EXHIBIT 10.10.3

 

LOGICVISION, INC

 

SECOND AMENDED AND RESTATED LOAN AGREEMENT

 

THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT (the “Agreement”) is entered
into as of February 9, 2004, by and between COMERICA BANK, successor by merger
to Comerica Bank-California (“Bank”) and LOGICVISION, INC. (“Borrower”).

 

RECITALS

 

A. Bank and Borrower are parties to that certain Amended and Restated Loan and
Security Agreement dated as of December 19, 2001, as amended by First Amendment
to Loan and Security Agreement dated as of June 25, 2002, Second Amendment to
Loan and Security Agreement dated as of August 6, 2002, Third Amendment to Loan
Agreement dated as of December 16, 2002, Fourth Amendment to Loan Agreement
dated as of February 11, 2003, and Fifth Amendment to Loan Agreement dated as of
August 26, 2003 (collectively, the “Original Loan Agreement”). Pursuant to the
Original Loan Agreement, Borrower issued a Revolving Promissory Note to Bank
dated December 19, 2001 in the original principal amount of $5,000,000 (the
“Original Note”) (the Original Loan Agreement and the Original Note,
collectively, the “Original Loan Documents”).

 

B. Borrower and Bank wish to amend and restate the terms of the Original Loan
Documents. This Agreement sets forth the terms on which Bank will advance credit
to Borrower, and Borrower will repay the amounts owing to Bank.

 

AGREEMENT

 

The parties agree as follows:

 

1. DEFINITIONS AND CONSTRUCTION.

 

1.1 Definitions. As used in this Agreement, the following terms shall have the
following definitions:

 

“Accounts” means all presently existing and hereafter arising accounts, contract
rights, and all other forms of obligations owing to Borrower arising out of the
sale or lease of goods (including, without limitation, the licensing of software
and other technology) or the rendering of services by Borrower, whether or not
earned by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower and Borrower’s Books relating to any of the foregoing.

 

“Advance” or “Advances” means a cash advance or cash advances under the
Revolving Facility.

 

“Affiliate” means, with respect to any Person, any Person that owns or controls
directly or indirectly such Person, any Person that controls or is controlled by
or is under common control with such Person, and each of such Person’s senior
executive officers, directors, and partners.

 

“Bank Expenses” means all: reasonable costs or expenses (including reasonable
attorneys’ fees and expenses) incurred in connection with the preparation,
negotiation, administration, and enforcement of the Loan Documents; and Bank’s
reasonable attorneys’ fees and expenses incurred in amending, enforcing or
defending the Loan Documents (including fees and expenses of appeal), incurred
before, during and after an Insolvency Proceeding, whether or not suit is
brought.

 

“Borrower’s Books” means all of Borrower’s books and records including: ledgers;
records concerning Borrower’s assets or liabilities, business operations or
financial condition; and all computer programs, or tape files, and the
equipment, containing such information.

 

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“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks in the State of California are authorized or required to close.

 

“Change in Control” shall mean a transaction in which any “person” or “group”
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of Borrower ordinarily
entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the Board of Directors of Borrower, who did not
have such power before such transaction.

 

“Closing Date” means the date of this Agreement.

 

“Code” means the California Uniform Commercial Code.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to (i) any
indebtedness, lease, dividend, letter of credit or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed, co-made or discounted or sold with recourse by that
Person, or in respect of which that Person is otherwise directly or indirectly
liable; (ii) any obligations with respect to undrawn letters of credit issued
for the account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designed to protect such a Person against fluctuation in interest rates,
currency exchange rates or commodity prices; provided, however, that the term
“Contingent Obligation” shall not include endorsements for collection or deposit
in the ordinary course of business. The amount of any Contingent Obligation
shall be deemed to be an amount equal to the stated or determined amount of the
primary obligation in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by such Person in good faith; provided, however,
that such amount shall not in any event exceed the maximum amount of the
obligations under the guarantee or other support arrangement.

 

“Credit Card Services” has the meaning set forth in Section 2.1(b).

 

“Credit Extension” means each Advance, Credit Card Services, Letter of Credit,
Exchange Contract, or any other extension of credit by Bank for the benefit of
Borrower hereunder.

 

“Daily Balance” means the amount of the Obligations owed at the end of a given
day.

 

“Deferred Revenue” means all amounts received under contracts and not yet
recognized as revenue, as reported in Borrower’s financial statements filed with
the Securities and Exchange Commission.

 

“Equipment” means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

 

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

 

“Event of Default” has the meaning assigned in Article 8.

 

“Exchange Contracts” has the meaning assigned in Section 2.1(d).

 

“GAAP” means generally accepted accounting principles as in effect from time to
time.

 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred
purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.

 

“Insolvency Proceeding” means any proceeding commenced by or against any person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or

 

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insolvency law, including assignments for the benefit of creditors, formal or
informal moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.

 

“Inventory” means all present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any documents
of title representing any of the above, and Borrower’s Books relating to any of
the foregoing.

 

“Investment” means any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.

 

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations
thereunder.

 

“Lien” means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

 

“Loan Documents” means, collectively, this Agreement, the Note and any other
note or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.

 

“Material Adverse Effect” means a material adverse effect on (i) the business
operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.

 

“Note” means the Amended and Restated Revolving Promissory Note attached hereto
as Exhibit B.

 

“Obligations” means all debt, principal, interest, Bank Expenses and other
amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.

 

“Periodic Payments” means all installments or similar recurring payments that
Borrower may now or hereafter become obligated to pay to Bank pursuant to the
terms and provisions of any instrument, or agreement now or hereafter in
existence between Borrower and Bank.

 

“Permitted Indebtedness” means:

 

(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or
any other Loan Document;

 

(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;

 

(c) Indebtedness secured by a lien described in clause (c) of the defined term
“Permitted Liens,” subject to Section 7.13 of this Agreement, and provided such
Indebtedness does not exceed the lesser of the cost or fair market value of the
equipment financed with such Indebtedness; and

 

(d) Subordinated Debt.

 

“Permitted Investment” means:

 

(a) Investments existing on the Closing Date disclosed in the Schedule; and

 

(b) (i) marketable direct obligations issued or unconditionally guaranteed by
the United States of America or any agency or any State thereof, (ii) commercial
paper currently having rating of at least A-2 or P-2 from either Standard &
Poor’s Corporation or Moody’s Investors Service, (iii) certificates

 

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of deposit and (iv) Bank’s money market accounts, provided in each case that
such investments are considered “Available for Sale” or “Held-to-Maturity”
Investments” under GAAP and Financial Accounting Standards Board 115.

 

“Permitted Liens” means the following:

 

(a) Any Liens existing on the Closing Date and disclosed in the Schedule;

 

(b) Liens for taxes, fees, assessments or other governmental charges or levies,
either not delinquent or being contested in good faith by appropriate
proceedings;

 

(c) Liens (i) upon or in any equipment acquired or held by Borrower or any of
its Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition of such equipment,
or (ii) existing on such equipment at the time of its acquisition, provided that
the Lien is confined solely to the property so acquired and improvements
thereon, and the proceeds of such equipment;

 

(d) Liens incurred in connection with the extension, renewal or refinancing of
the indebtedness secured by Liens of the type described in clauses (a) through
(c) above, provided that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal amount
of the indebtedness being extended, renewed or refinanced does not increase; and

 

(e) other Liens incurred in the regular course of Borrower’s business not to
exceed $50,000 in the aggregate at any given time, provided that no federal,
state or other governmental agency is the lienholder or secured party for such
Liens, except as otherwise permitted in this definition.

 

“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.

 

“Prime Rate” means the variable rate of interest, per annum, most recently
announced by Bank, as its “prime rate,” whether or not such announced rate is
the lowest rate available from Bank.

 

“Responsible Officer” means each of the Chief Executive Officer, the Chief
Operating Officer, the Chief Financial Officer and the Controller of Borrower.

 

“Revolving Facility” means the facility under which Borrower may request Bank to
issue Advances, as specified in Section 2.1(a) hereof.

 

“Revolving Line” means a credit extension of up to Five Million Dollars
($5,000,000).

 

“Revolving Maturity Date” means January 31, 2005.

 

“Schedule” means the schedule of exceptions attached hereto and approved by
Bank, if any.

 

“Subordinated Debt” means any debt incurred by Borrower that is subordinated to
the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and
identified as being such by Borrower and Bank).

 

“Subsidiary” means any corporation, company or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock or other units
of ownership which by the terms thereof has the ordinary voting power to elect
the Board of Directors, managers or trustees of the entity, at the time as of
which any determination is being made, is owned by Borrower, either directly or
through an Affiliate.

 

“Tangible Net Worth” means at any date as of which the amount thereof shall be
determined, the sum of the capital stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of Borrower and its
Subsidiaries minus intangible assets, plus Subordinated Debt, on a consolidated
basis determined in accordance with GAAP.

 

“Total Liabilities” means at any date as of which the amount thereof shall be
determined, all obligations that should, in accordance with GAAP be classified
as liabilities on the consolidated balance sheet of Borrower, including in any
event all Indebtedness.

 

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1.2 Accounting Terms. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP and all calculations made hereunder shall
be made in accordance with GAAP. When used herein, the terms “financial
statements” shall include the notes and schedules thereto.

 

2. LOAN AND TERMS OF PAYMENT.

 

2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in lawful
money of the United States of America, the aggregate unpaid principal amount of
all Credit Extensions made by Bank to Borrower hereunder. Borrower shall also
pay interest on the unpaid principal amount of such Credit Extensions at rates
in accordance with the terms hereof.

 

(a) Revolving Advances.

 

(i) Subject to and upon the terms and conditions of this Agreement, Borrower may
request Advances in an aggregate outstanding amount not to exceed the Revolving
Line minus the aggregate face amount of all outstanding Letters of Credit and
amounts outstanding under the Foreign Exchange Sublimit. Subject to the terms
and conditions of this Agreement, amounts borrowed pursuant to this Section
2.1(a) may be repaid and reborrowed at any time prior to the Revolving Maturity
Date, at which time all Advances under this Section 2.1(a) shall be immediately
due and payable. Borrower may prepay any Advances without penalty or premium.

 

(ii) Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on the
Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit A hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank’s discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1(a) to Borrower’s deposit account. The
obligation to repay the Advances is evidenced by this Agreement and the Note.

 

(b) Credit Card Sublimit. Subject to the terms and conditions of this Agreement
and provided that there is availability under the Revolving Line, Borrower may
request corporate credit cards from Bank (the “Credit Card Services”). The
aggregate limit of the corporate credit cards shall not exceed One Hundred
Thousand Dollars ($100,000) at any time (the “Credit Card Services Sublimit”),
provided that availability under the Revolving Line shall be reduced by the
aggregate limits of the corporate credit cards issued to Borrower. In addition,
upon the occurrence and during the continuance of an Event of Default, Bank may,
in its sole discretion, charge as Advances any amounts that become due or owing
to Bank in connection with the Credit Card Services. All amounts owed pursuant
to the Credit Card Services Sublimit shall be debited monthly from Borrower’s
checking account with Bank. The terms and conditions (including repayment and
fees) of such Credit Card Services shall be subject to the terms and conditions
of the Bank’s standard forms of application and agreement for the Credit Card
Services, which Borrower hereby agrees to execute. All corporate credit cards
will be cancelled on and no further Credit Card Services will be provided after
the Revolving Maturity Date.

 

(c) Letters of Credit Sublimit.

 

(i) Subject to the terms and conditions of this Agreement, Bank agrees to issue
or cause to be issued letters of credit for the account of Borrower (each, a
“Letter of Credit” and collectively, the “Letters of Credit”) in an aggregate
outstanding face amount not to exceed the Revolving Line minus the aggregate
amount of the outstanding Advances at any time, provided that the aggregate face
amount of all outstanding Letters of Credit shall not exceed Five Hundred
Thousand Dollars

 

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($500,000). All Letters of Credit shall be, in form and substance, acceptable to
Bank in its sole discretion and shall be subject to the terms and conditions of
Bank’s form of standard application and letter of credit agreement (the
“Application”), which Borrower hereby agrees to execute, including Bank’s
standard fee per annum on the face amount of each Letter of Credit. On any drawn
but unreimbursed Letter of Credit, the unreimbursed amount shall be deemed an
Advance under Section 2.1(a). No Letter of Credit shall have an expiration date
which is later than (i) the Revolving Maturity Date unless Borrower secures in
cash the obligations under such Letter of Credit on terms acceptable to Bank, or
(ii) one hundred twenty (120) days from the date of its issuance.

 

(ii) The obligation of Borrower to reimburse Bank for drawings made under
Letters of Credit shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, the
Application, and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys’
fees, arising out of or in connection with any Letters of Credit, except for
expenses caused by Bank’s gross negligence or willful misconduct.

 

(d) Foreign Exchange Usage and Sublimit. Subject to the availability under the
Revolving Line and in reliance on the representations and warranties of Borrower
set forth herein, and provided that no Event of Default has occurred and is
continuing, at any time and from time to time from the date hereof through the
Business Day immediately prior to the Revolving Maturity Date, Bank shall
arrange the purchase by Borrower of foreign exchange contracts (“Exchange
Contracts”) as Borrower may request to hedge foreign exchange transaction risk
arising from foreign currency denominated accounts payable, which request shall
be made by delivering to Bank a duly executed exchange contract application on
Bank’s standard form; provided, however, that the maximum aggregate notional
contract amount in United States Dollars under all such Exchange Contracts shall
not at any time exceed $1,000,000; and provided, further, that the applicable
Foreign Exchange Reserve Percentage (as defined below) times the maximum
aggregate notional contract amount in United States Dollars under all such
Exchange Contracts shall not at any time exceed $100,000 (the “Foreign Exchange
Sublimit”) and shall be deemed to constitute outstanding Advances for the
purpose of calculating availability under the Revolving Line. The “Foreign
Exchange Reserve Percentage” shall be a percentage as determined by Bank in its
sole discretion from time to time. Unless Borrower shall have deposited with
Bank cash collateral in an amount sufficient to cover all undrawn amounts under
each such Exchange Contract and Bank shall have agreed in writing, no Exchange
Contract shall have a due date that is later than the Revolving Maturity Date.
All Exchange Contracts shall be in form and substance acceptable to Bank in its
sole discretion and shall be subject to the terms and conditions of Bank’s form
exchange contract application. Borrower will pay any standard issuance and other
fees that Bank notifies Borrower will be charged for issuing and processing
Exchange Contracts for Borrower. After and during the continuance of an Event of
Default, Bank may, in its sole and absolute discretion, terminate any or all of
the Exchange Contracts. Borrower agrees to indemnify and hold harmless Bank from
and against all loss, costs and expense associated with any such termination of
any Exchange Contract. If at any time for any reason, the amount of Obligations
owed by Borrower to Bank pursuant to this Section 2.1(d) is greater than the
aggregate amount available to be drawn under this Section 2.1(d), Borrower shall
immediately pay to Bank, in cash, the amount of such excess.

 

(e) Collateralization of Obligations Extending Beyond Maturity. If Borrower has
not secured to Bank’s satisfaction its obligations with respect to any Letters
of Credit or Exchange Contracts by the Revolving Maturity Date, then, effective
as of such date, the balance in any deposit accounts held by Bank and the
certificates of deposit or time deposit accounts issued by Bank in Borrower’s
name (and any interest paid thereon or proceeds thereof, including any amounts
payable upon the maturity or liquidation of such certificates or accounts),
shall automatically secure such obligations to the extent of the then continuing
or outstanding and undrawn Letters of Credit or Exchange Contracts. Borrower
authorizes Bank to hold such balances in pledge and to decline to honor any
drafts thereon or any requests by Borrower or any other Person to pay or
otherwise transfer any part of such balances for so long as the Letters of
Credit or Exchange Contracts are outstanding or continue.

 

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2.2 Interest Rates, Payments, and Calculations.

 

(a) Interest Rates. Except as set forth in Section 2.2(b), the Advances shall
bear interest, on the outstanding Daily Balance thereof, at a rate equal to the
Prime Rate.

 

(b) Late Fee; Default Rate. If any payment is not made within ten (10) days
after the date such payment is due, Borrower shall pay Bank a late fee equal to
the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii)
the maximum amount permitted to be charged under applicable law (the “Default
Rate”). All Obligations shall bear interest, from and after the occurrence and
during the continuance of an Event of Default, at a rate equal to three (3%)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.

 

(c) Payments. Interest hereunder shall be due and payable on the first calendar
day of each month during the term hereof. Bank shall, at its option, charge such
interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s
deposit accounts or against the Revolving Line, in which case those amounts
shall thereafter accrue interest at the rate then applicable hereunder. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder. All payments shall be free and clear of any taxes,
withholdings, duties, impositions or other charges, to the end that Bank will
receive the entire amount of any Obligations payable hereunder, regardless of
source of payment.

 

(d) Computation. In the event the Prime Rate is changed from time to time
hereafter, the applicable rate of interest hereunder shall be increased or
decreased, effective as of the day the Prime Rate is changed, by an amount equal
to such change in the Prime Rate. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.

 

2.3 Crediting Payments. Prior to the occurrence of an Event of Default, Bank
shall credit a wire transfer of funds, check or other item of payment to such
deposit account or Obligation as Borrower specifies. After the occurrence of an
Event of Default, the receipt by Bank of any wire transfer of funds, check, or
other item of payment shall be immediately applied to conditionally reduce
Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any wire transfer or payment received
by Bank after 12:00 noon Pacific time shall be deemed to have been received by
Bank as of the opening of business on the immediately following Business Day.
Whenever any payment to Bank under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.

 

2.4 Fees. Borrower shall pay to Bank the following:

 

(a) Facility Fee. On the Closing Date, a Facility Fee equal to Seventeen
Thousand Five Hundred Dollars ($17,500), which shall be nonrefundable;

 

(b) Commitment Fee. A Commitment Fee equal to one-tenth of one percent (0.10%)
per annum of the average unused portion of the availability under the Revolving
Line. Such fee shall be payable in quarterly installments on the last day of
each fiscal quarter or, in the case of the quarter in which the Revolving
Maturity Date falls, on the Revolving Maturity Date. Each quarterly installment
shall be calculated on the average unused portion of the Revolving Line during
such fiscal quarter. The Commitment Fee shall be debited quarterly from
Borrower’s checking account with Bank; and

 

(c) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the
Closing Date, including reasonable attorneys’ fees and expenses and, after the
Closing Date, all Bank Expenses, including reasonable attorneys’ fees and
expenses, as and when they become due.

 

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2.5 Additional Costs. In case any law, regulation, treaty or official directive
or the interpretation or application thereof by any court or any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):

 

(a) subjects Bank to any tax with respect to payments of principal or interest
or any other amounts payable hereunder by Borrower or otherwise with respect to
the transactions contemplated hereby (except for taxes on the overall net income
of Bank imposed by the United States of America or any political subdivision
thereof);

 

(b) imposes, modifies or deems applicable any deposit insurance, reserve,
special deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, Bank; or

 

(c) imposes upon Bank any other condition with respect to its performance under
this Agreement,

 

and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
the Obligations, Bank shall notify Borrower thereof. Borrower agrees to pay to
Bank the amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or determined,
upon presentation by Bank of a statement of the amount and setting forth Bank’s
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.

 

2.6 Term. This Agreement shall become effective on the Closing Date and, subject
to Section 12.7, shall continue in full force and effect for so long as any
Obligations remain outstanding or Bank has any obligation to make Credit
Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have
the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.

 

3. CONDITIONS OF LOANS.

 

3.1 Conditions Precedent to Initial Credit Extension. The obligation of Bank to
make the initial Credit Extension after the date hereof is subject to the
condition precedent that Bank shall have received, in form and substance
satisfactory to Bank, the following:

 

(a) this Agreement;

 

(b) the Note;

 

(c) a certificate of the Secretary of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement and the
other Loan Documents;

 

(d) automatic debit authorization;

 

(e) payment of the fees and Bank Expenses then due specified in Section 2.4
hereof; and

 

(f) such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.

 

3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to
make each Credit Extension, including the initial Credit Extension, is further
subject to the following conditions:

 

(a) timely receipt by Bank of the Payment/Advance Form or (with respect to any
request for Credit Card Services, Letter of Credit or Exchange Contracts) other
required documentation as provided in Section 2.1;

 

(b) receipt by Bank of a Compliance Certificate; and

 

(c) the representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Payment/Advance
Form and on the effective date of each Credit

 

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Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would exist after giving effect to
such Credit Extension (provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date). The making of each Credit
Extension shall be deemed to be a representation and warranty by Borrower on the
date of such Credit Extension as to the accuracy of the facts referred to in
this Section 3.2.

 

4. [Intentionally Omitted.]

 

5. REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and warrants as follows:

 

5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing under the laws of its state of incorporation and
qualified and licensed to do business in any state in which the conduct of its
business or its ownership of property requires that it be so qualified.

 

5.2 Due Authorization; No Conflict. The execution, delivery, and performance of
the Loan Documents are within Borrower’s powers, have been duly authorized, and
are not in conflict with nor constitute a breach of any provision contained in
Borrower’s Certificate of Incorporation or Bylaws, nor will they constitute an
event of default under any material agreement to which Borrower is a party or by
which Borrower is bound. Borrower is not in default under any agreement to which
it is a party or by which it is bound, which default could have a Material
Adverse Effect.

 

5.3 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.

 

5.4 Litigation. Except as set forth in the Schedule, there are no actions or
proceedings pending by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could have a Material Adverse
Effect, or a material adverse effect on Borrower’s interest.

 

5.5 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that are delivered
by Borrower to Bank fairly present in all material respects Borrower’s
consolidated financial condition as of the date thereof and Borrower’s
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to
Bank.

 

5.6 Solvency, Payment of Debts. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.

 

5.7 Regulatory Compliance. Borrower and each Subsidiary have met the minimum
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. No event has occurred resulting from Borrower’s failure to comply with
ERISA that could result in Borrower’s incurring any material liability. Borrower
is not an “investment company” or a company “controlled” by an “investment
company” within the meaning of the Investment Company Act of 1940. Borrower is
not engaged principally, or as one of the important activities, in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulations T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions of the
Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.

 

5.8 Environmental Condition. Except as disclosed in the Schedule, none of
Borrower’s or any Subsidiary’s properties or assets has ever been used by
Borrower or any Subsidiary or, to the best of Borrower’s

 

9

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knowledge, by previous owners or operators, in the disposal of, or to produce,
store, handle, treat, release, or transport, any hazardous waste or hazardous
substance other than in accordance with applicable law; to the best of
Borrower’s knowledge, none of Borrower’s properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by Borrower or any Subsidiary; and
neither Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal, state
or other governmental agency concerning any action or omission by Borrower or
any Subsidiary resulting in the releasing, or otherwise disposing of hazardous
waste or hazardous substances into the environment.

 

5.9 Taxes. Borrower and each Subsidiary have filed or caused to be filed all tax
returns required to be filed, and have paid, or have made adequate provision for
the payment of, all taxes reflected therein.

 

5.10 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.

 

5.11 Government Consents. Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower’s business as currently conducted, the
failure to obtain which could have a Material Adverse Effect.

 

5.12 Investment Accounts. Not more than sixty-five percent (65%) of Borrower’s
Investments are maintained or invested with a Person other than Bank or Bank’s
Affiliates.

 

5.13 Full Disclosure. No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained in such certificates or statements not
misleading.

 

6. AFFIRMATIVE COVENANTS.

 

Borrower covenants and agrees that, until payment in full of all outstanding
Obligations, other than contingent indemnity obligations under Section 12.2 of
this Agreement, and for so long as Bank may have any commitment to make a Credit
Extension hereunder, Borrower shall do all of the following:

 

6.1 Good Standing. Borrower shall maintain its and each of its Subsidiaries’
corporate existence in its jurisdiction of incorporation and maintain
qualification in each jurisdiction in which the failure to so qualify could have
a Material Adverse Effect. Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, in force all licenses, approvals and agreements, the
loss of which could have a Material Adverse Effect.

 

6.2 Government Compliance. Borrower shall meet, and shall cause each Subsidiary
to meet, the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect.

 

6.3 Financial Statements, Reports, Certificates. Borrower shall deliver the
following to Bank: (a) as soon as available, but in any event within forty-five
(45) days after the end of each fiscal quarter a company prepared consolidated
and consolidating balance sheet, income, and cash flow statement covering
Borrower’s consolidated and consolidating operations during such period,
prepared in accordance with GAAP, consistently applied, in a form acceptable to
Bank and certified by a Responsible Officer; (b) as soon as available, but in
any event within ninety (90) days after the end of Borrower’s fiscal year,
audited consolidated and consolidating financial statements of Borrower prepared
in accordance with GAAP, consistently applied, together with an unqualified
opinion on such financial statements of an independent certified public
accounting firm reasonably acceptable to Bank; (c) copies of all statements,
reports and notices sent or made available generally by Borrower to its

 

10

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security holders or to any holders of Subordinated Debt and all reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission; (d) promptly
upon receipt of notice thereof, a report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of One Hundred Fifty Thousand Dollars
($150,000) or more; and (e) such budgets, sales projections, operating plans or
other financial information as Bank may reasonably request from time to time
generally prepared by Borrower in the ordinary course of business.

 

Borrower shall deliver to Bank with the quarterly financial statements and prior
to each Advance a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto.

 

6.4 Inventory; Returns. Borrower shall keep all Inventory in good and marketable
condition, free from all material defects except for Inventory for which
adequate reserves have been made. Returns and allowances, if any, as between
Borrower and its account debtors shall be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. Borrower shall promptly notify Bank of
all returns and recoveries and of all disputes and claims, where the return,
recovery, dispute or claim involves more than One Hundred Thousand Dollars
($100,000).

 

6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make, due and
timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.

 

6.6 Principal Depository. Borrower shall maintain its principal depository and
operating accounts with Bank.

 

6.7 Unrestricted Cash. Borrower shall maintain a balance of unrestricted cash
and cash equivalents (including securities which have a maturity of two years or
less if they are considered “Available for Sale” or “Held-to-Maturity”
Investments” under GAAP and Financial Accounting Standards Board 115) of at
least Twenty-Five Million Dollars ($25,000,000) during each fiscal quarter.

 

6.8 Total Liabilities-Tangible Net Worth. Borrower shall maintain, as of the
last day of each fiscal quarter, a ratio of Total Liabilities less Deferred
Revenue to Tangible Net Worth of not more than 0.50 to 1.00.

 

6.9 [Intentionally Omitted.]

 

6.10 Quarterly Net Loss; Profitability. Borrower shall not suffer a quarterly
net loss in excess of (i) Three Million Dollars ($3,000,000) for the fiscal
quarter ending on December 31, 2003; (ii) Three Million Dollars ($3,000,000) for
the fiscal quarter ending on March 31, 2004; (iii) Two Million Seven Hundred and
Fifty Thousand Dollars ($2,750,000) for the fiscal quarter ending on June 30,
2004; and (iv) Two Million Five Hundred Thousand Dollars ($2,500,000) for the
fiscal quarter ending on September 30, 2004. Borrower shall show a net profit of
at least $1.00 for the fiscal quarter ending on December 31, 2004 and for each
quarter thereafter.

 

6.11 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.

 

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7. NEGATIVE COVENANTS.

 

Borrower covenants and agrees that, so long as any credit hereunder shall be
available and until payment in full of the outstanding Obligations, other than
contingent indemnity obligations under Section 12.2 of this Agreement, or for so
long as Bank may have any commitment to make any Credit Extensions, Borrower
will not do any of the following:

 

7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business; or (iii) Transfers of worn-out or obsolete
Equipment which was not financed by Bank.

 

7.2 Change in Business; Change in Control or Executive Office. Engage in any
business, or permit any of its Subsidiaries to engage in any business, other
than the businesses currently engaged in by Borrower and any business
substantially similar or related thereto (or incidental thereto); or suffer or
permit a Change in Control; or without thirty (30) days prior written
notification to Bank, relocate its chief executive office or state of
incorporation; or without Bank’s prior written consent, change the date on which
its fiscal year ends.

 

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person, provided
mergers and acquisitions may be effected as long as (i) Borrower is the
surviving entity, (ii) neither a Change of Control nor a change in more than one
of the Borrower’s following executive management members: chief executive
officer, chief financial officer or vice president of engineering, occurs in
connection therewith, (iii) the acquisition is of a business substantially
similar to that of Borrower’s as of the Closing Date, (iv) the aggregate cash
consideration paid for any such transactions does not exceed Ten Million Dollars
($10,000,000) during the term of this Agreement and while any Obligations
relating to this Agreement remain outstanding, and (v) an Event of Default does
not exist prior to such transaction or after giving effect thereto.

 

7.4 Indebtedness. Create, incur, assume or be or remain liable with respect to
any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.

 

7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with respect
to any of its property, or assign or otherwise convey any right to receive
income, including the sale of any Accounts, or permit any of its Subsidiaries so
to do, except for Permitted Liens. Agree with any Person other than Bank not to
grant a security interest in, or otherwise encumber, any of its property, or
permit any Subsidiary to do so.

 

7.6 Distributions. Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital stock, or
permit any of its Subsidiaries to do so, except that Borrower may repurchase the
stock of former employees pursuant to stock repurchase agreements as long as an
Event of Default does not exist prior to such repurchase or would not exist
after giving effect to such repurchase.

 

7.7 Investments. Directly or indirectly acquire or own, or make any Investment
in or to any Person, or permit any of its Subsidiaries so to do, other than
Permitted Investments; or maintain or invest more than fifty percent (50%) of
its Investments with a Person other than Bank unless such Person has entered
into a control agreement with Bank, in form and substance satisfactory to Bank;
or suffer or permit any Subsidiary to be a party to, or be bound by, an
agreement that restricts such Subsidiary from paying dividends or otherwise
distributing property to Borrower.

 

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower’s business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated Person.

 

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7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in compliance
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation relating to the Subordinated Debt without Bank’s prior written
consent.

 

7.10 Inventory and Equipment. Store the Inventory or the Equipment, if any, with
a bailee, warehouseman, or similar party unless Bank has received a pledge of
the warehouse receipt covering such Inventory. Except for Inventory, if any,
sold in the ordinary course of business and except for such other locations as
Bank may approve in writing, Borrower shall keep the Inventory and Equipment, if
any, only at the location set forth in Section 10 hereof and such other
locations of which Borrower gives Bank prior written notice. Notwithstanding the
foregoing, Bank acknowledges that Borrower may deliver Inventory from time to
time to customers, customer prospects, and contract manufacturers to hold on a
temporary basis pending sale or return.

 

7.11 Compliance. Become an “investment company” or be controlled by an
“investment company,” within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect, or permit any
of its Subsidiaries to do any of the foregoing.

 

7.12 Negative Pledge Agreements. Permit the inclusion in any contract to which
it becomes a party of any provisions that could restrict or invalidate the
creation of a security interest in Borrower’s rights and interests in any of
Borrower’s property. Borrower shall not enter into any agreement (and will not
permit any Subsidiary to enter any agreement) that prohibits or restricts
Borrower (or any Subsidiary) from encumbering or otherwise disposing of any part
of Borrower’s property.

 

7.13 Capital Expenses. Spend or commit to spend more than Four Million Dollars
($4,000,000) per fiscal year on equipment or other capital improvements.

 

8. EVENTS OF DEFAULT.

 

Any one or more of the following events shall constitute an Event of Default by
Borrower under this Agreement:

 

8.1 Payment Default. If Borrower fails to pay, when due, any principal or
interest hereunder, or fails to pay any other Obligation within thirty (30) days
after notice thereof from Bank;

 

8.2 Covenant Default.

 

(a) If Borrower fails to perform any obligation under Article 6 or violates any
of the covenants contained in Article 7 of this Agreement, or

 

(b) if Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Bank and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after Borrower receives notice thereof or
any officer of Borrower becomes aware thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Credit Extensions will be required to be made
during such cure period);

 

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8.3 Material Adverse Effect. If there occurs any circumstance or circumstances
that could have a Material Adverse Effect;

 

8.4 Attachment. If any material portion of Borrower’s assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower’s assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower’s assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);

 

8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is
commenced by Borrower, or if an Insolvency Proceeding is commenced against
Borrower and is not dismissed or stayed within thirty (30) days (provided that
no Credit Extensions will be made prior to the dismissal of such Insolvency
Proceeding);

 

8.6 Other Agreements. If there is a default or other failure to perform in any
agreement to which Borrower is a party or by which it is bound resulting in a
right by a third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000); or which could have a Material Adverse Effect;

 

8.7 Subordinated Debt. If Borrower makes any payment on account of Subordinated
Debt, except to the extent such payment is allowed under any subordination
agreement entered into with Bank;

 

8.8 Judgments. If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least One Hundred Thousand Dollars
($100,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or

 

8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.

 

9. BANK’S RIGHTS AND REMEDIES.

 

9.1 Rights and Remedies. Upon the occurrence and during the continuance of an
Event of Default, Bank may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:

 

(a) Declare all Obligations, whether evidenced by this Agreement, by any of the
other Loan Documents, or otherwise, immediately due and payable (provided that
upon the occurrence of an Event of Default described in Section 8.5, all
Obligations shall become immediately due and payable without any action by
Bank). With respect to any of Borrower’s owned premises, Borrower hereby grants
Bank a license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Bank’s rights or remedies provided
herein, at law, in equity, or otherwise;

 

(b) Cease advancing money or extending credit to or for the benefit of Borrower
under this Agreement or under any other agreement between Borrower and Bank;

 

(c) Settle or adjust disputes and claims directly with account debtors for
amounts, upon terms and in whatever order that Bank reasonably considers
advisable;

 

14

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(d) set off and apply to the Obligations any and all (i) balances and deposits
of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Bank.

 

9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank’s designated officers, or employees) as Borrower’s true and
lawful attorney to: (a) send requests for verification of Accounts; (b) endorse
Borrower’s name on any checks or other forms of payment or security that may
come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower’s policies of insurance and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable. The appointment of Bank
as Borrower’s attorney in fact, and each and every one of Bank’s rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have and performed and Bank’s obligation to provide Credit
Extensions hereunder is terminated.

 

9.3 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the
Loan Documents, and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on Borrower’s
part shall be deemed a continuing waiver. No delay by Bank shall constitute a
waiver, election, or acquiescence by it. No waiver by Bank shall be effective
unless made in a written document signed on behalf of Bank and then shall be
effective only in the specific instance and for the specific purpose for which
it was given.

 

9.4 Demand; Protest. Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Bank on which Borrower may in any way be liable.

 

10. NOTICES.

 

Unless otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by a recognized overnight delivery
service, certified mail, postage prepaid, return receipt requested, or by
telefacsimile to Borrower or to Bank, as the case may be, at its addresses set
forth below:

 

If to Borrower:

  

LogicVision, Inc.

101 Metro Drive, Third Floor

San Jose, CA 95110

Attn: Bruce Jaffe

FAX: (408) 573-7640

If to Bank:

  

Comerica Bank

Technology & Life Science Division

226 Airport Parkway, Suite 100

San Jose, CA 95110

Attn: Mr. Guy Simpson, AVP

FAX: (408) 451-8568

 

The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.

 

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11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

 

This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

 

12. GENERAL PROVISIONS.

 

12.1 Successors and Assigns. This Agreement shall bind and inure to the benefit
of the respective successors and permitted assigns of each of the parties;
provided, however, that neither this Agreement nor any rights hereunder may be
assigned by Borrower without Bank’s prior written consent, which consent may be
granted or withheld in Bank’s sole discretion. Bank shall have the right without
the consent of or notice to Borrower to sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Bank’s obligations,
rights and benefits hereunder.

 

12.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank
and its officers, employees, and agents against: (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other party in connection
with the transactions contemplated by this Agreement; and (b) all losses or Bank
Expenses in any way suffered, incurred, or paid by Bank as a result of or in any
way arising out of, following, or consequential to transactions between Bank and
Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys’ fees and expenses), except for losses caused by
Bank’s gross negligence or willful misconduct.

 

12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.

 

12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

 

12.5 Amendments in Writing, Integration. Neither this Agreement nor the Loan
Documents can be amended or terminated orally. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Agreement and the Loan
Documents, if any, are merged into this Agreement and the Loan Documents.

 

12.6 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement.

 

12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.

 

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12.8 Effect of Amendment and Restatement. This Agreement is intended to and does
completely amend and restate the Original Loan Documents. Nothing contained
herein shall in any way impair the Original Loan Documents now held for the
Obligations, nor affect or impair any rights, powers, or remedies under the
Original Loan Documents, it being the intent of the parties hereto that this
Agreement shall not constitute a novation of the Original Loan Documents or an
accord and satisfaction of the Obligations.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

 

LOGICVISION, INC.

By:

 

/s/    BRUCE M. JAFFE        

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Title:   Chief Financial Officer COMERICA BANK

By:

 

/s/    GUY SIMPSON        

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Title:   Vice President

 

17

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EXHIBIT A

 

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

 

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING FOR
ADVANCES IS 3:00 P.M., PACIFIC TIME (1:00 P.M., PACIFIC TIME FOR WIRE
TRANSFERS).

TO:             [                    ]

   DATE:                     

FAX #: [                    ]

   TIME:                     

 

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FROM: LogicVision, Inc.

    

CLIENT NAME: LogicVision, Inc.

    

REQUESTED BY:                                         
                                        
                                        
                                                     

    

AUTHORIZED SIGNER’S NAME

    

AUTHORIZED SIGNATURE:                                         
                                        
                                                                      

    

PHONE NUMBER:                                         
                                        
                                        
                                                   

    

FROM ACCOUNT #                                                               

   TO ACCOUNT #                                         
                                REQUESTED TRANSACTION TYPE    REQUEST DOLLAR
AMOUNT           $                                      
                                                                   

PRINCIPAL INCREASE (ADVANCE)

   $                                      
                                                                   

PRINCIPAL PAYMENT (ONLY)

   $                                      
                                                                   

INTEREST PAYMENT (ONLY)

   $                                      
                                                                   

PRINCIPAL AND INTEREST (PAYMENT)

   $                                      
                                                                   

OTHER INSTRUCTIONS:                                         
                                        
                                                                             

    

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     All representations and warranties of Borrower stated in the Second Amended
and Restated Loan Agreement are true, correct and complete in all material
respects as of the date of the telephone request for an Advance confirmed by
this Loan Payment/Advance Telephone Request Form; provided, however, that those
representations and warranties expressly referring to another date shall be
true, correct and complete in all material respects as of such date.     

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BANK USE ONLY

          TELEPHONE REQUEST:           The following person is authorized to
request the loan payment transfer/loan advance on the advance designated account
and is known to me.     

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Authorized Requester

  

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Phone #

  

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Received By (Bank)

  

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Phone #

  

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Authorized Signature (Bank)

         

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EXHIBIT B

 

AMENDED AND RESTATED

REVOLVING PROMISSORY NOTE

 

$5,000,000

   Menlo Park, California      February 9, 2004

 

LOGICVISION, INC. (“Borrower”), for value received, hereby promises to pay to
the order of Comerica Bank (“Bank”), in lawful money of the United States of
America, pursuant to that certain Second Amended and Restated Loan Agreement
dated as of February 9, 2004, by and between Borrower and Bank (the “Loan
Agreement”), (i) the principal amount of $5,000,000 or, if different, (ii) the
principal amount of the Advances (the “Advances”) outstanding as of the
Revolving Maturity Date. All unpaid amounts of principal and interest shall be
due and payable in full on the Revolving Maturity Date.

 

This Note is referred to in the Loan Agreement. All terms defined in the Loan
Agreement shall have the same definitions when used herein, unless otherwise
defined herein.

 

Borrower further promises to pay interest on each Advance hereunder in like
funds on the principal amount hereof from time to time outstanding from the date
hereof until paid in full, at a rate or rates per annum and payable on the dates
determined pursuant to the Loan Agreement.

 

Payment on this Note shall be applied in the manner set forth in the Loan
Agreement. The Loan Agreement contains provisions for acceleration of the
maturity of Advances hereunder upon the occurrence of certain stated events and
also provides for optional and mandatory prepayments of principal hereof prior
to any stated maturity upon the terms and conditions therein specified.

 

All Advances made by Bank to Borrower pursuant to the Loan Agreement shall be
recorded by Bank on the books and records of Bank. The failure of Bank to record
any Advance or any prepayment or payment made on account of the principal
balance hereof shall not limit or otherwise affect the obligation of Borrower
under this Note and under the Loan Agreement to pay the principal, interest and
other amounts due and payable under the Advances.

 

Any principal or interest payments on this Note not paid when due, whether at
stated maturity, by acceleration or otherwise, shall bear interest at the
Default Rate.

 

Upon the occurrence of a default hereunder or an Event of Default under the Loan
Agreement, all unpaid principal, accrued interest and other amounts owing
hereunder shall, at the option of Bank, be immediately collectible by or on
behalf of Bank pursuant to the Loan Agreement and applicable law.

 

Borrower waives presentment and demand for payment, notice of dishonor, protest
and notice of protest of this Note, and shall pay all costs of collection when
incurred, including reasonable attorneys’ fees, costs and expenses. The right to
plead any and all statutes of limitations as a defense to any demand hereunder
is hereby waived to the full extent permitted by law.

 

This Note is unsecured.

 

This Note shall be governed by, and construed and enforced in accordance with,
the laws of the State of California, excluding conflict of laws principles that
would cause the application of the laws of any other jurisdiction.

 

The provisions of this Note shall inure to the benefit of and be binding upon
any successor to Borrower and shall extend to any holder hereof.

 

1

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This Note amends, re-evidences, restates, and supersedes in full, but does not
in any way satisfy or discharge, the outstanding indebtedness owed under that
certain Revolving Promissory Note dated December 19, 2001 in the original
principal amount of Five Million Dollars ($5,000,000) made by Borrower in favor
of Bank.

 

LOGICVISION, INC.

By:

 

/s/    BRUCE M. JAFFE        

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Print Name:   Bruce M. Jaffe Title:   Chief Financial Officer

 

2

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EXHIBIT C

 

COMPLIANCE CERTIFICATE

 

TO:  COMERICA BANK

 

FROM:  LogicVision, Inc.

 

The undersigned authorized officer of LogicVision, Inc. hereby certifies that in
accordance with the terms and conditions of the Second Amended and Restated Loan
Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in
complete compliance for the period ending                              with all
required covenants except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenant

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Required

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   Complies

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Company prepared financial statements (Consolidated and Consolidating)

   Quarterly within 45 days    Yes      No

Annual
(CPA Audited; Consolidated and Consolidating)

   FYE within 90 days    Yes      No

10K and 10Q

  

On the date of delivery to the Securities Exchange Commission

   Yes      No

Financial Covenant

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Required

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Actual

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   Complies

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Maintain on a Quarterly Basis:

                     

Minimum Unrestricted Cash

   $25,000,000    $                Yes      No

Total Liabilities / Tangible Net Worth

   0.50 : 1.00            : 1.00    Yes      No

Net Loss; Profitability

   *    $                Yes      No

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* Borrower shall not suffer a quarterly net loss in excess of (i) Three Million
Dollars ($3,000,000) for the fiscal quarter ending on December 31, 2003; (ii)
Three Million Dollars ($3,000,000) for the fiscal quarter ending on March 31,
2004; (iii) Two Million Seven Hundred and Fifty Thousand Dollars ($2,750,000)
for the fiscal quarter ending on June 30, 2004; and (iv) Two Million Five
Hundred Thousand Dollars ($2,500,000) for the fiscal quarter ending on September
30, 2004. Borrower shall show a net profit of at least $1.00 for the fiscal
quarter ending on December 31, 2004 and for each quarter thereafter.

 

       

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Comments Regarding Exceptions: See Attached.

       BANK USE ONLY          Received by:
                                                                               

Sincerely,

       AUTHORIZED SIGNER          Date:                                         
                                                     

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       Verified:                                         
                                              

SIGNATURE

       AUTHORIZED SIGNER

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       Date:                                         
                                                     

TITLE

        

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       Compliance Status                             Yes        No         

DATE

                

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