrowing Base then in effect and (y) $4,100,000. Each Agent Advance is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that no such Agent Advance shall be eligible for the LIBOR Option and all payments thereon shall be payable to Agent solely for its own account (and for the account of the holder of any participation interest with respect to such Agent Advance). (ii) The Agent Advances shall be repayable on demand and secured by the Agent's Liens granted to Agent under the Loan Documents, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances that are Base Rate Loans. (f) SETTLEMENT. It is agreed that each Lender's funded portion of the Advances is intended by the Lenders to equal, at all times, such Lender's Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Advances, the Swing Loans, and the Agent Advances shall take place on a periodic basis in accordance with the following provisions: (i) Agent shall request settlement ("Settlement") with the Lenders on a weekly basis, or on a more frequent basis if so determined by Agent, (1) on behalf of Swing Lender, with respect to each outstanding Swing Loan, (2) for itself, with respect to each Agent Advance, and (3) with respect to Collections received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:00 p.m. -36- 38 (California time) on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the "Settlement Date"). Such notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances, Swing Loans, and Agent Advances for the period since the prior Settlement Date. Subject to the terms and conditions contained herein (including Section 2.3(c)(iii)): (y) if a Lender's balance of the Advances, Swing Loans, and Agent Advances exceeds such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, then Agent shall, by no later than 12:00 p.m. (California time) on the Settlement Date, transfer in immediately available funds to the account of such Lender as such Lender may designate, an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances, and (z) if a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, such Lender shall no later than 12:00 p.m. (California time) on the Settlement Date transfer in immediately available funds to the Agent's Account, an amount such that each such Lender shall, upon transfer of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances. Such amounts made available to Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Swing Loan or Agent Advance and, together with the portion of such Swing Loan or Agent Advance representing Swing Lender's or Agent's Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate. (ii) In determining whether a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than, equal to, or greater than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by Agent with respect to principal, interest, and fees payable by Borrower and allocable to the Lenders hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any such Lender after such application, such net amount shall be distributed by Agent to that Lender as part of such next Settlement. (iii) Between Settlement Dates, Agent, to the extent no Agent Advances or Swing Loans are outstanding, may pay over to Swing Lender any payments received by Agent, that in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to Swing Lender's Pro Rata Share of the Advances. If, as of any Settlement Date, Collections received since the then immediately preceding Settlement Date have been applied to Swing Lender's Pro Rata Share of the Advances other than to Swing Loans, as provided for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders, to be applied to the outstanding Advances of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlement Dates, Swing Lender with respect to Swing Loans, Agent with respect to Agent Advances, and each Lender (subject to the effect of letter agreements between Agent and individual Lenders) with respect to the -37- 39 Advances other than Swing Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as applicable. (g) NOTATION. Agent shall record on its books the principal amount of the Advances owing to each Lender, including the Swing Loans owing to Swing Lender, and Agent Advances owing to Agent, and the interests therein of each Lender, from time to time. In addition, each Lender is authorized, at such Lender's option, to note the date and amount of each payment or prepayment of principal of such Lender's Advances in its books and records, including computer records, such books and records constituting prima facie evidence of the accuracy of the information contained therein. (h) LENDERS' FAILURE TO PERFORM. All Advances (other than Swing Loans and Agent Advances) shall be made by the Lenders contemporaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advance (or other extension of credit) hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligations hereunder, and (ii) no failure by any Lender to perform its obligations hereunder shall excuse any other Lender from its obligations hereunder. (i) OPTIONAL OVERADVANCES. Any contrary provision of this Agreement notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as applicable, and Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly and intentionally, continue to make Advances (including Swing Loans) to Borrower notwithstanding that an Overadvance exists or thereby would be created, so long as (i) after giving effect to such Advances (including a Swing Loan), the outstanding Revolver Usage does not exceed the Borrowing Base by more than an amount equal to the lesser of (1) 10% of the Borrowing Base then in effect and (2) $4,100,000, (ii) after giving effect to such Advances (including a Swing Loan), the outstanding Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver Amount, (iii) the aggregate principal amount of Overadvances made pursuant to this Section 2.3(i) when taken together with the aggregate principal amount of Agent Advances made pursuant to Section 2.3(e) does not exceed at any time an amount equal to the lesser of (1) 10% of the Borrowing Base then in effect and (2) $4,100,000, and (iv) at the time of the making of any such Advance (including any Swing Loan), Agent does not believe, in good faith, that the Overadvance created by such Advance will be outstanding for more than 90 days. The foregoing provisions are for the exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrower in any way. The Advances and Swing Loans, as applicable, that are made pursuant to this Section 2.3(i) shall be subject to the same terms and conditions as any other Advance or Swing Loan, as applicable, except that they shall not be eligible for the LIBOR Option and the rate of interest applicable thereto shall be the rate applicable to Advances that are Base Rate Loans under Section 2.6(c) hereof without regard to the presence or absence of a Default or Event of Default. (i) In the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted by the preceding paragraph, regardless of the amount of, or reason for, such excess, Agent shall notify Lenders as soon as practicable (and prior to making any (or any -38- 40 additional) intentional Overadvances (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or its value), and the Lenders with Revolver Commitments thereupon shall, together with Agent, jointly determine the terms of arrangements that shall be implemented with Borrower intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrower to an amount permitted by the preceding paragraph. In the event Agent or any Lender disagrees over the terms of reduction or repayment of any Overadvance, the terms of reduction or repayment thereof shall be implemented according to the determination of the Required Lenders. (ii) Each Lender with a Revolver Commitment shall be obligated to settle with Agent as provided in Section 2.3(f) for the amount of such Lender's Pro Rata Share of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as permitted under this Section 2.3(i), and any Overadvances resulting from the charging to the Loan Account of interest, fees, or Lender Group Expenses. 2.4 PAYMENTS. (a) PAYMENTS BY BORROWER. (i) Except as otherwise expressly provided herein, all payments by Borrower shall be made in Dollars to Agent's Account for the account of the Lender Group and shall be made in immediately available funds, no later than 11:00 a.m. (California time) on the date specified herein. Any payment received by Agent later than 11:00 a.m. (California time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day. (ii) Unless Agent receives notice from Borrower prior to the date on which any payment is due to the Lenders that Borrower will not make such payment in full as and when required, Agent may assume that Borrower has made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrower does not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each day from the date such amount is distributed to such Lender until the date repaid. (b) APPORTIONMENT AND APPLICATION OF PAYMENTS. (i) Except as otherwise provided with respect to Defaulting Lenders and except as otherwise provided in the Loan Documents (including letter agreements between Agent and individual Lenders), aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) and payments of fees and expenses (other than fees or expenses that are for Agent's separate account, after giving effect to any letter agreements between Agent and -39- 41 individual Lenders) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Commitment or Obligation to which a particular fee relates. All payments shall be remitted to Agent and all such payments (other than payments received while no Default or Event of Default has occurred and is continuing and which relate to the payment of principal or interest of specific Obligations or which relate to the payment of specific fees), and all proceeds of Accounts or other Collateral received by Agent, shall be applied as follows: (A) first, to pay any Lender Group Expenses then due to Agent under the Loan Documents, until paid in full, (B) second, to pay any Lender Group Expenses then due to the Lenders under the Loan Documents, on a ratable basis, until paid in full, (C) third, to pay any fees then due to Agent (for its separate accounts, after giving effect to any letter agreements between Agent and individual Lenders) under the Loan Documents until paid in full, (D) fourth, to pay any fees then due to any or all of the Lenders (after giving effect to any letter agreements between Agent and individual Lenders) under the Loan Documents, on a ratable basis, until paid in full, (E) fifth, to pay interest due in respect of all Agent Advances, until paid in full, (F) sixth, ratably to pay interest due in respect of the Advances (other than Agent Advances) and the Swing Loans until paid in full, (G) seventh, so long as no Event of Default has occurred and is continuing or, if an Event of Default has occurred and is continuing and Agent agrees in its sole discretion, to pay interest due in respect of the Term Loan until paid in full (if an Event of Default has occurred or is continuing, the priority of the payment of interest on the Term Loan Amount is deferred to item thirteenth below), (H) eighth, to pay the principal of all Agent Advances until paid in full, (I) ninth, to pay the principal of all Swing Loans until paid in full, (J) tenth, to pay the principal of all Advances until paid in full, (K) eleventh, if an Event of Default has occurred and is continuing, to Agent, to be held by Agent, for the ratable benefit of Issuing Lender and those Lenders having a Revolver Commitment, as cash collateral in an amount up to 105% of the then extant Letter of Credit Usage until paid in full, -40- 42 (L) twelfth, ratably to pay all principal amounts then due and payable (other than as a result of an acceleration thereof) with respect to the Term Loan until paid in full, (M) thirteenth, if an Event of Default has occurred and is continuing, to pay interest due in respect of the Term Loan until paid in full, (N) fourteenth, if an Event of Default has occurred and is continuing, to pay the outstanding principal balance of the Term Loan (in the inverse order of the maturity of the installments due thereunder) until the Term Loan is paid in full, (O) fifteenth, to pay any other Obligations until paid in full, and (P) sixteenth, to Borrower (to be wired to the Designated Account) or such other Person entitled thereto under applicable law. (ii) Agent promptly shall distribute to each Lender, pursuant to the applicable wire instructions received from each Lender in writing, such funds as it may be entitled to receive, subject to a Settlement delay as provided in Section 2.3(f). (iii) In each instance, so long as no Default or Event of Default has occurred and is continuing, Section 2.4(b) shall not be deemed to apply to any payment by Borrower specified by Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement. (iv) For purposes of the foregoing, "paid in full" means payment of all amounts owing under the Loan Documents according to the terms thereof, including loan fees, reasonable and documented out-of-pocket service fees, reasonable and documented out-of-pocket professional fees, interest (and specifically including interest accrued after the commencement of any Insolvency Proceeding), default interest, interest on interest, and reasonable and documented out-of-pocket expense reimbursements, whether or not the same would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding. (v) In the event of a direct conflict between the priority provisions of this Section 2.4 and other provisions contained in any other Loan Document, it is the intention of the parties hereto that such priority provisions in such documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, the terms and provisions of this Section 2.4 shall control and govern. 2.5 OVERADVANCES. If, at any time or for any reason, the amount of Obligations owed by Borrower to the Lender Group pursuant to Sections 2.1 and 2.12 is greater than either the Dollar or percentage limitations set forth in Sections 2.1 or 2.12, (an "Overadvance"), Borrower immediately shall pay to Agent, in cash, the amount of such excess, which amount shall be used by Agent to reduce the Obligations in accordance with the priorities set forth in Section 2.4(b). In addition, -41- 43 Borrower hereby promises to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full to the Lender Group as and when due and payable under the terms of this Agreement and the other Loan Documents. 2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS, AND CALCULATIONS. (a) INTEREST RATES. Except as provided in clause (c) below, (i) all Obligations (except for undrawn Letters of Credit and the Term Loan Amount) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to the greater of (A) (1) if the relevant Obligation is an Advance that is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate Margin, or (2) otherwise, at a per annum rate equal to the Base Rate plus the Base Rate Margin, and (ii) the Term Loan Amount shall bear interest on the amount thereof outstanding from time to time at a per annum rate equal to the Base Rate plus 5.50 percentage points. (b) LETTER OF CREDIT FEE. Borrower shall pay Agent (for the ratable benefit of the Lenders with a Revolver Commitment, subject to any letter agreement between Agent and individual Lenders), a Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.12(e)) which shall accrue at a rate equal to 1.25% per annum times the Daily Balance of the undrawn amount of all outstanding Letters of Credit. (c) DEFAULT RATE. Upon the occurrence and during the continuation of an Event of Default, (i) all Obligations (except for undrawn Letters of Credit ) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to three (3) percentage points above the per annum rate otherwise applicable hereunder, and (ii) the Letter of Credit fee provided for above shall be increased to three (3) percentage points above the per annum rate otherwise applicable hereunder. (d) PAYMENT. Interest, Letter of Credit fees, and all other fees payable hereunder shall be due and payable, in arrears, on the first day of each month at any time that Obligations or Commitments are outstanding. Borrower hereby authorizes Agent to, from time to time, without prior notice to Borrower, and Agent agrees that it will, charge such interest and fees, all Lender Group Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.12(e) (as and when accrued or incurred), the fees and costs provided for in Section 2.11 (as and when accrued or incurred), and all other payments as and when due and payable under any Loan Document (including the installments due and payable with respect to the Term Loan) to Borrower's Loan Account, which amounts thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be -42- 44 compounded by being charged to Borrower's Loan Account and shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances that are Base Rate Loans hereunder. (e) COMPUTATION. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed. In the event the Base Rate is changed from time to time hereafter, the rates of interest hereunder based upon the Base Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate. (f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrower and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrower is and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess. 2.7 CASH MANAGEMENT. (a) Each of the Collateral Obligors shall (i) establish and maintain cash management services of a type and on terms satisfactory to Agent at one or more of the banks set forth on Schedule 2.7(a) (each, a "Cash Management Bank"), and shall request in writing and otherwise take such reasonable steps to ensure that all of its Account Debtors forward payment of the amounts owed by them directly to such Cash Management Bank, and (ii) deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all Collections (including those sent directly by Account Debtors to a Cash Management Bank) into a bank account in Agent's name (a "Cash Management Account") at one of the Cash Management Banks. (b) Each Cash Management Bank shall establish and maintain Cash Management Agreements with Agent and Collateral Obligors, in form and substance acceptable to Agent. Each such Cash Management Agreement shall provide, among other things, that (i) all items of payment deposited in such Cash Management Account and proceeds thereof are held by such Cash Management Bank as agent or bailee-in-possession for Agent, (ii) the Cash Management Bank has no rights of setoff or recoupment or any other claim against the applicable Cash Management Account other than for payment of its service fees and other charges directly related to the administration of such Cash Management Account and for returned checks or other items of payment, and (iii) it immediately will forward by daily sweep all amounts in the applicable Cash Management Account to the Agent's Account. -43- 45 (c) So long as no Default or Event of Default has occurred and is continuing, Borrower may amend Schedule 2.7(a) to add or replace a Cash Management Bank or Cash Management Account; provided, however, that (i) such prospective Cash Management Bank shall be reasonably satisfactory to Agent and Agent shall have consented in writing in advance to the opening of such Cash Management Account with the prospective Cash Management Bank, and (ii) prior to the time of the opening of such Cash Management Account, the applicable Collateral Obligor and such prospective Cash Management Bank shall have executed and delivered to Agent a Cash Management Agreement. Borrower shall close any of the Cash Management Accounts (and establish replacement cash management accounts in accordance with the foregoing sentence) promptly and in any event within 30 days of notice from Agent that the creditworthiness of any Cash Management Bank is no longer acceptable in Agent's reasonable judgment, or as promptly as practicable and in any event within 60 days of notice from Agent that the operating performance, funds transfer, or availability procedures or performance of the Cash Management Bank with respect to Cash Management Accounts or Agent's liability under any Cash Management Agreement with such Cash Management Bank is no longer acceptable in Agent's reasonable judgment. (d) The Cash Management Accounts shall be cash collateral accounts, with all cash, checks and similar items of payment in such accounts securing payment of the Obligations, and in which Collateral Obligors are hereby deemed to have granted a Lien to Agent. (e) Notwithstanding the provisions of Section 2.7(b), so long as no Triggering Event has occurred, Borrower may elect to direct any or all amounts in the Cash Management Accounts to Borrower's Designated Account, provided that such direction and the effect thereof shall not cause a Default or Event of Default. If any such Triggering Event shall have occurred but shall subsequently be cured to Agent's satisfaction, then in Agent's sole discretion, Agent may thereafter permit Borrower to elect, and so long as no subsequent Triggering Event has occurred Borrower may so elect, to direct any or all amounts in the Cash Management Accounts to Borrower's Designated Account, provided that such direction and the effect thereof shall not cause a Default or Event of Default. 2.8 CREDITING PAYMENTS; FLOAT CHARGE. The receipt of any payment item by Agent (whether from transfers to Agent by the Cash Management Banks pursuant to the Cash Management Agreements or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to the Agent's Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrower shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into the Agent's Account on a Business Day on or before 11:00 a.m. (California time). If any payment item is received into the Agent's Account on a non-Business Day or after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day. From and after the Closing Date, Agent shall be entitled to charge Borrower for 1 Business Day of "clearance" or "float" at the rate applicable to Base Rate Loans under Section 2.6 on all Collections that are received by Obligors (regardless of whether forwarded by the Cash Management Banks to Agent). This across-the-board 1 Business Day -44- 46 clearance or float charge on all Collections is acknowledged by the parties to constitute an integral aspect of the pricing of the financing of Borrower and shall apply irrespective of whether or not there are any outstanding monetary Obligations; the effect of such clearance or float charge being the equivalent of charging 1 Business Day of interest on all Collections. The parties acknowledge and agree that the economic benefit of the foregoing provisions of this Section 2.8 shall be for the exclusive benefit of Agent. 2.9 DESIGNATED ACCOUNT. Agent is authorized to make the Advances and the Term Loan, and Issuing Lender is authorized to issue the Letters of Credit, under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.6(d). Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose of receiving the proceeds of the Advances requested by Borrower and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and Borrower, any Advance, Agent Advance, or Swing Loan requested by Borrower and made by Agent or the Lenders hereunder shall be made to the Designated Account. 2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Agent shall maintain an account on its books in the name of Borrower (the "Loan Account") on which Borrower will be charged with the Term Loan, all Advances (including Agent Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrower or for Borrower's account, the Letters of Credit issued by Issuing Lender for Borrower's account, and with all other payment Obligations hereunder or under the other Loan Documents, including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.8, the Loan Account will be credited with all payments received by Agent from Borrower or for Borrower's account, including all amounts received in the Agent's Account from any Cash Management Bank. Agent shall render statements regarding the Loan Account to Borrower, including principal, interest, fees, and including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and the Lender Group unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver to Agent written objection thereto describing the error or errors contained in any such statements. 2.11 FEES. Borrower shall pay to Agent the following fees and charges, which fees and charges shall be non-refundable when paid (irrespective of whether this Agreement is terminated thereafter) and shall be apportioned among the Lenders (unless otherwise expressly indicated) in accordance with the terms of letter agreements between Agent and individual Lenders: (a) ORIGINATION FEE. 1.50% of the Maximum Revolving Amount, which shall be fully earned and payable on the Closing Date, (b) [INTENTIONALLY LEFT BLANK], (c) UNUSED LINE FEE. On the first day of each month during the term of this Agreement, an unused line fee in an amount equal to 0.375% per annum times the result of (a) the Maximum Revolver Amount, less (b) the sum of (i) the average Daily Balance of Advances that -45- 47 were outstanding during the immediately preceding month, plus (ii) the average Daily Balance of the Letter of Credit Usage during the immediately preceding month, (d) TERM LOAN FEE. 2.00% of the Term Loan Amount, which shall be fully earned and payable on the Closing Date, (e) COLLATERAL MANAGEMENT. For the separate account of Agent, on the first day of each month during the term of this Agreement, a servicing fee in an amount equal to $12,500; provided, however, if Borrower is unable to establish an electronic collateral reporting system satisfactory to Agent by the end of the ninth full calendar month following the Closing Date, then the monthly collateral management fee shall thereafter be $15,000, and (f) AUDIT, APPRAISAL, AND VALUATION CHARGES. For the separate account of Agent, audit, appraisal, and valuation fees and charges as follows, to be paid in arrears: (i) a fee of $750 per day, per auditor, plus out-of-pocket expenses for each financial audit of Obligors performed by personnel employed by Agent, (ii) if implemented, a one time charge of $3,000 plus reasonable and documented out-of-pocket expenses for expenses for the establishment of electronic collateral reporting systems, (iii) [intentionally left blank]; and (iv) the reasonable and documented out-of-pocket charges paid or incurred by Agent if it elects to employ the services of one or more third Persons to perform financial audits of Obligors, to appraise the Collateral, or any portion thereof, or to Obligors' business valuation; provided, however, that so long as there has not occurred any Event of Default which is continuing, Borrower shall bear all of the foregoing fees and costs in connection with no more than 4 audits per year and 1 appraisal of the Equipment and the Real Property Collateral per year; provided, further, that the foregoing limitation on Borrower's obligations for fees and costs shall not limit: (A) Agent's right to conduct additional audits and appraisals at its cost; or (B) Borrower's obligations for fees and costs following the occurrence of any Event of Default. 2.12 LETTERS OF CREDIT. (a) Subject to the terms and conditions of this Agreement, the Issuing Lender agrees to issue letters of credit for the account of Borrower (each, an "L/C") or to purchase participations or execute indemnities or reimbursement obligations (each such undertaking, an "L/C Undertaking") with respect to letters of credit issued by an Underlying Issuer (as of the Closing Date, the prospective Underlying Issuer is to be Wells Fargo) for the account of Borrower. To request the issuance of an L/C or an L/C Undertaking (or the amendment, renewal, or extension of an outstanding L/C or L/C Undertaking), Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Lender) to the Issuing Lender and Agent (reasonably in advance of the requested date of issuance, amendment, renewal, or extension) a notice requesting the issuance of an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking to be amended, renewed, or extended, the date of issuance, amendment, renewal, or extension, the date on which such L/C or L/C Undertaking is to expire, the amount of such L/C or L/C Undertaking, the name and address of the beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as applicable), and such other information as shall be necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If requested by the -46- 48 Issuing Lender, Borrower also shall be an applicant under the application with respect to any Underlying Letter of Credit that is to be the subject of an L/C Undertaking. The Issuing Lender shall have no obligation to issue a Letter of Credit if any of the following would result after giving effect to the requested Letter of Credit: (i) the Letter of Credit Usage would exceed the Borrowing Base less the then extant amount of outstanding Advances, or (ii) the Letter of Credit Usage would exceed $10,000,000, or (iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less the then extant amount of outstanding Advances. Borrower and the Lender Group acknowledge and agree that certain Underlying Letters of Credit may be issued to support letters of credit that already are outstanding as of the Closing Date. Each Letter of Credit (and corresponding Underlying Letter of Credit) shall have an expiry date no later than 30 days prior to the Maturity Date and all such Letters of Credit (and corresponding Underlying Letter of Credit) shall be in form and substance acceptable to the Issuing Lender (in the exercise of its Permitted Discretion), including the requirement that the amounts payable thereunder must be payable in Dollars. If Issuing Lender is obligated to advance funds under a Letter of Credit, Borrower immediately shall reimburse such L/C Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C Disbursement not later than 11:00 a.m., California time, on the date that such L/C Disbursement is made, if Borrower shall have received written or telephonic notice of such L/C Disbursement prior to 10:00 a.m., California time, on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 11:00 a.m., California time, on the Business Day that Borrower receives such notice, if such notice is received prior to 10:00 a.m., California time, on the date of receipt, and, in the absence of such reimbursement, the L/C Disbursement immediately and automatically shall be deemed to be an Advance hereunder and, thereafter, shall bear interest at the rate then applicable to Advances that are Base Rate Loans under Section 2.6. To the extent an L/C Disbursement is deemed to be an Advance hereunder, Borrower's obligation to reimburse such L/C Disbursement shall be discharged and replaced by the resulting Advance. Promptly following receipt by Agent of any payment from Borrower pursuant to this paragraph, Agent shall distribute such payment to the Issuing Lender or, to the extent that Lenders have made payments pursuant to Section 2.12(c) to reimburse the Issuing Lender, then to such Lenders and the Issuing Lender as their interest may appear. (b) Promptly following receipt of a notice of L/C Disbursement pursuant to Section 2.12(a), each Lender with a Revolver Commitment agrees to fund its Pro Rata Share of any Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as if Borrower had requested such Advance and Agent shall promptly pay to Issuing Lender the amounts so received by it from the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Lender or the Lenders with Revolver Commitment, the Issuing Lender shall be deemed to have granted to each Lender with a Revolver Commitment, and each Lender with a Revolver Commitment shall be deemed to have purchased, a participation in each Letter of Credit, in an -47- 49 amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and each such Lender agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro Rata Share of any payments made by the Issuing Lender under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender with a Revolver Commitment hereby absolutely and unconditionally agrees to pay to Agent, for the account of the Issuing Lender, such Lender's Pro Rata Share of each L/C Disbursement made by the Issuing Lender and not reimbursed by Borrower on the date due as provided in clause (a) of this Section, or of any reimbursement payment required to be refunded to Borrower for any reason. Each Lender with a Revolver Commitment acknowledges and agrees that its obligation to deliver to Agent, for the account of the Issuing Lender, an amount equal to its respective Pro Rata Share pursuant to this Section 2.12(b) shall be absolute and unconditional and such remittance shall be made notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3 hereof. If any such Lender fails to make available to Agent the amount of such Lender's Pro Rata Share of any payments made by the Issuing Lender in respect of such Letter of Credit as provided in this Section, Agent (for the account of the Issuing Lender) shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Defaulting Lender Rate until paid in full. (c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, liability, reasonable and documented out-of-pocket expense or cost, and reasonable and documented out-of-pocket attorneys fees incurred by the Lender Group arising out of or in connection with any Letter of Credit; provided, however, that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. Borrower agrees to be bound by the Underlying Issuer's regulations and interpretations of any Underlying Letter of Credit or by Issuing Lender's interpretations of any L/C issued by Issuing Lender to or for Borrower's account, even though this interpretation may be different from Borrower's own, and Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower's instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Borrower understands that the L/C Undertakings may require Issuing Lender to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrower against such Underlying Issuer. Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless with respect to any loss, liability, or reasonable and documented out-of-pocket expense cost (including reasonable and documented out-of-pocket attorneys fees) incurred by the Lender Group under any L/C Undertaking as a result of the Lender Group's indemnification of any Underlying Issuer; provided, however, that Borrower shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Lender or any other member of the Lender Group. (d) Borrower hereby authorizes and directs any Underlying Issuer to deliver to the Issuing Lender all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Lender's instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application. -48- 50 (e) Any and all reasonable and documented out-of-pocket charges, commissions, fees, and costs incurred by the Issuing Lender relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrower to Agent for the account of the Issuing Lender; it being acknowledged and agreed by Borrower that, as of the Closing Date, the issuance charge imposed by the prospective Underlying Issuer is 0.825% per annum times the face amount of each Underlying Letter of Credit, that such issuance charge may be changed from time to time, and that the Underlying Issuer also imposes a schedule of charges for amendments, extensions, drawings, and renewals. (f) If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto) first applicable after the Closing Date: (i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or (ii) there shall be imposed on the Underlying Issuer or the Lender Group any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto, and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by the Lender Group, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrower, and Borrower shall pay on demand such amounts as Agent may specify to be necessary to compensate the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder. The determination by Agent of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall constitute prima facie evidence thereof. Notwithstanding anything to the contrary in this Section 2.12(f), Agent shall only make a demand hereunder if such demand is made under substantially all loan documents of Agent containing similar provisions as those contained in the Loan Documents. 2.13 LIBOR OPTION. (a) INTEREST AND INTEREST PAYMENT DATES. In lieu of having interest charged at the rate determined by reference to the Base Rate, Borrower shall have the option (the "LIBOR Option") to have interest on all or a portion of the Advances be charged at a rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the Interest Period applicable thereto, (ii) the occurrence of an Event of Default in consequence of which the Required Lenders or Agent on behalf thereof elect to accelerate the -49- 51 maturity of the Obligations, (iii) termination of this Agreement pursuant to the terms hereof, or (iv) the first day of each month that such LIBOR Rate Loan is outstanding. On the last day of each applicable Interest Period, unless Borrower properly has exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Loan automatically shall convert to the rate of interest then applicable to Base Rate Loans of the same type hereunder. At any time that an Event of Default has occurred and is continuing, Borrower no longer shall have the option to request that Advances bear interest at the LIBOR Rate and Agent shall have the right to convert the interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to Base Rate Loans hereunder. (b) LIBOR ELECTION. (i) Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by notifying Agent prior to 11:00 a.m. (California time) at least 3 Business Days prior to the commencement of the proposed Interest Period (the "LIBOR Deadline"). Notice of Borrower's election of the LIBOR Option for a permitted portion of the Advances and an Interest Period pursuant to this Section shall be made by delivery to Agent of a LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic notice received by Agent before the LIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. (California time) on the same day. Promptly upon its receipt of each such LIBOR Notice, Agent shall provide a copy thereof to each of the Lenders having a Revolver Commitment. (ii) Each LIBOR Notice shall be irrevocable and binding on Borrower. In connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold Agent and the Lenders harmless against any loss, or reasonable and documented out-of-pocket cost or expense incurred by Agent or any Lender as a result of (a) the payment of any principal of any LIBOR Rate Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any LIBOR Rate Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice delivered pursuant hereto (such losses and reasonable and documented out-of-pocket costs and expenses, collectively, "Funding Losses"). Funding Losses shall, with respect to Agent or any Lender, be deemed to equal the amount determined by Agent or such Lender to be the excess, if any, of (i) the amount of interest that would have accrued on the principal amount of such LIBOR Rate Loan had such event not occurred, at the LIBOR Rate that would have been applicable thereto, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert, or continue, for the period that would have been the Interest Period therefor), minus (ii) the amount of interest that would accrue on such principal amount for such period at the interest rate which Agent or such Lender would be offered were it to be offered, at the commencement of such period, Dollar deposits of a comparable amount and period in the London interbank market. A certificate of Agent or a Lender delivered to Borrower setting forth any amount or amounts that Agent or such Lender is entitled to receive pursuant to this Section shall constitute prima facie evidence thereof. -50- 52 (iii) Borrower shall have not more than 5 LIBOR Rate Loans in effect at any given time. Borrower only may exercise the LIBOR Option for LIBOR Rate Loans of at least $1,000,000 and integral multiples of $500,000 in excess thereof. (c) PREPAYMENTS. Borrower may prepay LIBOR Rate Loans at any time; provided, however, that in the event that LIBOR Rate Loans are prepaid on any date that is not the last day of the Interest Period applicable thereto, including as a result of any automatic prepayment through the required application by Agent of proceeds of Collections in accordance with Section 2.4(b) or for any other reason, including early termination of the term of this Agreement or acceleration of the Obligations pursuant to the terms hereof, Borrower shall indemnify, defend, and hold Agent and the Lenders and their Participants harmless against any and all Funding Losses in accordance with clause (b)(ii) above. (d) SPECIAL PROVISIONS APPLICABLE TO LIBOR RATE LOANS. (i) The LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), excluding the Reserve Percentage, which additional or increased costs would increase the cost of funding loans bearing interest at a rate determined by reference to the LIBOR Rate. In any such event, the affected Lender shall give Borrower and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, Borrower may, by notice to such affected Lender (y) require such Lender to furnish to Borrower a statement setting forth the basis for adjusting such LIBOR Rate and the method for determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans with respect to which such adjustment is made (together with any amounts due under clause (b)(ii) above). Notwithstanding anything to the contrary in this Section 2.13(d)(i), a Lender shall only make a demand hereunder if such demand is made under substantially all loan documents of such Lender containing similar provisions as those contained in the Loan Documents. (ii) In the event that any change in market conditions or the adoption of any law, regulation, treaty, or directive, or any change therein or in the interpretation of application thereof, shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Advances or to continue such funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent and Borrower and Agent promptly shall transmit the notice to each other Lender and (y) in the case of any LIBOR Rate Loans of such Lender that are outstanding, the date specified in such Lender's notice shall be deemed to be the last day of the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate then applicable to Base Rate Loans, and (z) Borrower shall not be entitled to elect the LIBOR Option until such Lender determines that it would no longer be -51- 53 unlawful or impractical to do so. Notwithstanding anything to the contrary in this Section 2.13(d)(ii), a Lender shall only give notice hereunder if such notice is given under substantially all loan documents of such Lender containing similar provisions as those contained in the Loan Documents. (e) NO REQUIREMENT OF MATCHED FUNDING. Anything to the contrary contained herein notwithstanding, neither Agent, nor any Lender, nor any of their Participants, is required actually to acquire eurodollar deposits to fund or otherwise match fund any Obligation as to which interest accrues at a rate determined by reference to the LIBOR Rate. The provisions of this Section shall apply as if each Lender or its Participants had match funded any Obligation as to which interest is accruing at a rate determined by reference to the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the amount of the LIBOR Rate Loans. 2.14 CAPITAL REQUIREMENTS. If, after the date hereof, any Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request, or directive issued after the Closing Date of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on such Lender's or such holding company's capital as a consequence of such Lender's Commitments hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration such Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such entity's capital) by any amount deemed by such Lender to be material, then such Lender may notify Borrower and Agent thereof. Following receipt of such notice, Borrower agrees to pay such Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 90 days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lender's calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, such Lender may use any reasonable averaging and attribution methods. Notwithstanding anything to the contrary in this Section 2.14, a Lender will only make a demand hereunder if such demand under substantially all loan documents of such Lender containing similar provisions as those contained in the Loan Documents. 3. CONDITIONS; TERM OF AGREEMENT. 3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. The obligation of the Lender Group (or any member thereof) to make the initial Advance and the Term Loan (or otherwise to extend any credit provided for hereunder), is subject to the fulfillment, to the satisfaction of Agent, of each of the conditions precedent set forth below: (a) the Closing Date shall occur on or before December 22, 2000; -52- 54 (b) Agent shall have received all financing statements required by Agent, duly executed by Obligors, and Agent shall have received searches reflecting the filing of all such financing statements; (c) Agent shall have received each of the following documents, in form and substance satisfactory to Agent, duly executed, and each such document shall be in full force and effect: (i) the Canadian Loan Documents, (ii) the Intellectual Property Security Agreement, (iii) the Disbursement Letter, (iv) the Intercreditor Agreement, (v) [INTENTIONALLY LEFT BLANK], (vi) the Guaranty, (vii) the Cash Management Agreements, (viii) the Mortgages, except as otherwise provided in Sections 3.2(b) and (c), (ix) the Officers' Certificate, (x) the Foreign Guaranties, (xi) the Stock Pledge Agreements, together with all certificates representing the shares of Stock pledged thereunder, as well as undated Stock powers with respect thereto signed in blank, (xii) the Environmental Indemnity Agreement, and (xiii) the Pay-Off Letter, together with UCC termination statements and other documentation evidencing the termination by Existing Lender of its Liens in and to the properties and assets of Obligors. (d) Agent shall have received a certificate from the Secretary of Borrower attesting to the resolutions of Borrower's Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other Loan Documents to which Borrower is a party and authorizing specific officers of Borrower to execute the same; (e) Agent shall have received copies of Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of Borrower; -53- 55 (f) Agent shall have received a certificate of status with respect to Borrower, dated within 30 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of Borrower, which certificate shall indicate that Borrower is in good standing in such jurisdiction; (g) Agent shall have received certificates of status with respect to Borrower, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that Borrower is in good standing in such jurisdictions; (h) Agent shall have received a certificate from the Secretary of each Guarantor attesting to the resolutions of such Guarantor's Board of Directors authorizing its execution, delivery, and performance of the Loan Documents to which such Guarantor is a party and authorizing specific officers of such Guarantor to execute the same; (i) Agent shall have received copies of each Guarantor's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of such Guarantor; (j) Agent shall have received a certificate of status with respect to each Guarantor, dated within 30 days of the Closing Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Guarantor, which certificate shall indicate that such Guarantor is in good standing in such jurisdiction; (k) Agent shall have received certificates of status with respect to each Guarantor, each dated within 30 days of the Closing Date, such certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such Obligor) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Guarantor is in good standing in such jurisdictions; (l) Agent shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Agent; (m) Agent shall have received Collateral Access Agreements with respect to the following locations: (i) 3120 Hansen Way, Palo Alto, California; and (ii) the San Carlos Property; (n) Agent shall have received an opinion of Obligors' (including CPI Canada's) counsel in form and substance satisfactory to Lenders; (o) Agent shall have received satisfactory evidence (including a certificate of the chief financial officer of Borrower) that all tax returns required to be filed by Obligors have been timely filed and all taxes upon Obligors or their properties, assets, income, and franchises (including -54- 56 Real Property taxes and payroll taxes) have been paid prior to delinquency, except such taxes that are the subject of a Permitted Protest; (p) Borrower shall have the Required Availability after giving effect to the initial extensions of credit hereunder; (q) Lenders shall have completed their business, legal, and collateral due diligence, including (i) a collateral audit and review of Obligors' books and records and verification of Obligors' representations and warranties to the Lender Group, the results of which shall be satisfactory to Agent, and (ii) an inspection of each of the locations where Inventory is located, the results of which shall be satisfactory to Agent; (r) Agent shall have received completed reference checks with respect to Obligors' senior management, the results of which are satisfactory to Agent in its sole discretion; (s) Agent shall have received an appraisal of Borrower's Equipment, the results of which shall be satisfactory to Agent; (t) Agent shall have received Borrower's Closing Date Business Plan; (u) Borrower shall pay all Lender Group Expenses incurred in connection with the transactions evidenced by this Agreement; (v) Except as provided in Sections 3.2(b) and (c), Agent shall have received (i) appraisals of the Real Property Collateral satisfactory to Agent, and (ii) mortgagee title insurance policies (or marked commitments to issue the same) for the Real Property Collateral (other than the Beverly Real Property Collateral and the Canadian Real Property Collateral) issued by a title insurance company satisfactory to Agent (each a "Mortgage Policy" and, collectively, the "Mortgage Policies") in amounts satisfactory to Agent assuring Agent that the Mortgages on such Real Property Collateral are valid and enforceable first priority mortgage Liens on such Real Property Collateral free and clear of all defects and encumbrances except Permitted Liens, and the Mortgage Policies otherwise shall be in form and substance reasonably satisfactory to Agent; (w) Agent shall have received a phase-I environmental report with respect to each parcel composing the Real Property Collateral (other than the Beverly Real Property Collateral and the Canadian Real Property Collateral); the environmental consultants retained for such reports, the scope of the reports or surveys, and the results thereof shall be reasonably acceptable to Agent; (x) Agent shall have received copies of each of the Senior Subordinated Debt Documents, together with a certificate of the Secretary of Borrower certifying each such document as being a true, correct, and complete copy thereof; (y) Obligors shall have received all licenses, approvals or evidence of other actions required by any Governmental Authority in connection with the execution and delivery by -55- 57 Obligors of this Agreement or any other Loan Document or with the consummation of the transactions contemplated hereby and thereby; (z) Agent shall have received satisfactory evidence of the completion of the following on terms satisfactory to Agent: (i) the sale of the San Carlos Property to Parent; (ii) the lease of the San Carlos Property to Borrower; and (iii) the financing by Wells Fargo to Parent to enable Borrower and Parent to complete the transaction described in clause (i) above; (aa) Agent shall have received a copy of an amendment to the lease of the Palo Alto Real Property Collateral reasonably satisfactory to Agent; and (bb) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance reasonably satisfactory to Agent. 3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT. The obligation of the Lender Group (or any member thereof) to continue to make Advances (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of each of the conditions subsequent set forth below (and except as provided in clause (d) below, the failure by Borrower to so perform or cause to be performed constituting an Event of Default): (a) within 45 days of the Closing Date, deliver to Agent certified copies of the policies of insurance, together with the endorsements thereto, as are required by Section 6.8, the form and substance of which shall be satisfactory to Agent and its counsel; (b) within 45 days of the Closing Date, execute and deliver to Agent a Mortgage for the Beverly Real Property Collateral and such other documents as Agent may reasonably require to cause the Mortgage to be recorded and a mortgage title insurance policy for the Beverly Real Property Collateral issued by a title insurance company satisfactory to Agent in an amount reasonably satisfactory to Agent assuring Agent that such Mortgage on such Real Property is a valid and enforceable first priority mortgage lien on such Real Property free and clear of all defects and encumbrances except Permitted Liens, and said mortgage policy otherwise shall be in form and substance reasonably satisfactory to Agent; (c) within 45 days of the Closing Date, using commercially reasonable efforts, and without the expenditure of consideration, to cause CPI Canada to execute and deliver to Agent a Mortgage for the Canadian Real Property Collateral and such other documents as Agent shall reasonably require to cause the Mortgage to be recorded and a mortgage title insurance policy for the Canadian Real Property Collateral issued by a title insurance company satisfactory to Agent in an amount reasonably satisfactory to Agent assuring Agent that such Mortgage on such Real Property is a valid and enforceable first priority mortgage Lien on such Real Property free and clear of all defects and encumbrances except Permitted Liens, and said mortgage policy otherwise shall be in form and substance reasonably satisfactory to Agent; -56- 58 (d) within 45 days of the Closing Date, using commercially reasonable efforts, and without the expenditures of consideration, deliver to Agent a certified copy of a memorandum recorded in the office of the Santa Clara County Recorder describing the grant of parking rights to Borrower with respect to the Palo Alto Real Property Collateral, the form and substance of which shall be satisfactory to Agent and its counsel; (e) within 45 days of the Closing Date, deliver to Agent a fully executed Collateral Access Agreement, the form and substance reasonably satisfactory to Agent, with respect to 1019 East Brokaw Road, San Jose, California 95131; provided, however, that if Borrower fails to comply with this subsection (e), and until such time as such Collateral Access Agreement is delivered, Agent shall establish a reserve against the Borrowing Base in an amount equal to two months' rent for the San Jose premises described in this subsection (e); (f) within 30 days of the Closing Date, change the Designated Amount specified in this Agreement to another deposit account maintained at Designated Account Bank and otherwise reasonably acceptable to Agent, whereupon such deposit account shall thereafter be the Designated Account hereunder; and (g) within 45 days of the delivery by Agent to Borrower of a reasonably acceptable draft amendment to that certain Sublease (Unit 8, Palo Alto) dated as of August 10, 1995 between Varian Associates, Inc., as sublessor, and Borrower, as sublessee, using commercially reasonable efforts and without the expenditure of consideration, deliver to Agent a certified copy of said amendment, recorded in the office of the Santa Clara County Recorder containing the mortgagee protections referred to in Section 8.8 of such Sublease and meeting the reasonable requirements of Agent, the form and substance of which shall be satisfactory to Agent and its counsel. 3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The obligation of the Lender Group (or any member thereof) to make all Advances (or to extend any other credit hereunder) shall be subject to the following conditions precedent: (a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), (b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof, (c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against any Obligor, Agent, any Lender, or any of their respective Affiliates. (d) no Material Adverse Change shall have occurred. -57- 59 3.4 TERM. This Agreement shall become effective upon the execution and delivery hereof by Obligors, Agent, and the Lenders and shall continue in full force and effect for a term ending on December 22, 2004 (the "Maturity Date"). The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default. 3.5 EFFECT OF TERMINATION. On the date of termination of this Agreement, all Obligations (including contingent reimbursement obligations of Borrower with respect to outstanding Letters of Credit) immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge any Obligor of its duties, Obligations, or covenants hereunder and the Agent's Liens in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit hereunder have been terminated. When this Agreement has been terminated and all of the Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrower's sole expense, execute and deliver any UCC termination statements, lien releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are reasonably necessary to release, as of record, the Agent's Liens and all notices of security interests and liens previously filed by Agent with respect to the Obligations. 3.6 EARLY TERMINATION BY BORROWER. Borrower has the option, at any time upon 10 days prior written notice to Agent, to terminate this Agreement by paying to Agent, for the benefit of the Lender Group, in cash, the Obligations (including either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender), in full, together with the Applicable Prepayment Premium (to be allocated based upon letter agreements between Agent and individual Lenders); provided, however, that no Applicable Prepayment Premium shall be payable with respect to the Term Loan; and further provided, however, that Borrower shall have no liability for not effecting a contemplated prepayment if notice thereof has been given and no more than two extensions of the termination date have been granted; and if notice has been given, no more than two extensions of the termination date have been granted and prepayment is not effected , the Commitments shall be reinstated. If Borrower terminates this Agreement pursuant to the provisions of this Section, or if Borrower has sent a notice of termination pursuant to the provisions of this Section and has been granted more than two time extensions of the termination date, then the Commitments shall terminate and Borrower shall be obligated to repay the Obligations (including either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolver Commitment in an amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Issuing Lender), in full, together with the Applicable Prepayment Premium, on the date of such termination or the third extension date, whichever is applicable. In the event of the termination of this Agreement and repayment of the Obligations (other than the Term Loan) at any time prior to the Maturity Date, for any other reason, including (a) termination upon the election of the Required Lenders to terminate after the occurrence of an Event of Default, (b) foreclosure and sale of -58- 60 Collateral, (c) sale of the Collateral in any Insolvency Proceeding, or (iv) restructure, reorganization, or compromise of the Obligations by the confirmation of a plan of reorganization or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to the Lender Group or profits lost by the Lender Group as a result of such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of the Lender Group, Borrower shall pay the Applicable Prepayment Premium to Agent (to be allocated based upon letter agreements between Agent and individual Lenders), measured as of the date of such termination. Notwithstanding any provision to the contrary herein provided, Borrower shall not be liable for an Applicable Prepayment Premium if this Agreement is terminated as a direct result of Borrower's refinancing the Obligations through a commercial banking unit of Wells Fargo. 4. CREATION OF SECURITY INTEREST. 4.1 GRANT OF SECURITY INTEREST. Borrower grants to Agent, for the benefit of the Lender Group, a continuing security interest in all of Borrower's right, title and interest in all currently existing and hereafter acquired or arising Personal Property Collateral of Borrower in order to secure prompt repayment of any and all of the Obligations and in order to secure prompt performance by Borrower of each of Borrower's covenants and duties under the Loan Documents. The Agent's Liens in and to the Borrower's Personal Property Collateral shall attach to all of Borrower's Personal Property Collateral without further act on the part of the Lender Group or any Obligor. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions and for transfers of Borrower's Equipment to the extent permitted in Section 7.13(h), Borrower has no authority, express or implied, to dispose of any item or portion of the Collateral. 4.2 NEGOTIABLE COLLATERAL. In the event that any Personal Property Collateral of Borrower, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection or priority of Agent's security interest is dependent on or enhanced by possession, Borrower, immediately upon the request of Agent, shall endorse and deliver physical possession of such Negotiable Collateral to Agent. 4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE COLLATERAL. At any time after the occurrence and during the continuation of an Event of Default, Agent or Agent's designee may (a) notify Account Debtors of Borrower that the Accounts, chattel paper, or General Intangibles of Borrower have been assigned to Agent or that Agent has a security interest therein, or (b) collect the Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that it will hold in trust for the Lender Group, as the Lender Group's trustee, any Collections that it receives and immediately will deliver said Collections to Agent or a Cash Management Bank in their original form as received by Borrower. 4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon the reasonable request of Agent, Borrower shall execute and deliver to Agent, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, -59- 61 pledges, assignments, endorsements of certificates of title, and all other documents (the "Additional Documents") that Agent may request in its Permitted Discretion, in form and substance reasonably satisfactory to Agent, to perfect and continue perfected or better perfect the Agent's Liens in the Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Agent in any Real Property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Borrower authorizes Agent to execute any such Additional Documents in Borrower's name and authorizes Agent to file such executed Additional Documents in any appropriate filing office. In addition, on such periodic basis as Agent shall require, Borrower shall (a) provide Agent with a report of all new patentable, copyrightable, or trademarkable materials acquired or generated by Borrower during the prior period, (b) cause all patents, copyrights, and trademarks acquired or generated by Borrower that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Borrower's ownership thereof, and (c) cause to be prepared, executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder. 4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes, constitutes, and appoints Agent (and any of Agent's officers, employees, or agents designated by Agent) as Borrower's true and lawful attorney, with power to (a) if Borrower refuses to, or fails timely to execute and deliver any of the documents described in Section 4.4, sign the name of Borrower on any of the documents described in Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign Borrower's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to Account Debtors, (c) send requests for verification of Borrower's Accounts, (d) endorse Borrower's name on any Collection item that may come into the Lender Group's possession, (e) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting Borrower's Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Agent determines to be reasonable, and Agent may cause to be executed and delivered any documents and releases that Agent determines to be necessary. The appointment of Agent as Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and the Lender Group's obligations to extend credit hereunder are terminated. 4.6 RIGHT TO INSPECT. Agent and each Lender (through any of their respective officers, employees, or agents) shall have the right, from time to time hereafter to inspect Borrower's Books and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 4.7 CONTROL AGREEMENTS. Borrower agrees that it will not transfer assets out of any Securities Accounts other than as permitted under Section 7.19 and, if to another securities intermediary, unless Borrower, Agent, and the substitute securities intermediary have entered into -60- 62 a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other Investment Property of Borrower shall be modified by Borrower without the prior written consent of Agent. Upon the occurrence and during the continuance of a Default or Event of Default, Agent may notify any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Agent's Account. 5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender Group to enter into this Agreement, each of the Obligors makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete, in all material respects, as of the Closing Date, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 5.1 NO ENCUMBRANCES. Each of the Obligors has good and indefeasible title to its respective Collateral and its respective Real Property, free and clear of Liens except for Permitted Liens. 5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide existing payment obligations of Account Debtors created by the sale and delivery of Inventory or the rendition of services to such Account Debtors in the ordinary course of Collateral Obligors' business, owed to a Collateral Obligor without defenses, disputes, offsets, counterclaims, or rights of return or cancellation (except as, and to the extent, provided in clause (d) below). As to each Eligible Account, such Account is not: (a) owed by an employee, Affiliate, or agent of any Obligor, (b) on account of a transaction wherein goods were placed on consignment or were sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and hold (except as described in the proviso in clause (d) of the definition of Eligible Borrower Accounts), or on any other terms by reason of which the payment by the Account Debtor may be conditional, (c) payable in a currency other than Dollars or, with respect to the Eligible Canadian Accounts or Eligible Foreign Accounts, payable in a currency other than Canadian dollars, (d) owed by an Account Debtor that has or has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation to pay the Account, except to the extent that the amount of such Account has been computed by deducting the amount of such setoff, disputed liability or claim, -61- 63 (e) owed by an Account Debtor that is subject to any Insolvency Proceeding or is not Solvent or as to which any Obligor has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition of such Account Debtor, (f) on account of a transaction as to which the goods giving rise to such Account have not been shipped and billed to the Account Debtor or the services giving rise to such Account have not been performed and accepted by the Account Debtor, (g) a right to receive progress payments or other advance billings that are due prior to the completion of performance by any Collateral Obligor of the subject contract for goods or services, and (h) an Account that has not been billed to the customer. 5.3 INVENTORY. All Inventory of each Collateral Obligor is of good and merchantable quality, free from defects. As to each item of Inventory, such Inventory is (a) owned by a Collateral Obligor free and clear of all Liens other than Liens in favor of Lender and Permitted Liens arising as a matter of law in connection with purchase money obligations, (b) either located at one of the locations set forth on Schedule E-1 or in transit from one such location to another such location, (c) subject to the provisions of Section 3.2(e) hereof, not located on real property leased by a Collateral Obligor or in a contract warehouse, in each case, unless subject to a Collateral Access Agreement executed by the lessor, the warehouseman, or other third party, as the case may be, and unless segregated or otherwise separately identifiable from goods of others, if any, stored on the premises, (d) not goods that have been returned or rejected by a Collateral Obligor's customers, and (e) not goods that are obsolete or slow moving (except as reserved under GAAP), supplies used or consumed in a Collateral Obligor's business, bill and hold goods, defective goods, "seconds," or Inventory acquired on consignment. 5.4 EQUIPMENT. All of the Equipment is used or held for use in a Collateral Obligor's business and is fit for such purposes. 5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment of the Collateral Obligors are not stored with a bailee, warehouseman, or similar party and are located only at the locations identified on Schedule E-1. -62- 64 5.6 INVENTORY RECORDS. Each of the Obligors keeps correct and accurate records itemizing and describing the type, quality, and quantity of its Inventory and the book value thereof. 5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executive office of each of the Obligors is located at the address indicated in Schedule 5.7 and the FEIN of each Obligor other than CPI Canada is identified in Schedule 5.7. 5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) Each of the Obligors is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state or province where the failure to be so qualified reasonably could be expected to have a Material Adverse Change. (b) Set forth on Schedule 5.8(b), is a complete and accurate description of the authorized capital Stock of each of the Obligors, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule 5.8(b), there are no subscriptions, options, warrants, or calls relating to any shares of any Obligor's capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. None of the Obligors is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock. (c) Set forth on Schedule 5.8(c), is a complete and accurate list of each Obligor's direct and indirect Subsidiaries, showing: (i) the jurisdiction of their organization, (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries, and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by each of the Obligors. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. (d) Except as set forth on Schedule 5.8(c), there are no subscriptions, options, warrants, or calls relating to any shares of any Obligor's Subsidiaries' capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. None of the Obligors is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of any Obligor's capital Stock or any security convertible into or exchangeable for any such capital Stock. 5.9 DUE AUTHORIZATION; NO CONFLICT. (a) The execution, delivery, and performance by each of the Obligors of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Obligor. (b) The execution, delivery, and performance by each of the Obligors of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate any -63- 65 provision of federal, state, or local law or regulation applicable to such Obligor, the Governing Documents of such Obligor, or any order, judgment, or decree of any court or other Governmental Authority binding on such Obligor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of such Obligor, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Obligor, other than Permitted Liens, or (iv) require any approval of such Obligor's shareholders, or any approval or consent of any Person under any material contractual obligation of such Obligor. (c) Other than the filing of financing statements, comparable Canadian financing statements, fixture filings, and Mortgages, the execution, delivery, and performance by each of the Obligors of this Agreement and the Loan Documents to which such Obligor is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. (d) This Agreement and the other Loan Documents to which each of the Obligors is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Obligor will be the legally valid and binding obligations of such Obligor, enforceable against such Obligor in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. (e) The Agent's Liens are validly created, perfected, and first priority Liens, subject only to Permitted Liens. 5.10 LITIGATION. Other than those matters disclosed on Schedule 5.10, there are no actions, suits, or proceedings pending or, to the best knowledge of Obligors, threatened against any Obligor, except for (a) matters that are fully covered by insurance (subject to customary deductibles), and (b) matters arising after the Closing Date that, if decided adversely to any Obligor, reasonably could not be expected to result in a Material Adverse Change. 5.11 NO MATERIAL ADVERSE CHANGE. All financial statements relating to Borrower or any other Obligor that have been delivered by Borrower to the Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects, Borrower's (or such other Obligor's, as applicable) financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change since the date of the latest financial statements submitted to the Lender Group on or before the Closing Date. 5.12 FRAUDULENT TRANSFER. (a) Each of the Obligors is Solvent. -64- 66 (b) No transfer of property is being made by any Obligor and no obligation is being incurred by any Obligor in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of any Obligor. 5.13 EMPLOYEE BENEFITS. Except as set forth on Schedule 5.13, none of the Obligors or any of their ERISA Affiliates maintains or contributes to any Benefit Plan or Multiemployer Plan. Obligors, each of their Subsidiaries and each ERISA Affiliate have satisfied the minimum funding standards of ERISA and the IRC with respect to each Benefit Plan to which it is obligated to contribute and have made all contributions required under the terms of each Multiemployer Plan to which it is obligated to contribute. No ERISA Event has occurred nor has any other event occurred that may result in an ERISA Event that reasonably could be expected to result in a Material Adverse Change. None of Obligors or their Subsidiaries or any ERISA Affiliate is required to provide security to any Benefit Plan under Section 401(a)(29) of the IRC. 5.14 ENVIRONMENTAL CONDITION. Except as set forth on Schedule 5.14, (a) to Obligors' knowledge, none of the Obligors' assets has ever been used by any Obligor or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such production, storage, handling, treatment, release or transport was in violation, in any material respect, of applicable Environmental Law, (b) to Obligors' knowledge, none of the Obligors' properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) none of the Obligors has received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by any Obligor, and (d) none of the Obligors has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by any Obligor resulting in the releasing or disposing of Hazardous Materials into the environment. 5.15 BROKERAGE FEES. None of the Obligors has utilized the services of any broker or finder in connection with any Obligor's obtaining financing from the Lender Group under this Agreement and no brokerage commission or finders fee is payable by any Obligor in connection herewith. 5.16 INTELLECTUAL PROPERTY. (a) Each of the Obligors owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted. Attached hereto as Schedule 5.16 is a true, correct, and complete listing of all material patents, patent applications, trademarks, trademark applications, and copyright registrations as to which, as so indicated on said Schedule, each of the Collateral Obligors is the owner or is an exclusive licensee (collectively, "Intellectual Property"). (b) Except as set forth in Schedule 5.16: -65- 67 (i) The respective Collateral Obligor is the sole owner of the Intellectual Property, free and clear of any Lien (other than in favor of Agent) without the payment of any monies or royalty except with respect to off-the-shelf software; (ii) Obligors have taken, and will continue to take, all actions which are necessary or advisable to acquire and protect the Intellectual Property, consistent with prudent commercial practices and Obligors' business judgment, including without limitation: (x) registering all Copyrights (as defined in the Intellectual Property Agreement and included within the Intellectual Property) which, in Obligors' business judgment, are of sufficient value to merit such treatment, in the Copyright Office, and (y) registering all Patents and Trademarks (as each is defined in the Intellectual Property Agreement and included within the Intellectual Property) which, in Obligors' business judgment, are of sufficient value to merit such treatment, in the United States Patent and Trademark Office; (iii) The respective Collateral Obligor's rights in the Intellectual Property are valid and enforceable; (iv) Obligors have received no demand, claim, notice or inquiry from any Person in respect of the Intellectual Property which challenges, threatens to challenge or inquiries as to whether there is any basis to challenge, the validity of, the rights of Obligors in or the right of Obligors to use, any such Intellectual Property, and Obligors know of no basis for any such challenge; (v) to the knowledge of Obligors, Obligors are not in violation or infringement of, and has not violated or infringed any proprietary rights of any other Person; (vi) to the knowledge of Obligors, no Person is infringing any Intellectual Property; and (vii) except on an arm's-length basis for value and other commercially reasonable terms, Obligors have not granted any license with respect to any Intellectual Property to any Person. 5.17 LEASES. Each of the Obligors enjoys peaceful and undisturbed possession under all leases material to the business of such Obligor and to which it is a party or under which it is operating. All of such leases are valid and subsisting and no material default by any Obligor exists under any of them. 5.18 DDAs. Set forth on Schedule 5.18 are all of Obligors' DDAs, including, with respect to each depository (i) the name and address of such depository, and (ii) the account numbers of the accounts maintained with such depository. 5.19 COMPLETE DISCLOSURE. All factual information (taken as a whole) furnished by or on behalf of any Obligor in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this -66- 68 Agreement, the other Loan Documents, or any transaction contemplated herein or therein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of any Obligor in writing to Agent or any Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. On the Closing Date, the Closing Date Projections represent, and as of the date on which any other Projections are delivered to Agent, such additional Projections represent Borrower's good faith best estimate of Obligors' future performance for the periods covered thereby. 5.20 INDEBTEDNESS. Set forth on Schedule 5.20 is a true and complete list of all Indebtedness of Obligors outstanding immediately prior to the Closing Date that is to remain outstanding after the Closing Date and such Schedule accurately reflects the aggregate principal amount of such Indebtedness and the principal terms thereof. 6. AFFIRMATIVE COVENANTS. Each of the Obligors covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, each of the Obligors shall and shall cause each of the other CPI Parties to do all of the following: 6.1 ACCOUNTING SYSTEM. Maintain a system of accounting that enables Obligors to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Agent. Each of the Obligors also shall keep an inventory reporting system that shows all additions, sales, claims, returns, and allowances with respect to the Inventory. 6.2 COLLATERAL REPORTING. Provide Agent (and if so requested by Agent, with copies for each Lender) with the following documents at the following times in form satisfactory to Agent: - --------------------- --------------------------------------------------------------------------- Weekly (by (a) a detailed roll-forward of Collateral Obligors' Accounts, reflecting Wednesday) sales, collection and credit activity, (b) a detailed calculation by customer of deposits and advances, and offsets against deposits and advances, and (c) a detailed calculation of Collateral Obligors' Collections and Obligors' Collections, - --------------------- --------------------------------------------------------------------------- Monthly (not later (d) a detailed calculation of the Borrowing Base (including detail than the 15th regarding those Accounts that are not Eligible Accounts), Business Day of each month) (e) a detailed aging, by total, of the Collateral Obligors' Accounts, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Agent,
-67- 69 (f) a summary aging, by vendor, of Collateral Obligors' accounts payable and any book overdraft; provided, however, that until the expiration of the ninth calendar month following the Closing Date, such aging shall be provided quarterly within 15 Business Days after the end of each fiscal quarter of Borrower, and (g) a calculation of Dilution for the prior month. - --------------------- --------------------------------------------------------------------------- Upon request by (h) Inventory reports specifying any Collateral Obligor's cost and the Agent wholesale market value of its Inventory, by category, with additional detail showing additions to and deletions from the Inventory, (i) a detailed list of each of the Obligor's customers, (j) a report regarding each of the Obligor's accrued, but unpaid, ad valorem taxes, - --------------------- --------------------------------------------------------------------------- (k) copies of invoices in connection with the CPI Parties' Accounts, credit memos, remittance advices, deposit slips, shipping and delivery documents in connection with the CPI Parties' Accounts and, for Inventory and Equipment acquired by each of the Obligors, purchase orders and invoices, and (l) such other reports as to the Collateral, or the financial condition of each of the Obligors, as Agent may request. - --------------------- ---------------------------------------------------------------------------
In addition, each Obligor agrees to cooperate fully with Agent to facilitate and implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth above. 6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Agent, with copies to each Lender: (a) as soon as available, but in any event within 30 days (45 days in the case of a month that is the end of one of the fiscal quarters in a fiscal year) after the end of each month during each of Borrower's fiscal years, (i) a company prepared consolidated balance sheet, income statement, and statement of cash flow covering the CPI Parties' operations during such period, (ii) a certificate signed by the chief financial officer of Borrower to the effect that: (A) the financial statements delivered hereunder have been prepared in accordance with GAAP (except for the lack of footnotes and being subject to year-end audit adjustments) and fairly present in all material respects the financial condition of the CPI Parties, -68- 70 (B) the representations and warranties of Obligors contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), and (C) there does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such non-compliance as to which he or she may have knowledge and what action Borrower has taken, is taking, or proposes to take with respect thereto), and (iii) for each month that is the date on which a financial covenant in Section 7.20 is to be tested, a Compliance Certificate demonstrating, in reasonable detail, compliance at the end of such period with the applicable financial covenants contained in Section 7.20, (b) as soon as available, but in any event within 45 days after the end of each fiscal quarter of Borrower's fiscal year, commencing with the first fiscal quarter of Borrower's fiscal quarter 2002, a certificate signed by the chief financial officer of Borrower, setting forth in reasonable detail the computation of EBITDA and the Debt Coverage Ratio for the immediately preceding fiscal quarter, (c) as soon as available, but in any event within 90 days after the end of each of Borrower's fiscal years, (i) consolidated and, if available, consolidating, financial statements of the CPI Parties for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Agent and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants' letter to management), (ii) a certificate of such accountants addressed to Agent and the Lenders stating that such accountants do not have knowledge of the existence of any Default or Event of Default under Section 7.20, (d) as soon as available, but in any event within 30 days after the start of each of Borrower's fiscal years, (i) copies of the Projections, in form and substance (including as to scope and underlying assumptions) satisfactory to Agent, in its reasonable discretion, for the forthcoming 2 years, year by year (for the forthcoming fiscal year, month by month, and on a quarter to quarter basis for the second year) , certified by the chief financial officer of Borrower as being such officer's good faith best estimate of the financial performance of Obligors during the period covered thereby, (e) if and when filed by any Obligor, -69- 71 (i) Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports, (ii) any other filings made by any Obligor with the SEC, (iii) copies of Obligors' federal income tax returns, and any amendments thereto, filed with the Internal Revenue Service, and (iv) any other information that is provided by any Obligor to its shareholders generally, (f) if and when filed by any Obligor and as requested by Agent, satisfactory evidence of payment of applicable excise taxes in each jurisdiction in which (i) such Obligor conducts business or is required to pay any such excise tax, (ii) where such Obligor's failure to pay any such applicable excise tax would result in a Lien on the properties or assets of such Obligor, or (iii) where such Obligor's failure to pay any such applicable excise tax reasonably could be expected to result in a Material Adverse Change, (g) as soon as any Obligor has knowledge of any event or condition that constitutes a Default or an Event of Default, notice thereof and a statement of the curative action that Borrower proposes to take with respect thereto, (h) a report on all actions upon which Borrower is required to report to Lender pursuant to Section 5.16 or the Intellectual Property Security Agreement, and (i) upon the request of Agent, any other report reasonably requested relating to the financial condition of the Obligors. Each Obligor agrees that no CPI Party will have a fiscal year different from that of Borrower. At the request of Agent, Borrower shall, from time to time, cause its certified public accountants to meet and confer with Agent's representatives, in the presence of Borrower's management, to discuss with Agent's representatives the financial and business affairs of the CPI Parties. 6.4 INTELLECTUAL PROPERTY. Comply with its continuing obligations described in Section 5.16 and the Intellectual Property Security Agreement. 6.5 RETURN. Cause returns and allowances, as between any Collateral Obligor and its Account Debtors, to be on the same basis and in accordance with the usual customary practices of such Obligor, as they exist at the time of the execution and delivery of this Agreement. If, at a time when no Event of Default has occurred and is continuing, any Account Debtor returns any Inventory to any Collateral Obligor, such Obligor promptly shall determine the reason for such return and, if such Obligor accepts such return, issue a credit memorandum (with a copy to be sent to Agent) in the appropriate amount to such Account Debtor. If, at a time when an Event of Default has occurred and is continuing, any Account Debtor returns any Inventory to any Collateral Obligor, such Obligor -70- 72 promptly shall determine the reason for such return and, if Agent consents (which consent shall not be unreasonably withheld), issue a credit memorandum (with a copy to be sent to Agent) in the appropriate amount to such Account Debtor. 6.6 MAINTENANCE OF PROPERTIES. Maintain and preserve all of its properties which are necessary or useful in the proper conduct to its business in good working order and condition, ordinary wear and tear excepted, and comply at all times with the provisions of all leases to which it is a party as lessee so as to prevent any loss or forfeiture thereof or thereunder; provided, however, so long as no Event of Default has occurred and is continuing, that Borrower may sell, free and clear of any Liens in favor of Lenders thereon and without any repayment of the Obligations or the payment of any fees in connection therewith, that portion of the Beverly Real Property Collateral described on Schedule 6.6 hereto, and Lenders shall release and reconvey any Liens in their favor attaching to the portion of the Beverly Real Property Collateral so sold. 6.7 TAXES. Cause all assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against any Obligor or any of its assets to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Each of the Obligors will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof satisfactory to Agent indicating that such Obligor has made such payments or deposits. Each of the Obligors shall deliver satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which such Obligor is required to pay any such excise tax. 6.8 INSURANCE. (a) At Obligors' expense, maintain insurance respecting their assets wherever located, covering loss or damage by fire, theft, explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Each of the Obligors also shall maintain business interruption, public liability, and product liability insurance, as well as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be in such amounts and with such insurance companies as are reasonably satisfactory to Agent. Each of the Obligors shall deliver copies of all such policies to Agent with a satisfactory lender's loss payable endorsement naming Agent as sole loss payee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever. (b) Each of the Obligors shall give Agent prompt notice of any loss covered by such insurance. Agent shall have the exclusive right to adjust any losses payable under any such insurance policies in excess of $1,000,000, without any liability to any Obligor whatsoever in respect of such adjustments. Any monies received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to Agent to be -71- 73 applied at the option of the Required Lenders either to the prepayment of the Obligations or shall be disbursed to the applicable Obligor under staged payment terms reasonably satisfactory to the Required Lenders for application to the cost of repairs, replacements, or restorations; provided, however, that so long as no Event of Default has occurred and is continuing, all sums received by Agent as described in this sentence in respect of any occurrence and which aggregate less than $1,000,000 shall promptly be disbursed to the applicable Obligor under the terms and for the purposes described in this sentence. Any such repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items of property destroyed prior to such damage or destruction. (c) None of the Obligors will take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.8, unless Agent is included thereon as named insured with the loss payable to Agent under a lender's loss payable endorsement or its equivalent. Each of the Obligors immediately shall notify Agent whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and copies of such policies promptly shall be provided to Agent. 6.9 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and Equipment of the Collateral Obligors only at the locations identified on Schedule E-1; provided, however, that Borrower may amend Schedule E-1 so long as such amendment occurs by written notice to Agent not less than 30 days prior to the date on which Inventory or Equipment of a Collateral Obligor is moved to such new location, so long as such new location is within the continental United States or Canada (except Quebec and the Maritime provinces), and so long as, at the time of such written notification, Borrower provides any financing statements, fixture filings or comparable Canadian financing statements necessary to perfect and continue perfected the Agent's Liens on such assets and also provides to Agent a Collateral Access Agreement. 6.10 COMPLIANCE WITH LAWS. Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental Authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Change. 6.11 LEASES. Pay when due all rents and other amounts payable under any leases to which any Obligor is a party or by which any Obligor's properties and assets are bound, unless such payments are the subject of a Permitted Protest. 6.12 BROKERAGE COMMISSIONS. Pay any and all brokerage commission or finders fees incurred in connection with or as a result of Borrower's obtaining financing from the Lender Group under this Agreement. Borrower agrees and acknowledges that payment of all such brokerage commissions or finders fees shall be the sole responsibility of Borrower, and Borrower agrees to indemnify, defend, and hold Agent and the Lender Group harmless from and against any claim of any broker or finder arising out of Borrower's obtaining financing from the Lender Group under this Agreement. -72- 74 6.13 EXISTENCE. At all times preserve and keep in full force and effect each of the Obligor's valid existence and good standing and any rights and franchises material to such Obligor's businesses. 6.14 ENVIRONMENTAL. (a) Keep any property either owned or operated by any Obligor free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, except for Environmental Liens resulting from the presence of Hazardous Materials which are the subject of Section 10.2 of the Stock Sale Agreement, (b) comply, and take reasonable steps to cause Varian to comply, in all material respects, with Environmental Laws and provide to Agent documentation of such compliance which Agent reasonably requests, (c) promptly notify Agent of any release of a Hazardous Material (but not including pre-existing releases which are the subject of Section 10.2 of the Stock Sale Agreement) in any reportable quantity from or onto property owned or operated by any Obligor and take any Remedial Actions required to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly provide Agent with written notice within 10 days of the receipt of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of any Obligor, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against any Obligor, and (iii) notice of a violation, citation, or other administrative order, in each instance in subsections (d)(i), (ii) or (iii), which reasonably could be expected to result in a Material Adverse Change. 6.15 MOVEMENT OF EQUIPMENT TO GEORGETOWN, ONTARIO LOCATION. Promptly, and in any event no later than 15 days after the date of any movement of any of Borrower's Equipment to the Georgetown, Ontario location described on Schedule E-1: (a) notify Agent of such movement, (b) deliver to Agent a list of such Equipment, and identify and assign a value to such Equipment on the most recent appraisal thereof, and (c) grant to Agent and perfect a security interest in said Equipment, all on terms and pursuant to documents the form and substance of which shall be satisfactory to Agent. 6.16 DISCLOSURE UPDATES. Promptly and in no event later than 5 Business Days after obtaining knowledge thereof, (a) notify Agent if any written information, exhibit, or report furnished to the Lender Group contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and (b) correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgment, filing, or recordation thereof. 7. NEGATIVE COVENANTS. Each of the Obligors covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, such Obligor will not and will not permit any of its Subsidiaries to do any of the following: -73- 75 7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except: (a) Indebtedness evidenced by this Agreement and the other Loan Documents, together with Indebtedness owed to Underlying Issuers with respect to Underlying Letters of Credit, (b) Indebtedness set forth on Schedule 5.20, (c) Permitted Purchase Money Indebtedness, (d) Indebtedness, the final maturity of which shall be no earlier than 6 months following the Maturity Date, secured only by the Beverly Real Property Collateral or the Canadian Real Property Collateral, in which event, at Borrower's request in connection with the incurring of such Indebtedness permitted under this clause (d), and so long as there has not occurred any Event of Default which is continuing, Agent shall release and reconvey any Lien on such Real Property Collateral, (e) Subordinated Debt, (f) Indebtedness of an Obligor arising in connection with an Investment permitted under Sections 7.13(d), (e) and (g), (g) Refinancing Indebtedness in conformity with the provisions of Section 2.2, and (h) Refinancings, renewals, or extensions of Indebtedness permitted under clauses (b), (c), (d), (e), (f) and (g) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions (other than refinancings, renewals or extensions of the Indebtedness set forth on Schedule 5.20 that is secured by the San Carlos Property) do not, in Required Lenders' and Required Term Loan Lenders' judgment, materially impair the prospects of repayment of the Obligations by such Obligor or materially impair such Obligor's creditworthiness, (ii) such refinancings, renewals, or extensions (other than refinancings, renewals or extensions of the Indebtedness set forth on Schedule 5.20 that is secured by the San Carlos Property) do not result in an increase in the principal amount of the Indebtedness so refinanced, renewed, or extended (except by the amount of any prepayment premium paid to discharge such Indebtedness and for the amount of reasonable expenses incurred in securing such refinancing, renewal or extension); provided, however, that if any such Indebtedness is non-recourse (with only such exceptions thereto as are normal and customary), the principal amount of the Indebtedness refinanced need not be limited to the principal amount thereof prior to such refinancing, (iii) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are materially more burdensome or restrictive to any Obligor, and (iv) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension Indebtedness must include subordination terms and conditions that are at least as favorable -74- 76 to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness; provided, however, that no such refinancing, renewal or extension otherwise permitted under this clause (h) with respect to Indebtedness set forth on Schedule 5.20 that is secured by the San Carlos Property shall make any Obligor other than Parent a co-obligor of that Indebtedness. 7.2 LIENS. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced, renewed, or extended under Section 7.1(h) and so long as the replacement Liens only encumber those assets that secured the refinanced, renewed, or extended Indebtedness) and except for Liens encumbering the Palo Alto Real Property Collateral securing Refinancing Indebtedness conforming to the requirements of Section 2.2(e)(ii); provided, however that notwithstanding the foregoing, so long as there has not occurred any Event of Default which is continuing, Borrower may create, incur and permit to exist Liens on the Beverly Real Property Collateral, and CPI Canada may create, incur and permit Liens on the Canadian Real Property Collateral, in each case only to secure Indebtedness contemplated by Section 7.1(d). 7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. (a) Enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock. (b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution). (c) Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its assets. (d) Form any new Subsidiary. 7.4 DISPOSAL OF ASSETS. Other than Permitted Dispositions, convey, sell, lease, license, assign, transfer, or otherwise dispose of any Obligor's assets. 7.5 CHANGE NAME. Change any Obligor's name, FEIN, corporate structure, or identity, or add any new fictitious name; provided, however, that any Obligor may change its name upon at least 30 days prior written notice to Agent of such change and so long as, at the time of such written notification, Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens. 7.6 GUARANTEE. Guarantee or otherwise become in any way liable with respect to the obligations of any Person (other than unsecured guaranties for the benefit of an Obligor other than Parent and other than guaranties secured by L/C's issued pursuant to this Agreement for the benefit of another CPI Party other than Parent), except by endorsement of instruments or items of payment for deposit to the account of any Obligor or which are transmitted or turned over to Agent. -75- 77 7.7 NATURE OF BUSINESS. Make any change in the principal nature of its business. 7.8 PREPAYMENTS AND AMENDMENTS. (a) Except in connection with a refinancing permitted by Section 7.1(h), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of any Obligor, other than the Obligations in accordance with this Agreement, and (b) Except in connection with a refinancing permitted by Section 7.1(h), directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b), (c), (d), (e), (f) or (g). 7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or indirectly, any Change of Control. 7.10 CONSIGNMENTS. Consign any Collateral Obligor's Inventory or sell any Collateral Obligor's Inventory on bill and hold (except as contemplated in clause (d) of the definition of Eligible Borrower Accounts), sale or return, sale on approval, or other conditional terms of sale. 7.11 DISTRIBUTIONS. Make any distribution or declare or pay any dividends (in cash or other property, other than common Stock) on, or purchase, acquire, redeem, or retire any Stock of Borrower or Parent, of any class, whether now or hereafter outstanding; provided, however, that notwithstanding the foregoing, and so long as there has not occurred any Event of Default which is continuing, without duplication, Borrower may make distributions to, or pay dividends to, Parent for the purpose of: (i) enabling Parent to repurchase capital Stock of Parent held by former, disabled or deceased employees of Parent or any of its Subsidiaries in an aggregate amount not to exceed the sum of $500,000 plus the net cash proceeds received by Borrower and its Subsidiaries from key person insurance policies obtained to effect such Stock repurchases, and subject to the foregoing conditions Parent may make the Stock repurchases contemplated by this clause (i); (ii) enabling Parent to pay any Federal, state or local income, franchise or other taxes payable by Parent in an aggregate amount not to exceed the sum of (without duplication) (1) the amount of such taxes that would be due by Borrower and its Subsidiaries if they were separate taxable entities to the extent Parent has an obligation to satisfy such taxes attributable solely to Borrower and its Subsidiaries and (2) the amount of such taxes with respect to Parent's ownership of the Stock of Borrower; (iii) enabling Parent to pay Parent's overhead and operating expenses (including professional fees and expenses but excluding management fees) attributable solely to its ownership of Borrower and its Subsidiaries in an aggregate amount not to exceed $250,000 in any fiscal year; (iv) enabling Parent to pay reasonable and customary fees payable to members of the Board of Directors of Parent; (v) enabling Parent to pay compensation and management equity arrangements for officers and other employees of Parent entered into in the ordinary course of business; and (vi) enabling Parent to pay management or other fees and reasonable and documented out-of-pocket expenses payable to LGP to the extent not paid by Borrower and solely to the extent permitted under the terms of the Indenture, including without limitation the payment on or about the Closing Date of deferred general service fees due LGP in the amount of $514,000. -76- 78 7.12 ACCOUNTING METHODS. Modify or change its method of accounting (other than as may be required to conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of any Obligor's accounting records without said accounting firm or service bureau agreeing to provide Agent information regarding the Collateral or any Obligor's financial condition. 7.13 INVESTMENTS. Except for (a) Permitted Investments, (b) other Investments in Persons who are not CPI Parties or Affiliates of CPI Parties not to exceed $500,000, so long as: (1) no Event of Default has occurred and is continuing, or would result from the making of such Investment, (2) the Excess Availability is no less than $5,000,000, and (3) concurrent with the making of such Investment, Agent obtains a perfected first priority Lien on the property constituting such Investment; (c) Investments to permit employees of any CPI Party to purchase Stock of Parent; provided that the aggregate amount of all such Investments shall not exceed $250,000; (d) any Investment in Parent by Borrower that could have been made as a dividend under Section 7.11 and that, instead, Borrower elected to make in the form of an Investment, (e) any cash Investment between any Obligor (other than Parent) and any other Obligor (other than Parent), so long as no Event of Default has occurred and is continuing, (f) cash Investments by Obligors in Foreign Guarantors in an amount not to exceed $500,000 in the aggregate at any one time outstanding, so long as no Event of Default has occurred and is continuing, (g) any Investment by Parent in Borrower, (h) any Investment by Borrower in CPI Canada in connection with the transfer by Borrower to CPI Canada of the Equipment and Inventory of Borrower's SatCom division, so long as: (y) no Event of Default has occurred and is continuing, and (z) immediately following such transfer, Agent shall continue to have a perfected first priority Lien on said Equipment and Inventory; and (i) Investments in CPI Parties (other than Parent or Borrower) in the nature of performance guaranties regarding the sale by such CPI Parties of products manufactured by Borrower or CPI Canada, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that no Obligor shall have Permitted Investments in the nature of deposit accounts or securities accounts (other than in the Cash Management Accounts) in excess of $1,000,000 outstanding at any one time unless such Obligor and the applicable securities intermediary or bank have entered into Control Agreements governing such Permitted Investments, as Agent shall determine in its Permitted Discretion, to perfect (and further establish) the Agent's Liens in such Permitted Investments. 7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit to exist any transaction with any CPI Party or any Affiliate of any CPI Party except for transactions that are in the ordinary course of such Obligor's business, upon fair and reasonable terms, that are fully disclosed to Agent, and that are no less favorable to such Obligor than would be obtained in an arm's length transaction with a non-Affiliate; provided, however, that the foregoing restriction shall not apply to: (w) any transactions with any Affiliate of any CPI Party permitted under Sections 7.11 or 7.13; (x) any purchase and sale of inventory between CPI Parties in the ordinary course of business, upon fair and reasonable terms, and on terms that are no less favorable to each party than would be obtained in an arm's length transaction with a non-Affiliate; (y) the provision of general and -77- 79 administrative services by Borrower on behalf of the other CPI Parties; and (z) Borrower's sale of the San Carlos Property to Parent and the performance by Borrower and Parent under that certain Lease, dated as of December 1, 2000, between them and relating to the San Carlos Property; provided, however that the lease payments under said Lease shall not be modified without Agent's prior written consent, which consent shall not be unreasonably withheld. 7.15 SUSPENSION. Suspend or go out of a substantial portion of its business. 7.16 [INTENTIONALLY LEFT BLANK] 7.17 USE OF PROCEEDS. Use the proceeds of the Advances and the Term Loan for any purpose other than (a) on the Closing Date, (i) to repay, in full, the outstanding principal, accrued interest, and accrued fees and expenses owing to Existing Lender, and (ii) to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted purposes. 7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location without providing 30 days prior written notification thereof to Agent and so long as, at the time of such written notification, the relevant Obligor provides any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens and also provides to Agent a Collateral Access Agreement with respect to such new location. The Inventory and Equipment of the Collateral Obligors shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Agent's prior written consent. 7.19 SECURITIES ACCOUNTS. Establish or maintain any Securities Account unless Agent shall have received a Control Agreement in respect of such Securities Account. No Obligor shall transfer assets out of any Securities Account; provided, however, that, so long as no Event of Default has occurred and is continuing or would result therefrom, Obligors may use such assets (and the proceeds thereof) to the extent not prohibited by this Agreement. 7.20 FINANCIAL COVENANTS. (a) Fail to maintain: (i) MINIMUM EBITDA. EBITDA, measured on a fiscal quarter-end basis, of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto:
Applicable Amount Applicable Period - ------------------------------- ------------------------------------------------------- $3,500,000 For the fiscal quarter ending December 29, 2000 $9,000,000 For the two consecutive fiscal quarters
-78- 80 ending March 30, 2001 $16,500,000 For the three consecutive fiscal quarters ending June 29, 2001 $23,700,000 For the four consecutive fiscal quarters ending September 28, 2001 $24,000,000 For the four consecutive fiscal quarters ending December 28, 2001 $24,500,000 For the four consecutive fiscal quarters ending March 29, 2002 $24,500,000 For the four consecutive fiscal quarters ending June 28, 2002 $25,500,000 For the four consecutive fiscal quarters ending September 27, 2002 $27,000,000 For each four consecutive fiscal quarters thereafter
(b) Make: (i) CAPITAL EXPENDITURES. Other than Moving Expenses, capital expenditures in any fiscal year of Borrower in excess of $8,000,000. 8. EVENTS OF DEFAULT. Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 If Borrower fails to pay when due and payable, or when declared due and payable, all or any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts constituting Obligations); 8.2 If Borrower or any other Obligor fails or neglects to perform, keep, or observe any covenant or other provision contained in Sections 6.2 or 6.3 hereof and such failure or neglect continues for a period of 5 Business Days after the date on which such failure or neglect first occurs, or (b) if Borrower or any other Obligor fails or neglects to perform, keep, or observe any covenant or other provision contained in Sections 6.1, 6.7 or 6.11 hereof and such failure or neglect is not cured within 15 days after the date on which such failure or neglect first occurs, or (c) if any Obligor or Foreign Guarantor fails or neglects to perform, keep, or observe any other covenant or other provision contained in any Section of this Agreement (other than a Section that is expressly dealt with elsewhere in this Section 8) or the other Loan Documents (other than a Section of such other Loan Document dealt with elsewhere in this Section 8); provided that, during any period of time that any such failure or neglect of an Obligor referred to in this paragraph exists, even if such failure or neglect is not yet an Event of Default by virtue of the existence of a grace or cure period, Lenders shall be relieved of their obligations to extend credit hereunder; -79- 81 8.3 If any material portion of any Obligor's assets is attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the possession of any third Person; 8.4 If an Insolvency Proceeding is commenced by any Obligor, 8.5 If an Insolvency Proceeding is commenced against any Obligor, and any of the following events occurs: (a) such Obligor consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 45 calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, Agent (including any successor agent) and each other member of the Lender Group shall be relieved of their obligations to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, such Obligor, or (e) an order for relief shall have been entered therein; 8.6 If any Obligor is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 8.7 (a) If a notice of Lien, levy, or assessment is filed of record with respect to any Obligor's assets by the United States, or any department, agency, or instrumentality thereof, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any of Obligor's assets and the same is not paid before such payment is delinquent; or (b) if a notice of Lien, levy, or assessment is filed of record with respect to any Obligor's assets by any Governmental Authority other than those set forth in clause (a) above in an amount exceeding $250,000 in the aggregate, or if any taxes or debts, in an amount exceeding $250,000 in the aggregate, owing at any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any of Obligor's assets and the same is not paid before such payment is delinquent; 8.8 If a judgment or other claim becomes a Lien or encumbrance upon any material portion of any Obligor's assets; 8.9 If there is a default in any material agreement, including without limitation any agreement evidencing, securing or otherwise relating to Indebtedness due Wells Fargo, to which any Obligor is a party and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by the other party thereto, irrespective of whether exercised, to accelerate the maturity of any Obligor's obligations thereunder, to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein; 8.10 If any Obligor makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness; -80- 82 8.11 If any material misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or Record made to the Lender Group by any Obligor or any officer, employee, agent, or director of any Obligor; 8.12 (a) If the obligation of any Guarantor under the Guaranty is limited or terminated by operation of law or by any Guarantor thereunder, or any Guarantor revokes or attempts to revoke its Guaranty; or (b) if the obligation of any Foreign Guarantor under its Foreign Guaranty is limited or terminated by such Foreign Guarantor, or any Foreign Guarantor revokes or attempts to revoke its Foreign Guaranty; 8.13 If this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby; or 8.14 Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Obligor, or a proceeding shall be commenced by any Obligor, or by any Governmental Authority having jurisdiction over any Obligor, seeking to establish the invalidity or unenforceability thereof, or any Obligor shall deny that any Obligor has any liability or obligation purported to be created under any Loan Document. 9. THE LENDER GROUP'S RIGHTS AND REMEDIES. 9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the continuation, of an Event of Default, the Required Lenders (at their election but without notice of their election and without demand) may authorize and instruct Agent to do any one or more of the following on behalf of the Lender Group (and Agent, acting upon the instructions of the Required Lenders, shall do the same on behalf of the Lender Group), all of which are authorized by Borrower: (a) Declare all Obligations (including the Dollar amount of contingent unreimbursed liabilities under L/C's and L/C Undertakings), whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between any Borrower and the Lender Group; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of the Lender Group, but without affecting any of the Agent's Liens in the Collateral and without affecting the Obligations; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Agent considers advisable, and in such cases, Agent will credit -81- 83 Borrower's Loan Account with only the net amounts received by Agent in payment of such disputed Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith; (e) Cause Borrower to hold all returned Inventory in trust for the Lender Group, segregate all returned Inventory from all other assets of Borrower or in Borrower's possession and conspicuously label said returned Inventory as the property of the Lender Group; (f) Without notice to or demand upon any Obligor, make such payments and do such acts as Agent considers necessary or reasonable to protect its security interests in the Collateral. Borrower agrees to assemble the Personal Property Collateral if Agent so requires, and to make the Personal Property Collateral available to Agent at a place that Agent may designate which is reasonably convenient to all parties. Borrower authorizes Agent to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Agent's determination appears to conflict with the Agent's Liens and to pay all expenses incurred in connection therewith and to charge Borrower's Loan Account therefor. With respect to Borrower's owned or leased premises, Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of the Lender Group's rights or remedies provided herein, at law, in equity, or otherwise; (g) Without notice to any Obligor (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by the Lender Group (including any amounts received in the Cash Management Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of Borrower held by the Lender Group; (h) Agent or Agent's designee may (a) notify Account Debtors of Borrower that the Accounts, chattel paper, or General Intangibles of Borrower have been assigned to Agent or that Agent has a security interest therein, or (b) collect such Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Borrower agrees that it will hold in trust for Agent, as Agent's trustee, any Collections that it receives and immediately will deliver said Collections to Agent in their original form as received by Borrower; (i) Hold, as cash collateral, any and all balances and deposits of Borrower held by the Lender Group, and any amounts received in the Cash Management Accounts, to secure the full and final repayment of all of the Obligations; (j) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Borrower hereby grants to Agent a license or other right to use, without charge, Borrower's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to the Lender Group's benefit; -82- 84 (k) Sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Agent determines is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale; (l) Agent shall give notice of the disposition of the Personal Property Collateral as follows: (i) Agent shall give Borrower a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, the time on or after which the private sale or other disposition is to be made; and (ii) The notice shall be personally delivered or mailed, postage prepaid, to Obligors as provided in Section 12, at least 10 days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; (m) Agent, on behalf of the Lender Group, may credit bid and purchase at any public sale; (n) Agent may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; (o) The Lender Group shall have all other rights and remedies available at law or in equity or pursuant to any other Loan Document; and (p) Any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by Agent to Borrower. 9.2 REMEDIES CUMULATIVE. The rights and remedies of the Lender Group under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES. -83- 85 If any Obligor fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, Agent, in its reasonable discretion and without prior notice to Obligors, may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves in Borrower's Loan Account as Agent reasonably deems necessary to protect the Lender Group from the exposure created by such failure, or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and maintain insurance policies of the type described in Section 6.8 and take any action with respect to such policies as Agent deems prudent. Any such amounts paid by Agent shall constitute Lender Group Expenses and any such payments shall not constitute an agreement by the Lender Group to make similar payments in the future or a waiver by the Lender Group of any Event of Default under this Agreement. Agent need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall constitute prima facie evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION. 11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by the Lender Group on which Borrower may in any way be liable. 11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. Borrower hereby agrees that: (a) so long as Agent complies with its obligations, if any, under the Code, the Lender Group shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrower. 11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and hold the Agent-Related Persons, the Lender-Related Persons with respect to each Lender, each Participant, and each of their respective officers, directors, employees, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable and documented out-of-pocket attorneys fees and disbursements and other reasonable and documented out-of-pocket costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution, delivery, enforcement, performance, or administration of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby, and (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto (all the foregoing, -84- 86 collectively, the "Indemnified Liabilities"). The foregoing to the contrary notwithstanding, Borrower shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON. 12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by any Obligor or Agent to the other relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such e-mail addresses as such Obligor or Agent, as applicable, may designate to each other in accordance herewith), or telefacsimile to such Obligor or Agent, as the case may be, at its address set forth below: If to Borrowerc/o Communications & Power Industries, Inc. or any of the 607 Hansen Way other Obligors: Palo Alto, California 94303 Attn: Lynn Harvey, Chief Financial Officer Fax No.: (650) 846-3276 with copies to: Leonard Green & Partners L.P. 11111 Santa Monica Boulevard Suite 2000 Los Angeles, California 90025 Attn: Gregory Annick Fax No.: (310) 954-0404 with copies to: Irell & Manella LLP 1800 Avenue of the Stars Suite 900 Los Angeles, California 90067 Attn: Christopher Kennedy, Esq. Fax No.: (310) 203-7199 -85- 87 If to Agent: FOOTHILL CAPITAL CORPORATION 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404 Attn: Business Finance Division Manager Fax No.: (310) 478-9788 with copies to: Jeffer, Mangels, Butler & Marmaro LLP 2121 Avenue of the Stars Tenth Floor Los Angeles, California 90067 Attn: Joel J. Berman, Esq. Fax No.: (310) 203-5067 Agent and Obligors may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party or parties. All notices or demands sent in accordance with this Section 12, other than notices by Agent in connection with enforcement rights against the Collateral under the provisions of the Code, shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by the Lender Group in connection with the exercise of enforcement rights against Collateral under the provisions of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or any other method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. OBLIGORS AND THE LENDER GROUP WAIVE, TO -86- 88 THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b). (c) OBLIGORS AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. OBLIGORS AND THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. 14.1 ASSIGNMENTS AND PARTICIPATIONS. (a) Any Lender may, with the written consent of Agent and, so long as no Event of Default has occurred and is continuing, with consent of Borrower (not to be unreasonably withheld), assign and delegate to one or more assignees (each an "Assignee") all, or any ratable part of all, of the Obligations, the Commitments and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $5,000,000 (except that there shall be no minimum amount if the Assignee is an existing Lender or a fund, money market account, investment account or other account managed by an existing Lender or an Affiliate of an existing Lender), and no consent of Agent or any Obligor shall be required in connection with any assignment and delegation by a Lender to a fund or account managed by a Lender or an Affiliate of a Lender; provided, however, that Borrower and Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Borrower and Agent by such Lender and the Assignee, (ii) such Lender and its Assignee have delivered to Borrower and Agent an Assignment and Acceptance in form and substance satisfactory to Agent, and (iii) the assignor Lender or Assignee has paid to Agent for Agent's separate account a processing fee in the amount of $5,000. Anything contained herein to the contrary notwithstanding: (y) the consent of Agent shall not be required (and payment of any fees shall not be required) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of such Lender or the assignee is an Affiliate (other than individuals) of, or a fund, money market account, investment account or other account managed by a Lender or an Affiliate of a Lender; and (z) the consent of Borrower shall not be required (and payment of any fees shall not be required) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of Foothill or the assignee is an -87- 89 Affiliate (other than individuals) of, or a fund, money market account, investment account or other account managed by Foothill or an Affiliate of Foothill. (b) From and after the date that Agent notifies the assignor Lender (with a copy to Borrower) that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) 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 and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 11.3 hereof) and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall affect a novation between Obligors and the Assignee. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto, (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Obligors or the performance or observance by Obligors of any of their obligations under this Agreement or any other Loan Document furnished pursuant hereto, (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (4) such Assignee will, independently and without reliance upon Agent, such assigning Lender 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 decisions in taking or not taking action under this Agreement, (5) such Assignee appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement as are delegated to Agent, by the terms hereof, together with such powers as are reasonably incidental thereto, and (6) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance and receipt and acknowledgment by Agent of such fully executed Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) Any Lender may at any time, with the written consent of Agent, sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such Lender (a -88- 90 "Participant") participating interests in its Obligations, the Commitment, and the other rights and interests of that Lender (the "Originating Lender") hereunder and under the other Loan Documents (provided that no written consent of Agent shall be required in connection with any sale of any such participating interests by a Lender to an Eligible Transferee); provided, however, that (i) the Originating Lender shall remain a "Lender" for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations, the Commitments, and the other rights and interests of the Originating Lender hereunder shall not constitute a "Lender" hereunder or under the other Loan Documents and the Originating Lender's obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Obligors, Agent, and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or a material portion of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender, or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums, and (v) all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to the other Lenders, Agent, Obligors, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves. The provisions of this Section 14.1(e) are solely for the benefit of the Lender Group, and none of the Obligors shall have any rights as a third party beneficiary of any such provisions. (f) In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose all documents and information which it now or hereafter may have relating to Obligors or Obligors' business. (g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR '203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. -89- 91 14.2 SUCCESSORS. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that no Obligor may assign this Agreement or any rights or duties hereunder without the Lenders' prior written consent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lenders shall release any Obligor from its Obligations. A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to Section 14.1 hereof, no consent or approval by any Obligor is required in connection with any such assignment. 15. AMENDMENTS; WAIVERS. 15.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by any Obligor therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the written request of the Required Lenders) and the applicable Obligor and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all of the Lenders affected thereby and all Obligors, do any of the following: (a) increase or extend any Commitment of any Lender, (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Loan Document, (c) reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document, (d) change the percentage of the Commitments that is required to take any action hereunder, (e) amend, modify, or waive this Section, any provision of the Agreement providing for consent or other action by all Lenders, or Section 2.2, (f) release Collateral other than as permitted by Section 16.12, (g) change the definition of "Required Lenders", "Required Term Loan Lenders," or "Pro Rata Share", (h) contractually subordinate any of the Agent's Liens, -90- 92 (i) increase the advance rate with respect to Advances (except for the restoration of an advance rate after the prior reduction thereof), (j) release Borrower or any other Obligor from any obligation for the payment of money, or (k) change the definition of Borrowing Base (other than in connection with the inclusion of "Eligible Inventory" in the Borrowing Base as contemplated in Section 2.1(e), so long as said inclusion is made in accordance with Foothill's customary business and credit underwriting practices) or the definitions of Eligible Accounts, Eligible Borrower Accounts, Eligible Canadian Accounts, Maximum Revolver Amount, Eligible Equipment, Term Loan Amount, or change Section 2.1(b), or (l) amend, modify, or waive any of the provisions of Section 16, and, provided further, however, that no amendment, waiver or consent shall, unless in writing and signed by Agent, Issuing Lender, or Swing Lender, as applicable, affect the rights or duties of Agent, Issuing Lender, or Swing Lender, as applicable, under this Agreement or any other Loan Document. The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of, or with respect to, any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations any Obligor, shall not require consent by or the agreement of any Obligor. 15.2 REPLACEMENT OF HOLDOUT LENDER. (a) If any action to be taken by the Lender Group or Agent hereunder requires the unanimous consent, authorization, or agreement of all Lenders, and a Lender ("Holdout Lender") fails to give its consent, authorization, or agreement, then Agent, upon at least 5 Business Days prior irrevocable notice to the Holdout Lender, may permanently replace the Holdout Lender with one or more substitute Lenders (each, a "Replacement Lender"), and the Holdout Lender shall have no right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender shall specify an effective date for such replacement, which date shall not be later than 15 Business Days after the date such notice is given. (b) Prior to the effective date of such replacement, the Holdout Lender and each Replacement Lender shall execute and deliver an Assignment and Acceptance Agreement, subject only to the Holdout Lender being repaid its share of the outstanding Obligations (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver any such Assignment and Acceptance Agreement prior to the effective date of such replacement, the Holdout Lender shall be deemed to have executed and delivered such Assignment and Acceptance Agreement. The replacement of any Holdout Lender shall be made in accordance with the terms of Section 14.1. Until such time as the Replacement Lenders shall have acquired all of the Obligations, the Commitments, and the other rights and obligations of the Holdout Lender hereunder and under the other Loan Documents, the Holdout Lender shall remain obligated to make the Holdout Lender's -91- 93 Pro Rata Share of Advances and to purchase a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit. 15.3 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or any Lender to exercise any right, remedy, or option under this Agreement or any other Loan Document, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Agent or any Lender on any occasion shall affect or diminish Agent's and each Lender's rights thereafter to require strict performance by Obligors of any provision of this Agreement. Agent's and each Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy the Agent or any Lender may have. 16. AGENT; THE LENDER GROUP. 16.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender hereby designates and appoints Foothill as its representative under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Agent agrees to act as such on the express conditions contained in this Section 16. The provisions of this Section 16 are solely for the benefit of Agent, and the Lenders, and no Obligor shall have any rights as a third party beneficiary of any of the provisions contained herein. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent; it being expressly understood and agreed that the use of the word "Agent" is for convenience only, that Foothill is merely the representative of the Lenders, and only has the contractual duties set forth herein. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, the Collections, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents, (c) make Advances, for itself or on behalf of Lenders as provided in the Loan Documents, (d) exclusively receive, apply, and distribute the Collections as provided in the Loan Documents, (e) open and maintain such bank accounts and cash management arrangements as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections, (f) perform, exercise, and enforce any and all other -92- 94 rights and remedies of the Lender Group with respect to Obligors, the Obligations, the Collateral, the Collections, or otherwise related to any of same as provided in the Loan Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. 16.2 DELEGATION OF DUTIES. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made without gross negligence or willful misconduct. 16.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by any Obligor or any Subsidiary or Affiliate of any Obligor, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Obligor or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall 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 Agreement or any other Loan Document, or to inspect the Books or properties of any Obligor or the books or records or properties of any Obligor's Subsidiaries or Affiliates. 16.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement 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 counsel to Obligors or counsel to any Lender), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. 16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to -93- 95 defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a "notice of default." Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 16.4, Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. 16.6 CREDIT DECISION. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of any Obligor and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of any Obligor and any other Person (other than the Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person 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 this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of any Obligor and any other Person (other than the Lender Group) party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Obligor and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. 16.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and pay Lender Group Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrower is obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from Collections received by Agent to reimburse Agent for such out-of-pocket costs and -94- 96 expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses from Collections received by Agent, each Lender hereby agrees that it is and shall be obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), according to their Pro Rata Shares, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in failing to make an Advance or other extension of credit hereunder. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender's ratable share of any costs or out-of-pocket expenses (including attorneys fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent. 16.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Borrower and its Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though Foothill were not Agent hereunder, and, in each case, without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, Foothill or its Affiliates may receive information regarding Borrower or its Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such information to them. The terms "Lender" and "Lenders" include Foothill in its individual capacity. 16.9 SUCCESSOR AGENT. Agent may resign as Agent upon 45 days notice to the Lenders. If Agent resigns under this Agreement, the Required Lenders shall appoint a successor Agent for the Lenders. If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with the Lenders, a successor Agent. If Agent has materially breached or failed to perform any material provision of this Agreement or of applicable law, the Required Lenders may agree in writing to remove and replace Agent with a successor Agent from among the Lenders. In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term "Agent" shall mean such successor Agent and the retiring Agent's appointment, powers, and duties as Agent shall be terminated. After any retiring Agent's resignation -95- 97 hereunder as Agent, the provisions of this Section 16 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date which is 45 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above. 16.10 LENDER IN INDIVIDUAL CAPACITY. Any Lender and its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with Borrower and its Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Borrower or its Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of Borrower or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender not shall be under any obligation to provide such information to them. With respect to the Swing Loans and Agent Advances, Swing Lender shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the sub-agent of Agent. 16.11 WITHHOLDING TAXES. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrower, to deliver to Agent and Borrower: (i) if such Lender claims an exemption from withholding tax pursuant to its portfolio interest exception, (a) a statement of the Lender, signed under penalty of perjury, that it is not a (I) a "bank" as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder (within the meaning of Section 881(c)(3)(B) of the IRC), or (III) a controlled foreign corporation described in Section 881(c)(3)(C) of the IRC, and (B) a properly completed IRS Form W-8BEN, before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Borrower; (ii) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Form W-8BEN before the first payment of any interest under this Agreement and at any other time reasonably requested by Agent or Borrower; -96- 98 (iii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form W-8ECI before the first payment of any interest is due under this Agreement and at any other time reasonably requested by Agent or Borrower; (iv) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees promptly to notify Agent and Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form W-8BEN and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations due such Lender, such Lender agrees to notify Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrower due such Lender. To the extent of such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as no longer valid. (c) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (d) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify and hold Agent harmless for all amounts paid, directly or indirectly, by Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent under this Section, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. (e) All payments made by Borrower hereunder or under any note will be made without setoff, counterclaim, or other defense, except as required by applicable law other than for Taxes (as defined below). All such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (other than the United States) or by any political subdivision or taxing authority thereof or therein (other than of the United States) with respect to such payments (but excluding, any tax imposed by any jurisdiction or by any -97- 99 political subdivision or taxing authority thereof or therein (i) measured by or based on the net income or net profits of a Lender, or (ii) to the extent that such tax results from a change in the circumstances of the Lender, including a change in the residence, place of organization, or principal place of business of the Lender, or a change in the branch or lending office of the Lender participating in the transactions set forth herein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any note, including any amount paid pursuant to this Section 16.11(e) after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrower shall not be required to increase any such amounts payable to Agent or any Lender (i) that is not organized under the laws of the United States, if such Person fails to comply with the other requirements of this Section 16.11, or (ii) if the increase in such amount payable results from Agent's or such Lender's own willful misconduct or gross negligence. Borrower will furnish to Agent as promptly as possible after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by Borrower. 16.12 COLLATERAL MATTERS. (a) The Lenders hereby irrevocably authorize Agent, at its option and in its sole discretion, to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Obligors of all Obligations, (ii) constituting property being sold or disposed of or subject to a separate financing as contemplated in Section 7.1(d) or Section 2.2(e)(ii), if a release is required or desirable in connection therewith and if Borrower certifies to Agent that the sale, disposition or release is permitted under Sections 2.2(e)(ii), 6.6, 7.1(d) and 7.4 of this Agreement or the other Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry), (iii) constituting property in which no Obligor owned any interest at the time the security interest was granted or at any time thereafter, or (iv) constituting property leased to an Obligor under a lease that has expired or is terminated in a transaction permitted under this Agreement. Except as provided above, Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of the Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent or Borrower at any time, the Lenders will confirm in writing Agent's authority to release any such Liens on particular types or items of Collateral pursuant to this Section 16.12; provided, however, that (1) Agent shall not be required to execute any document necessary to evidence such release on terms that, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of any Obligor in respect of) all interests retained by such Obligor, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (b) Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by an Obligor or is cared for, protected, or insured or has been -98- 100 encumbered, or that the Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given Agent's own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein. 16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS. (a) Each of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set off against the Obligations, any amounts owing by such Lender to any Obligor or any deposit accounts of any Obligor now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lender any preference or priority against the other Lenders with respect to the Collateral. (b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender's Pro Rata Share of all such distributions by Agent, such Lender promptly shall (1) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment. 16.14 AGENCY FOR PERFECTION. Agent hereby appoints each other Lender as its agent (and each Lender hereby accepts such appointment) for the purpose of perfecting the Agent's Liens in assets which, in accordance with Article 9 of the Code can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver such Collateral to Agent or in accordance with Agent's instructions. -99- 101 16.15 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made by Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium, or interest of the Obligations. 16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. Each member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the benefit of the Lender Group. Each member of the Lender Group agrees that any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY; DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By becoming a party to this Agreement, each Lender: (a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by Agent, and Agent shall so furnish each Lender with such Reports, (b) expressly agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report, (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Obligors and will rely significantly upon Obligors' Books, as well as on representations of Obligors' personnel, (d) agrees to keep all Reports and other material, non-public information regarding Obligors and their operations, assets, and existing and contemplated business plans in a confidential manner; it being understood and agreed by Obligors that in any event such Lender may make disclosures (a) to counsel for and other advisors, accountants, and auditors to such Lender, (b) reasonably required by any bona fide potential or actual Assignee or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender's rights hereunder, (c) of information that has become public by disclosures made by Persons other than such Lender, its Affiliates, assignees, transferees, or Participants, or (d) as required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Borrower of any request by any court, governmental or administrative agency, -100- 102 or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof, and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrower, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of Borrower, and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including, attorneys fees and costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. In addition to the foregoing: (x) any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by any Obligor to Agent that has not been contemporaneously provided by such Obligor to such Lender, and, upon receipt of such request, Agent promptly shall provide a copy of same to such Lender, (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from any Obligor, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender's notice to Agent, whereupon Agent promptly shall request of such Obligor the additional reports or information reasonably specified by such Lender, and, upon receipt thereof from such Obligor, Agent promptly shall provide a copy of same to such Lender, and (z) any time that Agent renders to any Obligor a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender. 16.18 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 16.7, no member of the Lender Group shall have any liability for the acts or any other member of the Lender Group. No Lender shall be responsible to any Obligor or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. -101- 103 16.19 [INTENTIONALLY LEFT BLANK] 17. GENERAL PROVISIONS. 17.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective when executed by Obligors, Agent, and each Lender whose signature is provided for on the signature pages hereof. 17.2 SECTION HEADINGS. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement. 17.3 INTERPRETATION. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against the Lender Group or Obligors, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto. Time is of the essence in the payment and performance of the Obligation. 17.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 17.5 [INTENTIONALLY LEFT BLANK] 17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. -102- 104 17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment of the Obligations by any Obligor or the transfer to the Lender Group of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if the Lender Group is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of such Obligor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 17.8 INTEGRATION. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. -103- 105 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written. BORROWER: COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation By: ------------------------------------- Title: ---------------------------------- FOOTHILL: FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent and as a Lender By: ------------------------------------- Title: ---------------------------------- OTHER LENDERS: ABLECO FINANCE LLC, a Delaware limited liability company By: ------------------------------------- Title: ---------------------------------- OTHER OBLIGORS: COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By: ------------------------------------- Title: ---------------------------------- -104- 106 CPI SUBSIDIARY HOLDINGS INC., a Delaware corporation By: ------------------------------------- Title: ---------------------------------- COMMUNICATIONS & POWER INDUSTRIES INTERNATIONAL INC., a Delaware corporation By: ------------------------------------- Title: ---------------------------------- COMMUNICATIONS & POWER INDUSTRIES ASIA INC., a Delaware corporation By: ------------------------------------- Title: ---------------------------------- COMMUNICATIONS & POWER INDUSTRIES CANADA, INC., an Ontario corporation By: ------------------------------------- Title: ---------------------------------- -105- 107 SCHEDULE C-1 COMMITMENTS
- ------------------ ---------------------- -------------------- ----------------------- LENDER REVOLVER COMMITMENT TERM LOAN COMMITMENT TOTAL COMMITMENT - ------------------ ---------------------- -------------------- ----------------------- Foothill Capital $41,000,000 $41,000,000 Corporation - ------------------ ---------------------- -------------------- ----------------------- Ableco Finance LLC $20,000,000 $20,000,000 - ------------------ ---------------------- -------------------- ----------------------- - ------------------ ---------------------- -------------------- ----------------------- - ------------------ ---------------------- -------------------- ----------------------- All Lenders $41,000,000 $20,000,000 $61,000,000 - ------------------ ---------------------- -------------------- -----------------------
-106- 108 TABLE OF CONTENTS
Page ---- 1. DEFINITIONS AND CONSTRUCTION. 1 1.1 DEFINITIONS. 1 1.2 ACCOUNTING TERMS 28 1.3 CODE. 28 1.4 CONSTRUCTION. 28 1.5 SCHEDULES AND EXHIBITS. 28 2. LOAN AND TERMS OF PAYMENT. 28 2.1 REVOLVER ADVANCES. 28 2.2 TERM LOAN; CREATION OF ADDITIONAL RESERVE 30 2.3 BORROWING PROCEDURES AND SETTLEMENTS 32 2.4 PAYMENTS. 38 2.5 OVERADVANCES. 41 2.6 INTEREST RATES AND LETTER OF CREDIT FEE: RATES, PAYMENTS, AND CALCULATIONS. 41 2.7 CASH MANAGEMENT. 42 2.8 CREDITING PAYMENTS; FLOAT CHARGE. 43 2.9 DESIGNATED ACCOUNT. 44 2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. 44 2.11 FEES. 44 2.12 LETTERS OF CREDIT. 45 2.13 LIBOR OPTION. 48 2.14 CAPITAL REQUIREMENTS. 51 3. CONDITIONS; TERM OF AGREEMENT. 51 3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. 51 3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT. 55 3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. 56 3.4 TERM. 56 3.5 EFFECT OF TERMINATION. 56 3.6 EARLY TERMINATION BY BORROWER. 57 4. CREATION OF SECURITY INTEREST. 58 4.1 GRANT OF SECURITY INTEREST. 58 4.2 NEGOTIABLE COLLATERAL. 58 4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLE COLLATERAL. 58 4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. 58 4.5 POWER OF ATTORNEY. 59 4.6 RIGHT TO INSPECT. 59 4.7 CONTROL AGREEMENTS. 59 5. REPRESENTATIONS AND WARRANTIES. 59
-i- 109 5.1 NO ENCUMBRANCES. 60 5.2 ELIGIBLE ACCOUNTS. 60 5.3 INVENTORY. 60 5.4 EQUIPMENT. 61 5.5 LOCATION OF INVENTORY AND EQUIPMENT. 61 5.6 INVENTORY RECORDS. 61 5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. 61 5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. 61 5.9 DUE AUTHORIZATION; NO CONFLICT. 62 5.10 LITIGATION. 63 5.11 NO MATERIAL ADVERSE CHANGE. 63 5.12 FRAUDULENT TRANSFER. 63 5.13 EMPLOYEE BENEFITS. 63 5.14 ENVIRONMENTAL CONDITION. 63 5.15 BROKERAGE FEES. 64 5.16 INTELLECTUAL PROPERTY. 64 5.17 LEASES. 65 5.18 DDAS. 65 5.19 COMPLETE DISCLOSURE. 65 5.20 INDEBTEDNESS. 65 6. AFFIRMATIVE COVENANTS. 65 6.1 ACCOUNTING SYSTEM. 65 6.2 COLLATERAL REPORTING. 66 6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. 67 6.4 INTELLECTUAL PROPERTY 69 6.5 RETURN. 69 6.6 MAINTENANCE OF PROPERTIES. 69 6.7 TAXES. 69 6.8 INSURANCE. 70 6.9 LOCATION OF INVENTORY AND EQUIPMENT. 70 6.10 COMPLIANCE WITH LAWS. 71 6.11 LEASES. 71 6.12 BROKERAGE COMMISSIONS. 71 6.13 EXISTENCE. 71 6.14 ENVIRONMENTAL. 71 6.15 MOVEMENT OF EQUIPMENT TO GEORGETOWN, ONTARIO LOCATION. 71 6.16 DISCLOSURE UPDATES. 72 7. NEGATIVE COVENANTS. 72 7.1 INDEBTEDNESS. 72 7.2 LIENS. 73 7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. 73 7.4 DISPOSAL OF ASSETS. 74 7.5 CHANGE NAME. 74
-ii- 110 7.6 GUARANTEE. 74 7.7 NATURE OF BUSINESS. 74 7.8 PREPAYMENTS AND AMENDMENTS. 74 7.9 CHANGE OF CONTROL. 74 7.10 CONSIGNMENTS. 74 7.11 DISTRIBUTIONS. 74 7.12 ACCOUNTING METHODS. 75 7.13 INVESTMENTS. 75 7.14 TRANSACTIONS WITH AFFILIATES. 76 7.15 SUSPENSION. 76 7.16 [INTENTIONALLY LEFT BLANK] 76 7.17 USE OF PROCEEDS. 76 7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT WITH BAILEES. 76 7.19 SECURITIES ACCOUNTS. 76 7.20 FINANCIAL COVENANTS. 77 8. EVENTS OF DEFAULT. 77 9. THE LENDER GROUP'S RIGHTS AND REMEDIES. 79 9.1 RIGHTS AND REMEDIES. 79 9.2 REMEDIES CUMULATIVE. 82 10. TAXES AND EXPENSES. 82 11. WAIVERS; INDEMNIFICATION. 82 11.1 DEMAND; PROTEST; ETC. 82 11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. 82 11.3 INDEMNIFICATION. 82 12. NOTICES. 83 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. 84 14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. 85 14.1 ASSIGNMENTS AND PARTICIPATIONS. 85 14.2 SUCCESSORS. 88 15. AMENDMENTS; WAIVERS. 88 15.1 AMENDMENTS AND WAIVERS. 88 15.2 REPLACEMENT OF HOLDOUT LENDER. 89 15.3 NO WAIVERS; CUMULATIVE REMEDIES. 90 16. AGENT; THE LENDER GROUP. 90 16.1 APPOINTMENT AND AUTHORIZATION OF AGENT. 90 16.2 DELEGATION OF DUTIES. 91 16.3 LIABILITY OF AGENT. 91 16.4 RELIANCE BY AGENT. 91 16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. 91 16.6 CREDIT DECISION. 92 16.7 COSTS AND EXPENSES; INDEMNIFICATION. 92 16.8 AGENT IN INDIVIDUAL CAPACITY. 93 16.9 SUCCESSOR AGENT. 93
-iii- 111 16.10 LENDER IN INDIVIDUAL CAPACITY. 94 16.11 WITHHOLDING TAXES. 94 16.12 COLLATERAL MATTERS. 96 16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS. 97 16.14 AGENCY FOR PERFECTION. 97 16.15 PAYMENTS BY AGENT TO THE LENDERS. 97 16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. 98 16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY; DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. 98 16.18 SEVERAL OBLIGATIONS; NO LIABILITY. 99 16.19 [INTENTIONALLY LEFT BLANK] 99 17. GENERAL PROVISIONS. 100 17.1 EFFECTIVENESS. 100 17.2 SECTION HEADINGS. 100 17.3 INTERPRETATION. 100 17.4 SEVERABILITY OF PROVISIONS. 100 17.5 [INTENTIONALLY LEFT BLANK] 100 17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. 100 17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. 101 17.8 INTEGRATION. 101
-iv- 112
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-vi- 114 EXHIBITS AND SCHEDULES
Page ---- Exhibit A-1 Form of Assignment and Acceptance Exhibit B-1 Form of Borrowing Base Certificate Exhibit C-1 Form of Compliance Certificate Exhibit L-1 Form of LIBOR Notice Schedule C-1 Commitments Schedule E-1 Eligible Equipment; Locations of Inventory and Equipment Schedule P-1 Permitted Liens Schedule R-1 Real Property Collateral Schedule R-2 San Carlos Property Schedule 2.7(a) Cash Management Banks Schedule 5.7 Chief Executive Office; FEIN Schedule 5.8(b) Capitalization of Obligors Schedule 5.8(c) Capitalization of Obligors' Subsidiaries Schedule 5.10 Litigation Schedule 5.13 Employee Benefits Schedule 5.14 Environmental Matters Schedule 5.16 Intellectual Property Schedule 5.18 Demand Deposit Accounts Schedule 5.20 Permitted Indebtedness Schedule 6.6 Maintenance of Properties
-vii- EX-10.2 3 f69166ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 INTELLECTUAL PROPERTY SECURITY AGREEMENT [Communications & Power Industries, Inc.] This Intellectual Property Security Agreement (the "Agreement"), dated as of December 15, 2000, is made by COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation (together with its successors and assigns, "Grantor"), in favor of FOOTHILL CAPITAL CORPORATION, a California corporation, as agent for the Lenders (in such capacity, "Agent" with respect to the following facts: A. Grantor has adopted certain trademarks and service marks, as identified herein and in Schedule A annexed hereto and made a part hereof, and B. Grantor is the owner and holder of certain patents, patent applications, inventions and trade secret information, as identified herein and in Schedule B annexed hereto and made a part hereof. C. Grantor is the owner of the copyrights in certain works of authorship, as described herein and in Schedule C annexed hereto and made a part hereof. D. Grantor, the Obligors named therein, Agent, and the Lenders named therein have entered into that certain Loan and Security Agreement dated as of December 15, 2000 (as from time to time amended, modified or supplemented in accordance with its terms, the "Loan Agreement"). Capitalized terms, which are used herein but not defined herein, shall have the meanings ascribed to them in the Loan Agreement. Pursuant to the Loan Agreement the Lender Group has agreed to extend credit to or for the account of Grantor in the form of a term loan and revolving credit facility, and Grantor has granted to Agent, for the benefit of the Lender Group, a security interest in substantially all of Grantor's assets as security for all Obligations. E. To induce the Lender Group to enter into the Loan Agreement and to accept all of the Loan Documents, and to make advances and otherwise extend credit to Grantor thereunder, Grantor has agreed to secure the payment and performance of the Obligations and to accomplish same by executing and delivering to Agent (i) this Agreement, (ii) a Security Interest in Trademarks and a Security Interest in Patents, (iii) a Power of Attorney, and (iv) any and all other documents which Agent reasonably deems necessary to protect the Lender Group's interests hereunder or with respect to the payment or performance of the Obligations. F. This Agreement is the Intellectual Property Security Agreement as defined and described in the Loan Agreement. NOW, THEREFORE, IT IS AGREED that, for and in consideration of the premises set forth above, the terms and conditions contained herein, and other good and 1 2 valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and as collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Obligations, Grantor hereby pledges and grants to Agent, for the benefit of the Lender Group, a lien and security interest in all of Grantor's right, title and interest in and to the following property and interests in property, whether now owned by Grantor or hereafter acquired and whether now existing or hereafter coming into existence (all being collectively referred to herein as "IP Collateral"): (a) all of Grantor's right, title and interest in and to trademarks, trade names, trade styles, service marks, logos, emblems, prints and labels, all elements of package or trade dress of goods, and all general intangibles of like nature, now existing or hereafter adopted or acquired by Grantor, together with the goodwill of Grantor's business connected with the use thereof and symbolized thereby, and all applications, registrations and recordings thereof, including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States or in any office of the Secretary of State (or equivalent) of any state thereof, or in any similar office or agency of any country or political subdivision thereof throughout the world, whether now owned or hereafter acquired by Grantor, including, but not limited to, those described in Schedule A annexed hereto and made a part hereof, together with all extensions, renewals and corrections thereof and all licenses or other contracts pertaining thereto and all general intangibles relating thereto (all of the foregoing assets encompassed by this subparagraph 1(a) being hereinafter collectively referred to as the "Trademarks"); (b) all of Grantor's right, title and interest in and to all inventions and letters patent and applications therefor, and all registrations and recordings thereof, including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States or any state thereof, or in any similar office or agency of any country or political subdivision thereof throughout the world, whether now owned or hereafter acquired by Grantor, including, but not limited to, those described in Schedule B annexed hereto and made a part hereof, together with all re-examinations, reissues, continuations, continuations-in-part, divisions, improvements and extensions thereof and all licenses or other contracts pertaining thereto, all rights to file patent applications, and all licenses of patent rights to Grantor now in effect or entered into during the term of this Agreement and the rights to make, use and sell, and all other rights with respect to, the inventions disclosed or claimed therein, all inventions, designs, proprietary or technical information, know-how, other data or information, software, databases, all embodiments or fixations thereof and related documentation, all information having value in connection with Grantor's business and all other trade secret rights not described above, and the general intangibles relating to any of the foregoing (all of the foregoing assets encompassed by this subparagraph 1(b) being hereinafter collectively referred to as the "Patents"); (c) all of Grantor's right, title and interest in and to copyrights in works of authorship of any kind, and all applications, registrations and recordings thereof in the Office of the United States Register of Copyrights, Library of Congress, or in any similar office or 2 3 agency of any country or political subdivision thereof throughout the world, whether now owned or hereafter acquired by Grantor, including, but not limited to, those described in Schedule C annexed hereto and made a part hereof, together with all extensions, renewals, reversionary rights, and corrections thereof and all licenses or other contracts or pertaining thereto, and all general intangibles relating thereto (all of the foregoing assets encompassed by this subparagraph 1(c) hereinafter collectively referred to as the "Copyrights"); (d) all of Grantor's customer lists and other records of Grantor relating to the distribution of products bearing, constituting or incorporating the Trademarks, Patents and Copyrights; and (e) any and all proceeds of the foregoing, including, without limitation, the proceeds from any claims by Grantor against third parties for past, present or future infringement of the Trademarks, Patents or Copyrights and any royalties from licenses to third parties of the Trademarks, Patents or Copyrights. Notwithstanding any of the foregoing premises to the contrary, the grant of a security interest as provided herein shall not extend to, and the term "IP Collateral" shall not include, any property of Grantor (whether owned or held as licensee or lessee, or otherwise), to the extent that (i) such property is not assignable or capable of being encumbered as a matter of law or under the terms of the license or other agreement applicable thereto (but solely to the extent that any such restriction shall be enforceable under applicable law), without the consent of the licensor thereof or other applicable party thereto and (ii) such consent has not been obtained; provided, however, that the foregoing grant of security interest shall extend to, and the term "IP Collateral" shall include, any proceeds of any property which is otherwise excluded under phrase (i) to the extent that assignment or encumbrance of such proceeds is not restricted. 1. Grantor hereby represents, warrants, covenants and agrees as follows: (a) Grantor has the sole, full and clear title to the Trademarks for the goods and services with which the Trademarks are used (except as provided in paragraph 1(g) below and in Schedules A and A-1 attached hereto). Except for the Trademarks set forth on Schedule A-1, the registrations of the Trademarks are valid and subsisting and in full force and effect. Grantor has not granted a license or otherwise agreed to allow any third party, other than its Subsidiaries in the ordinary course of their business, to use any Trademark (except as provided in Schedule A attached hereto). Grantor has used and will continue to use for the duration of this Agreement standards of quality in the manufacture of products sold under the Trademarks that are at least equal to those standards in effect as of the date of this Agreement to the extent that the failure to do so would cause a Material Adverse Change. (b) Grantor (either itself or through its licensees) will continue to use the Trademarks on each and every trademark class of goods applicable to its current lines of goods as reflected in its current catalogs, brochures and price lists in order to maintain the Trademarks in full force and effect, in the ordinary course of business, free from any claim of 3 4 abandonment for nonuse, and Grantor will not (and will not permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become invalidated, provided, however, that Grantor may abandon any Trademark if Grantor believes in its reasonable business judgment that such abandonment is in the best interest of Grantor's business, provided, further, that (i) Grantor gives Agent prompt written notice of Grantor's intent to abandon any Trademark at least 30 days prior to abandonment, and (ii) such abandonment will not, itself or in conjunction with any other event, materially decrease the value of the IP Collateral. Grantor hereby informs Agent that Grantor may have heretofore abandoned the Trademarks listed on Schedule A-1. (c) Grantor has the sole, full and clear title to the Patents shown on Schedule B hereto and such patents are valid and subsisting and in full force and effect and have not been adjudged or, to Grantor's knowledge, claimed invalid or unenforceable in whole or in part (except as provided in paragraph l(g) below and in Schedules B and B-1 attached hereto). Grantor has not granted a license or otherwise agreed to allow any third party, other than its Subsidiaries in the ordinary course of their business, to use any Patent (except as provided in Schedule B attached hereto). Grantor (either itself or through its licensees) shall mark products made and sold under the Patents in accordance with the U.S. Patent Act and other applicable laws. Grantor shall diligently prosecute any patent application now pending or acquired or made by it during the term of this Agreement, shall make applications on unpatented but patentable inventions, and shall preserve and maintain all rights of any kind in the Patents, which, in each case, Grantor believes in its reasonable business judgment are in the best business interests of Grantor. Grantor believes that none of the Patents (other than those listed on Schedule B-1) has been abandoned or dedicated and Grantor will not do any act, or omit to do any act, nor permit any licensee thereof to do any act whereby any Patent may become abandoned or dedicated and shall notify Foothill immediately if it knows or has reason to believe that any material Patent may become abandoned or dedicated, provided, however, that Grantor may abandon any Patent if Grantor believes in its reasonable business judgment that such abandonment is in the best interest of Grantor's business, provided, further, that (i) Grantor gives Agent prompt written notice of Grantor's intent to abandon any Patent at least 30 days prior to abandonment, and (ii) such abandonment will not, itself or in conjunction with any other event, materially decrease the value of the IP Collateral. (d) Grantor (either itself or through its licensees) will place appropriate notice of copyright on all copies embodying copyrighted works which are publicly distributed and Grantor will not (and will not permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Copyright may become invalidated or dedicated to the public domain. (e) Grantor will promptly perform all acts and execute all documents, including, without limitation, grants of security in forms acceptable to Agent and suitable for recording with (i) the United States Patent and Trademark Office and the United States Register of Copyrights, and (ii) the appropriate offices and agencies of foreign jurisdictions reasonably requested by Agent at any time to evidence, perfect, maintain, record 4 5 or enforce the Agent's interest, for the benefit of the Lender Group, in the IP Collateral or otherwise in furtherance of the provisions of this Agreement. Grantor hereby authorizes Agent to execute and file one or more financing statements (and any similar documents) or copies thereof or of this Agreement with respect to the IP Collateral signed only by Agent (with a copy sent to Grantor). (f) In the event that Grantor, either itself or through any subsidiary, affiliate, agent, employee, licensee or designee, shall file an application for the issuance of any Patent or registration of any Trademark with the United States Patent and Trademark Office, or any similar office of the United States or in any office of the Secretary of State (or equivalent) of any state thereof, or for the registration of any Copyright with the United States Register of Copyrights, or for the registration of any Patent, Trademark or Copyright in any similar office or agency of any country or political subdivision thereof throughout the world, or shall obtain issuance of any Patent or registration of any Trademark or Copyright previously applied for, or shall adopt, acquire or obtain rights to any new trademark, patent application or work for which a copyright application has been or is expected to be filed, or become entitled to the benefit of any patent application or any patent or any part thereof for reissue, re-examination, continuation, continuation-in-part, division, improvement or extension, Grantor shall (i) inform Agent of any such event or action in monthly reports which Grantor is required to deliver to Agent pursuant to the Loan Agreement, and (ii) execute and deliver any and all assignments, agreements, instruments, documents and papers as are necessary or appropriate or as Agent may reasonably request to evidence Agent's interest, for the benefit of the Lender Group, in such Trademark, Patent or Copyright and the goodwill and general intangibles of Grantor relating thereto or represented thereby. Grantor hereby constitutes Agent, or its agent, its attorney-in-fact to execute and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed; such power being coupled with an interest is irrevocable until the Obligations are paid in full. Grantor authorizes the amendment of the schedules hereto to include any future Trademark, Patent or Copyright registrations or applications which may be acquired or made by Grantor. (g) Grantor has the authority, right and power to enter into this Agreement and to perform its terms and to grant the security interest herein granted, and has not entered and will not enter into any oral or written agreements which would prevent Grantor from complying with the terms hereof, provided, however, Grantor may enter into or maintain in effect such license agreements (including, without limitation, those set forth on Schedules A, B and C hereto) with respect to the IP Collateral as Grantor believes in its reasonable business judgment are in the best interest of Grantor's business, so long as any such license agreement permits the assignment thereof to Agent for the benefit of the Lender Group. The IP Collateral is not, to Grantor's knowledge, now, and at all times will not be, subject to any liens, charges, mortgages, assignments, security interests, licenses, claims, shop rights, covenants not to sue third persons, or encumbrances of any nature whatsoever, except in favor of Agent for the benefit of the Lender Group; provided, however, Grantor may enter into such license agreements with respect to the IP Collateral as Grantor believes in its reasonable business judgment are in the best interest of Grantor's business, so long as any such license agreement 5 6 permits the assignment thereof to Agent for the benefit of the Lender Group. To the best knowledge of Grantor, none of the IP Collateral is subject to any claims of any other party, except as may be indicated on Schedules A, B and C to this Agreement. (h) Except for Permitted Liens and to the extent that Agent and the Lenders, upon prior written notice from Grantor, shall consent, Grantor will not assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a security interest in or lien upon, encumber, grant an exclusive license, or otherwise dispose of any of the IP Collateral, and nothing in this Agreement shall be deemed a consent by Agent or any Lender to any such action except as expressly permitted herein. (i) As of the date hereof Grantor has no Trademarks, Patents or Copyrights registered, or which are the subject of any pending application, in the United States Patent and Trademark Office, or any similar office of the United States or in any office of the Secretary of State (or equivalent) of any state thereof, or the United States Register of Copyrights, or in any similar office or agency of any country or political subdivision thereof throughout the world, other than those identified in Schedules A, B and C hereto. (j) Grantor will take all commercially reasonable steps in any proceeding before the United States Patent and Trademark Office, United States Register of Copyrights or similar office or agency of the United States or any office of the Secretary of State (or equivalent) of any state thereof, or in any similar office or agency of any country or political subdivision thereof throughout the world, to maintain each application and registration of the IP Collateral, including, without limitation, filing of renewals, extensions, affidavits of use and incontestability, and opposition, interference and cancellation proceedings (except to the extent that dedication, abandonment or invalidation is permitted under paragraphs 1(b) and 1(c) hereof). Grantor shall notify Agent promptly in writing if any application or registration relating to any IP Collateral may become abandoned or dedicated or subject to an adverse final determination in any proceeding in the United States Patent and Trademark Office or United States Register of Copyrights or in any similar office or agency of any country or political subdivision thereof throughout the world or in any court regarding Grantor's ownership of such Patent or Trademark, its right to register same, or to keep or maintain the validity of same. (k) In the event that Grantor acquires actual knowledge that any Trademark, Patent or Copyright is infringed, misappropriated or diluted by a third party, Grantor shall promptly sue for infringement, misappropriation and/or dilution and to obtain injunctive relief and recover damages therefor, unless Grantor shall determine in its reasonable business judgment that such suit is not in the best interest of Grantor's business, and Grantor shall take such other actions reasonably required to protect such Trademark, Patent or Copyright as Grantor shall deem appropriate in its reasonable business judgment under the circumstances. Upon and during the continuance of an Event of Default, Agent shall have the right, but in no way shall be obligated, to bring suit in its own name to enforce the Trademarks, Patents and Copyrights and any licenses thereunder, in which event Grantor shall, 6 7 at the request of Agent, do any and all lawful acts requested by Agent and execute any and all documents required by to aid such enforcement, and Grantor shall, upon demand, promptly reimburse and indemnify Agent for all costs and expenses incurred in such enforcement. 2. Upon and during the continuation of an Event of Default, the Required Lenders (at their election but without notice of their election and without demand) may, except to the extent otherwise expressly provided or required below, authorize and instruct Agent to do any one or more of the following on behalf of the Lender Group (and Agent, acting upon the instructions of the Required Lenders, shall do the same on behalf of the Lender Group), all of which are authorized by Grantor, in addition to all other rights and remedies provided for in the Loan Documents, all such rights and remedies being cumulative, not exclusive, and enforceable alternatively, successively or concurrently, without (except as provided herein or in the other Loan Documents) notice to, or consent by, Grantor: (a) Agent may (without assuming any obligations or liability thereunder), at any time, enforce (and shall have the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of Grantor in, to and under any one or more license agreements with respect to the IP Collateral, and take or refrain from taking any action under any thereof, and Grantor hereby releases each member of the Lender Group from, and agrees to hold each member of the Lender Group free and harmless from and against any claims arising out of, any action taken or omitted to be taken with respect to any such license agreement; (b) Agent may, at any time and from time to time, upon ten (10) days' prior notice to Grantor, assign, sell, or otherwise dispose of the IP Collateral or any of it, either with or without special or other conditions or stipulations, with power to buy the IP Collateral or any part of it, and do all other acts and things for completing the assignment, sale or disposition which Agent shall, in its sole discretion, deem appropriate or proper; (c) In addition to the foregoing, in order to implement the assignment, sale, license or other disposal of any of the IP Collateral pursuant to subparagraphs 2(a) and (b) hereof, Agent may, at any time and from time to time, pursuant to the authority granted in the Power of Attorney described in paragraph 3 hereof (such authority becoming effective upon an Event of Default), execute and deliver on behalf of Grantor one or more instruments of assignment, sale, license or other disposition of the IP Collateral. Grantor agrees to pay when due all reasonable costs incurred in any such transfer of the IP Collateral, including any taxes, fees and reasonable attorneys' fees, and all such costs shall be added to the Obligations. Agent may apply the proceeds actually received from any such license, assignment, sale or other disposition in accordance with paragraph (d) of this Section 2; and Grantor shall remain liable and will pay Agent on demand any deficiency remaining, together with interest thereon at a rate equal to the rate then payable on the Obligations and the balance of any expenses unpaid. Nothing herein contained shall be construed as requiring Agent to take any such action at any time; and 7 8 (d) Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the IP Collateral pursuant hereto, shall be applied to the Obligations in such order as Agent shall determine consistent with Section 2.4(b) of the Loan Agreement until the Obligations shall have been paid in full in cash. 3. Concurrently with the execution and delivery hereof, Grantor is executing and delivering to Agent, in the form of Exhibit A hereto, respectively, three originals of a Power of Attorney for the implementation of any assignment, sale or other disposition of the Trademarks, Patents or Copyrights or any of them pursuant to paragraphs 2(a), (b) and (c) hereof. 4. No provision hereof shall be modified, altered or limited except by a written instrument expressly referring to this Agreement and executed by the party to be charged. The execution and delivery of this Agreement has been properly authorized by the board of directors of Grantor and by any necessary vote or consent of stockholders thereof. This Agreement shall be binding upon the successors, permitted assigns or other legal representatives of Grantor, and shall inure to the benefit of the Lender Group, their successors, permitted assigns or other legal representatives. This Agreement, the Obligations and the IP Collateral shall be governed in all respects by the laws of the United States and the laws of the State of New York. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby. In the event of any inconsistency between the terms of this Agreement and the terms of the Loan Agreement, the terms of the Loan Agreement shall control. 5. This Agreement shall continue to be effective and shall be reinstated in the event that at any time after the Obligations have been paid in full, any payment of the Obligations is rescinded or must otherwise be restored or returned by any of the Lender Group. 6. Upon payment in full in cash and performance by Grantor of all of the Obligations (other than indemnification obligations for which no claim has been made) and upon the termination of the Loan Agreement, this Agreement shall terminate and Agent shall execute, file and record in each office in which any financing statement or assignment relative to the IP Collateral, or any part thereof, shall have been filed, a termination statement, assignment or other appropriate instrument releasing its interest therein, all without recourse to or warranty by any of the Lender Group and at the sole cost and expense of Grantor. 7. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 8 9 IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed and delivered on the day and year first above written. COMMUNICATIONS & POWER INDUSTRIES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 9 10 SCHEDULE A TRADEMARKS 11 SCHEDULE A-1 ABANDONED TRADEMARKS 12 SCHEDULE B PATENTS 13 SCHEDULE B-1 ABANDONED PATENTS 14 SCHEDULE C COPYRIGHTS [None] 15 EXHIBIT A POWER OF ATTORNEY Pursuant to the terms of that certain Loan and Security Agreement (the "Loan Agreement") among the Company, Agent (as defined below), the Lenders named therein, and the other Obligors named therein and that certain Intellectual Property Security Agreement by the undersigned (the "Company") in favor of Agent, both of even date herewith, as each may be amended, restated, modified or supplemented and in effect from time to time, the Company hereby grants to Foothill Capital Corporation, a California corporation, as agent for the Lenders (in such capacity, "Agent") a power of attorney, for use solely upon the occurrence and during the continuation of an Event of Default (as defined in the Loan Agreement): (i) to offer to sell, to sell, to assign, to license, or to otherwise transfer (collectively, "transfer") any or all of the Company's right, title and interest around the world in and to the trademarks listed on SCHEDULE A attached hereto, including the registrations and applications to register such trademarks and all goodwill associated with such trademarks; (ii) to offer to sell, to sell, to assign, to license, or to otherwise transfer (collectively, "transfer") any or all of the Company's right, title and interest around the world in and to the patents listed on SCHEDULE B attached hereto, including the registrations and applications to register such patents and all goodwill associated with such patents; (iii) to offer to sell, to sell, to assign, to license, or to otherwise transfer (collectively, "transfer") any or all of the Company's right, title and interest around the world in and to the copyrights listed on SCHEDULE C attached hereto, including the registrations and applications to register such copyrights; (iv) to execute all documents on its behalf and do all acts necessary or desirable to effect the above stated transfers of right, as if Agent were the Company at all appropriate times; (v) to receive and retain consideration, including money, in connection with and in payment for any such transfer. (vi) to endorse Company's name on all applications, documents, papers and instruments necessary for Agent in the use or maintenance of the IP Collateral. (vii) to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the IP Collateral; (viii) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (vii) above; 16 (ix) to file any claims or take any action or institute any proceedings that Agent may deem necessary or desirable for the collection of any of the IP Collateral or otherwise to enforce the rights of Agent with respect to any of the IP Collateral; and (x) to pay or discharge taxes or Liens (other than Liens permitted under the Intellectual Property Security Agreement or the Loan Agreement) levied or placed upon or threatened against the IP Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Agent to become Obligations of the Company to Agent, due and payable immediately without demand; provided, however, that unless an Event of Default shall have occurred and be continuing, Agent may not pay or discharge any such tax or lien which is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and for which such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made. All transfers and such acts as described above are hereby ratified and confirmed by the Company. This Power of Attorney is coupled with an interest and is irrevocable except with the consent of Foothill. Capitalized terms, which are used herein but not defined herein, shall have the meanings ascribed to them in the Loan Agreement and the Intellectual Property Security Agreement. [The remainder of this page is intentionally left blank.] 17 Dated December , 2000. -- COMMUNICATIONS & POWER INDUSTRIES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- SUBSCRIBED AND SWORN TO before me this day of December, 2000. -- - ---------------------------------------- Notary Public [Seal] EX-10.3 4 f69166ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 STOCK PLEDGE AND SECURITY AGREEMENT [Communications & Power Industries, Inc.] This Stock Pledge and Security Agreement (this "Pledge Agreement") is executed and delivered as of the 15th day of December, 2000, by the party set forth on the signature page hereof ("Pledgor"), to and in favor of FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent for itself and the other Lenders ("Agent"), with respect to the following facts: A. Pledgor, Agent, the Lenders named therein, and other Obligors named therein, have entered into that certain Loan and Security Agreement, dated as of December 15, 2000 (the same as it may be amended, restated, modified, and supplemented, and in effect from time to time, the "Loan Agreement"), and certain other Loan Documents, pursuant to which Loan Documents the Lender Group has agreed to extend credit to or for the account of Pledgor. B. In order to induce the Lender Group to enter into the Loan Agreement and to accept all of the Loan Documents, and to make advances and otherwise extend credit to Borrower thereunder, Pledgor has agreed to secure the payment and performance of the Obligations and to accomplish same by (i) executing and delivering to Agent this Pledge Agreement for the benefit of the Lender Group, (ii) delivering to Agent the Pledged Securities owned by Pledgor (hereinafter defined), together with appropriate powers and/or endorsements duly executed in blank by Pledgor, and (iii) delivering to Agent any and all other documents which Agent deems necessary to protect Agent's interests hereunder or with respect to the Obligations. C. This Pledge Agreement is one of the Stock Pledge Agreements as defined and described in the Loan Agreement. Capitalized terms, which are used herein but not defined herein, shall have the meanings ascribed to them in the Loan Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, Pledgor hereby agrees as follows: 1. Definitions. (a) "Issuer" shall mean and include each of the corporations identified in Exhibit "A" hereto, which is incorporated herein by this reference, individually and collectively. (b) "Pledge Agreement" shall mean and include this Pledge and Security Agreement, as amended, modified or supplemented from time to time. (c) "Pledged Property" shall mean and include (i) the Pledged Securities, the certificates or other instruments representing the Pledged Securities, any interest of Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Shares, together with all cash dividends, stock dividends, interest, profits, redemptions, warrants, subscription rights, 2 stock, securities, options, substitutions, exchanges and other distributions now or hereafter paid, delivered or distributed by Issuer or which may hereafter be acquired by or delivered with respect to or in exchange for the Pledged Property, (ii) Pledgor's records with respect to the foregoing and (iii) all proceeds of all of the foregoing, regardless of form. (d) "Pledged Securities" shall mean the shares of stock described in Exhibit "A". (e) All other terms hereinbefore or hereinafter defined in this Pledge Agreement shall have the meanings herein assigned to such terms. (f) All terms not specifically defined herein which are defined in the New York Uniform Commercial Code shall be construed in accordance with the definitions set forth therein. All references herein to the "UCC" shall mean the Uniform Commercial Code adopted by the New York as in effect from time to time. 2. Grant of Security Interest As collateral security for the prompt and unconditional payment and performance when due of each and every one of the Obligations, Pledgor hereby assigns, mortgages, pledges, hypothecates, transfers, sets over and grants to Agent, for the benefit of the Lender Group, a security interest in and lien upon all of the Pledged Property. 3. Representations, Warranties, Covenants and Waivers Pledgor hereby covenants, represents and warrants with and to Agent that (all of such covenants, representations and warranties being continuing in nature so long as any of the Obligations are outstanding): (a) The Pledged Securities of Pledgor are duly authorized, validly issued, fully paid and nonassessable securities of each Issuer; and are not registered, nor has Pledgor or Issuer authorized the registration thereof, in the name of any person or entity other than such Pledgor or Agent; and, except as otherwise shown in Exhibit "A" hereto, constitute all issued and outstanding shares of such Issuer. (b) The Pledged Property of Pledgor is directly, legally and beneficially owned by Pledgor free and clear of all claims, liens, pledges and encumbrances of any kind, nature or description except for the first and prior pledge and security interest with respect thereto in favor of Agent and restrictions under applicable securities law. (c) The Pledged Property is not subject to any restrictions relative to the pledge or transfer thereof, except as noted on the certificates evidencing the Pledged Securities, and Pledgor has the right to transfer and hypothecate the Pledged Property of Pledgor free and clear -2- 3 of any liens, encumbrances or restrictions except as otherwise provided herein and restrictions under applicable securities law. (d) The Pledged Property is duly and validly pledged to Agent and no consent or approval of any governmental or regulatory authority or of any securities exchange or the like, nor any consent or approval of any other third party, was or is necessary to the validity and enforceability of this Pledge Agreement. (e) Pledgor authorizes Agent to (i) control the Pledged Property, (ii) perform any and all other acts which Agent in good faith deems reasonable and/or necessary for the protection and preservation of the Pledged Property or its value or Agent's security interest therein, including, without limitation, but only upon and during the continuation of an Event of Default, transferring, registering or arranging for the transfer or registration of the Pledged Property to or in Agent's own name and receiving the income therefrom as additional collateral for the Obligations and (iii) pay any charges or expenses which Agent deems necessary for the foregoing purposes, but without any obligation to do so. Any obligation of Agent for reasonable care for the Pledged Property in Agent's possession shall be limited to the same degree of care required by Section 9207 of the UCC (or any comparable successor statute). (f) Pledgor will not exercise any right under any Pledged Property which might constitute the exercise of such control by Agent so as to make the Issuer of such Pledged Property an Affiliate of Agent until after occurrence of and during the continuation of an Event of Default. (g) Pledgor will pay all charges and assessments of any nature against the Pledged Property or with respect hereto prior to said charges and/or assessments being delinquent. (h) Pledgor shall promptly reimburse Agent on demand, together with interest at the rate provided in the Loan Documents, for any charges, assessments, fees, and reasonable and documented out-of-pocket costs or expenses paid or incurred by Agent in its Permitted Discretion for the protection, preservation and maintenance of the Pledged Property and the enforcement of Agent's rights hereunder, including, without limitation, reasonable and documented out-of-pocket costs, attorneys fees and other expenses incurred by Agent in seeking to protect, collect or enforce its rights in the Pledged Property or otherwise hereunder. (i) Pledgor shall furnish Agent with such information concerning Issuer and the Pledged Property as Agent may from time to time request, including, without limitation, current financial statements. (j) During the term of this Pledge Agreement, if Pledgor shall receive, have registered in its name or become entitled to receive or acquire or have registered in its name any stock certificate, option or warrant with respect to the securities of Issuer (including, without limitation, any certificate representing a dividend on or a distribution or exchange of or in connection with any reclassification of the Pledged Securities) whether as an addition to, in substitution of, or in exchange for any of the Pledged Property or otherwise, Pledgor agrees to accept same as Agent's agent, to hold same in trust for Agent and to deliver same forthwith to -3- 4 Agent or Agent's agent or bailee in the form received, with the endorsement(s) of Pledgor where necessary or duly executed appropriate powers and/or assignments, to be held by Agent or Agent's agent or bailee If any of the foregoing is at any time in uncertificated form, Pledgor shall register same with Agent's security interest noted therein, as further security for the Obligations, and take such other actions as are necessary to create a valid and perfected first priority security interest in favor of Agent in the Pledged Securities or other Pledged Property. (k) During the term of this Pledge Agreement, Pledgor shall not directly or indirectly sell, assign, transfer, or otherwise dispose of, or grant any option with respect to the Pledged Property, nor shall Pledgor create, incur or permit any further pledge, hypothecation, encumbrance, lien, mortgage or security interest with respect to the Pledged Property except as permitted by the Loan Agreement. (l) So long as no Event of Default has occurred and is continuing, Pledgor: (i) shall have the right to vote and exercise all corporate rights with respect to its Pledged Securities; and (ii) shall have the right to receive and collect all dividends and distributions (other than of additional securities of the Issuer, or any options or warrants with respect to the securities of the Issuer) with respect to the Pledged Securities. (m) Agent may notify each Issuer or the appropriate transfer agent of the Pledged Securities to register the security interest and pledge granted herein in the name of Agent and honor the rights of Agent with respect to the Pledged Securities and other Pledged Property. (n) Pledgor shall perform such further acts and execute such additional instruments as are reasonably required by Agent to effectuate and implement this Pledge Agreement and the provisions hereof. (o) No action has been taken or is being taken by or is currently planned by Pledgor, or any agent acting on its behalf, which would cause this Pledge Agreement, the Obligations or the Loan Documents to violate any regulation of the Securities Exchange Act of 1934 or any other applicable law or regulation, in each case as now in effect or as the same may hereafter be amended or supplemented. Pledgor is not in the business of extending credit for the purpose of purchasing or carrying margin stocks or other securities. The Pledged Property does not compose margin stock. (p) Pledgor waives (i) all rights to require Agent to proceed against any other person, entity or collateral or to exercise any remedy, or (ii) the defense of the statute of limitations in any action upon any of the Obligations or other collateral. Agent is entitled to all of the benefits of a secured party set forth in Section 9207 of the UCC (or any comparable successor statute). 4. Remedies After Event of Default -4- 5 Upon the occurrence and during the continuation of an Event of Default and subject to any restrictions set forth in the Loan Documents: (a) Agent, at its option, shall be empowered to exercise its right to instruct each Issuer of the Pledged Securities (or the appropriate transfer agent of the Pledged Securities) to register any or all of the Pledged Securities and/or other Pledged Property in the name of Agent or in the name of Agent's nominee, and Agent may complete, in any manner Agent may deem expedient, any and all stock powers, assignments or other documents heretofore or hereafter executed in blank by Pledgor and delivered to Agent. After said instruction, and without further notice, Agent in its sole and absolute discretion, shall have the exclusive right to exercise all voting and corporate rights with respect to the Pledged Securities and other Pledged Property and exercise any and all rights of conversion, redemption, exchange, subscription or any other rights, privileges, or options pertaining to any shares of the Pledged Securities or the other Pledged Property as if Agent were the absolute owner thereof, including, without limitation, the right to exchange, in its discretion, any and all of the Pledged Securities and other Pledged Property upon any merger, consolidation, reorganization, recapitalization or other readjustment with respect to Issuer. Upon the exercise of any such rights, privileges or options by Agent, Agent shall have the right to deposit and deliver any and all of the Pledged Securities and other pledged property to any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as Agent may determine, all without liability to Pledgor, except to account for property actually received by Agent. However, Agent shall have no duty to exercise any of the aforesaid rights, privileges or options (all of which are exercisable in the sole discretion of Agent) and shall not be responsible for any failure to do so or delay in doing so. (b) In addition to all the rights and remedies of a secured party under the UCC, Agent shall have the right, at any time and without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Pledgor or any other Person, to proceed forthwith to collect, redeem, receive, appropriate, sell, or otherwise dispose of and deliver the Pledged Property or any part thereof in one or more lots at public or private sale or sales at any exchange, brokers board or at any of Agent's offices or elsewhere at such prices and on such terms as Agent may deem commercially reasonable. The foregoing disposition(s) may be for cash or on credit or for future delivery without assumption of any credit risk by Agent. The proceeds of any such collection, redemption, recovery, receipt, appropriation, realization, sale or other disposition, after deducting all costs and expenses of every kind incurred relative thereto or incidental to the care, safekeeping, maintenance, or disposition of any and all Pledged Property or in any way relating to the rights of Agent hereunder (including, without limitation, reasonable and documented out-of-pocket attorneys' fees and legal expenses) shall be applied first to the satisfaction of the Obligations (in such order as Agent may elect and whether or not due) and then to the payment of any amounts required by applicable law, including Section 9504(l)(c) of the UCC. Pledgor shall be liable to Agent for the payment on demand of all such reasonable and documented out-of-pocket costs and expenses of any such sale, collection or other realizations, together with interest at the rate set forth in the Loan Documents, together with any reasonable attorneys' fees if placed with an attorney for collection or enforcement. Pledgor agrees that notice given to it in the same manner -5- 6 given to Pledgor pursuant to Section 12 of the Loan Agreement is reasonable notification of such matters. (c) To the fullest extent permitted by law, Agent or any Lender may be the purchaser of any or all of the Pledged Collateral at any such sale and Agent, as agent for and representative of the Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Required Lenders shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Property sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any Pledged Property payable by Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgor, and Pledgor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Pledgor agrees that, to the extent notice of sale shall be required by law at least ten days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Agent shall not be obligated to make any sale of Pledged Property regardless of notice of sale having been given. Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was adjourned. To the fullest extent permitted by law, Pledgor hereby waives any claims against Agent or any other member of the Lender Group arising by reason of the fact that the price at which any Pledged Property may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Agent accepts the first offer received and does not offer such Pledged Property to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Property are insufficient to pay all the Obligations, Pledgor shall be liable for the deficiency and the fees of any attorneys employed by Agent to collect such deficiency. (d) Pledgor recognizes that Agent may be unable to effect a public sale of all or part of the Pledged Property by reason of certain prohibitions contained in the Securities Act of 1933, as amended, as now or hereafter in effect; or contained in applicable Blue Sky or other state securities law, as now or hereafter in effect, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire Pledged Property for their own account for investment and not with a view to the further distribution or resale thereof. If at the time of any sale of the Pledged Property or any part thereof, the same shall not, for any reason whatsoever, be effectively registered (if required) under the Securities Act of 1933 (or other applicable federal or state securities law), as then in effect, Agent in its sole and absolute discretion is authorized to sell the Pledged Property or any part thereof by private sale in such matter and under such circumstances as Agent or its counsel may deem necessary or advisable in order that such sale may legally be effected without registration under applicable securities laws. Pledgor acknowledges that private sales so made may be at prices and other terms less favorable to the seller than if the Pledged Property were sold at public sale, and that Agent has no obligation to delay the sale of any such Pledged Property for the period of time necessary to permit the Issuer of such Pledged Property, even if such Issuer would agree, -6- 7 to register such Pledged Property for public sale under such applicable securities laws. Pledgor agrees that any private sales made under the foregoing circumstances shall not be deemed to have been in a commercially unreasonable manner for the sole reason that it is a private sale. (e) Pledgor hereby agrees that if at any time all or any part of any payment theretofore paid by Pledgor and applied by Agent to any of the Obligations is returned by Agent for any reason whatsoever (including, without limitation, the insolvency, bankruptcy, reorganization or assignment for the benefit of creditors of Pledgor), such Obligations, for the purpose of this Agreement, to the extent that such payment is returned, shall be deemed to have continued in existence, notwithstanding such application by Agent, and this Agreement shall continue to be effective or be reinstated, as the case may be, as to such Obligations, all as though such application by Agent had not been made. (f) All of Lender Group's rights and remedies, including but not limited to those arising under this Pledge Agreement, the other Loan Documents, the instruments and securities comprising the Pledged Property, applicable law or otherwise, shall be cumulative and not exclusive and shall be enforceable alternatively, successively or concurrently as Agent may deem expedient. No failure or delay on the part of Agent in exercising any of its options, powers or rights or partial or single exercise thereof shall constitute a waiver of such option, power or right. 5. Further Assurances Pledgor agrees that at any time and from time to time upon the request of Agent, to execute and deliver such further documents, including but not limited to irrevocable proxies or stock powers, in form satisfactory to counsel for Agent, and will take or cause to be taken such further acts as Agent may request in order to effect the purposes of this Pledge Agreement and perfect or continue the perfection of the security interest in the Pledged Property granted to Agent hereunder. 6. Miscellaneous (a) Beyond the exercise of reasonable care to assure the safe custody of the Pledged Property while held by Agent hereunder, as provided in Section 3(e) hereof, neither Agent, nor agent or bailee, nor any other member of the Lender Group shall have no duty or liability to protect or preserve any rights pertaining thereto. Agent shall be obligated to return or release its security interest in the Pledged Property, at the sole expense of Pledgor, after all Obligations are indefeasibly paid and performed in full in cash and neither Agent nor any other member of the Lender Group is under any further obligation to extend credit under the Loan Agreement. (b) No course of dealing between Pledgor and Agent, nor any failure or delay by Agent or any other member of the Lender Group to exercise any right, power or privilege under this Pledge Agreement, the other Loan Documents or under any other agreements, -7- 8 instruments and documents executed and delivered in connection therewith shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No waiver of any provision of this Pledge Agreement shall be effective unless the same shall be in writing and signed by Agent, and then such waiver shall be effective only in the specific instance and for the purpose for which given. (c) This Pledge Agreement may not be changed, modified or amended, in whole or in part, except by a writing signed by Pledgor and Agent. (d) The provisions of this Pledge Agreement and the Loan Documents are severable, and if any clause or provision hereof or thereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall attach only to such clause or provision or part hereof in any such jurisdiction and shall not in any manner affect any other clause or provision in this Pledge Agreement or the Loan Documents in any jurisdiction or such clause or provision in any other jurisdiction. In the event of any inconsistency between the terms of this Pledge Agreement and the terms of the Loan Agreement, the terms of the Loan Agreement shall control. (e) This Pledge Agreement shall inure to the benefit of each member of the Lender Group and their respective successors and assigns and shall be binding upon Pledgor and its successors and assigns until all of the Obligations have been indefeasibly paid and performed in full in cash. (f) Pledgor agrees to indemnify Agent from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Pledge Agreement), except to the extent such claims, losses or liabilities result solely from Agent's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (g) Pledgor shall pay to Agent upon demand the amount of any and all reasonable and documented out-of-pocket costs and expenses, including the reasonable and documented fees and out-of-pocket costs and expenses of its counsel and of any experts and agents, that Agent may incur in connection with (i) the administration of this Pledge Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Pledged Property, (iii) the exercise or enforcement of any of the rights of Agent hereunder, or (iv) the failure by Pledgor to perform or observe any of the provisions hereof. 7. Continuing Security Interest; Transfer of Loans. This Pledge Agreement shall create a continuing security interest in the Pledged Property and shall (a) remain in full force and effect until the payment in full of all Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding L/C's, (b) be binding upon Pledgor, its successors and assigns, and (c) inure, together -8- 9 with the rights and remedies of the Lender Group hereunder, to the benefit of the Lender Group and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of Section 14 of the Loan Agreement, any Lender may assign or otherwise transfer any of the Obligations, the Commitments and the other rights and obligations held by it under the Loan Agreement and the other Loan Documents to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full in cash of all Obligations (other than inchoate indemnification obligations with respect to claims, losses or liabilities which have not yet arisen), the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding L/C's, the security interest granted hereby shall terminate and all rights to the Pledged Property shall revert to Pledgor. Upon any such termination Agent will, at Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination and Pledgor shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Agent, of such of the Pledged Property as shall not have been sold or otherwise applied pursuant to the terms hereof. 8. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS PLEDGE AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCEPT AS OTHERWISE PROVIDED BY THE UCC). THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, OR, IF SUCH COURTS DO NOT HAVE SUBJECT MATTER JURISDICTION, THEN, AT THE SOLE OPTION OF AGENT, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS PERTAINING TO THE COLLATERAL AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. PLEDGOR AND AGENT WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 8. PLEDGOR AND AGENT HEREBY WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGOR AND AGENT REPRESENT THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY -9- 10 OF THIS PLEDGE AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. -10- 11 IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be duly executed and delivered on the day and year first above written. COMMUNICATIONS & POWER INDUSTRIES, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Address: c/o Communications & Power Industries, Inc. 607 Hansen Way, Palo Alto, California 94303 Attention: Lynn E. Harvey, Chief Financial Officer -11- 12 EXHIBIT "A" PLEDGED SECURITIES
Type of Number of Issued to Issuer Securities Shares Par Value --------- ------ ---------- --------- ---------
EX-10.4 5 f69166ex10-4.txt EXHIBIT 10.4 1 EXHIBIT 10.4 STOCK PLEDGE AND SECURITY AGREEMENT This Stock Pledge and Security Agreement (this "Pledge Agreement") is executed and delivered as of the 15th day of December, 2000, by each of the parties set forth on the signature pages hereof (collectively "Pledgors", and individually each a "Pledgor" ), to and in favor of FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent for itself and the other Lenders ("Agent"), with respect to the following facts: A. Pledgors, Agent, the Lenders named therein, and other Obligors named therein have entered into that certain Loan and Security Agreement, dated as of December 15, 2000 (the same as it may be amended, restated, modified, and supplemented, and in effect from time to time, the "Loan Agreement"), and certain other Loan Documents, pursuant to which Loan Documents the Lender Group has agreed to extend credit to or for the account of Communications & Power Industries, Inc., a Delaware corporation ("Borrower"). B. In order to induce the Lender Group to enter into the Loan Agreement and to accept all of the Loan Documents, and to make advances and otherwise extend credit to Borrower thereunder, each Pledgor has agreed to secure the payment and performance of the Guaranteed Obligations (as defined below) and to accomplish same by (i) executing and delivering to Agent this Pledge Agreement for the benefit of the Lender Group, (ii) delivering to Agent the Pledged Securities owned by such Pledgor (hereinafter defined), together with appropriate powers and/or endorsements duly executed in blank by such Pledgor, and (iii) delivering to Agent any and all other documents which Agent deems necessary to protect Agent's interests hereunder or with respect to the Guaranteed Obligations. C. This Pledge Agreement is one of the Stock Pledge Agreements as defined and described in the Loan Agreement. Capitalized terms, which are used herein but not defined herein, shall have the meanings ascribed to them in the Loan Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, receipt of which is hereby acknowledged, Pledgors hereby agree as follows: 1. Definitions. (a) "Guaranteed Obligations" means all obligations and liabilities of Pledgors for payment and performance under or arising out of the Guaranty. (b) "Issuer" shall mean and include each of the corporations identified in Exhibit "A" hereto, which is incorporated herein by this reference, individually and collectively. (c) "Pledge Agreement" shall mean and include this Pledge and Security Agreement, as amended, modified or supplemented from time to time. 2 (d) "Pledged Property" shall mean and include (i) the Pledged Securities, the certificates or other instruments representing the Pledged Securities, any interest of Pledgor in the entries on the books of any financial intermediary pertaining to the Pledged Shares, together with all cash dividends, stock dividends, interest, profits, redemptions, warrants, subscription rights, stock, securities, options, substitutions, exchanges and other distributions now or hereafter paid, delivered or distributed by Issuer or which may hereafter be acquired by or delivered with respect to or in exchange for the Pledged Property, (ii) each Pledgor's records with respect to the foregoing and (iii) all proceeds of all of the foregoing, regardless of form. (e) "Pledged Securities" shall mean the shares of stock described in Exhibit "A". (f) All other terms hereinbefore or hereinafter defined in this Pledge Agreement shall have the meanings herein assigned to such terms. (g) All terms not specifically defined herein which are defined in the New York Uniform Commercial Code shall be construed in accordance with the definitions set forth therein. All references herein to the "UCC" shall mean the Uniform Commercial Code adopted by the New York as in effect from time to time. 2. Grant of Security Interest As collateral security for the prompt and unconditional payment and performance when due of each and every one of the Guaranteed Obligations, each Pledgor hereby assigns, mortgages, pledges, hypothecates, transfers, sets over and grants to Agent, for the benefit of the Lender Group, a security interest in and lien upon all of the Pledged Property. 3. Representations, Warranties, Covenants and Waivers Each of Pledgors hereby covenants, represents and warrants with and to Agent that (all of such covenants, representations and warranties being continuing in nature so long as any of the Guaranteed Obligations are outstanding): (a) The Pledged Securities of each Pledgor are duly authorized, validly issued, fully paid and nonassessable securities of each Issuer; and are not registered, nor has any Pledgor or Issuer authorized the registration thereof, in the name of any person or entity other than such Pledgor or Agent; and, except as otherwise shown in Exhibit "A" hereto, constitute all issued and outstanding shares of such Issuer. (b) The Pledged Property of each Pledgor is directly, legally and beneficially owned by such Pledgor free and clear of all claims, liens, pledges and encumbrances of any kind, nature or description except for the first and prior pledge and security interest with respect thereto in favor of Agent and restrictions under applicable securities law. -2- 3 (c) The Pledged Property is not subject to any restrictions relative to the pledge or transfer thereof, except as noted on the certificates evidencing the Pledged Securities, and each Pledgor has the right to transfer and hypothecate the Pledged Property of such Pledgor free and clear of any liens, encumbrances or restrictions except as otherwise provided herein and restrictions under applicable securities law. (d) The Pledged Property is duly and validly pledged to Agent and no consent or approval of any governmental or regulatory authority or of any securities exchange or the like, nor any consent or approval of any other third party, was or is necessary to the validity and enforceability of this Pledge Agreement. (e) Pledgor authorizes Agent to (i) control the Pledged Property, (ii) perform any and all other acts which Agent in good faith deems reasonable and/or necessary for the protection and preservation of the Pledged Property or its value or Agent's security interest therein, including, without limitation, but only upon and during the continuation of an Event of Default, transferring, registering or arranging for the transfer or registration of the Pledged Property to or in Agent's own name and receiving the income therefrom as additional collateral for the Guaranteed Obligations and (iii) pay any charges or expenses which Agent deems necessary for the foregoing purposes, but without any obligation to do so. Any obligation of Agent for reasonable care for the Pledged Property in Agent's possession shall be limited to the same degree of care required by Section 9207 of the UCC (or any comparable successor statute). (f) Pledgor will not exercise any right under any Pledged Property which might constitute the exercise of such control by Agent so as to make the Issuer of such Pledged Property an Affiliate of Agent until after occurrence of and during the continuation of an Event of Default. (g) Pledgor will pay all charges and assessments of any nature against the Pledged Property or with respect hereto prior to said charges and/or assessments being delinquent. (h) Pledgor shall promptly reimburse Agent on demand, together with interest at the rate provided in the Loan Documents, for any charges, assessments, fees, and reasonable and documented out-of-pocket costs or expenses paid or incurred by Agent in its Permitted Discretion for the protection, preservation and maintenance of the Pledged Property and the enforcement of Agent's rights hereunder, including, without limitation, reasonable and documented out-of-pocket costs, attorneys fees and other expenses incurred by Agent in seeking to protect, collect or enforce its rights in the Pledged Property or otherwise hereunder. (i) Pledgor shall furnish Agent with such information concerning Issuer and the Pledged Property as Agent may from time to time request, including, without limitation, current financial statements. (j) During the term of this Pledge Agreement, if Pledgor shall receive, have registered in its name or become entitled to receive or acquire or have registered in its name any stock certificate, option or warrant with respect to the securities of Issuer (including, without -3- 4 limitation, any certificate representing a dividend on or a distribution or exchange of or in connection with any reclassification of the Pledged Securities) whether as an addition to, in substitution of, or in exchange for any of the Pledged Property or otherwise, such Pledgor agrees to accept same as Agent's agent, to hold same in trust for Agent and to deliver same forthwith to Agent or Agent's agent or bailee in the form received, with the endorsement(s) of the applicable Pledgor where necessary or duly executed appropriate powers and/or assignments, to be held by Agent or Agent's agent or bailee. If any of the foregoing is at any time in uncertificated form, the applicable Pledgor shall register same with Agent's security interest noted therein, as further security for the Guaranteed Obligations, and take such other actions as are necessary to create a valid and perfected first priority security interest in favor of Agent in the Pledged Securities or other Pledged Property. (k) During the term of this Pledge Agreement, no Pledgor shall directly or indirectly sell, assign, transfer, or otherwise dispose of, or grant any option with respect to the Pledged Property, nor shall any Pledgor create, incur or permit any further pledge, hypothecation, encumbrance, lien, mortgage or security interest with respect to the Pledged Property except as permitted by the Loan Agreement. (l) So long as no Event of Default has occurred and is continuing, each Pledgor: (i) shall have the right to vote and exercise all corporate rights with respect to its Pledged Securities; and (ii) shall have the right to receive and collect all dividends and distributions (other than of additional securities of the Issuer, or any options or warrants with respect to securities of the Issuer) with respect to the Pledged Securities. (m) Agent may notify each Issuer or the appropriate transfer agent of the Pledged Securities to register the security interest and pledge granted herein in the name of Agent and honor the rights of Agent with respect to the Pledged Securities and other Pledged Property. (n) Pledgor shall perform such further acts and execute such additional instruments as are reasonably required by Agent to effectuate and implement this Pledge Agreement and the provisions hereof. (o) No action has been taken or is being taken by or is currently planned by any Pledgor, or any agent acting on its behalf, which would cause this Pledge Agreement, the Guaranteed Obligations or the Loan Documents to violate any regulation of the Securities Exchange Act of 1934 or any other applicable law or regulation, in each case as now in effect or as the same may hereafter be amended or supplemented. Pledgor is not in the business of extending credit for the purpose of purchasing or carrying margin stocks or other securities. The Pledged Property does not compose margin stock. (p) Pledgor waives (i) all rights to require Agent to proceed against any other person, entity or collateral or to exercise any remedy, or (ii) the defense of the statute of limitations in any action upon any of the Guaranteed Obligations or other collateral. Agent is -4- 5 entitled to all of the benefits of a secured party set forth in Section 9207 of the UCC (or any comparable successor statute). 4. Remedies After Event of Default Upon the occurrence and during the continuation of an Event of Default and subject to any restrictions set forth in the Loan Documents: (a) Agent, at its option, shall be empowered to exercise its right to instruct each Issuer of the Pledged Securities (or the appropriate transfer agent of the Pledged Securities) to register any or all of the Pledged Securities and/or other Pledged Property in the name of Agent or in the name of Agent's nominee, and Agent may complete, in any manner Agent may deem expedient, any and all stock powers, assignments or other documents heretofore or hereafter executed in blank by any Pledgor and delivered to Agent. After said instruction, and without further notice, Agent, in its sole and absolute discretion, shall have the exclusive right to exercise all voting and corporate rights with respect to the Pledged Securities and other Pledged Property and exercise any and all rights of conversion, redemption, exchange, subscription or any other rights, privileges, or options pertaining to any shares of the Pledged Securities or the other Pledged Property as if Agent were the absolute owner thereof, including, without limitation, the right to exchange, in its discretion, any and all of the Pledged Securities and other Pledged Property upon any merger, consolidation, reorganization, recapitalization or other readjustment with respect to Issuer. Upon the exercise of any such rights, privileges or options by Agent, Agent shall have the right to deposit and deliver any and all of the Pledged Securities and other pledged property to any committee, depository, transfer agent, registrar or other designated agency upon such terms and conditions as Agent may determine, all without liability to any Pledgor, except to account for property actually received by Agent. However, Agent shall have no duty to exercise any of the aforesaid rights, privileges or options (all of which are exercisable in the sole discretion of Agent) and shall not be responsible for any failure to do so or delay in doing so. (b) In addition to all the rights and remedies of a secured party under the UCC, Agent shall have the right, at any time and without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon any Pledgor or any other Person, to proceed forthwith to collect, redeem, receive, appropriate, sell, or otherwise dispose of and deliver the Pledged Property or any part thereof in one or more lots at public or private sale or sales at any exchange, brokers board or at any of Agent's offices or elsewhere at such prices and on such terms as Agent may deem commercially reasonable. The foregoing disposition(s) may be for cash or on credit or for future delivery without assumption of any credit risk by Agent. The proceeds of any such collection, redemption, recovery, receipt, appropriation, realization, sale or other disposition, after deducting all costs and expenses of every kind incurred relative thereto or incidental to the care, safekeeping, maintenance, or disposition of any and all Pledged Property or in any way relating to the rights of Agent hereunder (including, without limitation, reasonable and documented out-of-pocket attorneys' fees and legal expenses) shall be applied first to the satisfaction of the Guaranteed Obligations (in such order as Agent may elect and whether or not due) and then to the payment -5- 6 of any amounts required by applicable law, including Section 9504(l)(c) of the UCC. Each Pledgor shall be liable to Agent for the payment on demand of all reasonable and documented out-of-pocket costs and expenses of any such sale, collection or other realizations, together with interest at the rate set forth in the Loan Documents, together with any reasonable attorneys' fees if placed with an attorney for collection or enforcement. Each Pledgor agrees that notice given to it in the same manner given to Pledgor pursuant to Section 12 of the Loan Agreement is reasonable notification of such matters. (c) To the fullest extent permitted by law, Agent or any Lender may be the purchaser of any or all of the Pledged Collateral at any such sale and Agent, as agent for and representative of the Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Required Lenders shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Property sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any Pledged Property payable by Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of Pledgors, and each Pledgor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Pledgor agrees that, to the extent notice of sale shall be required by law at least ten days' notice to Pledgors of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Agent shall not be obligated to make any sale of Pledged Property regardless of notice of sale having been given. Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was adjourned. To the fullest extent permitted by law, each Pledgor hereby waives any claims against Agent or any other member of the Lender Group arising by reason of the fact that the price at which any Pledged Property may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Agent accepts the first offer received and does not offer such Pledged Property to more than one offeree. If the proceeds of any sale or other disposition of the Pledged Property are insufficient to pay all the Obligations, Pledgors shall be liable for the deficiency and the fees of any attorneys employed by Agent to collect such deficiency. (d) Pledgor recognizes that Agent may be unable to effect a public sale of all or part of the Pledged Property by reason of certain prohibitions contained in the Securities Act of 1933, as amended, as now or hereafter in effect; or contained in applicable Blue Sky or other state securities law, as now or hereafter in effect, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire Pledged Property for their own account for investment and not with a view to the further distribution or resale thereof. If at the time of any sale of the Pledged Property or any part thereof, the same shall not, for any reason whatsoever, be effectively registered (if required) under the Securities Act of 1933 (or other applicable federal or state securities law), as then in effect, Agent in its sole and absolute discretion is authorized to sell the Pledged Property or any part thereof by private sale in such matter and under such circumstances as Agent or its counsel may -6- 7 deem necessary or advisable in order that such sale may legally be effected without registration under applicable securities laws. Each Pledgor acknowledges that private sales so made may be at prices and other terms less favorable to the seller than if such Pledged Property were sold at public sale, and that Agent has no obligation to delay the sale of any such Pledged Property for the period of time necessary to permit the Issuer of the Pledged Property, even if such Issuer would agree, to register such Pledged Property for public sale under such applicable securities laws. Each Pledgor agrees that any private sales made under the foregoing circumstances shall not be deemed to have been in a commercially unreasonable manner for the sole reason that it is a private sale. (e) Each Pledgor hereby agrees that if at any time all or any part of any payment theretofore paid by such Pledgor and applied by Agent to any of the Guaranteed Obligations is returned by Agent for any reason whatsoever (including, without limitation, the insolvency, bankruptcy, reorganization or assignment for the benefit of creditors of any Pledgor), such Guaranteed Obligations, for the purpose of this Agreement, to the extent that such payment is returned, shall be deemed to have continued in existence, notwithstanding such application by Agent, and this Agreement shall continue to be effective or be reinstated, as the case may be, as to such Guaranteed Obligations, all as though such application by Agent had not been made. (f) All of Lender Group's rights and remedies, including but not limited to those arising under this Pledge Agreement, the other Loan Documents, the instruments and securities comprising the Pledged Property, applicable law or otherwise, shall be cumulative and not exclusive and shall be enforceable alternatively, successively or concurrently as Agent may deem expedient. No failure or delay on the part of Agent in exercising any of its options, powers or rights or partial or single exercise thereof shall constitute a waiver of such option, power or right. 5. Further Assurances Each Pledgor agrees that at any time and from time to time upon the request of Agent, to execute and deliver such further documents, including but not limited to irrevocable proxies or stock powers, in form satisfactory to counsel for Agent, and will take or cause to be taken such further acts as Agent may request in order to effect the purposes of this Pledge Agreement and perfect or continue the perfection of the security interest in the Pledged Property granted to Agent hereunder. 6. Miscellaneous (a) Beyond the exercise of reasonable care to assure the safe custody of the Pledged Property while held by Agent hereunder, as provided in Section 3(e) hereof, neither Agent, nor agent or bailee, nor any other member of the Lender Group shall have no duty or liability to protect or preserve any rights pertaining thereto. Agent shall be obligated to return or release its security interest in the Pledged Property, at the sole expense of Pledgors, after all Obligations are indefeasibly paid and performed in full in cash and neither Agent nor any other -7- 8 member of the Lender Group is under any further obligation to extend credit under the Loan Agreement. (b) No course of dealing between any Pledgor and Foothill, nor any failure or delay by Agent or any other member of the Lender Group to exercise any right, power or privilege under this Pledge Agreement, the other Loan Documents or under any other agreements, instruments and documents executed and delivered in connection therewith shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No waiver of any provision of this Pledge Agreement shall be effective unless the same shall be in writing and signed by Agent, and then such waiver shall be effective only in the specific instance and for the purpose for which given. (c) This Pledge Agreement may not be changed, modified or amended, in whole or in part, except by a writing signed by each Pledgor and Agent. (d) The provisions of this Pledge Agreement and the Loan Documents are severable, and if any clause or provision hereof or thereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall attach only to such clause or provision or part hereof in any such jurisdiction and shall not in any manner affect any other clause or provision in this Pledge Agreement or the Loan Documents in any jurisdiction or such clause or provision in any other jurisdiction. In the event of any inconsistency between the terms of this Pledge Agreement and the terms of the Loan Agreement, the terms of the Loan Agreement shall control. (e) This Pledge Agreement shall inure to the benefit of each member of the Lender Group and their respective successors and assigns and shall be binding upon each Pledgor and its successors and assigns until all of the Guaranteed Obligations have been indefeasibly paid and performed in full in cash. The representatives, warranties, covenants and waivers by each Pledgor in this Pledge Agreement are joint and several. (f) Each Pledgor agrees to indemnify Agent from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including, without limitation, enforcement of this Pledge Agreement), except to the extent such claims, losses or liabilities result solely from Agent's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (g) Each Pledgor shall pay to Agent upon demand the amount of any and all reasonable and documented out-of-pocket costs and expenses, including the reasonable and documented fees and out-of-pocket costs and expenses of its counsel and of any experts and agents, that Agent may incur in connection with (i) the administration of this Pledge Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the -8- 9 Pledged Property, (iii) the exercise or enforcement of any of the rights of Agent hereunder, or (iv) the failure by Pledgors to perform or observe any of the provisions hereof. 7. Continuing Security Interest; Transfer of Loans. This Pledge Agreement shall create a continuing security interest in the Pledged Property and shall (a) remain in full force and effect until the payment in full of all Guaranteed Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding L/C's, (b) be binding upon each Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of Lender Group hereunder, to the benefit of Lender Group and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), but subject to the provisions of Section 14 of the Loan Agreement, any Lender may assign or otherwise transfer any of the Guaranteed Obligations, the Commitments and the other rights and obligations held by it under the Loan Agreement and the other Loan Documents to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full in cash of all Guaranteed Obligations (other than inchoate indemnification obligations with respect to claims, losses or liabilities which have not yet arisen), the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding L/C's, the security interest granted hereby shall terminate and all rights to the Pledged Property of a Pledgor shall revert to such Pledgor. Upon any such termination Agent will, at Pledgors' expense, execute and deliver to Pledgor' such documents as Pledgors shall reasonably request to evidence such termination and Pledgors shall be entitled to the return, upon its request and at its expense, against receipt and without recourse to Agent, of such of the Pledged Property as shall not have been sold or otherwise applied pursuant to the terms hereof. 8. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS PLEDGE AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (EXCEPT AS OTHERWISE PROVIDED BY THE UCC). THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, OR, IF SUCH COURTS DO NOT HAVE SUBJECT MATTER JURISDICTION, THEN, AT THE SOLE OPTION OF AGENT, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS PERTAINING TO THE COLLATERAL AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. PLEDGOR AND AGENT WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF -9- 10 FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 8. EACH PLEDGORS AND AGENT HEREBY WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PLEDGOR AND AGENT REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS PLEDGE AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be duly executed and delivered on the day and year first above written. COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION By:____________________________ Name: _________________________ Title: __________________________ Address: c/o Communications & Power Industries, Inc. 607 Hansen Way, Palo Alto, California 94303 Attention: Lynn E. Harvey, Chief Financial Officer CPI SUBSIDIARY HOLDINGS INC. By:____________________________ Name: _________________________ Title: __________________________ Address: c/o Communications & Power Industries, Inc. 607 Hansen Way, Palo Alto, California 94303 Attention: Lynn E. Harvey, Chief Financial Officer -10- 11 EXHIBIT "A" PLEDGED SECURITIES
Issuer Type of Securities No. of Shares Par Value
EX-10.5 6 f69166ex10-5.txt EXHIBIT 10.5 1 EXHIBIT 10.5 ENVIRONMENTAL INDEMNITY AGREEMENT THIS ENVIRONMENTAL INDEMNITY AGREEMENT ("Agreement") is made as of December 15, 2000, by each of the undersigned (collectively, "Obligor"), for the benefit of FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent for itself and the other Lenders (as hereinafter defined) ("Foothill"), and the Lenders (Foothill and the Lenders are collectively referred to herein as "Lender"). OBLIGOR ENTERS THIS AGREEMENT on the basis of the following facts, understandings and intentions: A. Lender is making or continuing an extension of credit to, or other financing arrangements with COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation ("Borrower"), in the principal amount of Sixty-One Million Dollars ($61,000,000.00), pursuant to that certain Loan and Security Agreement ("Loan Agreement") of even date herewith by and among Borrower, Foothill, the other Lenders named therein and other Obligors named therein. Such extension of credit or other financing arrangements, together with any amendments, replacements, substitutions, extensions or refundings thereof, are hereinafter referred to as the "Loan". B. In connection with the Loan, Obligor (who may or may not be Borrower) will undertake or has undertaken certain obligations to Lender other than the obligations undertaken under this Agreement. Said obligations of Obligor to Lender (excluding the obligations under this Agreement), together with any amendments, replacements, substitutions, extensions or refundings thereof, are hereinafter referred to as the "Obligation". C. The term "Collateral" shall mean any property to which Lender or Foothill, for the benefit of Lender, has been granted a security interest by Obligor, Borrower, or any other person or entity in connection with the Loan. D. The term "Property" shall mean that certain real property located in the County of Santa Clara, State of California, and legally described in Exhibit A attached hereto. E. Capitalized terms which are used herein but not defined herein shall have the meanings ascribed to them in the Loan Agreement. "Lenders" means, collectively, Foothill Capital Corporation, a California corporation, and Ableco Finance LLC, a Delaware limited liability company, together with their respective successors and assigns, and shall include any other Person made a party to the Loan Agreement in accordance with the provisions of Section 14.1 thereof. F. Lender would not make the Loan if, as a result, Lender might incur any liability arising with regard to any Hazardous Substance, as defined in Section 1, below, now or hereafter present in, on, under or around any part of the Property. Lender requires that 1 2 Obligor execute this Agreement as a further assurance against such liability. H. It is the intention of Lender and Obligor that, as between Lender and Obligor, Obligor shall be solely responsible for any and all liability arising with regard to any Hazardous Substance now or hereafter present in, on, under or around any portion of the Property, and Lender shall under no circumstances have any liability therefor, to the extent provided herein. Lender and Obligor intend this Agreement to be fully enforceable to the maximum extent permitted by law. NOW THEREFORE, in consideration of, and as an inducement for, Lender making the Loan and for other good and valuable consideration, Obligor agrees as follows: 1. DEFINITION OF HAZARDOUS SUBSTANCE. For purposes of this Agreement, a "Hazardous Substance" (any two or more, "Hazardous Substances") is defined to mean any substance or material (including, without limitation, raw materials, building components, wastes, and the products and by-products of manufacturing or other activities) which is or becomes designated, classified or regulated as being "toxic", "hazardous" or similarly designated, classified or regulated under any federal, state or local law, ordinance, rule or regulation. The term "Hazardous Substance" shall include, without limitation, (i) substances defined as "hazardous substances" or "toxic substances" for purposes of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. ("CERCLA") or the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; and (ii) petroleum, flammable explosives, urea formaldehyde insulation, asbestos and radioactive materials. 2. INDEMNITY REGARDING HAZARDOUS SUBSTANCES. Obligor agrees to indemnify, defend and hold Lender and each of its parent, subsidiary and affiliated corporations, and the respective directors, officers, shareholders, employees, agents, attorneys, representatives, successors and assigns (including, without limitation, any participants in the Loan) (each an "Indemnitee" and collectively, the "Indemnitees") harmless from and against all liabilities, claims, actions, foreseeable and unforeseeable consequential damages, reasonable and documented out-of-pocket costs and expenses (including sums paid in settlement of claims and all reasonable and documented out-of-pocket consultant, expert and legal fees and expenses) or loss directly or indirectly arising out of or resulting from any Hazardous Substance being present at any time, whether before or after the date of this Agreement, on or around any portion of the Property, or in the soil, groundwater or soil vapor on or under any portion of the Property, including those incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work, or any resulting damages or injuries to the person or property of any third parties or to any natural resources. Upon demand by Lender, Obligor shall defend any matter as to which indemnification is or will be sought hereunder, all at the cost of Obligor and by counsel and consultants to be approved by Lender in the exercise of its reasonable judgment. Notwithstanding anything to the contrary contained herein, the indemnity contained in this Section 2 shall not apply with respect to any Hazardous Substances which are first introduced to the Property by Lender, its successors or assigns or any third party owner of the Property following the acquisition of title to the Property by Foothill, Lender, their successors or assigns or 2 3 any third party as a result of a foreclosure or deed in lieu of foreclosure of the deed of trust executed by Borrower in favor of Foothill, encumbering the Property and securing the Loan. 3. REPRESENTATION AND WARRANTY REGARDING HAZARDOUS SUBSTANCES. Obligor represents and warrants that to the best of Obligor's knowledge, no Hazardous Substance has been released onto or disposed of or otherwise is present in, on, under or around the Property, except to the extent specifically disclosed to Lender in writing by Obligor in Exhibit B attached hereto. 4. COMPLIANCE REGARDING HAZARDOUS SUBSTANCES. Except for those Hazardous Substances used in connection with the business presently being conducted on the Property and except for the other Hazardous Substances presently on the Property and identified on Exhibit B attached hereto, Obligor shall not and shall not permit any third party to use, generate, manufacture, store, release, discharge or dispose of any Hazardous Substance in, on, under or about the Property, or transport any Hazardous Substance to or from the Property except in material compliance with all applicable laws, ordinances, rules and regulations governing Hazardous Substances. Obligor has complied and shall comply and cause all occupants of the Property to comply (including, if necessary, by resort to and diligent pursuit of all available legal, equitable and administrative remedies and proceedings) with all applicable laws, ordinances, rules and regulations governing Hazardous Substances, the orders and directives of all governmental authorities having jurisdiction over the Property. Obligor shall also cause Varian Associates, Inc., a Delaware corporation ("Varian") to comply with all of its obligations under that certain Stock Sale Agreement dated as of June 9, 1995, by and among Varian, Communications & Power Industries Holding Corporation, a Delaware corporation, and CPII Acquisition Corp., a Delaware corporation (as amended, the "Stock Sale Agreement"). 5. NOTICES REGARDING HAZARDOUS SUBSTANCES. Until full performance of the Obligation and repayment of the Loan, Obligor shall promptly notify Lender if Obligor has actual knowledge (i) that there may be any Hazardous Substance on or around the Property, or in the soil, groundwater or soil vapor on or under the Property other than as described in Exhibit B and other than in material compliance with all applicable laws, ordinances, rules and regulations governing Hazardous Substances, (ii) that except as previously disclosed in writing to Lender, Obligor, Borrower or the Property is subject to any threatened or pending investigation by any governmental agency under any law, ordinance, rule or regulation pertaining to any Hazardous Substance, or (iii) that except as previously disclosed in writing to Lender, Obligor, Borrower or the Property is subject to any claim or litigation by a third party regarding the presence of a Hazardous Substance. Obligor shall furnish Lender with copies of any notice, summons, letter, report or other written communication relating to the presence of Hazardous Substances on or around the Property within three (3) business days after Obligor's receipt thereof. 3 4 6. REMEDIATION WORK. If any investigation, site monitoring, containment, cleanup, removal, restoration or other remediation work of any kind or nature (the "Remediation Work") is or becomes necessary or required pursuant to any applicable federal, state or local law, ordinance, rule or regulation or the order or directive of any governmental authority having jurisdiction over the Property, the Hazardous Substances or the Remediation Work, because of, or in connection with, the past, present or future presence, suspected presence, release or suspected release of a Hazardous Substance on or around any portion of the Property or in the soil, groundwater or soil vapor on or under any portion of the Property, Obligor shall promptly commence to perform, or cause to be commenced, and thereafter diligently prosecute to completion, all such Remediation Work (or if Varian is obligated pursuant to the Stock Sale Agreement to perform such Remediation Work, to cause Varian to perform the same). The Remediation Work will be conducted in full compliance with all applicable laws, ordinances, rules and regulations, the orders and directives of all governmental authorities having jurisdiction over the Property, the Hazardous Substances or the Remediation Work. Obligor shall cause all Remediation Work to be performed in a good and workmanlike manner by one or more qualified environmental engineers or contractors, and under the supervision of one or more qualified consulting engineers. Obligor's obligations with regard to the Remediation Work shall include obtaining, at the appropriate time, a letter or other written statement from all governmental authorities exercising jurisdiction over the Property, the Hazardous Substances or the Remediation Work that no further action is required. Obligor shall pay (or if Varian is obligated to perform such Remediation Work pursuant to the Stock Sale Agreement, cause Varian to pay) for all Remediation Work, including the costs of plans and specifications, utilities, permits, fees, taxes and insurance premiums in connection therewith, and shall keep the Property free from all mechanics' or other liens arising out of the Remediation Work. Obligor shall keep Lender fully apprised of all developments and findings during the course of any Remediation Work performed by Obligor and shall furnish to Lender, promptly upon receipt or preparation, such information concerning said Remediation Work as Lender may request from time to time in order to verify Obligor's compliance with this section and to protect Lender's security, including, without limitation, copies of all reports, studies, analyses, contracts, manifests, orders and correspondence. Upon Lender's request, Obligor shall also furnish Lender with written confirmation in a form satisfactory to Lender showing that all contaminated soil and other materials removed from the Property and any other property affected by the Remediation Work have been properly disposed of in accordance with all applicable laws, ordinances, rules and regulations and the orders and directives of all governmental authorities having jurisdiction over the Property, the Hazardous Substances or the Remediation Work. Lender shall have the right, but not the obligation, to participate in any action or proceeding relating to the presence or suspected presence of any Hazardous Substances in, on, under or around the Property, or the necessity for or adequacy of any Remediation Work. Such participation shall be solely for the purpose of protecting Lender's security, shall not constitute participation in the management of the Property, and shall not impose any liability on Lender or result in a waiver of any default of Obligor. 4 5 7. SITE VISITS, OBSERVATIONS AND TESTING. Lender and its agents and representatives shall have the right at any reasonable time to enter and visit the Property for the purposes of observing the Property, taking and removing soil or groundwater samples, and conducting tests on any part of the Property. Lender agrees to comply with any applicable requirements of the Stock Sale Agreement and any other applicable documents ancillary thereto in connection with such observation, sampling and testing. Lender is under no duty, however, to visit or observe the Property or to conduct tests, and any such acts by Lender shall be solely for the purposes of verifying Obligor's compliance with this Agreement and protecting Lender's security. No site visit, observation or testing by Lender shall result in a waiver of any default of Obligor or impose any liability on Lender. In no event shall any site visit, observation or testing by Lender be a representation that Hazardous Substances are or are not present in, on or under the Property, or that there has been or shall be compliance with any law, regulation or ordinance pertaining to Hazardous Substances or any other applicable law or regulation. Neither Obligor nor any other party is entitled to rely on any site visit, observation or testing by Lender. Lender owes no duty to inform Obligor or any other party of, any Hazardous Substances or any other adverse condition affecting the Property. Lender shall not be obligated to disclose to Obligor or any other party any report or findings made as a result of, or in connection with, any site visit, observation or testing by Lender. In each instance, Lender shall give reasonable notice before entering the Property or any place Lender is permitted to enter under this Section. Lender shall in good faith use commercially reasonable efforts to avoid interfering with the use of the Property in exercising any rights provided in this Section. 8. SUBROGATION. Upon acquisition of title to the Property by foreclosure or deed in lieu of foreclosure, Lender shall have full benefit of any and all rights which Obligor now or hereafter may have against third parties with regard to Hazardous Substances, whether such rights arise by contract or by operation of law, and shall have the right, but not the obligation, to enforce such rights for the sole benefit of Lender directly against any such third party, such benefits and rights to be limited to the actual amount of damage or harm suffered by Lender. If the consent of any such third party is necessary to fully effectuate the foregoing subrogation and assignment of Obligor's rights, Obligor shall promptly exercise commercially reasonable efforts (not involving the payment of money or the granting of other consideration) to obtain such consent. 9. EVENT OF DEFAULT. A breach by Obligor of any material representation, covenant, warranty or other provision of this Agreement shall constitute, at the election of Lender in its sole discretion, an event of default under the Obligation. 10. SEPARATE UNSECURED OBLIGATIONS. This Agreement shall not be secured by any deed of trust, mortgage or deed to secure debt securing the Obligation or the Loan or encumbering all or any portion of the Property. The liability of Obligor under this Agreement shall not be limited to or measured by the amount, if any, outstanding under the Loan or Obligation or by reference to the value of any of the Property or Collateral. No action for the enforcement of or recovery of damages under this Agreement shall constitute an action within 5 6 the meaning of Section 726 of the California Code of Civil Procedure or similar laws in other states, and no judgment against Obligor in any action hereunder shall constitute a money judgment or deficiency judgment within the meaning of Section 580(a), 580(b), 580(d) or 726 of the California Code of Civil Procedure or similar laws in other states. The rights of Lender under this Agreement shall be cumulative and in addition to any other rights and remedies of Lender under any other document or instrument or at law or in equity. 11. WAIVER OF SURETYSHIP AND GUARANTOR DEFENSES. If Obligor is a surety or a guarantor hereunder for any obligation of the Borrower and the owner of the Property, or either of them ("Principal"), Obligor expressly waives and relinquishes any and all rights and remedies Obligor may have or be able to assert by reason of laws relating to the rights and remedies of sureties or guarantors. Obligor authorizes Lender, without notice or consent from Obligor, and without affecting Obligor's liability under this Agreement, from time to time to (a) modify, waive, extend, renew, or enforce any obligation of Principal; (b) take, hold, enforce, waive, impair, compromise or release security for the performance of any obligation of Principal; (c) apply any security and direct the order or manner of sale as Lender in its sole discretion may determine; (d) release or substitute, in whole or in part, any person or entity liable for any obligation of Principal; and (e) settle or compromise any obligation of Principal. Obligor waives (i) all rights to require Lender to proceed against Principal or any other party, or proceed against or exhaust any security held by Lender or pursue any other remedy in Lender's power, (ii) any defense arising by reason of any disability or other defense of Principal or by reason of the cessation from any cause of the liability of Principal, (iii) any defense based on or arising out of any setoff, defense or counterclaim which Principal may have or claim to have against Lender; and (iv) any defense arising out of the impairment or loss of any right of reimbursement or subrogation or any other right or remedy of Obligor against Principal or any such security, regardless of the cause. Obligor understands that if Lender forecloses by trustee's sale, by the exercise of a power of sale or nonjudicially on a deed of trust, mortgage or deed to secure debt given by Principal securing the Obligation or the Loan, Obligor might then have a defense preventing Lender from thereafter enforcing Obligor's obligations under this Agreement. This defense arises because such a sale would eliminate Obligor's right of subrogation, and therefore Obligor would be unable to obtain reimbursement from Principal. Obligor specifically waives this defense and all rights and defenses that Obligor may have because the Obligation or the Loan are secured by real property pledged by Principal. This means, among other things: (1) Lender may exercise any rights or remedies which Lender has under this Agreement without first foreclosing on any real or personal property collateral pledged by Principal; and (2) if Lender forecloses on any real property collateral pledged by Principal securing the Obligation or the Loan: (A) the amount of the Obligation or the Loan may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (B) Lender may exercise its rights and remedies under this Agreement, even if Lender, by foreclosing on any real property collateral pledged by Principal, has destroyed any right Obligor may have to collect from Principal. This is an unconditional and irrevocable waiver of any rights and defenses Obligor may have because the Obligation or the Loan is secured by real property pledged by Principal. These rights and defenses include, but are not limited to, any rights or 6 7 defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or similar laws in other states. 12. SURVIVAL. This Agreement and the obligations and liabilities of Obligor hereunder shall survive and remain in full force and effect following the performance, repayment or discharge of the Obligation and the Loan, including, without limitation, by a full or partial reconveyance of all or any portion of the Property or by amounts paid or credit bid at a foreclosure sale or by discharge in connection with a deed in lieu of foreclosure. Obligor waives the right to assert any statute of limitations as a bar to the enforcement of this Agreement. 13. SEVERABILITY. If any of Obligor's obligations hereunder shall be held to be unenforceable, the remainder of this Agreement and its application to all obligations other than those with respect to which it is held unenforceable shall not be affected thereby and shall remain in full force and effect. 14. ATTORNEYS' FEES. If either party enforces its obligations hereunder, the non-prevailing party shall pay to the prevailing party all reasonable and documented out-of-pocket costs incurred, whether or not suit is filed, including, but not limited to, reasonable and documented out-of-pocket attorneys' fees and court costs. 15. GOVERNING LAW. The terms of this Agreement shall be governed by and construed according to the laws of the State of New York. 16. JOINT AND SEVERAL OBLIGATIONS. If more than one person or entity has executed this Agreement as Obligor, their liability shall be joint and several. 17. SUCCESSORS AND ASSIGNS. All of the provisions hereof shall inure to the benefit of Lender and Lender's successors, assigns and transferees and be binding upon Obligor and Obligor's successors and assigns; provided, however, that no assignment of this Agreement by Obligor shall release Obligor from Obligor's obligations hereunder. 18. ENTIRE AGREEMENT. There are no oral or side agreements between Lender and Obligor affecting this Agreement, and this Agreement contains the entire agreement of the parties with regard to the subject matter contained herein. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing and signed by both Lender and Obligor. 19. WAIVER OF JURY TRIAL. OBLIGOR HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. OBLIGOR REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL 7 8 RIGHTS FOLLOWING A CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. IN WITNESS WHEREOF, Obligor has executed this Agreement as of the date first above written with the intent to be legally bound thereby. "OBLIGOR" COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation By: ------------------------------------- Title: ---------------------------------- COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By: ------------------------------------- Title: ---------------------------------- CPI SUBSIDIARY HOLDINGS INC., a Delaware corporation By: ------------------------------------- Title: ---------------------------------- COMMUNICATIONS & POWER INDUSTRIES INTERNATIONAL INC., a Delaware corporation By: ------------------------------------- Title: ---------------------------------- 8 9 COMMUNICATIONS & POWER INDUSTRIES ASIA INC., a Delaware corporation By: ------------------------------------- Title: ---------------------------------- COMMUNICATIONS & POWER INDUSTRIES CANADA, INC., an Ontario corporation By: ------------------------------------- Title: ---------------------------------- 9 10 EXHIBIT A PROPERTY 11 EXHIBIT B KNOWN HAZARDOUS SUBSTANCES List known Hazardous Substances below or write "None." EX-10.6 7 f69166ex10-6.txt EXHIBIT 10.6 1 EXHIBIT 10.6 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: WELLS FARGO BANK, NATIONAL ASSOCIATION Real Estate Group (AU #2034) 555 Montgomery Street 16th Floor San Francisco, CA 94111 Attn: Robin L. Dixon Loan No. 1440 With a Copy To: Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, CA 90071 Attn: Jesse Sharf ================================================================================ DEED OF TRUST WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING THE PARTIES TO THIS DEED OF TRUST WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING ("Deed of Trust"), made as of December __, 2000, are COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation ("Trustor"), AMERICAN SECURITIES COMPANY, a California corporation ("Trustee"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Beneficiary"). ARTICLE 1. GRANT IN TRUST 1.1 GRANT. For the purposes of and upon the terms and conditions in this Deed of Trust, Trustor irrevocably grants, conveys and assigns to Trustee, in trust for the benefit of Beneficiary, with power of sale and right of entry and possession, all of that real property located in the City of San Carlos, County of San Mateo, State of California, described on Exhibit A attached hereto, together with all right, title, interest, and privileges of Trustor in and to all streets, ways, roads, and alleys used in connection with or pertaining to such real property, all development rights or credits, air rights, water, water rights and water stock related to the real property, and all minerals, oil and gas, and other hydrocarbon substances in, on or under the real property, and all appurtenances, easements, rights and rights of way appurtenant or related thereto; all buildings, other improvements and fixtures now or hereafter located on the real property, including, but not limited to, all apparatus, equipment, and appliances used in the operation or occupancy of the real property, it being intended by the parties that all such items shall be conclusively considered to be a part of the real property, whether or not attached or affixed to the real property (the "Improvements"); to the extent assignable (if at all), all rights of Trustor under Section 10.2 of that certain Stock Sale Agreement dated June 9, 1995, by and between Trustor and Varian Associates, Inc., as amended, that relate to the Subject Property; deposits, security deposits, letters of credit, lease bonds and other deposit substitutes, credit enhancements and other like items under or with respect to any Lease of any portion of the Property; all interest or estate which Trustor may hereafter acquire in the property described above, and all additions and accretions thereto, and Page 1 2 the proceeds of any of the foregoing; (all of the foregoing being collectively referred to as the "Subject Property"). The listing of specific rights or property shall not be interpreted as a limit of general terms. 1.2 ADDRESS. The address of the Subject Property is: 301 Industrial Road. However, neither the failure to designate an address nor any inaccuracy in the address designated shall affect the validity or priority of the lien of this Deed of Trust on the Subject Property as described on Exhibit A. ARTICLE 2. OBLIGATIONS SECURED 2.1 OBLIGATIONS SECURED. Trustor makes this Deed of Trust for the purpose of securing the following obligations ("Secured Obligations"): (a) Payment to Beneficiary of all sums at any time owing under that certain Promissory Note ("Note") of even date herewith, in the principal amount of EIGHTEEN MILLION AND NO/100THS DOLLARS ($18,000,000.00) executed by Trustor, as borrower, and payable to the order of Beneficiary, as lender; and (b) Payment and performance of all covenants and obligations of Trustor under this Deed of Trust; and (c) Payment and performance of all covenants and obligations on the part of Borrower under that certain Loan Agreement ("Loan Agreement") of even date herewith by and between Borrower and Beneficiary, as lender; and (d) Payment and performance of all covenants and obligations, if any, of any rider attached as an Exhibit to this Deed of Trust; and (e) Payment and performance of all future advances and other obligations that the then record owner of all or part of the Subject Property may agree to pay and/or perform (whether as principal, surety or guarantor) for the benefit of Beneficiary, when such future advance or obligation is evidenced by a writing which recites that it is secured by this Deed of Trust; and (f) Intentionally omitted. (g) Intentionally omitted. (h) All modifications, extensions and renewals of any of the obligations secured hereby, however evidenced, including, without limitation: (i) modifications of the required principal payment dates or interest payment dates or both, as the case may be, deferring or accelerating payment dates wholly or partly; or (ii) modifications, extensions or renewals at a different rate of interest whether or not in the case of a note, the modification, extension or renewal is evidenced by a new or additional promissory note or notes. 2.2 OBLIGATIONS. The term "obligations" is used herein in its broadest and most comprehensive sense and shall be deemed to include, without limitation, all interest and charges, prepayment charges (if any), late charges and loan fees at any time accruing or assessed on any of the Secured Obligations. 2.3 INCORPORATION. All terms of the Secured Obligations and the documents evidencing such obligations are incorporated herein by this reference. All persons who may have or acquire an interest in the Subject Property shall be deemed to have notice of the terms of the Secured Obligations and to have notice, if provided therein, that: (a) the Note or the Loan Agreement may permit borrowing, repayment and re-borrowing so that repayments shall not reduce the amounts of the Secured Obligations; and (b) the rate of interest on one or more Secured Obligations may vary from time to time. Page 2 3 ARTICLE 3. ASSIGNMENT OF LEASES AND RENTS 3.1 ASSIGNMENT. Trustor hereby irrevocably assigns to Beneficiary all of Trustor's right, title and interest in, to and under: (a) all leases of the Subject Property or any portion thereof, and all other agreements of any kind relating to the use or occupancy of the Subject Property or any portion thereof, whether now existing or entered into after the date hereof ("Leases"); and (b) the rents, revenue, income, issues, deposits, security deposits, letters of credit, lease bonds and other deposit substitutes or credit enhancements and profits of the Subject Property, including, without limitation, all amounts payable and all rights and benefits accruing to Trustor under the Leases, and all deposits, security deposits, letters of credit, lease bonds and other deposit substitutes, or credit enhancements ("Payments"). The term "Leases" shall also include all guarantees of and security for the lessees' performance thereunder, and all amendments, extensions, renewals or modifications thereto which are permitted hereunder. This is a present and absolute assignment, not an assignment for security purposes only, and Beneficiary's right to the Leases and Payments is not contingent upon, and may be exercised without possession of, the Subject Property. 3.2 GRANT OF LICENSE. Beneficiary confers upon Trustor a license ("License") to collect and retain the Payments as they become due and payable, until the occurrence of and during the continuance of a Default (as hereinafter defined). Upon a Default and during the continuance thereof, the License shall be automatically revoked and Beneficiary may collect and apply the Payments pursuant to Section 6.4 without notice and without taking possession of the Subject Property. Trustor hereby irrevocably authorizes and directs the lessees under the Leases to rely upon and comply with any notice or demand by Beneficiary for the payment to Beneficiary of any rental or other sums which may at any time become due under the Leases, or for the performance of any of the lessees' undertakings under the Leases, and the lessees shall have no right or duty to inquire as to whether any Default has actually occurred or is then existing hereunder. Trustor hereby relieves the lessees from any liability to Trustor by reason of relying upon and complying with any such notice or demand by Beneficiary. 3.3 EFFECT OF ASSIGNMENT. The foregoing irrevocable assignment shall not cause Beneficiary to be: (a) a mortgagee in possession; (b) responsible or liable for the control, care, management or repair of the Subject Property or for performing any of the terms, agreements, undertakings, obligations, representations, warranties, covenants and conditions of the Leases; or (c) responsible or liable for any waste committed on the Subject Property by the lessees under any of the Leases or any other parties; for any dangerous or defective condition of the Subject Property; or for any negligence in the management, upkeep, repair or control of the Subject Property resulting in loss or injury or death to any lessee, licensee, employee, invitee or other person. Beneficiary and Trustee shall not directly or indirectly be liable to Trustor or any other person as a consequence of: (i) the exercise or failure to exercise by Beneficiary or Trustee, or any of their respective employees, agents, contractors or subcontractors, any of the rights, remedies or powers granted to Beneficiary or Trustee hereunder; or (ii) the failure or refusal of Beneficiary to perform or discharge any obligation, duty or liability of Trustor arising under the Leases. 3.4 REPRESENTATIONS AND WARRANTIES. Trustor represents and warrants that: (a) the Schedule of Leases attached hereto as Schedule 1 is, as of the date hereof, a true, accurate and complete list of all Leases; (b) all existing Leases are in full force and effect and are enforceable in accordance with their respective terms, and no breach or default, or event which would constitute a breach or default after notice or the passage of time, or both, exists under any existing Leases on the part of any party; (c) no rent or other payment under any existing Lease has been paid by any lessee for more than one (1) month in advance; and (d) none of the lessor's interests under any of the Leases has been transferred or assigned. 3.5 COVENANTS. Trustor covenants and agrees at Trustor's sole cost and expense to: (a) perform the obligations of lessor contained in the Leases and enforce by all available remedies performance by the lessees of the obligations of the lessees contained in the Leases; (b) give Beneficiary prompt written notice of any default which occurs with respect to any of the Leases, whether the default be that of the lessee or of the lessor; (c) exercise Trustor's best efforts to keep all portions of the Subject Property that are capable of being leased at rental rates pursuant to the terms of the Loan Agreement; (d) deliver to Beneficiary fully executed, counterpart original(s) of each and every Lease if requested to do so; and (e) execute and record Page 3 4 such additional assignments of any Lease or specific subordinations (or subordination, attornment and non-disturbance agreements executed by the lessor and lessee) of any Lease to the Deed of Trust, in form and substance acceptable to Beneficiary, as Beneficiary may request. Trustor shall not, without Beneficiary's prior written consent or as otherwise permitted by any provision of the Loan Agreement: (i) enter into any Leases after the date thereof; (ii) execute any other assignment relating to any of the Leases; (iii) discount any rent or other sums due under the Leases or collect the same in advance, other than to collect rentals one (1) month in advance of the time when it becomes due; (iv) terminate, modify or amend any of the terms of the Leases or in any manner release or discharge the lessees from any obligations thereunder; (v) unreasonably consent to any assignment or subletting by any lessee; or (vi) subordinate or agree to subordinate any of the Leases to any other deed of trust or encumbrance. Any such attempted action in violation of the provisions of this Section 3.5 shall be null and void. Without in any way limiting the requirement of Beneficiary's consent hereunder, any sums received by Trustor in consideration of any termination (or the release or discharge of any lessee) modification or amendment of any Lease shall be applied to reduce the outstanding Secured Obligations and any such sums received by Trustor shall be held in trust by Trustor for such purpose. 3.6 ESTOPPEL CERTIFICATES. Within thirty (30) days after written request by Beneficiary, Trustor shall deliver to Beneficiary and to any party designated by Beneficiary estoppel certificates executed by Trustor and by each of the lessees, in recordable form, certifying (if such be the case): (a) that the foregoing assignment and the Leases are in full force and effect; (b) the date of each lessee's most recent payment of rent; (c) that there are no defenses or offsets outstanding, or stating those claimed by Trustor or lessees under the foregoing assignment or the Leases, as the case may be; and (d) any other information reasonably requested by Beneficiary. ARTICLE 4. SECURITY AGREEMENT AND FIXTURE FILING 4.1 SECURITY INTEREST. Trustor hereby grants and assigns to Beneficiary as of the "Effective Date" (defined in the Loan Agreement) a security interest, to secure payment and performance of all of the Secured Obligations, in all of the following described personal property in which Trustor now or at any time hereafter has any interest (collectively, the "Collateral"): All goods, building and other materials, supplies, work in process, equipment, machinery, fixtures, furniture, furnishings, signs and other personal property, wherever situated, which are or are to be incorporated into, used in connection with, or appropriated for use on (i) the real property described on Exhibit A attached hereto and incorporated by reference herein (to the extent the same are not effectively made a part of the real property pursuant to Section 1.1 above) or (ii) the Improvements (which real property and Improvements are collectively referred to herein as the Subject Property); together with all rents (to the extent, if any, they are not subject to Article 3); all inventory, accounts, cash receipts, deposit accounts, accounts receivable, contract rights, licenses, agreements, general intangibles, chattel paper, instruments, documents, notes, drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, any other rights to the payment of money, trade names, trademarks and service marks, in every case, arising from or related to the ownership, management, leasing or operation of the Subject Property or any business now or hereafter conducted thereon by Trustor; all permits consents, approvals, licenses, authorizations and other rights granted by, given by or obtained from, any governmental entity with respect to the Subject Property; all deposits or other security now or hereafter made with or given to utility companies by Trustor with respect to the Subject Property; all advance payments of insurance premiums made by Trustor with respect to the Subject Property; all plans, drawings and specifications relating to the Subject Property; all loan funds held by Beneficiary, whether or not disbursed; all funds deposited with Beneficiary pursuant to any loan agreement; all reserves, deferred payments, deposits, security deposits, letters of credit, lease bonds and other deposit substitutes, credit enhancements, other like items, accounts, refunds, cost savings and payments of any kind related to the Subject Property or any portion thereof; together with all replacements and proceeds of, and additions and accessions to, any of the foregoing; together with all books, records and files relating to any of the foregoing. Page 4 5 As to all of the above described personal property which is or which hereafter becomes a "fixture" under applicable law, this Deed of Trust constitutes a fixture filing under Sections 9313 and 9402(6) of the California Uniform Commercial Code, as amended or recodified from time to time, and is acknowledged and agreed to be a "construction mortgage" under such Sections. 4.2 REPRESENTATIONS AND WARRANTIES. Trustor represents and warrants that: (a) Trustor has, or will have, good title to the Collateral; (b) Trustor has not previously assigned or encumbered the Collateral, and no financing statement covering any of the Collateral has been delivered to any other person or entity; and (c) Trustor's principal place of business is located at the address shown in Section 7.11. 4.3 RIGHTS OF BENEFICIARY. In addition to Beneficiary's rights as a "Secured Party" under the California Uniform Commercial Code, as amended or recodified from time to time ("UCC"), Beneficiary may, but shall not be obligated to, at any time without notice and, after the occurrence and during the continuation of a Default, at the expense of Trustor: (a) give notice to any person of Beneficiary's rights hereunder and enforce such rights at law or in equity; (b) insure, protect, defend and preserve the Collateral or any rights or interests of Beneficiary therein; (c) inspect the Collateral; and (d) endorse, collect and receive any right to payment of money owing to Trustor under or from the Collateral. Notwithstanding the above, in no event shall Beneficiary be deemed to have accepted any property other than cash in satisfaction of any obligation of Trustor to Beneficiary unless Beneficiary shall make an express written election of said remedy under UCC Section 9505, or other applicable law. 4.4 RIGHTS OF BENEFICIARY ON DEFAULT. Upon the occurrence of and during the continuation of a Default (hereinafter defined) under this Deed of Trust, then in addition to all of Beneficiary's rights as a "Secured Party" under the UCC or otherwise at law: (a) Beneficiary may (i) upon written notice, require Trustor to assemble any or all of the Collateral and make it available to Beneficiary at a place designated by Beneficiary; (ii) without prior notice, enter upon the Subject Property or other place where any of the Collateral may be located and take possession of, collect, sell, and dispose of any or all of the Collateral, and store the same at locations acceptable to Beneficiary at Trustor's expense; (iii) sell, assign and deliver at any place or in any lawful manner all or any part of the Collateral and bid and become the purchaser at any such sales; and (b) Beneficiary may, for the account of Trustor and at Trustor's expense: (i) operate, use, consume, sell or dispose of the Collateral as Beneficiary deems appropriate for the purpose of performing any or all of the Secured Obligations; (ii) enter into any agreement, compromise, or settlement, including insurance claims, which Beneficiary may deem desirable or proper with respect to any of the Collateral; and (iii) endorse and deliver evidences of title for, and receive, enforce and collect by legal action or otherwise, all indebtedness and obligations now or hereafter owing to Trustor in connection with or on account of any or all of the Collateral. Notwithstanding any other provision hereof, Beneficiary shall not be deemed to have accepted any property other than cash in satisfaction of any obligation of Trustor to Beneficiary unless Trustor shall make an express written election of said remedy under UCC Section 9505, or other applicable law. 4.5 POWER OF ATTORNEY. Trustor hereby irrevocably appoints Beneficiary as Trustor's attorney-in-fact (such agency being coupled with an interest), and as such attorney-in-fact Beneficiary may, without the obligation to do so, in Beneficiary's name, or in the name of Trustor, prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve any of Beneficiary's security interests and rights in or to any of the Collateral, and, upon a Default or during the continuance of a Default hereunder, take any other action required of Trustor; provided, however, that Beneficiary as such attorney-in-fact shall be accountable only for such funds as are actually received by Beneficiary. Page 5 6 4.6 POSSESSION AND USE OF COLLATERAL. Except as otherwise provided in this Section or the other Loan Documents (as defined in the Loan Agreement), so long as no Default exists under this Deed of Trust or any of the Loan Documents, Trustor may possess, use, move, transfer or dispose of any of the Collateral in the ordinary course of Trustor's business and in accordance with the Loan Agreement. ARTICLE 5. RIGHTS AND DUTIES OF THE PARTIES 5.1 TITLE. Trustor represents and warrants that, except as disclosed to Beneficiary in a writing which refers to this warranty, Trustor lawfully holds and possesses fee simple title to the Subject Property without limitation on the right to encumber, and that this Deed of Trust is a first and prior lien on the Subject Property. 5.2 TAXES AND ASSESSMENTS. Subject to Trustor's rights to contest payment of taxes as may be provided in the Loan Agreement, Trustor shall pay prior to delinquency all taxes, assessments, levies and charges imposed by any public or quasi-public authority or utility company which are or which may become a lien upon or cause a loss in value of the Subject Property or any interest therein. Trustor shall also pay prior to delinquency all taxes, assessments, levies and charges imposed by any public authority upon Beneficiary by reason of its interest in any Secured Obligation or in the Subject Property, or by reason of any payment made to Beneficiary pursuant to any Secured Obligation; provided, however, Trustor shall have no obligation to pay taxes which may be imposed from time to time upon Beneficiary and which are measured by and imposed upon Beneficiary's net income. 5.3 TAX AND INSURANCE IMPOUNDS. At any time following the occurrence of a Default and during the continuance thereof, at Beneficiary's option and upon its demand, Trustor, shall, until all Secured Obligations have been paid in full, pay to Beneficiary monthly, annually or as otherwise directed by Beneficiary an amount estimated by Beneficiary to be equal to: (a) all taxes, assessments, levies and charges imposed by any public or quasi-public authority or utility company which are or may become a lien upon the Subject Property or Collateral and will become due for the tax year during which such payment is so directed; and (b) premiums for fire, hazard and insurance required or requested pursuant to the Loan Documents when same are next due. If Beneficiary determines that any amounts paid by Trustor are insufficient for the payment in full of such taxes, assessments, levies, charges and/or insurance premiums, Beneficiary shall notify Trustor of the increased amounts required to pay all amounts when due, whereupon Trustor shall pay to Beneficiary within thirty (30) days thereafter the additional amount as stated in Beneficiary's notice. All sums so paid shall not bear interest, except to the extent and in any minimum amount required by law; and Beneficiary shall, unless Trustor is otherwise in Default hereunder or under any Loan Document, apply said funds to the payment of, or at the sole option of Beneficiary release said funds to Trustor for the application to and payment of, such sums, taxes, assessments, levies, charges, and insurance premiums. Upon Default by Trustor hereunder or under any Secured Obligation, Beneficiary may apply all or any part of said sums to any Secured Obligation and/or to cure such Default, in which event Trustor shall be required to restore all amounts so applied, as well as to cure any other events or conditions of Default not cured by such application. Upon assignment of this Deed of Trust, Beneficiary shall have the right to assign all amounts collected and in its possession to its assignee whereupon Beneficiary and the Trustee shall be released from all liability with respect thereto. Within ninety-five (95) days following full repayment of the Secured Obligations (other than full repayment of the Secured Obligations as a consequence of a foreclosure or conveyance in lieu of foreclosure of the liens and security interests securing the Secured Obligations) or at such earlier time as Beneficiary may elect, the balance of all amounts collected and in Beneficiary's possession shall be paid to Trustor and no other party shall have any right or claim thereto. 5.4 PERFORMANCE OF SECURED OBLIGATIONS. Trustor shall promptly pay and perform each Secured Obligation when due. 5.5 LIENS, ENCUMBRANCES AND CHARGES. Trustor shall immediately discharge any lien not approved by Beneficiary in writing that has or may attain priority over this Deed of Trust. Subject to the provisions of the Loan Agreement regarding mechanics' liens, Trustor shall pay when due all obligations secured by or which may become liens and encumbrances which shall now or hereafter encumber or appear to encumber all or any part of the Subject Property or Collateral, or any interest therein, whether senior or subordinate hereto. Page 6 7 5.6 DAMAGES; INSURANCE AND CONDEMNATION PROCEEDS. (a) The following (whether now existing or hereafter arising) are all absolutely and irrevocably assigned by Trustor to Beneficiary and, at the request of Beneficiary, shall be paid directly to Beneficiary: (i) all awards of damages and all other compensation payable directly or indirectly by reason of a condemnation or proposed condemnation for public or private use affecting all or any part of, or any interest in, the Subject Property or Collateral; (ii) all other claims and awards for damages to, or decrease in value of, all or any part of, or any interest in, the Subject Property or Collateral; (iii) all proceeds of any insurance policies payable by reason of loss sustained to all or any part of the Subject Property or Collateral; and (iv) all interest which may accrue on any of the foregoing. Subject to applicable law and Section 5.6(b), Beneficiary may at its discretion apply all or any of the proceeds it receives to its expenses in settling, prosecuting or defending any claim and may apply the balance to the Secured Obligations in any order acceptable to Beneficiary, and/or Beneficiary may release all or any part of the proceeds to Trustor upon any reasonable conditions Beneficiary may impose. Beneficiary may commence, appear in, defend or prosecute any assigned claim or action and may adjust, compromise, settle and collect all claims and awards assigned to Beneficiary; provided, however, in no event shall Beneficiary be responsible for any failure to collect any claim or award, regardless of the cause of the failure, except for any malfeasance by Beneficiary or its employees or agents. (b) In the event of a casualty, so long as there is not then in existence a Default which remains uncured, the amount of repair or restoration does not exceed fifty percent (50%) of the then outstanding unpaid balance of the Loan, and Beneficiary reasonably determines that its security is not impaired by the casualty, Beneficiary shall permit insurance proceeds held by Beneficiary to be used for repair or restoration; otherwise, Beneficiary may, but shall not be obligated to, permit insurance proceeds held by Beneficiary to be used for repair or restoration. In the event of a condemnation, so long as there is not then in existence a Default which remains uncured, the amount of repair or restoration does not exceed ten percent (10%) of the then outstanding unpaid balance of the Loan, Beneficiary reasonably determines that its security is not impaired by the condemnation, and restoration is reasonably feasible, Beneficiary shall permit insurance proceeds held by Beneficiary to be used for repair or restoration; otherwise, Beneficiary may, but shall not be obligated to, permit condemnation proceeds held by Beneficiary to be used for repair or restoration In the event of any of the foregoing, Beneficiary may condition such application upon reasonable conditions, including, without limitation: (i) the deposit with Beneficiary of such additional funds which Beneficiary reasonably determines are needed to pay all costs of the repair or restoration, (including, without limitation, taxes, financing charges, insurance and rent during the repair period); (ii) the establishment of an arrangement for lien releases and disbursement of funds acceptable to Beneficiary (the arrangement contained in the Loan Agreement for obtaining lien releases and disbursing loan funds shall be deemed reasonable with respect to disbursement of insurance or condemnation proceeds); (iii) the delivery to Beneficiary of plans and specifications for the work, a contract for the work signed by a contractor acceptable to Beneficiary, a cost breakdown for the work and a payment and performance bond for the work, all of which shall be acceptable to Beneficiary; and (iv) the delivery to Beneficiary of evidence acceptable to Beneficiary (aa) that after completion of the work the income from the Subject Property will be sufficient to pay all expenses and debt service for the Subject Property; (bb) of the continuation of Leases acceptable to and required by Beneficiary; (cc) that upon completion of the work, the size, capacity and total value of the Subject Property will be at least as great as it was before the damage or condemnation occurred; (dd) that there has been no material adverse change in the financial condition or credit of Trustor since the date of this Deed of Trust; and (ee) of the satisfaction of any additional conditions that Beneficiary may reasonably establish to protect its security. Trustor hereby acknowledges that the conditions described above are reasonable, and, if such conditions have not been satisfied within one hundred fifty (150) days of receipt by Beneficiary of such insurance or condemnation proceeds, then Beneficiary may apply such insurance or condemnation proceeds to pay the Secured Obligations in such order and amounts as Beneficiary in its sole discretion may choose. Page 7 8 5.7 MAINTENANCE AND PRESERVATION OF THE SUBJECT PROPERTY. Subject to the provisions of the Loan Agreement, Trustor covenants: (a) to insure the Subject Property and Collateral against such risks as Beneficiary may require and, at Beneficiary's request, to provide evidence of such insurance to Beneficiary, and to comply with the requirements of any insurance companies providing such insurance; (b) to keep the Subject Property and Collateral in good condition and repair; (c) not to remove or demolish the Subject Property or Collateral or any part thereof, not to alter, restore or add to the Subject Property or Collateral and not to initiate or acquiesce in any change in any zoning or other land classification which affects the Subject Property without Beneficiary's prior written consent, which consent shall not be unreasonably withheld, or as provided in the Loan Agreement; (d) to the extent that insurance and condemnation proceeds are made available to it by Beneficiary, to complete or restore promptly and in good and workmanlike manner the Subject Property and Collateral, or any part thereof which may be damaged or destroyed; (e) to comply with all laws, ordinances, regulations and standards, and all covenants, conditions, restrictions and equitable servitudes, whether public or private, of every kind and character which affect the Subject Property or Collateral and pertain to acts committed or conditions existing thereon, including, without limitation, any work, alteration, improvement or demolition mandated by such laws, covenants or requirements; (f) not to commit or permit waste of the Subject Property or Collateral; and (g) to do all other acts which from the character or use of the Subject Property or Collateral may be reasonably necessary to maintain and preserve its value. 5.8 DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS. At Trustor's sole expense, Trustor shall protect, preserve and defend the Subject Property and Collateral and title to and right of possession of the Subject Property and Collateral, the security hereof and the rights and powers of Beneficiary and Trustee hereunder against all adverse claims. Trustor shall give Beneficiary and Trustee prompt notice in writing of the assertion of any claim, of the filing of any action or proceeding, of the occurrence of any damage to the Subject Property or Collateral and of any condemnation offer or action. 5.9 ACCEPTANCE OF TRUST; POWERS AND DUTIES OF TRUSTEE. (a) Trustee accepts this trust when this Deed of Trust is recorded. Except as may be required by applicable law, Trustee or Beneficiary may from time to time apply to any court of competent jurisdiction for aid and direction in the execution of the trust hereunder and the enforcement of the rights and remedies available hereunder, and may obtain orders or decrees directing or confirming or approving acts in the execution of said trust and the enforcement of said remedies. (b) Trustee shall not be required to take any action toward the execution and enforcement of the trust hereby created or to institute, appear in, or defend any action, suit, or other proceeding in connection therewith where, in his opinion, such action would be likely to involve him in expense or liability, unless requested so to do by a written instrument signed by Beneficiary and, if Trustee so requests, unless Trustee is tendered security and indemnity satisfactory to Trustee against any and all cost, expense, and liability arising therefrom. Trustee shall not be responsible for the execution, acknowledgment, or validity of the Loan Documents, or for the proper authorization thereof, or for the sufficiency of the lien and security interest purported to be created hereby, and Trustee makes no representation in respect thereof or in respect of the rights, remedies, and recourses of Beneficiary. (c) With the approval of Beneficiary, Trustee shall have the right to take any and all of the following actions: (i) to select, employ, and advise with counsel (who may be, but need not be, counsel for Beneficiary) upon any matters arising hereunder, including the preparation, execution, and interpretation of the Loan Documents, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his agents or attorneys, (iii) to select and employ, in and about the execution of his duties hereunder, suitable accountants, engineers and other experts, agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of Trustee, and Trustee shall not be answerable for any act, default, negligence, or misconduct of any such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable care, or for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee's gross negligence or bad faith, and (iv) any and all other lawful action as Beneficiary may instruct Trustee to take to protect or enforce Beneficiary's Page 8 9 rights hereunder. Trustee shall not be personally liable in case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee, upon the Subject Property for debts contracted for or liability or damages incurred in the management or operation of the Subject Property. Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for expenses incurred by Trustee in the performance of Trustee's duties hereunder and to reasonable compensation for such of Trustee's services hereunder as shall be rendered. TRUSTOR WILL, FROM TIME TO TIME, PAY THE COMPENSATION DUE TO TRUSTEE HEREUNDER AND REIMBURSE TRUSTEE FOR, AND INDEMNIFY AND HOLD HARMLESS TRUSTEE AGAINST, ANY AND ALL LIABILITY AND REASONABLE OUT-OF-POCKET EXPENSES WHICH MAY BE INCURRED BY TRUSTEE IN THE PERFORMANCE OF TRUSTEE'S DUTIES. (d) All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by applicable law) and Trustee shall be under no liability for interest on any moneys received by Trustee hereunder. (e) Should any deed, conveyance, or instrument of any nature be required from Trustor by any Trustee or substitute Trustee to more fully and certainly vest in and confirm to the Trustee or substitute Trustee such estates, rights, powers, and duties, then, upon request by the Trustee or substitute Trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by Trustor. (f) By accepting or approving anything required to be observed, performed, or fulfilled or to be given to Trustee pursuant to the Loan Documents, including without limitation, any deed, conveyance, instrument, officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Trustee shall not be deemed to have warranted, consented to, or affirmed the sufficiency, legality, effectiveness, or legal effect of the same, or of any term, provision, or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or affirmation with respect thereto by Trustee. 5.10 COMPENSATION; EXCULPATION; INDEMNIFICATION. (a) Trustor shall pay Trustee's fees and reimburse Trustee for reasonable out-of-pocket expenses in the administration of this trust, including reasonable out-of-pocket attorneys' fees. Trustor shall pay to Beneficiary reasonable compensation for services rendered concerning this Deed of Trust, including without limit any statement of amounts owing under any Secured Obligation. Beneficiary shall not directly or indirectly be liable to Trustor or any other person as a consequence of (i) the exercise of the rights, remedies or powers granted to Beneficiary in this Deed of Trust; (ii) the failure or refusal of Beneficiary to perform or discharge any obligation or liability of Trustor under any agreement related to the Subject Property or Collateral or under this Deed of Trust; or (iii) any loss sustained by Trustor or any third party resulting from Beneficiary's failure (except by Beneficiary's gross negligence or willful misconduct) to lease the Subject Property after a Default (hereinafter defined) or from any other act or omission (except for Beneficiary's gross negligence or willful misconduct) of Beneficiary in managing the Subject Property after a Default unless the loss is caused by the gross negligence or willful misconduct of Beneficiary and no such liability shall be asserted against or imposed upon Beneficiary, and all such liability is hereby expressly waived and released by Trustor. (b) SUBJECT TO THE PROVISIONS OF SECTION 2.10 OF THE LOAN AGREEMENT, TRUSTOR INDEMNIFIES TRUSTEE AND BENEFICIARY AGAINST, AND HOLDS TRUSTEE AND BENEFICIARY HARMLESS FROM, ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, CAUSES OF ACTION, JUDGMENTS, COURT COSTS, ATTORNEYS' FEES AND OTHER LEGAL EXPENSES, COST OF EVIDENCE OF TITLE, COST OF EVIDENCE OF VALUE, AND OTHER EXPENSES WHICH EITHER MAY SUFFER OR INCUR: (i) BY REASON OF THIS DEED OF TRUST; (ii) BY REASON OF THE EXECUTION OF THIS TRUST OR IN PERFORMANCE OF ANY Page 9 10 ACT REQUIRED OR PERMITTED HEREUNDER OR BY LAW; (iii) AS A RESULT OF ANY FAILURE OF TRUSTOR TO PERFORM TRUSTOR'S OBLIGATIONS; OR (iv) BY REASON OF ANY ALLEGED OBLIGATION OR UNDERTAKING ON BENEFICIARY'S PART TO PERFORM OR DISCHARGE ANY OF THE REPRESENTATIONS, WARRANTIES, CONDITIONS, COVENANTS OR OTHER OBLIGATIONS CONTAINED IN ANY OTHER DOCUMENT RELATED TO THE SUBJECT PROPERTY. (c) Trustor shall pay all amounts and indebtedness arising under this Section 5.10 immediately upon demand by Trustee or Beneficiary together with interest thereon from the date the indebtedness arises at the rate of interest then applicable to the principal balance of the Note as specified therein. 5.11 SUBSTITUTION OF TRUSTEES. From time to time, by a writing, signed and acknowledged by Beneficiary and recorded in the Office of the Recorder of the County in which the Subject Property is situated, Beneficiary may appoint another trustee to act in the place and stead of Trustee or any successor. Such writing shall set forth any information required by law. The recordation of such instrument of substitution shall discharge Trustee herein named and shall appoint the new trustee as the trustee hereunder with the same effect as if originally named Trustee herein. A writing recorded pursuant to the provisions of this Section 5.11 shall be conclusive proof of the proper substitution of such new Trustee. 5.12 DUE ON SALE OR ENCUMBRANCE. If the Subject Property or any interest therein shall be sold, transferred (including, without limitation, through sale or transfer of a majority or controlling interest of the corporate stock of Trustor, other than as results from issuances of publicly traded stock duly registered with the Securities and Exchange Commission), mortgaged, assigned, further encumbered or leased, whether directly or indirectly, whether voluntarily, involuntarily or by operation of law, without the prior written consent of Beneficiary, THEN Beneficiary, in its sole discretion, may declare all Secured Obligations immediately due and payable. 5.13 RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY. Without notice to or the consent, approval or agreement of any persons or entities having any interest at any time in the Subject Property and Collateral or in any manner obligated under the Secured Obligations ("Interested Parties"), Beneficiary may, from time to time, release any person or entity from liability for the payment or performance of any Secured Obligation, take any action or make any agreement extending the maturity or otherwise altering the terms or increasing the amount of any Secured Obligation, or accept additional security or release all or a portion of the Subject Property and Collateral and other security for the Secured Obligations. None of the foregoing actions shall release or reduce the personal liability of any of said Interested Parties, or release or impair the priority of the lien of and security interests created by this Deed of Trust upon the Subject Property and Collateral. 5.14 RECONVEYANCE. Upon Beneficiary's written request, and upon surrender to Trustee for cancellation of this Deed of Trust or a certified copy thereof and any note, instrument, or instruments setting forth all obligations secured hereby, Trustee shall reconvey, without warranty, the Subject Property or that portion thereof then held hereunder. To the extent permitted by law, the reconveyance may describe the grantee as "the person or persons legally entitled thereto" and the recitals of any matters or facts in any reconveyance executed hereunder shall be conclusive proof of the truthfulness thereof. Neither Beneficiary nor Trustee shall have any duty to determine the rights of persons claiming to be rightful grantees of any reconveyance. When the Subject Property has been fully reconveyed, the last such reconveyance shall operate as a reassignment of all future rents, issues and profits of the Subject Property to the person or persons legally entitled thereto. 5.15 SUBROGATION. Beneficiary shall be subrogated to the lien of all encumbrances, whether released of record or not, paid in whole or in part by Beneficiary pursuant to the Loan Documents or by the proceeds of any loan secured by this Deed of Trust. 5.16 RIGHT OF INSPECTION. Beneficiary, its agents and employees, may enter the Subject Property at any reasonable time for the purpose of inspecting the Subject Property and Collateral and ascertaining Trustor's compliance with the terms hereof. Page 10 11 ARTICLE 6. DEFAULT PROVISIONS 6.1 DEFAULT. For all purposes hereof, the term "Default" shall mean (a) at Beneficiary's option, the failure of Trustor to make any payment of principal or interest on the Note or to pay any other amount due hereunder or under the Note when the same is due and payable, whether at maturity, by acceleration or otherwise; (b) the failure of Trustor to perform any material non-monetary obligation hereunder, or the failure to be true in any material respects of any representation or warranty of Trustor contained herein and the continuance of such failure for ten (10) days after notice, or within any longer grace period, if any, allowed in the Loan Agreement for such failure, or (c) the existence of any Default as defined in the Loan Agreement. 6.2 RIGHTS AND REMEDIES. Subject to the provisions of Section 2.10 of the Loan Agreement, at any time after Default, Beneficiary and Trustee shall each have all the following rights and remedies: (a) With or without notice, to declare all Secured Obligations immediately due and payable; (b) With or without notice, and without releasing Trustor from any Secured Obligation, and without becoming a mortgagee in possession, to cure any breach or Default of Trustor and, in connection therewith, to enter upon the Subject Property and do such acts and things as Beneficiary or Trustee deem necessary or desirable to protect the security hereof, including, without limitation: (i) to appear in and defend any action or proceeding purporting to affect the security of this Deed of Trust or the rights or powers of Beneficiary or Trustee under this Deed of Trust; (ii) to pay, purchase, contest or compromise any encumbrance, charge, lien or claim of lien which, in the sole judgment of either Beneficiary or Trustee, is or may be senior in priority to this Deed of Trust, the judgment of Beneficiary or Trustee being conclusive as between the parties hereto; (iii) to obtain insurance; (iv) to pay any premiums or charges with respect to insurance required to be carried under this Deed of Trust; or (v) to employ counsel, accountants, contractors and other appropriate persons. (c) To commence and maintain an action or actions in any court of competent jurisdiction to foreclose this instrument as a mortgage or to obtain specific enforcement of the covenants of Trustor hereunder, and Trustor agrees that such covenants shall be specifically enforceable by injunction or any other appropriate equitable remedy and that for the purposes of any suit brought under this subparagraph, Trustor waives the defense of laches and any applicable statute of limitations; (d) To apply to a court of competent jurisdiction for and obtain appointment of a receiver of the Subject Property as a matter of strict right and without regard to the adequacy of the security for the repayment of the Secured Obligations, the existence of a declaration that the Secured Obligations are immediately due and payable, or the filing of a notice of default, and Trustor hereby consents to such appointment; (e) To enter upon, possess, manage and operate the Subject Property or any part thereof, to take and possess all documents, books, records, papers and accounts of Trustor or the then owner of the Subject Property, to make, terminate, enforce or modify Leases of the Subject Property upon such terms and conditions as Beneficiary deems proper, to make repairs, alterations and improvements to the Subject Property as necessary, in Trustee's or Beneficiary's sole judgment, to protect or enhance the security hereof; (f) To execute a written notice of such Default and of its election to cause the Subject Property to be sold to satisfy the Secured Obligations. As a condition precedent to any such sale, Trustee shall give and record such notice as the law then requires. When the minimum period of time required by law after such notice has elapsed, Trustee, without notice to or demand upon Trustor except as required by law, shall sell the Subject Property at the time and place of sale fixed by it in the notice of sale, at one or several sales, either as a whole or in separate parcels and in such manner and order, all as Beneficiary in its sole discretion may determine, at public auction to the highest bidder for cash, in lawful money of the United States, payable at time of sale. Neither Trustor nor any other person or Page 11 12 entity other than Beneficiary shall have the right to direct the order in which the Subject Property is sold. Subject to requirements and limits imposed by law, Trustee may from time to time postpone sale of all or any portion of the Subject Property by public announcement at such time and place of sale. Trustee shall deliver to the purchaser at such sale a deed conveying the Subject Property or portion thereof so sold, but without any covenant or warranty, express or implied. The recitals in the deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustee, Trustor or Beneficiary may purchase at the sale; (g) To resort to and realize upon the security hereunder and any other security now or later held by Beneficiary concurrently or successively and in one or several consolidated or independent judicial actions or lawfully taken non-judicial proceedings, or both, and to apply the proceeds received upon the Secured Obligations all in such order and manner as Trustee and Beneficiary, or either of them, determine in their sole discretion. (h) Upon sale of the Subject Property at any judicial or non-judicial foreclosure, Beneficiary may credit bid (as determined by Beneficiary in its sole and absolute discretion) all or any portion of the Secured Obligations. In determining such credit bid, Beneficiary may, but is not obligated to, take into account all or any of the following: (i) appraisals of the Subject Property as such appraisals may be discounted or adjusted by Beneficiary in its sole and absolute underwriting discretion; (ii) expenses and costs incurred by Beneficiary with respect to the Subject Property prior to foreclosure; (iii) expenses and costs which Beneficiary anticipates will be incurred with respect to the Subject Property after foreclosure, but prior to resale, including, without limitation, costs of structural reports and other due diligence, costs to carry the Subject Property prior to resale, costs of resale (e.g. commissions, attorneys' fees, and taxes), costs of any hazardous materials clean-up and monitoring, costs of deferred maintenance, repair, refurbishment and retrofit, costs of defending or settling litigation affecting the Subject Property, and lost opportunity costs (if any), including the time value of money during any anticipated holding period by Beneficiary; (iv) declining trends in real property values generally and with respect to properties similar to the Subject Property; (v) anticipated discounts upon resale of the Subject Property as a distressed or foreclosed property; (vi) the fact of additional collateral (if any), for the Secured Obligations; and --- (vii) such other factors or matters that Beneficiary (in its sole and absolute discretion) deems appropriate. In regard to the above, Trustor acknowledges and agrees that: (w) Beneficiary is not required to use any or all of the foregoing factors to determine the amount of its credit bid; (x) this Section does not impose upon Beneficiary any additional obligations that are not imposed by law at the time the credit bid is made; (y) the amount of Beneficiary's credit bid need not have any relation to any loan-to-value ratios specified in the Loan Documents or previously discussed between Trustor and Beneficiary; and (z) Beneficiary's --- credit bid may be (at Beneficiary's sole and absolute discretion) higher or lower than any appraised value of the Subject Property. 6.3 APPLICATION OF FORECLOSURE SALE PROCEEDS. After deducting all reasonable out-of-pocket costs, fees and expenses of Trustee, and of this trust, including, without limitation, cost of evidence of title and attorneys' fees in connection with sale and costs and expenses of sale and of any judicial proceeding wherein such sale may be made, Trustee shall apply all proceeds of any foreclosure sale: (a) to payment of all sums expended by Beneficiary under the terms hereof and not then repaid, with accrued interest at the rate of interest specified in the Note to be applicable on or after maturity or acceleration of the Note; (b) to payment of all other Secured Obligations; and (c) the remainder, if any, to the person or persons legally entitled thereto. 6.4 APPLICATION OF OTHER SUMS. All sums received by Beneficiary under Section 6.2 or Section 3.2, less all costs and expenses incurred by Beneficiary or any receiver under Section 6.2 or Section 3.2, including, without limitation, attorneys' fees, shall be applied in payment of the Secured Obligations in such order as Beneficiary shall determine in its sole discretion; provided, however, Beneficiary shall have no liability for funds not actually received by Beneficiary. 6.5 NO CURE OR WAIVER. Neither Beneficiary's nor Trustee's nor any receiver's entry upon and taking possession of all or any part of the Subject Property and Collateral, nor any collection of rents, issues, Page 12 13 profits, insurance proceeds, condemnation proceeds or damages, other security or proceeds of other security, or other sums, nor the application of any collected sum to any Secured Obligation, nor the exercise or failure to exercise of any other right or remedy by Beneficiary or Trustee or any receiver shall cure or waive any breach, Default or notice of default under this Deed of Trust, or nullify the effect of any notice of default or sale (unless all Secured Obligations then due have been paid and performed and Trustor has cured all other defaults), or impair the status of the security, or prejudice Beneficiary or Trustee in the exercise of any right or remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease or option or a subordination of the lien of or security interests created by this Deed of Trust. 6.6 PAYMENT OF COSTS, EXPENSES AND ATTORNEYS' FEES. Trustor agrees to pay to Beneficiary immediately and without demand all reasonable out-of-pocket costs and expenses incurred by Trustee and Beneficiary pursuant to Section 6.2 (including, without limitation, reasonable out-of-pocket court costs and attorneys' fees, whether incurred in litigation or not) with interest from the date of expenditure until said sums have been paid at the rate of interest then applicable to the principal balance of the Note as specified therein. In addition, Trustor shall pay to Trustee all Trustee's reasonable out-of-pocket fees hereunder and shall reimburse Trustee for all reasonable out-of-pocket expenses incurred in the administration of this trust, including, without limitation, any attorneys' fees. 6.7 POWER TO FILE NOTICES AND CURE DEFAULTS. Trustor hereby irrevocably appoints Beneficiary and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor, or any other notices that Beneficiary deems appropriate to protect Beneficiary's interest, (b) upon the issuance of a deed pursuant to the foreclosure of the lien of this Deed of Trust or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment or further assurance with respect to the Subject Property and Collateral, Leases and Payments in favor of the grantee of any such deed, as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Beneficiary's security interests and rights in or to any of the Subject Property and Collateral, and (d) upon the occurrence of an event, act or omission which, with notice or passage of time or both, would constitute a Default, Beneficiary may perform any obligation of Trustor hereunder; provided, however, that: (i) Beneficiary as such attorney-in-fact shall only be accountable for such funds as are actually received by Beneficiary; and (ii) Beneficiary shall not be liable to Trustor or any other person or entity for any failure to act (whether such failure constitutes negligence) by Beneficiary under this Section. ARTICLE 7. MISCELLANEOUS PROVISIONS 7.1 ADDITIONAL PROVISIONS. The Loan Documents contain or incorporate by reference the entire agreement of the parties with respect to matters contemplated herein and supersede all prior negotiations. The Loan Documents grant further rights to Beneficiary and contain further agreements and affirmative and negative covenants by Trustor which apply to this Deed of Trust and to the Subject Property and Collateral and such further rights and agreements are incorporated herein by this reference. 7.2 MERGER. No merger shall occur as a result of Beneficiary's acquiring any other estate in, or any other lien on, the Subject Property unless Beneficiary consents to a merger in writing. 7.3 INTENTIONALLY OMITTED. 7.4 INTENTIONALLY OMITTED. 7.5 WAIVER OF MARSHALLING RIGHTS. Trustor, for itself and for all parties claiming through or under Trustor, and for all parties who may acquire a lien on or interest in the Subject Property and Collateral, hereby waives all rights to have the Subject Property and Collateral and/or any other property, which is now or later may be security for any Secured Obligation ("Other Property") marshalled upon any foreclosure of the lien of this Deed of Trust or on a foreclosure of any other lien or security interest against any security for any of the Secured Obligations. Beneficiary shall have the right to sell, and any court in which foreclosure Page 13 14 proceedings may be brought shall have the right to order a sale of, the Subject Property and any or all of the Collateral or Other Property as a whole or in separate parcels, in any order that Beneficiary may designate. 7.6 RULES OF CONSTRUCTION. When the identity of the parties or other circumstances make it appropriate the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. The term "Subject Property" and "Collateral" means all and any part of the Subject Property and Collateral, respectively, and any interest in the Subject Property and Collateral, respectively. 7.7 SUCCESSORS IN INTEREST. The terms, covenants, and conditions herein contained shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto; provided, however, that this Section 7.7 does not waive or modify the provisions of Section 5.12. 7.8 EXECUTION IN COUNTERPARTS. To facilitate execution, this document may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature or acknowledgment of, or on behalf of, each party, or that the signature of all persons required to bind any party, or the acknowledgment of such party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, and the respective acknowledgments of, each of the parties hereto. Any signature or acknowledgment page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures or acknowledgments thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature or acknowledgment pages. 7.9 CALIFORNIA LAW. This Deed of Trust shall be construed in accordance with the laws of the State of California, except to the extent that federal laws preempt the laws of the State of California. 7.10 INCORPORATION. Exhibit A and Schedule 1, as attached, are incorporated into this Deed of Trust by this reference. 7.11 NOTICES. All notices, demands or other communications required or permitted to be given pursuant to the provisions of this Deed of Trust shall be in writing and shall be considered as properly given if delivered personally or sent by first class United States Postal Service mail, postage prepaid, except that notice of Default may be sent by certified mail, return receipt requested, or by Overnight Express Mail or by overnight commercial courier service, charges prepaid. Notices so sent shall be effective three (3) days after mailing, if mailed by first class mail, and otherwise upon receipt at the address set forth below; provided, however, that non-receipt of any communication as the result of any change of address of which the sending party was not notified or as the result of a refusal to accept delivery shall be deemed receipt of such communication. For purposes of notice, the address of the parties shall be: Page 14 15 Trustor: Communications & Power Industries Holding Corporation 607 Hansen Way Palo Alto, CA 94303-1110 Attn: Lynn E. Harvey With a copy to: Leonard Green & Partners, L.P. 11111 Santa Monica Boulevard, Suite 2000 Los Angeles, CA 90025 Attn: Greg Annick With a copy to: Irell & Manella LLP 1800 Avenue of the Stars, Suite 900 Los Angeles, CA 90067-4276 Attn: Chris Kennedy Trustee: American Securities Company, a California corporation Legal Department 633 Folsom, 7th floor San Francisco, CA 94107 MAC 0149-075 Attn: Real Estate Group Counsel (w/ reference to Loan #1440 and Beneficiary AU #2034) Beneficiary: WELLS FARGO BANK, NATIONAL ASSOCIATION Real Estate Group (AU #2034) 555 Montgomery Street 16th Floor San Francisco, CA 94111 Attn: Robin L. Dixon Loan #: 1440 With a copy to: Wells Fargo Bank, National Association Disbursement and Operations Center 2120 East Park Place, Suite 100 El Segundo, CA 90245 Attention: Marissa Santos
Any party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving of ten (10) days notice to the other party in the manner set forth hereinabove. Trustor shall forward to Beneficiary, without delay, any notices, letters or other communications delivered to the Subject Property or to Trustor naming Beneficiary, "Lender" or any similar designation as addressee, or which could reasonably be deemed to affect the ability of Trustor to perform its obligations to Beneficiary under the Note or the Loan Agreement. Page 15 16 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year set forth above. COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ (ALL SIGNATURES MUST BE ACKNOWLEDGED) Page 16 17 EXHIBIT A Loan No. 1440 DESCRIPTION OF SUBJECT PROPERTY Exhibit A to Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing executed by COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, as Trustor, to AMERICAN SECURITIES COMPANY, as Trustee, for the benefit of WELLS FARGO BANK, NATIONAL ASSOCIATION, as Beneficiary, dated as of December __, 2000. The land referred to herein is situated in the County of San Mateo, State of California, and is described as follows: All the real property located in the City of San Carlos, County of San Mateo, State of California, all of Parcel 1 as shown on the Parcel Map recorded in Volume 20 of Parcel Maps at page 23 in the Records of said County, described in metes as follows: Beginning at Northerly corner of said Parcel; thence through the following numbered courses: 1) South 37(0)56' 04" East 739.82 feet to a curve to the right with a radius of 447.00 feet 2) along said curve through a central angle of 33(0)54' 48" an arc distance of 264.58 feet 3) South 04(0)01' 16" East 182.93 feet to a curve to the left with a radius of 553.00 feet 4) along said curve through a central angle of 02(0)38' 43" an arc distance of 25.53 feet 5) South 46(0)51' 36" West 476.39 feet 6) North 42(0)08' 24" West 1153.65 feet 7) North 47(0)51' 36" East 752.91 feet to the point of beginning.
A.P. No.: 046-051-020 JPN 046 005 051 02 A 046-051-070 046 005 051 07 A
Page 17 18 SCHEDULE 1 Loan No. 1440 SCHEDULE OF LEASES Schedule 1 to Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing executed by COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, as Trustor, to AMERICAN SECURITIES COMPANY, as Trustee, for the benefit of WELLS FARGO BANK, NATIONAL ASSOCIATION, as Beneficiary, dated as of December __, 2000. 1. That certain Standard Industrial/Commercial Single-Tenant Lease between Communications & Power Industries Holding Corporation, as "Lessor", and Communications & Power Industries, Inc., as "Lessee", dated December 1, 2000 for the Subject Property, including those certain 320,000 square foot (approximately) premises located at the Subject Property, together with all exhibits and addenda attached thereto. Page 18 19 SCHEDULE 1 Loan No. 1440 STATE OF CALIFORNIA COUNTY OF SS. ------------------------------------ On this day of December, 2000, before me, a Notary Public in and for the State of California, personally appeared personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature ----------------------------- My commission expires . ------------------- Page 19 EX-10.7 8 f69166ex10-7.txt EXHIBIT 10.7 1 EXHIBIT 10.7 GUARANTY AND SECURITY AGREEMENT This Guaranty and Security Agreement (this "Agreement"), dated as of December 15, 2000, is made by each of the undersigned (herein collectively called "Guarantor") in favor of Foothill Capital Corporation, a California corporation, as Agent for itself and Lenders, and the other Lenders ("Foothill"), pursuant to that certain Loan and Security Agreement (the "Loan Agreement"), dated as of December 15, 2000, by and among Communication & Power Industries, Inc., a Delaware corporation ("Debtor"), the other Obligors (including the undersigned) named therein, Foothill and the other Lenders named herein (Foothill and the other Lenders are collectively referred to herein as "Lender"). Capitalized terms, which are used herein but not defined herein, shall have the meanings ascribed to them in the Loan Agreement. Guarantor, at the solicitation of Debtor, requests that Lender extend Credit to Debtor and in consideration of Credit heretofore, now or hereafter granted to Debtor by Lender, Guarantor agrees as follows: 1. The term "Credit" is used throughout this Agreement in its most comprehensive sense and means and includes, without limitation, any and all loans, advances, debts, obligations and liabilities of any kind or nature owed by Debtor to Lender (including, without, limitation, the Obligations) and any and all future Obligations owing by Debtor to Lender and all other financial accommodations extended by Lender to Debtor, heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether owed directly to Lender or acquired by Lender by assignment, subrogation, or succession (including, without limitation, Lender participations and interests of Lender in the obligations of Debtor to others), whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, secured or unsecured, whether on original, renewed, extended or revised terms (including, without limitation, those evidenced by new or additional instruments or agreements or those changing the applicable rate of interest or which release any obligor with respect thereto), whether principal, interest (including any interest that, but for the provisions of the U.S. Bankruptcy Code would have accrued) or fees, whether Debtor may be liable individually or jointly with others, whether recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, and whether such indebtedness may be or hereafter become invalid or otherwise unenforceable. In the event a petition under the U.S. Bankruptcy Code is filed by or against Debtor, the term "Debtor" shall also mean and include Debtor in its status as a debtor, debtor-in-possession and/or reorganized debtor under the U.S. Bankruptcy Code. 2. If there is more than a single person included in the terms "Guarantor" or "Debtor," respectively, (a) each reference herein to such terms shall mean all and any one or more of such entities and persons both jointly and severally, and (b) if more than one entity executes this Agreement, the obligations and liabilities hereunder of Guarantors are and shall be both joint and several. If Debtor is a partnership or association, each reference herein to the term "Debtor" shall -1- 2 include any successor entity to Debtor. As used in this Agreement, neuter terms include the masculine and feminine, and vice versa. 3. Guarantor's liability hereunder shall be unlimited. Without limiting the foregoing and in addition thereto, Guarantor agrees to bear and be liable to Lender for the interest and expenses enumerated in paragraph 17 hereof. 4. Guarantor unconditionally guarantees and agrees to pay Lender or its order, on demand, in lawful money of the United States of America, an amount equal to the amount of the Credit, and to otherwise perform any obligation of Debtor undertaken pursuant to any Credit. This Agreement is a guaranty of payment and not of collection. 5. Either before or after revocation hereof, Guarantor authorizes Lender at its sole discretion, with or without notice, and without affecting Guarantor's continuing liability hereunder, from time to time to (a) change the time or manner of payment of any Credit by renewal, extension, acceleration or otherwise, (b) alter or change any other provision of any Credit including the rate of interest thereon, (c) accept partial payment on any Credit, (d) accept new or additional instruments, agreements or documents relative to any Credit, (e) release, substitute or add one or more endorsers, cosigners or guarantors for any Credit, (f) amend or modify the terms of any guaranty executed by a co-guarantor, including the maximum liability thereunder, (g) obtain collateral for the payment of any Credit and/or any guaranty thereof, (h) waive, release, exchange, substitute, release or modify, in whole or in part, existing or after-acquired collateral securing payment of the Credit or any guaranty therefor on such terms as Lender in its sole discretion shall determine, (i) subordinate payment of all or any part of the Credit to other creditors of Debtor or other persons on such terms as Lender deems appropriate, (j) apply any sums received from Debtor, any other guarantor, endorser or cosigner or from the sale or collection of collateral or its proceeds to any indebtedness whatsoever in any order and regardless of whether or not such indebtedness is guaranteed hereby, is secured by collateral or is due and payable, (k) apply any sums received from Guarantor or from the sale of collateral granted by Guarantor to any, all, or any portion of the Credit in any order regardless of whether the Credit is secured by collateral, but only so long as such Credit is due and payable, and (l) exercise any right or remedy it may have with respect to any Credit or any collateral securing any Credit, this Agreement or any other guaranty, including bidding and purchasing at any sale of any such collateral, and compromising, collecting or otherwise liquidating any collateral or any Credit. 6. (a) Guarantor acknowledges that Guarantor may have certain rights under applicable law which, if not waived by Guarantor, might provide Guarantor with defenses against Guarantor's liability under this Agreement. Among those rights, are certain rights of subrogation, reimbursement, indemnification and contribution, and rights provided in sections 2787 to 2855, inclusive, of the California Civil Code (or any comparable provision of applicable state law). To the maximum extent permitted by law, Guarantor waives all of Guarantor's rights of subrogation, reimbursement, indemnification, and contribution, and any other rights and defenses that are or may become available to Guarantor, whether such rights arise by reason of any or all of California -2- 3 Civil Code Sections 2787 to 2855, inclusive (or any comparable provision of applicable state law), or otherwise, and including, without limitation, Guarantor's rights: (i) To require Lender to notify Guarantor of any default by Debtor, provide Guarantor with notice of any sale or other disposition of security for any Credit, or disclose information with respect to the Credit, the Debtor, or any other guarantor, co-signer or endorser, or with respect to any collateral; (ii) That Guarantor's obligation under this Agreement must be commensurate with that of Debtor; (iii) To be discharged based upon the absence of any liability of the Debtor, at any time, by virtue of operation of law, or otherwise, or due to any other disability or defense of Debtor or any other guarantor, endorser or co-signer; (iv) To be discharged if any of the terms, conditions or provisions of the Credit are altered in any respect; (v) To be discharged upon acceptance by Lender of anything in partial satisfaction of the Credit, and/or if Lender designates portion of the Credit to be satisfied; (vi) To be discharged upon any modification of the Credit or the release by Lender of Debtor or any other guarantor, endorser or co-signer, or if any remedies against any such person are suspended or impaired; (vii) To require Lender to proceed against Debtor, or any other guarantor, endorser, co-signer, or other person, or to pursue or refrain from pursuing any other remedy in Lender's power; (viii) To receive the benefit of or participate in any and all security for repayment and/or performance of the Credit; (ix) To have any security for the Credit first applied to satisfy or discharge the Credit; (x) That any arbitration award rendered against Debtor not constitute an award against Guarantor; (xi) To be discharged based upon any failure by Lender to perfect or continue perfection of any lien, use due diligence to collect all or any Credit, or if recovery against Debtor becomes barred by any statute of limitations, or if Debtor is not liable for any deficiency after Lender realizes upon any collateral; and -3- 4 (xii) To be discharged due to the release or discharge of any collateral for any Credit or guaranty, or relating to the validity, value or enforceability of any collateral. (b) Without in any way limiting the foregoing, and in addition thereto, to the maximum extent permitted by law, Guarantor waives: (i) any defense based upon or arising out of any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against Debtor or any other guarantor or any endorser, co-maker or other person, including without limitation any discharge of, or bar against collecting, any of the Credit (including without limitation any interest thereon), in or as a result of any such proceeding; (ii) any defense arising by reason of any disability or other defense of Debtor or any other guarantor or any endorser, co-maker or other person or by reason of the cessation from any cause whatsoever of the liability of Debtor or any other guarantor or any endorser, co-maker or other person with respect to all or any part of the Credit; (iii) any defense arising as a result of any election by Lender under Section 1111(b) of Title 11 of the U.S. Code; or (iv) any defense based on any borrowing or grant of a security interest under Section 364 of Title 11 of the U.S. Code. (c) Guarantor also waives all rights and defenses that Guarantor may have because the Debtor's debt is secured by real property. This means, among other things: (1) Lender may collect from Guarantor without first foreclosing on any real or personal property collateral pledged by Debtor; and (2) if Lender forecloses on any real property collateral pledged by the Debtor: (A) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (B) Lender may collect from Guarantor even if Lender, by foreclosing on the real property collateral, has destroyed any right Guarantor may have to collect from Debtor. This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have because Debtor's debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses directly or indirectly based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure (or any comparable provision of applicable state law). (d) Guarantor also waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure (or any comparable provision of applicable state law) or otherwise. (e) To the maximum extent permitted by law, Guarantor further waives any and all rights to receive any notice of judicial or nonjudicial sale or foreclosure of any real or personal property that may be the subject of any security instruments or that may secure obligations of any other guarantor to Lender, and Guarantor's failure to receive any such notice shall not impair or affect Guarantor's liability. Notwithstanding any foreclosure of the lien of any security instrument given with respect to the Credit or any other guaranty, whether by the exercise of the power of sale contained therein, by any action for judicial foreclosure, or by any acceptance of a deed or other transfer in lieu of foreclosure, whether or not such method of foreclosure or transfer in lieu of foreclosure was for a consideration equal to or greater than the fair market value of the security -4- 5 property, Guarantor shall remain bound under this Agreement for the Credit and shall be liable to Lender for any and all of the Credit remaining unpaid after any such foreclosure. (f) If for any reason Debtor is under no legal obligation to discharge any of the Credit, or if any of the Credit have become irrecoverable from Debtor for any reason, this Agreement shall nevertheless be binding on Guarantor to the same extent as if the Guarantor at all times had been the primary obligor on all such Credit. (g) In the event (i) Debtor defaults in the payment of any of the Credit or (ii) acceleration of the time for payment of any of the Credit is stayed upon the insolvency, bankruptcy or reorganization of the Debtor, or for any other reason, all such amounts otherwise subject to acceleration under the agreement evidencing such Credit, shall be immediately due and payable by Guarantor. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, dishonor and acceptance of this Agreement. 7. (a) Guarantor hereby grants to Foothill, for the benefit of Lender, a continuing security interest in all of its right, title, and interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt payment and performance of any and all of Guarantor's obligations to Lender under this Agreement. Foothill's Liens in and to the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of Lender or any Guarantor. Anything contained in this Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, Guarantor has no authority, express or implied, to dispose of any item or portion of the Personal Property Collateral. (b) In the event that any Personal Property Collateral of Guarantor, including proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection or priority of Foothill's security interest is dependent on or enhanced by possession, Guarantor, immediately upon the request of Foothill, shall endorse and deliver physical possession of such Negotiable Collateral to Foothill, together with any endorsement thereof or thereon as Foothill determines to be necessary or appropriate in order to perfect and enforce its Liens. (c) At any time after the occurrence and during the continuation of an Event of Default, Foothill or Foothill's designee may (a) notify Account Debtors of Guarantor that the Accounts, chattel paper, or General Intangibles of Guarantor have been assigned to Foothill or that Foothill has a security interest therein, or (b) collect such Accounts, chattel paper, or General Intangibles directly and charge the collection costs and expenses to the Loan Account. Guarantor agrees that at any time after and during the continuation of an Event of Default, that it will hold in trust for Lender, as Lender's trustee, any and all Collections that it receives and immediately will deliver said Collections to Foothill in their original form as received by such Guarantor. (d) At any time upon the request of Foothill, Guarantor shall execute and deliver to Foothill, any and all financing statements, original financing statements in lieu of continuation statements, fixture filings, security agreements, pledges, assignments, endorsements -5- 6 of certificates of title, and all other documents (the "Additional Documents") that Foothill may request in its Permitted Discretion, in form and substance reasonably satisfactory to Foothill, to perfect and continue perfected or better perfect the Foothill's Liens in the Personal Property Collateral (whether now owned or hereafter arising or acquired), to create and perfect Liens in favor of Foothill in any Real Property acquired after the Closing Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by applicable law, Guarantor authorizes Foothill to execute any such Additional Documents in Guarantor's name and authorizes Foothill to file such executed Additional Documents in any appropriate filing office. In addition, but subject to Guarantor's rights not to pursue or to abandon certain patents and trademarks as provided in subsections 1(b) and 1(c) of the Intellectual Property Security Agreement, on such periodic basis as Foothill shall require, Guarantor shall (i) provide Foothill with a report of all new patentable, copyrightable, or trademarkable materials acquired or generated by Guarantor during the prior period, (ii) cause all patents, copyrights, and trademarks acquired or generated by Guarantor that are not already the subject of a registration with the appropriate filing office (or an application therefor diligently prosecuted) to be registered with such appropriate filing office in a manner sufficient to impart constructive notice of Guarantor's ownership thereof, and (iii) cause to be prepared, executed, and delivered to Foothill supplemental amendments and schedules to the applicable Loan Documents to identify such patents, copyrights, and trademarks as being subject to the security interests created thereunder. (e) Guarantor hereby irrevocably makes, constitutes, and appoints Foothill (and any of Foothill's officers, employees, or agents designated by Foothill) as Guarantor's true and lawful attorney, with power to (i) if Guarantor refuses to, or fails timely to execute and deliver any of the documents described in paragraph 7(d), sign the name of Guarantor on any of the documents described in paragraph 7(d), (ii) at any time that an Event of Default has occurred and is continuing, sign Guarantor's name on any invoice or bill of lading relating to Guarantor's Personal Property Collateral, drafts against Account Debtors, or notices to Account Debtors, (iii) at any time that an Event of Default has occurred and is continuing, send requests for verification of Guarantor's Accounts, (iv) endorse Guarantor's name on any Collection item that may come into Lender's possession, (v) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Guarantor's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (vi) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting Guarantor's Accounts, chattel paper, or General Intangibles directly with Account Debtors, for amounts and upon terms that Foothill determines to be reasonable, and Foothill may cause to be executed and delivered any documents and releases that Foothill determines to be necessary. The appointment of Foothill as Guarantor's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Credit has been fully and finally repaid and performed and Lender's obligations to extend credit to Debtor are terminated. (f) Subject to such limitations as are set forth in the Loan Agreement, Lender (through any of their respective officers, employees, or agents) shall have the right, from time to time hereafter to inspect Guarantor's Books and to check, test, and appraise the Personal Property -6- 7 Collateral in order to verify Guarantor's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Personal Property Collateral. (g) Guarantor agrees that it will not transfer assets out of any Securities Accounts of Guarantor other than as permitted under Section 7.19 of the Loan Agreement and, if to another securities intermediary, unless the applicable Guarantor, Foothill, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities Accounts or other Investment Property of Guarantor shall be modified by any Guarantor without the prior written consent of Foothill. Upon the occurrence and during the continuance of a Default or Event of Default, Foothill may notify any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to Agent's Account. 8. (a) Guarantor waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by Lender on which Guarantor may in any way be liable. (b) Guarantor hereby agrees that: (i) so long as Foothill complies with its obligations, if any, under the Code, Lender shall not in any way or manner be liable or responsible for: (A) the safekeeping of the Personal Property Collateral, (B) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (C) any diminution in the value thereof, or (D) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (ii) all risk of loss, damage, or destruction of the Personal Property Collateral shall be borne by Guarantor. 9. Guarantor represents and warrants to Lender that: (a) Lender has made no representation to Guarantor in regard to Debtor, the Credit or any matters pertaining thereto, upon which Guarantor is relying in giving this Agreement; and (b) Guarantor has established adequate means and assumes the responsibility for being and keeping informed of the financial condition of the Debtor and of all other circumstances bearing upon the risk of nonpayment of the debt which diligent inquiry would reveal and Lender shall have no duty to advise Guarantor of information known to it regarding such condition or any such circumstance. 10. In addition to all liens upon and rights of setoff against the money, securities or other property of Guarantor given to Lender by law or otherwise as security for this Agreement, Guarantor hereby pledges to Lender and grants Lender a security interest in, and Lender shall have a right of setoff against, all money, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Lender, whether held in general or special account or deposit or for safekeeping or otherwise; and each such security interest or right of setoff may be exercised without demand upon, or notice to, Guarantor. No action or lack of action by Lender with respect to any security interest or right of setoff or otherwise shall be deemed a waiver thereof, and every right of setoff or security interest or otherwise shall continue -7- 8 in full force and effect until specifically released by Lender in writing. The security interests created hereby shall secure all Guarantor's obligations to Lender under this Agreement, any subsequent guaranty executed by Guarantor and any other Loan Documents to which Guarantor is a party. 11. Any and all indebtedness of Debtor now or hereafter owed to Guarantor and all claims whenever arising of Guarantor against Debtor are hereby subordinated to the Credit and assigned to Lender as additional collateral. If Lender so requests, any note or other instrument evidencing such indebtedness and all claims of Guarantor against Debtor shall be delivered to Lender, and such indebtedness and all claims of Guarantor against Debtor shall be collected, enforced and received by Guarantor as trustee for Lender and be paid over to Lender on account of the Credit but without reducing or affecting in any manner the liability of Guarantor hereunder. Should Guarantor fail to collect proceeds of debt owed to it by Debtor and pay the proceeds to Lender, Lender as Guarantor's attorney-in-fact may do such acts and sign such documents in Guarantor's name as Lender considers necessary, at its discretion, to effect such collection, and Guarantor hereby irrevocably appoints Lender as Guarantor's attorney-in-fact for such purposes. If Debtor is a corporation, partnership, or limited liability company, Guarantor will not withdraw or accept without Lender's prior written consent any return of any capital invested or equity interest in Debtor. 12. Guarantor agrees that to the extent Debtor makes a payment or payments or is credited for any payment or payments made for the account of or on behalf of Debtor to Lender, which payment or payments, or any part thereof, is subsequently invalidated, determined to be fraudulent or preferential, voided, set aside and/or required to be repaid to any trustee, receiver, assignee or any other party whether under any bankruptcy, state or federal law, common law or equitable cause or otherwise, then to the extent thereof, the obligation or part thereof intended to be satisfied thereby, together with the guaranty thereof hereunder, shall be revived, reinstated and continued in full force and effect as if said payment or payments had not originally been made by or for the account of or on behalf of Debtor. 13. Guarantor agrees that to the extent Guarantor makes a payment or payments or is credited for any payment or payments made for the account of or on behalf of Guarantor to Lender, which payment or payments, or any part thereof, is subsequently invalidated, determined to be fraudulent or preferential, voided, set aside and/or required to be repaid to any trustee, receiver, assignee or any other party whether under any bankruptcy, state or federal law, common law or equitable cause or otherwise, then to the extent thereof, the obligation or part thereof intended to be satisfied thereby, shall be revived, reinstated and continued in full force and effect as if said payment or payments had not originally been made by or for the account of or on behalf of Guarantor. 14. Guarantor's obligations hereunder are not contingent upon and are independent of the obligations of Debtor, or any other guarantor or surety of the Credit. This Agreement is not made in consideration of the liability of any other guarantor or surety of the Credit. The release or death of any guarantor of the Credit or the revocation of this Agreement or any other guaranty -8- 9 shall not release or otherwise affect the liability of any other non-revoking guarantor. A separate action or actions may be brought and prosecuted against Guarantor whether action is brought against Debtor or any other guarantor or whether Debtor or any other guarantor be joined in any such action or actions. To the maximum extent permitted by law, Guarantor specifically waives the benefit of the statute of limitations affecting its liability hereunder or the enforcement hereof, or the collection of any Credit. Any partial payment by Debtor which operates to toll any statute of limitation as to Debtor shall likewise toll the statute of limitations as to Guarantor. 15. Should any one or more provisions of this Agreement be determined to be illegal or unenforceable, all other provisions shall remain effective. In the event of any inconsistency between the terms of this Agreement and those of the Loan Agreement, the terms of the Loan Agreement shall control. 16. Lender may, with or without notice, assign this Agreement in whole or in part, provided, however, that any such assignment shall be in connection with a permitted assignment of Lender's respective rights and obligations under the Loan Agreement. This Agreement shall inure to the benefit of Lender, its successors and assigns, and shall bind Guarantor and Guarantor's successors and assigns; provided, however, that nothing herein shall be understood to mean that Guarantor may assign this Agreement or any rights or duties hereunder without Foothill's prior written consent. 17. Guarantor agrees to pay Lender on demand reasonable and documented out-of-pocket attorneys' fees and all other reasonable and documented out-of-pocket costs and expenses which may be incurred in the collection or attempted collection from Debtor of any Credit and in the enforcement or attempted enforcement by Lender of this Agreement or any collateral therefor, whether or not legal proceedings or suit are instituted, together with interest thereon at the rate applicable to the Credit and including, without limitation, all reasonable and documented out-of-pocket attorneys' fees and related costs of enforcement of any and all judgments and awards and upon any appeal relating thereto. 18. Guarantor warrants and represents to Lender that: (a) All financial statements and other financial information furnished or to be furnished to Lender are or will be true and correct and do and will fairly represent the financial condition of Guarantor (including all contingent liabilities) as of the dates thereof; and (b) There has been no material adverse change in Guarantor's financial condition since the dates of the financial statements and other information furnished to Lender, except as previously disclosed to Lender in writing. 19. (a) Upon the occurrence, and during the continuation, of an Event of Default, the Required Lenders (at their election but without notice of their election and without demand) may authorize and instruct Foothill to do any one or more of the following on behalf of Lender -9- 10 (and Foothill, acting upon the instructions of the Required Lenders, shall do the same on behalf of Lender), all of which are authorized by Guarantor: (i) Declare the Credit (including, without limitation any unreimbursed contingent obligations under the L/C's and L/C Undertakings) immediately due and payable; (ii) Cease advancing money or extending credit to or for the benefit of Debtor under any of the Loan Documents, or under any other agreement between Debtor and Lender; (iii) Terminate the Loan Agreement and any of the other Loan Documents as to any future liability or obligation of Lender. but without affecting any of the Agent's Liens in the Collateral and without affecting the Credit; (iv) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Foothill considers advisable, and in such cases, Foothill will credit Debtor's Loan Account with only the net amounts received by Foothill in payment of such disputed Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith; (v) Cause Guarantor to hold all returned Inventory in trust for the Lender Group, segregate all returned Inventory from all other assets of Guarantor or in Guarantor's possession and conspicuously label said returned Inventory as the property of the Lender Group; (vi) Without notice to or demand upon Debtor or Guarantor, make such payments and do such acts as Foothill considers necessary or reasonable to protect its security interests in the Personal Property Collateral. Guarantor agrees to assemble the Personal Property Collateral if Foothill so requires, and to make the Personal Property Collateral available to Foothill at a place that Foothill may designate which is reasonably convenient to all parties. Guarantor authorizes Foothill to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien that in Foothill's determination appears to conflict with the Agent's Liens and to pay all expenses incurred in connection therewith and to charge Debtor's Loan Account therefor. With respect to Guarantor's owned or leased premises, Guarantor hereby grants Foothill a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Lender's rights or remedies provided herein, at law, in equity, or otherwise; (vii) Without notice to Debtor or Guarantor (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of the Code), set off and apply to the Credit any and all (i) balances and deposits of Guarantor held by Lender (including any amounts received in the Cash Management -10- 11 Accounts), or (ii) Indebtedness at any time owing to or for the credit or the account of Guarantor held by Lender; (viii) Hold, as cash collateral, any and all balances and deposits of Guarantor held by Lender, and any amounts received in the Cash Management Accounts, to secure the full and final repayment of the Credit; (ix) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property Collateral. Guarantor hereby grants to Foothill a license or other right to use, without charge, Guarantor's labels, patents, copyrights, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and selling any Personal Property Collateral and Guarantor's rights under all licenses and all franchise agreements shall inure to Lender's benefit; (x) Sell the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Guarantor's premises) as Foothill determines is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale; (xi) Foothill shall give notice of the disposition of the Personal Property Collateral as follows: (A) Foothill shall give Guarantor a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, the time on or after which the private sale or other disposition is to be made; and (B) The notice shall be personally delivered or mailed, postage prepaid, to Guarantor as provided in Section 12 of the Loan Agreement, at least 10 days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market; (xii) Foothill, on behalf of Lender, may credit bid and purchase at any public sale; (xiii) Foothill may seek the appointment of a receiver or keeper to take possession of all or any portion of the Personal Property Collateral or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; -11- 12 (xiv) Lender shall have all other rights and remedies available at law or in equity or pursuant to any other Loan Document; and (xv) Any deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Obligors in accordance with their respective obligations under the Loan Document. Any excess will be returned, without interest and subject to the rights of third Persons, by Foothill to the applicable Guarantor. 20. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. 21. If Debtor is a corporation, partnership, or limited liability company, Lender need not inquire into the power of Debtor or the authority of its officers, directors, partners, members, managers, or agents acting or purporting to act in its behalf, and any Credit granted in reliance upon the purported exercise of such power or authority is guaranteed hereunder. 22. Receipt of a true copy of this Agreement is hereby acknowledged by each Guarantor. Guarantor understands and agrees that Lender's acceptance of this Agreement shall not constitute a commitment of any nature whatsoever by Lender to extend, renew or hereafter extend Credit to Debtor. Guarantor agrees that this Agreement shall be effective with or without notice from Lender of its acceptance of the Agreement. 23. If Guarantor has executed more than one guaranty of the indebtedness of Debtor owed to Lender, any limits of liability thereunder and hereunder shall be cumulative, and a subsequent guaranty executed by Guarantor shall not supersede or replace this Agreement. 24. GUARANTOR WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY LENDER OR GUARANTOR WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE CREDIT, THE COLLATERAL THEREFOR OR ANY MATTER ARISING THEREFROM OR RELATING HERETO OR THERETO. 25. Guarantor waives all rights to interpose any setoffs or counterclaims of any nature in any action or proceeding instituted by Lender with respect to this Agreement, the collateral therefor, or any matter arising therefrom or relating thereto and the posting of any bond which may otherwise be required, and waives any and all benefits of cross-demands pursuant to section 431.70 of the California Code of Civil Procedure (or similar state law). 26. Guarantor hereby irrevocably submits and consents to the jurisdiction of any competent federal or state court within the County of New York, State of New York in connection with any action or proceeding arising out of or relating to this Agreement. In any such litigation, Guarantor consents to service of process by any means authorized by New York or federal law or as otherwise agreed in writing between Lender and Guarantor. -12- 13 27. All rights, remedies, powers and benefits granted to Lender under this Agreement, the Credit, any oral or other written agreement or applicable law whether expressly granted or implied in law or otherwise, are cumulative and not exclusive, and are enforceable alternatively, successively, or concurrently on any one or more occasions at Lender's discretion. 28. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any security interest granted to Lender hereunder or Lender's rights, powers and/or remedies hereunder (including any right of setoff) unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any default, right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such default, right, power and/or remedy which Lender would otherwise have on any future occasion whether similar in kind or otherwise. Any failure by Lender to file or enforce a claim against the estate (whether in administration, bankruptcy, probate or other proceeding) of Debtor or of any others, shall not affect Guarantor's liability hereunder. 29. This Agreement, together with the other Loan Documents to which Guarantor is a party, constitutes the entire agreement between the parties with respect to the subject matter of the Agreement and supersedes any and all previous or contemporaneous correspondence, statements, or agreements by or between the parties hereto with respect to the subject matter. This Agreement may be modified only by a written instrument signed by the parties hereto. Neither this Agreement or any related agreement, document or instrument nor any provision hereof or thereof shall be amended, modified or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender expressly referring to this Agreement and to the provisions so amended, modified or discharged. 30. Lender's books and records showing the account(s) between Lender and Debtor shall be admissible in evidence in any action or proceeding as prima facie proof of the items set forth therein. Lender's statements rendered to Debtor, to the extent to which no objection is made within thirty (30) days after date thereof, shall be deemed conclusively correct and constitute an account stated, which shall be binding on Guarantor whether or not Guarantor receives a copy of any such statement or notice thereof. 31. This is a continuing guaranty of the Credit, including those arising after any repayment and reborrowing and under any successive and future transactions which may increase, renew or continue the original Credit. To the maximum extent permitted by law, Guarantor waives all rights to revoke this Agreement, whether under California Civil Code Section 2815 (or similar state law) or otherwise. If at any time under applicable law, the foregoing waiver by Guarantor is not valid or enforceable to any extent, then the remaining portion of this paragraph is applicable. Revocation of this Agreement, if required to be permitted by applicable law, shall be effective only after written notice thereof is received by an officer of Lender by certified or registered mail, return receipt requested at its address set forth in Section 12 of the Loan Agreement, or at any other office of Lender designated in a written notice mailed by Lender to Guarantor at its address set forth below. Any such revocation shall be effective only as to the -13- 14 revoking party and shall not affect that party's obligations with respect to Credit existing before the revocation becomes effective or as to any renewals, extensions or modifications of any such Credit, whether such renewal, extension or modification is made prior to or after revocation, including those evidenced by a new or additional instrument or agreement or which change the rate of interest on any Credit, or for post-revocation interest and collection expenses accruing or incurred by Lender with respect thereto. Notwithstanding any revocation hereof, this Agreement shall not be terminated until Lender has received indefeasible payment in full of all Credit which is guaranteed hereby. Credit existing before revocation becomes effective shall be deemed to include, without limitation, all Credit or advances which Lender has committed to make to Debtor in reliance upon this Agreement, even though the amount of such Credit or advances has not been advanced as of the effective date of revocation, and even though Lender may have defenses or defaults which would relieve it of such commitment, if asserted. 32. The provisions of this Agreement shall be construed and interpreted and all rights and obligations hereunder determined in accordance with the laws of the State of New York. 33. GUARANTOR ACKNOWLEDGES THAT LENDER HAS OR MAY IN THE FUTURE EXTEND CREDIT TO THE DEBTOR IN RELIANCE ON GUARANTOR'S UNCONDITIONAL PROMISE TO REPAY ANY AND ALL CREDIT AND LENDER IS RELYING ON THE WAIVERS, WARRANTIES AND PROMISES MADE BY GUARANTOR IN THIS AGREEMENT. GUARANTOR AGREES THAT EACH OF THE WAIVERS, WARRANTIES AND PROMISES SET FORTH IN THIS AGREEMENT ARE MADE WITH GUARANTOR'S UNDERSTANDING OF THEIR SIGNIFICANCE AND CONSEQUENCES AND THAT THEY ARE REASONABLE. IF ANY WAIVERS, WARRANTIES AND PROMISES ARE DETERMINED TO BE CONTRARY TO ANY APPLICABLE LAW OR PUBLIC POLICY, SUCH WAIVERS, WARRANTIES AND PROMISES SHALL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW. BEFORE SIGNING THE AGREEMENT, GUARANTOR HAS EITHER SOUGHT THE ADVICE OF COUNSEL TO EXPLAIN THE WAIVERS OF ITS RIGHTS AND DEFENSES AS STATED HEREIN AND THE EFFECT THEREOF, OR HAS HAD THE OPPORTUNITY TO SEEK SUCH COUNSEL, AND IN ANY EVENT, INTENDS THIS AGREEMENT TO BE AS UNRESTRICTED AS POSSIBLE. GUARANTOR HAS THEREFORE CONSCIOUSLY AND INTENTIONALLY WAIVED ALL DEFENSES OF GUARANTOR AND RIGHTS WHICH COULD EXONERATE GUARANTOR HEREUNDER TO THE FULL EXTENT PERMITTED BY THE LAW OF THE STATE OF NEW YORK, WHETHER OR NOT EACH AND EVERY DEFENSE, RIGHT OR WAIVER IS EXPLAINED OR DESCRIBED IN DETAIL IN THIS AGREEMENT. 34. GUARANTOR ACKNOWLEDGES THAT NEITHER LENDER NOR ANY OF LENDER'S OFFICERS OR EMPLOYEES HAS MADE ANY PROMISE OR REPRESENTATION, NOT INCORPORATED HEREIN, WHETHER ORAL, WRITTEN OR IMPLIED, TO CAUSE GUARANTOR TO SIGN THIS AGREEMENT. GUARANTOR IS NOT SIGNING THIS AGREEMENT IN RELIANCE ON ANY PROMISE, CONDITION OR THE OCCURRENCE OF ANY EVENT, AND THERE ARE NO ORAL UNDERSTANDINGS, STATEMENTS OR AGREEMENTS WHICH HAVE NOT BEEN INCLUDED IN THIS -14- 15 AGREEMENT. GUARANTOR UNDERSTANDS THAT LENDER HAS THE RIGHT TO ENFORCE PAYMENT OF THE CREDIT AGAINST DEBTOR OR GUARANTOR IN ANY ORDER AND LENDER IS NOT OBLIGATED TO OBTAIN ANY OTHER OR ADDITIONAL GUARANTORS OF THE CREDIT OR TO TAKE ANY OTHER COURSE OF ACTION. "Guarantor": COMMUNICATIONS & POWER INDUSTRIES CPI SUBSIDIARY HOLDINGS INC. HOLDING CORPORATION By: __________________________________ By: _________________________________ Name: ________________________________ Name: _______________________________ Title: _______________________________ Title: ______________________________ EIN No.: 77-0407395 EIN No.: 77-0407397 COMMUNICATIONS & POWER INDUSTRIES COMMUNICATIONS & POWER INDUSTRIES INTERNATIONAL INC. ASIA INC. By: __________________________________ By: _________________________________ Name: ________________________________ Name: _______________________________ Title: _______________________________ Title: ______________________________ EIN No.: 77-0407398 EIN No.: 77-0407400 -15- EX-10.8 9 f69166ex10-8.txt EXHIBIT 10.8 1 EXHIBIT 10.8 CONTINUING GUARANTY This Continuing Guaranty (this "Agreement"), dated as of December 15, 2000, is made by the undersigned ("Guarantor") in favor of Foothill Capital Corporation, a California corporation ("Foothill"), as Agent for itself and Lenders, and the other Lenders, pursuant to that certain Loan and Security Agreement (the "Loan Agreement"), dated as of December 15, 2000, by and among Communication & Power Industries, Inc., a Delaware corporation ("Debtor"), the other Obligors named therein, Foothill and the other Lenders named herein (Foothill and the other Lenders are collectively referred to herein as "Lender"). Capitalized terms, which are used herein but not defined herein, shall have the meanings ascribed to them in the Loan Agreement. Guarantor, at the solicitation of Debtor, requests that Lender extend Credit to Debtor and in consideration of Credit heretofore, now or hereafter granted to Debtor by Lender, Guarantor agrees as follows: 1. The term "Credit" is used throughout this Agreement in its most comprehensive sense and means and includes, without limitation, any and all loans, advances, debts, obligations and liabilities of any kind or nature owed by Debtor to Lender (including, without, limitation, the Obligations) and any and all future Obligations owing by Debtor to Lender and all other financial accommodations extended by Lender to Debtor, heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether owed directly to Lender or acquired by Lender by assignment, subrogation, or succession (including, without limitation, Lender participations and interests of Lender in the obligations of Debtor to others), whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, secured or unsecured, whether on original, renewed, extended or revised terms (including, without limitation, those evidenced by new or additional instruments or agreements or those changing the applicable rate of interest or which release any obligor with respect thereto), whether principal, interest (including any interest that, but for the provisions of the U.S. Bankruptcy Code would have accrued) or fees, whether Debtor may be liable individually or jointly with others, whether recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, and whether such indebtedness may be or hereafter become invalid or otherwise unenforceable. In the event a petition under the U.S. Bankruptcy Code is filed by or against Debtor, the term "Debtor" shall also mean and include Debtor in its status as a debtor, debtor-in-possession and/or reorganized debtor under the U.S. Bankruptcy Code. 2. If there is more than a single person included in the terms "Guarantor" or "Debtor," respectively, (a) each reference herein to such terms shall mean all and any one or more of such entities and persons both jointly and severally, and (b) if more than one entity executes this Agreement, the obligations and liabilities hereunder of Guarantors are and shall be both joint and several. If Debtor is a partnership or association, each reference herein to the term "Debtor" shall include any successor entity to Debtor. As used in this Agreement, neuter terms include the masculine and feminine, and vice versa. -1- 2 3. Guarantor's liability hereunder shall be unlimited. Without limiting the foregoing and in addition thereto, Guarantor agrees to bear and be liable to Lender for the interest and expenses enumerated in paragraph 17 hereof. 4. Guarantor unconditionally guarantees and agrees to pay Lender or its order, on demand, in lawful money of the United States of America, an amount equal to the amount of the Credit, and to otherwise perform any obligation of Debtor undertaken pursuant to any Credit. This Agreement is a guaranty of payment and not of collection. 5. Either before or after revocation hereof, Guarantor authorizes Lender at its sole discretion, with or without notice, and without affecting Guarantor's continuing liability hereunder, from time to time to (a) change the time or manner of payment of any Credit by renewal, extension, acceleration or otherwise, (b) alter or change any other provision of any Credit including the rate of interest thereon, (c) accept partial payment on any Credit, (d) accept new or additional instruments, agreements or documents relative to any Credit, (e) release, substitute or add one or more endorsers, cosigners or guarantors for any Credit, (f) amend or modify the terms of any guaranty executed by a co-guarantor, including the maximum liability thereunder, (g) obtain collateral for the payment of any Credit and/or any guaranty thereof, (h) waive, release, exchange, substitute, release or modify, in whole or in part, existing or after-acquired collateral securing payment of the Credit or any guaranty therefor on such terms as Lender in its sole discretion shall determine, (i) subordinate payment of all or any part of the Credit to other creditors of Debtor or other persons on such terms as Lender deems appropriate, (j) apply any sums received from Debtor, any other guarantor, endorser or cosigner or from the sale or collection of collateral or its proceeds to any indebtedness whatsoever in any order and regardless of whether or not such indebtedness is guaranteed hereby, is secured by collateral or is due and payable, (k) apply any sums received from Guarantor or from the sale of collateral granted by Guarantor to any, all, or any portion of the Credit in any order regardless of whether the Credit is secured by collateral, but only so long as such Credit is due and payable, and (l) exercise any right or remedy it may have with respect to any Credit or any collateral securing any Credit, this Agreement or any other guaranty, including bidding and purchasing at any sale of any such collateral, and compromising, collecting or otherwise liquidating any collateral or any Credit. 6. (a) Guarantor acknowledges that Guarantor may have certain rights under applicable law which, if not waived by Guarantor, might provide Guarantor with defenses against Guarantor's liability under this Agreement. Among those rights, are certain rights of subrogation, reimbursement, indemnification and contribution, and rights provided in sections 2787 to 2855, inclusive, of the California Civil Code (or any comparable provision of applicable state law). To the maximum extent permitted by law, Guarantor waives all of Guarantor's rights of subrogation, reimbursement, indemnification, and contribution, and any other rights and defenses that are or may become available to Guarantor, whether such rights arise by reason of any or all of California Civil Code Sections 2787 to 2855, inclusive (or any comparable provision of applicable state law), or otherwise, and including, without limitation, Guarantor's rights: -2- 3 (i) To require Lender to notify Guarantor of any default by Debtor, provide Guarantor with notice of any sale or other disposition of security for any Credit, or disclose information with respect to the Credit, the Debtor, or any other guarantor, co-signer or endorser, or with respect to any collateral; (ii) That Guarantor's obligation under this Agreement must be commensurate with that of Debtor; (iii) To be discharged based upon the absence of any liability of the Debtor, at any time, by virtue of operation of law, or otherwise, or due to any other disability or defense of Debtor or any other guarantor, endorser or co-signer; (iv) To be discharged if any of the terms, conditions or provisions of the Credit are altered in any respect; (v) To be discharged upon acceptance by Lender of anything in partial satisfaction of the Credit, and/or if Lender designates portion of the Credit to be satisfied; (vi) To be discharged upon any modification of the Credit or the release by Lender of Debtor or any other guarantor, endorser or co-signer, or if any remedies against any such person are suspended or impaired; (vii) To require Lender to proceed against Debtor, or any other guarantor, endorser, co-signer, or other person, or to pursue or refrain from pursuing any other remedy in Lender's power; (viii) To receive the benefit of or participate in any and all security for repayment and/or performance of the Credit; (ix) To have any security for the Credit first applied to satisfy or discharge the Credit; (x) That any arbitration award rendered against Debtor not constitute an award against Guarantor; (xi) To be discharged based upon any failure by Lender to perfect or continue perfection of any lien, use due diligence to collect all or any Credit, or if recovery against Debtor becomes barred by any statute of limitations, or if Debtor is not liable for any deficiency after Lender realizes upon any collateral; and (xii) To be discharged due to the release or discharge of any collateral for any Credit or guaranty, or relating to the validity, value or enforceability of any collateral. -3- 4 (b) Without in any way limiting the foregoing, and in addition thereto, to the maximum extent permitted by law, Guarantor waives: (i) any defense based upon or arising out of any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against Debtor or any other guarantor or any endorser, co-maker or other person, including without limitation any discharge of, or bar against collecting, any of the Credit (including without limitation any interest thereon), in or as a result of any such proceeding; (ii) any defense arising by reason of any disability or other defense of Debtor or any other guarantor or any endorser, co-maker or other person or by reason of the cessation from any cause whatsoever of the liability of Debtor or any other guarantor or any endorser, co-maker or other person with respect to all or any part of the Credit; (iii) any defense arising as a result of any election by Lender under Section 1111(b) of Title 11 of the U.S. Code; or (iv) any defense based on any borrowing or grant of a security interest under Section 364 of Title 11 of the U.S. Code. (c) Guarantor also waives all rights and defenses that Guarantor may have because the Debtor's debt is secured by real property. This means, among other things: (1) Lender may collect from Guarantor without first foreclosing on any real or personal property collateral pledged by Debtor; and (2) if Lender forecloses on any real property collateral pledged by the Debtor: (A) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (B) Lender may collect from Guarantor even if Lender, by foreclosing on the real property collateral, has destroyed any right Guarantor may have to collect from Debtor. This is an unconditional and irrevocable waiver of any rights and defenses Guarantor may have because Debtor's debt is secured by real property. These rights and defenses include, but are not limited to, any rights or defenses directly or indirectly based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure (or any comparable provision of applicable state law). (d) Guarantor also waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure (or any comparable provision of applicable state law) or otherwise. (e) To the maximum extent permitted by law, Guarantor further waives any and all rights to receive any notice of judicial or nonjudicial sale or foreclosure of any real or personal property that may be the subject of any security instruments or that may secure obligations of any other guarantor to Lender, and Guarantor's failure to receive any such notice shall not impair or affect Guarantor's liability. Notwithstanding any foreclosure of the lien of any security instrument given with respect to the Credit or any other guaranty, whether by the exercise of the power of sale contained therein, by any action for judicial foreclosure, or by any acceptance of a deed or other transfer in lieu of foreclosure, whether or not such method of foreclosure or transfer in lieu of foreclosure was for a consideration equal to or greater than the fair market value of the security property, Guarantor shall remain bound under this Agreement for the Credit and shall be liable to Lender for any and all of the Credit remaining unpaid after any such foreclosure. -4- 5 (f) If for any reason Debtor is under no legal obligation to discharge any of the Credit, or if any of the Credit have become irrecoverable from Debtor for any reason, this Agreement shall nevertheless be binding on Guarantor to the same extent as if the Guarantor at all times had been the primary obligor on all such Credit. (g) In the event (i) Debtor defaults in the payment of any of the Credit or (ii) acceleration of the time for payment of any of the Credit is stayed upon the insolvency, bankruptcy or reorganization of the Debtor, or for any other reason, all such amounts otherwise subject to acceleration under the agreement evidencing such Credit, shall be immediately due and payable by Guarantor. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, dishonor and acceptance of this Agreement. 7. Notwithstanding anything to the contrary contained in this Agreement, this Agreement shall be void ab initio to the extent that the execution or delivery of this Agreement by Guarantor is restricted or prohibited by the internal laws of the jurisdiction in which Guarantor is organized. 8. [INTENTIONALLY LEFT BLANK] 9. Guarantor represents and warrants to Lender that: (a) Lender has made no representation to Guarantor in regard to Debtor, the Credit or any matters pertaining thereto, upon which Guarantor is relying in giving this Agreement; and (b) Guarantor has established adequate means and assumes the responsibility for being and keeping informed of the financial condition of the Debtor and of all other circumstances bearing upon the risk of nonpayment of the debt which diligent inquiry would reveal and Lender shall have no duty to advise Guarantor of information known to it regarding such condition or any such circumstance. 10. In addition to all liens upon and rights of setoff against the money, securities or other property of Guarantor given to Lender by law or otherwise as security for this Agreement, Guarantor hereby pledges to Lender and grants Lender a security interest in, and Lender shall have a right of setoff against, all money, securities and other property of Guarantor now or hereafter in the possession of or on deposit with Lender, whether held in general or special account or deposit or for safekeeping or otherwise; and each such security interest or right of setoff may be exercised without demand upon, or notice to, Guarantor. No action or lack of action by Lender with respect to any security interest or right of setoff or otherwise shall be deemed a waiver thereof, and every right of setoff or security interest or otherwise shall continue in full force and effect until specifically released by Lender in writing. The security interests created hereby shall secure all Guarantor's obligations to Lender under this Agreement, any subsequent guaranty executed by Guarantor and any other Loan Documents to which Guarantor is a party. 11. Any and all indebtedness of Debtor now or hereafter owed to Guarantor and all claims whenever arising of Guarantor against Debtor are hereby subordinated to the Credit and assigned to Lender as additional collateral. If Lender so requests, any note or other instrument -5- 6 evidencing such indebtedness and all claims of Guarantor against Debtor shall be delivered to Lender, and such indebtedness and all claims of Guarantor against Debtor shall be collected, enforced and received by Guarantor as trustee for Lender and be paid over to Lender on account of the Credit but without reducing or affecting in any manner the liability of Guarantor hereunder. Should Guarantor fail to collect proceeds of debt owed to it by Debtor and pay the proceeds to Lender, Lender as Guarantor's attorney-in-fact may do such acts and sign such documents in Guarantor's name as Lender considers necessary, at its discretion, to effect such collection, and Guarantor hereby irrevocably appoints Lender as Guarantor's attorney-in-fact for such purposes. If Debtor is a corporation, partnership, or limited liability company, Guarantor will not withdraw or accept without Lender's prior written consent any return of any capital invested or equity interest in Debtor. 12. Guarantor agrees that to the extent Debtor makes a payment or payments or is credited for any payment or payments made for the account of or on behalf of Debtor to Lender, which payment or payments, or any part thereof, is subsequently invalidated, determined to be fraudulent or preferential, voided, set aside and/or required to be repaid to any trustee, receiver, assignee or any other party whether under any bankruptcy, state or federal law, common law or equitable cause or otherwise, then to the extent thereof, the obligation or part thereof intended to be satisfied thereby, together with the guaranty thereof hereunder, shall be revived, reinstated and continued in full force and effect as if said payment or payments had not originally been made by or for the account of or on behalf of Debtor. 13. Guarantor agrees that to the extent Guarantor makes a payment or payments or is credited for any payment or payments made for the account of or on behalf of Guarantor to Lender, which payment or payments, or any part thereof, is subsequently invalidated, determined to be fraudulent or preferential, voided, set aside and/or required to be repaid to any trustee, receiver, assignee or any other party whether under any bankruptcy, state or federal law, common law or equitable cause or otherwise, then to the extent thereof, the obligation or part thereof intended to be satisfied thereby, shall be revived, reinstated and continued in full force and effect as if said payment or payments had not originally been made by or for the account of or on behalf of Guarantor. 14. Guarantor's obligations hereunder are not contingent upon and are independent of the obligations of Debtor, or any other guarantor or surety of the Credit. This Agreement is not made in consideration of the liability of any other guarantor or surety of the Credit. The release or death of any guarantor of the Credit or the revocation of this Agreement or any other guaranty shall not release or otherwise affect the liability of any other non-revoking guarantor. A separate action or actions may be brought and prosecuted against Guarantor whether action is brought against Debtor or any other guarantor or whether Debtor or any other guarantor be joined in any such action or actions. To the maximum extent permitted by law, Guarantor specifically waives the benefit of the statute of limitations affecting its liability hereunder or the enforcement hereof, or the collection of any Credit. Any partial payment by Debtor which operates to toll any statute of limitation as to Debtor shall likewise toll the statute of limitations as to Guarantor. -6- 7 15. Should any one or more provisions of this Agreement be determined to be illegal or unenforceable, all other provisions shall remain effective. In the event of any inconsistency between the terms of this Agreement and those of the Loan Agreement, the terms of the Loan Agreement shall control. 16. Lender may, with or without notice, assign this Agreement in whole or in part provided, however, that any such assignment shall be in connection with a permitted assignment of Lender's respective rights and obligations under the Loan Agreement. This Agreement shall inure to the benefit of Lender, its successors and assigns, and shall bind Guarantor and Guarantor's successors and assigns; provided, however, that nothing herein shall be understood to mean that Guarantor may assign this Agreement or any rights or duties hereunder without Foothill's prior written consent. 17. Guarantor agrees to pay Lender on demand reasonable and documented out-of-pocket attorneys' fees and all other reasonable and documented out-of-pocket costs and expenses which may be incurred in the collection or attempted collection from Debtor of any Credit and in the enforcement or attempted enforcement by Lender of this Agreement or any collateral therefor, whether or not legal proceedings or suit are instituted, together with interest thereon at the rate applicable to the Credit and including, without limitation, all reasonable and documented out-of-pocket attorneys' fees and related costs of enforcement of any and all judgments and awards and upon any appeal relating thereto. 18. Guarantor warrants and represents to Lender that: (a) All financial statements and other financial information furnished or to be furnished to Lender are or will be true and correct and do and will fairly represent the financial condition of Guarantor (including all contingent liabilities) as of the dates thereof; and (b) There has been no material adverse change in Guarantor's financial condition since the dates of the financial statements and other information furnished to Lender, except as previously disclosed to Lender in writing. 19. [INTENTIONALLY LEFT BLANK] 20. [INTENTIONALLY LEFT BLANK] 21. If Debtor is a corporation, partnership, or limited liability company, Lender need not inquire into the power of Debtor or the authority of its officers, directors, partners, members, managers, or agents acting or purporting to act in its behalf, and any Credit granted in reliance upon the purported exercise of such power or authority is guaranteed hereunder. 22. Receipt of a true copy of this Agreement is hereby acknowledged by each Guarantor. Guarantor understands and agrees that Lender's acceptance of this Agreement shall not constitute a commitment of any nature whatsoever by Lender to extend, renew or hereafter -7- 8 extend Credit to Debtor. Guarantor agrees that this Agreement shall be effective with or without notice from Lender of its acceptance of the Agreement. 23. If Guarantor has executed more than one guaranty of the indebtedness of Debtor owed to Lender, any limits of liability thereunder and hereunder shall be cumulative, and a subsequent guaranty executed by Guarantor shall not supersede or replace this Agreement. 24. GUARANTOR WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY LENDER OR GUARANTOR WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE CREDIT, THE COLLATERAL THEREFOR OR ANY MATTER ARISING THEREFROM OR RELATING HERETO OR THERETO. 25. Guarantor waives all rights to interpose any setoffs or counterclaims of any nature in any action or proceeding instituted by Lender with respect to this Agreement, the collateral therefor, or any matter arising therefrom or relating thereto and the posting of any bond which may otherwise be required, and waives any and all benefits of cross-demands pursuant to section 431.70 of the California Code of Civil Procedure (or similar state law). 26. Guarantor hereby irrevocably submits and consents to the jurisdiction of any competent federal or state court within the County of New York, State of New York in connection with any action or proceeding arising out of or relating to this Agreement. In any such litigation, Guarantor consents to service of process by any means authorized by New York or federal law or as otherwise agreed in writing between Lender and Guarantor. 27. All rights, remedies, powers and benefits granted to Lender under this Agreement, the Credit, any oral or other written agreement or applicable law whether expressly granted or implied in law or otherwise, are cumulative and not exclusive, and are enforceable alternatively, successively, or concurrently on any one or more occasions at Lender's discretion. 28. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any security interest granted to Lender hereunder or Lender's rights, powers and/or remedies hereunder (including any right of setoff) unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any default, right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such default, right, power and/or remedy which Lender would otherwise have on any future occasion whether similar in kind or otherwise. Any failure by Lender to file or enforce a claim against the estate (whether in administration, bankruptcy, probate or other proceeding) of Debtor or of any others, shall not affect Guarantor's liability hereunder. 29. This Agreement, together with the other Loan Documents to which Guarantor is a party, constitutes the entire agreement between the parties with respect to the subject matter of the Agreement and supersedes any and all previous or contemporaneous correspondence, -8- 9 statements, or agreements by or between the parties hereto with respect to the subject matter. This Agreement may be modified only by a written instrument signed by the parties hereto. Neither this Agreement or any related agreement, document or instrument nor any provision hereof or thereof shall be amended, modified or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender expressly referring to this Agreement and to the provisions so amended, modified or discharged. 30. Lender's books and records showing the account(s) between Lender and Debtor shall be admissible in evidence in any action or proceeding as prima facie proof of the items set forth therein. Lender's statements rendered to Debtor, to the extent to which no objection is made within thirty (30) days after date thereof, shall be deemed conclusively correct and constitute an account stated, which shall be binding on Guarantor whether or not Guarantor receives a copy of any such statement or notice thereof. 31. This is a continuing guaranty of the Credit, including those arising after any repayment and reborrowing and under any successive and future transactions which may increase, renew or continue the original Credit. To the maximum extent permitted by law, Guarantor waives all rights to revoke this Agreement, whether under California Civil Code Section 2815 (or similar state law) or otherwise. If at any time under applicable law, the foregoing waiver by Guarantor is not valid or enforceable to any extent, then the remaining portion of this paragraph is applicable. Revocation of this Agreement, if required to be permitted by applicable law, shall be effective only after written notice thereof is received by an officer of Lender by certified or registered mail, return receipt requested at its address set forth in Section 12 of the Loan Agreement, or at any other office of Lender designated in a written notice mailed by Lender to Guarantor at its address set forth below. Any such revocation shall be effective only as to the revoking party and shall not affect that party's obligations with respect to Credit existing before the revocation becomes effective or as to any renewals, extensions or modifications of any such Credit, whether such renewal, extension or modification is made prior to or after revocation, including those evidenced by a new or additional instrument or agreement or which change the rate of interest on any Credit, or for post-revocation interest and collection expenses accruing or incurred by Lender with respect thereto. Notwithstanding any revocation hereof, this Agreement shall not be terminated until Lender has received indefeasible payment in full of all Credit which is guaranteed hereby. Credit existing before revocation becomes effective shall be deemed to include, without limitation, all Credit or advances which Lender has committed to make to Debtor in reliance upon this Agreement, even though the amount of such Credit or advances has not been advanced as of the effective date of revocation, and even though Lender may have defenses or defaults which would relieve it of such commitment, if asserted. 32. The provisions of this Agreement shall be construed and interpreted and all rights and obligations hereunder determined in accordance with the laws of the State of New York. 33. GUARANTOR ACKNOWLEDGES THAT LENDER HAS OR MAY IN THE FUTURE EXTEND CREDIT TO THE DEBTOR IN RELIANCE ON GUARANTOR'S UNCONDITIONAL PROMISE TO REPAY ANY AND ALL CREDIT AND LENDER IS -9- 10 RELYING ON THE WAIVERS, WARRANTIES AND PROMISES MADE BY GUARANTOR IN THIS AGREEMENT. GUARANTOR AGREES THAT EACH OF THE WAIVERS, WARRANTIES AND PROMISES SET FORTH IN THIS AGREEMENT ARE MADE WITH GUARANTOR'S UNDERSTANDING OF THEIR SIGNIFICANCE AND CONSEQUENCES AND THAT THEY ARE REASONABLE. IF ANY WAIVERS, WARRANTIES AND PROMISES ARE DETERMINED TO BE CONTRARY TO ANY APPLICABLE LAW OR PUBLIC POLICY, SUCH WAIVERS, WARRANTIES AND PROMISES SHALL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW. BEFORE SIGNING THE AGREEMENT, GUARANTOR HAS EITHER SOUGHT THE ADVICE OF COUNSEL TO EXPLAIN THE WAIVERS OF ITS RIGHTS AND DEFENSES AS STATED HEREIN AND THE EFFECT THEREOF, OR HAS HAD THE OPPORTUNITY TO SEEK SUCH COUNSEL, AND IN ANY EVENT, INTENDS THIS AGREEMENT TO BE AS UNRESTRICTED AS POSSIBLE. GUARANTOR HAS THEREFORE CONSCIOUSLY AND INTENTIONALLY WAIVED ALL DEFENSES OF GUARANTOR AND RIGHTS WHICH COULD EXONERATE GUARANTOR HEREUNDER TO THE FULL EXTENT PERMITTED BY THE LAW OF THE STATE OF NEW YORK, WHETHER OR NOT EACH AND EVERY DEFENSE, RIGHT OR WAIVER IS EXPLAINED OR DESCRIBED IN DETAIL IN THIS AGREEMENT. 34. GUARANTOR ACKNOWLEDGES THAT NEITHER LENDER NOR ANY OF LENDER'S OFFICERS OR EMPLOYEES HAS MADE ANY PROMISE OR REPRESENTATION, NOT INCORPORATED HEREIN, WHETHER ORAL, WRITTEN OR IMPLIED, TO CAUSE GUARANTOR TO SIGN THIS AGREEMENT. GUARANTOR IS NOT SIGNING THIS AGREEMENT IN RELIANCE ON ANY PROMISE, CONDITION OR THE OCCURRENCE OF ANY EVENT, AND THERE ARE NO ORAL UNDERSTANDINGS, STATEMENTS OR AGREEMENTS WHICH HAVE NOT BEEN INCLUDED IN THIS AGREEMENT. GUARANTOR UNDERSTANDS THAT LENDER HAS THE RIGHT TO ENFORCE PAYMENT OF THE CREDIT AGAINST DEBTOR OR GUARANTOR IN ANY ORDER AND LENDER IS NOT OBLIGATED TO OBTAIN ANY OTHER OR ADDITIONAL GUARANTORS OF THE CREDIT OR TO TAKE ANY OTHER COURSE OF ACTION. "Guarantor": - ------------------------------------- By: --------------------------------- Name: -------------------------------- Title: ------------------------------- -10- EX-10.9 10 f69166ex10-9.txt EXHIBIT 10.9 1 EXHIBIT 10.9 INTERCREDITOR AGREEMENT THIS INTERCREDITOR AGREEMENT (this "Agreement"), dated as of December 15, 2000, is made among the CPI Parties (as defined below) and FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent for itself and other Lenders ("Agent"). WHEREAS, certain of the CPI Parties, Agent and the Lenders named therein are parties to that certain Loan and Security Agreement, dated as of even date herewith (as amended, modified, renewed, extended, or replaced from time to time, the "Loan Agreement"), pursuant to which Lenders has agreed to make certain financial accommodations to Communications & Power Industries, Inc., a Delaware corporation ("Borrower"). WHEREAS, each CPI Party has made or may make certain loans or advances from time to time to one or more other CPI Parties; WHEREAS, in order to induce the Lender Group to enter into the Loan Agreement, each CPI Party has agreed to the subordination of such Indebtedness of each other CPI Party to such CPI Party, upon the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants, conditions, representations, and warranties set forth herein and for other good and valuable consideration, the parties hereto agree as follows: SECTION 1 Definitions; Interpretation. (a) Terms Defined in Loan Agreement. All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings assigned to them in the Loan Agreement. (b) Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Agent" has the meaning set forth in the recitals to this Agreement. "Agreement" has the meaning set forth in the preamble to this Agreement. "CPI Party" means, collectively, Parent, Borrower, CPI Subsidiary Holdings and each of its Subsidiaries. "Insolvency Event" has the meaning set forth in Section 3. 2 "Senior Debt" means the Obligations and other indebtedness and liabilities of the CPI Parties to the Lender Group under or in connection with the Loan Agreement and the other Loan Documents, including all unpaid principal of the Advances and the Term Loan, all interest accrued thereon (including all interest that, but for the provisions of the Bankruptcy Code, would have accrued), all fees due under the Loan Agreement and the other Loan Documents (including all fees that, but for the provisions of the Bankruptcy Code, would have accrued), and all other amounts payable by the CPI Parties to any of the Lender Group thereunder or in connection therewith, whether now existing or hereafter arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined. "Subordinated Debt" means, with respect to each CPI Party, all indebtedness, liabilities, and other obligations of any other CPI Party owing to such CPI Party in respect of any and all loans or advances made by such CPI Party to such other CPI Party whether now existing or hereafter arising, and whether due or to become due, absolute or contingent, liquidated or unliquidated, determined or undetermined, including all fees and all other amounts payable by any other CPI Party to such CPI Party under or in connection with any documents or instruments related thereto. "Subordinated Debt Payment" means any payment or distribution by or on behalf of the CPI Parties, directly or indirectly, of assets of the CPI Parties of any kind or character, whether in cash, property, or securities, including on account of the purchase, redemption, or other acquisition of Subordinated Debt, as a result of any collection, sale, or other disposition of collateral, or by setoff, exchange, or in any other manner, for or on account of the Subordinated Debt. (c) Interpretation. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, schedule, and exhibit references are to this Agreement unless otherwise specified. References to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto. References to statutes or regulations are to be construed as including all statutory and regulatory provisions consolidating, amending, or replacing the statute or regulation referred to. The captions and headings are for convenience of reference only and shall not affect the construction of this Agreement. SECTION 2 Subordination to Payment of Senior Debt. As to each CPI Party, all payments on account of the Subordinated Debt shall be subject, subordinate, and junior, in right of payment and exercise of remedies, to the extent and in the manner set forth herein, to the prior payment, in full, in cash or cash equivalents of the Senior Debt. -2- 3 SECTION 3 Subordination Upon Any Distribution of Assets of the CPI Parties. As to each CPI Party, in the event of any payment or distribution of assets of any other CPI Party of any kind or character, whether in cash, property, or securities, upon the dissolution, winding up, or total or partial liquidation or reorganization, readjustment, arrangement, or similar proceeding relating to such other CPI Party or its property, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership, arrangement, or similar proceedings or upon an assignment for the benefit of creditors, or upon any other marshaling or composition of the assets and liabilities of such other CPI Party, or otherwise (such events, collectively, the "Insolvency Events"): (i) all amounts owing on account of the Senior Debt shall first be paid, in full, in cash, or payment provided for in cash or in cash equivalents, before any Subordinated Debt Payment is made; and (ii) to the extent permitted by applicable law, any Subordinated Debt Payment to which such CPI Party would be entitled except for the provisions hereof, shall be paid or delivered by the trustee in bankruptcy, receiver, assignee for the benefit of creditors, or other liquidating agent making such payment or distribution directly to Lender for application to the payment of the Senior Debt in accordance with clause (i), after giving effect to any concurrent payment or distribution or provision therefor to Lender in respect of such Senior Debt. SECTION 4 Payments on Subordinated Debt. (a) Permitted Payments. So long as no Event of Default has occurred and is continuing, each CPI Party may make, and each other CPI Party shall be entitled to accept and receive, payments on account of the Subordinated Debt in the ordinary course of business. (b) No Payment Upon Senior Debt Defaults. Upon the occurrence of any Event of Default, and until such Event of Default is cured or waived, each CPI Party shall not make, and each other CPI Party shall not accept or receive, any Subordinated Debt Payment. SECTION 5 Subordination of Remedies. As long as any Senior Debt shall remain outstanding and unpaid, following the occurrence of any Event of Default and until such Event of Default is cured or waived, each CPI Party shall not, without the prior written consent of Lender: (a) accelerate, make demand, or otherwise make due and payable prior to the original due date thereof any Subordinated Debt or bring suit or institute any other actions or proceedings to enforce its rights or interests in respect of the obligations of any other CPI Party owing to such CPI Party; (b) exercise any rights under or with respect to guaranties of the Subordinated Debt, if any; (c) exercise any rights to set-offs and counterclaims in respect of any indebtedness, liabilities, or obligations of such CPI Party to any other CPI Party against any of the Subordinated Debt; or -3- 4 (d) commence, or cause to be commenced, or join with any creditor other than the Lender Group in commencing, any bankruptcy, insolvency, or receivership proceeding against the other CPI Party. SECTION 6 Payment Over to Lender. In the event that, notwithstanding the provisions of Sections 3, 4, and 5, any Subordinated Debt Payments shall be received in contravention of such Sections 3, 4, and 5 by any CPI Party before all Senior Debt is paid, in full, in cash or cash equivalents, such Subordinated Debt Payments shall be held in trust for the benefit of the Lender Group and shall be paid over or delivered to Agent for application to the payment, in full, in cash or cash equivalents of all Senior Debt remaining unpaid to the extent necessary to give effect to such Sections 3, 4, and 5, after giving effect to any concurrent payments or distributions to the Lender Group in respect of the Senior Debt. SECTION 7 Authorization to Lender. If, while any Subordinated Debt is outstanding, any Insolvency Event shall occur and be continuing with respect to the other CPI Party or its property: (i) Agent hereby is irrevocably authorized and empowered (in the name of each CPI Party or otherwise), but shall have no obligation, to demand, sue for, collect, and receive every payment or distribution in respect of the Subordinated Debt and give acquittance therefor and to file claims and proofs of claim and take such other action (including voting the Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Lender Group; and (ii) each CPI Party shall promptly take such action as Agent reasonably may request (A) to collect the Subordinated Debt for the account of the Lender Group and to file appropriate claims or proofs of claim in respect of the Subordinated Debt, (B) to execute and deliver to Agent such powers of attorney, assignments, and other instruments as it may request to enable it to enforce any and all claims with respect to the Subordinated Debt, and (C) to collect and receive any and all Subordinated Debt Payments. SECTION 8 Certain Agreements of Each CPI Party. (a) No Benefits. Each CPI Party understands that there may be various agreements between the Lender Group and any other CPI Party evidencing and governing the Senior Debt, and each CPI Party acknowledges and agrees that such agreements are not intended to confer any benefits on such CPI Party and that the Lender Group shall have no obligation to such CPI Party or any other Person to exercise any rights, enforce any remedies, or take any actions which may be available to them under such agreements. (b) No Interference. Each CPI Party acknowledges that certain CPI Parties have granted to the Lender Group security interests in all of such other CPI Party's assets, and agrees not to interfere with or in any manner oppose a disposition of any Collateral by the Lender Group in accordance with applicable law. (c) Reliance by Lender. Each CPI Party acknowledges and agrees that the Lender Group will have relied upon and will continue to rely upon the subordination provisions provided for herein and the other provisions hereof in entering into the Loan Documents and -4- 5 making or issuing the Advances, the Term Loan, the Letters of Credit, or other financial accommodations thereunder. (d) Waivers. Except as provided under the Loan Agreement, each CPI Party hereby waives any and all notice of the incurrence of the Senior Debt or any part thereof and any right to require marshaling of assets. (e) Obligations of Each CPI Party Not Affected. Each CPI Party hereby agrees that at any time and from time to time, without notice to or the consent of such CPI Party, without incurring responsibility to such CPI Party, and without impairing or releasing the subordination provided for herein or otherwise impairing the rights of the Lender Group hereunder: (i) the time for any other CPI Party's performance of or compliance with any of its agreements contained in the Loan Documents may be extended or such performance or compliance may be waived by the Lender Group; (ii) the agreements of any other CPI Party with respect to the Loan Documents may from time to time be modified by such other CPI Party and the Lender Group for the purpose of adding any requirements thereto or changing in any manner the rights and obligations of such other CPI Party or the Lender Group thereunder; (iii) the manner, place, or terms for payment of Senior Debt or any portion thereof may be altered or the terms for payment extended, or the Senior Debt may be renewed in whole or in part; (iv) the maturity of the Senior Debt may be accelerated in accordance with the terms of any present or future agreement by any other CPI Party and the Lender Group; (v) any Collateral may be sold, exchanged, released, or substituted and any Lien in favor of the Lender Group may be terminated, subordinated, or fail to be perfected or become unperfected; (vi) any Person liable in any manner for Senior Debt may be discharged, released, or substituted; and (vii) all other rights against the other CPI Party, any other Person, or with respect to any Collateral may be exercised (or the Lender Group may waive or refrain from exercising such rights). (f) Rights of Lender Not to Be Impaired. No right of the Lender Group to enforce the subordination provided for herein or to exercise its other rights hereunder shall at any time in any way be prejudiced or impaired by any act or failure to act by any other CPI Party or the Lender Group hereunder or under or in connection with the other Loan Documents or by any noncompliance by the other CPI Party with the terms and provisions and covenants herein or in any other Loan Document, regardless of any knowledge thereof the Lender Group may have or otherwise be charged with. (g) Financial Condition of the CPI Parties. Except as provided under the Loan Agreement, each CPI Party shall not have any right to require the Lender Group to obtain or disclose any information with respect to: (i) the financial condition or character of any other CPI Party or the ability of the other CPI Party to pay and perform Senior Debt; (ii) the Senior Debt; (iii) the Collateral or other security for any or all of the Senior Debt; (iv) the existence or nonexistence of any guarantees of, or any other subordination agreements with respect to, all or any part of the Senior Debt; (v) any action or inaction on the part of the Lender Group or any other Person; or (vi) any other matter, fact, or occurrence whatsoever. -5- 6 (h) Acquisition of Liens or Guaranties. Other than purchases of inventory and licenses of intellectual property rights in the ordinary course of business as heretofore conducted and other transfers of Collateral in accordance with the terms of the Loan Agreement, each CPI Party shall not, without the prior consent of Agent, acquire any right or interest in or to any Collateral not owned by such CPI Party or accept any guaranties for the Subordinated Debt. SECTION 9 Subrogation. (a) Subrogation. Until the payment in full in cash of all Senior Debt, each CPI Party shall not have, and shall not directly or indirectly exercise, any rights that it may acquire by way of subrogation under this Agreement, by any payment or distribution to the Lender Group hereunder or otherwise. Upon the payment in full in cash of all Senior Debt, each CPI Party shall be subrogated to the rights of the Lender Group to receive payments or distributions applicable to the Senior Debt until the Subordinated Debt shall be paid in full. For the purposes of the foregoing subrogation, no payments or distributions to the Lender Group of any cash, property, or securities to which any CPI Party would be entitled except for the provisions of Section 3, 4, or 5 shall, as among such CPI Party, its creditors (other than the Lender Group), and the other CPI Parties, be deemed to be a payment by the other CPI Parties to or on account of the Senior Debt. (b) Payments Over to the CPI Parties. If any payment or distribution to which any CPI Party would otherwise have been entitled but for the provisions of Section 3, 4, or 5 shall have been applied pursuant to the provisions of Section 3, 4, or 5 to the payment of all amounts payable under the Senior Debt, such CPI Party shall be entitled to receive from the Lender Group any payments or distributions received by the Lender Group in excess of the amount sufficient to pay in full in cash all amounts payable under or in respect of the Senior Debt. If any such excess payment is made to the Lender Group, Agent shall cause the Lender Group promptly to remit such excess to such CPI Party and until so remitted shall hold such excess payment for the benefit of such CPI Party. SECTION 10 Continuing Agreement; Reinstatement. (a) Continuing Agreement. This Agreement is a continuing agreement of subordination and shall continue in effect and be binding upon each CPI Party until payment and performance in full in cash of the Senior Debt. The subordinations, agreements, and priorities set forth herein shall remain in full force and effect regardless of whether any party hereto in the future seeks to rescind, amend, terminate, or reform, by litigation or otherwise, its respective agreements with the other CPI Parties. (b) Reinstatement. This Agreement shall continue to be effective or shall be reinstated, as the case may be, if, for any reason, any payment of the Senior Debt by or on behalf of any other CPI Party shall be rescinded or must otherwise be restored by the Lender Group, whether as a result of an Insolvency Event or otherwise. -6- 7 SECTION 11 Transfer of Subordinated Debt. Each CPI Party may not assign or transfer its rights and obligations in respect of the Subordinated Debt without the prior written consent of Agent, and any such transferee or assignee, as a condition to acquiring an interest in the Subordinated Debt shall agree to be bound hereby, in form satisfactory to Agent. SECTION 12 Obligations of the CPI Parties Not Affected. The provisions of this Agreement are intended solely for the purpose of defining the relative rights of each CPI Party against the other CPI Parties, on the one hand, and of the Lender Group against the CPI Parties, on the other hand. Nothing contained in this Agreement shall (i) impair, as between each CPI Party and the other CPI Parties, the obligation of the other CPI Parties to pay their respective obligations with respect to the Subordinated Debt as and when the same shall become due and payable, or (ii) otherwise affect the relative rights of each CPI Party against the other CPI Parties, on the one hand, and of the creditors (other than the Lender Group) of the other CPI Parties against the other CPI Parties, on the other hand. SECTION 13 Endorsement of CPI Party Documents; Further Assurances and Additional Acts. (a) Endorsement of CPI Party Documents. At the request of Agent, all documents and instruments evidencing any of the Subordinated Debt, if any, shall be endorsed with a legend noting that such documents and instruments are subject to this Agreement, and each CPI Party shall promptly deliver to Agent evidence of the same. (b) Further Assurances and Additional Acts. Each CPI Party shall execute, acknowledge, deliver, file, notarize, and register at its own expense all such further agreements, instruments, certificates, financing statements, documents, and assurances, and perform such acts as Agent reasonably shall deem necessary or appropriate to effectuate the purposes of this Agreement, and promptly provide Agent with evidence of the foregoing reasonably satisfactory in form and substance to Agent. SECTION 14 Notices. All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including by facsimile transmission) and shall be mailed, sent, or delivered in accordance with the notice provisions contained in the Loan Agreement. SECTION 15 No Waiver; Cumulative Remedies. No failure on the part of the Lender Group to exercise, and no delay in exercising, any right, remedy, power, or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power, or privilege preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. The rights and remedies under this Agreement are cumulative and not exclusive of any rights, remedies, powers, and privileges that may otherwise be available to the Lender Group. SECTION 16 Costs and Expenses. -7- 8 (a) Payments by the CPI Party. Each of the CPI Parties, jointly and severally, agrees to pay to Agent on demand the reasonable and documented out-of-pocket costs and expenses of the Lender Group, and the reasonable and documented out-of-pocket fees and disbursements of counsel to Agent, in connection with the negotiation, preparation, execution, delivery, and administration of this Agreement, and any amendments, modifications, or waivers of the terms thereof. (b) Payments by the CPI Parties. Each of the CPI Parties, jointly and severally, agrees to pay to Agent on demand all reasonable and documented out-of-pocket expenses of the Lender Group, and the reasonable and documented out-of-pocket fees and disbursements of counsel, in connection with the enforcement or attempted enforcement of, and preservation of rights or interests under, this Agreement, including any losses and reasonable and documented out-of-pocket costs and expenses sustained by the Lender Group as a result of any failure by any CPI Party to perform or observe its obligations contained in this Agreement. SECTION 17 Survival. All covenants, agreements, representations and warranties made in this Agreement shall, except to the extent otherwise provided herein, survive the execution and delivery of this Agreement, and shall continue in full force and effect so long as any Senior Debt remains unpaid. Without limiting the generality of the foregoing, the obligations of each CPI Party under Section 16 shall survive the satisfaction of the Senior Debt. SECTION 18 Benefits of Agreement. This Agreement is entered into for the sole protection and benefit of the parties hereto and their successors and assigns, and no other Person shall be a direct or indirect beneficiary of, or shall have any direct or indirect cause of action or claim in connection with, this Agreement. SECTION 19 Binding Effect. This Agreement shall be binding upon, inure to the benefit of and be enforceable by each CPI Party and the Lender Group and their respective successors and permitted assigns. SECTION 20 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 21 SUBMISSION TO JURISDICTION. EACH CPI PARTY HEREBY (i) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS OF THE UNITED STATES SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, FOR THE PURPOSE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii) AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS, OR AT THE SOLE OPTION OF AGENT, IN ANY OTHER COURT IN WHICH AGENT SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE -8- 9 MATTER IN CONTROVERSY, (iii) IRREVOCABLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY OBJECTION ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND (iv) AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 22 Entire Agreement; Amendments and Waivers. (a) Entire Agreement. This Agreement constitutes the entire agreement of each of the CPI Parties and the Lender Group with respect to the matters set forth herein and supersedes any prior agreements, commitments, drafts, communications, discussions, and understandings, oral or written, with respect thereto. (b) Amendments and Waivers. No amendment to any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by each of the CPI Parties and Agent; and no waiver of any provision of this Agreement, or consent to any departure by any CPI Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Agent. Any such amendment, waiver, or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 23 Conflicts. In case of any conflict or inconsistency between any terms of this Agreement, on the one hand, and any documents or instruments in respect of the Subordinated Debt, on the other hand, then the terms of this Agreement shall control. SECTION 24 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Agreement shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Agreement or the validity or effectiveness of such provision in any other jurisdiction. SECTION 25 Interpretation. This Agreement is the result of negotiations between, and have been reviewed by the respective counsel to, the CPI Parties and Agent and is the product of all parties hereto. Accordingly, this Agreement shall not be construed against the Lender Group merely because of the Lender Group's involvement in the preparation hereof. SECTION 26 Counterparts; Telefacsimile Execution. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, -9- 10 each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. SECTION 27 Termination of Agreement. Upon payment and performance in full in cash of the Senior Debt, this Agreement shall terminate and Agent shall promptly execute and deliver to each CPI Party such documents and instruments as shall be reasonably necessary to evidence such termination; provided, however, that the obligations of each CPI Party under Section 16 shall survive such termination. IN WITNESS WHEREOF, the undersigned has executed and delivered this Agreement as of the date first written above. COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation By:___________________________________ Title:________________________________ COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By:___________________________________ Title:________________________________ CPI SUBSIDIARY HOLDINGS INC., a Delaware corporation By:___________________________________ Title:________________________________ -10- 11 COMMUNICATIONS & POWER INDUSTRIES INTERNATIONAL INC., a Delaware corporation By:___________________________________ Title:________________________________ COMMUNICATIONS & POWER INDUSTRIES ASIA INC., a Delaware corporation By:___________________________________ Title:________________________________ COMMUNICATIONS & POWER INDUSTRIES CANADA, INC., an Ontario corporation By:___________________________________ Title:________________________________ COMMUNICATIONS & POWER INDUSTRIES ITALIA S.R.L., an Italian company By:___________________________________ Title:________________________________ COMMUNICATIONS & POWER INDUSTRIES EUROPE LIMITED, a United Kingdom company By:___________________________________ Title:________________________________ -11- 12 COMMUNICATIONS & POWER INDUSTRIES AUSTRALIA PTY LIMITED, an Australian company By:___________________________________ Title:________________________________ FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent By:___________________________________ Title:________________________________ -12- EX-10.10 11 f69166ex10-10.txt EXHIBIT 10.10 1 EXHIBIT 10.10 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Irell & Manella LLP 1800 Avenue of the Stars Suite 900 Los Angeles, California 90067 Attn: J. Christopher Kennedy, Esq. - -------------------------------------------------------------------------------- FOURTH AMENDMENT OF LEASE THIS FOURTH AMENDMENT OF LEASE ("Amendment") is entered into as of December 15, 2000, by and between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California, hereinafter referred to as "Lessor", and COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation, hereinafter referred to as "Lessee". RECITALS: A. Lessor and Varian Associates, a California corporation (predecessor-in-interest to Lessee as lessee under the Lease, as defined below) entered into a Lease dated October 1, 1951, and recorded on October 11, 1951 in Book 2297, Page 448 of the Official Records of Santa Clara County, California (the "Official Records") as amended by (i) a Lease dated October 1, 1952, and recorded on October 14, 1952 in Book 2504, Page 94 of the Official Records, (ii) a Supplemental Indenture and Agreement dated July 24, 1953, and recorded on October 1, 1953 in Book 2732, Page 231 of the Official Records, (iii) a Third Amendment of Lease dated October 7, 1975, and recorded on October 9, 1975 in Book B656, Page 236 of the Official Records, and Lessor and Lessee entered into (iv) an Agreement Adding Land to Lease dated March 30, 1999, and recorded on March 30, 1999 under Series No. 14729320, and (v) this Amendment, all pertaining to the leasing of certain premises (the "Premises") located in the City of Palo Alto, County of Santa Clara, State of California (as amended, hereinafter collectively referred to as the "Lease"). B. Lessee desires to encumber Lessee's leasehold estate (as defined in Paragraph 25(a) of the Lease) in the Premises, and pursuant to Paragraph 25 of the Lease, Lessor and Lessee desire by this Amendment to amend the Lease as hereinafter provided in order to meet the reasonable requirements of Lessee's Lender (as defined in Paragraph 25(a) of the Lease). NOW, THEREFORE, Lessor and Lessee agree as follows: 1. Notwithstanding anything to the contrary contained in Paragraph 6 or any other provisions of the Lease, Lessor agrees that Lessee may absolutely and 2 unconditionally assign to a Lender all insurance and/or condemnation proceeds to which Lessee may be entitled (and the Lender shall have the right to participate with Lessee in any settlement or adjustment of losses for which insurance and/or condemnation proceeds are available) and proceeds may be delivered to and held by the Lender to be applied to the Lender's expenses in settling, prosecuting or defending any insurance and/or condemnation claim, and then to the restoration of the Premises upon satisfaction of reasonable Lender conditions, which conditions may include, without limitation, the following: (i) that an event which is, or with notice or the passage of time or both would constitute, an event of default under the Lender's loan documents shall not have occurred (or if the same has occurred, Lessee has either caused same to be theretofore cured or, within the time provided under the loan documents for cure, causes same to be fully cured), (ii) the Lender's security is not materially impaired by reason of application of proceeds to restoration, (iii) all income from the Premises (from leases or otherwise) required to pay all debt service and operating expenses of the Premises during such restoration and thereafter will be equal to or greater than the income which was required to pay such debt service and operating expenses prior to the casualty, (iv) Lessee evidences to the satisfaction of the Lender that the insurance required to be maintained under the Lender's loan documents will be available to Lessee during restoration and thereafter, (v) the Lender shall have approved the plans and specifications for such restoration, (vi) the Lender shall have received, at Lessee's expense, any and all endorsements or modifications to its policy of title insurance requested by the Lender, and (vii) in the event that in the Lender's sole but good faith judgment the insurance and/or condemnation proceeds are not sufficient to restore the Premises to substantially the same condition as preceded the casualty, Lessee deposits with the Lender, within ten (10) business days of demand by the Lender, the additional amounts necessary to accomplish restoration; provided, however, that the Lender's loan documents shall further provide that if any of the foregoing conditions shall not be satisfied, the Lender shall provide Lessor with written notice thereof and Lessor shall have not less than thirty (30) days to cause any such failed condition(s) to be satisfied. 2. Notwithstanding Paragraph 1 above, In the event of a taking of all or any portion of the Premises by eminent domain, any Lender shall have the right to participate in any legal proceedings therefor (and negotiations relating thereto) and in any award, to the extent of its interest. 3. In accordance with the terms of Paragraph 25 of the Lease, in the event that any Lender, its successors or assigns, or any purchaser at a foreclosure sale, shall acquire title to Lessee's interest in the Lease by foreclosure (judicial or nonjudicial), deed in lieu of foreclosure or otherwise, any such acquisition shall not require the consent of Lessor, and such Lender, its successors or assigns, or any purchaser at a foreclosure sale, shall have the right to assign its interest under the Lease without the approval of Lessor, and (without limiting any other provisions of the Lease as amended by this Amendment) upon any such assignment, such assignor shall not be liable as a guarantor of the performance of its assignee under the Lease. -2- 3 4. If requested to do so by any Lender, Lessor agrees to execute a non-disturbance and attornment agreement with any Lender and/or any sublessee in form and substance approved by Lessor and any Lender, which approval shall not be unreasonably withheld, conditioned or delayed. 5. In no event shall a Lender become liable to perform the obligations of the Lessee under the Lease unless and until Lender acquires Lessee's leasehold estate by foreclosure, deed in lieu of foreclosure or other appropriate proceedings, and in the event of any such acquisition, the Lender shall be liable only to the extent of its interest in the leasehold estate. (a) With respect to any Lender, the indemnifications of Lessee contained in the Lease shall apply only to acts or omissions by the Lender committed while such Lender is the Lessee under the Lease. 6. (a) Notwithstanding any default by Lessee in the performance or observance of any agreement, covenant or condition of the Lease on the part of Lessee to be performed or observed, Lessor shall have no right to terminate the Lease or interfere with the occupancy, use and enjoyment of the Premises unless (i) a default shall have occurred and be continuing, (ii) Lessor shall have given any Lender written notice of such default, and (iii) the Lender shall have failed to remedy such default, acquire Lessee's leasehold estate, or commence foreclosure or other appropriate proceedings, all as set forth in, and within the time specified by, this Paragraph 6. Lessor agrees that, if Lender exercises any of its rights under its loan documents or the Lease such that Lender shall acquire title to Lessee's interest in the Lease, the Lease shall continue in full force and effect as a direct lease between Lessor and Lender and Lessor shall not disturb Lender's right of quiet possession of the Premises, subject to all of the terms, covenants and conditions of the Lease. (b) Any Lender shall have the right, but not the obligation, at any time prior to termination of the Lease and without payment of any penalty, to pay all of the rents due under the Lease, to effect any insurance, to pay any taxes and assessments, to make any repairs and improvements, to do any other act or thing required of Lessee under the Lease, and to do any act or thing which may be necessary and proper to be done in the performance and observance of the agreements, covenants and conditions of the Lease to prevent termination of the Lease. All payments so made and all things so done and performed by a Lender shall be as effective to prevent a termination of the Lease as the same would have been if made, done and performed by Lessee instead of by a Lender. (c) Should any default under the Lease occur, Lessor shall give written notice specifying the nature of such default to the Lender and afford to the Lender the opportunity after receipt of the notice to: (i) cure the default within thirty (30) days after the later to occur of (A) the receipt of such notice, or (B) the expiration of Lessee's cure -3- 4 period, if the default can be cured by the payment of money, (ii) cure the default within sixty (60) days after the later to occur of (A) the receipt of such notice, or (B) the expiration of Lessee's cure period, if the default must be cured by action other than the payment of money and can be cured within that time, or (iii) cure the default within such reasonable time as may be required if action other than the payment of money is required to cure the default and which action cannot be fully performed within the period specified in subparagraph 6(c)(ii) above, provided that action to cure the default is commenced within that time period and is thereafter diligently and in good faith continued by the Lender to completion. If a non-monetary default is such that possession of the Premises may be reasonably necessary to remedy the default, the Lender shall have a reasonable additional time after the expiration of the period specified in subparagraph 6(c)(ii) above within which to remedy such default, provided that (x) the Lender commences foreclosure or other appropriate proceedings to acquire the leasehold estate within the period specified in subparagraph 6(c)(ii) above, (y) such proceedings are, after having been commenced, diligently pursued in the manner required by law to completion, and (z) the Lender pays all rent and other charges that shall accrue until such proceedings are complete. Nothing contained in this Lease shall prevent the Lender from naming Lessee in any foreclosure or other action or proceeding initiated in order for the Lender to avail itself of and complete any such foreclosure or other remedy. (d) Any default under the Lease which is not susceptible to remedy by anyone other than Lessee ("Personal Default") shall be deemed to be waived if (i) the Lender shall comply with the provisions of subparagraphs 6(c)(x), (y) and (z) above, and (ii) after gaining possession of the Premises, the Lender shall perform all obligations of Lessee under the Lease (other than curing the Personal Default) as and when the same are due. (e) If a Lender is prohibited by any process or injunction issued by any court or by reason of any action by any court having jurisdiction of any bankruptcy or insolvency proceeding involving Lessee from commencing or prosecuting foreclosure or other appropriate proceedings or from making payments of rent or other sums to Lessor, the times specified in subparagraphs 6(c) and (d) above for commencing or prosecuting such foreclosure or other proceedings or making such payments of rent or other sums to Lessor shall be extended for the period of such prohibition. 7. If the Lease shall terminate for any reason or be rejected or disaffirmed pursuant to bankruptcy law or other law affecting creditors' rights, to the extent permitted by applicable law, any Lender or a person designated by such Lender, shall have the right, exercisable by notice to Lessor, within sixty (60) days after the effective date of such termination, to enter into a new lease ("New Lease") of the Premises with Lessor. The term of said New Lease shall begin on the date of the execution of such New Lease and shall continue for the remainder of the term. Such New Lease shall otherwise contain the same terms and conditions as those set forth in the Lease as amended by this Amendment, except for requirements which are no longer applicable or have already been performed, provided that such Lender shall have remedied all defaults on the part of Lessee under the Lease which are susceptible of being remedied by the payment of money. It is the intention of Lessor and Lessee that such New Lease shall have the same priority relative to other rights or interests to or in the Premises as the Lease, and Lessor covenants to discharge or cause to be subordinated -4- 5 to such New Lease any lien or encumbrance which was subject to the Lease at the time of such termination. The provisions of this Paragraph shall survive the termination of the Lease and shall continue in full force and effect thereafter to the same extent as if this Paragraph was a separate and independent contract among Lessor, Lessee and any Lender. From the date on which the Lender shall serve upon Lessor the aforesaid notice of the exercise of its right to a New Lease, such Lender may use and enjoy the Premises without hindrance by Lessor. 8. Lessor and Lessee acknowledge that any Lender may rely on the terms, covenants, conditions and representations contained in this Lease when making a loan or otherwise extending credit to Lessee and such Lender shall be deemed to be a third party beneficiary with respect to the Third Amendment of Lease and this Amendment. Lessor and Lessee agree that the Lease shall not be modified, amended, supplemented, voluntarily surrendered, terminated by Lessee or mutually terminated without the prior written consent of any Lender. 9. Lessor and Lessee agree to deliver copies of any notices under the Lease to any Lender concurrently with the delivery of any such notice to the other party under the Lease. Lessee shall at all times keep Lessor informed in writing of the name and mailing address of any Lender and any changes in the Lender's address for notices. 10. If both Lessor's and Lessee's estate in the Premises or the improvements or both become vested in the same owner, the Lease shall nevertheless not be destroyed by application of the doctrine of merger except at the express election of the owner and consent of the Lender. 11. Upon request of a Lender, Lessor shall execute, acknowledge and deliver to the Lender its certificate certifying (i) that the Lease is in full force and effect and has not been modified (or, if there have been modifications, that the Lease is in full force and effect, as modified, and stating the modifications), (ii) the dates, if any, to which the minimum rent and other monetary obligations have been paid, (iii) whether to Lessor's knowledge there are then existing any defaults by Lessee in the performance or observance by Lessee of any agreement, covenant or condition of the Lease on the part of Lessee to be performed or observed (and, if so, specifying the same), and (iv) such other matters reasonably requested by a Lender. Any such certificate may be relied upon by the Lender. 12. In the event any Lender desires to elect to exercise its rights to acquire Lessee's leasehold interest in the Premises, or to transfer the leasehold interest in the Premises by foreclosure sale or deed in lieu of foreclosure or other means, the Lender shall provide Lessor not less than thirty (30) days prior notice of its intention to exercise such rights. Lessor shall have the right, exercisable within thirty (30) days after receipt of such written notice to elect to acquire the entire interest in the Lender's loan and Lender's leasehold mortgage for a price equal to the sum of the outstanding unpaid balance of the Lender's loan secured by the leasehold mortgage, together with any applicable prepayment fees and any other amounts due and unpaid under the leasehold mortgage (collectively, the "Purchase Price"). In the event -5- 6 Lessor makes such election, the closing of the acquisition (the "Closing") shall occur within thirty (30) days after the date of such election through escrow at a title company selected by Lessor and reasonably acceptable to Lender (the "Title Company"). At the Closing Lessor shall deliver to Lender through escrow the Purchase Price and Lender shall assign to Lessor all of its right, title and interest in Lender's loan and the leasehold mortgage pursuant to documentation satisfactory to Lender, Lessor and the Title Company. If Lessor fails to deliver into escrow the required funds within said thirty (30) day period with instructions to deliver said funds to Lender conditioned only upon receipt of the documentation necessary to enable the Title Company to insure Lessor as the sole beneficiary of the leasehold mortgage, Lender shall be entitled to pursue its rights to acquire or transfer the leasehold estate pursuant to the Lease. If Lessor delivers said funds as required herein, Lender's rights under the Lease shall terminate and be of no further force or effect. 13. If any term, covenant, condition or provision of the Lease or this Amendment is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the Lease or this Amendment shall remain in full force and effect and shall in no way be affected, impaired or invalidated as a result thereof. 14. This Amendment may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be one and the same agreement. 15. Except as herein modified, the Lease shall remain unchanged and in full force and effect. -6- 7 16. The provisions of this Amendment shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. IN WITNESS WHEREOF, Lessor and Lessee have executed this Fourth Amendment of Lease the day and year first above written. "LESSOR" THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY By: --------------------------------- Name: Its: "LESSEE" COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation By: --------------------------------- Name: Its: -7- 8 STATE OF CALIFORNIA COUNTY OF _______________________ss. On this ___ day of December, 2000, before me, __________________________________ a Notary Public in and for the State of California, personally appeared ____________________ personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature --------------------------- My commission expires --------------- STATE OF CALIFORNIA COUNTY OF _______________________ss. On this ___ day of December, 2000, before me, __________________________________ a Notary Public in and for the State of California, personally appeared ____________________ personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature --------------------------- My commission expires --------------- -8- EX-10.11 12 f69166ex10-11.txt EXHIBIT 10.11 1 EXHIBIT 10.11 LOAN AGREEMENT between COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation and WELLS FARGO BANK, NATIONAL ASSOCIATION Executed as of December __, 2000 2 TABLE OF CONTENTS ARTICLE 1. DEFINITIONS.....................................................................1 1.1 DEFINED TERMS...................................................................1 1.2 EXHIBITS INCORPORATED...........................................................2 ARTICLE 2. LOAN............................................................................2 2.1 LOAN............................................................................2 2.2 LOAN FEE........................................................................3 2.3 LOAN DOCUMENTS..................................................................3 2.4 EFFECTIVE DATE..................................................................3 2.5 MATURITY DATE...................................................................3 2.6 CREDIT FOR PRINCIPAL PAYMENTS...................................................3 2.7 INTENTIONALLY OMITTED...........................................................3 2.8 INTENTIONALLY OMITTED...........................................................3 2.9 FULL REPAYMENT AND RECONVEYANCE.................................................3 2.10 LIMITATION ON BORROWER'S LIABILITY.............................................3 ARTICLE 3. DISBURSEMENT....................................................................4 3.1 CONDITIONS PRECEDENT............................................................4 3.2 ACCOUNT, PLEDGE AND ASSIGNMENT, AND DISBURSEMENT AUTHORIZATION..................4 ARTICLE 4. INTENTIONALLY OMITTED...........................................................4 ARTICLE 5. INSURANCE.......................................................................5 5.1 TITLE INSURANCE.................................................................5 5.2 PROPERTY INSURANCE..............................................................5 5.3 FLOOD HAZARD INSURANCE..........................................................5 5.4 LIABILITY INSURANCE.............................................................5 5.5 GENERAL.........................................................................5 ARTICLE 6. REPRESENTATIONS AND WARRANTIES..................................................5 6.1 AUTHORITY/ENFORCEABILITY........................................................5 6.2 BINDING OBLIGATIONS.............................................................5 6.3 FORMATION AND ORGANIZATIONAL DOCUMENTS..........................................5 6.4 NO VIOLATION....................................................................5 6.5 COMPLIANCE WITH LAWS............................................................6 6.6 INTENTIONALLY OMITTED...........................................................6 6.7 FINANCIAL CONDITION.............................................................6 6.8 INTENTIONALLY OMITTED...........................................................6 6.9 ACCURACY........................................................................6 6.10 AMERICANS WITH DISABILITIES ACT COMPLIANCE.....................................6 6.11 BUSINESS LOAN..................................................................6 ARTICLE 7. HAZARDOUS MATERIALS.............................................................6 7.1 SPECIAL REPRESENTATIONS AND WARRANTIES..........................................6 (a) Hazardous Materials.........................................................6 (b) Hazardous Materials Laws....................................................7 (c) Hazardous Materials Claims..................................................7 7.2 HAZARDOUS MATERIALS COVENANTS...................................................7 (a) No Hazardous Activities.....................................................7 (b) Compliance..................................................................7 (c) Notices.....................................................................7 (d) Remedial Action.............................................................7 7.3 INSPECTION BY LENDER............................................................7 7.4 INTENTIONALLY OMITTED...........................................................7 7.5 LEGAL EFFECT OF SECTION.........................................................8 ARTICLE 8. COVENANTS OF BORROWER...........................................................8 8.1 EXPENSES........................................................................8 8.2 ERISA COMPLIANCE................................................................8 8.3 LEASING.........................................................................8 8.4 APPROVAL OF LEASES..............................................................8 8.5 INTENTIONALLY OMITTED...........................................................8 8.6 INTENTIONALLY OMITTED...........................................................8 8.7 INTENTIONALLY OMITTED...........................................................8 8.8 OPINION OF LEGAL COUNSEL........................................................8 8.9 FURTHER ASSURANCES..............................................................9 8.10 ASSIGNMENT.....................................................................9 8.11 MANAGEMENT OF PROPERTY.........................................................9 8.12 SECURITY DEPOSITS...........................................................9 ARTICLE 9. REPORTING COVENANTS.............................................................9 9.1 FINANCIAL INFORMATION...........................................................9 9.2 BOOKS AND RECORDS...............................................................9 ARTICLE 10. DEFAULTS AND REMEDIES.........................................................10 10.1 DEFAULT.......................................................................10 (a) Monetary..................................................................10 (b) Performance of Obligations................................................10 (c) Use.......................................................................10 (d) Condemnation; Attachment..................................................10 (e) Representations and Warranties............................................10 (f) Voluntary Bankruptcy; Insolvency; Dissolution.............................10 (g) Involuntary Bankruptcy....................................................10 (h) Loss of Priority..........................................................10 (i) Hazardous Materials.......................................................10 10.2 ACCELERATION UPON DEFAULT; REMEDIES...........................................10 10.3 DISBURSEMENTS TO THIRD PARTIES................................................11 10.4 REPAYMENT OF FUNDS ADVANCED...................................................11 10.5 RIGHTS CUMULATIVE, NO WAIVER..................................................11 10.6 POST-DEFAULT ACCESS.........................................................11 ARTICLE 11. MISCELLANEOUS PROVISIONS......................................................11 11.1 INDEMNITY.....................................................................11 11.2 FORM OF DOCUMENTS.............................................................12 11.3 NO THIRD PARTIES BENEFITED....................................................12 11.4 NOTICES.......................................................................12 11.5 ATTORNEY-IN-FACT..............................................................12 11.6 ACTIONS.......................................................................12 11.7 RIGHT OF CONTEST..............................................................12 11.8 RELATIONSHIP OF PARTIES.......................................................12 11.9 DELAY OUTSIDE LENDER'S CONTROL................................................12 11.10 ATTORNEYS' FEES AND EXPENSES; ENFORCEMENT....................................13 11.11 IMMEDIATELY AVAILABLE FUNDS..................................................13 11.12 LENDER'S CONSENT.............................................................13 11.13 LOAN SALES AND PARTICIPATION; DISCLOSURE OF INFORMATION......................13 11.14 CAPITAL ADEQUACY.............................................................13 11.15 LENDER'S AGENTS..............................................................13 11.16 TAX SERVICE..................................................................14 11.17 ARBITRATION..................................................................14 (a) Arbitration...............................................................14 (b) Governing Rules...........................................................14 (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure................14 (d) Arbitrator Qualifications and Powers; Awards..............................14 (e) Judicial Review...........................................................15 (f) Real Property Collateral; Judicial Reference..............................15 (g) Miscellaneous.............................................................15 11.18 WAIVER OF RIGHT TO TRIAL BY JURY.............................................15 11.19 SEVERABILITY.................................................................16 11.20 HEIRS, SUCCESSORS AND ASSIGNS................................................16 11.21 TIME.........................................................................16 11.22 HEADINGS.....................................................................16 11.23 GOVERNING LAW................................................................16 11.24 INTEGRATION; INTERPRETATION..................................................16 11.25 JOINT AND SEVERAL LIABILITY..................................................16 11.26 COUNTERPARTS.................................................................16 EXHIBIT A - DESCRIPTION OF PROPERTY........................................................19 EXHIBIT B - DOCUMENTS......................................................................20
3 Loan No. 1440 LOAN AGREEMENT THIS LOAN AGREEMENT ("Agreement") is executed as of December __, 2000, by and between COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender"). R E C I T A L S A. Borrower owns or will own certain real property described in Exhibit A hereto and all improvements now or hereafter existing thereon (collectively, the "Property"). B. Borrower desires to borrow from Lender, and Lender agrees to loan to Borrower, the amounts described below. NOW, THEREFORE, Borrower and Lender agree as follows: ARTICLE 1. DEFINITIONS 1.1 DEFINED TERMS. The following capitalized terms generally used in this Agreement shall have the meanings defined or referenced below. Certain other capitalized terms used only in specific sections of this Agreement are defined in such sections. "Account" - means an account with Lender, account number #4518-100995, in the name of Borrower or Borrower's designee into which Loan proceeds will be deposited. "ADA" - means the Americans with Disabilities Act, 42 U.S.C. Sections 12101, et. seq. as now or hereafter amended or modified. "Agreement" - shall have the meaning ascribed to such term in the preamble hereto. "Applicable LIBO Rate" - shall have the meaning ascribed to such term in the Note. "Bankruptcy Code" - means the Bankruptcy Reform Act of 1978 (11 USC Section 101-1330) as now or hereafter amended or recodified. "Border Zone Property" - means any property designated as "border zone property" under the provisions of California Health and Safety Code, Sections 25220 et seq., or any regulation adopted in accordance therewith. "Borrower" - means COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation. "Business Day" - means a day of the week (but not a Saturday, Sunday or holiday) on which the offices of Lender are open to the public for carrying on substantially all of Lender's business functions. Unless specifically referenced in this Agreement as a Business Day, all references to "days" shall be to calendar days. "Deed of Trust" - means that certain Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing of even date herewith executed by Borrower, as Trustor, to American Securities Company, a California corporation, as Trustee, for the benefit of Lender, as Beneficiary, as hereafter amended, supplemented, replaced or modified. "Default" - shall have the meaning ascribed to such term in Section 10.1. "Effective Date" - means the date the Deed of Trust is recorded in the Office of the County Recorder of the county where the Property is located. Page 1 4 "Hazardous Materials" - shall have the meaning ascribed to such term in Section 7.1 (a). "Hazardous Materials Claims" - shall have the meaning ascribed to such term in Section 7.1 (c). "Hazardous Materials Laws" - shall have the meaning ascribed to such term in Section 7.1 (b). "Lender" - means WELLS FARGO BANK, NATIONAL ASSOCIATION. "LIBO Rate" - shall have the meaning ascribed to such term in the Note. "Loan" - means the principal sum that Lender agrees to lend and Borrower agrees to borrow pursuant to the terms and conditions of this Agreement: EIGHTEEN MILLION AND NO/100THS DOLLARS ($18,000,000.00). "Loan Documents" - means those documents, as hereafter amended, supplemented, replaced or modified, properly executed and in recordable form, if necessary, listed in Exhibit B as Loan Documents. "Loan-to-Value Percentage" - shall have the meaning ascribed to such term in Section 2.7. "Maturity Date" - means June 1, 2002. "Non-Borrower Trustor" - not applicable. "Note" - means that certain Promissory Note Secured by Deed of Trust of even date herewith, in the original principal amount of the Loan, executed by Borrower and payable to the order of Lender, as hereafter amended, supplemented, replaced or modified. "Original Maturity Date" - means the Maturity Date. "Other Related Documents" - means those documents, as hereafter amended, supplemented, replaced or modified from time to time, properly executed and in recordable form, if necessary, listed in Exhibit B as Other Related Documents. "Participant" - shall have the meaning ascribed to such term in Section 11.13. "Property" - shall have the meaning ascribed to such term in Recital A. "Reserve Percentage" - shall have the meaning ascribed to such term in the Note. "Secured Obligations" - shall have the meaning ascribed to such term in the Deed of Trust. "Title Policy" - means the ALTA Lender's Policy of Title Insurance as issued by First American Title Company. 1.2 EXHIBITS INCORPORATED. Exhibits A and B, attached hereto, are hereby incorporated into this Agreement. ARTICLE 2. LOAN 2.1 LOAN. Subject to the terms of this Agreement, Lender agrees to lend to Borrower and Borrower agrees to borrow from Lender the principal sum of EIGHTEEN MILLION AND NO/100THS DOLLARS ($18,000,000.00); said sum to be evidenced by the Note of even date herewith. The Note shall be secured, in part, by the Deed of Trust, of even date herewith, encumbering certain real property and improvements as legally defined therein. Amounts disbursed to or on behalf of Borrower pursuant to the Note shall be used for financing purposes. Page 2 5 2.2 LOAN FEE. Borrower shall pay to Lender, at Loan closing, a loan fee in the amount of $225,000. 2.3 LOAN DOCUMENTS. Borrower shall deliver to Lender concurrently with this Agreement each of the documents, properly executed and in recordable form, as applicable, described in Exhibit B as Loan Documents, together with those documents described in Exhibit B as Other Related Documents. 2.4 EFFECTIVE DATE. The date of the Loan Documents is for reference purposes only. The Effective Date of delivery and transfer to Lender of the security under the Loan Documents and of Borrower's and Lender's obligations under the Loan Documents is the date the Deed of Trust is recorded in the Office of the County Recorder of the county where the Property is located. 2.5 MATURITY DATE. The Maturity Date of the Loan shall be June 1, 2002, at which time all sums due and owing under this Agreement and the other Loan Documents shall be repaid in full. All payments due to Lender under this Agreement, whether at the Maturity Date or otherwise, shall be paid in immediately available funds. 2.6 CREDIT FOR PRINCIPAL PAYMENTS. Any payment made upon the outstanding principal balance of the Loan shall be credited as of the Business Day received, provided such payment is received by Lender no later than 11:00 a.m. (Pacific Standard Time or Pacific Daylight Time, as applicable) and constitutes immediately available funds. Any principal payment received after said time or which does not constitute immediately available funds shall be credited upon such funds having become unconditionally and immediately available to Lender. 2.7 INTENTIONALLY OMITTED. 2.8 INTENTIONALLY OMITTED. 2.9 FULL REPAYMENT AND RECONVEYANCE. Upon receipt of all sums owing and outstanding under the Loan Documents, Lender shall issue a full reconveyance of the Property from the lien of the Deed of Trust, and all related documents of record evidencing the lien of the Deed of Trust shall be terminated; provided, however, that all of the following conditions shall be satisfied at the time of, and with respect to, such reconveyance: (a) Lender shall have received all reasonable out-of-pocket escrow, closing and recording costs, the costs of preparing and delivering such reconveyance and any sums then due and payable under the Loan Documents; and (b) Lender shall have received a written release satisfactory to Lender of any set aside letter, letter of credit or other form of undertaking which Lender has issued to any surety, governmental agency or any other party in connection with the Loan and/or the Property. Lender's obligation to make further disbursements under the Loan shall terminate as to any portion of the Loan undisbursed as of the date of issuance of such release or reconveyance, and any commitment of Lender to lend any undisbursed portion of the Loan shall be canceled. 2.10 LIMITATION ON BORROWER'S LIABILITY. Lender's recovery against Borrower under the Loan Documents shall be limited solely to the collateral given to Lender as security for Borrower's performance under the Loan Documents and such recovery shall not be a lien, or the basis of a claim of lien or levy of execution, against the general assets of Borrower. Notwithstanding the foregoing, Borrower and the general assets of Borrower shall be fully liable to Lender to the same extent that Borrower would be liable absent the foregoing limitation of this paragraph for: (a) fraud or willful misrepresentation; (b) waste; (c) failure to pay income taxes or other taxes, assessments or other charges attributable to Borrower which can create liens on any portion of the Property (to the full extent of any such taxes, assessments or other charges); (d) the amount of any money or value of any property distributed to any partner of Borrower as a distribution of earnings or income from the Property if such distribution was prohibited under the terms of this Agreement (to the full extent of such distribution); or (e) any breach by Borrower of any covenant under Article 7, entitled HAZARDOUS MATERIALs, any representation or warranty of Borrower under such Article proving to have been untrue when made, or the presence of any significant Hazardous Materials in, on or about the Property which are discovered subsequent to the Effective Date. In addition, the limitations hereof shall not be deemed to limit: (i) any right Lender might otherwise have to obtain injunctive relief against Borrower; (ii) any suit or action in connection with the preservation, enforcement or foreclosure of the liens, mortgages, assignments and security interests now or at any time hereafter securing the payment Page 3 6 and performance of all sums and obligations under this Agreement or any of the Loan Documents; or (iii) the collection of amounts which may become owing or payable under or on account of insurance, condemnation awards or damages for other public actions or surety bonds maintained or provided by Borrower; provided, however, that the assertion by Lender of any such right, suit, action or collection of amounts shall not result in a monetary claim upon the general assets of Borrower except as otherwise provided herein. ARTICLE 3. DISBURSEMENT 3.1 CONDITIONS PRECEDENT. Lender's obligation to make any disbursements or take any other action under the Loan Documents shall be subject at all times to satisfaction of each of the following conditions precedent: (a) There exists no Default, as defined in this Agreement, or Default as defined in any of the other Loan Documents or in the Other Related Documents, or event, omission or failure of condition which would constitute a Default after notice or lapse of time, or both; (b) Lender shall have received all Loan Documents, other documents, instruments, policies, and forms of evidence or other materials requested by Lender under the terms of this Agreement or any of the other Loan Documents; (c) The Deed of Trust is a valid lien upon the Property and is prior and superior to all other liens and encumbrances thereon except those approved by Lender in writing; (d) Lender shall have received a written appraisal prepared in conformance with the requirements of the Comptroller of the Currency confirming to the satisfaction of Lender that the Loan amount as a percentage of the fair market value of the Property (after adjustment for senior liens and regular and special tax assessments) does not exceed sixty percent (60%) ("Loan-to-Value Percentage"); The valuation date of such appraisal shall be within thirty (30) days of the date hereof. Any principal balance reduction shall reduce Lender's commitment by a like amount; (e) There are no claims, actions, suits, or proceedings pending, or to Borrower's knowledge, threatened against Borrower or affecting the Property; and (f) There has been no material adverse change in the financial condition of Borrower since the dates of the latest financial statements furnished to Lender and, except as otherwise disclosed to Lender in writing, Borrower has not entered into any material transaction which is not disclosed in such financial statements. 3.2 ACCOUNT, PLEDGE AND ASSIGNMENT, AND DISBURSEMENT AUTHORIZATION. The proceeds of the Loan, when qualified for disbursement, shall be deposited into the Account or otherwise disbursed to or for the benefit or account of Borrower under the terms of this Agreement; provided, however, that any direct disbursements from the Loan which are made by means of wire transfer, shall be subject to the provisions of any funds transfer agreement which is identified in Exhibit B hereto. Disbursements hereunder may be made by Lender upon the written request of any person who has been authorized by Borrower to request such disbursements until such time as written notice of Borrower's revocation of such authority is received by Lender at the address herein. As additional security for Borrower's performance under the Loan Documents, Borrower hereby irrevocably pledges and assigns to Lender all monies at any time deposited in the Account. ARTICLE 4. INTENTIONALLY OMITTED Page 4 7 ARTICLE 5. INSURANCE Borrower shall, while any obligation of Borrower remains outstanding, maintain at Borrower's sole expense, with licensed insurers approved by Lender, the following policies of insurance in form and substance satisfactory to Lender: 5.1 TITLE INSURANCE. A Title Policy, together with any endorsements which Lender may require, insuring Lender, in the principal amount of the Loan, of the validity and the priority of the lien of the Deed of Trust upon the Property, subject only to matters approved by Lender in writing. 5.2 PROPERTY INSURANCE. A Casualty Insurance policy, in form and substance reasonably acceptable to Lender, including, without limitation, any endorsement Lender may reasonably require, insuring Lender against damage to the Property in an amount acceptable to Lender. Lender shall be named on the policy under a Lender's Loss Payable Endorsement (form #438BFU or equivalent). 5.3 FLOOD HAZARD INSURANCE. A policy of flood insurance, as required by applicable governmental regulations, or as deemed necessary by Lender. 5.4 LIABILITY INSURANCE. A policy of comprehensive general liability insurance with limits as required by Lender, insuring against liability for injury and/or death to any person and/or damage to any property occurring on the Property and/or in from any cause whatsoever. No liability or other insurance required to be maintained hereunder by Borrower shall be required to provide coverage with respect to Hazardous Materials, Hazardous Materials Laws or Hazardous Materials Claims. 5.5 GENERAL. Borrower shall provide to Lender certificates evidencing the existence of all required insurance policies, or other evidence of insurance acceptable to Lender. All insurance policies shall provide that the insurance shall not be cancelable or materially changed without ten (10) days prior written notice to Lender. Lender shall be named under a Lender's Loss Payable Endorsement (form #438BFU or equivalent) on all insurance policies which Borrower actually maintains with respect to the Property. Borrower shall provide to Lender evidence of any other hazard insurance Lender may deem necessary at any time during the Loan. ARTICLE 6. REPRESENTATIONS AND WARRANTIES As a material inducement to Lender's entry into this Agreement, Borrower represents and warrants to Lender as of the Effective Date and continuing thereafter that: 6.1 AUTHORITY/ENFORCEABILITY. Borrower is in material compliance with all laws and regulations applicable to its organization, existence and transaction of business and has all necessary rights and powers to own, improve and operate the Property as contemplated by the Loan Documents. 6.2 BINDING OBLIGATIONS. Borrower is authorized to execute, deliver and perform its obligations under the Loan Documents, and such obligations shall be valid and binding obligations of Borrower. 6.3 FORMATION AND ORGANIZATIONAL DOCUMENTS. Borrower has delivered to Lender all formation and organizational documents of Borrower and all such formation and organizational documents remain in full force and effect and have not been amended or modified since they were delivered to Lender. Borrower shall immediately provide Lender with copies of any amendments or modifications of the formation or organizational documents. 6.4 NO VIOLATION. Borrower's execution, delivery, and performance under the Loan Documents do not: (a) require any consent or approval not heretofore obtained under any partnership agreement, operating agreement, articles of incorporation, bylaws or other document; (b) materially violate any governmental requirement applicable to the Property or any other statute, law, regulation or ordinance or any order or ruling of any court or governmental entity; (c) materially conflict with, or constitute a breach or default or permit the acceleration of obligations under any agreement, contract, lease, or other document by which Page 5 8 the Borrower is or the Property is bound or regulated; or (d) materially violate any statute, law, regulation or ordinance, or any order of any court or governmental entity. 6.5 COMPLIANCE WITH LAWS. Borrower has, and at all times shall have obtained, all material permits, licenses, exemptions, and approvals necessary to occupy, operate and market the Property, and shall maintain material compliance with all governmental requirements applicable to the Property and all other applicable statues, laws, regulations and ordinances necessary for the transaction of its business. The Property is a legal parcel lawfully created in full compliance with all subdivision laws and ordinances. 6.6 INTENTIONALLY OMITTED. 6.7 FINANCIAL CONDITION. All financial statements and information heretofore and hereafter delivered to Lender by Borrower, including, without limitation, information relating to the financial condition of Borrower, the Property, the partners, joint venturers or members of Borrower, and/or any Guarantors, fairly and accurately represent the financial condition of the subject thereof and have been prepared (except as noted therein) in accordance with generally accepted accounting principles consistently applied. Borrower acknowledges and agrees that Lender may request and obtain additional information from third parties regarding any of the above, including, without limitation, credit reports. 6.8 INTENTIONALLY OMITTED. 6.9 ACCURACY. All reports, documents, instruments, information and forms of evidence delivered to Lender concerning the Loan or security for the Loan or required by the Loan Documents are accurate, correct and complete in all material respects and do not contain any material misrepresentation or omission. 6.10 AMERICANS WITH DISABILITIES ACT COMPLIANCE. Borrower represents and warrants to Lender that, except as previously disclosed to Lender, the Property shall be hereafter maintained in full and strict compliance with the requirements and regulations of the Americans With Disabilities Act, of July 26, 1990, Pub. L. No. 101-336, 104 Stat. 327, 42 U.S.C. Section 12191, et seq., as hereafter amended. At Lender's written request from time to time, Borrower shall provide Lender with written evidence of such compliance satisfactory to Lender. Borrower shall be solely responsible for all such ADA costs of compliance and reporting. 6.11 BUSINESS LOAN. The Loan is a business loan transaction in the stated amount solely for the purpose of carrying on the business of Borrower and none of the proceeds of the Loan will be used for the personal, family or agricultural purposes of the Borrower. ARTICLE 7. HAZARDOUS MATERIALS 7.1 SPECIAL REPRESENTATIONS AND WARRANTIES. This Article 7 contains the exclusive representations and warranties of Borrower to Lender with respect to Hazardous Materials, Hazardous Materials Laws and Hazardous Materials Claims on, about or under the Property. Borrower hereby specially represents and warrants to the best of Borrower's knowledge as of the date of this Agreement as follows: (a) HAZARDOUS MATERIALS. Except as previously disclosed to Lender in that certain Expanded Phase I Environmental Site Assessment report dated October 6, 2000, the Property is not and has not been a site for the use, generation, manufacture, storage, treatment, release, threatened release, discharge, disposal, transportation or presence of any oil, flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, hazardous wastes, toxic or contaminated substances or similar materials, including, without limitation, any substances which are "hazardous substances," "hazardous wastes," "hazardous materials," "toxic substances," "wastes," "regulated substances," "industrial solid wastes," or "pollutants" under the Hazardous Materials Laws, as described below, and/or other applicable environmental laws, ordinances and regulations (collectively, the "Hazardous Materials"). "Hazardous Materials" shall not include commercially reasonable amounts of such materials used in the ordinary course of operation of the Property Page 6 9 which are used and stored in accordance with all applicable environmental laws, ordinances and regulations. (b) HAZARDOUS MATERIALS LAWS. Except as previously disclosed to Lender in that certain Expanded Phase I Environmental Site Assessment report dated October 6, 2000, the Property is in compliance with all laws, ordinances and regulations relating to Hazardous Materials ("Hazardous Materials Laws"), including, without limitation: the Clean Air Act, as amended, 42 U.S.C. Section 7401 et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. Section 6901 et seq.; the Comprehensive Environment Response, Compensation and Liability Act of 1980, as amended (including the Superfund Amendments and Reauthorization Act of 1986, "CERCLA"), 42 U.S.C. Section 9601 et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. Section 2601 et seq.; the Occupational Safety and Health Act, as amended, 29 U.S.C. Section 651, the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq.; the Safe Drinking Water Act, as amended, 42 U.S.C. Section 300f et seq.; and all comparable state and local laws, laws of other jurisdictions or orders and regulations. (c) HAZARDOUS MATERIALS CLAIMS. Except as previously disclosed to Lender in that certain Expanded Phase I Environmental Site Assessment report dated October 6, 2000, there are no claims or actions ("Hazardous Materials Claims") pending or threatened against Borrower by any governmental entity or agency or by any other person or entity relating to Hazardous Materials or pursuant to the Hazardous Materials Laws. 7.2 HAZARDOUS MATERIALS COVENANTS. Borrower agrees as follows: (a) NO HAZARDOUS ACTIVITIES. Except as previously disclosed to Lender in that certain Expanded Phase I Environmental Site Assessment report dated October 6, 2000, Borrower shall not cause or permit the Property to be used as a site for the use, generation, manufacture, storage, treatment, release, discharge, disposal, transportation or presence of any Hazardous Materials. (b) COMPLIANCE. Except as previously disclosed to Lender, Borrower shall comply and cause the Property to comply with all Hazardous Materials Laws in all material respects. (c) NOTICES. Other than as has been previously disclosed to Lender, Borrower shall immediately notify Lender in writing of: (i) the discovery of any material amounts of Hazardous Materials on, under or about the Property; (ii) any knowledge by Borrower that the Property does not comply with any Hazardous Materials Laws in all material respects; and (iii) any Hazardous Materials Claims against Borrower. (d) REMEDIAL ACTION. In response to the presence of any Hazardous Materials on, under or about the Property, other than those previously disclosed to Lender in that certain Expanded Phase I Environmental Site Assessment report dated October 6, 2000, Borrower shall immediately take, at Borrower's sole expense, all remedial action required by any Hazardous Materials Laws or any judgment, consent decree, settlement or compromise in respect to any Hazardous Materials Claims. 7.3 INSPECTION BY LENDER. Upon a reasonable suspicion that a violation exists, and upon reasonable prior notice to Borrower, Lender, its employees and agents, may (whether before or after the commencement of a nonjudicial or judicial foreclosure proceeding) enter and inspect the Property for the purpose of determining the existence, location, nature and magnitude of any past or present release or threatened release of any Hazardous Materials into, onto, beneath or from the Property. Absent the existence of a Default or an emergency, Lender shall be limited to entering the Property for the foregoing purposes to one time a year. 7.4 INTENTIONALLY OMITTED. Page 7 10 7.5 LEGAL EFFECT OF SECTION. Borrower and Lender agree that: (a) this Article 7 is intended as Lender's written request for information (and Borrower's response) concerning the environmental condition of the real property security as required by California Code of Civil Procedure Section 726.5; and (b) each provision in this Article (together with any indemnity applicable to a breach of any such provision) with respect to the environmental condition of the real property security is intended by Lender and Borrower to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736, and as such it is expressly understood that Borrower's duty to indemnify Lender hereunder shall survive: (a) any judicial or non-judicial foreclosure under the Deed of Trust, or transfer of the Property in lieu thereof, (b) the release and reconveyance or cancellation of the Deed of Trust; and (c) the satisfaction of all of Borrower's obligation under the Loan Documents. ARTICLE 8. COVENANTS OF BORROWER 8.1 EXPENSES. Borrower shall immediately pay Lender upon demand all reasonable out-of-pocket costs and expenses incurred by Lender in connection with: (a) the preparation of this Agreement, all other Loan Documents and Other Related Documents contemplated hereby; (b) the administration of this Agreement, the other Loan Documents and Other Related Documents for the term of the Loan; and (c) the enforcement or satisfaction by Lender of any of Borrower's obligations under this Agreement, the other Loan Documents or the Other Related Documents. For all purposes of this Agreement, Lender's costs and expenses shall include, without limitation, all reasonable out-of-pocket appraisal fees, cost engineering and inspection fees, legal fees and expenses, accounting fees, environmental consultant fees, auditor fees, and the cost to Lender of any title insurance premiums, title surveys, reconveyance and notary fees. 8.2 ERISA COMPLIANCE. Borrower shall at all times comply in all material respects with the provisions of ERISA with respect to any retirement or other employee benefit plan to which it is a party as employer, and as soon as possible after Borrower knows, or has reason to know, that any Reportable Event (as defined in ERISA) with respect to any such plan of Borrower has occurred, it shall furnish to Lender a written statement setting forth details as to such Reportable Event and the action, if any, which Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event furnished to the Pension Benefit Guaranty Corporation. 8.3 LEASING. Borrower shall keep the current lease with Communications & Power Industries, Inc. as tenant in full force and effect and shall not terminate or amend said lease without the prior written consent of Lender, which consent shall not be unreasonably withheld. 8.4 APPROVAL OF LEASES. All leases of all or any part of the Property, other than the lease with Communications & Power Industries, Inc., shall: (a) be upon terms and with tenants approved by Lender prior to Borrower's execution of any such lease, such approval not to be unreasonably withheld; and (b) include estoppel, subordination, attornment and mortgagee protection provisions reasonably satisfactory to Lender. All standard lease forms and any material deviation from any form, shall be approved by Lender prior to execution of any lease using such form. All amendments to leases and any termination of leases shall not be made without Lender's prior written consent. 8.5 INTENTIONALLY OMITTED. 8.6 INTENTIONALLY OMITTED. 8.7 INTENTIONALLY OMITTED. 8.8 OPINION OF LEGAL COUNSEL. Borrower shall provide, at Borrower's expense, an opinion of legal counsel in form and content satisfactory to Lender to the effect that: (a) upon due authorization, execution and recordation or filing as may be specified in the opinion, each of the Loan Documents shall be legal, valid and binding instruments, enforceable against the makers thereof in accordance with their respective terms, subject to customary exceptions and assumptions; (b) upon the consummation of a properly conducted non-judicial foreclosure sale under the Deed of Trust, all rights of redemption of Borrower shall be extinguished; and (c) the interest rate terms do not violate any applicable usury laws. Page 8 11 8.9 FURTHER ASSURANCES. Upon Lender's reasonable request and at Borrower's sole cost and expense, Borrower shall execute, acknowledge and deliver any other instruments and perform any other acts necessary, desirable or proper, as reasonably determined by Lender, to carry out the purposes of this Agreement and the other Loan Documents or to perfect and preserve any liens created by the Loan Documents. Furthermore, Borrower agrees (i) to keep Lender fully informed of any and all developments relating to that certain Stock Sale Agreement by and between Varian Associates, Inc. and Communications & Power Industries Holding Corporation, dated as of June 9, 1995, as amended, including without limitation, those certain rights under Section 10.2 thereof (the "Indemnity Agreement"), solely, however, as such Indemnity Agreement relates to the Property, and (ii) to consider in good faith any suggestion made by Lender with respect to such Indemnity Agreement, solely as it pertains to the Property. 8.10 ASSIGNMENT. Without the prior written consent of Lender, Borrower shall not assign Borrower's interest under any of the Loan Documents, or in any monies due or to become due thereunder, and any assignment without such consent shall be void. 8.11 MANAGEMENT OF PROPERTY. Without the prior written consent of Lender, Borrower shall not enter into any agreement providing for the management, leasing or operation of the Property. 8.12 SECURITY DEPOSITS. To the extent applicable, Borrower shall maintain all deposits, security deposits, letters of credit, lease bonds, substitute deposits, credit enhancements and other like items ("Security Deposits") under or relating to Leases in a separately designated account ("Security Deposit Account") with Lender or Lender's agent, under Lender's sole dominion and control. Borrower shall cause tenants who have delivered Security Deposits in the form of letters of credit, lease bonds or like items to have such letters of credit, lease bonds or like items amended to provide for Lender as beneficiary thereunder. Lender or Lender's agent may cause all such letters of credit, lease bonds or like items to be held during the term of the Loan by Lender, by Lender's agent or any other Person requested by Lender. Borrower agrees that all future Security Deposits shall be deposited in the Security Deposit Account if in cash or delivered to Lender or Lender's designee in the form of a letter of credit, lease bonds or like items (with Lender named as the sole beneficiary thereunder). Borrower agrees that the Security Deposits and all other tenant Security Deposits placed in the Security Deposit Account (i) shall be maintained as required by the applicable legal requirements and (ii) shall be returned if and when required by the applicable Leases and legal requirements, provided that, Borrower shall be solely responsible for compliance with the terms of the applicable Lease and legal requirements and Lender and Lender's agent shall in no event be liable for any failure of Borrower to so comply. All Security Deposits received by Borrower with respect to new Leases or existing Leases (if not already so deposited) shall promptly be deposited into the Security Deposit Account if in cash, or delivered to Lender or Lender's designee if in the form of a letter of credit, lease bonds or like items (with Lender named as sole beneficiary thereunder). Borrower shall hereafter direct all tenants to make all additional cash Security Deposit payments directly to the Security Deposit Account. ARTICLE 9. REPORTING COVENANTS 9.1 FINANCIAL INFORMATION. Borrower shall deliver to Lender, as soon as available, but in no event later than one hundred twenty (120) days after Borrower's fiscal year end, a current financial statement (including, without limitation, an income and expense statement and balance sheet) signed by the Chief Financial Officer of Borrower together with any Securities and Exchange Commission filings for the following entities: Borrower, and Communications & Power Industries, Inc. 9.2 BOOKS AND RECORDS. Borrower shall maintain complete books of account and other records for the Property and for disbursement and use of the proceeds of the Loan, and the same shall be available for inspection and copying by Lender upon reasonable prior notice. Page 9 12 ARTICLE 10. DEFAULTS AND REMEDIES 10.1 DEFAULT. The occurrence of any one or more of the following shall constitute an event of default ("Default") under this Agreement and the other Loan Documents: (a) MONETARY. Borrower's failure to pay when due any sums payable under the Note or any of the other Loan Documents; or (b) PERFORMANCE OF OBLIGATIONS. Borrower's failure to perform any obligation in addition to those in Section 10.1 (a) above under any of the Loan Documents; provided, however, that if a cure period is provided for the remedy of such failure, Borrower's failure to perform will not constitute a Default until such date as the specified cure period expires; or (c) USE. The prohibition, enjoining or interruption of Borrower's right to occupy, use or lease the Property for a continuous period of more than sixty (60) days; or (d) CONDEMNATION; ATTACHMENT. (i) The condemnation, seizure or appropriation of, or occurrence of an uninsured casualty with respect to any material portion of the Property; or (ii) the sequestration or attachment of, or any levy or execution upon any of the Property, any other collateral provided by Borrower under any of the Loan Documents, or any substantial portion of the other assets of Borrower, which sequestration, attachment, levy or execution is not released, expunged or dismissed prior to the earlier of sixty (60) days thereafter or the sale of the assets affected thereby; or (e) REPRESENTATIONS AND WARRANTIES. (i) The failure of any representation or warranty of Borrower in any of the Loan Documents and the continuation of such failure for more than ten (10) days after written notice to Borrower from Lender requesting that Borrower cure such failure; or (f) VOLUNTARY BANKRUPTCY; INSOLVENCY; DISSOLUTION. (i) The filing of a petition by Borrower for relief under the Bankruptcy Code, or under any other present or future state or federal law regarding bankruptcy, reorganization or other debtor relief law; (ii) the filing of any pleading or an answer by Borrower in any involuntary proceeding under the Bankruptcy Code or other debtor relief law which admits the jurisdiction of the court or the petition's material allegations regarding Borrower's insolvency; (iii) a general assignment by Borrower for the benefit of creditors; or (iv) Borrower applying for, or the appointment of, a receiver, trustee, custodian or liquidator of Borrower or any of its property; or (g) INVOLUNTARY BANKRUPTCY. The failure of Borrower to effect a full dismissal of any involuntary petition under the Bankruptcy Code or under any other debtor relief law that is filed against Borrower or in any way restrains or limits Borrower or Lender regarding the Loan or the Property, prior to the earlier of the entry of any court order granting relief sought in such involuntary petition, or sixty (60) days after the date of filing of such involuntary petition; or (h) LOSS OF PRIORITY. The failure at any time of the Deed of Trust to be a valid first lien upon the Property or any portion thereof, other than as a result of any release or reconveyance of the Deed of Trust with respect to all or any portion of the Property pursuant to the terms and conditions of this Agreement; or (i) HAZARDOUS MATERIALS. The discovery of any new significant Hazardous Materials in, on or about the Property subsequent to the Effective Date that were not previously disclosed to Lender. Any such Hazardous Materials shall be "significant" for this purpose if said Hazardous Materials, in Lender's sole, but reasonable, discretion, have a materially adverse impact on the value of the Property. 10.2 ACCELERATION UPON DEFAULT; REMEDIES. Upon the occurrence and during the continuation of a Default specified in Section 10.1(f) or Obligations shall automatically become immediately due and payable, without presentment, demand, Page 10 13 protest, notice or other requirements of any kind, all of which are hereby expressly waived by Borrower. Upon the occurrence and during the continuation of any Default specified in this Article, other than a Default under Section 10.1(f) or Section 10.1(g), Lender may, at its sole option, declare all sums owing to Lender under the Note, this Agreement and the other Loan Documents immediately due and payable. Upon such acceleration, Lender may, in addition to all other remedies permitted under this Agreement and the other Loan Documents and at law or equity, apply any sums in the Account to the sums owing under the Loan Documents and any and all obligations of Lender to fund further disbursements under the Loan shall terminate. 10.3 DISBURSEMENTS TO THIRD PARTIES. Upon the occurrence and during the continuation of a Default occasioned by Borrower's failure to pay money to a third party as required by this Agreement, Lender may but shall not be obligated to make such payment from the Loan proceeds or other funds of Lender. If such payment is made from proceeds of the Loan, Borrower shall immediately deposit with Lender, upon written demand, an amount equal to such payment. If such payment is made from funds of Lender, Borrower shall immediately repay such funds upon written demand of Lender. In either case, the Default with respect to which any such payment has been made by Lender shall not be deemed cured until such deposit or repayment (as the case may be) has been made by Borrower to Lender. 10.4 REPAYMENT OF FUNDS ADVANCED. Any funds expended by Lender in the exercise of its rights or remedies under this Agreement and the other Loan Documents shall be payable to Lender upon demand, together with interest at the rate applicable to the principal balance of the Note from the date the funds were expended. 10.5 RIGHTS CUMULATIVE, NO WAIVER. All Lender's rights and remedies provided in this Agreement and the other Loan Documents, together with those granted by law or at equity, are intended to be cumulative and may, to the full extent permitted by law, be exercised by Lender at any time. Lender's exercise of any right or remedy shall not constitute a cure of any Default unless all sums then due and payable to Lender under the Loan Documents are repaid and Borrower has cured all other Defaults. No waiver shall be implied from any failure of Lender to take, or any delay by Lender in taking, action concerning any Default or failure of condition under the Loan Documents, or from any previous waiver of any similar or unrelated Default or failure of condition. Any waiver or approval under any of the Loan Documents must be in writing and shall be limited to its specific terms. 10.6 POST-DEFAULT ACCESS. Upon the commencement of a nonjudicial or judicial foreclosure, Foothill Capital Corporation, as agents for the lender to Communications & Power Industries, Inc. ("Tenant's Lender"), shall have up to sixty (60) calendar days in which to enter the Property and remove the personal property of Communications & Power Industries, Inc., but not that of Borrower, provided that Tenant's Lender (i) pays rent to Lender at a fair market rate for its occupancy of the Property on a pro rated daily basis; (ii) agrees to defend, indemnify and hold harmless Lender, it's directors, officers, employees, agents, successors and assigns from and against any and all direct losses, claims, damages and liabilities (excluding consequential or incidental damages) which Lender may incur as a result of Tenant's Lender's actions or omissions while in occupancy; and (iii) immediately repairs and restores, at its sole cost and expense, any and all damage caused by the removal of said personal property. ARTICLE 11. MISCELLANEOUS PROVISIONS 11.1 INDEMNITY. SUBJECT TO THE PROVISIONS OF SECTION 2.10 CONTAINED HEREIN, BORROWER HEREBY AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS LENDER, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS FROM AND AGAINST ANY AND ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, ACTIONS, JUDGMENTS, COURT COSTS AND LEGAL OR OTHER EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND EXPENSES) WHICH LENDER MAY INCUR AS A DIRECT OR INDIRECT CONSEQUENCE OF: (A) THE PURPOSE TO WHICH BORROWER APPLIES THE LOAN PROCEEDS; (B) THE FAILURE OF BORROWER TO PERFORM ANY OBLIGATIONS AS AND WHEN REQUIRED BY THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; (C) ANY FAILURE AT ANY TIME OF ANY OF BORROWER'S REPRESENTATIONS OR WARRANTIES TO BE TRUE AND CORRECT; OR (D) ANY ACT OR OMISSION BY BORROWER, CONSTITUENT PARTNER OR MEMBER OF BORROWER, ANY Page 11 14 CONTRACTOR, SUBCONTRACTOR OR MATERIAL SUPPLIER, ENGINEER, ARCHITECT OR OTHER PERSON OR ENTITY WITH RESPECT TO ANY OF THE PROPERTY. SUBJECT TO THE PROVISIONS OF SECTION 2.10 CONTAINED HEREIN, BORROWER SHALL IMMEDIATELY PAY TO LENDER UPON DEMAND ANY AMOUNTS OWING UNDER THIS INDEMNITY, TOGETHER WITH INTEREST FROM THE DATE THE INDEBTEDNESS ARISES UNTIL PAID AT THE RATE OF INTEREST APPLICABLE TO THE PRINCIPAL BALANCE OF THE NOTE. 11.2 FORM OF DOCUMENTS. The form and substance of all documents, instruments, and forms of evidence to be delivered to Lender under the terms of this Agreement and any of the other Loan Documents shall be subject to Lender's approval and shall not be modified, superseded or terminated in any respect without Lender's prior written approval. 11.3 NO THIRD PARTIES BENEFITED. No person other than Lender and Borrower and their permitted successors and assigns shall have any right of action under any of the Loan Documents. 11.4 NOTICES. All notices, demands, or other communications under this Agreement and the other Loan Documents shall be in writing and shall be delivered to the appropriate party at the address set forth on the signature page of this Agreement (subject to change from time to time by written notice to all other parties to this Agreement). All notices, demands or other communications shall be considered as properly given if delivered personally or sent by first class United States Postal Service mail, postage prepaid, except that notice of Default may be sent by certified mail, return receipt requested, or by Overnight Express Mail or by overnight commercial courier service, charges prepaid. Notices so sent shall be effective three (3) days after mailing, if mailed by first class mail, and otherwise upon receipt; provided, however, that non-receipt of any communication as the result of any change of address of which the sending party was not notified or as the result of a refusal to accept delivery shall be deemed receipt of such communication. 11.5 ATTORNEY-IN-FACT. Borrower hereby irrevocably appoints and authorizes Lender, as Borrower's attorney-in-fact, which agency is coupled with an interest, to execute and/or record in Lender's or Borrower's name any notices, instruments or documents that Lender deems appropriate to protect Lender's interest under any of the Loan Documents. 11.6 ACTIONS. Borrower agrees that Lender, in exercising the rights, duties or liabilities of Lender or Borrower under the Loan Documents, may commence, appear in or defend any action or proceeding purporting to affect the Property, or the Loan Documents and Borrower shall immediately reimburse Lender upon demand for all reasonable out-of-pocket expenses so incurred or paid by Lender, including, without limitation, reasonable out-of-pocket attorneys' fees and expenses and court costs. 11.7 RIGHT OF CONTEST. Borrower may contest in good faith any claim, demand, levy or assessment by any person other than Lender which would constitute a Default if: (a) Borrower pursues the contest diligently, in a manner which Lender determines is not prejudicial to Lender, and does not impair the rights of Lender under any of the Loan Documents; and (b) Borrower deposits with Lender any funds or other forms of assurance which Lender in good faith determines from time to time appropriate to protect Lender from the consequences of the contest being unsuccessful. Borrower's compliance with this Section shall operate to prevent such claim, demand, levy or assessment from becoming a Default. 11.8 RELATIONSHIP OF PARTIES. The relationship of Borrower and Lender under the Loan Documents is, and shall at all times remain, solely that of borrower and lender, and Lender neither undertakes nor assumes any responsibility or duty to Borrower or to any third party with respect to the Property, except as expressly provided in this Agreement and the other Loan Documents. 11.9 DELAY OUTSIDE LENDER'S CONTROL. Lender shall not be liable in any way to Borrower or any third party for Lender's failure to perform or delay in performing under the Loan Documents if such failure to perform or delay in performing results directly or indirectly from, or is based upon, the action, inaction, or purported action, of any governmental or local authority, or because of war, rebellion, insurrection, strike, lock-out, boycott or blockade (whether presently in effect, announced or in the reasonable judgment of Lender deemed probable), or from any Act of God or other cause or event beyond Lender's control. Page 12 15 11.10 ATTORNEYS' FEES AND EXPENSES; ENFORCEMENT. If any attorney is engaged by Lender to enforce or defend any provision of this Agreement, any of the other Loan Documents or Other Related Documents, or as a consequence of any Default under the Loan Documents, with or without the filing of any legal action or proceeding, and including, without limitation, any reasonable out-of-pocket fees and expenses incurred in any bankruptcy proceeding of the Borrower, then Borrower shall immediately pay to Lender, upon demand, the amount of all reasonable out-of-pocket attorneys' fees and expenses and all reasonable out-of-pocket costs incurred by Lender in connection therewith, together with interest thereon from the date of such demand until paid at the rate of interest applicable to the principal balance of the Note as specified therein. 11.11 IMMEDIATELY AVAILABLE FUNDS. Unless otherwise expressly provided for in this Agreement, all amounts payable by Borrower to Lender shall be payable only in United States currency, immediately available funds. 11.12 LENDER'S CONSENT. Wherever in this Agreement there is a requirement for Lender's consent and/or a document to be provided or an action taken "to the satisfaction of Lender", it is understood by such phrase that Lender shall exercise its consent, right or judgment in a reasonable manner given the specific facts and circumstance applicable at the time. 11.13 LOAN SALES AND PARTICIPATION; DISCLOSURE OF INFORMATION. Borrower agrees that Lender may elect, at any time, to sell, assign or grant participation in all or any portion of its rights and obligations under the Loan Documents, and that any such sale, assignment or participation may be to one or more financial institutions, private investors, and/or other entities, at Lender's sole discretion ("Participant"). Borrower further agrees that Lender may disseminate to any such actual or potential purchaser(s), assignee(s) or participant(s) all documents and information (including, without limitation, all financial information) which has been or is hereafter provided to or known to Lender with respect to: (a) the Property and its operation; (b) any party connected with the Loan (including, without limitation, the Borrower, any partner of Borrower, any constituent partner or member of Borrower; and/or (c) any lending relationship other than the Loan which Lender may have with any party connected with the Loan. In the event of any such sale, assignment or participation, Lender and the parties to such transaction shall share in the rights and obligations of Lender as set forth in the Loan Documents only as and to the extent they agree among themselves. In connection with any such sale, assignment or participation, Borrower further agrees that the Loan Documents shall be sufficient evidence of the obligations of Borrower to each purchaser, assignee, or participant, and upon written request by Lender, Borrower shall enter into such amendments or modifications to the Loan Documents as may be reasonably required in order to evidence any such sale, assignment or participation. The indemnity obligations of Borrower under the Loan Documents shall also apply with respect to any purchaser, assignee or participant. 11.14 CAPITAL ADEQUACY. If Lender or any Participant in the Loan, or either of them, determines that compliance with any law or regulation or with any guideline or request from any central bank or other governmental agency (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by Lender or such Participant, or any corporation controlling Lender or such Participant, as a consequence of, or with reference to, Lender's or such Participant's or such corporation's commitments or its making or maintaining advances below the rate which Lender or such Participant or such corporation controlling Lender could have achieved but for such compliance (taking into account the policies of Lender or such Participant or corporation with regard to capital), then Borrower shall, from time to time, within thirty (30) calendar days after written demand by Lender or such Participant, pay to Lender or such Participant additional amounts sufficient to compensate Lender or such Participant or such corporation controlling Lender to the extent that Lender determines such increase in capital is allocable to Lender's obligations hereunder, provided that such demand is made of similar borrowers under loan documents containing similar provisions as those contained in the Loan Documents. A certificate as to such amounts, submitted to Borrower by Lender or such Participant, shall be conclusive and binding for all purposes, absent manifest error. 11.15 LENDER'S AGENTS. Lender may designate an agent or independent contractor to exercise any of Lender's rights under this Agreement and any of the other Loan Documents. Any reference to Lender in any of the Loan Documents shall include Lender's agents, employees or independent contractors. Page 13 16 Borrower shall pay the costs of such agent or independent contractor either directly to such person or to Lender in reimbursement of such costs, as applicable. 11.16 TAX SERVICE. Lender is authorized to secure, at Borrower's expense, a tax service contract with a third party vendor which shall provide tax information on the Property satisfactory to Lender. 11.17 ARBITRATION. (a) ARBITRATION. Upon the demand of any party, any dispute shall be resolved by binding arbitration (except as set forth in Paragraphs 11.17(e) and 11.17(f) below) in accordance with the terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, this Agreement and each other document, contract and instrument required hereby or now or hereafter delivered to Lender in connection herewith, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the foregoing documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the foregoing documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) GOVERNING RULES. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the foregoing documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under Section 91 of Title 12 of the United States Code or any similar applicable state law. (c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation, injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. (d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive law applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the State of California, (ii) may grant any remedy or relief that a court of the State of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or Page 14 17 claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. (e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the State of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (1) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (2) whether the conclusions of law are erroneous under the substantive law of the State of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the State of California. (f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the foregoing documents or the subject matter of the Dispute shall control. This Agreement may be amended or modified only in writing signed by Lender and Borrower. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. This arbitration provision shall survive termination, amendment or expiration of any of the foregoing documents or any relationship between the parties. 11.18 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION IS NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY Page 15 18 AGREES AND CONSENTS THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF ANY RIGHT THEY MIGHT OTHERWISE HAVE TO TRIAL BY JURY. 11.19 SEVERABILITY. If any provision or obligation under this Agreement and the other Loan Documents shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that provision shall be deemed severed from the Loan Documents and the validity, legality and enforceability of the remaining provisions or obligations shall remain in full force as though the invalid, illegal, or unenforceable provision had never been a part of the Loan Documents, provided, however, that if the rate of interest or any other amount payable under the Note or this Agreement or any other Loan Document, or the right of collectibility therefore, are declared to be or become invalid, illegal or unenforceable, Lender's obligations to make advances under the Loan Documents shall not be enforceable by Borrower. 11.20 HEIRS, SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided under the terms and conditions of this Agreement, the terms of the Loan Documents shall bind and inure to the benefit of the heirs, successors and assigns of the parties. 11.21 TIME. Time is of the essence of each and every term of this Agreement. 11.22 HEADINGS. All article, section or other headings appearing in this Agreement and any of the other Loan Documents are for convenience of reference only and shall be disregarded in construing this Agreement and any of the other Loan Documents. 11.23 GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of California, except to the extent preempted by federal laws. Borrower and all persons and entities in any manner obligated to Lender under the Loan Documents consent to the jurisdiction of any federal or state court within the State of California having proper venue and also consent to service of process by any means authorized by California or federal law. 11.24 INTEGRATION; INTERPRETATION. The Loan Documents contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated therein and supersede all prior negotiations or agreements, written or oral. The Loan Documents shall not be modified except by written instrument executed by all parties. Any reference to the Loan Documents includes any amendments, renewals or extensions now or hereafter approved by Lender in writing. 11.25 JOINT AND SEVERAL LIABILITY. The liability of all persons and entities obligated in any manner under this Agreement and any of the Loan Documents shall be joint and several. 11.26 COUNTERPARTS. To facilitate execution, this document may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Page 16 19 IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of the date appearing on the first page of this Agreement. "LENDER" WELLS FARGO BANK, NATIONAL ASSOCIATION By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ Lender's Address With a copy to: WELLS FARGO BANK, NATIONAL ASSOCIATION WELLS FARGO BANK, NATIONAL ASSOCIATION Real Estate Group (AU# 2034) Disbursement and Operations Center 555 Montgomery Street 2120 East Park Place, Suite 100 16th Floor El Segundo, CA 90245 San Francisco, CA 94111 Attention: Marissa Santos Attention: Robin L. Dixon "BORROWER" COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ Page 17 20 Borrower's Address: 607 Hansen Way Palo Alto, CA 94303-1110 Attention: Lynn E. Harvey, CFO With a copy to: Leonard Green & Partners, L.P. 11111 Santa Monica Boulevard, Suite 2000 Los Angeles, California 90025 Attention: Greg Annick With a copy to: Irell & Manella LLP 1800 Avenue of the Stars, Suite 900 Los Angeles, California 90067-4276 Attention: Chris Kennedy Page 18 21 EXHIBIT A Loan No. 1440 EXHIBIT A - DESCRIPTION OF PROPERTY Exhibit A to LOAN AGREEMENT between COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation, as "Borrower", and WELLS FARGO BANK, NATIONAL ASSOCIATION, as "Lender", dated as of December __, 2000. The land referred to herein is situated in the County of San Mateo, State of California, and is described as follows: All that certain real property located in the City of San Carlos, County of San Mateo, State of California, all of Parcel 1 as shown on the Parcel Map recorded in Volume 20 of Parcel Maps at page 23 in the Records of said County, described in metes as follows: Beginning at Northerly corner of said Parcel; thence through the following numbered courses: 1) South 37 degrees 56' 04" East 739.82 feet to a curve to the right with a radius of 447.00 feet 2) along said curve through a central angle of 33 degrees 54' 48" an arc distance of 264.58 feet 3) South 04 degrees 01' 16" East 182.93 feet to a curve to the left with a radius of 553.00 feet 4) along said curve through a central angle of 02 degrees 38' 43" an arc distance of 25.53 feet 5) South 46 degrees 51' 36" West 476.39 feet 6) North 42 degrees 08' 24" West 1153.65 feet 7) North 47 degrees 51' 36" East 752.91 feet to the point of beginning. A.P. No.: 046-051-020 JPN 046 005 051 02 A 046-051-070 046 005 051 07 A Page 19 22 EXHIBIT B Loan No. 1440 EXHIBIT B - DOCUMENTS Exhibit B to LOAN AGREEMENT between COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation, as "Borrower", and WELLS FARGO BANK, NATIONAL ASSOCIATION, as "Lender", dated as of December __, 2000. 1. Loan Documents. The documents listed below, numbered 1.1 through 1.5, inclusive, and amendments, modifications and supplements thereto which have received the prior written consent of Lender, together with any documents executed in the future that are approved by Lender and that recite that they are "Loan Documents" for purposes of this Agreement are collectively referred to herein as the Loan Documents. 1.1 This Agreement. 1.2 The Promissory Note Secured by Deed of Trust of even date herewith in the original principal amount of the Loan made by Borrower payable to the order of Lender. 1.3 The Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing of even date herewith executed by Non-Borrower Trustor, as Trustor, to American Securities Company, a California corporation, as Trustee, for the benefit of Lender, as Beneficiary. 1.4 Uniform Commercial Code - National Financing Statement - Form UCC-1, dated December __, 2000, executed by Borrower as Debtor and Lender as Secured Party. 1.5 Corporate Resolution authorizing borrowing and hypothecation of property of even date herewith certified by the Secretary of COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation. Other Related Documents (Which Are Not Loan Documents): i. Funds Transfer Agreement for Disbursement of Loan Proceeds dated December __, 2000, executed by and between Borrower and Wells Fargo Bank, National Association. ii. Agreement For Disbursement Prior To Recording And Amendment To Note of even date herewith executed by and between Borrower and Lender. iii. Unsecured Hazardous Materials Indemnity Agreement dated December __, 2000 executed by and between Borrower and Lender. iv. Opinion of Borrower's Legal Counsel dated December __, 2000, executed by Irell & Manella LLP. Page 20 EX-10.12 13 f69166ex10-12.txt EXHIBIT 10.12 1 EXHIBIT 10.12 PROMISSORY NOTE SECURED BY DEED OF TRUST $18,000,000.00 Los Angeles, California December __, 2000 FOR VALUE RECEIVED, the undersigned COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation ("Borrower"), promise(s) to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender"), at the Disbursement and Operations Center in El Segundo, California, or at such other place as may be designated in writing by Lender, the principal sum of EIGHTEEN MILLION AND NO/100THS DOLLARS ($18,000,000.00) or so much thereof as may from time to time be owing hereunder by reason of advances by Lender to or for the benefit or account of Borrower, with interest thereon, per annum, at one or more of the Effective Rates calculated in accordance with the terms and provisions of the Rate Agreement attached hereto as Exhibit A (based on a 360-day year and charged on the basis of actual days elapsed). All sums owing hereunder are payable in lawful money of the United States of America, in immediately available funds. Interest accrued on this note ("Note") shall be due and payable on the first day of each month commencing with the first month after the date of this Note. The outstanding principal balance of this Note, together with all accrued and unpaid interest, shall be due and payable in full on June 1, 2002 ("Maturity Date"). This Note is secured by, among other things, that certain Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing ("Deed of Trust") dated as of December __, 2000, executed by Borrower, as trustor, to a trustee for the benefit of Lender. If any interest payment required hereunder is not received by Lender (whether by direct debit or otherwise) on or before the fifteenth (15th) calendar day of the month in which it becomes due, Borrower shall pay, at Lender's option, a late or collection charge equal to four percent (4%) of the amount of such unpaid interest payment. If: (a) Borrower shall fail to pay when due any sums payable hereunder; or (b) a Default (as defined in the Deed of Trust) occurs under the Deed of Trust or under any obligation secured thereby; or (c) the property which is subject to the Deed of Trust, or any portion thereof or interest therein, is sold, transferred, mortgaged, assigned, encumbered or leased, whether voluntarily or involuntarily or by operation of law or otherwise, other than as expressly permitted by Lender in writing; THEN Lender may, at its sole option, declare all sums owing under this Note immediately due and payable; provided, however, that if any document related to this Note provides for automatic acceleration of payment of sums owing hereunder, all sums owing hereunder shall be automatically due and payable in accordance with the terms of that document. If any attorney is engaged by Lender to enforce or defend any provision of this Note or the Deed of Trust, or as a consequence of any Default, with or without the filing of any legal action or proceeding, then Borrower shall pay to Lender immediately upon demand all attorneys' fees and all costs incurred by Lender in connection therewith, together with interest thereon from the date of such demand until paid at the rate of interest applicable to the principal balance owing hereunder as if such unpaid attorneys' fees and costs had been added to the principal. No previous waiver and no failure or delay by Lender in acting with respect to the terms of this Note or the Deed of Trust shall constitute a waiver of any breach, default, or failure of condition under this Note, the Deed of Trust or the obligations secured thereby. A waiver of any term of this Note, the Deed of Trust or of any of the obligations secured thereby must be made in writing and shall be limited to the express written terms of such waiver. In the event of any inconsistencies between the terms of this Note and the terms of any other document related to the loan evidenced by this Note, the terms of this Note shall prevail. If this Note is executed by more than one person or entity as Borrower, the obligations of each such person or entity shall be joint and several. No person or entity shall be a mere accommodation maker, but each shall be primarily and directly liable hereunder. Except as otherwise provided in any agreement executed in connection with this Note, Borrower waives: Page 1 2 presentment; demand; notice of dishonor; notice of default or delinquency; notice of acceleration; notice of protest and nonpayment; notice of costs, expenses or losses and interest thereon; notice of late charges; and diligence in taking any action to collect any sums owing under this Note or in proceeding against any of the rights or interests in or to properties securing payment of this Note. Time is of the essence with respect to every provision hereof. This Note shall be construed and enforced in accordance with the laws of the State of California, except to the extent that federal laws preempt the laws of the State of California, and all persons and entities in any manner obligated under this Note consent to the jurisdiction of any federal or state court within the State of California having proper venue and also consent to service of process by any means authorized by California or federal law. All notices or other communications required or permitted to be given pursuant to this Note shall be given to the Borrower or Lender at the address and in the manner provided for in the Loan Agreement. The Loan Documents contain or expressly incorporate by reference the entire agreement of the parties with respect to the matters contemplated therein and supersede all prior negotiations or agreements, written or oral. The Loan Documents shall not be modified except by written instrument executed by all parties. Any reference to the Loan Documents includes any amendments, renewals or extensions now or hereafter approved by Lender in writing. Exhibits A and B are attached hereto and incorporated herein by reference. "BORROWER" COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By: ------------------------------------- Name: ---------------------------------- Its: ------------------------------------ Page 2 3 RATE AGREEMENT Exhibit A to Promissory Note Secured by Deed of Trust ("Note"), dated December __, 2000, made by COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation, as Borrower, to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION, as Lender. R E C I T A L S Borrower has requested and Lender has agreed to provide a fixed rate option as a basis for calculating the effective rate of interest on amounts owing under this Note. Borrower acknowledges the following: (i) it understands the process of exercising the fixed rate option as provided herein; (ii) amounts owing under this Note may bear interest at different rates and for different time periods; and (iii) absent the terms and conditions hereof, it would be extremely difficult to calculate Lender's additional costs, expenses, and damages in the event of a Default or prepayment by Borrower hereunder. Given the above, Borrower agrees that the provisions herein (including, without limitation, the Fixed Rate Price Adjustment defined below) provide for a reasonable and fair method for Lender to recover its additional costs, expenses and damages in the event of a Default or prepayment by Borrower. 1. RATES AND TERMS DEFINED. Various rates and terms not otherwise defined herein are defined and described as follows: "Administration Fee" shall be FIVE HUNDRED AND NO/100THS DOLLARS ($500.00). "Alternate Rate" is a rate of interest per annum five percent (5%) in excess of the applicable Effective Rate in effect from time to time. "Applicable LIBO Rate" is the rate of interest, rounded upward to the nearest whole multiple of one-hundredth of one percent (.01%), equal to the sum of: (a) three and twenty-five one hundredths percent (3.25%) plus (b) the LIBO Rate, which rate is divided by one (1.00) minus the Reserve Percentage: Applicable LIBO Rate = 3.25% + LIBO Rate -------------------------------- (1 - Reserve Percentage)
"Business Day(s)" means a day of the week (but not a Saturday, Sunday or holiday) on which the offices of Lender are open to the public for carrying on substantially all of Lender's business functions. "Fixed Rate" is the Applicable LIBO Rate as accepted by Borrower as an Effective Rate for a particular Fixed Rate Period and Fixed Rate Portion. "Fixed Rate Commencement Date" means the date upon which the Fixed Rate Period commences. "Fixed Rate Notice" is a written notice in the form shown on Exhibit B attached to this Note which confirms the Fixed Rate for a particular Fixed Rate Period, the Fixed Rate Portion and the Administration Fee. "Fixed Rate Period" is the period or periods of (a) one (1) month, two (2) months, three (3) months, six (6) months, nine (9) months or twelve (12) months; or (b) any other period of at least one (1) month which ends at the Maturity Date, which periods are selected by Borrower and confirmed in the Fixed Rate Notice; provided that no Fixed Rate Period shall extend beyond the Maturity Date. "Fixed Rate Portion" is the portion or portions of the principal balance of this Note which Borrower selects to have subject to a Fixed Rate, each of which is an amount: (a) equal to the unpaid principal balance of this Note not subject to a Fixed Rate; or (b) if less than the principal balance of this Note not subject to a Fixed Rate, is not less than ONE MILLION AND NO/100THS DOLLARS ($1,000,000) and is an even multiple of ONE MILLION AND NO/100THS DOLLARS ($1,000,000). In the event Borrower is subject to a principal amortization Page 3 4 schedule under the terms and conditions of the Loan Documents, the Fixed Rate Portion shall in no event exceed the maximum outstanding principal balance which will be permissible on the last day of the Fixed Rate Period selected. "LIBO Rate" is the rate of interest, rounded upward to the nearest whole multiple of one-sixteenth of one percent (.0625%), quoted by Lender as the London Inter-Bank Offered Rate for deposits in U.S. Dollars at approximately 9:00 a.m. California time, for a Fixed Rate Commencement Date or a Price Adjustment Date, as appropriate, for purposes of calculating effective rates of interest for loans or obligations making reference thereto for an amount approximately equal to a Fixed Rate Portion and for a period of time approximately equal to a Fixed Rate Period or the time remaining in a Fixed Rate Period after a Price Adjustment Date, as appropriate. "Loan Agreement" is that certain Loan Agreement dated as of December __, 2000, between Borrower and Lender. "Loan Documents" are the documents defined as such in the Loan Agreement. "Prime Rate" is a base rate of interest which Lender establishes from time to time and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Any change in an Effective Rate due to a change in the Prime Rate shall become effective on the day each such change is announced within Lender. "Regulatory Costs" are, collectively, future, supplemental, emergency or other changes in Reserve Percentages, assessment rates imposed by the FDIC, or similar requirements or costs imposed by any domestic or foreign governmental authority and related in any manner to a Fixed Rate. "Reserve Percentage" is at any time the percentage announced within Lender as the reserve percentage under Regulation D for loans and obligations making reference to an Applicable LIBO Rate for a Fixed Rate Period or time remaining in a Fixed Rate Period on a Price Adjustment Date, as appropriate. The Reserve Percentage shall be based on Regulation D or other regulations from time to time in effect concerning reserves for Eurocurrency Liabilities as defined in Regulation D from related institutions as though Lender were in a net borrowing position, as promulgated by the Board of Governors of the Federal Reserve System, or its successor. "Taxes" are, collectively, all withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority and related in any manner to a Fixed Rate. "Variable Rate" is the Prime Rate. 2. EFFECTIVE RATE. The "Effective Rate" upon which interest shall be calculated for this Note shall be one or more of the following: 2.1 Provided no Default, breach, or failure of condition exists under the Loan Agreement or any of the Loan Documents described therein (this Note is one of the Loan Documents): (a) for those portions of the principal balance of this Note which are not Fixed Rate Portions, the Effective Rate shall be the Variable Rate; and (b) for those portions of the principal balance of this Note which are Fixed Rate Portions, the Effective Rate for the Fixed Rate Period thereof shall be the Fixed Rate selected by Borrower and set in accordance with the provisions hereof, provided, however, if any of the transactions necessary for the calculation of interest at any Fixed Rate requested or selected by Borrower should be or become prohibited or unavailable to Lender, or, if in Lender's good faith judgment, it is not possible or practical for Lender to set a Fixed Rate for a Fixed Rate Portion and Fixed Rate Period as requested or selected by Borrower, the Effective Rate for such Fixed Rate Portion shall remain at or revert to the Variable Rate. Page 4 5 2.2 During such time as a Default, breach or failure of condition exists under the Loan Agreement or any of the Loan Documents; or from and after the date on which all sums owing under this Note become due and payable by acceleration or otherwise; or from and after the date on which the property encumbered by the Deed of Trust or any portion thereof or interest therein, is sold, transferred, mortgaged, assigned, or encumbered, whether voluntarily or involuntarily, or by operation of law or otherwise, without Lender's prior written consent (whether or not the sums owing under this Note become due and payable by acceleration); or from and after the Maturity Date, then at the option of Lender, the interest rate applicable to the then outstanding principal balance of this Note shall be the Alternate Rate. 3. SELECTION OF FIXED RATE. Provided no Default, breach or failure of condition exists under the Loan Documents, or would exist with passage of time or notice or both, Borrower, at its option and upon satisfaction of the conditions set forth herein, may request a Fixed Rate as the Effective Rate for calculating interest on the portion of the unpaid principal balance and for the period selected in accordance with and subject to the following procedures and conditions: 3.1 Borrower shall give to the Disbursement and Operations Center, 2120 East Park Place, Suite 100, El Segundo, California, 90245, or such other addresses as Lender shall designate, an original or facsimile Fixed Rate Notice no later than 9:00 A.M. (California time), and not less than three (3) nor more than five (5) Business Days prior to the proposed Fixed Rate Period for each Fixed Rate Portion. Any Fixed Rate Notice pursuant to this Section 3 is irrevocable. Lender is authorized to rely upon the telephonic request and acceptance of Joey Cory as Borrower's duly authorized agents, or such additional authorized agents as Borrower shall designate in writing to Lender. Borrower's telephonic notices, requests and acceptances shall be directed to such officers of Lender as Lender may from time to time designate. 3.2 Borrower may elect (A) to convert Variable Rate advances to a Fixed Rate Portion, or (B) to convert a matured Fixed Rate Portion into a new Fixed Rate Portion, provided, however, that the aggregate amount of the advance being converted into or continued as a Fixed Rate Portion shall, in the aggregate, be not less than $1,000,000 and is an even multiple of $1,000,000. The conversion of a matured Fixed Rate Portion back to a Variable Rate or to a new Fixed Rate Portion shall occur on the last Business Day of the Fixed Rate Period relating to such Fixed Rate Portion. Each Fixed Rate Notice shall specify (1) the amount of the Fixed Rate Portion, (2) the Fixed Rate Period, and (3) the Fixed Rate Commencement Date. 3.3 Upon receipt of a Fixed Rate Notice in the proper form requesting a Fixed Rate Portion advance under Sections 3.1 and 3.2 above, Lender shall determine the Fixed Rate applicable to the Fixed Rate Period for such Fixed Rate Portion two (2) Business Days prior to the beginning of such Fixed Rate Period. Each determination by Lender of the Fixed Rate shall be conclusive and binding upon the parties hereto in the absence of manifest error. Lender will give Borrower (by facsimile) an acknowledgment of receipt and confirmation of the Fixed Rate Notice; provided, however, that failure to give such acknowledgment of receipt and confirmation of the Fixed Rate Notice to Borrower shall not affect the validity of such rate. 3.4 If Borrower does not make a timely election to convert all or a portion of a matured Fixed Rate Portion into a new Fixed Rate Portion in accordance with Section 3.2 above, such Fixed Rate Portion shall be automatically converted back to a Variable Rate upon the expiration of the Fixed Rate Period applicable to such Fixed Rate Portion. 4. ADMINISTRATION FEE. Upon Borrower's acceptance of a Fixed Rate, Borrower shall pay to Lender an administration fee of Five Hundred Dollars ($500.00) for each Fixed Rate Portion subject to such Fixed Rate. 5. FIXED RATE NOTICE. Borrower's selection of a Fixed Rate shall be delivered to Lender in the form of the Fixed Rate Notice shown on Exhibit B attached to this Note. Lender shall confirm and deliver to Borrower acceptance of such Fixed Rate Notice via facsimile. Lender's failure to deliver the Fixed Rate Notice shall not release Borrower from Borrower's obligation to pay interest at the Effective Rate pursuant to the terms hereof. Page 5 6 6. LIMITATIONS ON RIGHT TO FIX RATE. Borrower may request and accept up to six (6) Fixed Rate quotations at any one time. 7. TAXES, REGULATORY COSTS AND RESERVE PERCENTAGES. Upon Lender's demand, Borrower shall pay to Lender, in addition to all other amounts which may be, or become, due and payable under this Note and Loan Documents, any and all Taxes and Regulatory Costs, to the extent they are not internalized by calculation of a Fixed Rate. Further, at Lender's option, the Fixed Rate shall be automatically adjusted by adjusting the Reserve Percentage, as determined by Lender in its prudent banking judgment, from the date of imposition (or subsequent date selected by Lender) of any such Regulatory Costs. Lender shall give Borrower notice of any Taxes and Regulatory Costs as soon as practicable after their occurrence, but Borrower shall be liable for any Taxes and Regulatory Costs regardless of whether or when notice is so given. Notwithstanding the provisions of this Section 7, no demand or adjustment shall be made unless such demand or adjustment is generally made of similar borrowers under loan documents containing similar provisions as those contained in the Loan Documents. 8. FIXED RATE PRICE ADJUSTMENT. Borrower acknowledges that prepayment or acceleration of a Fixed Rate Portion during a Fixed Rate Period shall result in Lender's incurring additional costs, expenses and/or liabilities and that it is extremely difficult and impractical to ascertain the extent of such costs, expenses and/or liabilities. Therefore, on the date a Fixed Rate Portion is prepaid or the date all sums payable hereunder become due and payable, by acceleration or otherwise ("Price Adjustment Date"), Borrower will pay Lender (in addition to all other sums then owing to Lender) an amount ("Fixed Rate Price Adjustment") equal to the then present value of (a) the amount of interest that would have accrued on the Fixed Rate Portion for the remainder of the Fixed Rate Period at the Fixed Rate set on the Fixed Rate Commencement Date, less (b) the amount of interest that would accrue on the same Fixed Rate Portion for the same period if the Fixed Rate were set on the Price Adjustment Date at the Applicable LIBO Rate in effect on the Price Adjustment Date. The present value shall be calculated by using as a discount rate the LIBO Rate quoted on the Price Adjustment Date. By initialing this provision where indicated below, Borrower confirms that Lender's agreement to make the loan evidenced by this Note at the interest rates and on the other terms set forth herein and in the other Loan Documents constitutes adequate and valuable consideration, given individual weight by Borrower, for this agreement. BORROWER'S INITIALS: _______________ 9. PURCHASE, SALE AND MATCHING OF FUNDS. Borrower understands, agrees and acknowledges the following: (a) Lender has no obligation to purchase, sell and/or match funds in connection with the use of a LIBO Rate as a basis for calculating a Fixed Rate or Fixed Rate Price Adjustment; (b) a LIBO Rate is used merely as a reference in determining a Fixed Rate and Fixed Rate Price Adjustment; and (c) Borrower has accepted a LIBO Rate as a reasonable and fair basis for calculating a Fixed Rate and a Fixed Rate Price Adjustment. Borrower further agrees to pay the Fixed Rate Price Adjustment, Taxes and Regulatory Costs, if any, whether or not Lender elects to purchase, sell and/or match funds. 10. MISCELLANEOUS. As used in this Exhibit, the plural shall mean the singular and the singular shall mean the plural as the context requires. Addresses for the Fixed Rate Notice shall be the same as those for notices under the Loan Agreement executed in connection with this Note. Page 6 7 This Agreement is executed concurrently with and as part of this Note referred to and described first above. "BORROWER" COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By: ------------------------------------- Name: ---------------------------------- Its: ------------------------------------ Page 7 8 FIXED RATE NOTICE EXHIBIT B LOAN NO. 1440 TODAY'S DATE: LOAN MATURITY DATE: June 1, 2002 -------------- -------------------- TO: WELLS FARGO BANK, N.A. LOAN ADMINISTRATOR: Robin L. Dixon DISBURSEMENT AND OPERATIONS CENTER FAX # (310) 615-1014 or (310) 615-1016 ATTENTION: RATE OPTION DESK ------------------ RELATIONSHIP MANAGER: Jay Rosenberg ------------------
================================================================================ BORROWER INTEREST RATE OPTION REQUEST Rate Quote Line (888) 293-2362 x:472 Use One Form Per Transaction LOAN #: 1440 BORROWER NAME: COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation -------- ----------------------------------------- RATE SET DATE: FIXED RATE COMMENCEMENT DATE: (1350) ---------------------------------- ------------------------------- FIXED RATE PERIOD (TERM): (i.e. 1, 2, 3 months , etc. as allowed per Note) ------------------------------------ INDEX: LIBO RATE: % + SPREAD ABOVE LIBO = #'s% (1350) -------------------- --------------- ---------------------------- ----------------------------- Quote Spread Applicable Rate FIXED RATE PORTION EXPIRING ON: $ -------------------------------- ------------------------------------------- 1. AMOUNT ROLLING OVER $ FROM OBLGN#: -------------------- ------------- 2. ADD: AMT TRANSFERRED FROM VARIABLE RATE PORTION $ FROM OBLGN#: TO OBLGN# : -------------------- ------------- ------------- (5522) (5020) 3. ADD: AMT TRANSFERRED FROM OTHER FIXED RATE PORTION $ FROM OBLGN#: TO OBLGN# : -------------------- ------------- ------------- (5522) (5020) ADD: AMT TRANSFERRED FROM OTHER FIXED RATE PORTION $ FROM OBLGN#: TO OBLGN# : -------------------- ------------- ------------- (5522) (5020) 4. LESS: AMT TRANSFERRED TO VARIABLE RATE PORTION $ FROM OBLGN#: TO OBLGN# : -------------------- ------------- ------------- (5522) (5020) TOTAL FIXED RATE PORTION: $ ------------------------------------------------------------------------------ ADMINISTRATION FEE DUE: $500.00 -------------------- CHARGE FEES TO DDA#: YES, charge DDA DDA#: ------------- ------------------------------------- NO, to be remitted PLEASE REMIT FEE TO: 2120 E. PARK PLACE, SUITE 100 ------------- EL SEGUNDO, CA 90245
Borrower confirms, represents and warrants to Lender, (a) that this selection of a Fixed Rate is subject to the terms and conditions of the Note, Fixed Rate Agreement and Loan Documents (as applicable), and (b) that terms, words and phrases used but not defined in this Notice have the meanings attributed thereto in the Note, Fixed Rate Agreement and Loan Documents (as applicable), and (c) that no breach, failure of condition, or Default has occurred or exists, or would exist after notice or passage of time or both, under the Note or the Loan Documents. REQUESTED BY (as allowed per documents): TELEPHONE #: ( ) --------------------------- ---------------------------------- PRINT NAME: FAX #: ( ) -------------------------------------------------------- ----------------------------------
================================================================================ WELLS FARGO BANK ACKNOWLEDGMENT OF RECEIPT AND CONFIRMATION Page 8 9 FIXED RATE EXPIRATION DATE: (2301) REQUEST VERIFIED BY: DATE: ---------------------------------------- --------------------------------------- REQUEST APPROVED BY: DATE: ---------------------------------------- --------------------------------------- CONFIRMATION FAXED TO CUSTOMER BY: DATE: TIME: -------------------------- -------------- -------------
================================================================================ WELLS FARGO BANK OPERATIONS USE ONLY TRACKING #: LOAN AU: 2034 LOAN SU: OBLIGOR #: ----------------- ------------ ------------- ---------------- CHARGE CODE: 100 BASIS: EARN TYPE: 0 BAL TYPE: 000 (1350) ------------- ----------- ------------- ---------- SPECIAL PRODUCT TYPE CODE: (If change required) (2305) ------------------------------------------------------- TDR: NO YES (Fax to loan acctg) UPDATE BILLING SCHEDULE: NO YES (1370) ------ ------ ------ ------ DATA ENTRY COMPLETED BY: DATE: BATCH ID: --------------------- --------------------- ---------------- DATA ENTRY AUDITED BY: DATE: -------------------------------------------------------- ---------------
Page 9 EX-10.13 14 f69166ex10-13.txt EXHIBIT 10.13 1 EXHIBIT 10.13 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Jeffer, Mangels, Butler & Marmaro LLP 2121 Avenue of the Stars, 10th Floor Los Angeles, California 90067 Attn: Joel J. Berman, Esq. - -------------------------------------------------------------------------------- THIS DEED OF TRUST SECURES A LOAN AGREEMENT WHICH PROVIDES FOR A VARIABLE INTEREST RATE DEED OF TRUST WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING THE PARTIES TO THIS DEED OF TRUST WITH ABSOLUTE ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING ("Deed of Trust"), made as of December 15 2000, are COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation ("Trustor"), First American Title Company, a California corporation ("Trustee"), and FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent for itself and the other Lenders (as hereinafter defined) ("Beneficiary"). ARTICLE 1. GRANT IN TRUST 1.1 GRANT. For the purposes of and upon the terms and conditions in this Deed of Trust, Trustor irrevocably grants, conveys and assigns to Trustee, in trust for the benefit of Beneficiary, with power of sale and right of entry and possession, all of that real property located in the County of Santa Clara, State of California, described on Exhibit A attached hereto, together with all right, title, interest, and privileges of Trustor in and to all streets, ways, roads, and alleys used in connection with or pertaining to such real property, all development rights or credits, air rights, water, water rights and water stock related to the real property, and all minerals, oil and gas, and other hydrocarbon substances in, on or under the real property, and all appurtenances, easements, rights and rights of way appurtenant or related thereto; all buildings, other improvements and fixtures now or hereafter located on the real property, including, but not limited to, all water wells, pipelines, irrigation systems, pumps, fuel tanks and other crop fixtures, and all apparatus, equipment, and appliances used in the operation or occupancy of the real property, it being intended by the parties that all such items shall be conclusively considered to be a part of the real property, whether or not attached or affixed to the real property (the "Improvements"); all interest or estate which Trustor may hereafter acquire in the property described above, and all additions and accretions thereto, and the proceeds of any of the foregoing; (all of the foregoing being collectively referred to as the "Subject Property"). The listing of specific rights or property shall not be interpreted as a limit of general terms. ARTICLE 2. OBLIGATIONS SECURED 2.1 OBLIGATIONS SECURED. Trustor makes this Deed of Trust for the purpose of securing the following obligations ("Secured Obligations"): Page 1 of 24 2 (a) Payment to Beneficiary of all sums at any time owing and performance of all covenants and obligations on the part of Trustor under that certain Loan and Security Agreement ("Loan Agreement") of even date herewith by and among Trustor, Beneficiary, the other Lenders named therein and other Obligors named therein, relating to a loan in the principal amount of Sixty-One Million Dollars ($61,000,000.00); and (b) Payment and performance of all covenants and obligations of Trustor under this Deed of Trust; and (c) Payment and performance of all covenants and obligations, if any, of any rider attached as an Exhibit to this Deed of Trust; and (d) Payment and performance of all future advances and other obligations that the then record owner of all or part of the Subject Property may agree to pay and/or perform (whether as principal, surety or guarantor) for the benefit of Beneficiary, when such future advance or obligation is evidenced by a writing which recites that it is secured by this Deed of Trust; and (e) All modifications, extensions and renewals of any of the obligations secured hereby, however evidenced, including, without limitation: (i) modifications of the required principal payment dates or interest payment dates or both, as the case may be, deferring or accelerating payment dates wholly or partly; or (ii) modifications, extensions or renewals at a different rate of interest. 2.2 OBLIGATIONS. The term "obligations" is used herein in its broadest and most comprehensive sense and shall be deemed to include, without limitation, all interest and charges, prepayment charges (if any), late charges and loan fees at any time accruing or assessed on any of the Secured Obligations. 2.3 INCORPORATION. All terms of the Secured Obligations and the documents evidencing such obligations are incorporated herein by this reference. All persons who may have or acquire an interest in the Subject Property shall be deemed to have notice of the terms of the Secured Obligations and to have notice, if provided therein, that: (a) the Loan Agreement may permit borrowing, repayment and re-borrowing so that repayments shall not reduce the amounts of the Secured Obligations; and (b) the rate of interest on one or more Secured Obligations may vary from time to time. 2.4 DEFINED TERMS. Capitalized terms which are used herein but not defined herein shall have the meanings ascribed to them in the Loan Agreement. "Lenders" means, collectively, Foothill Capital Corporation, a California corporation, and Ableco Finance LLC, a Delaware limited liability company, together with their respective successors and assigns, and shall include any other Person made a party to the Loan Agreement in accordance with the provisions of Section 14.1 thereof. ARTICLE 3. ASSIGNMENT OF LEASES AND RENTS 3.1 ASSIGNMENT. Trustor hereby irrevocably assigns to Beneficiary all of Trustor's right, title and interest in, to and under: (a) all leases of the Subject Property or any portion thereof, and all other agreements of any kind relating to the use or occupancy of the Subject Property or any portion thereof, whether now existing or entered into after the date hereof ("Leases"); and (b) the rents, revenue, income, issues, deposits and profits of the Subject Property, including, without limitation, all amounts payable and all rights and benefits accruing to Trustor under the Leases ("Payments"). The term "Leases" shall also include all guarantees of and security for the lessees' performance thereunder, and all amendments, extensions, renewals or modifications thereto which are permitted hereunder. This is a present and absolute assignment, not an assignment for security purposes only, and Beneficiary's right to the Leases and Payments is not contingent upon, and may be exercised without possession of, the Subject Property. Page 2 of 24 3 3.2 GRANT OF LICENSE. Beneficiary confers upon Trustor a license ("License") to collect and retain the Payments as they become due and payable, until the occurrence of a Default (as hereinafter defined). Upon a Default, the License shall be automatically revoked and so long as the Default continues, the License shall remain revoked and Beneficiary may collect and apply the Payments pursuant to Section 6.4 without notice and without taking possession of the Subject Property. Trustor hereby irrevocably authorizes and directs the lessees under the Leases to rely upon and comply with any notice or demand by Beneficiary for the payment to Beneficiary of any rental or other sums which may at any time become due under the Leases, or for the performance of any of the lessees' undertakings under the Leases, and the lessees shall have no right or duty to inquire as to whether any Default has actually occurred or is then existing hereunder. Trustor hereby relieves the lessees from any liability to Trustor by reason of relying upon and complying with any such notice or demand by Beneficiary. 3.3 EFFECT OF ASSIGNMENT. The foregoing irrevocable assignment shall not cause Beneficiary to be: (a) a mortgagee in possession; (b) responsible or liable for the control, care, management or repair of the Subject Property or for performing any of the terms, agreements, undertakings, obligations, representations, warranties, covenants and conditions of the Leases; or (c) responsible or liable for any waste committed on the Subject Property by the lessees under any of the Leases or any other parties; for any dangerous or defective condition of the Subject Property; or for any negligence in the management, upkeep, repair or control of the Subject Property resulting in loss or injury or death to any lessee, licensee, employee, invitee or other person. Beneficiary and Trustee shall not directly or indirectly be liable to Trustor or any other person as a consequence of: (i) the exercise or failure to exercise by Beneficiary or Trustee, or any of their respective employees, agents, contractors or subcontractors, any of the rights, remedies or powers granted to Beneficiary or Trustee hereunder; or (ii) the failure or refusal of Beneficiary to perform or discharge any obligation, duty or liability of Trustor arising under the Leases. 3.4 REPRESENTATIONS AND WARRANTIES. Trustor represents and warrants that: (a) the Schedule of Leases attached hereto as Schedule 1 is, as of the date hereof, a true, accurate and complete list of all Leases; (b) all existing Leases are in full force and effect and are enforceable in accordance with their respective terms, and no breach or default, or event which would constitute a breach or default after notice or the passage of time, or both, exists under any existing Leases on the part of any party; (c) no rent or other payment under any existing Lease has been paid by any lessee for more than one (1) month in advance; and (d) none of the lessor's interests under any of the Leases has been transferred or assigned. 3.5 COVENANTS. The provisions of this Section 3.5 and Section 3.6 shall only be applicable to Leases wherein Trustor is lessor. Trustor covenants and agrees at Trustor's sole cost and expense to: (a) perform the obligations of lessor contained in the Leases and subject to the exercise of Trustor's good faith business judgment, enforce by all available remedies performance by the lessees of the obligations of the lessees contained in the Leases; (b) give Beneficiary prompt written notice of any default which occurs with respect to any of the Leases, whether the default be that of the lessee or of the lessor; (c) deliver to Beneficiary fully executed, counterpart original(s) of each and every Lease if requested to do so; and (d) execute and record such additional assignments of any Lease or specific subordinations (or subordination, attornment and non-disturbance agreements executed by the lessor and lessee) of any Lease to the Deed of Trust, in form and substance acceptable to Beneficiary, as Beneficiary may request. Trustor shall not, without Beneficiary's prior written consent or as otherwise permitted by any provision of the Loan Agreement: (i) enter into any Leases after the date thereof, except for Leases of space no longer needed for use in Trustor's business operations, which Leases are to Persons who are not Affiliates of Trustor, are negotiated on an arm's length basis, and are at market rental; (ii) execute any other assignment relating to any of the Leases; (iii) discount any rent or other sums due under the Leases or collect the same in advance, other than to collect rentals one (1) month in advance of the time when it becomes due; (iv) except in the exercise of Trustor's good faith Page 3 of 24 4 business judgment at times when no Event of Default has occurred or is continuing, terminate, modify or amend any of the terms of the Leases or in any manner release or discharge the lessees from any obligations thereunder; (v) except in the exercise of Trustor's good faith business judgment at times when no Event of Default has occurred or is continuing, consent to any assignment or subletting by any lessee; or (vi) subordinate or agree to subordinate any of the Leases to any other deed of trust or encumbrance. Any such attempted action in violation of the provisions of this Section 3.5 shall be null and void. 3.6 ESTOPPEL CERTIFICATES. Within thirty (30) days after written request by Beneficiary, Trustor shall deliver to Beneficiary and to any party designated by Beneficiary estoppel certificates executed by Trustor and by each of the lessees, in recordable form, certifying (if such be the case): (a) that the foregoing assignment and the Leases are in full force and effect; (b) the date of each lessee's most recent payment of rent; (c) that there are no defenses or offsets outstanding, or stating those claimed by Trustor or lessees under the foregoing assignment or the Leases, as the case may be; and (d) any other information reasonably requested by Beneficiary. ARTICLE 4. SECURITY AGREEMENT AND FIXTURE FILING 4.1 SECURITY INTEREST. Trustor hereby grants and assigns to Beneficiary as of the Closing Date a security interest, to secure payment and performance of all of the Secured Obligations, in all of the following described personal property in which Trustor now or at any time hereafter has any interest (collectively, the "Collateral"): All goods, building and other materials, supplies, work in process, equipment, machinery, fixtures, furniture, furnishings, signs and other personal property (including, without limitation, all water wells, pipelines, irrigation systems, pumps, fuel tanks and other crop fixtures), wherever situated, which are or are to be incorporated into, used in connection with, or appropriated for use on (i) the real property described on Exhibit A attached hereto and incorporated by reference herein (to the extent the same are not effectively made a part of the real property pursuant to Section 1.1 above), or (ii) the Improvements (which real property and Improvements are collectively referred to herein as the Subject Property); together with all timber, crops and other plantings, growing or to be grown, and the products thereof; all rents (to the extent, if any, they are not subject to Article 3); all inventory, accounts, cash receipts, deposit accounts, accounts receivable, contract rights, licenses, agreements, general intangibles, chattel paper, instruments, documents, notes, drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, any other rights to the payment of money, trade names, trademarks and service marks arising from or related to the ownership, management, leasing or operation of the Subject Property or any business now or hereafter conducted thereon by Trustor; all permits, consents, approvals, licenses, authorizations and other rights granted by, given by or obtained from, any governmental entity with respect to the Subject Property; all deposits or other security now or hereafter made with or given to utility companies by Trustor with respect to the Subject Property; all advance payments of insurance premiums made by Trustor with respect to the Subject Property; all plans, drawings and specifications relating to the Subject Property; all loan funds held by Beneficiary, whether or not disbursed; all funds deposited with Beneficiary pursuant to any loan agreement; all reserves, deferred payments, deposits, accounts, refunds, cost savings and payments of any kind related to the Subject Property or any portion thereof; together with all replacements and proceeds of, and additions and accessions to, any of the foregoing; together with all books, records and files relating to any of the foregoing. As to all of the above described personal property which is or which hereafter becomes a "fixture" under applicable law, this Deed of Trust constitutes a fixture filing under Page 4 of 24 5 Sections 9313 and 9402(6) of the California Uniform Commercial Code, as amended or recodified from time to time. 4.2 REPRESENTATIONS AND WARRANTIES. Trustor represents and warrants that: (a) Trustor has, or will have, good title to the Collateral; (b) Trustor has not previously assigned or encumbered the Collateral, and no financing statement covering any of the Collateral has been delivered to any other person or entity; and (c) Trustor's principal place of business is located at the address shown in Section 7.11. 4.3 RIGHTS OF BENEFICIARY. In addition to Beneficiary's rights as a "Secured Party" under the California Uniform Commercial Code, as amended or recodified from time to time ("UCC"), Beneficiary may, but shall not be obligated to, at any time without notice and at the expense of Trustor: (a) give notice to any person of Beneficiary's rights hereunder and enforce such rights at law or in equity; (b) insure, protect, defend and preserve the Collateral or any rights or interests of Beneficiary therein; (c) inspect the Collateral; and (d) endorse, collect and receive any right to payment of money owing to Trustor under or from the Collateral. Notwithstanding the above, in no event shall Beneficiary be deemed to have accepted any property other than cash in satisfaction of any obligation of Trustor to Beneficiary unless Beneficiary shall make an express written election of said remedy under UCC Section 9505, or other applicable law. 4.4 RIGHTS OF BENEFICIARY ON DEFAULT. Upon the occurrence and during the continuance of a Default (hereinafter defined) under this Deed of Trust, then in addition to all of Beneficiary's rights as a "Secured Party" under the UCC or otherwise at law: (a) Beneficiary may (i) upon written notice, require Trustor to assemble any or all of the Collateral and make it available to Beneficiary at a place designated by Beneficiary; (ii) without prior notice, enter upon the Subject Property or other place where any of the Collateral may be located and take possession of, collect, sell, and dispose of any or all of the Collateral, and store the same at locations acceptable to Beneficiary at Trustor's expense; (iii) sell, assign and deliver at any place or in any lawful manner all or any part of the Collateral and bid and become the purchaser at any such sales; and (b) Beneficiary may, for the account of Trustor and at Trustor's expense: (i) operate, use, consume, sell or dispose of the Collateral as Beneficiary deems appropriate for the purpose of performing any or all of the Secured Obligations; (ii) subject to the terms of the Loan Agreement, enter into any agreement, compromise, or settlement, including insurance claims, which Beneficiary may deem desirable or proper with respect to any of the Collateral; and (iii) endorse and deliver evidences of title for, and receive, enforce and collect by legal action or otherwise, all indebtedness and obligations now or hereafter owing to Trustor in connection with or on account of any or all of the Collateral. Notwithstanding any other provision hereof, Beneficiary shall not be deemed to have accepted any property other than cash in satisfaction of any obligation of Trustor to Beneficiary unless Trustor shall make an express written election of said remedy under UCC Section 9505, or other applicable law. 4.5 POWER OF ATTORNEY. Trustor hereby irrevocably appoints Beneficiary as Trustor's attorney-in-fact (such agency being coupled with an interest), and as such attorney-in-fact Beneficiary may, without the obligation to do so, in Beneficiary's name, or in the name of Trustor, prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve any of Beneficiary's security interests and rights in or to any of the Collateral, and, upon the occurrence and during the continuance of a Default hereunder, take any other action required of Trustor; provided, however, that Beneficiary as such attorney-in-fact shall be accountable only for such funds as are actually received by Beneficiary. Page 5 of 24 6 4.6 POSSESSION AND USE OF COLLATERAL. Except as otherwise provided in this Section or the other Loan Documents, so long as no Default exists under this Deed of Trust or any of the Loan Documents, Trustor may possess, use, move, transfer or dispose of any of the Collateral in the ordinary course of Trustor's business and in accordance with the Loan Agreement. ARTICLE 5. RIGHTS AND DUTIES OF THE PARTIES 5.1 TITLE. Trustor represents and warrants that, except as disclosed to Beneficiary in a writing which refers to this warranty, Trustor lawfully holds and possesses fee simple title to the Subject Property without limitation on the right to encumber, and that this Deed of Trust is a first and prior lien on the Subject Property. 5.2 TAXES AND ASSESSMENTS. Subject to Trustor's rights to contest payment of taxes as may be provided in the Loan Agreement, Trustor shall pay prior to delinquency all taxes, assessments, levies and charges imposed by any public or quasi-public authority or utility company which are or which may become a lien upon or cause a loss in value of the Subject Property or any interest therein. Trustor shall also pay prior to delinquency all taxes, assessments, levies and charges imposed by any public authority upon Beneficiary by reason of its interest in any Secured Obligation or in the Subject Property, or by reason of any payment made to Beneficiary pursuant to any Secured Obligation; provided, however, Trustor shall have no obligation to pay taxes which may be imposed from time to time upon Beneficiary and which are measured by and imposed upon Beneficiary's net income. 5.3 TAX AND INSURANCE IMPOUNDS. At any time following the occurrence of a Default and during the continuance thereof, at Beneficiary's option and upon its demand, Trustor, shall, until all Secured Obligations have been paid in full, pay to Beneficiary monthly, annually or as otherwise directed by Beneficiary an amount estimated by Beneficiary to be equal to: (a) all taxes, assessments, levies and charges imposed by any public or quasi-public authority or utility company which are or may become a lien upon the Subject Property or Collateral and will become due for the tax year during which such payment is so directed; and (b) premiums for fire, hazard and insurance required or requested pursuant to the Loan Documents when same are next due. If Beneficiary determines that any amounts paid by Trustor are insufficient for the payment in full of such taxes, assessments, levies, charges and/or insurance premiums, Beneficiary shall notify Trustor of the increased amounts required to pay all amounts when due, whereupon Trustor shall pay to Beneficiary within thirty (30) days thereafter the additional amount as stated in Beneficiary's notice. All sums so paid shall not bear interest, except to the extent and in any minimum amount required by law; and Beneficiary shall, unless Trustor is otherwise in Default hereunder or under any Loan Document, apply said funds to the payment of, or at the sole option of Beneficiary release said funds to Trustor for the application to and payment of, such sums, taxes, assessments, levies, charges, and insurance premiums. Upon Default by Trustor hereunder or under any Secured Obligation, Beneficiary may apply all or any part of said sums to any Secured Obligation and/or to cure such Default, in which event Trustor shall be required to restore all amounts so applied, as well as to cure any other events or conditions of Default not cured by such application. Upon assignment of this Deed of Trust, Beneficiary shall have the right to assign all amounts collected and in its possession to its assignee whereupon Beneficiary and the Trustee shall be released from all liability with respect thereto. Within ninety-five (95) days following full repayment of the Secured Obligations (other than full repayment of the Secured Obligations as a consequence of a foreclosure or conveyance in lieu of foreclosure of the liens and security interests securing the Secured Obligations) or at such earlier time as Beneficiary may elect, the balance of all amounts collected and in Beneficiary's possession shall be paid to Trustor and no other party shall have any right or claim thereto. 5.4 PERFORMANCE OF SECURED OBLIGATIONS. Trustor shall promptly pay and perform each Secured Obligation when due. Page 6 of 24 7 5.5 LIENS, ENCUMBRANCES AND CHARGES. Trustor shall immediately discharge any lien not approved by Beneficiary in writing that has or may attain priority over this Deed of Trust. Subject to the provisions of the Loan Agreement regarding mechanics' liens, Trustor shall pay when due all obligations secured by or which may become liens and encumbrances which shall now or hereafter encumber or appear to encumber all or any part of the Subject Property or Collateral, or any interest therein, whether senior or subordinate hereto. 5.6 DAMAGES; INSURANCE AND CONDEMNATION PROCEEDS. (a) The following (whether now existing or hereafter arising) are all absolutely and irrevocably assigned by Trustor to Beneficiary and, at the request of Beneficiary, shall be paid directly to Beneficiary: (i) all awards of damages and all other compensation payable directly or indirectly by reason of a condemnation or proposed condemnation for public or private use affecting all or any part of, or any interest in, the Subject Property or Collateral; (ii) all other claims and awards for damages to, or decrease in value of, all or any part of, or any interest in, the Subject Property or Collateral; (iii) all proceeds of any insurance policies payable by reason of loss sustained to all or any part of the Subject Property or Collateral; and (iv) all interest which may accrue on any of the foregoing. Subject to applicable law, and without regard to any requirement contained in Section 5.7(d), Beneficiary may at its discretion apply all or any of the proceeds it receives to its reasonable and documented out-of-pocket expenses in settling, prosecuting or defending any claim. In the event of the occurrence and continuance of a Default or an impairment (in Beneficiary's sole good faith judgment) of Beneficiary's security hereunder, Beneficiary may apply the balance to the Secured Obligations in any order acceptable to Beneficiary. In the absence of the occurrence and continuance of a Default or an impairment (in Beneficiary's sole good faith judgment) of Beneficiary's security hereunder, Beneficiary shall release the balance of the proceeds to Trustor for repair or restoration upon such reasonable conditions as Beneficiary may impose. Beneficiary may commence, appear in, defend or prosecute any assigned claim or action and may adjust, compromise, settle and collect all claims and awards assigned to Beneficiary; provided, however, in no event shall Beneficiary be responsible for any failure to collect any claim or award, regardless of the cause of the failure, including, without limitation, any malfeasance or nonfeasance by Beneficiary or its employees or agents. (b) When required to do so pursuant to the provisions of Section 5.6(a), Beneficiary shall, and at all other times, Beneficiary may, permit insurance or condemnation proceeds held by Beneficiary to be used for repair or restoration but may condition such application upon reasonable conditions, including, without limitation: (i) the deposit with Beneficiary of such additional funds which Beneficiary reasonably determines are needed to pay all costs of the repair or restoration, (including, without limitation, taxes, financing charges, insurance and rent during the repair period); (ii) the establishment of an arrangement for lien releases and disbursement of funds acceptable to Beneficiary; (iii) the delivery to Beneficiary of plans and specifications for the work, a contract for the work signed by a contractor acceptable to Beneficiary, a cost breakdown for the work and a payment and performance bond for the work, all of which shall be reasonably acceptable to Beneficiary; and (iv) the delivery to Beneficiary of evidence reasonably acceptable to Beneficiary of the satisfaction of any additional conditions that Beneficiary may reasonably establish to protect its security. Trustor hereby acknowledges that the conditions described above are reasonable, and, if such conditions have not been satisfied within ninety (90) days of receipt by Beneficiary of such insurance or condemnation proceeds, then Beneficiary may apply such insurance or condemnation proceeds to pay the Secured Obligations in such order and amounts as Beneficiary in its sole discretion may choose. Page 7 of 24 8 5.7 MAINTENANCE AND PRESERVATION OF THE SUBJECT PROPERTY. Subject to the provisions of the Loan Agreement, Trustor covenants: (a) to insure the Subject Property and Collateral against such risks as Beneficiary may require and, at Beneficiary's request, to provide evidence of such insurance to Beneficiary, and to comply with the requirements of any insurance companies providing such insurance; (b) to keep the Subject Property and Collateral in good condition and repair; (c) not to remove or demolish the Subject Property or Collateral or any part thereof, not to alter, restore or add to the Subject Property or Collateral and not to initiate or acquiesce in any change in any zoning or other land classification which affects the Subject Property without Beneficiary's prior written consent (which consent shall not be unreasonably withheld) or as provided in the Loan Agreement; (d) to complete or restore promptly and in good and workmanlike manner the Subject Property and Collateral, or any part thereof which may be damaged or destroyed, provided that if Beneficiary is required to release insurance proceeds for repair or restoration in accordance with Section 5.6, Beneficiary so releases such proceeds; (e) to comply with all laws, ordinances, regulations and standards, and all covenants, conditions, restrictions and equitable servitudes, whether public or private, of every kind and character which affect the Subject Property or Collateral and pertain to acts committed or conditions existing thereon, including, without limitation, any work, alteration, improvement or demolition mandated by such laws, covenants or requirements; (f) not to commit or permit waste of the Subject Property or Collateral; and (g) to do all other acts which from the character or use of the Subject Property or Collateral may be reasonably necessary to maintain and preserve its value. 5.8 DEFENSE AND NOTICE OF LOSSES, CLAIMS AND ACTIONS. At Trustor's sole expense, Trustor shall protect, preserve and defend the Subject Property and Collateral and title to and right of possession of the Subject Property and Collateral, the security hereof and the rights and powers of Beneficiary and Trustee hereunder against all adverse claims. Trustor shall give Beneficiary and Trustee prompt notice in writing of the assertion of any claim, of the filing of any action or proceeding, of the occurrence of any damage to the Subject Property or Collateral and of any condemnation offer or action. 5.9 ACCEPTANCE OF TRUST; POWERS AND DUTIES OF TRUSTEE. (a) Trustee accepts this trust when this Deed of Trust is recorded. Except as may be required by applicable law, Trustee or Beneficiary may from time to time apply to any court of competent jurisdiction for aid and direction in the execution of the trust hereunder and the enforcement of the rights and remedies available hereunder, and may obtain orders or decrees directing or confirming or approving acts in the execution of said trust and the enforcement of said remedies. (b) Trustee shall not be required to take any action toward the execution and enforcement of the trust hereby created or to institute, appear in, or defend any action, suit, or other proceeding in connection therewith where, in his opinion, such action would be likely to involve him in expense or liability, unless requested so to do by a written instrument signed by Beneficiary and, if Trustee so requests, unless Trustee is tendered security and indemnity satisfactory to Trustee against any and all cost, expense, and liability arising therefrom. Trustee shall not be responsible for the execution, acknowledgment, or validity of the Loan Documents, or for the proper authorization thereof, or for the sufficiency of the lien and security interest purported to be created hereby, and Trustee makes no representation in respect thereof or in respect of the rights, remedies, and recourses of Beneficiary. (c) With the approval of Beneficiary, Trustee shall have the right to take any and all of the following actions: (i) to select, employ, and advise with counsel (who may be, but need not be, counsel for Beneficiary) upon any matters arising hereunder, including the preparation, execution, and interpretation of the Loan Documents, and shall be fully protected in relying as to legal matters on the advice of counsel, (ii) to execute any of the trusts and powers hereof and to perform any duty hereunder either directly or through his agents or attorneys, (iii) to select and employ, in Page 8 of 24 9 and about the execution of his duties hereunder, suitable accountants, engineers and other experts, agents and attorneys-in-fact, either corporate or individual, not regularly in the employ of Trustee, and Trustee shall not be answerable for any act, default, negligence, or misconduct of any such accountant, engineer or other expert, agent or attorney-in-fact, if selected with reasonable care, or for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever, except for Trustee's gross negligence or bad faith, and (iv) any and all other lawful action as Beneficiary may instruct Trustee to take to protect or enforce Beneficiary's rights hereunder. Trustee shall not be personally liable in case of entry by Trustee, or anyone entering by virtue of the powers herein granted to Trustee, upon the Subject Property for debts contracted for or liability or damages incurred in the management or operation of the Subject Property. Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by Trustee hereunder, believed by Trustee in good faith to be genuine. Trustee shall be entitled to reimbursement for expenses incurred by Trustee in the performance of Trustee's duties hereunder and to reasonable compensation for such of Trustee's services hereunder as shall be rendered. TRUSTOR WILL, FROM TIME TO TIME, PAY THE COMPENSATION DUE TO TRUSTEE HEREUNDER AND REIMBURSE TRUSTEE FOR, AND INDEMNIFY AND HOLD HARMLESS TRUSTEE AGAINST, ANY AND ALL LIABILITY AND REASONABLE AND DOCUMENTED OUT-OF-POCKET EXPENSES WHICH MAY BE INCURRED BY TRUSTEE IN THE PERFORMANCE OF TRUSTEE'S DUTIES. (d) All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by applicable law) and Trustee shall be under no liability for interest on any moneys received by Trustee hereunder. (e) Should any deed, conveyance, or instrument of any nature be required from Trustor by any Trustee or substitute Trustee to more fully and certainly vest in and confirm to the Trustee or substitute Trustee such estates, rights, powers, and duties, then, upon request by the Trustee or substitute Trustee, any and all such deeds, conveyances and instruments shall be made, executed, acknowledged, and delivered and shall be caused to be recorded and/or filed by Trustor. (f) By accepting or approving anything required to be observed, performed, or fulfilled or to be given to Trustee pursuant to the Loan Documents, including without limitation, any deed, conveyance, instrument, officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Trustee shall not be deemed to have warranted, consented to, or affirmed the sufficiency, legality, effectiveness, or legal effect of the same, or of any term, provision, or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or affirmation with respect thereto by Trustee. 5.10 COMPENSATION; EXCULPATION; INDEMNIFICATION. (a) Trustor shall pay Trustee's fees and reimburse Trustee for reasonable and documented out-of-pocket expenses in the administration of this trust, including reasonable and documented out-of-pocket attorneys' fees. Trustor shall pay to Beneficiary reasonable compensation for services rendered concerning this Deed of Trust, including without limit any statement of amounts owing under any Secured Obligation. Beneficiary shall not directly or indirectly be liable to Trustor or any other person as a consequence of (i) the exercise of the rights, remedies or powers granted to Beneficiary in this Deed of Trust; (ii) the failure or refusal of Beneficiary to perform or discharge any obligation or liability of Trustor under any agreement related to the Subject Property or Collateral or under this Deed of Trust; or (iii) any loss sustained by Trustor or any third party resulting from Beneficiary's failure (whether by malfeasance, nonfeasance or refusal Page 9 of 24 10 to act) to lease the Subject Property after a Default (hereinafter defined) or from any other act or omission (regardless of whether same constitutes negligence) of Beneficiary in managing the Subject Property after a Default unless the loss is caused by the gross negligence or willful misconduct of Beneficiary and no such liability shall be asserted against or imposed upon Beneficiary, and all such liability is hereby expressly waived and released by Trustor. (b) TRUSTOR INDEMNIFIES TRUSTEE AND BENEFICIARY AGAINST, AND HOLDS TRUSTEE AND BENEFICIARY HARMLESS FROM, ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, CAUSES OF ACTION, JUDGMENTS, COURT COSTS, REASONABLE AND DOCUMENTED OUT-OF-POCKET ATTORNEYS' FEES AND OTHER LEGAL EXPENSES, COST OF EVIDENCE OF TITLE, COST OF EVIDENCE OF VALUE, AND OTHER REASONABLE AND DOCUMENTED OUT-OF-POCKET EXPENSES WHICH EITHER MAY SUFFER OR INCUR: (i) BY REASON OF THIS DEED OF TRUST; (ii) BY REASON OF THE EXECUTION OF THIS TRUST OR IN PERFORMANCE OF ANY ACT REQUIRED OR PERMITTED HEREUNDER OR BY LAW; (iii) AS A RESULT OF ANY FAILURE OF TRUSTOR TO PERFORM TRUSTOR'S OBLIGATIONS; OR (iv) BY REASON OF ANY ALLEGED OBLIGATION OR UNDERTAKING ON BENEFICIARY'S PART TO PERFORM OR DISCHARGE ANY OF THE REPRESENTATIONS, WARRANTIES, CONDITIONS, COVENANTS OR OTHER OBLIGATIONS CONTAINED IN ANY OTHER DOCUMENT RELATED TO THE SUBJECT PROPERTY. THE ABOVE OBLIGATION OF TRUSTOR TO INDEMNIFY AND HOLD HARMLESS TRUSTEE AND BENEFICIARY SHALL SURVIVE THE RELEASE AND CANCELLATION OF THE SECURED OBLIGATIONS AND THE RELEASE AND RECONVEYANCE OR PARTIAL RELEASE AND RECONVEYANCE OF THIS DEED OF TRUST. (c) TRUSTOR shall pay all amounts and indebtedness arising under this Section 5.10 immediately upon demand by Trustee or Beneficiary together with interest thereon from the date the indebtedness arises at the rate of interest then applicable to the principal balance under the Loan Agreement as specified therein. 5.11 SUBSTITUTION OF TRUSTEES. From time to time, by a writing, signed and acknowledged by Beneficiary and recorded in the Office of the Recorder of the County in which the Subject Property is situated, Beneficiary may appoint another trustee to act in the place and stead of Trustee or any successor. Such writing shall set forth any information required by law. The recordation of such instrument of substitution shall discharge Trustee herein named and shall appoint the new trustee as the trustee hereunder with the same effect as if originally named Trustee herein. A writing recorded pursuant to the provisions of this Section 5.11 shall be conclusive proof of the proper substitution of such new Trustee. 5.12 DUE ON SALE OR ENCUMBRANCE. Except as otherwise expressly permitted in the Loan Agreement, if the Subject Property or any interest therein shall be sold, transferred (including, without limitation, through sale or transfer of a majority or controlling interest of the corporate stock or general partnership interests or limited liability company interests of Trustor), mortgaged, assigned, further encumbered or leased, whether directly or indirectly, whether voluntarily, involuntarily or by operation of law, without the prior written consent of Beneficiary, THEN Beneficiary, in its sole discretion, may declare all Secured Obligations immediately due and payable. 5.13 RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY. Without notice to or the consent, approval or agreement of any persons or entities having any interest at any time in the Subject Property and Collateral or in any manner obligated under the Secured Obligations ("Interested Parties"), Beneficiary may, from time to time, release any person or entity from liability for the payment or performance of any Secured Obligation, take any action or make any agreement extending the maturity or otherwise altering the terms or increasing the amount of any Secured Obligation, or accept additional security or release all or a portion of the Subject Property and Collateral and other security for the Secured Obligations. None of the foregoing actions shall release or reduce the personal liability Page 10 of 24 11 of any of said Interested Parties, or release or impair the priority of the lien of and security interests created by this Deed of Trust upon the Subject Property and Collateral. 5.14 RECONVEYANCE. Upon Beneficiary's written request, and upon surrender to Trustee for cancellation of this Deed of Trust or a certified copy thereof and any note, instrument, or instruments setting forth all obligations secured hereby, Trustee shall reconvey, without warranty, the Subject Property or that portion thereof then held hereunder. To the extent permitted by law, the reconveyance may describe the grantee as "the person or persons legally entitled thereto" and the recitals of any matters or facts in any reconveyance executed hereunder shall be conclusive proof of the truthfulness thereof. Neither Beneficiary nor Trustee shall have any duty to determine the rights of persons claiming to be rightful grantees of any reconveyance. When the Subject Property has been fully reconveyed, the last such reconveyance shall operate as a reassignment of all future rents, issues and profits of the Subject Property to the person or persons legally entitled thereto. 5.15 SUBROGATION. Beneficiary shall be subrogated to the lien of all encumbrances, whether released of record or not, paid in whole or in part by Beneficiary pursuant to the Loan Documents or by the proceeds of any loan secured by this Deed of Trust. 5.16 RIGHT OF INSPECTION. Subject to the provisions of the Loan Agreement, Beneficiary, its agents and employees, may enter the Subject Property at any reasonable time for the purpose of inspecting the Subject Property and Collateral and ascertaining Trustor's compliance with the terms hereof. ARTICLE 6. DEFAULT PROVISIONS 6.1 DEFAULT. For all purposes hereof, the term "Default" shall mean (a) at Beneficiary's option, the failure of Trustor to make any payment of principal or interest under the Loan Agreement or to pay any other amount due hereunder or under the Loan Agreement when the same is due and payable, whether at maturity, by acceleration or otherwise; (b) the failure of Trustor to perform any non-monetary obligation hereunder, or the failure to be true of any representation or warranty of Trustor contained herein and the continuance of such failure for ten (10) days after notice, or within any longer grace period, if any, allowed in the Loan Agreement for such failure, or (c) the existence of any Event of Default as defined in the Loan Agreement. 6.2 RIGHTS AND REMEDIES. At any time after Default and during the continuance thereof, Beneficiary and Trustee shall each have all the following rights and remedies: (a) With or without notice, to declare all Secured Obligations immediately due and payable; without limiting the foregoing, Beneficiary may, in addition, at its option, demand cash collateral in the full amount of the obligations under all L/C's and L/C Undertakings, whether or not then due and payable by Beneficiary; (b) With or without notice, and without releasing Trustor from any Secured Obligation, and without becoming a mortgagee in possession, to cure any breach or Default of Trustor and, in connection therewith, to enter upon the Subject Property and do such acts and things as Beneficiary or Trustee deem necessary or desirable to protect the security hereof, including, without limitation: (i) to appear in and defend any action or proceeding purporting to affect the security of this Deed of Trust or the rights or powers of Beneficiary or Trustee under this Deed of Trust; (ii) to pay, purchase, contest or compromise any encumbrance, charge, lien or claim of lien which, in the sole judgment of either Beneficiary or Trustee, is or may be senior in priority to this Deed of Trust, the judgment of Beneficiary or Trustee being conclusive as between the parties hereto; (iii) to obtain insurance; (iv) to pay any premiums or charges with respect to Page 11 of 24 12 insurance required to be carried under this Deed of Trust; or (v) to employ counsel, accountants, contractors and other appropriate persons. (c) To commence and maintain an action or actions in any court of competent jurisdiction to foreclose this instrument as a mortgage or to obtain specific enforcement of the covenants of Trustor hereunder, and Trustor agrees that such covenants shall be specifically enforceable by injunction or any other appropriate equitable remedy and that for the purposes of any suit brought under this subparagraph, Trustor waives the defense of laches and any applicable statute of limitations; (d) To apply to a court of competent jurisdiction for and obtain appointment of a receiver of the Subject Property as a matter of strict right and without regard to the adequacy of the security for the repayment of the Secured Obligations, the existence of a declaration that the Secured Obligations are immediately due and payable, or the filing of a notice of default, and Trustor hereby consents to such appointment; (e) To enter upon, possess, manage and operate the Subject Property or any part thereof, to take and possess all documents, books, records, papers and accounts of Trustor or the then owner of the Subject Property, to make, terminate, enforce or modify Leases of the Subject Property upon such terms and conditions as Beneficiary deems proper, to make repairs, alterations and improvements to the Subject Property as necessary, in Trustee's or Beneficiary's sole judgment, to protect or enhance the security hereof; (f) To execute a written notice of such Default and of its election to cause the Subject Property to be sold to satisfy the Secured Obligations. As a condition precedent to any such sale, Trustee shall give and record such notice as the law then requires. When the minimum period of time required by law after such notice has elapsed, Trustee, without notice to or demand upon Trustor except as required by law, shall sell the Subject Property at the time and place of sale fixed by it in the notice of sale, at one or several sales, either as a whole or in separate parcels and in such manner and order, all as Beneficiary in its sole discretion may determine, at public auction to the highest bidder for cash, in lawful money of the United States, payable at time of sale. Neither Trustor nor any other person or entity other than Beneficiary shall have the right to direct the order in which the Subject Property is sold. Subject to requirements and limits imposed by law, Trustee may from time to time postpone sale of all or any portion of the Subject Property by public announcement at such time and place of sale. Trustee shall deliver to the purchaser at such sale a deed conveying the Subject Property or portion thereof so sold, but without any covenant or warranty, express or implied. The recitals in the deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustee, Trustor or Beneficiary may purchase at the sale; (g) To resort to and realize upon the security hereunder and any other security now or later held by Beneficiary concurrently or successively and in one or several consolidated or independent judicial actions or lawfully taken non-judicial proceedings, or both, and to apply the proceeds received upon the Secured Obligations all in such order and manner as Trustee and Beneficiary, or either of them, determine in their sole discretion. (h) Upon sale of the Subject Property at any judicial or non-judicial foreclosure, Beneficiary may credit bid (as determined by Beneficiary in its sole and absolute discretion) all or any portion of the Secured Obligations. In determining such credit bid, Beneficiary may, but is not obligated to, take into account all or any of the following: (i) appraisals of the Subject Property as such appraisals may be discounted or adjusted by Beneficiary in its sole and absolute underwriting discretion; (ii) expenses and costs incurred by Beneficiary with respect to the Subject Property prior to foreclosure; (iii) expenses and costs which Beneficiary anticipates will be incurred with Page 12 of 24 13 respect to the Subject Property after foreclosure, but prior to resale, including, without limitation, costs of structural reports and other due diligence, costs to carry the Subject Property prior to resale, costs of resale (e.g. commissions, attorneys' fees, and taxes), costs of any hazardous materials clean-up and monitoring, costs of deferred maintenance, repair, refurbishment and retrofit, costs of defending or settling litigation affecting the Subject Property, and lost opportunity costs (if any), including the time value of money during any anticipated holding period by Beneficiary; (iv) declining trends in real property values generally and with respect to properties similar to the Subject Property; (v) anticipated discounts upon resale of the Subject Property as a distressed or foreclosed property; (vi) the fact of additional collateral (if any), for the Secured Obligations; and (vii) such other factors or matters that Beneficiary (in its sole and absolute discretion) deems appropriate. In regard to the above, Trustor acknowledges and agrees that: (w) Beneficiary is not required to use any or all of the foregoing factors to determine the amount of its credit bid; (x) this Section does not impose upon Beneficiary any additional obligations that are not imposed by law at the time the credit bid is made; (y) the amount of Beneficiary's credit bid need not have any relation to any loan-to-value ratios specified in the Loan Documents or previously discussed between Trustor and Beneficiary; and (z) Beneficiary's credit bid may be (at Beneficiary's sole and absolute discretion) higher or lower than any appraised value of the Subject Property. 6.3 APPLICATION OF FORECLOSURE SALE PROCEEDS. After deducting all costs, fees and expenses of Trustee, and of this trust, including, without limitation, cost of evidence of title and attorneys' fees in connection with sale and costs and expenses of sale and of any judicial proceeding wherein such sale may be made, Trustee shall apply all proceeds of any foreclosure sale: (a) to payment of all sums expended by Beneficiary under the terms hereof and not then repaid, with accrued interest at the rate of interest specified in the Loan Agreement to be applicable on or after maturity or acceleration of the indebtedness under the Loan Agreement; (b) to payment of all other Secured Obligations; and (c) the remainder, if any, to the person or persons legally entitled thereto. 6.4 APPLICATION OF OTHER SUMS. All sums received by Beneficiary under Section 6.2 or Section 3.2, less all costs and expenses incurred by Beneficiary or any receiver under Section 6.2 or Section 3.2, including, without limitation, attorneys' fees, shall be applied in payment of the Secured Obligations in such order as Beneficiary shall determine in its sole discretion; provided, however, Beneficiary shall have no liability for funds not actually received by Beneficiary. 6.5 NO CURE OR WAIVER. Neither Beneficiary's nor Trustee's nor any receiver's entry upon and taking possession of all or any part of the Subject Property and Collateral, nor any collection of rents, issues, profits, insurance proceeds, condemnation proceeds or damages, other security or proceeds of other security, or other sums, nor the application of any collected sum to any Secured Obligation, nor the exercise or failure to exercise of any other right or remedy by Beneficiary or Trustee or any receiver shall cure or waive any breach, Default or notice of default under this Deed of Trust, or nullify the effect of any notice of default or sale (unless all Secured Obligations then due have been paid and performed and Trustor has cured all other defaults), or impair the status of the security, or prejudice Beneficiary or Trustee in the exercise of any right or remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease or option or a subordination of the lien of or security interests created by this Deed of Trust. 6.6 PAYMENT OF COSTS, EXPENSES AND ATTORNEYS' FEES. Trustor agrees to pay to Beneficiary immediately and without demand all reasonable and documented out-of-pocket costs and expenses incurred by Trustee and Beneficiary pursuant to Section 6.2 (including, without limitation, court costs and reasonable and documented out-of-pocket attorneys' fees, whether incurred in litigation or not) with interest from the date of expenditure until said sums have been paid at the rate of interest then applicable to the principal balance under the Loan Agreement as specified therein. In addition, Trustor shall pay to Trustee all Trustee's fees hereunder and shall reimburse Trustee for all reasonable and Page 13 of 24 14 documented out-of-pocket expenses incurred in the administration of this trust, including, without limitation, any attorneys' fees. 6.7 POWER TO FILE NOTICES AND CURE DEFAULTS. Trustor hereby irrevocably appoints Beneficiary and its successors and assigns, as its attorney-in-fact, which agency is coupled with an interest, (a) to execute and/or record any notices of completion, cessation of labor, or any other notices that Beneficiary deems appropriate to protect Beneficiary's interest, (b) upon the issuance of a deed pursuant to the foreclosure of the lien of this Deed of Trust or the delivery of a deed in lieu of foreclosure, to execute all instruments of assignment or further assurance with respect to the Subject Property and Collateral, Leases and Payments in favor of the grantee of any such deed, as may be necessary or desirable for such purpose, (c) to prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve Beneficiary's security interests and rights in or to any of the Subject Property and Collateral, and (d) upon the occurrence of an event, act or omission which, with notice or passage of time or both, would constitute a Default, Beneficiary may perform any obligation of Trustor hereunder; provided, however, that: (i) Beneficiary as such attorney-in-fact shall only be accountable for such funds as are actually received by Beneficiary; and (ii) Beneficiary shall not be liable to Trustor or any other person or entity for any failure to act (whether such failure constitutes negligence) by Beneficiary under this Section. ARTICLE 7. MISCELLANEOUS PROVISIONS 7.1 ADDITIONAL PROVISIONS. The Loan Documents contain or incorporate by reference the entire agreement of the parties with respect to matters contemplated herein and supersede all prior negotiations. The Loan Documents grant further rights to Beneficiary and contain further agreements and affirmative and negative covenants by Trustor which apply to this Deed of Trust and to the Subject Property and Collateral and such further rights and agreements are incorporated herein by this reference. 7.2 MERGER. No merger shall occur as a result of Beneficiary's acquiring any other estate in, or any other lien on, the Subject Property unless Beneficiary consents to a merger in writing. 7.3 OBLIGATIONS OF TRUSTOR, JOINT AND SEVERAL. If more than one person has executed this Deed of Trust as "Trustor", the obligations of all such persons hereunder shall be joint and several. 7.4 RECOURSE TO SEPARATE PROPERTY. Any married person who executes this Deed of Trust as a Trustor agrees that any money judgment which Beneficiary or Trustee obtains pursuant to the terms of this Deed of Trust or any other obligation of that married person secured by this Deed of Trust may be collected by execution upon that person's separate property, and any community property of which that person is a manager. 7.5 WAIVER OF MARSHALLING RIGHTS. Trustor, for itself and for all parties claiming through or under Trustor, and for all parties who may acquire a lien on or interest in the Subject Property and Collateral, hereby waives all rights to have the Subject Property and Collateral and/or any other property, which is now or later may be security for any Secured Obligation ("Other Property") marshalled upon any foreclosure of the lien of this Deed of Trust or on a foreclosure of any other lien or security interest against any security for any of the Secured Obligations. Beneficiary shall have the right to sell, and any court in which foreclosure proceedings may be brought shall have the right to order a sale of, the Subject Property and any or all of the Collateral or Other Property as a whole or in separate parcels, in any order that Beneficiary may designate. Page 14 of 24 15 7.6 RULES OF CONSTRUCTION. When the identity of the parties or other circumstances make it appropriate the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. The term "Subject Property" and "Collateral" means all and any part of the Subject Property and Collateral, respectively, and any interest in the Subject Property and Collateral, respectively. 7.7 SUCCESSORS IN INTEREST. The terms, covenants, and conditions herein contained shall be binding upon and inure to the benefit of the heirs, successors and assigns of the parties hereto; provided, however, that this Section 7.7 does not waive or modify the provisions of Section 5.12. 7.8 EXECUTION IN COUNTERPARTS. To facilitate execution, this document may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature or acknowledgment of, or on behalf of, each party, or that the signature of all persons required to bind any party, or the acknowledgment of such party, appear on each counterpart. All counterparts shall collectively constitute a single document. It shall not be necessary in making proof of this document to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, and the respective acknowledgments of, each of the parties hereto. Any signature or acknowledgment page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures or acknowledgments thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature or acknowledgment pages. 7.9 GOVERNING LAW. This Deed of Trust shall be construed, governed and enforced in accordance with the laws of the State of New York, except as to matters relating to the creation, perfection, priority and enforcement of the liens on and security interests in the Subject Property and the Collateral, which shall be construed, governed and enforced in accordance with the laws of the State of California, and except to the extent that federal laws preempt the laws of either the State of New York or the State of California. 7.10 INCORPORATION. Exhibits A and B and Schedule 1, as attached, are incorporated into this Deed of Trust by this reference. 7.11 NOTICES. All notices, demands or other communications required or permitted to be given pursuant to the provisions of this Deed of Trust shall be in writing and shall be considered as properly given if delivered personally or sent by first class United States Postal Service mail, postage prepaid, except that notice of Default may be sent by certified mail, return receipt requested, or by Overnight Express Mail or by overnight commercial courier service, charges prepaid. Notices so sent shall be effective three (3) days after mailing, if mailed by first class mail, and otherwise upon receipt at the address set forth below; provided, however, that non-receipt of any communication as the result of any change of address of which the sending party was not notified or as the result of a refusal to accept delivery shall be deemed receipt of such communication. For purposes of notice, the address of the parties shall be: Page 15 of 24 16 Trustor: Communications & Power Industries, Inc. 607 Hansen Way Palo Alto, California 94303 Attn: Lynn E. Harvey, Chief Financial Officer Trustee: First American Title Company 520 North Central Avenue Glendale, California 91203 Beneficiary: FOOTHILL CAPITAL CORPORATION. as Agent 2450 Colorado Avenue Suite 3000 West Santa Monica, California 90404 Attn: Business Finance Division Manager
Any party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving of thirty (30) days notice to the other party in the manner set forth hereinabove. Trustor shall forward to Beneficiary, without delay, any notices, letters or other communications delivered to the Subject Property or to Trustor naming Beneficiary, "Lender" or any similar designation as addressee, or which could reasonably be deemed to affect the ability of Trustor to perform its obligations to Beneficiary under the Loan Agreement. 7.12 CONFLICT AMONG AGREEMENTS. In the event of any conflict between the provisions of this Deed of Trust and the provisions of the Loan Agreement, the provisions of the Loan Agreement shall prevail, and Trustor shall be bound by such provisions of the Loan Agreement fully to the same extent as if they were set forth herein in their entirety. Page 16 of 24 17 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year set forth above. "TRUSTOR" COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation By: ------------------------------------- Name: Title: (ALL SIGNATURES MUST BE ACKNOWLEDGED) Page 17 of 24 18 EXHIBIT A DESCRIPTION OF SUBJECT PROPERTY Exhibit A to Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing executed by COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation, as Trustor, to First American Title Company, as Trustee, for the benefit of FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent for itself and the other Lenders, as Beneficiary, dated as of December 15, 2000. All the certain real property located in the County of Santa Clara, State of California, described as follows: See Page 16A Hereof Page 18 of 24 19 EXHIBIT B LEASEHOLD RIDER TO DEED OF TRUST THIS LEASEHOLD RIDER TO DEED OF TRUST ("Rider") is attached to and forms a part of that certain Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing dated December 15, 2000, and executed by the undersigned, as Trustor, in favor of FIRST AMERICAN TITLE COMPANY, as Trustee, for the benefit of FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent for itself and the other Lenders, as Beneficiary (the "Deed of Trust"). Capitalized terms used in this Rider and not otherwise defined herein shall have the same meaning as in the Deed of Trust. 1. LEASEHOLD ESTATE. All or a portion of Trustor's interest in the Subject Property consists of one or more leasehold or subleasehold estates created pursuant to one or more leases or subleases in which Trustor is the tenant or subtenant. Such lease or leases are identified on Exhibit A to this Deed of Trust and are hereinafter referred to as the "Ground Lease". The landlord or sublandlord under any Ground Lease is hereinafter referred to as "Landlord". 2. REPRESENTATIONS OF TRUSTOR. Trustor hereby represents and warrants that: (i) the Ground Lease is unmodified except as indicated on Exhibit A to this Deed of Trust and is in full force and effect; (ii) all rents and other charges to be paid by Trustor as tenant under the Ground Lease are current; (iii) Trustor is not in default under any of the provisions of the Ground Lease and no circumstances exist which would constitute a default by Trustor under the Ground Lease or would otherwise permit Landlord to cancel, terminate or otherwise limit the Ground Lease in any manner; (iv) Trustor is not aware of any default by Landlord under the Ground Lease or the existence of circumstances which would constitute a default by Landlord under the Ground Lease; (v) Trustor's interest in the Ground Lease is subject to no liens or encumbrances except as previously disclosed to Beneficiary in writing; and (vi) Trustor owns and holds the Ground Lease and the entire leasehold estate created by the Ground Lease and has the right under the Ground Lease or has received all appropriate consents required in order for Trustor to execute this Deed of Trust. 3. PERFORMANCE. In no event shall Trustor do or permit to be done or omit to do or permit the omission of any act, the doing or omission of which would impair the security of this Deed of Trust or would constitute grounds for the termination of the Ground Lease or would entitle Landlord to declare a forfeiture or termination of the Ground Lease or to re-enter the Subject Property. Trustor agrees to pay, keep and perform all covenants, conditions, agreements and obligations of the tenant set forth in the Ground Lease, and not to commit or permit any breach thereof. 4. NOTICES. Trustor shall promptly (i) send to Beneficiary a copy of any notice from Landlord claiming the existence of a default by Trustor under the Ground Lease or the existence of any circumstances which would constitute such a default, and (ii) notify Beneficiary in writing of the existence of any default by Landlord under the Ground Lease or the existence of any circumstances which would constitute such a default. 5. INDEPENDENT OBLIGATION. Trustor agrees that the provisions hereof shall be deemed to be obligations of Trustor in addition to Trustor's obligations as tenant with respect to similar matters contained in the Ground Lease; provided, however, the inclusion herein of any covenants relating to similar matters under which Trustor is obligated under the Ground Lease shall not restrict or limit Trustor's duties and obligations to keep and perform promptly all of its covenants as tenant under the Ground Lease, and nothing in this Deed of Trust shall be construed as requiring the taking of or the omitting to take any action by Trustor or Beneficiary which would cause a default under the Ground Lease. Trustor further agrees that no release or forbearance of any of Trustor's obligations under the Ground Lease, pursuant to the Ground Lease or otherwise, shall release Trustor from any of its obligations under this Deed of Trust. Page 19 of 24 20 6. NO MERGER. Trustor agrees that so long as this Deed of Trust is in effect, there shall be no merger of the Ground Lease or any interest therein, nor of the leasehold estate created thereby with the fee estate in the Subject Property or any portion thereof, by reason of the fact that the Ground Lease may be held directly or indirectly by or for the account of any person who shall hold the fee estate in the Subject Property. If Trustor acquires the fee title or any other estate, title or interest in the Subject Property, this Deed of Trust shall attach to and be a lien upon the fee title or such other estate so acquired, and such fee title or other estate shall, without further assignment, mortgage or conveyance, become and be subject to the lien of this Deed of Trust. Trustor shall notify Beneficiary of any such acquisition by Trustor and, on written request by Beneficiary, shall cause to be executed and recorded such further documents or instruments as may in the sole discretion of Beneficiary be necessary or desirable to carry out the intent hereof. 7. NO MODIFICATION OR SURRENDER. Trustor agrees that (i) no surrender or termination of the Ground Lease (except a surrender upon the expiration of the term of the Ground Lease or the termination by Landlord pursuant to the provisions thereof) shall be valid or effective, and (ii) neither the Ground Lease nor the terms thereof may be amended, supplemented, surrendered or cancelled, or subordinated to any fee mortgage, to any lease, or to any other interest, either orally or in writing, without the prior written consent of Beneficiary, and Trustor agrees that any such action, without the prior written consent of Beneficiary, shall be void and constitute an Event of Default under this Deed of Trust. 8. ARBITRATION PROCEEDINGS. Trustor shall promptly notify Beneficiary in writing upon the initiation of any arbitration or appraisal proceedings under and pursuant to the provisions of the Ground Lease. Trustor shall not designate, appoint or select an arbitrator or appraiser in any such proceedings without the prior written consent of Beneficiary. 9. TRUSTOR'S DEFAULT UNDER GROUND LEASE. 9.1 BENEFICIARY'S ADDITIONAL RIGHTS. If Trustor shall default under the Ground Lease, in addition to all the rights and remedies provided for in this Deed of Trust and available at law, Beneficiary may, at its option but without any obligation to do so, take any action necessary or desirable to cure any default by Trustor in the performance of any of the terms, covenants and conditions of the Ground Lease. Trustor shall, upon demand, pay to Beneficiary all reasonable and documented out-of-pocket costs incurred by Beneficiary in curing or attempting to cure such default, together with interest on such costs from the date of expenditure at the rate applicable pursuant to the Debt Instrument, and all such sums shall be secured by this Deed of Trust. Upon receipt by Beneficiary of any written notice of default by Trustor under the Ground Lease, Beneficiary may rely thereon and take any action to cure such default even though the existence or nature of the default may be disputed by Trustor. Trustor hereby grants to Beneficiary, and agrees that Beneficiary shall have, the absolute and immediate right to enter in and upon the Subject Property or any part thereof to such extent and as often as Beneficiary, in its sole discretion, deems necessary or desirable in order to prevent or cure any default by Trustor. Notwithstanding the foregoing nor anything to the contrary contained in this Rider, this Deed of Trust shall not constitute a present assignment of the Ground Lease and Beneficiary does not hereby assume, nor shall Beneficiary be deemed to assume or otherwise be responsible for, performance of the obligations of Trustor as tenant under the Ground Lease. Beneficiary shall be liable for the obligations of the Trustor as tenant under the Ground Lease only during the period of time which Beneficiary is in possession of the Subject Property or has acquired, by foreclosure or otherwise, and is holding, all of Trustor's right, title and interest in the Ground Lease. 9.2 ADDITIONAL EVENT OF DEFAULT. Any breach or default by Trustor of any term, condition or covenant contained in the Ground Lease or the occurrence of any circumstances which would permit Landlord to cancel, terminate or otherwise limit the Ground Lease in any manner shall constitute an Event of Default under this Deed of Trust. 10. NOTICE TO LANDLORD. Promptly after the execution and delivery of this Deed of Trust, Trustor shall notify Landlord in writing of such execution and delivery and provide Landlord with a copy of this Deed of Trust. Page 20 of 24 21 11. ESTOPPEL CERTIFICATE. Trustor shall promptly furnish to Beneficiary all information that Beneficiary may request concerning the performance by Trustor of its obligations under the Ground Lease. Promptly upon demand by Beneficiary, Trustor shall obtain from Landlord and furnish to Beneficiary an estoppel certificate executed by Landlord stating, among other things, the date through which rent has been paid, whether or not there are any defaults under the Ground Lease, and the nature of such defaults. 12. NEW LEASE. Trustor agrees that, if the Ground Lease is for any reason whatsoever terminated prior to the natural expiration of its term and Beneficiary or its designee shall acquire from Landlord a new lease of the Subject Property or any part thereof, Trustor shall have no right, title or interest in or to such new lease or the leasehold estate created thereby. 13. NOTICE OF BANKRUPTCY. Trustor shall promptly notify Beneficiary orally of any filing by or against Landlord or Trustor of a petition under the Bankruptcy Code, Title 11 of the United States Code (as the same may be amended or recodified from time to time, the "Bankruptcy Code"). Trustor shall promptly thereafter give written notice of such filing to Beneficiary, setting forth any information available to Trustor including the date of such filing, the court in which such petition was filed, and the relief sought therein. Trustor shall promptly deliver to Beneficiary, any and all notices, summonses, pleadings, applications and other documents received by Trustor in connection with any such petition and any proceedings relating thereto. 14. RESTRICTION ON ACTIONS UNDER BANKRUPTCY CODE. Trustor shall not commence any action, suit, proceeding or case, or file any application or make any motion in respect of the Ground Lease in any such case, without the prior written consent of Beneficiary. 15. BANKRUPTCY OF LANDLORD. 15.1 ELECTION IN BANKRUPTCY. Trustor acknowledges that, pursuant to Section 365 of the Bankruptcy Code, it is possible that a trustee in bankruptcy of Landlord or Landlord as a debtor-in-possession could reject the Ground Lease, in which case Trustor, as tenant, would have the election described in Section 365(h) of the Bankruptcy Code (which election, as the same may be amended, revised or recodified from time to time, and together with any comparable right under any other state or federal law relating to bankruptcy, reorganization or other relief for debtors, whether now or hereafter in effect, is herein called the "Election") to treat the Ground Lease as terminated by such rejection or, in the alternative, to remain in possession for the balance of the term of such Ground Lease and any renewal or extension thereof that is enforceable by the tenant under applicable non-bankruptcy law. Trustor covenants that it will not suffer or permit the termination of the Ground Lease by exercise of the Election or otherwise without the prior written consent of Beneficiary. Trustor acknowledges that, since the Ground Lease is a primary part of Beneficiary's security for the obligations secured under this Deed of Trust, Beneficiary does not anticipate that it would consent to termination of the Ground Lease and shall not under any circumstances be obliged to give such consent. 15.2 ASSIGNMENT OF ELECTION. In order to secure the covenants made in Section 15.1 and as security for the other obligations secured under this Deed of Trust, Trustor assigns the Election to Trustee and Beneficiary. Trustor acknowledges and agrees that Trustee and Beneficiary may use the Election at any time in order to protect and preserve the rights and interests of Trustee and Beneficiary under this Deed of Trust, since exercise of the Election in favor of terminating the Ground Lease would constitute waste hereunder. 15.3 EFFECT OF ASSIGNMENT. Trustor acknowledges and agrees that the Election is in the nature of a remedy and is not a Subject Property interest which Trustor can separate from the Ground Lease. Therefore, Trustor agrees that exercise of the Election in favor of preserving the right to possession under the Ground Lease shall not be deemed to constitute a taking or sale of the Subject Property by Trustee or Beneficiary and shall not entitle Trustor to any credit against the obligations secured by this Deed of Trust. Page 21 of 24 22 15.4 RIGHT TO POSSESSION. Trustor acknowledges and agrees that, in the event the Election is exercised in favor of Trustor remaining in possession, Trustor's resulting right to possession and use of (and rents and profits from) the Subject Property, as adjusted by the effect of Section 365 of the Bankruptcy Code, whether or not all or any part of the Subject Property has been subleased, shall then be part of the Trust Estate and shall be subject to the lien created by this Deed of Trust. However, Trustor acknowledges and agrees that said right to possession and use of the Subject Property as so adjusted shall not be equivalent to the leasehold interest which is included in the Trust Estate at the time of execution of this Deed of Trust. 15.5 ASSIGNMENT OF RIGHTS ARISING FROM REJECTION OF GROUND LEASE. Trustor hereby unconditionally assigns, transfers and sets over to Beneficiary all of Trustor's claims and rights to the payment of damages arising from any rejection by Landlord of the Ground Lease under the Bankruptcy Code. Beneficiary shall have the right to proceed in its own name or in the name of Trustor in respect of any claim, suit, action or proceeding relating to the rejection of the Ground Lease, including, without limitation, the right to file and prosecute any proofs of claim, complaints, motions, applications, notices and other documents. This assignment constitutes a present, irrevocable and unconditional assignment of the foregoing claims, rights and remedies, and shall continue in effect until all of the obligations secured by this Deed of Trust shall have been fully satisfied and discharged. Any amounts received by Beneficiary as damages arising out of the rejection of the Ground Lease shall be applied first to all costs and expenses of Beneficiary (including, without limitation, attorneys' fees) incurred in connection with the exercise of any of its rights or remedies under this Section 15 and then to the indebtedness secured hereby. 16. BANKRUPTCY OF TRUSTOR. 16.1 ASSUMPTION OF LEASE BY BENEFICIARY. If there shall be filed by or against Trustor a petition under the Bankruptcy Code, and Trustor, as tenant under the Ground Lease, shall determine to reject the Ground Lease pursuant to the Bankruptcy Code, Trustor shall give Beneficiary not less than thirty (30) days' prior notice of the date on which Trustor shall apply to the Bankruptcy Court for authority to reject the Ground Lease. Beneficiary shall have the right, but not the obligation, to serve upon Trustor within such thirty (30) day period a notice stating that (i) Beneficiary demands that Trustor assume and assign the Ground Lease to Beneficiary pursuant to Section 365 of the Bankruptcy Code, and (ii) Beneficiary agrees to cure or provide adequate assurance of prompt cure of all defaults reasonably susceptible of cure by Beneficiary and provides adequate assurance of future performance under the Ground Lease. If Beneficiary serves upon Trustor the notice described in the preceding sentence, Trustor shall not seek the rejection of the Ground Lease and shall comply with the demand provided for in clause (i) of the preceding sentence within thirty (30) days after the notice shall have been given, subject to the performance by Beneficiary of the agreement provided for in clause (ii) of the preceding sentence. 16.2 BENEFICIARY'S RIGHT TO FILE FOR EXTENSION. Effective upon the entry of an order for relief in respect of Trustor under the Bankruptcy Code, Trustor hereby assigns and transfers to Beneficiary a non-exclusive right to apply to the Bankruptcy Court for an order extending the period during which the Ground Lease may be rejected or assumed. Trustor has caused this Rider to be executed as of the day and year first above written. TRUSTOR: COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation By: ----------------------------------- Name: Title: Page 22 of 24 23 SCHEDULE 1 SCHEDULE OF LEASES Schedule 1 to Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing executed by COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation, as Trustor, to First American Title Company, as Trustee, for the benefit of FOOTHILL CAPITAL CORPORATION, a California corporation, as Agent for itself and the other Lenders, as Beneficiary, dated as of December 15, 2000.
Initial Tenant Commencement Date Termination Date - ------------------------------ ----------------- ---------------- Pillsbury, Madison & Sutro LLP 4/14/2000 4/14/2001 Varian Associates, Inc. 4/15/1999 4/15/2002 Weil, Gotshal & Manges LLP 11/15/2000 8/31/2001
Page 23 of 24 24 STATE OF CALIFORNIA COUNTY OF _____________________________________ ss. On this ____ day of December, 2000, before me ____________________, a Notary Public in and for the State of California, personally appeared ____________________ personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature ------------------------------ My commission expires . ------------------- Page 24 of 24 EX-10.14 15 f69166ex10-14.txt EXHIBIT 10.14 1 EXHIBIT 10.14 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: WELLS FARGO BANK, NATIONAL ASSOCIATION Real Estate Group (AU#2034) 555 Montgomery Street 16th Floor San Francisco, CA 94111 Attn: Robin L. Dixon Loan No. 1440 With a copy to: - -------------- Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, CA 90071 Attn: Jesse Sharf ================================================================================ SUBORDINATION AGREEMENT (Lease to Deed of Trust) NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT. THIS SUBORDINATION AGREEMENT ("Agreement") is made December __, 2000, by COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation, owner of the real property hereinafter described ("Owner") and COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation, lessee under the lease agreement described below ("Lessee"), in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender"). R E C I T A L S A. Pursuant to the terms and provisions of a lease dated December 1, 2000 ("Lease"), Owner granted to Lessee a leasehold estate in and to the property described on Exhibit A attached hereto and incorporated herein by this reference (which property, together with all improvements now or hereafter located on the property, is defined as the "Property"). B. Owner has executed, or proposes to execute, a deed of trust with absolute assignment of leases and rents, security agreement and fixture filing ("Deed of Trust") securing, among other things, a promissory note ("Note") in the principal sum of EIGHTEEN MILLION AND NO/100THS DOLLARS ($18,000,000), dated December __, 2000, in favor of Lender, which Note is payable with interest and upon the terms and conditions described therein ("Loan"). The Deed of Trust is to be recorded concurrently herewith, and encumbers the Property. C. As a condition to making the Loan secured by the Deed of Trust, Lender requires that the Deed of Trust be unconditionally and at all times remain a lien on the Property, prior and superior to all the rights of Lessee under the Page 1 2 Loan No. 1440 Lease and that the Lessee specifically and unconditionally subordinate the Lease to the lien of the Deed of Trust. D. Owner and Lessee agree to the subordination evidenced hereby. NOW THEREFORE, for valuable consideration and to induce Lender to make the Loan, Owner and Lessee hereby agree for the benefit of Lender as follows: 1.1 The Deed of Trust securing the Note in favor of Lender, and any modifications, renewals or extensions thereof, shall unconditionally be and at all times remain a lien on the Property prior and superior to the Lease; 1.2 This Agreement shall be the whole agreement and only agreement with regard to the subordination of the Lease to the lien of the Deed of Trust and shall supersede and cancel, but only insofar as would affect the priority between the Deed of Trust and the Lease, any prior agreements as to such subordination, including, without limitation, those provisions, if any, contained in the Lease which provide for the subordination of the Lease to a deed or deeds of trust or to a mortgage or mortgages. AND FURTHER, Lessee individually declares, agrees and acknowledges for the benefit of Lender, that: 1.3 Lender, in making disbursements pursuant to the Note, the Deed of Trust or any loan agreements with respect to the Property, is under no obligation or duty to, nor has Lender represented that it will, see to the application of such proceeds by the person or persons to whom Lender disburses such proceeds, and any application or use of such proceeds for purposes other than those provided for in such agreement or agreements shall not defeat this subordination in whole or in part; 1.4 Lessee intentionally and unconditionally waives, relinquishes and subordinates all of Lessee's right, title and interest in and to the Property to the lien of the Deed of Trust and understands that in reliance upon, and in consideration of, this waiver, relinquishment and subordination, specific loans and advances are being and will be made by Lender and, as part and parcel thereof, specific monetary and other obligations are being and will be entered into which would not be made or entered into but for said reliance upon this waiver, relinquishment and subordination. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute and be construed as one and the same instrument. Exhibit A is attached hereto and incorporated herein by this reference. NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE PERSON OBLIGATED ON YOUR REAL PROPERTY SECURITY TO OBTAIN A LOAN A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE LAND. IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF THIS AGREEMENT, THE PARTIES CONSULT WITH THEIR ATTORNEYS WITH RESPECT HERETO. Page 2 3 Loan No. 1440 "OWNER" COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By: _________________________________ Name: _________________________________ Its: _________________________________ "LESSEE" COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation By: _________________________________ Name: _________________________________ Its: _________________________________ (ALL SIGNATURES MUST BE ACKNOWLEDGED) Page 3 4 EXHIBIT A Loan No. 1440 DESCRIPTION OF PROPERTY EXHIBIT A to Subordination Agreement, dated as of December __, 2000, executed by COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation, as "Owner", and COMMUNICATIONS & POWER INDUSTRIES, INC., a Delaware corporation, as "Lessee", in favor of WELLS FARGO BANK, NATIONAL ASSOCIATION, as "Lender". The land referred to herein is situated in the County of San Mateo, State of California, and is described as follows: All the real property located in the City of San Carlos, County of San Mateo, State of California, all of Parcel 1 as shown on the Parcel Map recorded in Volume 20 of Parcel Maps at page 23 in the Records of said County, described in metes as follows: Beginning at Northerly corner of said Parcel; thence through the following numbered courses: 1) South 37 (degree) 56' 04" East 739.82 feet to a curve to the right with a radius of 447.00 feet 2) along said curve through a central angle of 33 (degree) 54' 48" an arc distance of 264.58 feet 3) South 04 (degree) 01' 16" East 182.93 feet to a curve to the left with a radius of 553.00 feet 4) along said curve through a central angle of 02 (degree) 38' 43" an arc distance of 25.53 feet 5) South 46 (degree) 51' 36" West 476.39 feet 6) North 42 (degree) 08' 24" West 1153.65 feet 7) North 47 (degree) 51' 36" East 752.91 feet to the point of beginning. A.P. No.: 046-051-020 JPN 046 005 051 02 A 046-051-070 046 005 051 07 A Page 4 5 STATE OF CALIFORNIA COUNTY OF __________________________ SS. On this ____ day of December, 2000, before me, _________________________________ a Notary Public in and for the State of California, personally appeared personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature ______________________________ My commission expires __________________. STATE OF CALIFORNIA COUNTY OF __________________________ SS. On this ____ day of December, 2000, before me, _________________________________ a Notary Public in and for the State of California, personally appeared personally known to me (or proved on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal Signature ______________________________ My commission expires __________________. EX-10.15 16 f69166ex10-15.txt EXHIBIT 10.15 1 EXHIBIT 10.15 Loan No. 1440 HAZARDOUS MATERIALS INDEMNITY AGREEMENT (UNSECURED) THIS HAZARDOUS MATERIALS INDEMNITY AGREEMENT (Unsecured) ("Indemnity") is given December __, 2000 by COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation ("Indemnitor") to WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender"), on the basis of the following facts and understandings: A. Pursuant to the terms of a loan agreement ("Loan Agreement") between Indemnitor, as borrower, and Lender, of even date herewith, Lender is making a loan to Indemnitor in the principal amount of EIGHTEEN MILLION AND NO/100THS Dollars ($18,000,000.00) ("Loan"). The Loan is evidenced by a promissory note ("Note") executed by Indemnitor in favor of Lender, in the principal amount of the Loan, and is further evidenced by the documents described in the Loan Agreement as the "Loan Documents". The Note is secured by, among other things, a deed of trust ("Deed of Trust"), executed by Indemnitor, as trustor, to American Securities Company, as trustee, in favor of Lender, as beneficiary. The Deed of Trust encumbers the real property and any and all improvements thereon described on Exhibit A attached hereto and incorporated herein by this reference ("Property"). B. Indemnitor has a direct financial interest in the Property and will benefit from Lender making the Loan. C. Lender is willing to make the Loan only on the condition, among others, that Indemnitor defend, indemnify and hold harmless Lender from and against any and all claims, loss, damage, cost, expense or liability arising out of the presence of Hazardous Materials (as defined in the Loan Agreement) on the Property, to the extent provided herein. D. Since the presence of Hazardous Materials on the Property may reduce the value of the Property to an extent that is unforeseeable and indeterminable and may, in fact, cause the value of the Property to be substantially less than the claims against Lender or the liabilities associated with ownership of such Property, Lender also is willing to make the Loan only on the condition that this Indemnity be and remain an unsecured personal obligation of Indemnitor to the extent provided herein. E. This Indemnity is not one of the "Loan Documents" as defined in the Loan Agreement. NOW, THEREFORE, in consideration of Lender contemporaneously herewith making the Loan, and for other good, valuable and adequate consideration, receipt of which is hereby acknowledged, Indemnitor agrees as follows: 1. INDEMNITY. INDEMNITOR HEREBY AGREES TO DEFEND, INDEMNIFY AND HOLD HARMLESS LENDER, ANY CORPORATION CONTROLLED BY LENDER, AND EACH OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS (INCLUDING, WITHOUT LIMITATION, ANY PARTICIPANTS IN THE LOAN) FROM AND AGAINST ANY AND ALL LOSSES, DAMAGES, LIABILITIES, CLAIMS, ACTIONS, JUDGMENTS, COURT COSTS AND LEGAL OR OTHER EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND EXPENSES) (COLLECTIVELY, "DAMAGES") WHICH LENDER MAY INCUR AS A DIRECT OR INDIRECT CONSEQUENCE OF: THE USE, GENERATION, MANUFACTURE, STORAGE, TREATMENT, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, TRANSPORTATION OR PRESENCE OF ANY HAZARDOUS MATERIALS, WHICH ARE FOUND IN, ON, UNDER OR ABOUT THE PROPERTY, INCLUDING, WITHOUT LIMITATION EXCEPT AS OTHERWISE PROVIDED HEREIN: (i) THE COSTS, WHETHER FORESEEABLE OR UNFORESEEABLE, OF ANY REPAIR, CLEANUP OR DETOXIFICATION OF THE PROPERTY WHICH IS REQUIRED BY ANY GOVERNMENTAL ENTITY; AND (ii) ANY THIRD PARTY TORT CLAIMS OR GOVERNMENTAL CLAIMS, FINES OR PENALTIES ARISING FROM THE USE, GENERATION, MANUFACTURE, STORAGE, TREATMENT, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, TRANSPORTATION OR PRESENCE OF ANY HAZARDOUS MATERIALS, WHICH ARE FOUND IN, ON, UNDER OR ABOUT THE PROPERTY. THE INDEMNITY SHALL NOT APPLY TO ANY DAMAGES CAUSED BY OR CONTRIBUTED TO BY ANY INDEMNITEE, ANY CORPORATION CONTROLLED BY ANY INDEMNITEE, OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, INCLUDING, WITHOUT LIMITATION, ANY DAMAGES ARISING FROM THE STATUS OF ANY SUCH ENTITY AS A RESPONSIBLE OR A POTENTIALLY RESPONSIBLE PARTY WITH RESPECT TO THE USE, GENERATION, MANUFACTURE, Page 1 2 Loan No. 1440 STORAGE, TREATMENT, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, TRANSPORTATION OR PRESENCE OF ANY HAZARDOUS MATERIALS, WHICH ARE FOUND IN, ON, UNDER OR ABOUT THE PROPERTY. THIS INDEMNITY SHALL NOT APPLY TO THE EXTENT THAT ANY HAZARDOUS MATERIALS HAVE BEEN INTRODUCED AT OR ABOUT THE PROPERTY AFTER ANY JUDICIAL OR NON-JUDICIAL FORECLOSURE UNDER THE DEED OF TRUST, OR TRANSFER OF THE PROPERTY IN LIEU THEREOF, EXCEPT TO THE EXTENT CONTRIBUTED TO BY INDEMNITOR OR ITS AFFILIATES, OR TO THE EXTENT THAT ANY PREEXISTING PRESENCE OF HAZARDOUS MATERIALS IS AGGRAVATED OR EXACERBATED AFTER ANY JUDICIAL OR NON-JUDICIAL FORECLOSURE UNDER THE DEED OF TRUST, OR TRANSFER OF THE PROPERTY IN LIEU THEREOF, EXCEPT TO THE EXTENT CONTRIBUTED TO BY INDEMNITOR OR ITS AFFILIATES. 2. INTENTIONALLY OMITTED. 3. TERM. The term of the indemnity provided for herein will commence on the date hereof and continue until such time as no legal action can be successfully brought against Lender due to applicable statutes of limitation. WITHOUT IN ANY WAY LIMITING THE ABOVE, IT IS EXPRESSLY UNDERSTOOD THAT INDEMNITOR'S DUTY TO INDEMNIFY LENDER SHALL SURVIVE: (a) ANY JUDICIAL OR NON-JUDICIAL FORECLOSURE UNDER THE DEED OF TRUST, OR TRANSFER OF THE PROPERTY IN LIEU THEREOF; (b) THE RELEASE AND RECONVEYANCE OR CANCELLATION OF THE DEED OF TRUST; AND (c) THE SATISFACTION OF ALL OF INDEMNITOR'S OBLIGATIONS UNDER THE LOAN DOCUMENTS. 4. INDEPENDENT AND UNSECURED OBLIGATIONS. Indemnitor acknowledges that, notwithstanding any other provision of this Indemnity or any of the Loan Documents to the contrary (including, without limitation, any non-recourse provision under the Loan Documents) the obligations of Indemnitor under this Indemnity are personal obligations of Indemnitor which are not secured by the Deed of Trust or any other security instrument. In this regard, Lender's appraisal of the value of the Property is such that Lender is not willing to accept the consequences, under California's "One Form of Action" Rule (i.e., Section 726 of the Code of Civil Procedure) and "Anti-Deficiency Rules" (i.e., Sections 580a, 580b and 580d of the Code of Civil Procedure) of inclusion of this Indemnity among the obligations secured by the Deed of Trust. Indemnitor acknowledges that Lender is unwilling to accept such consequences and that Lender would not make the Loan but for the personal unsecured liability undertaken by Indemnitor. 5. SETTLEMENTS; CLAIMS; JUDGMENTS. Indemnitor shall not, without the prior written consent of Lender: (a) settle or compromise any action, suit, proceeding, or claim in which Lender is named as a party or consent to the entry of any judgment in such a matter that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to Lender of a written release of Lender (in form, scope and substance reasonably satisfactory to Lender) from all liability in respect of such action, suit, or proceeding; or (b) settle or compromise any action, suit, proceeding, or claim in which Lender is named as a party in any manner that may materially and adversely affect Lender as reasonably determined by Lender. 6. INTEREST. Indemnitor shall pay Lender, within five (5) days of demand, interest, at the rate applicable to the principal balance of the Note as specified therein on any sums Lender is obligated to pay and does pay in respect to the matters to which this Indemnity is given, within five (5) days of Lender's demand. 7. RIGHTS NOT EXCLUSIVE. The rights of Lender under this Indemnity shall be in addition to any other rights and remedies of Lender against Indemnitor under any other document or instrument now or hereafter executed by Indemnitor, or at law or in equity (including, without limitation, any right of reimbursement or contribution pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as heretofore or hereafter amended from time to time). 8. RIGHTS OF LENDER. Indemnitor authorizes Lender, without giving notice to Indemnitor or obtaining Indemnitor's consent and without affecting the liability of Indemnitor, from time to time to: (a) to renew or extend all or any portion of Indemnitor's obligations under the Note or any of the other Loan Documents; (b) to make nonmaterial changes in the dates specified for payments of any item payable in periodic installments under the Note or any of the other Loan Documents; (c) take and hold security from others for the performance of Indemnitor's obligations Page 2 3 Loan No. 1440 under the Note or the other Loan Documents and exchange, enforce, waive and release any such security; (d) apply such security and direct the order or manner of sale thereof as Lender in its discretion may determine; (e) release, substitute or add any one or more endorsers of the Note or guarantors of Indemnitor's obligations under the Note or the other Loan Documents; (f) apply payments received by Lender from Indemnitor to any obligations of Indemnitor to Lender, in such order as Lender shall determine in its sole discretion, whether or not any such obligations are covered by this Indemnity; and (g) sell, assign or grant participations, rights or benefits under this Indemnity solely to parties who are assigned shares or interests in the Loan; provided, however, that Lender may not assign this Indemnity to any entity that is responsible or potentially responsible with respect to Hazardous Materials at or about the Property. 9. INDEMNITOR'S WAIVERS. Indemnitor waives: (a) any defense based upon any legal disability to enter into the Loan or other defense of Indemnitor; (b) any defense based on any lack of authority of the officers, directors, partners or agents acting or purporting to act on behalf of Indemnitor or any principal of Indemnitor, or any defect in the formation of Indemnitor or any principal of Indemnitor; (c) any defense based upon the application of the proceeds of the Loan by Indemnitor for purposes other than the purposes represented by Indemnitor to Lender or intended or understood by Lender or Indemnitor; (d) any and all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Indemnitor's rights of subrogation and reimbursement against the principal by the operation of Section 580d of the California Code of Civil Procedure or otherwise; (e) any defense based upon Lender's failure to disclose to Indemnitor any information concerning Indemnitor's financial condition or any other circumstances bearing on Indemnitor's ability to perform its obligations under the Note or any of the Loan Documents; (f) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal; (g) any defense based upon Lender's election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 1111(b) (2) of the Federal Bankruptcy Code or any successor statute; (h) any defense based upon any borrowing or any grant of a security interest under Section 364 of the Federal Bankruptcy Code; (i) any right of subrogation, any right to enforce any remedy which Lender may have against Indemnitor and any right to participate in, or benefit from, any security for the Note or the other Loan Documents now or hereafter held by Lender; and (j) presentment, demand, protest and notice of any kind. 10. LOAN SALES AND PARTICIPATIONS; DISCLOSURE OF INFORMATION. Subject to the limitations provided in Section 8(g) of this Indemnity, Indemnitor agrees that Lender may elect, at any time, to sell, assign or grant participations in all or any portion of its rights and obligations under the Loan Documents and this Indemnity, and that any such sale, assignment or participation may be to one or more financial institutions, private investors, and/or other entities, at Lender's sole discretion. No such sale, assignment or granting of participation shall in any way expand or increase Indemnitor's liability under this Indemnity. Indemnitor further agrees that Lender may disseminate to any such actual or potential purchaser(s), assignee(s) or participant(s) all documents and information (including, without limitation, all financial information) which has been or is hereafter provided to or known to Lender with respect to: (a) the Property and its operation; (b) any party connected with the Loan (including, without limitation, the Indemnitor, any partner of Indemnitor, any constituent partner of Indemnitor, any guarantor and any non-borrower trustor); and/or (c) any lending relationship other than the Loan which Lender may have with any party connected with the Loan. In the event of any such sale, assignment or participation, Lender and the parties to such transaction shall share in the rights and obligations of Lender as set forth in the Loan Documents only as and to the extent they agree among themselves. In connection with any such sale, assignment or participation, Indemnitor further agrees that this Indemnity shall be sufficient evidence of the obligations of Indemnitor to each purchaser, assignee, or participant, and upon written request by Lender, Indemnitor shall consent to such amendments or modifications to the Loan Documents as may be reasonably required in order to evidence any such sale, assignment or participation. 11. ATTORNEYS' FEES. If a dispute arises under this Indemnity, the prevailing party to such dispute shall be entitled to recover the amount of all attorneys' fees and expenses and all costs incurred in connection therewith, together with interest thereon from the date of demand therefor until paid at the rate of interest applicable to the principal balance of the Note as specified therein. 12. ENFORCEABILITY. Indemnitor hereby acknowledges that: (a) the obligations undertaken by Indemnitor in this Indemnity are complex in nature, and (b) numerous possible defenses to the enforceability of these obligations may Page 3 4 Loan No. 1440 presently exist and/or may arise hereafter, and (c) as part of Lender's consideration for entering into this transaction, Lender has specifically bargained for the waiver and relinquishment by Indemnitor of all such defenses, and (d) Indemnitor has had the opportunity to seek and receive legal advice from skilled legal counsel in the area of financial transactions of the type contemplated herein. Given all of the above, Indemnitor does hereby represent and confirm to Lender that Indemnitor is fully informed regarding, and that Indemnitor does thoroughly understand: (i) the nature of all such possible defenses, and (ii) the circumstances under which such defenses may arise, and (iii) the benefits which such defenses might confer upon Indemnitor, and (iv) the legal consequences to Indemnitor of waiving such defenses. Indemnitor acknowledges that Indemnitor makes this Indemnity with the intent that this Indemnity and all of the informed waivers herein shall each and all be fully enforceable by Lender, and that Lender is induced to enter into this transaction in material reliance upon the presumed full enforceability thereof. 13. ENTIRE AGREEMENT. This Indemnity contains the entire understanding between the parties relating to the transactions contemplated hereby and all statements, oral or written, are merged herein. No modification, waiver, amendment, discharge or change of this Indemnity shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver or amendment, discharge or change is or may be sought. 14. SUCCESSORS AND ASSIGNS. All terms of this Indemnity shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective legal representatives, successors and assigns. 15. GOVERNING LAW. This Indemnity shall be governed by, and construed in accordance with, the laws of the State of California, except to the extent preempted by federal laws. 16. MISCELLANEOUS. The liability of all persons and entities who are in any manner obligated hereunder to Lender as an Indemnitor shall be joint and several. If any provision of this Indemnity shall be determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from this Indemnity and the remaining parts shall remain in full force as though the invalid, illegal or unenforceable portion had never been part of this Indemnity. 17. ARBITRATION. 17.1 ARBITRATION. Upon the demand of any party, any dispute shall be resolved by binding arbitration (except as set forth in Paragraphs 17.5 and 17.6 below) in accordance with the terms of this Agreement. A "Dispute" shall mean any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, this Agreement and each other document, contract and instrument required hereby or now or hereafter delivered to Lender in connection herewith, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the foregoing documents, including without limitation, any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the foregoing documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. 17.2 GOVERNING RULES. Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the foregoing documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided however, that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under Section 91 of Title 12 of the United States Code or any similar applicable state law. Page 4 5 Loan No. 1440 17.3 NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including without limitation, injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. 17.4 ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive law applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the State of California, (ii) may grant any remedy or relief that a court of the State of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. 17.5 JUDICIAL REVIEW. Notwithstanding anything herein to the contrary, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the State of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (1) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (2) whether the conclusions of law are erroneous under the substantive law of the State of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the State of California. 17.6 REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding anything herein to the contrary, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. 17.7 MISCELLANEOUS. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by Page 5 6 Loan No. 1440 applicable law or regulation, or to the extent necessary to exercise any judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the foregoing documents or the subject matter of the Dispute shall control. This Agreement may be amended or modified only in writing signed by Lender and Indemnitor. If any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or any remaining provisions of this Agreement. This arbitration provision shall survive termination, amendment or expiration of any of the foregoing documents or any relationship between the parties. 18. WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS INDEMNITY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY PARTY TO THIS INDEMNITY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. IN WITNESS WHEREOF, this Indemnity has been executed as of the date first set forth above. "LENDER" WELLS FARGO BANK, NATIONAL ASSOCIATION By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ "INDEMNITOR" COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, a Delaware corporation By: ------------------------------------- Name: ----------------------------------- Its: ------------------------------------ Page 6 7 EXHIBIT A Loan No. 1440 DESCRIPTION OF PROPERTY Exhibit A to Hazardous Materials Indemnity Agreement (Unsecured) executed by COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION, "Indemnitor," to WELLS FARGO BANK, NATIONAL ASSOCIATION, "Lender", dated as of December __, 2000. The land referred to herein is situated in the County of San Mateo, State of California, and is described as follows: All that real property located in the City of San Carlos, County of San Mateo, State of California, all of Parcel 1 as shown on the Parcel Map recorded in Volume 20 of Parcel Maps at page 23 in the Records of said County, described in metes as follows: Beginning at Northerly corner of said Parcel; thence through the following numbered courses: 1) South 37(degree) 56' 04" East 739.82 feet to a curve to the right with a radius of 447.00 feet 2) along said curve through a central angle of 33(degree) 54' 48" an arc distance of 264.58 feet 3) South 04(degree) 01' 16" East 182.93 feet to a curve to the left with a radius of 553.00 feet 4) along said curve through a central angle of 02(degree) 38' 43" an arc distance of 25.53 feet 5) South 46(degree) 51' 36" West 476.39 feet 6) North 42(degree) 08' 24" West 1153.65 feet 7) North 47(degree) 51' 36" East 752.91 feet to the point of beginning. A.P. No.: 046-051-020 JPN 046 005 051 02 A 046-051-070 046 005 051 07 A Page 7 EX-10.16 17 f69166ex10-16.txt EXHIBIT 10.16 1 EXHIBIT 10.16 UNSECURED PROMISSORY NOTE $5,750,000 Los Angeles, California December __, 2000 FOR VALUE RECEIVED, Communications & Power Industries Holding Corporation, a Delaware corporation (the "Borrower"), hereby absolutely and unconditionally promises to pay to the order of Communications & Power Industries, Inc., a Delaware corporation (the "Lender"), at such place as Lender may designate to Borrower in writing, in lawful money of the United States, the principal sum of Five Million Seven Hundred Fifty Thousand Dollars ($5,750,000) (the "Principal Amount") on December __, 2009 (the "Maturity Date"). In addition, Borrower hereby absolutely and unconditionally promises to pay to the order of Lender interest on the Principal Amount, together with any amounts otherwise owing under this Unsecured Promissory Note (this "Note"), quarterly in arrears on December 31, March 31, June 30, and September 30 of each year commencing December 31, 2000 and if different, on the Maturity Date (each, an "Interest Payment Date") at the rate of 15.5% per annum, until the Principal Amount is paid. Such interest shall accrue from the most recent date to which interest has been paid or duly provided for or, if no such interest has been paid or duly provided for, from December __, 2000 until the Maturity Date. Interest shall be paid in cash, except that, on any Interest Payment Date, Borrower will have the option to pay up to 35.25% of the interest payable on such date by issuing additional notes which shall contain similar terms as contained herein (the "Additional Notes"), in a principal amount equal to the interest Borrower elected not to pay in cash. This Note and all Additional Notes, are each pre-payable, in whole or in part, without premium or penalty, at any time, at the option of the Borrower; provided, however, that all accrued interest on the principal amount so pre-paid shall also be paid on the date of prepayment. Notwithstanding anything to the contrary herein, if any one or more of the following events shall occur (each, an "Event of Default"): (a) failure to pay any amount owing by the Borrower hereunder when due and payable within 15 business days following the date such payment is due, (b) with notice or passage of time, or both, requisite holders of any of the Lender's 12% Senior Subordinated Notes due 2005 (the "Senior Subordinated Notes") or, the Trustee under the Indenture dated as of August 11, 1995, under which such Senior Subordinated Notes were issued, shall have the right to cause such notes to accelerate and become immediately payable, (c) the initiation of any voluntary bankruptcy, insolvency, moratorium, receivership, assignment for the benefit of creditors generally or reorganization proceeding by or against the Borrower, or (d) the entry of a bankruptcy decree or initiation of any involuntary bankruptcy, insolvency, moratorium, receivership, or reorganization proceeding in respect to the Borrower and such proceeding or decree described in this clause (d) shall continue for sixty (60) days without having been dismissed, bonded or discharged; 2 then, (1) upon the occurrence of any Event of Default described in clauses (c) or (d), automatically, and (2) upon the occurrence of any other Event of Default, at Lender's option, the entire unpaid principal balance of this Note and all of the unpaid interest accrued thereon shall be immediately due and payable, together with all costs, fees and expenses payable in respect hereof. No delay or omission on the part of the Lender or any holder hereof in exercising any right hereunder shall operate as a waiver of such right or any other right of the Lender or of such holder, nor shall any delay, omission or waiver of any one occasion be deemed a bar to or waiver of the same or any other right or any other occasion. The Borrower and every endorser and guarantor of this Note regardless of the time, order or place of signing hereby waives presentment, demand, protest and notice of every kind, and assents to any extension or postponement of the time for payment or any other indulgence, to any substitution, exchange or release of collateral, and to the addition or release of any other party or person or entity primarily or secondarily liable. All costs incurred in any litigation arising from this Note shall be borne by the prevailing party. All other expenses of enforcement of the Lender's rights hereunder (including reasonable legal and other professional fees) shall be for the account of the Borrower. THIS NOTE SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT REFERENCE TO CONFLICTS OF LAW). This Note shall be binding upon the Borrower's successors and assigns, and shall inure to the benefit of the Lender's successors and assigns. IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly authorized officer to take effect as of the date first herein above written. COMMUNICATIONS & POWER INDUSTRIES HOLDING CORPORATION By: ___________________________________ Title: ________________________________ -2- EX-10.17 18 f69166ex10-17.txt EXHIBIT 10.17 1 EXHIBIT 10.17 [AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION LOGO] STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS) 1. BASIC PROVISIONS ("BASIC PROVISIONS") 1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only December 1, 2000 is made by and between Communications & Power Industries Holding Corporation ("LESSOR") and Communications & Power Industries, Inc. ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY"). 1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 301 Industrial Way, San Carlos, CA 94070 located in the County of San Mateo, State of California and generally described as (describe briefly the nature of the property and, if applicable, the "PROJECT" if the property is located within a Project) approximately 18.09 acres of land on which are situated four buildings containing approximately 320,000 square feet of manufacturing and research and development office space, and a waste water treatment facility ("PREMISES"). (See also Paragraph 2) 1.3 TERM: Twenty years and -0- months ("ORIGINAL TERM") commencing January 1, 2001 ("COMMENCEMENT DATE") and ending December 31, 2020 ("EXPIRATION DATE"). (See also Paragraph 3) 1.4 EARLY POSSESSION: on date deed to Premises from Lessee to Lessor ("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3) 1.5 BASE RENT: $204,166.67 per month ("BASE RENT"), payable on the first business day of each month commencing January 2, 2001. (See also Paragraph 4) [ ] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 BASE RENT PAID UPON EXECUTION: $N/A as Base Rent for the period. 1.7 SECURITY DEPOSIT: $-0- ("SECURITY DEPOSIT"). (See also Paragraph 5) 1.8 AGREED USE: Any lawful use. (See also Paragraph 6) 1.9 INSURING PARTY: Lessee is the "INSURING PARTY" unless otherwise stated herein. (See also Paragraph 8) 1.10 REAL ESTATE BROKERS: (See also Paragraph 15) (a) REPRESENTATION: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes): [ ] N/A represents Lessor exclusively ("LESSOR'S BROKER"); [ ] N/A represents Lessee exclusively ("LESSEE'S BROKER"); or [ ] N/A represents both Lessor and Lessee ("DUAL AGENCY"). (b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of -0-% of the total Base Rent for the brokerage services rendered by said Broker). 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37) 1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs N/A through N/A and Exhibits N/A, all of which constitute a part of this Lease. 2. PREMISES. 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less. 2.2 CONDITION. Lessor shall deliver the Premises to Lessee "as is" on the Commencement Date or the Early Possession Date, whichever first occurs ("START DATE"). 2.3 COMPLIANCE. Lessee acknowledges that the improvements on the Premises comply in all material respects with all applicable laws, covenants or restrictions of record building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the Start Date. Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use. The Applicable Requirements are hereafter charged as opposed to being in existence at the Start Date which is addressed in Paragraph 6.2 e below so as ??? Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance or the enforcement of other physical modification of the Building ("CAPITAL EXPENDITURE") Lessor and Lessee shall allocate the ??? as follows 100% to Lessee PAGE 1 2 (a) Whether or not such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general. Lessee shall be fully responsible for the cost thereof, provided, however, that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months Base Rent Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such capital Expenditure. (b) The provisions concerning Capital Expenditures are intended to apply to non-voluntary unexpected and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease. 2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical. HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee's intended use. (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (a) Broker has made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (b) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants. 2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work. Lessee was owner/occupant of the Premises prior to the Start Date. 3. TERM. 3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date. 3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing within ten (10) days after the end of such sixty (60) day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said ten (10) day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within four (4) months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing. 3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied. 4. RENT. 4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("RENT"). 4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. PAGE 2 3 6. USE. 6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants of or causes damage to neighboring properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor effects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in use. 6.2 HAZARDOUS SUBSTANCES. (a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as used in this Lease shall mean any product, substance or waste whose presence, use, manufacture, disposal, transportation, or release either by itself or in combination with other materials expected to be on the Premises, is either (i) potentially injurious to the public health, safety or welfare, the environment or the Premises (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without timely compliance (at Lessee's expense) with all Applicable Requirements. "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance. (c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party. (d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property, or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement. (e) ADDITIONAL LESSEE INDEMNIFICATION. Lessee and its successors and assigns shall also indemnify, defend, reimburse and hold Lessor, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessee, its agents or employees. Lessee's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. (f) INVESTIGATIONS AND REMEDIATIONS. Lessee shall have the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date. 6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise provided in this Lease, Lessee shall at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements and the requirements of any applicable [illegible] insurance underwriter or rating bureau without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall within ten (10) days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing with copies of any documents involved) or any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. 6.4 INSPECTION COMPLIANCE. Lessor and Lessors "Lender" (as defined in Paragraph 30 below) and consultants shall have the right to enter the Premises at any time in case of an emergency and otherwise at reasonable times for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor unless a [illegible] Acceptable Requirements or a contamination is found to exist or be imminent or the inspection is requested or ordered by a governmental agency in such case Lessee shall upon request reimburse Lessor for the cost of such inspections so long as such inspection is reasonably [illegible] to the [illegible] or contamination PAGE 3 4 7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. (a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction) and 14 (Condemnation) Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use any prior use, the elements or the age of such portion of the Premises), including, but not limited to all equipment or facilities such as plumbing, heating, ventilating, air-conditioning, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall during the term of this Lease keep the exterior appearance of the Building in first-class condition consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building. (b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for and with contractors specializing and experienced in the maintenance of the following equipment and improvements ("Basic Elements"), if any, if and when installed on the Premises. (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, (vii) clarifiers, (viii) basic utility feed to the perimeter of the Building, and (ix) any other equipment, if reasonably required by Lessor. (c) REPLACEMENT. Replacement of Basic Elements shall be at Lessee's expense. 7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. 7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS. (a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent not to be unreasonably withheld. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed $50,000 in the aggregate or $10,000 in any one year. (b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. (c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorney's fees and costs. 7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION. (a) OWNERSHIP. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises. (b) REMOVAL. By delivery to Lessee of written notice from Lessor not earlier than ninety (90) and not later than thirty (30) days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent. (c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date with all of the improvements parts and surfaces thereof broom clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee and the removal, replacement or remediation of any soil material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. PAGE 4 5 8. INSURANCE: INDEMNITY. 8.1 PAYMENT FOR INSURANCE. Lessee shall make arrangements for and pay for all insurance required under Paragraph 8. 8.2 LIABILITY INSURANCE. (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee and Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. 8.3 PROPERTY INSURANCE - BUILDING IMPROVEMENTS. (a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurance value thereof. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Code Price Index for All Urban Consumers for the city nearest to where the Premises are located. (b) ADJACENT PREMISES. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, or use or occupancy of the Premises. 8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE. (a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage subject to deductible. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force. (b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils. (c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease. 8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+.V. as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after ten (10) days prior written notice to Lessor. Lessee shall, at least ten (10) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants fees, expenses and/or liabilities arising out of, involving or in connection with the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise, or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises other than Lessee Owned Alterations and Utility Installations which can reasonably be repaired in six (6) months or less from the date of the damage or destruction PAGE 5 6 Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total (c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits involved (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements and without deduction for depreciation (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect, provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect; or (ii) have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs made by either Party. 9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice. 9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6. 9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an insured Loss, Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished. 9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein. (b) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair of restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. "COMMENCE" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9 an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall in addition return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor. 9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent consistent herewith. 10. REAL PROPERTY TAXES. 10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of assessment, real estate, general, special, ordinary or extraordinary or rental levy or tax (other than inheritance, personal income or estate taxes) improvement bond and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises. Lessor's right to other income therefrom and or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated PAGE 5 7 with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to a change in the ownership of the Premises. 10.2 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same and Lessee shall reimburse Lessor therefor upon demand. (b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any Rent payment, Lessor may, at Lessor's option estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may at the option of Lessor be treated as an additional Security Deposit. 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. 10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement. 11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent not to be unreasonably withheld. (b) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice, increase the monthly Base Rent to one hundred ten percent (110%) of the Base Rent then in effect. (c) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee. (b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach. (c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting. (d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing. 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein. a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease and Lessor may [illegible] such Rent and apply same toward Lessee's obligations under this Lease provided, however that until a Breach shall occur [illegible] performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease nor by reason of the collection of Rent be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby revocably authorizes and directs any such sublessee upon receipt of a written notice PAGE 7 8 from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary. (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease provided however Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor (c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee 13. DEFAULT; BREACH; REMEDIES. 13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults and failure of Lessee to cure such Default within any applicable grace period: (a) The abandonment of the Premises, or the vacating of the Premises without providing a commercially reasonable level of security or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism (b) The failure of Lessee to make any payment of Rent required to be made by Lessee hereunder whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) business days following written notice to Lessee (c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice to Lessee (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions (f) The discovery that any financial statement of Lessee given to Lessor was materially false. 13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within ten (10) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach: (a) Terminate Lessee's right to possession of the Premise by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) 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 such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute (b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due in which event Lessee may sublet or assign subject only to reasonable limitations. Acts of maintenance, efforts to relet and/or the appointment of a receiver to protect the Lessor's interests shall not constitute a termination of the Lessee's right to possession (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from [ILLEGIBLE] PAGE 8 9 under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to four percent (4%) of each such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31st) day after it was due as to non-scheduled payments. The interest ("INTEREST") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus four percent (4%), but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4. 13.6 BREACH BY LESSOR. (a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. (b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor. 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "CONDEMNATION"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building portion of the premises, or more than twenty-five percent (25%) of the land area portion of the premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not the Lease is terminated pursuant to the provision of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation. 15. ESTOPPEL CERTIFICATES. (a) Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party the "REQUESTING PARTY" execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "ESTOPPEL CERTIFICATE" form published by the American Industrial Real Estate Association, plus such additional information confirmation and/or statements as may be reasonably requested by the Requesting Party. (b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such ten day period the Requesting Party may execute an Estoppel Certificate stating that (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party not more than one month's rent has been paid in advance, Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate. PAGE 9 10 (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 16. DEFINITION OF LESSOR. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises or if this is a sublease of the Lessee's interest in the prior lease in the event of a transfer of Lessor's title or interest in the Premises or this Lease. Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease and all subsequent holder's of the Lessor's interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above. 17. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction shall in no way affect the validity of any other provision hereof. 18. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days. 19. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction. 20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. NO PRIOR OR OTHER AGREEMENTS. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. 22. NOTICES. 22.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing. 22.2 DATA OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. 23. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 24. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto. 25. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration of termination. Nothing contained herein shall be construed as consent by Lessor to holding over by Lessee. 26. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 27. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions in construing this Lease, all headings and titles are for the convenience of the parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the parties, but rather according to its fair meaning as a whole, as if both parties had prepared it. 28. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 29. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 29.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease mortgage deed of trust or other hypothecation or security device (collectively, "Security Device") now or hereafter placed upon the Premises to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holder's of any such Security Devices in this Lease together referred to as "Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee whereupon this Lease and such Options shall be deemed prior to such Security Device notwithstanding the relative dates of the documentation or recordation thereof. 29.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3 Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure such new PAGE 10 11 owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent. 29.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease. Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement. 29.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents, provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein. 30. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 31. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agent shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and Lessor may during the last six (6) months of the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or about the Premises any ordinary "FOR SUBLEASE" sign. 32. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction. 33. SIGNS. Except for ordinary "FOR SUBLEASE" signs, Lessee shall not place any sign upon the Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements. 34. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 35. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request. 36. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof. PAGE 11 12 the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 38. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 39. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee such easements rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 40. PERFORMANCE UNDER PROTEST: If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment under protest and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute ???????? of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any ???? thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. 41. AUTHORITY. If either Party hereto is a corporation, trust, limited liability company, partnership or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within thirty (30) days after request, deliver to the other party satisfactory evidence of such authority. 42. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 43. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 44. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder. Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises. 45. MULTIPLE PARTIES. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease. 46. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [ ] is [X] is not attached to this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. - -------------------------------------------------------------------------------- ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO: 1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE. WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED. - -------------------------------------------------------------------------------- The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures. Executed at: Palo Alto, California Executed at: Palo Alto, California ---------------------------- ---------------------------- on: December , 2000 on: December , 2000 ------------------------------------- ------------------------------------- By: LESSOR: By: LESSEE: Communications & Power Industries Communications & Power Industries, Inc. - --------------------------------------- --------------------------------------- Holding Corporation - --------------------------------------- --------------------------------------- By: /s/ LYNN E. HARVEY By: /s/ LYNN E. HARVEY ------------------------------------ ------------------------------------ Name Printed: Lynn E. Harvey Name Printed: Lynn E. Harvey -------------------------- -------------------------- Title: Chief Financial Officer Title: Chief Financial Officer --------------------------------- --------------------------------- By: By: ------------------------------------ ------------------------------------ Name Printed: Name Printed: -------------------------- -------------------------- Title: Title: --------------------------------- --------------------------------- Address: 607 Hansen Way; Mail Stop Address: 607 Hansen Way; Mail Stop A-200 A-200 -------------------------------- -------------------------------- P.O. Box 51110, Palo Alto, CA 94303 P.O. Box 51110, Palo Alto, CA 94303 - --------------------------------------- --------------------------------------- Telephone (650) 846-2900 Telephone (650) 846-2900 ------------------------ ------------------------ Facsimile (650) 846-3276 Facsimile (650) 846-3276 ------------------------ ------------------------ Federal ID No. Federal ID No. ------------------------- ------------------------- NOTE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form. AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017 (213) 687-8777 Fax No. (213) 687-8616 PAGE 12 -----END PRIVACY-ENHANCED MESSAGE-----