-----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, TY/XEzThM/fNsJzNE/iabU8OLYb1E4uJmIqEqJMazWJlRPPxA9UQ6iJ6h2ly1qbM 2S8vKsttXgNANCwPqWAN2w== 0000727010-97-000004.txt : 19970223 0000727010-97-000004.hdr.sgml : 19970223 ACCESSION NUMBER: 0000727010-97-000004 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970221 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELEXSYS INTERNATIONAL INC CENTRAL INDEX KEY: 0000727010 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 953534864 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-11691 FILM NUMBER: 97540583 BUSINESS ADDRESS: STREET 1: 1188 BORDEAUX DR CITY: SUNNYVALE STATE: CA ZIP: 94089 BUSINESS PHONE: 7148330870 MAIL ADDRESS: STREET 1: 1188 BORDEAUX DR CITY: SUNNYVALE STATE: CA ZIP: 94089 FORMER COMPANY: FORMER CONFORMED NAME: DICEON ELECTRONICS INC DATE OF NAME CHANGE: 19920703 10-Q/A 1 1997 10-Q, AMENDED, FOR QUARTER END 12/28/96 SECURITIES AND EXCHANGE COMMISSION Washington, DC. 20549 FORM 10-Q/A (Mark one) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 28, 1996 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 0-11691 ELEXSYS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 95-3534864 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4405 Fortran Court, San Jose, California 95134 (Address of principal executive offices) (Zip Code) (408) 935-6300 (Registrant's telephone number, including area code) Indicate by check mark whether the 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__ At January 31, 1997 there were 9,397,545 outstanding shares of common stock. This report consists of 11 pages ELEXSYS INTERNATIONAL, INC. FORM 10-Q/A INDEX Part II. Other Information: Item 6. Exhibits.......................................................9 1 Part II. OTHER INFORMATION Item 6 a. Exhibits 10.46 Accounts Receivable Credit Agreement dated January 17, 1997 between Sanwa Bank California and the registrant. 10.47 Term Loan Credit Agreement dated January 27, 1997 between Sanwa Bank California and the registrant. 10.48 Loan Agreement dated as of December 1, 1996 among GE Capital Public Finance, Inc., Business Finance Authority of the State of New Hampshire and the registrant. 9 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. ELEXSYS INTERNATIONAL, INC. --------------------------- (Registrant) Date: February 21, 1997 By: /s/ W.F. Hegarty ----------------- ---------------- W.F. Hegarty President and Chief Operating Officer By: /s/ Michael S. Shimada ---------------------- Michael S. Shimada Principal Financial Officer and Duly Authorized Officer 11 EX-10.46 2 A/R CREDIT AGRMT BETWEEN SANWA BANK & ELEXSYS [GRAPHIC OMITTED] ACCOUNTS RECEIVABLE CREDIT AGREEMENT This Accounts Receivable Credit Agreement (the "Agreement") is made and entered into this 17th day of January, 1997, by and between SANWA BANK CALIFORNIA (the "Bank") and ELEXSYS INTERNATIONAL, INC. (the "Borrower"), in connection with that certain Term Loan Credit Agreement ("Term Loan") by and between Bank and Borrower dated of even date herewith, on the terms and conditions that follow: SECTION I DEFINITIONS 1.01 Certain Defined Terms: Unless elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined): (a) "Account Debtor": shall mean the person or entity obligated to the Borrower upon an account. (b) "Advance": shall mean an advance to the Borrower under the Line of Credit. (c) "Average Unused Portion of Revolving Loan Commitment": shall mean for any quarter: (a) the Revolving Loan Commitment less, (b) the average daily balance of Advances under the Revolving Loan Commitment that were outstanding during that quarter less, (c) Letters of Credit. (d) "Borrowing Base": shall mean, the lesser of: (i) 80% of the aggregate amount of Eligible Accounts of the Borrower; or (ii) $13,000,000, this is the total loan commitment. (e) "Business Day": shall mean a day, other than a Saturday or Sunday, on which commercial banks are open for business in California. (f) "Collateral": shall mean the property described in Section 5.01. (g) "Debt": shall mean all liabilities of the Borrower less Subordinated Debt. (h) "Effective Tangible Net Worth": shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense and similar intangible items) and net leaseholds. (i) "Eligible Account": shall mean, at any time, the gross amount, less returns, discounts, credits or offsets of any nature, of the trade accounts owing to the Borrower by Account Debtors but excluding the following: (1) Accounts with respect to which the Account Debtor is an officer, employee or agent of the Borrower. (2) Accounts with respect to which goods are placed on consignment, guarantied sale or other terms by reason of which the payment by the Account Debtor may be conditional. (3) Except in the case of United States Dollar denominated invoices to Northern Telecom, or any of its Canadian subsidiaries (collectively "Northern Telecom"). Accounts with respect to which the Account Debtor is not a resident of the United States except to the extent such accounts are supported by adequate Eximbank insurance or other insurance acceptable to the Bank or by irrevocable letters of credit issued by banks satisfactory to the Bank. (4) Accounts with respect to which the Account Debtor is the United States or any department or agency thereof. (5) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with, the Borrower or its shareholders, officers or directors. (6) Accounts with respect to which the Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to the Borrower. (7) That portion of the accounts of any single Account Debtor that exceeds 15% of all of the Borrower's accounts, except for: (i) Northern Telecom which may not exceed 20% of all of the Borrower's accounts. (8) Accounts which have not been paid in full within 60 days from the date payment was due or 90 days from the original date of invoice, whichever is less. (9) All accounts of any single Account Debtor if 25% or more of the dollar amount of all such accounts are represented by accounts which have not been paid in full within 60 days from the date payment was due or 90 days from the original date of invoice, whichever is less. (10) Accounts which are subject to dispute, counterclaim or setoff. (11) Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor. (12) Accounts with respect to which the Bank, in its reasonable sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory. (13) Accounts of any Account Debtor who has filed or had filed against it a petition in bankruptcy, or an application for relief under any provision of any state or federal bankruptcy, insolvency or debtor-in-relief acts; or who has had appointed a trustee, custodian or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due. (14) Accounts which represent credits or refunds due to the Borrower's customers. (j) "ERISA": shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. (k) "Event of Default": shall have the meaning set forth in Section 9. (l) "Expiration Date": shall mean January 31, 1998 or the date of termination of the Bank's commitment to lend under this Agreement pursuant to Section 8, whichever shall occur first. (m) "Indebtedness": shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which the Borrower is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss and (ii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, contingently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss. (n) "Line of Credit": shall mean the credit facility described in Section 2. (o) "Obligations": shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement including, but not limited to, the unpaid principal amount of Advances. (p) "Permitted Indebtedness": shall mean (i) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document; (ii) Indebtedness existing on the Closing Date and disclosed in the Schedule; (iii) Subordinated Debt; (iv) Indebtedness to trade creditors, including, without limitation, affiliates of Borrower, incurred in the ordinary course of business; (v) Other Indebtedness of Borrower not exceeding $250,000.00 in the aggregate outstanding at any time; (vi) Contingent obligations of Borrowing consisting of guarantees (and other credit support) of the obligations of vendors and suppliers of Borrower in respect of transactions entered into in the ordinary course of business; (vii) Indebtedness with respect to capital lease obligations and Indebtedness secured by Permitted Liens; (viii) Extensions, renewals, refundings, refinancings, modifications, amendments and restatements of any of the items of Permitted Indebtedness. (q) "Permitted Investment": shall mean (i) investments existing on the Closing Date disclosed in the Schedule; (ii) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one (1) year from the date of acquisition thereof; commercial paper maturing no more than one (1) year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; investments consisting of deposits maturing no more than one (1) year from the date of investment therein issued by Bank; (iii) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; (iv) investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (v) investments, including debt obligations, received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (vi) investments consisting of compensation of employees, officers and directors of Borrower so long as the Board of Directors of Borrower determines that such compensation is in the best interest of Borrower, and travel advances, employee relocation loans and other employee loans and advances in the ordinary course of business; vii) other investments aggregating not in excess of $250,000.00 at any time. (r) "Permitted Liens": shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges either not yet due or being contested in good faith; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the ordinary course of business to secure Indebtedness outstanding on the date hereof or permitted to be incurred under Section 8.09 hereof; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of the Borrower's assets; liens securing capital lease obligations on assets subject to such capital leases; (vii) liens arising from judgments, decrees or attachments to the extent and only so long as such judgment, decree or attachment has not caused or resulted in an Event of Default, (viii) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar liens affecting real property not interfering in any material respect with the ordinary conduct of the business of Borrower, (ix) liens in favor of customs and revenue authorities arising as a mater of law to secure payment of customs duties in connection with the importation of goods, (x) liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of setoff or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institutions; (xi) liens not otherwise permitted which liens do not in the aggregate exceed $250,000.00 at any time. (s) "Reference Rate": shall mean an index for a variable interest rate which is quoted, published or announced from time to time by the Bank as its reference rate and as to which loans may be made by the Bank at, below or above such reference rate. (t) "Subordinated Debt": shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank including, but not limited to, that certain Indenture dated as of February 15, 1987 between Borrower and Manufacturers Hanover Trust Company, as trustee, with respect to the 5 1/2% Convertible Subordinated Debentures due March 1, 2012. 1.02 Accounting Terms: All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 1.03 Other Terms: Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code. SECTION 2 THE LINE OF CREDIT 2.01 The Line of Credit: On terms and conditions as set forth herein, the Bank agrees to make Advances to the Borrower from time to time from the date hereof to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, the Borrower may borrow, partially or wholly prepay, and reborrow under this Section 2.01. 2.02 Making Line Advances: Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of the Borrower maintained with the Bank or (ii) when paid in accordance with the Borrower's written instructions. Subject to the requirements of Section 6, Advances shall be made by the Bank upon telephonic or written request in form acceptable to the Bank received from the Borrower, which request shall be received not later than 2:00 p.m. (California time) on the date specified for such Advance, which date shall be a Business Day. Requests for Advances received after such time may, at the Bank's option, be deemed to be a request for an Advance to be made on the next succeeding Business Day. 2.03 Mandatory Repayments: (a) If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, the Borrower hereby promises and agrees, immediately upon written or telephonic notice from the Bank, to pay to the Bank an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. (b) On the Expiration Date, the Borrower hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal amount of all Advances then outstanding, together with all accrued and unpaid interest thereon. 2.04 Interest on Advances: Interest shall accrue from the date of each Advance under the Line of Credit at one of the following rates, as quoted by the Bank and as elected by the Borrower pursuant to paragraph 2.05 or paragraph 2.06 below: (a) Variable Rate Advances: A variable rate per annum equivalent to an index for a variable interest rate which is quoted, published or announced from time to time by the Bank as its reference rate and as to which loans may be made by the Bank at, below or above such reference rate (the "Reference Rate") plus 0.50% (the "Variable Rate"). Interest shall be adjusted concurrently with any change in the Reference Rate. An Advance based upon the Variable Rate is hereinafter referred to as a "Variable Rate Advance". (b) Fixed Rate Advances: A fixed rate quoted by the Bank for 30, 60, or 90 days or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend beyond the Expiration Date) [the "Interest Period"] for Advances in the minimum amount of $100,000 and in $50,000 increments thereafter. Such interest rate shall be a percentage approximately equivalent to 2.50% per annum in excess of the rate which the Bank determines in its sole and absolute discretion to be equal to the Bank's cost of acquiring funds (adjusted for any and all assessments, surcharges and reserve requirements pertaining to the borrowing or purchase by the Bank of such funds) in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to the relevant Interest Period (the "Fixed Rate"). Advances based upon the Fixed Rate are hereinafter referred to as "Fixed Rate Advances". Interest on any Advance shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed. Interest on Variable Rate Advances shall be paid in monthly installments commencing on the first day of the month following the date of the first such Advance and continuing on the first day of each month thereafter. Interest on any Fixed Rate Advance shall be paid on the last day of the Interest Period pertaining to such Fixed Rate Advance. 2.05 Notice of Election to Adjust Interest Rate: The Borrower may elect: (a) That interest on a Variable Rate Advance shall be adjusted to accrue at the Fixed Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the day (which shall be a business day) on which the Borrower requests that interest be adjusted to accrue at the Fixed Rate. (b) That interest on a Fixed Rate Advance shall continue to accrue at a newly quoted Fixed Rate or shall be adjusted to commence to accrue at the Variable Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the last day of the Interest Period pertaining to such Fixed Rate Advance. If the Bank shall not have received notice (as prescribed herein) of the Borrower's election that interest on any Fixed Rate Advance shall continue to accrue at the newly quoted Fixed Rate the Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the Interest Period pertaining to such Advance. 2.06 Prepayment: The Borrower may prepay any Advance in whole or in part, at any time and without penalty, provided, however, that: (i) any partial prepayment shall first be applied, at the Bank's option, to accrued and unpaid interest and next to the outstanding principal balance; and (ii) during any period of time in which interest is accruing on any Advance on the basis of the Fixed Rate, no prepayment shall be made except on a day which is the last day of the Interest Period pertaining thereto. If the whole or any part of any Fixed Rate Advance is prepaid by reason of acceleration or on a day which is not the last day of the interest period pertaining thereto, the Borrower shall, upon the Bank's request, promptly pay to and indemnify the Bank for all costs and any loss (including interest) actually incurred by the Bank and any loss (including loss of profit resulting from the re-employment of funds) sustained by the Bank as a consequence of such prepayment. 2.07 Indemnification for Fixed Rate Costs: During any period of time in which interest on any Advance is accruing on the basis of the Fixed Rate the Borrower shall, upon the Bank's request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Bank in quoting and determining the Fixed Rate. Borrower shall not be obligated to pay to or reimburse Bank for any reimbursable amounts which arose or were incurred during or are otherwise attributable to any period of time more than 180 days prior to the date on which Bank delivered its written statement for indemnification or reimbursement of such reimbursable amounts. 2.08 Conversion from Fixed Rate to Variable Rate: In the event that the Bank shall at any time determine that the accrual of interest on the basis of the Fixed Rate (i) is infeasible because the Bank is unable to determine the Fixed Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to the relevant Interest Period or (ii) is or has become unlawful or infeasible by reason of the Bank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event the Fixed Rate Advance, shall be deemed to be a Variable Rate Advance and interest shall thereupon immediately accrue at the Variable Rate. 2.09 Commitment Fee: The Borrower agrees to pay to Bank a commitment fee of .25% per annum on the Average Unused Portion of the Revolving Loan Commitment payable quarterly in arrears and computed on a year of 360 days for actual days elapsed. 2.10 Line Account: (a) The Bank shall maintain on its books a record of account in which the Bank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the Line of Credit (the "Line Account"). The Bank shall provide the Borrower with a monthly statement of the Borrower's Line Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 60 days after the Borrower's receipt of any such statement which it deems to be incorrect, or unless there is a manifest error. (b) The Borrower hereby authorizes the Bank, if and to the extent payment owed to the Bank under the Line of Credit is not made when due, to charge, from time to time, against any or all of the Borrower's deposit accounts with the Bank any amount so due. 2.11 Late Payment: If any payment of principal (other than a principal payment due pursuant to Section 2.03(b)) or interest, or any portion thereof, under this Agreement is not paid within ten (10) calendar days after it is due, a late payment charge equal to five percent (5%) of such past due payment may be assessed and shall be immediately payable. SECTION 3 LETTERS OF CREDIT SUBLIMIT In addition to making Advances under the Line of Credit, the Bank hereby agrees to make the following credit accommodations available to the Borrower: 3.01 Letter of Credit Subfacility: The Bank agrees to issue commercial and standby letters of credit (each a "Letter of Credit") on behalf of the Borrower for general corporate purposes. At no time, however, shall the total face amount of all Letters of Credit outstanding, less any partial draws paid by the Bank, exceed the sum of $7,000,000 and, together with the total principal amount of all Advances, exceed the Borrowing Base. (a) Upon the Bank's request, the Borrower shall promptly pay to the Bank standby letter of credit issuance fees of 1% and commercial letter of credit issuance fees of .25% and such other fees, commissions, costs and any out-of-pocket expenses charged or incurred by the Bank with respect to any Letter of Credit. (b) The commitment by the Bank to issue Letters of Credit shall, unless earlier terminated in accordance with the terms of the Agreement, automatically terminate on the Expiration Date and no commercial letter of credit shall expire on a date which is more than 90 days after the Expiration Date and no standby letter of credit shall expire on a date after the Expiration Date. (c) Each Letter of Credit shall be in form and substance satisfactory to the Bank and in favor of beneficiaries satisfactory to the Bank, provided that the Bank may refuse to issue a Letter of Credit due to the nature of the transaction or its terms or in connection with any transaction where the Bank, due to the beneficiary or the nationality or residence of the beneficiary, would be prohibited by any applicable law, regulation or order from issuing such Letter of Credit. (d) Prior to the issuance of each Letter of Credit, but in no event later than 10:00 a.m. (California time) on the day such Letter of Credit is to be issued (which shall be a Business Day), the Borrower shall deliver to the Bank a duly executed form of the Bank's standard form of application for issuance of a Letter of Credit with proper insertions. (e) The Borrower shall, upon presentment of a Letter of Credit or upon the Bank's request, promptly pay to and reimburse the Bank for all draws under the Letters of Credit, costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to any Letter of Credit. SECTION 4 FOREIGN EXCHANGE FACILITY SUBLIMIT 4.01 Foreign Exchange Subfacility. Borrower may from time to time request Bank to purchase or sell foreign currency in a specified amount, at a fixed price, and for delivery at a future date no greater than 365 days from the date of purchase (each a "Foreign Exchange Contract"). At no time, however, shall 20% of the aggregate settlement price of all Foreign Exchange Contracts outstanding exceed $2,000,000 as determined by Bank at the time of entering into each Foreign Exchange Contract and, together with outstanding Advances and issued and unexpired Letters of Credit, exceed the Borrowing Base. (a) Requests for Foreign Exchange Contracts. Each request for a Foreign Exchange Contract shall be made by telephone or rapifax, confirmed in writing (each a "Request"). Each Request shall be delivered or communicated to the Bank no later than 3:00 p.m. (California time) on the day (which shall be a Business Day) on which the Foreign Exchange Contract is requested. By making any such Request, Borrower agrees that all matters relating to each such Foreign Exchange Contract shall be governed by this Agreement and Borrower restates all warranties and representations made by Borrower herein as if made on the date the Foreign Exchange Contract is entered into. (b) Expiration Date. The commitment by the Bank to enter into Foreign Exchange Contracts shall, unless earlier terminated in accordance with this Agreement, automatically terminate on the Expiration Date and no Foreign Exchange Contract shall expire on a date which is after the Expiration Date. (c) Availability. Bank may refuse to enter into a Foreign Exchange Contract with the Borrower where the Bank, in its sole discretion, determines that such foreign currency is unavailable, or where Bank would be prohibited by any applicable law, regulation or order from purchasing such foreign currency. (d) Purpose. The Foreign Exchange Contract shall be used to hedge foreign exchange exposure and/or risk. (e) Payment. Payment is due on the settlement date of any Foreign Exchange Contract (the "Payment Date"). Bank is hereby authorized by Borrower to charge the full settlement price of any Foreign Exchange Contract against the depository account or accounts maintained by the Borrower with Bank on the Payment Date. (f) Assessments. Borrower shall, upon the Bank's request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any assessment, reserve, deposit, capital maintenance or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to any Foreign Exchange Contract. SECTION 5 COLLATERAL 5.01 The Collateral: To secure payment and performance of all the Borrower's Obligations under this Agreement and all other liabilities, loans, guarantees, covenants and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created, the Borrower hereby grants the Bank a security interest in and to all of the following property: (a) All goods now owned or hereafter acquired by the Borrower or in which the Borrower now has or may hereafter acquire any interest, including, but not limited to, all machinery, equipment, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description, and all additions, accessions, improvements, replacements and substitutions thereto and thereof. (b) All inventory now owned or hereafter acquired by the Borrower, including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Borrower's custody or possession, together with all returns on accounts. (c) All accounts, contract rights and general intangibles now owned or hereafter created or acquired by the Borrower, including, but not limited to, all receivables, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records. (d) All documents, instruments and chattel paper now owned or hereafter acquired by the Borrower. (e) All monies, deposit accounts, certificates of deposit and securities of the Borrower now or hereafter in the Bank's or its agents' possession. The Bank's security interest in the Collateral shall be a continuing lien and shall include the proceeds and products of the Collateral including, but not limited to, the proceeds of any insurance thereon. SECTION 6 CONDITIONS OF LENDING 6.01 Conditions Precedent to the Initial Advance: The obligation of the Bank to make the initial Advance and the first extension of credit to or on account of the Borrower hereunder is subject to the conditions precedent that the Bank shall have received before the date of such initial Advance and such first extension of credit all of the following, in form and substance satisfactory to the Bank: (a) Evidence that the execution, delivery and performance by the Borrower of this Agreement and any document, instrument or agreement required hereunder have been duly authorized. (b) Such other evidence as the Bank may request to establish the consummation of the transaction contemplated hereunder and compliance with the conditions of this Agreement. 6.02 Conditions Precedent to All Advances: The obligation of the Bank to make each Advance and each other extension of credit to or on account of the Borrower (including the initial Advance and the first extension of credit) shall be subject to the further conditions precedent that, on the date of each Advance or each extension of credit and after the making of such Advance or extension of credit: (a) The Bank shall have received the documents set forth in Section 8.06(e). (b) The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request. (c) Except as disclosed in writing to Bank, the representations contained in Section 7 and in any other document, instrument or certificate delivered to the Bank hereunder are correct. (d) No event has occurred and is continuing which constitutes, or, with the lapse of time or giving of notice or both, would constitute an Event of Default. (e) The security interest in the Collateral has been duly authorized, created and perfected with first priority, assuming Bank has timely filed and taken all actions necessary or desirable to perfect and protect such security, and is in full force and effect. The Borrower's acceptance of the proceeds of any Advance or the Borrower's execution of any document or instrument evidencing or creating any Obligation hereunder shall be deemed to constitute the Borrower's representation and warranty that all of the above statements are true and correct. SECTION 7 REPRESENTATIONS AND WARRANTIES The Borrower hereby makes the following representations and warranties to the Bank as of the date of this Agreement. 7.01 Status: The Borrower is a corporation duly organized and validly existing under the laws of the State of Delaware and is properly licensed and is qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business and where failure to so qualify would have a material adverse effect. 7.02 Authority: The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower; (ii) result in a breach of or constitute a default under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; (iii) require any consent or approval of its stockholders or violate any provision of its certificate of incorporation. 7.03 Legal Effect: This Agreement constitutes, and any instrument, document or agreement required hereunder when delivered hereunder will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. 7.04 Fictitious Trade Styles: All fictitious trade styles used by the Borrower in connection with its business operations and each state in which each such fictitious trade style is used are listed below. The Borrower shall notify the Bank within 30 days of effecting any change in the matters described below or prior to using any other fictitious trade style at any future date, indicating the trade style and state(s) of its use. Trade Style State of Use 7.05 Financial Statements: All financial statements, information and other data which may have been or which may hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been or will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the financial condition or, as applicable, the other information disclosed therein. Since the most recent submission of such financial information or data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operations has occurred which has not been fully disclosed to the Bank in writing. 7.06 Litigation: Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrower's properties in excess of $500,000 before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrower's financial condition or operations or on the Collateral. 7.07 Title to Assets: The Borrower has good and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject to any security interest, encumbrance, lien or claim of any third person except for Permitted Liens. 7.08 ERISA: If the Borrower has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA. 7.09 Taxes: The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than such taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 7.10 Accounts: Each Eligible Account represents a bona fide sale conforming to the requirements of Section 1.01(h). 7.11 Environmental Compliance: The Borrower has implemented and complied in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or environmental conditions. There are no suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or its property claiming violations of any federal, state or local law, ordinance, statute or regulation relating to hazardous or toxic wastes, substances or related materials. SECTION 8 COVENANTS The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement, the Borrower will, unless the Bank shall otherwise consent in writing: 8.01 Preservation of Existence; Compliance with Applicable Laws: Maintain and preserve its existence and all rights and privileges now enjoyed; not liquidate or dissolve, merge or consolidate with or into, or acquire any other business organization; notwithstanding the foregoing Borrower may liquidate or dissolve, or enter into any consolidation, merger, partnership, joint venture or other combination, acquire any other business organization, or acquire all or substantially all of the assets of any other person (collectively, an "Acquisition"), so long as Borrower is in compliance with the covenants contained in Section 8.14 immediately after such Acquisition; and conduct its business and operations in accordance with all applicable laws, rules and regulations. 8.02 Maintenance of Insurance: Maintain insurance in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank. With respect to insurance covering properties in which the Bank maintains a security interest or lien, such insurance shall name the Bank as loss payee pursuant to a loss payable endorsement satisfactory to the Bank and shall not be altered or canceled except upon 10 days' prior written notice to the Bank. Upon the Bank's request, the Borrower shall furnish the Bank with the original policy or binder of all such insurance. 8.03 Maintenance of Collateral and Other Properties: Except for Permitted Liens, keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including, but not limited to, any lien of attachment, judgment or execution) and defend the Collateral against any such levy, lien, encumbrance or security interest; comply with all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file and record such statements, notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue the Bank's security interest in the Collateral and the priority thereof; maintain accurate and complete records of the Collateral which show all sales, claims and allowances; and properly care for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Borrower shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted. 8.04 Payment of Obligations and Taxes: Make timely payment of all assessments and taxes and all of its liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency. For purposes hereof, the Borrower's issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment. 8.05 Inspection Rights: At any reasonable time and from time to time, permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and discuss the business and operations of the Borrower with any employee or representative thereof. If the Borrower shall maintain any records (including, but not limited to, computer generated records or computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records which it may request, at the Borrower's expense, limited to $20,000 or at Bank's expense, the amount of which shall be payable within five (5) days of written notice. In addition, the Bank may, at any reasonable time and from time to time, conduct inspections and audits of the Collateral and the Borrower's accounts payable, the cost and expenses of which shall be paid by the Borrower to the Bank upon demand. 8.06 Reporting and Certification Requirements: Deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank: (a) Not later than 90 days after the end of each of the Borrower's fiscal years, a copy of (i) the annual audited financial report of the Borrower for such year prepared by a firm of certified public accountants reasonably acceptable to Bank, and (ii) the Borrower's Form 10-K filed with the Securities Exchange Commission and (iii) the Borrower's consolidating balance sheet and income statement for such year; and, not later than 60 days after the end of each of the Borrower's fiscal years, a copy of the Borrower's projected balance sheet and income statement for the fiscal year then in effect. (b) Not later than 45 days after the end of each of the Borrower's fiscal quarters, a copy of the Borrower's Form 10-Q filed with the Securities Exchange Commission and the Borrower's consolidating balance sheet and income statement for such quarter for the first three quarters only. (c) Not later than 45 days after the end of each month, the Borrower's financial statement as of the end of such period. (d) Concurrently with the delivery of the financial reports required hereunder, a compliance certificate in substantially the form attached hereto as Exhibit "A", showing the calculations which would demonstrate compliance with all of the financial covenants contained herein. (e) Not later than 30 days after the end of each month, an aging of accounts receivable indicating separately the amount of Eligible Accounts and the amount of total accounts receivable which are current, 1 to 30 days past the date of invoice, 31 to 60 days past the date of invoice, and the amount over 60 days past the date of invoice and an aging of accounts payable indicating the amount of such payables which are current, 1 to 30 days past the date of invoice, 31 to 60 days past the date of invoice, and the amount over 60 days past the date of invoice. (f) Daily or at such other time as required by the Bank: (i) a transaction report and schedule of accounts receivable which indicates all sales made and all collections received for each such day; (ii) all remittances and collections of accounts in kind and without commingling to be applied to the payment of the Borrower's Obligations on the next Business Day following receipt thereof; provided, however, that if such amounts are received in a form other than cash or bank wire, the Bank may withhold application of such amounts for such time to the extent permitted by law as the Bank, in its sole discretion, deems reasonable to allow for collection and provided further that any remittances and collections received by the Bank later than 2:30 p.m. (California time) on any day shall be deemed received on the next succeeding Business Day; and (iii) clear and legible copies of all invoices or sales receipts evidencing the sale of goods or services by the Borrower. (g) Promptly upon the Bank's request, such other information pertaining to the Borrower, the Collateral or any guarantor hereunder as the Bank may reasonably request. 8.07 Payment of Dividends: Not declare or pay any dividends on any class of stock now or hereafter outstanding except (i) dividends payable solely in the Borrower's capital stock, or (ii) dividends approved by Bank. 8.08 Redemption or Repurchase of Stock: Not redeem or repurchase in excess of 5% per year any class of the Borrower's stock now or hereafter outstanding without prior written Bank approval. 8.09 Additional Indebtedness: Not, after the date hereof, create, incur or assume, directly or indirectly, any additional Indebtedness other than (i) indebtedness owed or to be owed to the Bank or (ii) indebtedness to trade creditors incurred in the ordinary course of the Borrower's business or (iii) Permitted Indebtedness. 8.10 Loans: Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, partners, employees, affiliated entities and subsidiaries of the Borrower, except for (i) credit extended in the ordinary course of the Borrower's business as presently conducted and (ii) Permitted Investments. 8.11 Liens and Encumbrances: Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust, or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any of such properties, except for Permitted Liens or as otherwise provided in this Agreement. 8.12 Transfer Assets: Except for an amount not exceeding in the aggregate $100,000 in any fiscal year, not, after the date hereof, sell, contract for sale, convey, transfer, assign, lease or sublet, any of its assets (including, but not limited to, the Collateral) except in the ordinary course of business as presently conducted by the Borrower and, then, only for fair and reasonable consideration and (i) sales of inventory in the ordinary course of business, (ii) transfer of assets in the ordinary course of business that have become worn out or obsolete or that are promptly being replaced, (iii) transfers of non-exclusive licenses and similar arrangements for the use of property of Borrower made in the ordinary course of business, and (iv) transfers which constitute liquidation of permitted investments. 8.13 Change in Nature of Business: Not make any material change in its financial structure or the nature of its business as existing or conducted as of the date hereof. 8.14 Financial Condition: Maintain at all times: (a) A minimum Effective Tangible Net Worth of at least $26,557,000 plus 50% of net profit after taxes quarterly (exclusive of losses). (b) A ratio of Senior Debt to Effective Tangible Net Worth of not more than 1.5 to 1. (c) A minimum working capital (defined as current assets minus current liabilities) of not less than $5,000,000. (d) A ratio of the sum of cash, cash equivalents and accounts to current liabilities of not less than .80 to 1.0 (e) A minimum net profit after tax at the end of each fiscal quarter of at least $1.00. (f) Fixed Charge Coverage Ratio: Maintain, on a rolling four fiscal quarter basis, ratio of Consolidated Earnings Before Interest, Taxes, Depreciation, Amortization and Rentals to the sum of (i) interest (interest expense plus capitalized interest) in respect to all indebtedness plus rentals payable under leases of real or personal or mixed property and (ii) the current portion of long term debt at the end of each quarter of not less than 2.00:1.00. 8.15 Compensation of Employees: Compensate its employees for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation. 8.16 Capital Expense: Not make any fixed capital expenditure or any commitment therefor, including, but not limited to, incurring liability for leases which would be, in accordance with generally accepted accounting principles, reported as capital leases, or purchase any real or personal property in an aggregate amount exceeding $10,000,000 in any one fiscal year, exclusive of acquisition financing. Provided that Borrower may make capital expenditures or commitments therefor in connection with acquisitions in an amount up to $3,000,000 without the Bank's approval (subject to the terms and conditions of the Term Loan Credit Agreement of even date between the Bank and the Borrower. 8.17 Notice: Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $500,000 or which affects the Collateral; and (iii) other matters which have resulted in, or might result in a material adverse change in the Collateral or the financial condition or business operations of the Borrower. 8.18 Environmental Compliance. The Borrower shall: (a) Implement and comply in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or to environmental conditions. (b) Not own, use, generate, manufacture, store, handle, treat, release or dispose of any hazardous or toxic wastes, substances or materials, except in material compliance with all applicable federal, state and local laws, ordinances, statutes and regulations. (c) Give prompt written notice of any discovery of or suit, proceeding, claim, dispute, or filing respecting hazardous or toxic wastes, substances or related materials. (d) At all times indemnify and hold harmless Bank from and against any and all liability arising out of Borrower's use, generation, manufacture, storage, handling, treatment, or disposal by Borrower of hazardous or toxic wastes, substances or materials at the site. SECTION 9 EVENTS OF DEFAULT Any one or more of the following described events shall constitute an event of default (an "Event of Default") under this Agreement: 9.01 Non-Payment: The Borrower shall fail to pay any Obligations within 10 days of when due. 9.02 Performance Under This and Other Agreements: The Borrower shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement evidencing or relating to any indebtedness of the Borrower (whether such indebtedness is owed to the Bank or third persons), and any such failure (exclusive of the payment of money to the Bank under this Agreement or under any other instrument, document or agreement, which failure shall constitute and be an immediate Event of Default if not paid when due or when demanded to be due) shall continue for more than 30 days after written notice from the Bank to the Borrower of the existence and character of such Event of Default. 9.03 Representations and Warranties; Financial Statements: Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given. 9.04 Insolvency: The Borrower or any guarantor shall: (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vii) any receiver, custodian or trustee shall have been appointed for all or substantial part of its properties, assets or businesses and shall not be discharged within 60 days after the date of such appointment. 9.05 Execution: Any writ of execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 60 days after the issuance or attachment of such writ or lien. 9.06 Suspension: The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrower's business as now conducted. 9.07 Change in Ownership: There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary), or an agreement shall be entered into to do so, with respect to more than 25% of the issued and outstanding capital stock of the Borrower, if a corporation, or there shall occur a change in any general partner or a change affecting the control of the Borrower, if a partnership. SECTION 10 REMEDIES ON DEFAULT Upon the occurrence and during the continuance of any Event of Default, the Bank may, at its sole and absolute election, without demand and with prompt subsequent notice to Borrower: 10.01 Acceleration: Declare any or all of the Borrower's indebtedness owing to the Bank, whether under this Agreement or any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 10.02 Cease Extending Credit: Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank. 10.03 Termination: Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower's obligations to the Bank, the Bank's obligations to the Borrower, or the Bank's or Borrower's rights and remedies under this Agreement or under any other document, instrument or agreement. 10.04 Notification of Account Debtors: (a) Notify any Account Debtor, any buyers or transferee of the Collateral or any other persons of the Bank's interest in the Collateral and the proceeds thereof. (b) Sign the Borrower's name (which authority the Borrower hereby irrevocably and unconditionally grants to the Bank) on any invoice or bill of lading relating to accounts or other drafts against the Account Debtors. (c) Require the Borrower to indicate on the face of all invoices (or such other documentation as may be specified by the Bank relating to the sale, delivery or shipment of goods giving rise to the account) that the account has been assigned to the Bank and that all payments are to be made directly to the Bank at such address as the Bank may designate. 10.05 Protection of Security Interest: Make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the Collateral. The Borrower hereby irrevocably authorizes the Bank to pay, purchase, contest or compromise any encumbrance, lien or claim which the Bank, in its sole judgment, deems to be prior or superior to its security interest. Further, the Borrower hereby agrees to pay to the Bank, upon demand therefor, all reasonable expenses and expenditures (including reasonable attorneys' fees) incurred in connection with the foregoing. Notwithstanding the foregoing, Bank shall be responsible for its own gross negligence or willful misconduct. 10.06 Foreclosure: Enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document, in such manner and such order, as to all or any part of the properties subject to such security interest or lien, as the Bank, in its sole judgment, deems to be necessary or appropriate and the Borrower hereby waives any and all rights, obligations or defenses now or hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises where any Collateral is located and take possession of the Collateral or any part thereof, together with the Borrower's records pertaining thereto, or the Bank may require the Borrower to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the Bank. The Bank may sell the Collateral or any portions thereof, together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures as are required by law, at either a public or private sale, or both, with or without having the Collateral present at the time of the sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. Any deficiency which exists after the disposition or liquidation of the Collateral shall be a continuing liability of the Borrower to the Bank and shall be paid by the Borrower to the Bank within five (5) business days of written notice. 10.07 Foreign Exchange Contracts: The Bank may, at its sole and absolute discretion and in addition to any other remedies available to it hereunder or otherwise, require the Borrower to pay to the Bank within five (5) business days of written notice, for application against the future settlement price under any outstanding Foreign Exchange Contracts, the outstanding face amount of any such Foreign Exchange Contracts which have not matured or settled and Borrower hereby grants to Bank a security interest in and to such funds. Any portion of the amount so paid to the Bank which is not subsequently applied to satisfy repayment on any such matured Foreign Exchange Contracts or any other obligations of the Borrower to the Bank shall be repaid to the Borrower without interest. 10.08 Letters of Credit: The Bank may, at its sole and absolute discretion and in addition to any other remedies available to it hereunder or otherwise, require the Borrower to pay within five (5) business days of written notice to the Bank, for application against drawings under any outstanding Letters of Credit, the outstanding principal amount of any such Letters of Credit which have not expired. Any portion of the amount so paid to the Bank which is not applied to satisfy draws under any such Letters of Credit or any other obligations of the Borrower to the Bank shall be repaid to the Borrower without interest. 10.09 Non-Exclusivity of Remedies: Exercise one or more of the Bank's rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise. 10.10 Application of Proceeds: All amounts received by the Bank as proceeds from the disposition or liquidation of the Collateral shall be applied to the Borrower's indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank's lien in the Collateral, including court costs and reasonable attorneys' fees, whether or not suit is commenced by the Bank; next, to those costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, liquidating, selling or disposing of the Collateral; next, to the payment of accrued and unpaid interest on all of the Obligations; next, to the payment of the outstanding principal balance of the Obligations; and last, to the payment of any other indebtedness owed by the Borrower to the Bank. Any excess Collateral or excess proceeds existing after the disposition or liquidation of the Collateral will be returned or paid by the Bank to the Borrower. SECTION 11 MISCELLANEOUS 11.01 Amounts Payable on Demand: If the Borrower shall fail to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and without waiving any default occasioned by the Borrower having so failed to pay such amount, create an Advance under the Line of Credit in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided under the Line of Credit. 11.02 Default Interest Rate: The Borrower shall pay the Bank interest on any indebtedness or amount payable under this Agreement, from the date that such indebtedness or amount became due or was demanded to be due until paid in full, at a rate which is 3% in excess of the rate otherwise provided under this Agreement. 11.03 Disposal of Invoices: All documents, schedules, invoices or other papers received by the Bank from the Borrower may be destroyed or disposed of 6 months after receipt by the Bank, unless the Borrower requests in writing the return thereof, which shall be done at the Borrower's expense. 11.04 Rights of the Bank on Default: Upon written notice from the Bank, the Borrower agrees that the Bank may at any time and at its option, whether or not the Borrower is in default: (a) Require the Borrower to direct all Account Debtors to forward all remittances, payments and proceeds of the Collateral directly to the Bank at such address as the Bank may designate. In connection therewith, the Borrower hereby irrevocably constitutes and appoints the Bank as its attorney-in-fact to endorse the Borrower's name on any notes, acceptances, checks, drafts, money orders or other evidence of payment that may come into the Bank's possession. (b) Require the Borrower to deliver to the Bank, at such times designated by the Bank, records and schedules which show the status and condition of the Collateral, where it is located and such contracts or other matters which affect the Collateral. (c) Send verification requests to any Account Debtor. (d) Make inquiries of the Borrower's trade vendors. 11.05 Indemnification: The Borrower agrees to hold the Bank harmless from and indemnify and defend the Bank from any liability, claim, loss or expense (including, but not limited to, reasonable attorneys' fees) arising from any transaction between the Borrower and any Account Debtor including, but not limited to, any loss, claim or liability arising from: (a) Any violation of any federal or state consumer protection law (including, but not limited to, the federal Truth-In-Lending Act) and regulations promulgated thereunder. (b) Improper collection practices or procedures of the Borrower. (c) Any unlawful acts taken by the Borrower in connection with the collection of any account(s). (d) Any suit by any person against the Bank resulting or arising from such person's dealings with the Borrower. 11.06 Dispute Resolution. It is understood and agreed that upon the request of any party to this agreement any dispute, claim, or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereinafter arising between the parties in any way arising out of, pertaining to or in connection with: (1) this Agreement, or any related agreements, documents, or instruments, (2) all past and present loans, credits, accounts, deposit accounts (whether demand deposits or time deposits), safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods or services, or other transactions, contracts or agreements of any kind, (3) any incidents, omissions, acts, practices, or occurrences causing injury to either party whereby the other party or its agents, employees or representatives may be liable, in whole or in part, or (4) any aspect of the past or present relationships of the parties, shall be resolved through a two-step dispute resolution process administered by Judicial Arbitration & Mediation Services, Inc. ("Jo Ao Mo S") as follows: (a) Step I - Mediation: At the request of any party to the dispute, claim or controversy of the matter shall be referred to the nearest office of Jo Ao Mo S for mediation, that is, an informal, non-binding conference or conferences between the parties in which a retired judge or justice for the Jo Ao Mo S panel will seek to guide the parties to a resolution of the case. (b) Step II - Unsecured Contracts - Arbitration: Should any dispute, claim or controversy remain unresolved at the conclusion of the Step I Mediation Phase then all such remaining matters shall be resolved by final and binding arbitration before a different judicial panelist, unless the parties shall agree to have the mediator panelist act as arbitrator. The hearing shall be conducted at a location determined by the arbitrator in San Jose County and shall be administered by and in accordance with the then existing Rules of Practice and Procedure of Judicial Arbitration & Mediation Services, Inc., and judgement upon any award rendered by the arbitrator may be entered by any State or Federal Court having jurisdiction thereof. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorneys fees and costs. This subparagraph (b) shall apply only if, at the time of the submission of the matter to Jo Ao Mo S, the dispute(s) or issue(s) do(es) not arise out of a transaction(s) which is/are secured by real property collateral or, if so secured, all parties consent to such submission. As soon as practicable after selection of the arbitrator, the arbitrator or his/her designated representative shall determine a reasonable estimate of anticipated fees and costs of the Arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter each party shall, within 10 days of receipt of said statement, deposit said sum with the Arbitrator. Failure of any party to make such a deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, but shall not otherwise serve to abate, stay or suspend the arbitration proceedings. (c) Step II - Contracts Secured By Real Estate - Trial by Court Reference [ss.638 (1)] Code of Civil Procedure): If the dispute, claim or controversy is not one required or agreed to be submitted to arbitration as provided by subparagraph (b) and has not been resolved by Step I mediation, them any remaining dispute, claim or controversy shall be submitted for determination by a trial on Order of Reference conducted by a retired judge or justice from the panel of Jo Ao Mo S appointed pursuant to the provisions of California Code of Civil Procedure ss.638(1) or any amendment, addition or successor section thereto to hear the case and report a statement of decision thereon. The parties intend this general reference agreement to be specifically enforceable in accordance with said section. If this parties are unable to agree upon a member of the Jo Ao Mo S panel to act as referee then one shall be appointed by the Presiding Judge of the county wherein the hearing is to be held. The parties shall pay in advance, to the referee, the estimated reasonable fees and costs of the reference, as may be specified in advance by the referee. The parties shall initially share equally, by paying their proportionate amount of the estimated fees and costs of the reference. Failure of any party to make such a fee deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the cause(s) of action which is(are) the subject of the reference, but shall not otherwise serve to abate, stay or suspend the reference proceeding. (d) Provisional Remedies, Self Help and Foreclosure: No provision of, or the exercise of any right(s) under subparagraph (b), nor any other provision of this Dispute Resolution Provision, shall limit the right of any party to exercise self help remedies such as set off, to foreclose against any real or personal property collateral, or obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from any court having jurisdiction before, during or after the pendency of any arbitration. At Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for provisional remedies pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration. 11.07 Waiver of Jury Trial. THE BORROWER AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 11.08 Reliance: Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to the Bank. 11.09 Attorneys' Fees: Borrower shall pay to the Bank all costs and expenses, including but not limited to reasonable attorneys fees, incurred by Bank in connection with the administration, enforcement, or any refinancing or restructuring in the nature of a "work-out", of this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder. 11.10 Notices: All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party hereto, shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by Western Union telegram, addressed as set forth below or to such other address as may be specified from time to time in writing by either party to the other. To the Borrower To the Bank: ELEXSYS INTERNATIONAL, INC. SANWA BANK CALIFORNIA 4405 Fortran Court San Jose CBC San Jose, CA 95134 220 Almaden Blvd. San Jose, CA 95113 Attn: Milan Mandaric Attn: Jillian E. Mathur President and CEO Vice President and Manager with a copy to: With a copy to: COOLEY GODWARD LLP SANWA BANK CALIFORNIA Five Palo Alto Square Asset Based Financing Department 3000 El Camino Real Palo Alto, CA 94306-2155 444 Market Street, 22nd Floor San Francisco, CA 94111 Attn: Christine Ewing 11.11 Waiver: Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any other document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right; nor shall any waiver of any right or default hereunder, or under any other document, instrument or agreement mentioned herein, constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision. 11.12 Conflicting Provisions: To the extent the provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative. 11.13 Binding Effect; Assignment: This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may sell, assign or grant participation in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor. 11.14 Jurisdiction: This Agreement, any notes issued hereunder, the rights of the parties hereunder to and concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California, to the jurisdiction of whose courts the parties hereby submit. 11.15 Headings: The headings herein set forth are solely for the purpose of identification and have no legal significance. 11.16 Entire Agreement: This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. 11.17 Confidentiality Agreement. In handling any confidential information Bank, and all employees and agents of Bank, including but not limited to accountants, shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower; (ii) to prospective transferees or purchasers of any interest in the loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower; (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order; (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first hereinabove written. Borrower Bank: SANWA BANK CALIFORNIA ELEXSYS INTERNATIONAL, INC. BY:/s/ Milan Mandaric BY:/s/ Jillian E. Mathur ------------------- ---------------------- Name: Milan Mandaric Name: Jillian E. Mathur Title: President and CEO Title: Vice President EX-10.47 3 TERM LOAN AGREEMENT BETWEEN ELEXSYS & SANWA BANK Sanwa Bank California [GRAPHIC OMITTED] TERM LOAN CREDIT AGREEMENT ($7,000,000.00) THIS TERM LOAN CREDIT AGREEMENT (the "Agreement") is made and entered into this 27th day of January, 1997 by and between SANWA BANK CALIFORNIA (the "Bank") and Elexsys International, Inc. (the "Borrower") in connection with that certain Accounts Receivable Credit Agreement ("Accounts Receivable Agreement") by and between Bank and Borrower dated of even date herewith. Capitalized terms used herein without definition shall have the same meanings herein as given to them in the Accounts Receivable Agreement. SECTION I AGREEMENT TO LEND 1.01 Commitment to Lend. Subject to the terms and conditions of this Agreement and so long as no Event of Default occurs, the Bank agrees to extend to the Borrower the credit accommodations that follow. 1.02 Term Loan. The Bank agrees to lend on a nonrevolving basis to the Borrower, upon the Borrower's request therefor made prior to January 31, 1998, the lesser of 80% of the appraised quick sale liquidation value of the Borrower's fixed assets or 7,000,000.00 (the "Term Loan"). The appraisal is subject to approval by the Bank. A. Purpose. Proceeds under the Term Loan shall be used to support the Borrower's plan for growth via acquisitions. B. Term Loan Account. The Bank shall maintain on its books a record of account in which the Bank shall make entries for all payments made and such other debits and credits as shall be appropriate in connection with the Term Loan (the "Term Loan Account"). The Bank shall provide the Borrower with a monthly statement of the Borrower's Term Loan Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrower's receipt of any such statement which it deems to be incorrect. C. Interest. Interest shall accrue on the outstanding principal balance of the Term Loan (the "Term Balance") at one of the following rates, as quoted by the Bank and as elected by the Borrower: 1. Variable Rate Balance: A variable rate per annum equivalent to an index for a variable interest rate which is quoted, published or announced from time to time by the Bank as its reference rate and as to which loans may be made by Bank at, below or above such reference rate ("Reference Rate") plus 1.00% per annum. (the "Variable Rate"). Interest shall be adjusted concurrently with any change in the Reference Rate. A Term Balance based upon the Variable Rate is hereinafter referred to as a "Variable Rate Balance". 2. Cost of Funds Balance: At the Borrower's election, at a fixed rate for such period of time that the Bank may quote and offer, provided that any such period of time shall be for at least 30 days and shall not extend beyond the maturity date (the "Cost of Funds Interest Period") for the Term Balance. Such interest rate shall be a percentage approximately equivalent to three percent (3.00 %) per annum in excess of the rate which the Bank determines in its sole and absolute discretion to be equal to the Bank's cost of acquiring funds (adjusted for any and all assessments, surcharges and reserve requirements pertaining to the borrowing or purchase by the Bank of such funds) in an amount equal to the amount of the Term Balance and for a period of time approximately equal to the relevant Interest Period (the "Cost of Funds Rate" or the "Fixed Rate"). Term Balances based upon the Cost of Funds or Fixed Rate are hereinafter referred to as "Cost of Funds Balances" or "Fixed Rate Balances". Interest shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed. The Borrower hereby promises and agrees to pay the Bank interest monthly, commencing on January 31, 1997 and continuing on the last day of each month thereafter to and including January 31, 2001. If interest is not paid as and when it is due it shall be added to and become and be treated as part of principal, and the amount of such unpaid interest shall bear interest, until paid in full, at the then applicable interest rate. (a) Notice of Election to Adjust Interest Rate. Upon telephonic notice which shall be received by the Bank at or before 11:00 a.m. (California time) on a business day, the Borrower may elect: (1) That interest on a Variable Rate Balance shall be adjusted to accrue at the Fixed Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the day (which shall be a business day) on which the Borrower requests that interest be adjusted to accrue at the Fixed Rate. (2) That interest on a Fixed Rate Balance shall continue to accrue at a newly quoted Fixed Rate or shall be adjusted to commence to accrue at the Variable Rate; provided, however that such notice shall be received by the Bank no later than two business days prior to the last day of the Interest Period pertaining to such Fixed Rate Balance. If the Bank shall not have received notice as prescribed herein of the Borrower's election that interest on any Fixed Rate Balance shall continue to accrue at the Fixed Rate, the Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the Interest Period pertaining to such Term Balance. (b) Prohibition Against Prepayment of Fixed Rate Balances. Notwithstanding anything to the contrary in the Agreement, no prepayment shall be made on any Fixed Rate Balance except on a day which is the last day of the Interest Period pertaining thereto. If the whole or any part of any Fixed Rate Balance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon the Bank's request, promptly pay to and indemnify the Bank for all costs and any loss (including interest) actually incurred by the Bank and any loss (including loss of profit resulting from the re-employment of funds) sustained by the Bank as a consequence of such prepayment. Borrower shall not be obligated to pay to or reimburse Bank for any reimbursable amounts which arose or were incurred during or are otherwise attributable to any period of time more than 180 days prior to the date on which Bank delivered its written statement for indemnification or reimbursement of such reimbursable amounts. (c) Conversion from Fixed Rate to Variable Rate. In the event that the Bank shall at any time determine that the accrual of interest on the basis of the Fixed Rate (i) is infeasible because the Bank is unable to determine the Fixed Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Term Balance and for a period of time approximately equal to the relevant Interest Period; or (ii) is or has become unlawful or infeasible by reason of the Bank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event any Fixed Rate Term Balance shall be deemed to be a Variable Rate Term Balance and interest shall thereupon immediately accrue at the Variable Rate. Interest on any Term Balance shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed. D Principal. The Borrower hereby promises and agrees to pay principal in 36 equal installments commencing on January 31, 1998 if the Variable Rate is selected, and to pay principal over a 36 month amortization period if the Fixed Rate is selected, and the payment will continue on the last day of each month thereafter up to and including January 31, 2000. On January 31, 2001, the Borrower hereby promises and agrees to pay to the Bank the entire unpaid principal balance, together with accrued and unpaid interest. Each payment received by the Bank shall, at the Bank's option, be applied to pay interest then due and unpaid and the remainder thereof (if any) shall be applied to pay principal. 1.03 Disbursement of Proceeds from Loan. Any loan made hereunder shall be conclusively presumed to have been made to and for the Borrower's benefit when the proceeds of such loan are disbursed in accordance with the Borrower's instructions or deposited into a checking account of the Borrower maintained at the Bank. SECTION 2 COLLATERAL 2.01 The Collateral: To secure payment and performance of all the Borrower's Obligations under this Agreement and all other liabilities, loans, guarantees, covenants and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created, the Borrower hereby grants the Bank a security interest in and to all of the following property: (a) All goods now owned or hereafter acquired by the Borrower or in which the Borrower now has or may hereafter acquire any interest, including, but not limited to, all machinery, equipment, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description, and all additions, accessions, improvements, replacements and substitutions thereto and thereof. (b) All inventory now owned or hereafter acquired by the Borrower, including, but not limited to, all raw materials, work in process, finished goods, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the Borrower's custody or possession, together with all returns on accounts. (c) All accounts, contract rights and general intangibles now owned or hereafter created or acquired by the Borrower, including, but not limited to, all receivables, goodwill, trademarks, trade styles, trade names, patents, patent applications, software, customer lists and business records. (d) All documents, instruments and chattel paper now owned or hereafter acquired by the Borrower. (e) All monies, deposit accounts, certificates of deposit and securities of the Borrower now or hereafter in the Bank's or its agents' possession. The Bank's security interest in the Collateral shall be a continuing lien and shall include the proceeds and products of the Collateral including, but not limited to, the proceeds of any insurance thereon. SECTION 3 CONDITIONS OF LENDING 3.01 Conditions Precedent to the Initial Advance: The obligation of the Bank to make the initial Advance and the first extension of credit to or on account of the Borrower hereunder is subject to the conditions precedent that the Bank shall have received before the date of such initial Advance and such first extension of credit all of the following, in form and substance satisfactory to the Bank: (a) Evidence that the execution, delivery and performance by the Borrower of this Agreement and any document, instrument or agreement required hereunder have been duly authorized. (b) Evidence that the merger between the Borrower and Symtron has been completed. (c) The Bank shall have conducted an audit of the Borrower's books, records and operations and the Bank shall be satisfied as to the condition thereof. (d) Loan fees of 0.25% per annum of the unused portion of the credit line, payable quarterly in arrears in addition to any out of pocket cost or expenses incurred by the bank. (e) Such other evidence as the Bank may request to establish the consummation of the transaction contemplated hereunder and compliance with the conditions of this Agreement. 3.02 Conditions Precedent to All Advances: The obligation of the Bank to make each Advance and each other extension of credit to or on account of the Borrower (including the initial Advance and the first extension of credit) shall be subject to the further conditions precedent that, on the date of each Advance or each extension of credit and after the making of such Advance or extension of credit: (a) The Bank shall have received the documents set forth in Section 5.06(e). (b) The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request. (c) Except as disclosed to Bank in writing, the representations contained in Section 7 and in any other document, instrument or certificate delivered to the Bank hereunder are correct. (d) No event has occurred and is continuing which constitutes, or, with the lapse of time or giving of notice or both, would constitute an Event of Default. (e) The security interest in the Collateral has been duly authorized, created and perfected with first priority and is in full force and effect, assuming Bank has timely filed and taken all actions necessary or desirable to perfect and protect such security interest. The Borrower's acceptance of the proceeds of any Advance or the Borrower's execution of any document or instrument evidencing or creating any Obligation hereunder shall be deemed to constitute the Borrower's representation and warranty that all of the above statements are true and correct. SECTION 4 REPRESENTATIONS AND WARRANTIES The Borrower hereby makes the following representations and warranties to the Bank as of the date of this Agreement 4.01 Status: The Borrower is a corporation duly organized and validly existing under the laws of the State of Delaware and is properly licensed and is qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business and where failure to so qualify would have a material adverse effect. 4.02 Authority: The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower; (ii) result in a breach of or constitute a default under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; (iii) require any consent or approval of its stockholders or violate any provision of its certificate of incorporation or by-laws, if the Borrower is a corporation; or (iv) violate any provision of its partnership agreement, if the Borrower is a partnership. 4.03 Legal Effect: This Agreement constitutes, and any instrument, document or agreement required hereunder when delivered hereunder will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms. 4.04 Fictitious Trade Styles: All fictitious trade styles used by the Borrower in connection with its business operations and each state in which each such fictitious trade style is used are listed below. The Borrower shall notify the Bank within 30 days of effecting any change in the matters described below or prior to using any other fictitious trade style at any future date, indicating the trade style and state(s) of its use. Trade Style State of Use 4.05 Financial Statements: All financial statements, information and other data which may have been or which may hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been or will be prepared in accordance with generally accepted accounting principles consistently applied and accurately represent the financial condition or, as applicable, the other information disclosed therein. Since the most recent submission of such financial information or data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operations has occurred which has not been fully disclosed to the Bank in writing. 4.06 Litigation: Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrower's properties in excess of $500,000 before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrower's financial condition or operations or on the Collateral. 4.07 Title to Assets: The Borrower has good and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject to any security interest, encumbrance, lien or claim of any third person except for Permitted Liens. 4.08 ERISA: If the Borrower has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA. 4.09 Taxes: The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than such taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 4.10 Environmental Compliance: The Borrower has implemented and complied in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or environmental conditions. There are no suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or its property claiming violations of any federal, state or local law, ordinance, statute or regulation relating to hazardous or toxic wastes, substances or related materials. SECTION 5 COVENANTS The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement, the Borrower will, unless the Bank shall otherwise consent in writing: 5.01 Preservation of Existence; Compliance with Applicable Laws: Maintain and preserve its existence and all rights and privileges now enjoyed; not liquidate or dissolve, merge or consolidate with or into, or acquire any other business organization; notwithstanding the foregoing Borrower may liquidate or dissolve, or enter into any consolidation, merger, partnership, joint venture or other combination, acquire any other business organization, or acquire all or substantially all of the assets of any other person (collectively, an "Acquisition"), so long as Borrower is in compliance with the covenants contained in Section 8.14 immediately after such acquisition; and conduct its business and operations in accordance with all applicable laws, rules and regulations. 5.02 Maintenance of Insurance: Maintain insurance in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates and maintain such other insurance and coverages as may be required by the Bank. All such insurance shall be in form and amount and with companies satisfactory to the Bank. With respect to insurance covering properties in which the Bank maintains a security interest or lien, such insurance shall name the Bank as loss payee pursuant to a loss payable endorsement satisfactory to the Bank and shall not be altered or canceled except upon 10 days' prior written notice to the Bank. Upon the Bank's request, the Borrower shall furnish the Bank with the original policy or binder of all such insurance. 5.03 Maintenance of Collateral and Other Properties: Except for Permitted Liens, keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including, but not limited to, any lien of attachment, judgment or execution) and defend the Collateral against any such levy, lien, encumbrance or security interest; comply with all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file and record such statements, notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue the Bank's security interest in the Collateral and the priority thereof; maintain accurate and complete records of the Collateral which show all sales, claims and allowances; and properly care for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Borrower shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted. 5.04 Payment of Obligations and Taxes: Make timely payment of all assessments and taxes and all of its liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency. For purposes hereof, the Borrower's issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment. 5.05 Inspection Rights: At any reasonable time and from time to time, permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and discuss the business and operations of the Borrower with any employee or representative thereof. If the Borrower shall maintain any records (including, but not limited to, computer generated records or computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records which it may request, at the Borrower's expense limited to $20,000 or at Bank's expense, the amount of which shall be payable within five (5) days of written notice. In addition, the Bank may, at any reasonable time and from time to time, conduct inspections and audits of the Collateral and the Borrower's accounts payable, the cost and expenses of which shall be paid by the Borrower to the Bank upon demand. 5.06 Reporting and Certification Requirements: Deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank: (a) Not later than 90 days after the end of each of the Borrower's fiscal years, a copy of (i) the annual audited financial report of the Borrower for such year prepared by a firm of certified public accountants reasonably acceptable to Bank, and (ii) the Borrower's Form 10-K filed with the Securities Exchange Commission and (iii) the Borrower's consolidating balance sheet and income statement for such year; and, not later than 60 days after the end of each of the Borrower's fiscal years, a copy of the Borrower's projected balance sheet and income statement for the fiscal year then in effect. (b) Not later than 45 days after the end of each of the Borrower's fiscal quarters, a copy of the Borrower's Form 10-Q filed with the Securities Exchange Commission and the Borrower's consolidating balance sheet and income statement for such quarter for the first three quarters only. (c) Not later than 45 days after the end of each month, the Borrower's financial statement as of the end of such period. (d) Concurrently with the delivery of the financial reports required hereunder, a compliance certificate in substantially the form attached hereto as Exhibit "A", showing the calculations which would demonstrate compliance with all of the financial covenants contained herein. (e) Not later than 30 days after the end of each month, an aging of accounts receivable indicating separately the amount of Eligible Accounts and the amount of total accounts receivable which are current, 1 to 30 days past the date of invoice, 31 to 60 days past the date of invoice, and the amount over 60 days past the date of invoice and an aging of accounts payable indicating the amount of such payables which are current, 1 to 30 days past the date of invoice, 31 to 60 days past the date of invoice, and the amount over 60 days past the date of invoice. (f) Daily or at such other time as required by the Bank: (i) a transaction report and schedule of accounts receivable which indicates all sales made and all collections received for each such day; (ii) all remittances and collections of accounts in kind and without commingling to be applied to the payment of the Borrower's Obligations on the next Business Day following receipt thereof; provided, however, that if such amounts are received in a form other than cash or bank wire, the Bank may withhold application of such amounts for such time to the extent permitted by law as the Bank, in its sole discretion, deems reasonable to allow for collection and provided further that any remittances and collections received by the Bank later than 2:30 p.m. (California time) on any day shall be deemed received on the next succeeding Business Day; and (iii) clear and legible copies of all invoices or sales receipts evidencing the sale of goods or services by the Borrower. (g) Promptly upon the Bank's request, such other information pertaining to the Borrower, the Collateral or any guarantor hereunder as the Bank may reasonably request. 5.07 Payment of Dividends: Not declare or pay any dividends on any class of stock now or hereafter outstanding except (i) dividends payable solely in the Borrower's capital stock; or (ii) dividends approved by Bank. 5.08 Redemption or Repurchase of Stock: Not redeem or repurchase in excess of 5% per year any class of the Borrower's stock now or hereafter outstanding without prior written Bank approval. 5.09 Additional Indebtedness: Not, after the date hereof, create, incur or assume, directly or indirectly, any additional Indebtedness other than (i) indebtedness owed or to be owed to the Bank or (ii) indebtedness to trade creditors incurred in the ordinary course of the Borrower's business or (iii) permitted indebtedness. 5.10 Loans: Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, partners, employees, affiliated entities and subsidiaries of the Borrower, except for (i) credit extended in the ordinary course of the Borrower's business as presently conducted and (ii) permitted investments. 5.11 Liens and Encumbrances: Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust, or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's properties, or execute or allow to be filed any financing statement or continuation thereof affecting any of such properties, except for Permitted Liens or as otherwise provided in this Agreement. 5.12 Transfer Assets: Except for an amount not exceeding in the aggregate $100,000 in any fiscal year, not, after the date hereof, sell, contract for sale, convey, transfer, assign, lease or sublet, any of its assets (including, but not limited to, the Collateral) except in the ordinary course of business as presently conducted by the Borrower and, then, only for fair and reasonable consideration and (i) sales of inventory in the ordinary course of business, (ii) transfer of assets in the ordinary course of business that have become worn out or obsolete or that are promptly being replaced, (iii) transfers of non-exclusive licenses and similar arrangements for the use of property of Borrower made in the ordinary course of business, and (iv) transfers which constitute liquidation of permitted investments. 5.13 Change in Nature of Business: Not make any material change in its financial structure or the nature of its business as existing or conducted as of the date hereof. 5.14 Financial Condition: Maintain at all times: (a) A minimum Effective Tangible Net Worth of at least $26,557,000 plus 50% of net profit after taxes quarterly (exclusive of losses). (b) A ratio of Senior Debt to Effective Tangible Net Worth of not more than 1.5 to 1. (c) A minimum working capital defined as current assets minus current liabilities, of not less than $5,000,000. (d) A ratio of the sum of cash, cash equivalents and accounts to current liabilities of not less than .80 to 1.0. (e) A minimum net profit after tax at the end of each fiscal quarter of at least $1.00. (f) Fixed Charge Coverage Ratio: Maintain, on a rolling four fiscal quarter basis, ratio of Consolidated Earnings Before Interest, Taxes, Depreciation, Amortization and Rentals to the sum of (i) interest (interest expense plus capitalized interest) in respect to all indebtedness plus rentals payable under leases of real or personal or mixed property and (ii) the current portion of long term debt at the end of each quarter of not less than 2.00:1.00. 5.15 Compensation of Employees: Compensate its employees for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation. 5.16 Capital Expense: Not make any fixed capital expenditure or any commitment therefor, including, but not limited to, incurring liability for leases which would be, in accordance with generally accepted accounting principles, reported as capital leases, or purchase any real or personal property in an aggregate amount exceeding $10,000,000 in any one fiscal year, exclusive of acquisition financing. Provided that Borrower may make capital expenditures or commitments therefor in connection with acquisitions in an amount up to $3,000,000 without the Bank's approval (subject to the terms and conditions of the Term Loan Credit Agreement of even date between the Bank and the Borrower. 5.17 Notice: Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $500,000 or which affects the Collateral; and (iii) other matters which have resulted in, or might result in a material adverse change in the Collateral or the financial condition or business operations of the Borrower. 5.18 Environmental Compliance. The Borrower shall: (a) Implement and comply in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or to environmental conditions. (b) Not own, use, generate, manufacture, store, handle, treat, release or dispose of any hazardous or toxic wastes, substances or related materials, except in material compliance with all applicable federal, state and local laws, ordinances, statutes and regulations. (c) Give prompt written notice of any discovery of or suit, proceeding, claim, dispute, threat, inquiry or filing respecting hazardous or toxic wastes, substances or related materials. (d) At all times indemnify and hold harmless Bank from and against any and all liability arising out of the Borrower's use, generation, manufacture, storage, handling, treatment, or disposal by Borrower of hazardous or toxic wastes, substances or related materials at the site. SECTION 6 EVENTS OF DEFAULT Any one or more of the following described events shall constitute an event of default (an "Event of Default") under this Agreement: 6.01 Non-Payment: The Borrower shall fail to pay any Obligations within 10 days of when due. 6.02 Performance Under This and Other Agreements: The Borrower shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement evidencing or relating to any indebtedness of the Borrower (whether such indebtedness is owed to the Bank or third persons), and any such failure (exclusive of the payment of money to the Bank under this Agreement or under any other instrument, document or agreement, which failure shall constitute and be an immediate Event of Default if not paid when due or when demanded to be due) shall continue for more than 30 days after written notice from the Bank to the Borrower of the existence and character of such Event of Default. 6.03 Representations and Warranties; Financial Statements: Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given. 6.04 Insolvency: The Borrower or any guarantor shall: (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vii) any receiver, custodian or trustee shall have been appointed for all or substantial part of its properties, assets or businesses and shall not be discharged within 60 days after the date of such appointment. 6.05 Execution: Any writ of execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 60 days after the issuance or attachment of such writ or lien. 6.06 Suspension: The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrower's business as now conducted. 6.07 Change in Ownership: There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary), or an agreement shall be entered into to do so, with respect to more than 25% of the issued and outstanding capital stock of the Borrower, if a corporation, or there shall occur a change in any general partner or a change affecting the control of the Borrower, if a partnership. SECTION 7 REMEDIES ON DEFAULT Upon the occurrence and during the continuance of any Event of Default, the Bank may, at its sole and absolute election, without demand and with prompt subsequent notice to Borrower: 7.01 Acceleration: Declare any or all of the Borrower's indebtedness owing to the Bank, whether under this Agreement or any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 7.02 Cease Extending Credit: Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank. 7.03 Termination: Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower's obligations to the Bank, the Bank's obligations to the Borrower, or the Bank's or Borrower's rights and remedies under this Agreement or under any other document, instrument or agreement. 7.04 Notification of Account Debtors: (a) Notify any Account Debtor, any buyers or transferee of the Collateral or any other persons of the Bank's interest in the Collateral and the proceeds thereof. (b) Sign the Borrower's name (which authority the Borrower hereby irrevocably and unconditionally grants to the Bank) on any invoice or bill of lading relating to accounts or other drafts against the Account Debtors. (c) Require the Borrower to indicate on the face of all invoices (or such other documentation as may be specified by the Bank relating to the sale, delivery or shipment of goods giving rise to the account) that the account has been assigned to the Bank and that all payments are to be made directly to the Bank at such address as the Bank may designate. 7.05 Protection of Security Interest: Make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the Collateral. The Borrower hereby irrevocably authorizes the Bank to pay, purchase, contest or compromise any encumbrance, lien or claim which the Bank, in its sole judgment, deems to be prior or superior to its security interest. Further, the Borrower hereby agrees to pay to the Bank, upon demand therefor, all reasonable expenses and expenditures (including reasonable attorneys' fees) incurred in connection with the foregoing. Notwithstanding the foregoing, Bank will be responsible for its own gross negligence or willful misconduct. 7.06 Foreclosure: Enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document, in such manner and such order, as to all or any part of the properties subject to such security interest or lien, as the Bank, in its sole judgment, deems to be necessary or appropriate and the Borrower hereby waives any and all rights, obligations or defenses now or hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises where any Collateral is located and take possession of the Collateral or any part thereof, together with the Borrower's records pertaining thereto, or the Bank may require the Borrower to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the Bank. The Bank may sell the Collateral or any portions thereof, together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures as are required by law, at either a public or private sale, or both, with or without having the Collateral present at the time of the sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. Any deficiency which exists after the disposition or liquidation of the Collateral shall be a continuing liability of the Borrower to the Bank and shall be paid by the Borrower to the Bank within five (5) business days of written notice. 7.07 Foreign Exchange Contracts: The Bank may, at its sole and absolute discretion and in addition to any other remedies available to it hereunder or otherwise, require the Borrower to pay to the Bank within five (5) business days of written notice, for application against the future settlement price under any outstanding Foreign Exchange Contracts, the outstanding face amount of any such Foreign Exchange Contracts which have not matured or settled and Borrower hereby grants to Bank a security interest in and to such funds. Any portion of the amount so paid to the Bank which is not subsequently applied to satisfy repayment on any such matured Foreign Exchange Contracts or any other obligations of the Borrower to the Bank shall be repaid to the Borrower without interest. 7.08 Letters of Credit: The Bank may, at its sole and absolute discretion and in addition to any other remedies available to it hereunder or otherwise, require the Borrower to pay to the Bank within five (5) business days of written notice, for application against drawings under any outstanding Letters of Credit, the outstanding principal amount of any such Letters of Credit which have not expired. Any portion of the amount so paid to the Bank which is not applied to satisfy draws under any such Letters of Credit or any other obligations of the Borrower to the Bank shall be repaid to the Borrower without interest. 7.09 Non-Exclusivity of Remedies: Exercise one or more of the Bank's rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise. 7.10 Application of Proceeds: All amounts received by the Bank as proceeds from the disposition or liquidation of the Collateral shall be applied to the Borrower's indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank's lien in the Collateral, including court costs and reasonable attorneys' fees, whether or not suit is commenced by the Bank; next, to those costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, liquidating, selling or disposing of the Collateral; next, to the payment of accrued and unpaid interest on all of the Obligations; next, to the payment of the outstanding principal balance of the Obligations; and last, to the payment of any other indebtedness owed by the Borrower to the Bank. Any excess Collateral or excess proceeds existing after the disposition or liquidation of the Collateral will be returned or paid by the Bank to the Borrower. SECTION 8 MISCELLANEOUS 8.01 Amounts Payable on Demand: If the Borrower shall fail to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and without waiving any default occasioned by the Borrower having so failed to pay such amount, create an Advance under the Line of Credit in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided under the Line of Credit. 8.02 Default Interest Rate: The Borrower shall pay the Bank interest on any indebtedness or amount payable under this Agreement, from the date that such indebtedness or amount became due or was demanded to be due until paid in full, at a rate which is 3% in excess of the rate otherwise provided under this Agreement. 8.03 Disposal of Invoices: All documents, schedules, invoices or other papers received by the Bank from the Borrower may be destroyed or disposed of 6 months after receipt by the Bank, unless the Borrower requests in writing the return thereof, which shall be done at the Borrower's expense. 8.04 Rights of the Bank With or Without Default: Upon written notice from the Bank the Borrower agrees that the Bank may at any time and at its option, whether or not the Borrower is in default: (a) Require the Borrower to direct all Account Debtors to forward all remittances, payments and proceeds of the Collateral directly to the Bank at such address as the Bank may designate. In connection therewith, the Borrower hereby irrevocably constitutes and appoints the Bank as its attorney-in-fact to endorse the Borrower's name on any notes, acceptances, checks, drafts, money orders or other evidence of payment that may come into the Bank's possession. (b) Require the Borrower to deliver to the Bank, at such times designated by the Bank, records and schedules which show the status and condition of the Collateral, where it is located and such contracts or other matters which affect the Collateral. (c) Send verification requests to any Account Debtor. (d) Make inquiries of the Borrower's trade vendors. 8.05 Indemnification: The Borrower agrees to hold the Bank harmless from and indemnify and defend the Bank from any liability, claim, loss or expense (including, but not limited to, reasonable attorneys' fees) arising from any transaction between the Borrower and any Account Debtor including, but not limited to, any loss, claim or liability arising from: (a) Any violation of any federal or state consumer protection law (including, but not limited to, the federal Truth-In-Lending Act) and regulations promulgated thereunder. (b) Improper collection practices or procedures of the Borrower. (c) Any unlawful acts taken by the Borrower in connection with the collection of any account(s). d) Any suit by any person against the Bank resulting or arising from such person's dealings with the Borrower. 8.06 Dispute Resolution. It is understood and agreed that upon the request of any party to this agreement any dispute, claim, or controversy of any kind, whether in contract or in tort, statutory or common law, legal or equitable now existing or hereinafter arising between the parties in any way arising out of, pertaining to or in connection with: (1) this Agreement, or any related agreements, documents, or instruments, (2) all past and present loans, credits, accounts, deposit accounts (whether demand deposits or time deposits), safe deposit boxes, safekeeping agreements, guarantees, letters of credit, goods or services, or other transactions, contracts or agreements of any kind, (3) any incidents, omissions, acts, practices, or occurrences causing injury to either party whereby the other party or its agents, employees or representatives may be liable, in whole or in part, or (4) any aspect of the past or present relationships of the parties, shall be resolved through a two-step dispute resolution process administered by Judicial Arbitration & Mediation Services, Inc. ("Jo Ao Mo S") as follows: (a) Step I - Mediation: At the request of any party to the dispute, claim or controversy of the matter shall be referred to the nearest office of Jo Ao Mo S for mediation, that is, an informal, non-binding conference or conferences between the parties in which a retired judge or justice for the Jo Ao Mo S panel will seek to guide the parties to a resolution of the case. (b) Step II - Unsecured Contracts - Arbitration: Should any dispute, claim or controversy remain unresolved at the conclusion of the Step I Mediation Phase then all such remaining matters shall be resolved by final and binding arbitration before a different judicial panelist, unless the parties shall agree to have the mediator panelist act as arbitrator. The hearing shall be conducted at a location determined by the arbitrator in San Jose County and shall be administered by and in accordance with the then existing Rules of Practice and Procedure of Judicial Arbitration & Mediation Services, Inc., and judgment upon any award rendered by the arbitrator may be entered by any State or Federal Court having jurisdiction thereof. The arbitrator shall determine which is the prevailing party and shall include in the award that party's reasonable attorneys fees and costs. This subparagraph (b) shall apply only if, at the time of the submission of the matter to Jo Ao Mo S, the dispute(s) or issue(s) do(es) not arise out of a transaction(s) which is/are secured by real property collateral or, if so secured, all parties consent to such submission. As soon as practicable after selection of the arbitrator, the arbitrator or his/her designated representative shall determine a reasonable estimate of anticipated fees and costs of the Arbitrator, and render a statement to each party setting forth that party's pro-rata share of said fees and costs. Thereafter each party shall, within 10 days of receipt of said statement, deposit said sum with the Arbitrator. Failure of any party to make such a deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the claim which is the subject of the arbitration, but shall not otherwise serve to abate, stay or suspend the arbitration proceedings. (c) Step II - Contracts Secured By Real Estate - Trial by Court Reference [ss.638 (1)] Code of Civil Procedure): If the dispute, claim or controversy is not one required or agreed to be submitted to arbitration as provided by subparagraph (b) and has not been resolved by Step I mediation, them any remaining dispute, claim or controversy shall be submitted for determination by a trial on Order of Reference conducted by a retired judge or justice from the panel of Jo Ao Mo S appointed pursuant to the provisions of California Code of Civil Procedure ss.638(1) or any amendment, addition or successor section thereto to hear the case and report a statement of decision thereon. The parties intend this general reference agreement to be specifically enforceable in accordance with said section. If this parties are unable to agree upon a member of the Jo Ao Mo S panel to act as referee then one shall be appointed by the Presiding Judge of the county wherein the hearing is to be held. The parties shall pay in advance, to the referee, the estimated reasonable fees and costs of the reference, as may be specified in advance by the referee. The parties shall initially share equally, by paying their proportionate amount of the estimated fees and costs of the reference. Failure of any party to make such a fee deposit shall result in a forfeiture by the non-depositing party of the right to prosecute or defend the cause(s) of action which is(are) the subject of the reference, but shall not otherwise serve to abate, stay or suspend the reference proceeding. (d) Provisional Remedies, Self Help and Foreclosure: No provision of, or the exercise of any right(s) under subparagraph (b), nor any other provision of this Dispute Resolution Provision, shall limit the right of any party to exercise self help remedies such as set off, to foreclose against any real or personal property collateral, or obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from any court having jurisdiction before, during or after the pendency of any arbitration. At Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for provisional remedies pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration. 8.07 Waiver of Jury Trial. THE BORROWER AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 8.08 Reliance: Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to the Bank. 8.09 Attorneys' Fees: Borrower shall pay to the Bank all costs and expenses, including but not limited to reasonable attorneys fees, incurred by Bank in connection with the administration, enforcement, or any refinancing or restructuring in the nature of a "work-out", of this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the indebtedness hereunder. 8.10 Notices: All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party hereto, shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by Western Union telegram, addressed as set forth below or to such other address as may be specified from time to time in writing by either party to the other. To the Borrower: To the Bank: Elexsys International, Inc. SANWA BANK CALIFORNIA 4405 Fortran Court San Jose CBC San Jose, CA 95134 220 Almaden Blvd. San Jose, CA 95113 Attn: Milan Mandaric President and CEO Attn: Jillian E, Mathur Vice President With a copy to: With a copy to: COOLEY GODWARD LLP SANWA BANK CALIFORNIA Five Palo Alto Square Asset Based Financing Department 3000 El Camino Real 444 Market Street, 22nd Floor Palo Alto, CA 94306-2155 San Francisco, CA 94111 Attn: Christine Ewing 8.11 Waiver: Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any other document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right; nor shall any waiver of any right or default hereunder, or under any other document, instrument or agreement mentioned herein, constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision. 8.12 Conflicting Provisions: To the extent the provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative. 8.13 Binding Effect; Assignment: This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may sell, assign or grant participation in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor. 8.14 Jurisdiction: This Agreement, any notes issued hereunder, the rights of the parties hereunder to and concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California, to the jurisdiction of whose courts the parties hereby submit. 8.15 Headings: The headings herein set forth are solely for the purpose of identification and have no legal significance. 8.16 Entire Agreement: This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. 11.17 Confidentiality Agreement. In handling any confidential information Bank, and all employees and agents of Bank, including but not limited to accountants, shall exercise the same degree of care that Bank exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates of Bank in connection with their present or prospective business relations with Borrower; (ii) to prospective transferees or purchasers of any interest in the loans, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower; (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order; (iv) as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such third party is prohibited from disclosing such information. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first hereinabove written. Borrower Bank: SANWA BANK CALIFORNIA ELEXSYS INTERNATIONAL, INC. BY:/s/Milan Mandaric BY:/s/Jillian E. Mathur ----------------- --------------------- Name: Milan Mandaric Name: Jillian E. Mathur Title: President and CEO Title: Vice President EX-10.48 4 LOAN AGREEMENT: ELEXSYS, GE CAPITAL, NEW HAMPSHIRE LOAN AGREEMENT Among GE CAPITAL PUBLIC FINANCE, INC. as Lender and BUSINESS FINANCE AUTHORITY OF THE STATE OF NEW HAMPSHIRE as Issuer and ELEXSYS INTERNATIONAL, INC. as Borrower Dated as of December 1, 1996 ------------------------------------------------- THIS AGREEMENT DOES NOT CONSTITUTE AN INDEBTEDNESS OF THE STATE OF NEW HAMPSHIRE OR OF THE ISSUER EXCEPT TO THE EXTENT PERMITTED BY NEW HAMPSHIRE RSA CHAPTER 162-I. ALL AMOUNTS OWED HEREUNDER ARE PAYABLE ONLY FROM THE SOURCES EXPRESSLY PROVIDED HEREIN, AND NO PUBLIC FUNDS MAY BE USED FOR THAT PURPOSE. -------------------------------------------------
ii Table of Contents Page ARTICLE I DEFINITIONS AND EXHIBITS............................................................................. 2 Section 1.01. Definitions............................................................................. 2 Section 1.02. Exhibits................................................................................ 4 Section 1.03. Rules of Construction................................................................... 5 Section 1.04. Combined Documents...................................................................... 5 ARTICLE II FINANCING OF PROJECT AND TERMS OF LOAN.............................................................. 5 Section 2.01. Completion of Project................................................................... 5 Section 2.02. Loan.................................................................................... 6 Section 2.03. Interest................................................................................ 6 Section 2.04. Payments................................................................................ 6 Section 2.05. Payment on Non-Business Days............................................................ 7 Section 2.06. Loan Payments To Be Unconditional....................................................... 7 Section 2.07. Prepayments............................................................................. 7 ARTICLE III CONDITIONS PRECEDENT............................................................................... 8 ARTICLE IV LIMITED OBLIGATION OF ISSUER; RIGHTS OF ISSUER; COVENANTS OF ISSUER................................. 10 Section 4.01. Limited Obligation...................................................................... 10 Section 4.02. Rights and Duties of Issuer............................................................. 10 Section 4.03. Costs and Expenses of Issuer............................................................ 11 Section 4.04. Matters to be Considered by Issuer...................................................... 11 Section 4.05. Actions by Issuer....................................................................... 12 Section 4.06. Indemnification by Borrower............................................................. 12 Section 4.07. Covenants of Issuer..................................................................... 12 ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER................................................ 12 ARTICLE VI LETTER OF CREDIT.................................................................................... 15 ARTICLE VII AFFIRMATIVE COVENANTS OF BORROWER.................................................................. 16 Section 7.01. Reporting Requirements.................................................................. 16 Section 7.02. Books and Records; Inspection and Examination........................................... 17 Section 7.03. Compliance With Laws; Environmental Indemnity........................................... 17 Section 7.04. Payment of Taxes and Other Claims....................................................... 18 Section 7.05. Maintenance of Project.................................................................. 18 Section 7.06. Insurance............................................................................... 18 Section 7.07. Preservation of Corporate Existence..................................................... 19 Section 7.08. Performance by Lender................................................................... 19 ARTICLE VIII NEGATIVE COVENANTS OF BORROWER.................................................................... 20 Section 8.01. Lien.................................................................................... 20 Section 8.02. Sale of Assets.......................................................................... 20 Section 8.03. Consolidation and Merger................................................................ 20 Section 8.04. Accounting.............................................................................. 20 Section 8.05. Transfers............................................................................... 21 Section 8.06. Use of the Project...................................................................... 21 ARTICLE IX [Reserved].......................................................................................... 21 ARTICLE X ASSIGNMENT AND SELLING............................................................................... 21 Section 10.01. Assignment by Lender................................................................... 21 Section 10.02. No Sale or Assignment by Borrower...................................................... 22 ARTICLE XI EVENTS OF DEFAULT AND REMEDIES...................................................................... 22 Section 11.01. Events of Default...................................................................... 22 Section 11.02. Remedies on Default.................................................................... 23 Section 11.03. [Reserved]............................................................................. 24 Section 11.04. No Remedy Exclusive.................................................................... 24 Section 11.05. Late Charge............................................................................ 24 ARTICLE XII MISCELLANEOUS...................................................................................... 24 Section 12.01. Costs and Expenses of Lender........................................................... 24 Section 12.02. Disclaimer of Warranties............................................................... 25 Section 12.03. Notices................................................................................ 25 Section 12.04. Further Assurance and Corrective Instruments........................................... 25 Section 12.05. Binding Effect; Time of the Essence.................................................... 25 Section 12.06. Severability........................................................................... 25 Section 12.07. Amendments............................................................................. 25 Section 12.08. Execution in Counterparts.............................................................. 26 Section 12.09. Applicable Law......................................................................... 26 Section 12.10. Captions............................................................................... 26 Section 12.11. Entire Agreement....................................................................... 26 Section 12.12. Usury.................................................................................. 26 Section 12.13. Waiver of Jury Trial................................................................... 26
30 LOAN AGREEMENT (REAL ESTATE) Lender: GE Capital Public Finance, Inc. .........Suite 470 .........8400 Normandale Lake Blvd. .........Minneapolis, MN 55437 .........Telephone: (800) 346-3164 .........Telecopier: (612) 897-5601 Issuer: Business Finance Authority of the State of New Hampshire .........14 Dixon Avenue, Suite 101 .........Concord, NH 03301 .........Telephone: (603) 271-2391 .........Telecopier: (603) 271-2396 Borrower: .........Elexsys International, Inc. .........41 Simon Street .........Nashua, NH 03060 .........Telephone: (603) 886-0066 .........Telecopier: (603) 886-9724 THIS LOAN AGREEMENT dated as of December 1, 1996 (this "Agreement") among GE Capital Public Finance, Inc., a Delaware corporation, as lender (with its successors and assigns, "Lender"), Business Finance Authority of the State of New Hampshire, a body corporate and politic as an agency of the State of New Hampshire (the "State"), as issuer ("Issuer"), and Elexsys International, Inc., a Delaware corporation, as borrower ("Borrower"). WHEREAS, Issuer is authorized and empowered under the laws of the State, including New Hampshire RSA Chapter 162-I (the "Act"), to enter into financing documents and security documents with respect to indebtedness of Issuer to be used to finance eligible projects as described in the Act; and WHEREAS, in furtherance of the purposes of the Act, Issuer proposes to finance all or a portion of the Project (as hereinafter defined) pursuant to this Agreement by obtaining a loan from Lender and lending the proceeds thereof to Borrower; and WHEREAS, Borrower proposes to borrow the proceeds of the loan made by Lender to Issuer upon the terms and conditions set forth herein to finance the Project; and WHEREAS, Borrower shall make Loan Payments (as hereinafter defined) directly to Lender as assignee of Issuer; and WHEREAS, this Agreement shall not be deemed to constitute a debt or liability or moral obligation of the State or any political subdivision thereof, or a pledge of the faith and credit or taxing power of the State or any political subdivision thereof, but shall be a special obligation of Issuer payable solely from the Loan Payments payable hereunder by Borrower to Lender as assignee of Issuer. NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and in consideration of the premises contained in this Agreement, Lender, Issuer and Borrower agree as follows: ARTICLE I DEFINITIONS AND EXHIBITS Section 1.01. DefinitionsDefinitions. The following terms used herein will have the meanings indicated below unless the context clearly requires otherwise: "Agreement" means this Agreement, including all exhibits hereto, as any of the same may be supplemented or amended from time to time in accordance with the terms hereof. "Bank" means Sanwa Bank California, the issuer of the Letter of Credit. "Borrower" means Elexsys International, Inc., a Delaware corporation. "Business Day" means a day other than a Saturday or Sunday on which banks are generally open for business in New York, New York. "Certificate of Acceptance" means a Certificate of Acceptance, in substantially the form set forth as Exhibit B hereto, whereby Borrower acknowledges receipt in good condition of certain portions of the Project identified therein and confirms the date of delivery thereof and certain other matters. "Code" means, collectively, the Internal Revenue Code of 1986, as amended, and United States Treasury regulations promulgated thereunder. "Default" means an event that, with giving of notice or passage of time or both, would constitute an Event of Default as provided in Article XI hereof. "Determination of Taxability" means any determination, decision or decree by the Commissioner of Internal Revenue, or any District Director of Internal Revenue or any court of competent jurisdiction, or an opinion of counsel qualified in such matters obtained by Lender, that an Event of Taxability shall have occurred. A Determination of Taxability also shall be deemed to have occurred on the first to occur of the following: (a) the date when Borrower files any statement, supplemental statement, or other tax schedule, return or document, which discloses that an Event of Taxability shall have occurred; or (b) the effective date of any federal legislation enacted after the date of this Agreement or promulgation of any income tax regulation or ruling by the Internal Revenue Service that causes an Event of Taxability after the date of this Agreement. "Escrow Agent" means National City Bank of Minneapolis, as escrow agent under the Escrow Agreement, and its successors and assigns permitted under the Escrow Agreement. "Escrow Agreement" means the Escrow Agreement dated as of December 1, 1996, among Lender, Issuer, Borrower and Escrow Agent and, upon execution thereof in accordance with the terms of the Escrow Agreement, the Bank. "Escrow Fund" means the fund established and held by Escrow Agent pursuant to the Escrow Agreement. "Event of Taxability" means, if as the result of any act, failure to act or use of the proceeds of the Loan, a change in use of the Project or any misrepresentation or inaccuracy in any of the representations, warranties or covenants contained in this Agreement or the Statement as to Tax Exempt Status by Issuer or Borrower, or the enactment of any federal legislation after the date of this Agreement or the promulgation of any income tax regulation or ruling by the Internal Revenue Service after the date of this Agreement, the Interest is or becomes includable in Lender's gross income for federal income tax purposes. "Gross-Up Rate" means, with respect to any Interest payment (including payments made prior to the Event of Taxability), the rate necessary to calculate an additional payment in an amount sufficient such that the sum of the Interest payment plus the additional payments would, after reduced by the federal tax (including interest and penalties) actually imposed thereon, equal the amount of the Interest payment. "Interest" means the portion of any Loan Payment designated as and comprising interest as shown in Exhibit A hereto. "Issuer" means the Business Finance Authority of the State of New Hampshire, acting as issuer under this Agreement. "Issuer's Service Charge" means payment to the issuer for its own use of $20,250, payable on the date of execution and delivery hereof. "Lender" means (i) GE Capital Public Finance, Inc., acting as lender under this Agreement, (ii) any surviving, resulting or transferee corporation of GE Capital Public Finance, Inc. and (iii) except where the context requires otherwise, any assignee(s) of Lender. "Letter of Credit" means the irrevocable standby letter of credit to be issued by Bank in the initial amount of $2,742,727.50 in the form attached hereto as Exhibit E, subject to reduction in accordance with Article VI and Schedule 1 hereof. "Loan" means the loan from Issuer to Borrower pursuant to this Agreement. "Loan Payments" means the loan payments payable by Borrower pursuant to the provisions of this Agreement as specifically set forth in Exhibit A hereto. As provided in Article II hereof, Loan Payments shall be payable by Borrower directly to Lender, as assignee of Issuer, in the amounts and at the times as set forth in Exhibit A hereto. "Loan Proceeds" means the total amount of money to be paid pursuant to Section 2.02 hereof by Lender to Escrow Agent for deposit and application in accordance with the Escrow Agreement. "Prepayment Amount" means the amount which Borrower must pay or cause to be paid to Lender as assignee of Issuer in order to prepay the Loan, as provided in Section 2.07 hereof, such amounts being 102% of the outstanding Principal at the time of the prepayment, plus accrued interest and all other amounts then due and owing hereunder. "Principal" means the portion of any Loan Payment designated as and comprising principal as set forth in Exhibit A hereto. "Project" means the acquisition and renovation of certain manufacturing facilities located at 41 Simon Street, Nashua, New Hampshire to be used in connection with the Borrower's operations (including, to the extent permitted pursuant to the Code without jeopardizing the tax-exempt status of the Interest, certain items originally financed through internal advances of Borrower in anticipation of obtaining permanent financing through Issuer). The word "Project" also refers to the facilities which result or have resulted from the foregoing activities. "Project Costs" means the costs of carrying out the Project, including repayment of external loans and internal advances for the same and including interest prior to and during construction, but excluding general administrative expenses, overhead of the Institution and interest on internal advances. "State" means the State of New Hampshire. "Statement as to Tax Exempt Status" means Borrower's Statement as to Tax Exempt Status of the Loan of even date herewith. "Substitute Bank" means the issuer of a Substitute Letter of Credit, which issuer must be acceptable to Lender in its sole discretion. "Substitute Letter of Credit" means an irrevocable standby letter of credit in the form attached hereto as Exhibit E, in the amount required by Article VI and Schedule 1 hereof, and issued by a Substitute Bank. "UCC" means the Uniform Commercial Code as adopted and in effect in the State. Section 1.02. ExhibitsExhibits. The following schedule and exhibits are attached hereto and made a part hereof: Schedule 1: Schedule of Letter of Credit Reductions. Schedule 2: Prohibited Assignees. Exhibit A: Form of Schedule of Project and Loan Payments describing the Project and setting forth the Loan Payments and Prepayment Prices. Exhibit B: Form of Certificate of Acceptance. Exhibit C: Form of opinion of counsel to Borrower (which may be delivered as one or more opinions from separate counsel, provided that collectively the form and substance thereof is consistent with Exhibit C). Exhibit D: Form of opinion of bond counsel. Exhibit E: Form of Letter of Credit. Exhibit F: Form of Opinion of Counsel to Bank. Section 1.03. Rules of ConstructionRules of Construction. (a) The singular form of any word used herein, including the terms defined Section 1.01 hereof, shall include the plural, and vice versa. The use herein of a word of any gender shall include correlative words of all genders. (b) Unless otherwise specified, references to Articles, Sections and other subdivisions of this Agreement are to the designated Articles, Sections and other subdivision of this Agreement as originally executed. The words "hereof," wherein, "hereunder" and words of similar import refer to this Agreement as a whole. (c) The headings or titles of the several articles and sections shall be solely for convenience of reference and shall not affect the meaning, construction or effect of the provisions hereof. Section 1.04. Combined DocumentsCombined Documents. This Agreement, the Escrow Agreement and the exhibits hereto together constitute the Financing Document and the Security Document under the Act, and as evidence of indebtedness, this Agreement and the exhibits hereto constitute a Bond under the Act. ARTICLE II FINANCING OF PROJECT AND TERMS OF LOAN Section 2.01. Completion of ProjectCompletion of Project. The Borrower has acquired the Project site and building thereon prior to the execution and delivery of this Agreement and will substantially complete the Project no later than September 30, 1997. Borrower shall bear the risk of loss with respect to any loss or claim relating to any portion of the Project and shall be liable in respect of its duties and obligations in accordance with any contract entered into in connection with the Project, and neither Lender nor Issuer shall assume any such risk of loss or liability. Section 2.02. LoanLoan. Lender hereby agrees, subject to the terms and conditions of this Agreement, to make a loan to Issuer in the amount of $2,700,000; Issuer hereby agrees, subject to the terms and conditions of this Agreement, to borrow such amount from Lender and to lend such amount to Borrower; and Borrower hereby agrees to borrow such amount from Issuer. Upon fulfillment of the conditions set forth in Article III hereof, Lender shall deposit the Loan Proceeds on behalf of Issuer in the Escrow Fund to be held, invested and disbursed as provided in the Escrow Agreement. Issuer's obligation to repay the loan from Lender, and Borrower's obligation to repay the Loan, shall commence, and interest shall begin to accrue, on the date that Loan Proceeds are deposited in the Escrow Fund. Section 2.03. InterestInterest. The principal amount of the loan from Lender to Issuer and the Loan hereunder outstanding from time to time shall bear interest (computed on the basis of actual days elapsed in a 360-day year) at the rate of 6.33% per annum. Interest accruing on the principal balance of such loans outstanding from time to time shall be payable as provided in Exhibit A hereto and upon earlier demand in accordance with the terms hereof or prepayment in accordance with Section 2.07 hereof. Upon the occurrence of a Determination of Taxability, (i) Borrower shall, with respect to future interest payments, begin making Loan Payments calculated at the Gross-Up Rate and (ii), in addition, Borrower shall make within 30 days of demand of Lender a payment to Lender sufficient to supplement prior Loan Payments to the Gross-Up Rate. Section 2.04. PaymentsPayments. Issuer shall pay the principal of, premium, if any in accordance with Section 2.07 hereof, and interest on the loan from Lender to Issuer, but only out of the amounts paid by Borrower pursuant to this Agreement. Borrower shall pay to Lender, as assignee of Issuer, Loan Payments, in the amounts and on the dates set forth in Exhibit A hereto. As security for its obligation to pay the principal of, premium, if any in accordance with Section 2.07 hereof, and interest on the loan from Lender, Issuer assigns to Lender all of Issuer's right to receive Loan Payments from Borrower hereunder, all of Issuer's rights hereunder, and Issuer irrevocably constitutes and appoints Lender and any present or future officer or agent of Lender as its lawful attorney, with full power of substitution and resubstitution, and in the name of Issuer or otherwise, to collect the Loan Payments and any other payments due hereunder and to sue in any court for such Loan Payments or other payments, to exercise all rights hereunder, and to withdraw or settle any claims, suits or proceedings pertaining to or arising out of this Agreement upon any terms; provided, however, that such assignment shall not include Issuer's rights under Article IV and Section 7.06(d) hereof and its right to notice pursuant to Section 12.03 hereof. Such Loan Payments and other payments shall be made by Borrower directly to Lender, as Issuer's assignee, and shall be credited against Issuer's payment obligations hereunder. No provision, covenant or agreement contained in this Agreement or any obligation herein imposed on Issuer, or the breach thereof, shall constitute or give rise to or impose upon Issuer a pecuniary liability, a charge upon its general credit or a pledge of its general revenues. In making the agreements, provisions and covenants set forth in this Agreement, Issuer has not obligated itself except with respect to the application of the Loan Payments to be paid by Borrower hereunder. All amounts required to be paid by Borrower hereunder shall be paid in lawful money of the United States of America in immediately available funds. No recourse shall be had by Lender or Borrower for any claim based on this Agreement against any director, officer, employee or agent of Issuer alleging personal liability on the part of such person, unless such claim is based on the willful dishonesty of or intentional violation of law by such person. Section 2.05. Payment on Non-Business DaysPayment on Non-Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or the fees hereunder, as the case may be. Section 2.06. Loan Payments To Be UnconditionalLoan Payments To Be Unconditional. The obligations of Borrower to make the Loan Payments required under this Article II and to make other payments hereunder and to perform and observe the covenants and agreements contained herein shall be absolute and unconditional in all events, without abatement, diminution, deduction, setoff or defense for any reason, including (without limitation) any damage to or defect in the Project or any accident, condemnation, destruction or unforeseen circumstances. Notwithstanding any dispute between Borrower and any of Issuer, Lender, any vendor or any other person, Borrower shall make all Loan Payments when due and shall not withhold any Loan Payments pending final resolution of such dispute, nor shall Borrower assert any right of set-off or counterclaim against its obligation to make such payments required under this Agreement. Section 2.07. PrepaymentsPrepayments. (a) Borrower may, in its discretion, prepay the Loan in whole at any time after the third anniversary of the date hereof by paying the applicable Prepayment Amount. (b) Borrower shall prepay the Loan in whole or in part at any time pursuant to Article IX hereof by paying the applicable Prepayment Amount. (c) Borrower shall prepay the Loan in full immediately upon demand of Lender after the occurrence and during the continuance of an Event of Default as set forth in Article XI hereof by paying the applicable Prepayment Amount. (d) Borrower shall prepay the Loan in full immediately upon demand of Lender after the occurrence of a Determination of Taxability by paying the applicable Prepayment Amount, plus an amount necessary to supplement the prior Loan Payments to the Gross-Up Rate. (e) Borrower shall prepay the Loan in full immediately upon demand of Lender if the Letter of Credit is not renewed or replaced in accordance with the provisions of Article VI. (f) The Loan shall be repaid in part with funds remaining in the Escrow Fund upon termination of the Escrow Agreement, as provided in Sections 2.03 or 2.04 of the Escrow Agreement, without premium or penalty. (g) If Lender or any assignee of Lender assigns this Agreement to a competitor of Borrower (whether or not such competitor is listed in Schedule 2), as reasonably determined by Borrower, Borrower may prepay the Loan in full without premium or penalty by paying the outstanding principal at the time of the prepayment plus accrued interest and all other amounts then due and owing hereunder. Upon any prepayment in part of the Loan, the prepayment shall be applied first to Interest accrued thereon and next to Principal in the inverse order of maturity. ARTICLE III CONDITIONS PRECEDENT Lender's agreement to make the loan to Issuer hereunder, Issuer's agreement to accept the loan and to make the loan to Borrower hereunder and Lender's agreement to deposit the Loan Proceeds in the Escrow Fund, shall be subject to the condition precedent that Lender and Issuer shall have received all of the following, each in form and substance satisfactory to Lender and Issuer: (a) This Agreement, properly executed on behalf of Issuer, Borrower and Lender, and each of the Exhibits hereto properly completed. (b) The Statement as to Tax Exempt Status, properly executed on behalf of Borrower. (c) The Escrow Agreement, properly executed on behalf of Issuer, Lender, Borrower, Escrow Agent and Bank. (d) A certificate of an authorized officer of Borrower, certifying as to (i) the resolutions authorizing the execution, delivery and performance of this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status and any related documents, and (ii) the signatures of the officers or agents of Borrower authorized to execute and deliver this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status and other instruments, agreements and certificates on behalf of Borrower. (e) Currently certified copies of the certificate of incorporation of Borrower. (f) A Certificate of Good Standing issued as to Borrower by the Secretary of the State of the state of Borrower's formation, not more than thirty (30) days prior to the date hereof. (g) A completed and executed Form 8038 or evidence of filing thereof with the Secretary of Treasury. (h) A resolution or evidence of other official action taken by or on behalf of Issuer to authorize the transactions contemplated hereby. (i) Evidence that the financing of the Project has been approved by the "applicable elected representative" of State after a public hearing held upon reasonable notice. (j) An opinion of counsel to Borrower, addressed to Lender and Issuer, substantially in the form attached hereto as Exhibit C (which may be delivered as one or more opinions from separate counsel, provided that collectively the form and substance thereof is consistent with Exhibit C). (k) An opinion of bond counsel, addressed to Lender, Issuer and Borrower, substantially in the form attached hereto as Exhibit D. (l) Payment of Lender's fees, commissions and expenses required by Section 12.01 hereof. (m) Payment of Issuer's fees, commissions and expenses required by Section 4.03 hereof. (n) A copy of the notice of the name, address and telephone number of Lender, as the institution providing construction funds, posted at the Project site by the Borrower or its agent and certified as to its posting date, all in compliance with New Hampshire RSA 447:12-b. (o) A copy of a Phase I environmental audit on the Project site with no adverse findings and a copy of a Phase II audit, if completed. (p) A resolution of the Governor and Council of New Hampshire making the findings required by Section 9 of the Act. (q) A no arbitrage certification of Issuer pursuant to Treas. Reg. ss.1.148-2(b)(2). (r) Any other documents or items reasonably required by Lender or Issuer. Lender's agreement to authorize any disbursement from the Escrow Fund shall be subject to the further conditions precedent that on the date thereof: (s) Lender shall have received each of the items required for a disbursement pursuant to the Escrow Agreement; (t) Lender shall have received in form and substance satisfactory to Lender invoices and bills of sale relating to the Project, evidence of payment thereof and, if applicable, evidence of official intent to reimburse such payment as required by the Code; (u) the representations and warranties contained in Article V hereof are correct on and as of the date of such loan, 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 except to the extent otherwise disclosed in writing to Lender specifically referencing this paragraph and, in the case of any such exception, is acceptable to Lender; (v) no event has occurred and is continuing, or would result from such loan to Issuer or the Loan which constitutes a Default, an Event of Default or a Determination of Taxability; and (w) Lender shall have received the Letter of Credit substantially in the form of Exhibit E and an opinion of counsel to the Bank substantially in the form of Exhibit F. ARTICLE IV LIMITED OBLIGATION OF ISSUER; RIGHTS OF ISSUER; COVENANTS OF ISSUER Section 4.01. Limited ObligationLimited Obligation. Under no circumstances shall Issuer be obligated directly or indirectly to pay costs of the Project, principal of or premium, if any, and interest on the Loan, or expenses of operation, maintenance and upkeep of the Project except from Loan Proceeds, exclusive of funds received hereunder by Issuer for its own use. This Agreement does not create any debt of the State with respect to the Project other than a special obligation of Issuer acting on behalf of the State pursuant to the Act. Nothing contained herein shall in any way obligate the State to raise any money by taxation or use other public funds for any purpose in relation to the Project. Neither the State nor Issuer shall pay or promise to pay any debt or meet any financial obligation to any person at any time in relation to the Project except (i) from moneys received or to be received under the provisions hereof or derived from the exercise of Issuer's right hereunder, other than moneys received for its own purposes, or (ii) as may be required by law other than the provisions of the Act. Nothing contained in this Agreement shall be construed to require or authorize Issuer to operate the Project itself or to conduct any business enterprise in connection therewith. Section 4.02. Rights and Duties of IssuerRights and Duties of Issuer. (a) Remedies of Issuer. Notwithstanding any contrary provision in this Agreement, Issuer shall have the right to take any action or make any decision with respect to proceedings for indemnity against the liability of Issuer and for collection or reimbursement from sources other than moneys or property held under this Agreement or subject to the lien hereof. Issuer may enforce its rights under this Agreement which have not been assigned to Lender by legal proceedings for the specific performance of any obligation contained herein or for the enforcement of any other appropriate legal or equitable remedy, and may recover damages caused by any breach by Borrower of its obligations to Issuer under this Agreement, including court costs, reasonable attorney's fees and other costs and expenses incurred in enforcing such obligations. (b) Limitations on Actions. Issuer shall not be required to monitor the financial condition of Borrower or the physical condition of the Project and, unless otherwise expressly provided, shall not have any responsibility with respect to notices, certificates or other documents filed with it hereunder. Issuer shall not be required to take notice of any breach or default except when given notice thereof by Lender. Issuer shall not be responsible for the payment of any rebate to the United States under IRC ss. 148(f). Issuer shall not be required to take any action unless indemnity reasonably satisfactory to it is furnished for expenses or liability to be incurred therein (other than the giving of notice). Issuer, upon written request of Lender, and upon receipt of reasonable indemnity for expenses or liability, shall cooperate to the extent reasonably necessary to enable Lender to exercise any power granted to Lender by this Agreement. Issuer shall be entitled to reimbursement pursuant to Section 4.03 to the extent that it acts without previously obtaining full indemnity. (c) Responsibility. Issuer shall be entitled to the advice of counsel (who may be counsel for any party, and shall be wholly protected as to any action taken or omitted to be taken in good faith in reliance on such advice. Issuer may rely conclusively on any notice, certificate or other document furnished to it under this Agreement and reasonably believed by it to be genuine. Issuer shall not be liable for any action taken by it in good faith and reasonably believed by it to be within the discretion or power conferred upon it, or in good faith omitted to be taken by it and reasonably believed to be beyond such discretion or power, or taken by it pursuant to any direction or instruction by which it is governed under this Agreement or omitted to be taken by it by reason of the lack of direction or instruction required for such action under this Agreement, or be responsible for the consequences of any error of judgment reasonably made by it. When any payment, consent or other action by Issuer is called for by this Agreement, Issuer may defer such action pending such investigation or inquiry or receipt of such evidence, if any, as it may require in support thereof. A permissive right or power to act shall not be construed as a requirement to act, and no delay in the exercise of a right or power shall affect the subsequent exercise thereof. Issuer shall in no event be liable for the application or misapplication of funds, or for other acts or defaults by any person or entity except by its own directors, officers and employees. No recourse shall be had by Borrower or Lender for any claim based on this Agreement against any director, officer, employee or agent of Issuer unless such claim is based upon the bad faith, fraud or deceit of such person. No covenant, obligation or agreement of Issuer contained in this Agreement shall be deemed to be a covenant, obligation or agreement of any present or future director, officer, employee or agent of Issuer in his individual capacity, and no person executing this Agreement shall be liable personally thereon or be subject to any personal liability or accountability by reason of the issuance thereof. Section 4.03. Costs and Expenses of IssuerCosts and Expenses of Issuer. Borrower shall pay when due the Issuer's Service Charge and shall prepay or reimburse Issuer within thirty (30) days after notice for all expenses (including reasonable attorney's fees) incurred by Issuer in connection with the execution, delivery, performance and enforcement under this Agreement and all expenses reasonably incurred or advances reasonably made in the exercise of Issuer's rights or their performance of its obligations hereunder. Any fees, expenses, reimbursements or other charges which Issuer may be entitled to receive from the Borrower hereunder, if not paid within ten (10) days of when they are due, shall bear a late charge equal to 5% of the amount overdue, and if not paid within sixty (60) days, shall bear interest at 12% per annum. Section 4.04. Matters to be Considered by IssuerMatters to be Considered by Issuer. In approving, concurring in or consenting to action or in exercising any discretion or in making any determination under this Agreement, Issuer may consider the interests of the public, which shall include the anticipated effect of any transaction on tax revenues and employment, as well as the interests of the other parties hereto; provided, however, nothing herein shall be construed as conferring on any person other than the other parties any right to notice, hearing or participation in Issuer's consideration, and nothing in this section shall be construed as conferring on any of them any right additional to those conferred elsewhere herein. Subject to the foregoing, Issuer will not unreasonably withhold any approval or consent to be given by it hereunder. Section 4.05. Actions by IssuerActions by Issuer. Any action which may be taken by Issuer hereunder shall be deemed sufficiently taken if taken on its behalf by its Chairman, its Vice Chairman or its Executive Director or by any other director, officer or agent whom it may designate from time to time. Section 4.06. Indemnification by BorrowerIndemnification by Borrower. Borrower, regardless of any agreement to maintain insurance, shall indemnify and save harmless, to the fullest extent permitted by law, Issuer and its directors, officers, employees and agents from and against (a) any and all claims by or on behalf of any person arising out of (1) any condition of the Project, or (2) the acquisition, construction, reconstruction, improvement, use, occupancy or operation of the Project or any work or anything whatsoever done or omitted to be done on or about the Project, or (3) any accident, injury or damage whatsoever to any person occurring on or about the Project, or (4) any breach or default by Borrower of or in any of its obligations hereunder, or (5) any act or omission of Borrower or any of its agents, contractors, servants, employees or licensees, or (6) the offering, issuance, sale or any resale of this Agreement or the Loan, but only to the extent permitted by law, and (b) any and all costs, counsel fees, expenses or liabilities reasonably incurred in connection with any such claim or any action or proceeding brought thereon. In case any action or proceeding is brought against Issuer or any such director, officer, employee or agent by reason of any such claim, Borrower upon notice from the affected party shall resist or defend such action or proceeding. Subject to the foregoing, the Issuer shall cooperate and join with Borrower, at the expense of Borrower, as may be required in connection with any action or defense by Borrower. Section 4.07. Covenants of IssuerCovenants of Issuer. Issuer covenants for the benefit of Lender, as follows: (a) Issuer will not pledge, mortgage or assign this Agreement (except for the pledge, mortgage or assignment of rights or privileges not assigned to Lender) or its duties and obligations hereunder to any person, firm or corporation, except as provided under the terms hereof. (b) Issuer will submit or cause to be submitted to the Secretary of the Treasury a Form 8038 (or other information reporting statement) at the time and in the form required by the Code. ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER Borrower represents, warrants and covenants for the benefit of Lender and Issuer, as follows: (a) Borrower is a corporation duly organized, validly existing and in good standing under the laws of Delaware, has power to enter into this Agreement and by proper action has duly authorized the execution and delivery of this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status. Borrower is in good standing and is duly licensed or qualified to transact business in the State and in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. (b) Borrower has been fully authorized to execute and deliver this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status under the terms and provisions of the resolution of its board of directors by appropriate official approval, and further represents, covenants and warrants that all requirements have been met, and procedures have occurred in order to ensure the enforceability of this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status and this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status have been duly authorized, executed and delivered. (c) The officer of Borrower executing this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status and any related documents has been duly authorized to execute and deliver this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status and such related documents under the terms and provisions of a resolution of Borrower's board of directors. (d) This Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status constitute valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except to the extent limited by bankruptcy, reorganization or other laws of general application relating to effecting the enforcement of creditors' rights. (e) The execution and delivery of this Agreement, the Escrow Agreement and the Statement as to Tax Exempt Status, the consummation of the transactions contemplated hereby and the fulfillment of the terms and conditions hereof do not and will not violate any law, rule, regulation or order, conflict with or result in a breach of any of the terms or conditions of any corporate restriction or of any agreement or instrument to which Borrower is now a party and do not and will not constitute a default under any of the foregoing or result in the creation or imposition of any liens, charges or encumbrances of any nature upon any of the property or assets of Borrower contrary to the terms of any instrument or agreement. (f) The authorization, execution, delivery and performance of this Agreement or the Escrow Agreement by Borrower do not require submission to, approval of, or other action by any governmental authority or agency, which action with respect to this Agreement or the Escrow Agreement has not been taken and which is final and non-appealable. (g) There is no action, suit, proceeding, claim, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body pending or, to the best of Borrower's knowledge, threatened against or affecting Borrower, challenging Borrower's authority to enter into this Agreement or the Escrow Agreement or to execute and deliver the Statement as to Tax Exempt Status or any other action wherein an unfavorable ruling or finding would adversely affect the enforceability of this Agreement, the Escrow Agreement or the Statement as to Tax Exempt Status or the exclusion of the Interest from gross income for federal tax purposes under the Code, or would materially and adversely affect any of the transactions contemplated by this Agreement. (h) The Project is located in an area properly zoned for the Project's current and anticipated use and the Project will not violate any applicable zoning, land use, environmental or similar law or restriction. The Borrower has all licenses and permits for the operation of the Project except building permits, which the Borrower expects to obtain in the ordinary course. (i) The Project is of the type authorized and permitted to be financed under the Act. (j) Borrower owns or will own the Project and intends to operate the Project or cause the Project to be operated, as a "project," within the meaning of the Act, until the date on which all of the Loan Payments have been fully paid or the applicable Prepayment Amount has been fully paid. (k) Borrower will not take any action that would cause the Interest to become includable in gross income of the recipient for federal income tax purposes under the Code, and Borrower will take and will cause its officers, employees and agents to take all affirmative actions legally within its power necessary to ensure that the Interest does not become includable in gross income of the recipient for federal income tax purposes under the Code (including, without limitation, the calculation and payment of any rebate required to preserve such exclusion). (l) The Borrower has heretofore furnished to Lender the audited financial statement of the Borrower for its fiscal year ended September 30, 1995 and the unaudited financial statement of the Borrower for the fiscal year ended September 30, 1996, and those statements fairly present the financial condition of the Borrower on the dates thereof and the results of its operations and cash flows for the periods then ended and were prepared in accordance with generally accepted accounting principles. Since the date of the most recent financial statements, there has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower. (m) Borrower has paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by it. Borrower has filed all federal, state and local tax returns which are required to be filed, and Borrower has paid or caused to be paid to the respective taxing authorities all taxes as shown on said returns or on any assessment received by it to the extent such taxes have become due. (n) Borrower has or will have good and absolute title to the Project, free and clear of all mortgages, security interests, liens and encumbrances except for the security interest created for the benefit of the Bank securing the Letter of Credit. (o) All financial and other information provided to Lender by or on behalf of Borrower in connection with Borrower's request for the Loan contemplated hereby is true and correct in all material respects and, as to projections, valuations or pro forma financial statements, present a good faith opinion as to such projections, valuations and pro forma condition and results. (p) Borrower will aid and assist Issuer in connection with preparing and submitting to the Secretary of the Treasury a Form 8038 (or other applicable information reporting statement) at the time and in the form required by the Code. (q) The representations contained in the Statement as to Tax Exempt Status are true and correct as of the date hereof. Borrower will comply fully at all times with the Statement as to Tax Exempt Status, and Borrower will not take any action, or omit to take any action, which, if taken or omitted, respectively, would violate the Statement as to Tax Exempt Status. (r) Expenses for work done by officers or employees of Borrower in connection with the Project will be included as a Project Cost, if at all, only to the extent (i) such persons were specifically employed for such particular purpose, (ii) the expenses do not exceed the actual cost thereof and (iii) such expenses are treated or capable of being treated (whether or not so treated) on the books of Borrower as a capital expenditure in conformity with generally accepted accounting principles applied on a consistent basis. (s) Any costs incurred with respect to that part of the Project paid from the Loan Proceeds shall be treated or capable of being treated on the books of Borrower as capital expenditures in conformity with generally accepted accounting principles applied on a consistent basis. (t) No part of the Loan Proceeds will be used to finance inventory or rolling stock or will be used for working capital or to finance any other cost not constituting a Project Cost. (u) No person other than Borrower is in occupancy or possession of any portion of the Project, except as described in the Statement as to Tax Exempt Status. (v) The Project is land or property of the character subject to the allowance for depreciation under Section 167 of the Code. ARTICLE VI LETTER OF CREDIT Borrower hereby agrees to deliver or cause to be delivered to Lender the Letter of Credit as additional security for the prompt payment and performance of all of Borrower's obligations under this Agreement. Borrower hereby further agrees to deliver to Lender not later than sixty (60) days prior to any scheduled expiration date of the Letter of Credit or any Substitute Letter of Credit (a) evidence satisfactory to Lender that such Letter of Credit or Substitute Letter of Credit has been renewed on terms acceptable to Lender or (b) a Substitute Letter of Credit. If at any time (x) the rating of Bank by LACE Financial Corporation is below "B-" or (y) the rating of a Substitute Bank is below the rating B. Borrower shall within 30 days provide to Lender a Substitute Letter of Credit. A failure by Borrower to fully and timely perform any obligation under this Article VI or the failure of Bank or any Substitute Bank to fully and timely honor any draft under the Letter of Credit or any Substitute Letter of Credit, as the case may be, shall constitute an immediate Event of Default hereunder. ARTICLE VII AFFIRMATIVE COVENANTS OF BORROWER So long as the Loan shall remain unpaid, Borrower will comply with the following requirements, unless Lender shall otherwise consent in writing: Section 7.01. Reporting RequirementsReporting Requirements. Borrower will deliver, or cause to be delivered, to Lender each of the following, which shall be in form and detail reasonably acceptable to Lender: (a) as soon as available, and in any event within 120 days after the end of each fiscal year of the Borrower, audited financial statements of the Borrower with the unqualified opinion of independent certified public accountants selected by the Borrower and acceptable to Lender which annual financial statements shall include the balance sheet of the Borrower as at the end of such fiscal year and the related statements of income, retained earnings and cash flows of the Borrower for the fiscal year then ended, all in reasonable detail and prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices applied in the financial statements referred to in Article V hereof, together with a certificate of the chief financial officer of the Borrower stating that such financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the annual financial statements referred to in Article V hereof and that to the best of such officer's knowledge, there has not occurred any Default or Event of Default hereunder; or if such a Default or Event of Default has occurred stating in reasonable detail the facts with respect thereto; (b) as soon as available and in any event within 60 days after the end of each fiscal quarter of the Borrower, an unaudited/internal balance sheet and statements of income and retained earnings of the Borrower as at the end of and for such quarter and for the year to date period then ended, in reasonable detail and stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the financial statements referred to in Article V hereof and certified by the chief financial officer of the Borrower, subject to year-end adjustments; and accompanied by a certificate of that officer stating (i) that such financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices reflected in the financial statements referred to in Article V hereof, and (ii) to the best of such officer's knowledge no Default or Event of Default hereunder not theretofore reported and remedied and, if such a Default or Event of Default has occurred so, stating in reasonable detail the facts with respect thereto; (c) immediately after the commencement thereof, notice in writing of all material litigation and of all proceedings before any governmental or regulatory agency affecting Borrower of the type described in Article V hereof or which seek a monetary recovery against Borrower in excess of $100,000; (d) as promptly as practicable (but in any event not later than five (5) Business Days) after an officer of Borrower obtains knowledge of the occurrence of any event that constitutes a Default or an Event of Default hereunder, notice of such occurrence, together with a detailed statement by a responsible officer of Borrower of the steps being taken by Borrower to cure the effect of such Default or Event of Default; (e) promptly upon knowledge thereof, notice of any loss or destruction of or damage to the Project or of any material adverse change in the Project; (f) promptly after the amending thereof, copies of any and all material amendments to its certificate of incorporation, articles of incorporation or bylaws; (g) promptly upon knowledge thereof, notice of any material violation by Borrower of any law, rule or regulation; and (h) promptly upon knowledge thereof, notice of any material adverse change in the financial or operating condition of Borrower. Section 7.02. Books and Records; Inspection and Examination.Books and Records; Inspection and Examination. Borrower will keep accurate books of record and account for itself pertaining to the Project and pertaining to Borrower's business and financial condition and such other matters as Lender may from time to time request in which true and complete entries will be made in accordance with generally accepted accounting principles consistently applied and, upon request of Lender, will permit any officer, employee, attorney or accountant for Lender to audit, review, make extracts from, or copy any and all corporate and financial books, records and properties of Borrower at all times (but not more often than twice per calendar year) during ordinary business hours and following reasonable notice to Borrower, and to discuss the affairs of Borrower with any of its directors, officers, employees or agents. Borrower will permit Lender, or its employees, accountants, attorneys or agents, to examine and copy any or all of its records and to examine and inspect the Project at any time during Borrower's business hours, following reasonable notice to Borrower. Section 7.03. Compliance With Laws; Environmental IndemnityCompliance With Laws; Environmental Indemnity. Borrower will (a) comply with the requirements of applicable laws and regulations, the non-compliance with which would materially and adversely affect its business or its financial condition, (b) comply with all applicable environmental, hazardous waste or substance, toxic substance and underground storage laws and regulations and obtain any permits, licenses or similar approvals required by any such laws or regulations, the failure to comply with which or to obtain would have a material adverse effect on the Borrower and (c) use and keep the Project, and will require that others use and keep the Project, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance the violation of which would have a material adverse effect on Borrower. Borrower shall secure all permits and licenses, if any, necessary for the acquisition and operation of the Project. Borrower shall comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Project) with all laws of the jurisdictions in which its operations involving the Project may extend and of any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Project or its interest or rights under this Agreement the failure to comply with which would have a material adverse effect on the Borrower. Borrower will indemnify, defend and hold Lender and Issuer harmless from and against any claims, loss or damage to which Lender or Issuer may be subjected as a result of any past, present or future existence, use, handling, storage, transportation or disposal of any hazardous waste or substance or toxic substance by Borrower or on the Project. This indemnification shall survive the termination of this Agreement and payment of the indebtedness hereunder. Section 7.04. Payment of Taxes and Other ClaimsPayment of Taxes and Other Claims. Borrower will pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including, without limitation, the Project) or upon or against the creation, perfection or continuance of the security interest created pursuant to this Agreement, prior to the date on which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon any properties of Borrower; provided, that Borrower shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Borrower will pay, as the same respectively come due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the equipment, as well as all gas, water, steam, electricity, heat, power, telephone, utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project; provided, that Borrower shall not be required to pay any such tax, assessment or charge whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 7.05. Maintenance of ProjectMaintenance of Project. (a) Borrower shall, at its own expense, maintain, preserve and keep the Project in good repair, working order and condition, and shall from time to time make all repairs and replacements necessary to keep the Project in such condition, and in compliance with state and federal laws, ordinary wear and tear excepted. Neither Lender nor Issuer shall have any responsibility in any of these matters, or for the making of improvements or additions to the Project. (b) Borrower will defend the Project against all claims or demands of all persons (other than the Bank) claiming the Project or any interest therein. (c) Borrower will keep the Project free and clear of all security interests, liens and encumbrances except the security interest created for the benefit of the Bank. Section 7.06. InsuranceInsurance. (a) Borrower shall, at its own expense, procure and maintain continuously in effect: (i) public liability insurance for personal injuries, death or damage to or loss of property arising out of or in any way relating to the Project, with a coverage limit of not less than $1,000,000 per occurrence and (ii) insurance against such hazards as Lender may reasonably require, including, but not limited to, all-risk casualty and property insurance, in an amount equal to the greater of the full replacement cost of the Project or the applicable Prepayment Amount. (b) If required by State law, Borrower shall carry workers' compensation insurance covering all employees on, in, near or about the Project, and upon request, shall furnish to Lender certificates evidencing such coverage. (c) All insurance policies required by this Article shall be taken out and maintained with responsible and reputable insurance companies authorized to transact business in the State, and shall contain a provision that the insurer shall not cancel or revise coverage thereunder without giving written notice to the insured parties at least thirty (30) days before the cancellation or revision becomes effective. No insurance shall be subject to any co-insurance clause. At the time of execution and delivery of this Agreement, Borrower shall provide Lender with evidence satisfactory to Lender of such insurance and, prior to the expiration thereof, shall provide Lender evidence of all renewals or replacements thereof. (d) As among Lender, Borrower and Issuer, Borrower assumes all risks and liabilities from any cause whatsoever, whether or not covered by insurance, for loss or damage to the Project and for injury to or death of any person or damage to any property, whether such injury or death be with respect to agents or employees of Borrower or of third parties, and whether such property damage be to Borrower's property or the property of others. Whether or not covered by insurance, Borrower hereby assumes responsibility for and agrees to reimburse Lender and Issuer for and will indemnify, defend and hold Lender and Issuer harmless from and against all liabilities, obligations, losses, damages, penalties, claims, actions, costs and expenses (including reasonable attorneys' fees) of whatsoever kind and nature unless directly related to lender's gross negligence or willful misconduct, imposed on, incurred by or asserted against Lender or Issuer that in any way relate to or arise out of this Agreement, the transactions contemplated hereby and the Project, including but not limited to, (i) the acquisition, operation and maintenance of the Project, (ii) the condition of the Project sold or otherwise disposed of after possession by Borrower, (iii) any patent or copyright infringement, (iv) the conduct of Borrower, its officers, employees and agents, (v) a breach of Borrower of any of its covenants or obligations hereunder, and (vi) any claim, loss, cost or expense involving alleged damage to the environment relating to the Project, including, but not limited to, investigation, removal, cleanup and remedial costs. All amounts payable by Borrower pursuant to the immediately preceding sentence shall be paid immediately upon demand of Issuer or Lender, as the case may be. This provision shall survive the termination of this Agreement. Section 7.07. Preservation of Corporate ExistencePreservation of Corporate Existence. Borrower will preserve and maintain its corporate existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business; and shall conduct its business in an orderly, efficient and regular manner. Section 7.08. Performance by LenderPerformance by Lender. If Borrower at any time fails to perform or observe any of the covenants or agreements contained in this Agreement, and if such failure shall continue for a period of ten (10) calendar days after Lender gives Borrower written notice thereof (or in the case of the agreements contained in Sections 7.05 and 7.06 hereof, immediately upon the occurrence of such failure, without notice or lapse of time), Lender may, but need not perform or observe such covenant on behalf and in the name, place and stead of Borrower (or, at Lender's option, in Lender's name) and may, but need not, upon notice to Borrower, take any and all other actions which Lender may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens or encumbrances, the performance of obligations owed to account debtors or other obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments); and Borrower shall thereupon pay to Lender on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by Lender in connection with or as a result of the performance or observance of such agreements or the taking of such action by Lender, together with interest thereon from the date expended or incurred at the lesser of 12% per annum or the highest rate permitted by law. To facilitate the performance or observance by Lender of such covenants of Borrower, Borrower hereby irrevocably appoints Lender, or the delegate of Lender, acting alone, as the attorney in fact of Borrower with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of Borrower any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by Borrower under this Agreement. ARTICLE VIII NEGATIVE COVENANTS OF BORROWER So long as the Loan shall remain unpaid, Borrower agrees that: Section 8.01. LienLien. The Borrower will not create, incur or suffer to exist any mortgage, deed of trust, pledge, lien, security interest, assignment or transfer upon or of the Project, except for the security interest created for the benefit of the Bank securing the Letter of Credit. Section 8.02. Sale of AssetsSale of Assets. The Borrower will not sell, lease, assign, transfer or otherwise dispose of all or substantially all of its assets or the Project or any interest in the Project (whether in one transaction or in a series of transactions). Section 8.03. Consolidation and MergerConsolidation and Merger. The Borrower will not (a) consolidate with or merge into any person, or permit any other person to merge into it, unless (i) the surviving entity assumes all obligations of the Borrower hereunder, (ii) no Event of Default has occurred and is continuing, and (iii) the Lender receives an opinion of counsel to the Borrower and an opinion of bond counsel reasonably acceptable to it relating to such transaction, or (b) acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any other person unless (i) no Event of Default has occurred and is continuing, and (ii) the Borrower certifies that such acquisition will not result in an Event of Taxability. Section 8.04. AccountingAccounting. The Borrower will not adopt, permit or consent to any material change in accounting principles other than as required by generally accepted accounting principles. The Borrower will not adopt, permit or consent to any change in its fiscal year, without the prior written consent of Lender, which consent shall be given or withheld in Lender's reasonable discretion. Section 8.05. TransfersTransfers. Subject to Section 8.02, the Borrower will not in any manner transfer, sell or otherwise dispose (a "Transfer") of any property without prior or present receipt of full and adequate consideration, and except for (i) Transfers of property which is, or within the next two fiscal years from the date of such Transfer is reasonably expected to become, inadequate, obsolete or worn out, (ii) Transfers of inventory in the ordinary course of business, (iii) Transfers of non-exclusive licenses and similar arrangements for the use of property of Borrower made in the ordinary course of business, (iv) Transfers which constitute liquidation of investments, and (v) other Transfers not otherwise permitted by this Section 8.05 not exceeding in the aggregate $500,000 in any fiscal year. Section 8.06. Use of the ProjectUse of the Project. The Borrower will not construct, reconstruct, improve, use, operate or maintain the Project in violation of any applicable law or in a manner contrary to that contemplated by this Agreement. ARTICLE IX [Reserved] ARTICLE X ASSIGNMENT AND SELLING Section 10.01. Assignment by LenderAssignment by Lender. This Agreement, and the obligations of Borrower to make payments hereunder, may be assigned and reassigned in whole to one or more assignees or subassignees by Lender at any time subsequent to its execution, without the necessity of obtaining the consent of Issuer or Borrower, provided, however, that no such assignment or reassignment shall be effective unless and until (a) Issuer and Borrower shall have received notice of the assignment or reassignment disclosing the name and address of the assignee or subassignee, and (b) in the event that such assignment or reassignment is made to a bank or trust company as trustee for holders of certificates representing interests in this Agreement, such bank or trust company agrees to maintain, or cause to be maintained, a book-entry system by which a record of the names and addresses of such holders as of any particular time is kept and agrees, upon request of Issuer or Borrower, to furnish such information to Issuer or Borrower. Upon receipt of notice of assignment, Borrower will reflect in a book-entry the assignee designated in such notice of assignment, and shall agree to make all payments to the assignee designated in the notice of assignment, notwithstanding any claim, defense, setoff or counterclaim whatsoever (whether arising from a breach of this Agreement or otherwise) that Issuer and Borrower may from time to time have against Lender or the assignee. Issuer and Borrower agree to execute all documents, including notices of assignment and chattel mortgages or financing statements, which may be reasonably requested by Lender or its assignee to protect their interest in the Project and in this Agreement. Notwithstanding the foregoing, Lender shall not assign this Agreement, or any obligation to make payments hereunder, to a competitor of the Borrower listed in Schedule 2 hereto, as revised by Borrower from time to time not more often than once every three (3) months. Section 10.02. No Sale or Assignment by BorrowerNo Sale or Assignment by Borrower. This Agreement and the interest of Borrower in the Project may not be sold, assumed, assigned or encumbered by Borrower without the prior written consent of Lender. ARTICLE XI EVENTS OF DEFAULT AND REMEDIES Section 11.01. Events of DefaultEvents of Default. The following constitute "Events of Default" under this Agreement: (a) failure by Borrower to pay to Lender, as assignee of Issuer, when due any Loan Payment or to pay any other payment required to be paid hereunder and the continuation of such failure for a period of ten (10) days; (b) failure by Borrower to maintain insurance on the Project in accordance with Section 7.06 hereof; (c) failure by Borrower or Issuer to observe and perform any other covenant, condition or agreement of Borrower or Issuer, respectively, contained herein (except as set forth in Article VI), in the Escrow Agreement, in the Statement as to Tax Exempt Status or in any other document or agreement executed in connection herewith on its part to be observed or performed for a period of thirty (30) days after written notice is given to Borrower or Issuer, as the case may be, specifying such failure and requesting that it be remedied; provided, however, that, if the failure stated in such notice cannot be corrected within such 30 day period, Lender will not unreasonably withhold its consent to an extension of such time if corrective action is instituted by Borrower within the applicable period and diligently pursued until the default is corrected; (d) Initiation by Issuer of a proceeding under any federal or state bankruptcy or insolvency law seeking relief under such laws concerning the indebtedness of Issuer; (e) Borrower, Bank, or any Substitute Bank shall be or become insolvent, or admit in writing its or his inability to pay its or his debts as they mature, or make an assignment for the benefit of creditors; or Borrower, Bank, or any Substitute Bank shall apply for or consent to the appointment of any receiver, trustee or similar officer for it or him or for all or any substantial part of its or his property; or such receiver, trustee or similar officer shall be appointed without the application or consent of Borrower, Bank, or any Substitute Bank, as the case may be; or Borrower, Bank, or any Substitute Bank shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against Borrower, Bank, or any Substitute Bank; or any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of Borrower, Bank, or any Substitute Bank; (f) determination by Lender that any representation or warranty made by Borrower or Issuer herein, in the Statement as to Tax Exempt Status or in any other document executed in connection herewith was untrue in any material respect when made; (g) the occurrence of a default or an event of default under any instrument, agreement or other document evidencing or relating to any indebtedness or other monetary obligation of Borrower (whether individually or in the aggregate) in an amount greater than $300,000, so that a holder or trustee of such indebtedness accelerates such indebtedness; (h) a default or an event of default and the expiration of any applicable grace or cure period and the receipt of any required notice under any other agreement between Lender and Borrower unless waived by Lender; (i) failure by Borrower to fully and timely perform any of its obligations under Article VI of this Agreement or the failure of Bank or any Substitute Bank to fully and timely honor any draft under the Letter of Credit or any Substitute Letter of Credit, as the case may be; (j) this Agreement, or any portion hereof, is determined by a court of competent jurisdiction to be invalid or unenforceable against the Issuer; or (k) an Event of Taxability shall occur. Section 11.02. Remedies on DefaultRemedies on Default. Whenever any Event of Default shall have occurred and be continuing, Lender shall have the right, at its sole option without any further demand or notice, to take any one or any combination of the following remedial steps insofar as the same are available to secured parties under Article 9 of the UCC in effect in the State from time to time and which are otherwise accorded to Lender by applicable law: (a) by notice to Borrower, declare the entire unpaid principal amount of the Loan then outstanding, all interest accrued and unpaid thereon and all amounts payable under this Agreement to be forthwith due and payable, whereupon the Loan, all such accrued interest and all such amounts shall become and be forthwith due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which are hereby expressly waived by Borrower; (b) without notice to Borrower, draw upon the Letter of Credit or Substitute Letter of Credit in an amount equal to all amounts due hereunder and under the Schedule, including the Prepayment Amount. (c) proceed by appropriate court action to enforce specific performance by Borrower of the applicable covenants of this Agreement or to recover for the breach thereof, including the payment of all amounts due from Borrower. Borrower shall pay or repay to Lender or Issuer all costs of such action or court action, including, without limitation, reasonable attorneys' fees; and (d) take whatever action at law or in equity may appear necessary or desirable to enforce its rights with respect to the Project. Borrower shall pay or repay to Lender or Issuer all costs of such action or court action, including, without limitation, reasonable attorneys' fees. Notwithstanding any other remedy exercised hereunder, Borrower shall remain obligated to pay to Lender any unpaid portion of the Prepayment Amount. Section 11.03. [Reserved]. Section 11.04. No Remedy ExclusiveNo Remedy Exclusive. No remedy herein conferred upon or reserved to Lender or Issuer is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right or power may be exercised from time to time and as often as may be deemed expedient. In order to entitle Lender or Issuer to exercise any remedy reserved to it in this Article, it shall not be necessary to give any notice other than such notice as may be required by this Article. All remedies herein conferred upon or reserved to Lender or Issuer shall survive the termination of this Agreement. Section 11.05. Late ChargeLate Charge. Any Loan Payment not paid by Borrower within ten (10) days of on the due date thereof shall, to the extent permissible by law, bear a late charge equal to the lesser of five cents ($.05) per dollar of the delinquent amount or the lawful maximum, and Borrower shall be obligated to pay the same immediately upon receipt of Lender's written invoice therefor. ARTICLE XII MISCELLANEOUS Section 12.01. Costs and Expenses of LenderCosts and Expenses of Lender. Borrower shall pay to Lender, in addition to the Loan Payments payable by Borrower hereunder, such amounts in each year as shall be required by Lender in payment of any reasonable costs and expenses incurred by Lender in connection with the execution, performance or enforcement of this Agreement, including but not limited to payment of all reasonable fees, costs and expenses and all administrative costs of Lender or Issuer in connection with the Project and the Loan (including, without limitation, reasonable attorneys' fees and disbursements), fees of auditors or attorneys, insurance premiums not otherwise paid hereunder and all other direct and necessary administrative costs of Lender or charges required to be paid by it in order to comply with the terms of, or to enforce its rights under, this Agreement (but not including general administrative or overhead expenses of Lender). Such costs and expenses shall be billed to Borrower by Lender from time to time, together with a statement certifying that the amount so billed has been paid by Lender for one or more of the items above described, or that such amount is then payable by Lender for such items. Amounts so billed shall be due and payable by Borrower within thirty (30) days after receipt of the bill by Borrower. Section 12.02. Disclaimer of WarrantiesDisclaimer of Warranties. LENDER AND ISSUER MAKE NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE VALUE, DESIGN, CONDITION, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR FITNESS FOR USE OF THE PROJECT, OR ANY OTHER WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT HERETO. In no event shall Lender or Issuer be liable for any loss or damage in connection with or arising out of this Agreement, the Project or the existence, furnishing, functioning or Borrower's use of the Project provided for in this Agreement. Section 12.03. NoticesNotices. All notices, certificates, requests, demands and other communications provided for hereunder or under the Escrow Agreement or the Statement as to Tax Exempt Status shall be in writing and shall be (a) personally delivered, (b) sent by first class United States mail, (c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case addressed to the party to whom notice is being given at its address as set forth above and, if telecopied, transmitted to that party at its telecopier number set forth above or, as to each party, at such other address or telecopier number as may hereafter be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall be deemed to have been given on (a) the date received if personally delivered, (b) when deposited in the mail if delivered by mail, (c) the date sent if sent by overnight courier, or (d) the date of transmission if delivered by telecopy. If notice to Borrower of any intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in this Section) at least ten (10) calendar days prior to the date of intended disposition or other action. Section 12.04. Further Assurance and Corrective Instruments.Further Assurance and Corrective Instruments. Issuer and Borrower hereby agree that they will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such further acts, instruments, conveyances, transfers and assurances, as Lender reasonably deems necessary or advisable for the implementation, correction, confirmation or perfection of this Agreement or the Statement as to Tax Exempt Status and any rights of Lender hereunder or thereunder. Section 12.05. Binding Effect; Time of the EssenceBinding Effect; Time of the Essence. This Agreement shall inure to the benefit of and shall be binding upon Lender, Issuer, Borrower and their respective successors and assigns. Time is of the essence. Section 12.06. SeverabilitySeverability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof. Section 12.07. AmendmentsAmendments. To the extent permitted by law, the terms of this Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever except by written instrument signed by the parties hereto, and then such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Section 12.08. Execution in CounterpartsExecution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart, provided that only the original marked "Original: 1 of 8" on the execution page hereof shall constitute the Bond under the Act. Section 12.09. Applicable LawApplicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State. Section 12.10. CaptionsCaptions. The captions or headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement. Section 12.11. Entire AgreementEntire Agreement. This Agreement, the Statement as to Tax Exempt Status, the Escrow Agreement and the exhibits hereto and thereto constitute the entire agreement among Lender, Issuer and Borrower. There are no understandings, agreements, representations or warranties, express or implied, not specified herein or in such documents regarding this Agreement or the Project financed hereby. Section 12.12. UsuryUsury. It is the intention of the parties hereto to comply with any applicable usury laws; accordingly, it is agreed that, notwithstanding any provisions to the contrary in this Agreement, in no event shall this Agreement require the payment or permit the collection of interest or any amount in the nature of interest or fees in excess of the maximum permitted by applicable law. Section 12.13. Waiver of Jury TrialWaiver of Jury Trial. LENDER, ISSUER AND BORROWER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS AMONG LENDER, ISSUER OR BORROWER RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED AMONG LENDER, ISSUER AND BORROWER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY RELATED TRANSACTIONS. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in their respective corporate names by their duly authorized officers, all as of the date first written above. ......... Lender: GE CAPITAL PUBLIC FINANCE, INC. ......... By:/s/ Philip Long ---------------- ......... Title: Vice President ......... Issuer: BUSINESS FINANCE AUTHORITY ......... OF THE STATE OF NEW HAMPSHIRE ......... By:/s/ Edward Caron ---------------- ......... Chairman ......... By:/s/ Jack Donovan ------------------ ......... Executive Director ......... Borrower: ELEXSYS INTERNATIONAL, INC. ......... By:/s/ Michael S. Shimada ---------------------- ......... Title: Principal Financial Officer and Duly Authorized Officer Original: ___ of 8. Trade Names of Borrower, if any: None Schedule 2 Prohibited Assignees [to come from GE and Elexsys] A-3 Exhibit A to Loan Agreement SCHEDULE OF PROJECT AND LOAN PAYMENTS This Schedule is delivered pursuant to the Loan Agreement, dated as of December 1, 1996 (the "Agreement"), among GE Capital Public Finance, Inc., as Lender ("Lender"), Business Finance Authority of the State of New Hampshire, as Issuer ("Issuer"), and Elexsys International, Inc., as Borrower ("Borrower"). All of the provisions of the Agreement are incorporated herein by reference and capitalized terms used herein shall have the meanings assigned to them in the Agreement. NEITHER THIS SCHEDULE NOR THE AGREEMENT CONSTITUTES AN INDEBTEDNESS OF THE STATE OF NEW HAMPSHIRE OR OF THE ISSUER EXCEPT TO THE EXTENT PERMITTED BY NEW HAMPSHIRE RSA CHAPTER 162-I. ALL AMOUNTS OWED HEREUNDER AND UNDER THE AGREEMENT ARE PAYABLE ONLY FROM THE SOURCES EXPRESSLY PROVIDED IN THE AGREEMENT, AND NO PUBLIC FUNDS MAY BE USED FOR THAT PURPOSE. 1. The Project, as described in Exhibit I attached hereto, will be located at 41 Simon Street, Nashua, New Hampshire. 2. The Loan Payment dates, the Loan Payment amounts, the principal and interest components of each Loan Payment, and the Prepayment Amounts are as follows: See Exhibit II attached hereto. 3. The disbursement period applicable to this Schedule shall end September 30, 1997. EXHIBIT I The acquisition of approximately 4.591 acres of land and an approximately 70,000 square foot building and the renovation thereof located at 41 Simon Street, Nashua, New Hampshire, to be used by the Borrower for the manufacture of circuit boards and assemblies. EXHIBIT II See Attached Schedule The Loan will be repayable over ten (10) years with monthly payments. The first payment will be due on February 1, 1997, with the 119 remaining payments due on the first day of each month thereafter. The interest rate on the Loan shall be 6.33%. B-1 Exhibit B to Loan Agreement FORM OF CERTIFICATE OF ACCEPTANCE I, the undersigned, hereby certify that I am the ____________ of Elexsys International, Inc. ("Borrower") and, with respect to the Loan Agreement dated as of December 1, 1996 (the "Agreement") by and among Borrower, GE Capital Public Finance, Inc. ("Lender") and Business Finance Authority of the State of New Hampshire ("Issuer"), that: 1. The portions of the Project described in the attached Exhibit A (such "Portions") have been completed in accordance with Borrower's specifications and have been accepted by Borrower. 2. Borrower has obtained from a reputable insurance company qualified to do business in the State (as defined in the Agreement) insurance with respect to all risks required to be covered thereby pursuant to Section 7.06 of the Agreement. 3. All of the representations and warranties of Borrower contained in the Agreement are true and correct as of the date hereof and no Default or Event of Default has occurred thereunder. Dated: __________, 19__. ......... Borrower: Elexsys International, Inc. ......... By:______________________________ ......... Title:____________________________ ......... Date:____________________________ C-3 Exhibit C to Loan Agreement FORM OF OPINION OF COUNSEL TO BORROWER ......... December _, 1996 Business Finance Authority of the State of New Hampshire 14 Dixon Avenue, Suite 101 Concord, New Hampshire 03301 GE Capital Public Finance, Inc. Suite 470 8400 Normandale Lake Blvd. Minneapolis, MN 55437 Re: Loan Agreement, dated as of December 1, 1996, by and among GE Capital Public Finance, Inc. ("Lender"), Business Finance Authority of the State of New Hampshire ("Issuer") and Elexsys International, Inc. ("Borrower") Ladies and Gentlemen: We have acted as counsel to the Borrower with respect to the Loan Agreement described above (the "Loan Agreement"), the Escrow Agreement of even date therewith (the "Escrow Agreement") among Lender, Issuer, Borrower and National City Bank of Minneapolis, as escrow agent, and the Statement as to Tax Exempt Status of even date therewith (the "Statement as to Tax Exempt Status", and various related matters and, in this capacity, have reviewed a duplicate original or certified copy of each of the Agreements (defined below). The Loan Agreement, the Escrow Agreement, and the Statement as to Tax Exempt Status may be referred to herein collectively as the "Agreements"). We have examined the Agreements and such records, certificates and other documents and have made such other investigation as we consider necessary to render this opinion. As to various questions of fact material to our opinion, we have relied upon representations made in or pursuant to the Agreements and upon certificates of officers of Borrower. We have assumed the genuineness of all signatures (other than the signatures of the officers of Borrower to the Agreements), the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies. The opinions expressed herein with respect to the enforceability of the Agreements are subject to (i) general principles of equity including without limitation an implied covenant of good faith and fair dealing, and (ii) bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors heretofore or hereafter enacted to the extent that the same may be constitutionally applied. In addition, we express no opinion with respect to any provision of the Agreements to the extent they provide for recourse to security in the absence of notice and hearing, the grant of powers of attorney or indemnification that is against public policy. References in this opinion to matters known to us mean the actual knowledge of the partners of this firm responsible for preparing this opinion after inquiry of appropriate officers of Borrower, and we have not examined the docket of any court or agency. This opinion is limited to the laws of the State of New Hampshire and the federal laws of the United States. Based upon the examination of these and such other documents as we have deemed relevant, we are of opinion that: 1. Borrower has been duly created and is validly existing and in good standing under the laws of the State of Delaware, and has the full power and authority to own its properties and conduct the business now conducted by it. 2. Borrower is qualified to do business and is in good standing in the State of New Hampshire. 3. Borrower has full power and authority to execute and deliver the Agreements to which it is a party and to carry out the terms thereof. The Agreements have been duly and validly authorized, executed and delivered by Borrower, are in full force and effect and are the valid and binding obligations of Borrower, enforceable in accordance with their respective terms (including against claims of usury). 4. The consummation of the transactions contemplated by the Agreements and the carrying out of the terms thereof will not result in violation of any provisions of the articles of incorporation or bylaws of the Borrower or, to the best of our knowledge, result in the violation of any provision of, or in a default under, any indenture, mortgage, deed of trust, or other agreement for the incurring of indebtedness, or any judgment, decree, order, statute, rule or regulation known to us to which Borrower is a party or by which it or its property is bound. 5. To the best of our knowledge, there are no legal or governmental actions, suits, proceedings, inquiries or investigations pending or threatened, to which Borrower is or may become a party or of which any property of Borrower is or may become subject, other than ordinary routine litigation incident to the kind of business conducted by Borrower which, if determined adversely to Borrower would not, individually or in the aggregate, have a material adverse effect on the financial position or results of operations of Borrower. 6. To the best of our knowledge, there are no legal or governmental proceedings pending or threatened, wherein an unfavorable decision, ruling or finding would adversely affect the validity of or security for the Agreements or the transactions contemplated thereby. Very truly yours, D-3 Exhibit D to Loan Agreement FORM OF OPINION OF BOND COUNSEL December _, 1996 Business Finance Authority of the State of New Hampshire 14 Dixon Avenue, Suite 101 Concord, New Hampshire 03301 We have acted as bond counsel to the Business Finance Authority of the State of New Hampshire (the "Authority") in connection with the making by the Authority of a loan (the "Loan") to Elexsys International, Inc. ("Borrower") pursuant to a Loan Agreement, dated as of December 1, 1996 (the "Agreement"), by and among GE Capital Public Finance, Inc. ("Lender"), the Authority and Borrower. We have examined the law and such certified proceedings and other papers as deemed necessary to render this opinion, including the Escrow Agreement, dated as of December 1, 1996 (the "Escrow Agreement"), by and among Lender, the Authority, Borrower and National City Bank of Minneapolis, as escrow agent (the "Escrow Agent".) Terms used in this opinion and not otherwise defined shall have the same meanings assigned to them in the Agreement. As to questions of fact material to our opinion we have relied upon representations and covenants of the Authority and Borrower contained in the Agreement, the certified proceedings and other certifications of public officials furnished to us, and certifications by officials of Borrower and others, without undertaking to verify the same by independent investigation. The Loan is made pursuant to the Agreement. Under the Agreement, Borrower has agreed to make payments sufficient to pay when due the principal (including sinking fund installments) of, and premium (if any) and interest on the Loan. Such payments and other moneys payable to the Authority or Lender under the Agreement, including proceeds derived from any security provided thereunder (collectively, the "Revenues"), and the rights of the Authority under the Agreement to receive the same (excluding, however, certain administrative fees, indemnification and reimbursements), are pledged and assigned by the Authority as security for the repayment of the Lender pursuant to the Agreement (the "Lender Loan"). The Lender Loan is a limited obligation of the Authority payable solely from the Revenues. We express no opinion with respect to compliance by Borrower with applicable legal requirements in connection with the acquisition, construction, reconstruction, use, occupancy or operation of the Project. Based on our examination, we are of opinion, as of the date hereof and under existing law, as follows: 1. The Authority is a duly created and validly existing body corporate and politic as an agency of the State of New Hampshire with the power to enter into and perform the Agreement and the Escrow Agreement. 2. Each of the Agreement and the Escrow Agreement has been duly authorized, executed and delivered by the Authority and is a valid and binding obligation of the Authority enforceable upon the Authority. As provided in New Hampshire RSA 162-I;7,II, the Agreement creates a valid lien on the rights of the Authority to receive Revenues under the Agreement (except certain rights to indemnification, reimbursements and fees). 3. Under existing law, interest on the Lender Loan is excluded from the gross income of the owner thereof for federal income tax purposes except for interest on the Lender Loan during any period while it is held by a "substantial user" of the facilities financed with proceeds of the Lender Loan or by a "related person" within the meaning of Section 147(a) of the Internal Revenue Code of 1986 (the "Code") and except that Borrower or others, by taking action after the date hereof that causes the $10,000,000 limitation set forth in Section 144(a)(10) of the Code to be exceeded, may cause interest on the Lender Loan to become included in gross income (retroactive to the date hereof, in the case of the $40,000,000 limitation) for federal income tax purposes. It should be noted that the interest on the Lender Loan is an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. In addition to the foregoing exceptions, the opinion set forth in the first sentence of this paragraph is subject to the condition that the Authority and Borrower comply with all requirements of the Code that must be satisfied subsequent to the making of the Lender Loan in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. Borrower, and to the extent necessary, the Authority have covenanted in the Agreement to comply with such requirements. Failure to comply with certain of such requirements may cause the inclusion of interest on the Lender Loan in gross income for federal income tax purposes to be retroactive to the date of making of the Lender Loan. We express no opinion regarding other federal tax consequences arising with respect to the Lender Loan. 4. Under existing statutes, interest on the Lender Loan is exempt from the New Hampshire personal income tax on interest and dividends. It is to be understood that the rights of the Lender and the enforceability of the Agreement and the Escrow Agreement are subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to the exercise of judicial discretion in appropriate cases. Yours faithfully, F-1 Exhibit F to Loan Agreement FORM OF OPINION OF COUNSEL TO BANK (a) The Bank is, and was at all relevant times, a duly organized and validly existing banking corporation in good standing under the laws of the United States and ___________________________________ with full legal power and authority to execute, deliver and to perform all of its obligations under the Letter of Credit. (b) The execution and delivery by the Bank of the Letter of Credit and the performance by the Bank of its obligations thereunder are not inconsistent with and do not violate the Bank's charter or by-laws. (c) The Letter of Credit has been duly and validly executed and delivered by the Bank and constitutes the legal, valid and binding obligation of the Bank enforceable against the Bank in accordance with its terms, except as to enforcement thereof may be limited by any bankruptcy, insolvency, moratorium, reorganization or other laws relating to or affecting the enforcement of rights of creditors generally and equitable principles of general applicability. EXECUTION COPY ESCROW AGREEMENT Among GE CAPITAL PUBLIC FINANCE, INC. as Lender and SANWA BANK CALIFORNIA as Bank and BUSINESS FINANCE AUTHORITY OF THE STATE OF NEW HAMPSHIRE as Issuer and ELEXSYS INTERNATIONAL, INC. as Borrower and NATIONAL CITY BANK OF MINNEAPOLIS as Escrow Agent Dated as of December 1, 1996 8 ESCROW AGREEMENT THIS ESCROW AGREEMENT (REAL ESTATE) is made and entered into as of December 1, 1996, by and among National City Bank of Minneapolis, a national banking association ("Escrow Agent"), GE Capital Public Finance, Inc., a corporation duly organized and existing under the laws of the State of Delaware ("Lender"), Sanwa Bank California ("Bank"), Business Finance Authority of the State of New Hampshire, a body corporate and politic as an agency of the State of New Hampshire ("Issuer"), and Elexsys International, Inc., a Delaware corporation ("Borrower"). ARTICLE I RECITALS Section 1.01. Lender, Issuer and Borrower have entered into a Loan Agreement dated as of December 1, 1996 (the "Loan Agreement"), a duplicate original of which has been furnished to Escrow Agent and Bank, whereby Lender and Issuer have agreed to finance for Borrower the acquisition and renovation of certain manufacturing facilities described in the Loan Agreement (the "Project"), and Borrower has agreed to make Loan Payments (as defined in the Loan Agreement) to Lender, as assignee of Issuer, in the manner and on the terms set forth therein. As security for the Loan Payments, Borrower will cause Bank to issue in favor of Lender an Irrevocable Letter of Credit pursuant to an Accounts Receivable Credit Agreement (the "Reimbursement Agreement") between Borrower and Bank. This Agreement is not intended to alter or change the rights and obligations of Lender, Issuer and Borrower under the Loan Agreement or of Borrower and Bank under the Reimbursement Agreement, but is entirely supplemental thereto. Section 1.02. The terms capitalized in this Agreement but not defined herein shall have the meanings given to them in the Loan Agreement. Section 1.03. Under the Loan Agreement, upon the satisfaction of certain conditions precedent, Lender shall loan to Issuer and Issuer shall deposit or cause to be deposited with Escrow Agent the sum of $2,700,000, to be credited to the Escrow Fund established in Article 2 hereof. Amounts deposited in the Escrow Fund shall be loaned to Borrower and shall be used by Borrower to pay the Project Costs (as defined in the Loan Agreement), and, to the extent not needed for this purpose, to pay or prepay Principal coming due under the Loan Agreement, all as hereinafter provided. Section 1.04. Under the Loan Agreement, Borrower will cause the Project to be acquired and constructed and to the extent the amounts deposited with Escrow Agent is insufficient to complete the Project, Borrower shall complete the Project with its own funds. Section 1.05. Lender, Bank, Issuer and Borrower agree to employ Escrow Agent to receive, hold, invest and disburse the moneys paid to Escrow Agent by Lender as described in Section 1.03, all as hereinafter described; provided, however, that Escrow Agent shall not be obligated to assume or perform any obligation of Lender, Issuer, Borrower, or Bank with respect thereto or under the Loan Agreement or Reimbursement Agreement by reason of anything contained in this Agreement. Section 1.06. Each of the parties has authority to enter into this Agreement, and has taken all actions necessary to authorize the execution of this Agreement by the officers whose signatures are affixed hereto. ARTICLE II ESCROW FUND Section 2.01. Escrow Agent shall establish a special escrow fund designated as the "GECPF/BFA/Elexsys International Escrow Fund" (the "Escrow Fund"), shall keep such Escrow Fund separate and apart from all other funds and moneys held by it and shall administer such Escrow Fund as provided in this Agreement. Section 2.02. All moneys paid to Issuer by Lender pursuant to Section 1.03 of this Agreement shall be credited to the Escrow Fund. Escrow Agent shall use the moneys in the Escrow Fund to pay Project Costs, upon receipt with respect thereto of a Payment Request Form attached hereto as Exhibit A, executed by Lender, Bank and Borrower, fully completed and with all supporting documents described therein attached thereto and the Letter of Credit. Upon receipt of a Payment Request Form with respect to any Project Costs, an amount equal to the Project Costs as shown therein shall be paid directly to the person or entity entitled to pay as specified therein. Section 2.03. On September 30, 1997, Escrow Agent shall pay: (a) to Lender in prepayment of the Loan, an amount equal to the entire remaining balance on deposit in the Escrow Fund, less the sum of (i) an amount equal to the Project Costs for which Escrow Agent has received a fully and properly completed Payment Request Form and which has not been paid, and (ii) the amount of any deposit by Borrower pursuant to Section 3.04 hereof remaining on deposit in the Escrow Fund; and (b) to Borrower the entire remaining balance on deposit in the Escrow Fund less the amount referred to in clause (a)(i) of this Section. The amount paid to Lender shall be applied first to interest accrued on the Loan and next to the Principal portion of the Loan Payments in the inverse order of maturity. Section 2.04. Upon written notice (a) from Lender or Borrower that an Event of Default has occurred under the Loan Agreement, (b) from Bank that an event of default as occurred under the Reimbursement Agreement, or (c) from Borrower that Borrower has determined not to complete the Project, Escrow Agent shall liquidate all investments held in the Escrow Fund and transfer the proceeds thereof and all other moneys held in the Escrow Fund to Lender to be applied first to interest accrued on the Loan and next to the Principal portion of the Loan Payments in the inverse order of maturity. Section 2.05. Escrow Agent shall only be responsible for the safekeeping and investment of the moneys held in the Escrow Fund, and the disbursement thereof in accordance with this Article, and shall not be responsible for the authenticity or accuracy of such certifications or documents, the application of amounts paid pursuant to such certifications by the persons or entities to which they are paid, or the sufficiency of the moneys credited to the Escrow Fund to make the payments herein required. ARTICLE III MONEYS IN ESCROW FUND; INVESTMENT Section 3.01. The moneys and investments held by Escrow Agent under this Agreement are irrevocably held in trust for the benefit of Borrower, Issuer and Lender, and such moneys, together with any income or interest earned thereon, shall be expended only as provided in this Agreement, and shall not be subject to levy or attachment or lien by or for the benefit of any creditor of Borrower, Bank, Issuer or Lender. Lender, Issuer, Borrower and Escrow Agent intend that the Escrow Fund constitute an escrow account in which Borrower has no legal or equitable right, title or interest until satisfaction in full of all conditions contained herein and in the Loan Agreement for the disbursement of funds by Escrow Agent therefrom. However, if the parties' intention that Borrower shall have no legal or equitable right, title or interest until all conditions for disbursement are satisfied in full is not respected in any legal proceeding, the parties hereto intend that Lender and Bank have a security interest in the Escrow Fund, and such security interest is hereby granted to Lender and Bank by Borrower, to secure payment of all sums due to Lender, in its own capacity and assignee of Issuer, under the Loan Agreement and all sums due to Bank under the Reimbursement Agreement. For such purpose, Escrow Agent hereby agrees to act as agent for Lender in connection with the perfection of such security interest and agrees to note, or cause to be noted, on all books and records relating to the Escrow Fund, Lender's interest therein. Section 3.02. Moneys held by Escrow Agent hereunder shall be invested and reinvested by Escrow Agent upon order of Borrower only in Qualified Investments, as defined in Section 3.05. Such investments shall be registered in the name of Escrow Agent and held by Escrow Agent for the benefit of Lender, Bank, Issuer and Borrower. With the approval of Borrower, Escrow Agent may purchase or sell to itself or any affiliate, as principal or agent, investments authorized by this Article. Such investments and reinvestments shall be made giving full consideration for the time at which funds are required to be available. Section 3.03. Escrow Agent shall, without further direction from Borrower, sell such investments as and when required to make any payment from the Escrow Fund. Any income received on such investments shall be credited to the Escrow Fund. Section 3.04. Escrow Agent shall furnish to Borrower, Bank and Lender reports accounting for all investments and interest and income therefrom. Such accounting shall be furnished no less frequently than every three (3) months and upon request of Lender, Bank or Borrower. None of Lender, Bank, Issuer or Escrow Agent shall be responsible or liable for any loss suffered in connection with any investment of moneys made by Escrow Agent in accordance with this Article (other than Escrow Agent in its capacity as obligor under any Qualified Investment). In the event funds in the Escrow Fund are insufficient to pay the Project Costs, Borrower shall deposit additional funds into the Escrow Fund to be disbursed in accordance with the provisions hereof, and such additional funds deposited by Borrower shall be disbursed from the Escrow Fund before any other funds held in the Escrow Fund. Section 3.05. As used in this Agreement, the term Qualified Investments means (a) securities which are general obligations of or are guaranteed as to the payment of principal and interest by the United States of America; (b) obligations, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following: Federal Home Loan Bank System, Government National Mortgage Association, Farmers Home Administration, Federal Home Loan Mortgage Corporation or Federal Housing Administration; (c) commercial paper issued by corporations organized under the laws of a state of the United States which is rated in the highest rating category by Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.; (d) money market funds registered under the Investment Company Act of 1940 whose shares are registered under the Securities Act of 1933 and which have a rating of "AAAm-G", "AAAm" or "AAm" by S&P; or (e) certificates of deposit issued by or other forms of deposit in any national or state bank to the extent that such deposits are fully insured by the Federal Deposit Insurance Corporation or any successor agency which is backed by the full faith and credit of the United States. Derivative products shall not constitute Qualified Investments. ARTICLE IV ESCROW AGENT'S AUTHORITY; INDEMNIFICATION Section 4.01. Escrow Agent may act in reliance upon any writing or instrument or signature which it, in good faith, believes to be genuine, may assume the validity and accuracy of any statement or assertion contained in such a writing or instrument, and may assume that any person purporting to give any writing, notice, advice or instructions in connection with the provisions hereof has been duly authorized to do so. Escrow Agent shall not be liable in any manner for the sufficiency or correctness as to form, manner and execution, or validity of any instrument deposited with it, nor as to the identity, authority or right of any person executing the same; and its duties hereunder shall be limited to those specifically provided herein. Section 4.02. Unless Escrow Agent is determined to be negligent or liable for misconduct with regard to its duties hereunder, Borrower hereby agrees to indemnify Escrow Agent and hold it harmless from any and all claims, liabilities, losses, actions, suits or proceedings at law or in equity, or any other expense, fees or charges of any character or nature, which it may incur or with which it may be threatened by reason of its acting as Escrow Agent under this Agreement; and in connection therewith, to indemnify Escrow Agent against any and all expenses, including reasonable attorneys' fees and the cost of defending any action, suit or proceeding or resisting any claim. Escrow Agent shall be vested with a lien on all property deposited hereunder for indemnification, for reasonable attorneys' fees, court costs, for any suit, interpleader or otherwise, or any other reasonable expenses, fees or charges of any character or nature, which may be incurred by Escrow Agent by reason of disputes arising among Borrower, Issuer, Bank and Lender as to the correct interpretation of the Loan Agreement or this Agreement and instructions given to Escrow Agent hereunder, or otherwise, with the right of Escrow Agent, regardless of the instructions aforesaid, to hold the said property until and unless said additional expenses, fees and charges shall be fully paid. Section 4.03. If Borrower, Issuer, Bank or Lender shall be in disagreement about the interpretation of the Loan Agreement, the Reimbursement Agreement or this Agreement, or about the rights and obligations, or the propriety of any action contemplated by Escrow Agent hereunder, Escrow Agent may, but shall not be required to, file an appropriate civil action to resolve the disagreement. Escrow Agent shall be indemnified by Borrower for all costs, including reasonable attorneys' fees, in connection with such civil action, and shall be fully protected in suspending all or part of its activities under this Agreement until a final judgment in such action is received. Section 4.04. Escrow Agent may consult with counsel of its own choice and shall have full and complete authorization and protection with the opinion of such counsel. Escrow Agent shall otherwise not be liable for any mistakes of facts or errors of judgment, or for any acts or omissions of any kind unless caused by its negligence or misconduct. ARTICLE V ESCROW AGENT'S COMPENSATION Borrower hereby agrees to pay Escrow Agent as compensation for the services to be rendered hereunder the fees and other amounts described in Exhibit B hereto and will pay and/or reimburse Escrow Agent upon request for all expenses, disbursements and advances, including reasonable attorneys' fees, incurred or made by it in connection with carrying out its duties hereunder. ARTICLE VI CHANGE OF ESCROW AGENT Section 6.01. A national banking association located in the United States or a state bank or trust company organized under the laws of a state of the United States, qualified as a depository of public funds, may be substituted to act as Escrow Agent under this Agreement upon agreement of the parties hereto. Such substitution shall not be deemed to affect the rights or obligations of the parties. Upon any such substitution, Escrow Agent agrees to assign to such substitute Escrow Agent its rights under this Agreement. Section 6.02. Escrow Agent or any successor may at any time resign by giving mailed notice to Borrower, Issuer, Bank and Lender of its intention to resign and of the proposed date of resignation, which shall be a date not less than thirty (30) days after such notice is deposited in the United States mail with postage fully prepaid, unless an earlier resignation date and the appointment of a successor Escrow Agent shall have been or are approved by Borrower, Issuer, Bank and Lender. Section 6.03. Escrow Agent may appoint an agent to exercise any of the powers, rights or remedies granted to Escrow Agent under this Agreement, and to hold title to property or to take any other action which may be desirable or necessary. ARTICLE VII ADMINISTRATIVE PROVISIONS Section 7.01. Escrow Agent shall keep complete and accurate records of all moneys received and disbursed under this Agreement, which shall be available for inspection by Borrower, Issuer, Bank or Lender, or the agent of any of them, at any time during regular business hours. Section 7.02. All notices, certificates, requests, demands and other communications provided for hereunder shall be in writing and shall be (a) personally delivered, (b) sent by first class United States mail, (c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case addressed to the party to whom notice is being given at its address as set forth below and, if telecopied, transmitted to that party at its telecopier number set forth above or, as to each party, at such other address or telecopier number as may hereafter be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall be deemed to have been given on (a) the date received if personally delivered, (b) when deposited in the mail if delivered by mail, (c) the date sent if sent by overnight courier, or (d) the date of transmission if delivered by telecopy. Section 7.03. This Agreement shall be construed and governed in accordance with the laws of the State of New Hampshire. Section 7.04. Any provisions of this Agreement found to be prohibited by law shall be ineffective only to the extent of such prohibition, and shall not invalidate the remainder of this Agreement or the Loan Agreement. Section 7.05. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. Specifically, as used herein the term "Lender" means any person or entity to whom Lender has assigned its right to receive payments under the Loan Agreement and any payments due to Lender hereunder from after the date when a duplicate original of such assignment is filed with Escrow Agent. Section 7.06. This Agreement may be simultaneously executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same Agreement. Section 7.07. This Agreement shall terminate upon disbursement by Escrow Agent of all moneys held by it hereunder. Section 7.08. This Agreement (and, with respect to Lender, Issuer and Borrower, together with the Loan Agreement) constitutes the entire agreement of the parties relating to the subject matter hereof. Section 7.09. The Bank may become a party to this Agreement by executing and delivering a counterpart signature page. Pending such execution and delivery this Agreement shall be a binding agreement among the parties other than the Bank. [REMAINDER OF PAGE INTENTIONALLY BLANK; EXECUTION PAGE FOLLOWS] IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above. GE CAPITAL PUBLIC FINANCE, INC., NATIONAL CITY BANK OF Lender MINNEAPOLIS, Escrow Agent By:/s/ Philip Long By: (Illegible) ---------------- Title: Vice President Title:Assistant Vice President Address: 8400 Normandale Lake Blvd. Address:651 Nicollet Mall Suite 470 Minneapolis, MN 55402 Minneapolis, MN 55437 Telephone: (612) 897-8372 Telephone: (800) 346-3146 Telecopier:(612) 904-8898 Telecopier:(612) 897-5601 BUSINESS FINANCE AUTHORITY OF ELEXSYS INTERNATIONAL, INC. THE STATE OF NEW HAMPSHIRE, Issuer Borrower Borrower By:/s/ Jack Donovan By:/s/ Michael Shimada ------------------ ------------------- Title: Executive Director Title: Principal Financial Officer and Duly Authorized Officer Address: 14 Dixon Avenue, Suite 101 Address:41 Simon Street Concord, NH 03301 Nashua, NH 03060 Telephone: (603) 271-2391 Telephone: (603) 886-0066 Telecopier: (603) 271-2396 Telecopier: (603) 886-9724 SANWA BANK CALIFORNIA, Bank By:______________________________ Title:___________________________ Address: 220 Almaden Boulevard San Jose, CA 95113 Telephone: (408) 297-6500 Telecopier: (408) 292-4092 A-4 Exhibit A to Escrow Agreement FORM OF PAYMENT REQUEST FORM Payment Request Form No. _____ Elexsys International, Inc., as borrower ("Borrower") under that certain Loan Agreement dated as of December 1, 1996 (the "Loan Agreement"), by and among Business Finance Authority of the State of New Hampshire ("Issuer"), GE Capital Public Finance, Inc. ("Lender") and Borrower, hereby requests National City Bank of Minneapolis, as escrow agent ("Escrow Agent") under the Escrow Agreement dated as of December 1, 1996 (the "Escrow Agreement") among Escrow Agent, Lender, Issuer, Borrower and Sanwa Bank California ("Bank"), to make payment from the Escrow Fund (as defined in the Escrow Agreement) to the following party or parties, at the addresses set forth below: Cost of Issuance Amount to or Project Payee Address be paid Description - ----- ------- --------- ---------------- In connection therewith, the undersigned officer of Borrower hereby certifies as follows: 1. All of the provisions of the Loan Agreement are incorporated herein by reference and capitalized terms used herein and not defined shall have the meanings assigned to them in the Loan Agreement. 2. The Project subject to this Payment Request Form comprises a portion of the Project described in the Loan Agreement, and has been inspected and accepted by Borrower. 3. The payments to be made to the payees set forth above are for either the costs of issuance or Project Costs described above, or reimbursement to Borrower therefor, and the payments have not been the basis for a prior request which has been paid, and the amount remaining in the Escrow Fund is sufficient to pay the remaining Project Costs. 4. The payment or requisition is for work actually performed or materials or property actually supplied to the Project site prior to the date hereof. 5. All of Borrower's representations, covenants and warranties contained in the Loan Agreement were true and accurate in all material respects as of the date made, and remain true and accurate in all material respects as of the date of this Payment Request Form, and Borrower has fully and satisfactorily performed all of its covenants and obligations to date required under the Loan Agreement. No Default or Event of Default has occurred under the Loan Agreement. 6. This request for payment contains no items representing payment on account of any retained percentage entitled to be retained by Borrower at the date hereof. 7. The undersigned has reviewed the provisions of the Statement as to Tax Exempt Status, and the payment of this requisition will not result in any proceeds of the obligation evidenced by the Loan Agreement being expended in contradiction of the provisions thereof and representations made therein. 8. Attached hereto as Attachment A are invoices and/or bills of sale relating to the Project and, if such invoices have been paid by Borrower, evidence of payment thereof. 9. If this Payment Request Form relates to the final disbursement from the Escrow Fund, attached hereto as Attachment B is an executed Certificate of Acceptance in the form required by the Loan Agreement. 10. Attached hereto as Attachment C is an insurance certificate in the form required by the Loan Agreement. 11. All contractors, subcontractors and suppliers of materials, property for the Project or labor have been paid for their share of work, materials or property through the date of the prior Payment Request Form (if any). 12. The payment or reimbursement requested by this Payment Request Form will be disbursed in payment of, or is reimbursement for the Borrower's prior payment of, work performed or completed on, or materials or property supplied for the Project by the contractors, subcontractors or suppliers listed in Attachment D hereto. 13. All amounts previously requested and disbursed from the Escrow Fund for payment of contractors, subcontractors and suppliers of materials and labor have been so applied. 14. This request does not request reimbursement for any payment or payments for any obligations originally paid or incurred, for federal income tax purposes, before September 25, 1996. 15. Borrower understands that Lender is relying on the certifications herein with regard to and in connection with approving the disbursement requested hereby. 16. Attached hereto as Attachment E is an appropriate endorsement or continuation of the title insurance policy delivered pursuant to the Reimbursement Agreement increasing the coverage of such policy to an amount at least equal to the amount specified in such paragraph less the amount remaining in the Escrow Fund after disbursement of the current requisition. 17. Attached hereto as Exhibit F are partial releases of mechanics' liens through the date of the last payment request (if any) by those contractors, subcontractors, suppliers and laborers having received payments for work on or materials or property supplied to the Project in excess of $5,000.00. 18. Attached hereto as Exhibit G is a copy of the notice of the anticipated funding date for the advance posted on the Project site by Borrower or its agent and certified as to its posting date by Borrower, all in compliance with New Hampshire RSA 447:12-b, and such other evidence as may reasonably be required by Lender or Bank of Borrower's compliance with New Hampshire RSA 447:12-a and b. 19. Borrower has satisfied all of the conditions contained in Article III of the Loan Agreement and the Letter of Credit has been delivered to Lender. ELEXSYS INTERNATIONAL, INC. By ______________________________________ Title_____________________________________ Date: APPROVED BY LENDER: GE CAPITAL PUBLIC FINANCE, INC. By ______________________________________ Title_____________________________________ Date: APPROVED BY BANK: SANWA BANK CALIFORNIA By ______________________________________ Title_____________________________________ Date: -----END PRIVACY-ENHANCED MESSAGE-----