EXHIBIT 10.1

Execution Version

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the Effective
Date among SILICON VALLEY BANK, a California corporation (“Bank”), SUNRISE
TELECOM INCORPORATED, a Delaware corporation (“Parent”), and SUNRISE TELECOM
BROADBAND INC., a Georgia corporation (“Broadband”) (each of Parent and
Broadband may be referred to as a “Borrower” and together, “Borrowers”),
provides the terms on which Bank shall lend to Borrowers and Borrowers shall
repay Bank. The parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.

2 LOAN AND TERMS OF PAYMENT

2.1 Promise to Pay. Each Borrower, jointly and severally, hereby unconditionally
promises to pay Bank the outstanding principal amount of all Credit Extensions
and accrued and unpaid interest thereon as and when due in accordance with this
Agreement.

2.1.1 Revolving Advances.

(a) Availability. Subject to the terms and conditions of this Agreement, Bank
shall make Advances not exceeding the Availability Amount. Amounts borrowed
under the Revolving Line may be repaid and, prior to the Revolving Line Maturity
Date, reborrowed, subject to the applicable terms and conditions precedent
herein.

(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest
thereon, and all other Obligations relating to the Revolving Line shall be
immediately due and payable. The Revolving Line may be prepaid, in whole or in
part, at any time without penalty.

2.1.2 Letters of Credit Sublimit.

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of
Credit for Borrowers’ account. The face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed the Availability Amount. Such aggregate amounts utilized
hereunder shall at all times reduce the amount otherwise available for Advances
under the Revolving Line. If, on the Revolving Maturity Date, there are any
outstanding Letters of Credit, then on such date Borrowers shall provide to Bank
cash collateral in an amount equal to 105% of the face amount of all such
Letters of Credit plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business judgment),
to secure all of the Obligations relating to said Letters of Credit. 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 standard
Application and Letter of Credit Agreement (the “Letter of Credit Application”).
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request.

(b) The obligation of Borrowers to immediately 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, such
Letters of Credit, and the Letter of Credit Application.

(c) Borrowers may request that Bank issue a Letter of Credit payable in a
Foreign Currency. If a demand for payment is made under any such Letter of
Credit, Bank shall treat such demand as an Advance to Borrowers of the
equivalent of the amount thereof (plus fees and charges in connection therewith
such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing
rate of exchange in San Francisco, California, for sales of the Foreign Currency
for transfer to the country issuing such Foreign Currency.

--------------------------------------------------------------------------------

(d) To guard against fluctuations in currency exchange rates, upon the issuance
of any Letter of Credit payable in a Foreign Currency, Bank shall create a
reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount
equal to ten percent (10%) of the face amount of such Letter of Credit. The
amount of the Letter of Credit Reserve may be adjusted by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Revolving Line shall be reduced by the amount of such Letter of Credit
Reserve for as long as such Letter of Credit remains outstanding.

2.1.3 Foreign Exchange Sublimit. As part of the Revolving Line, Borrowers may
enter into foreign exchange contracts with Bank under which a Borrower commits
to purchase from or sell to Bank a specific amount of Foreign Currency (each, a
“FX Forward Contract”) on a specified date (the “Settlement Date”). FX Forward
Contracts shall have a Settlement Date of at least one (1) FX Business Day after
the contract date and shall be subject to a reserve of ten percent (10%) of each
outstanding FX Forward Contract in a maximum aggregate amount equal to
$1,000,000 (the “FX Reserve”). The aggregate amount of FX Forward Contracts at
any one time may not exceed ten (10) times the amount of the FX Reserve. The
obligations of Borrowers relating to this section may not exceed the
Availability Amount.

2.1.4 Cash Management Services Sublimit. Borrowers may use up to the
Availability Amount (the “Cash Management Services Sublimit”) for Bank’s cash
management services which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in Bank’s
various cash management services agreements (collectively, the “Cash Management
Services”). Any amounts Bank pays on behalf of Borrowers or any amounts that are
not paid by Borrowers for any Cash Management Services will be treated as
Advances under the Revolving Line and will accrue interest at the interest rate
applicable to Advances.

2.2 Overadvances. If, at any time, the Credit Extensions under Sections 2.1.1 ,
2.1.2, 2.1.3 and 2.1.4 exceed the lesser of either (a) the Revolving Line or
(b) the Borrowing Base, Borrowers shall immediately pay to Bank in cash such
excess.

2.3 Payment of Interest on the Credit Extensions.

(a) Interest Rate.

(i) Advances. Subject to Section 2.3(b), the principal amount outstanding under
the Revolving Line shall accrue interest at a floating per annum rate equal to
the Prime Rate, which interest shall be payable monthly in accordance with
Section 2.3(f) below.

(b) Default Rate. Immediately upon the occurrence and during the continuance of
an Event of Default, Obligations shall bear interest at a rate per annum which
is five percentage points above the rate effective immediately before the Event
of Default (the “Default Rate”). Payment or acceptance of the increased interest
rate provided in this Section 2.3(b) is not a permitted alternative to timely
payment and shall not constitute a waiver of any Event of Default or otherwise
prejudice or limit any rights or remedies of Bank.

(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit
Extension based on changes to the Prime Rate shall be effective on the effective
date of any change to the Prime Rate and to the extent of any such change.

(d) 360-Day Year. Interest shall be computed on the basis of a 360-day year for
the actual number of days elapsed.

(e) Debit of Accounts. Bank may debit any of any Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments or
any other amounts any Borrower owes Bank when due. These debits shall not
constitute a set-off.

(f) Payments. Unless otherwise provided, interest is payable monthly on the
first calendar day of each month. Payments of principal and/or interest received
after 12:00 p.m. Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest,
as applicable, shall continue to accrue.

 

-2-

--------------------------------------------------------------------------------

2.4 Fees. Borrowers shall pay to Bank:

(a) Commitment Fee. A fully earned, non-refundable commitment fee of $30,000, on
the Effective Date;

(b) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit;

(c) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving Line
Facility Fee”), payable monthly, in arrears, on a calendar year basis, in an
amount equal to one-quarter percent 0.25%) per annum of the average unused
portion of the Revolving Line, as determined by Bank. Borrowers shall not be
entitled to any credit, rebate or repayment of any Unused Revolving Line
Facility Fee previously earned by Bank pursuant to this Section notwithstanding
any termination of the Agreement or the suspension or termination of Bank’s
obligation to make loans and advances hereunder; and

(d) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses, plus expenses, for documentation and negotiation of this Agreement)
incurred through and after the Effective Date, when due.

3 CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to make
the initial Credit Extension is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, such documents,
and completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation:

(a) Borrowers shall have delivered duly executed original signatures to the Loan
Documents to which it is a party;

(b) Borrowers shall have delivered duly executed original signatures to the
Control Agreements;

(c) Borrowers shall have delivered its Operating Documents and good standing
certificates of (i) Parent certified by the Secretary of State of the States of
Delaware and California; and (ii) Broadband certified by the Secretary of State
of the State of Georgia as of a date no earlier than thirty (30) days prior to
the Effective Date;

(d) Borrowers shall have delivered duly executed original signatures to the
completed Borrowing Resolutions for each Borrower;

(e) Bank shall have received certified copies, dated as of a recent date, of
financing statement searches, as Bank shall request, accompanied by written
evidence (including any UCC termination statements) that the Liens indicated in
any such financing statements either constitute Permitted Liens or have been or,
in connection with the initial Credit Extension, will be terminated or released;

(f) Borrowers shall each have delivered a Perfection Certificate;

(g) Borrowers shall have delivered evidence satisfactory to Bank that the
insurance policies required by Section 6.5 hereof are in full force and effect,
together with appropriate evidence showing loss payable and/or additional
insured clauses or endorsements in favor of Bank; and

(h) Borrowers shall have paid the fees and Bank Expenses then due as specified
in Section 2.4 hereof.

3.2 Conditions Precedent to all Credit Extensions. Bank’s obligation to make
each Credit Extension, including the initial Credit Extension, is subject to the
following:

(a) except as otherwise provided in Section 3.4(a), timely receipt of an
executed Payment/Advance Form;

 

-3-

--------------------------------------------------------------------------------

(b) the representations and warranties in Section 5 shall be true in all
material respects on the date of the Payment/Advance Form and on the Funding
Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Default or Event of Default shall have occurred and be
continuing or result from the Credit Extension. Each Credit Extension is each
Borrower’s representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects; provided, however,
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and

(c) in Bank’s sole discretion, which discretion shall be reasonable, there has
not been a Material Adverse Change.

3.3 Covenant to Deliver.

Each Borrower agrees to deliver to Bank each item required to be delivered to
Bank under this Agreement as a condition to any Credit Extension. Each Borrower
expressly agrees that the extension of a Credit Extension prior to the receipt
by Bank of any such item shall not constitute a waiver by Bank of such
Borrower’s obligation to deliver such item, and any such extension in the
absence of a required item shall be in Bank’s sole discretion.

3.4 Procedures for Borrowing.

(a) Advances. Subject to the prior satisfaction of all other applicable
conditions to the making of an Advance set forth in this Agreement, to obtain an
Advance, Borrowers shall notify Bank (which notice shall be irrevocable) by
electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the
Funding Date of the Advance. Together with any such electronic or facsimile
notification, Borrowers shall deliver to Bank by electronic mail or facsimile a
completed Payment/Advance Form executed by a Responsible Officer or his or her
designee. Bank may rely on any telephone notice given by a person whom Bank
believes is a Responsible Officer or designee. Bank shall credit Advances to the
Designated Deposit Account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest. Each Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.
Each Borrower represents, warrants, and covenants that the security interest
granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral (subject only to Permitted Liens
that may have superior priority to Bank’s Lien under this Agreement). If any
Borrower shall acquire a commercial tort claim, such Borrower shall promptly
notify Bank in a writing signed by such Borrower of the general details thereof
and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance reasonably satisfactory to Bank.

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash. Upon payment in full in cash of the Obligations and at such time
as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at
Borrowers’ sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrowers.

4.2 Authorization to File Financing Statements. Each Borrower hereby authorizes
Bank to file financing statements, without notice to Borrowers, with all
appropriate jurisdictions to perfect or protect Bank’s interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrowers or any other Person, shall be deemed to violate the rights of Bank
under the Code.

 

-4-

--------------------------------------------------------------------------------

5 REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants as follows:

5.1 Due Organization and Authorization. Borrower and each of its Subsidiaries
are duly existing and in good standing as Registered Organizations in their
respective jurisdictions of formation and are qualified and licensed to do
business and are in good standing in any jurisdiction in which the conduct of
their business or their ownership of property requires that they be qualified
except where the failure to do so could not reasonably be expected to have a
material adverse effect on Borrower’s business. In connection with this
Agreement, Borrower has delivered to Bank a completed certificate signed by
Borrower entitled “Collateral Information Certificate” (the “Perfection
Certificate”). Borrower represents and warrants to Bank that (a) Borrower’s
exact legal name is that indicated on the Perfection Certificate and on the
signature page hereof; (b) Borrower is an organization of the type and is
organized in the jurisdiction set forth in the Perfection Certificate; (c) the
Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or,
if more than one, its chief executive office as well as Borrower’s mailing
address (if different than its chief executive office); (e) Borrower (and each
of its predecessors) has not, in the past five (5) years, changed its
jurisdiction of formation, organizational structure or type, or any
organizational number assigned by its jurisdiction; and (f) all other
information set forth on the Perfection Certificate pertaining to Borrower and
each of its Subsidiaries is accurate and complete. If Borrower is not now a
Registered Organization but later becomes one, Borrower shall promptly notify
Bank of such occurrence and provide Bank with Borrower’s organizational
identification number.

The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s Operating Documents, nor
constitute an event of default under any material agreement 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 in which the default could reasonably be expected to have a
material adverse effect on Borrower’s business.

5.2 Collateral. Borrower has good title to, has rights in, and the power to
transfer each item of the Collateral in which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens. Borrower
has no deposit accounts other than the deposit accounts with Bank, the deposit
accounts, if any, described in the Perfection Certificate delivered to Bank in
connection herewith, or of which Borrower has given Bank notice and taken such
actions as are necessary to give Bank a perfected security interest therein.

The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as Borrower has given Bank notice
pursuant to Section 7.2; provided, however, the foregoing restriction with
respect to the location of Collateral shall not apply to (i) portable items of
Equipment (e.g. laptop computers and the like) that at any time may be in
possession of Borrower’s employees and may be relocated in the ordinary course
of Borrower’s business; or (ii) any other item of Equipment (e.g. demonstration
equipment at sales offices of Borrower and its Subsidiaries, with sales
representatives or at customer locations) that at any time may be located by
Borrower in the ordinary course of its business at a location other than
Borrower’s place of business specified in the Perfection Certificate. In the
event that Borrower, after the date hereof, intends to store or otherwise
deliver any portion of the Collateral to a bailee, then Borrower will first
receive the written consent of Bank and such bailee must execute and deliver a
bailee agreement in form and substance satisfactory to Bank in its sole
discretion.

Borrower is the sole owner of its intellectual property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each patent is valid and enforceable, and no part of the intellectual
property has been judged invalid or unenforceable, in whole or in part, and to
the best of Borrower’s knowledge, no claim has been made that any part of the
intellectual property violates the rights of any third party except to the
extent such claim could not reasonably be expected to have a material adverse
effect on Borrower’s business. Except as noted on the Perfection Certificate,
Borrower is not a party to, nor is bound by, any material license or other
agreement with respect to which Borrower is the licensee that prohibits or
otherwise restricts Borrower from granting a security interest in Borrower’s
interest in such license or agreement or any other property.

5.3 Accounts Receivable. For any Account in any Borrowing Base Certificate, all
statements made and all unpaid balances appearing in all invoices, instruments
and other documents evidencing such Accounts are and shall be true and correct
and all such invoices, instruments and other documents, and all of Borrower's
Books

 

-5-

--------------------------------------------------------------------------------

are genuine and in all respects what they purport to be. All sales and other
transactions underlying or giving rise to each Eligible Account shall comply in
all material respects with all applicable laws and governmental rules and
regulations. Borrower has no knowledge of any actual or imminent Insolvency
Proceeding of any Account Debtor whose accounts are an Eligible Account in any
Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures
and endorsements on all documents, instruments, and agreements relating to all
Eligible Accounts are genuine, and all such documents, instruments and
agreements are legally enforceable in accordance with their terms.

5.4 Litigation. Except as set forth on Schedule 5.4 hereto, there are no actions
or proceedings pending or, to the knowledge of the Responsible Officers,
threatened in writing by or against Borrower or any of its Subsidiaries
involving more than $500,000.

5.5 No Material Deviation in Financial Statements. Except as set forth on
Schedule 5.5 hereto, all consolidated financial statements for Borrower and any
of its Subsidiaries delivered to Bank fairly present in all material respects
Borrower’s consolidated financial condition and Borrower’s consolidated results
of operations. There has not been any material deterioration in Borrower’s
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

5.6 Solvency. The fair salable value of Borrower’s assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.7 Regulatory Compliance. Borrower is not an “investment company” or a company
“controlled” by an “investment company” under the Investment Company Act.
Borrower is not engaged as one of its important activities in extending credit
for margin stock (under Regulations T and U of the Federal Reserve Board of
Governors). Borrower has complied in all material respects with the Federal Fair
Labor Standards Act. Borrower has not violated any laws, ordinances or rules,
the violation of which could reasonably be expected to have a material adverse
effect on its business. None of Borrower’s or any of its Subsidiaries’
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Except as
set forth on Schedule 5.7 hereto, Borrower and each of its Subsidiaries have
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted.

5.8 Subsidiaries; Investments. Except as set forth on Schedule 5.8 hereto,
Borrower does not own any stock, partnership interest or other equity securities
except for Permitted Investments.

5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower. Borrower may defer payment of any contested taxes, provided that
Borrower (a) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(b) notifies Bank in writing of the commencement of, and any material
development in, the proceedings, (c) posts bonds or takes any other steps
required to prevent the governmental authority levying such contested taxes from
obtaining a Lien upon any of the Collateral that is other than a “Permitted
Lien”. Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid all amounts necessary to fund all
present pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not withdrawn from participation in, and has
not permitted partial or complete termination of, or permitted the occurrence of
any other event with respect to, any such plan which could reasonably be
expected to result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or its successors or any other governmental
agency.

5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions
solely as working capital and to fund its general business requirements and not
for personal, family, household or agricultural purposes.

 

-6-

--------------------------------------------------------------------------------

5.11 Designation of Indebtedness under this Agreement as Senior Indebtedness.

All principal of, interest (including all interest accruing after the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding), and all
fees, costs, expenses and other amounts accrued or due under this Agreement
shall constitute “Designated Senior Indebtedness” under the terms of any
indenture.

5.12 Full Disclosure. No written representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank, as of the date
such representations, warranties, or other statements were made, taken together
with all such written certificates and written statements given to Bank,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that the projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).

6 AFFIRMATIVE COVENANTS

Each Borrower shall do all of the following:

6.1 Government Compliance. Borrower shall, and shall cause each of its
Subsidiaries to, maintain its legal existence and good standing in its
jurisdiction of formation and each jurisdiction in which the nature of its
business requires them to be so qualified, except where the failure to take such
action would not reasonably be expected to have a material adverse effect on
Borrower’s and its Subsidiaries’ business or operations, taken as a whole;
provided, that (a) the legal existence of any Subsidiary that is not a Guarantor
may be terminated or permitted to lapse, and any qualification of such
Subsidiary to do business may be terminated or permitted to lapse, if, in the
good faith judgment of Borrower, such termination or lapse is in the best
interests of Borrower and its Subsidiaries, taken as a whole, and (b) Borrower
may not permit its qualification to do business in the jurisdiction of its chief
executive office to terminate or lapse; and provided, further, that this
Section 6.2 shall not be construed to prohibit any other transaction that is
otherwise permitted in Section 7 of this Agreement.

Borrower shall comply, and shall have each Subsidiary comply, with all laws,
ordinances and regulations to which it is subject, noncompliance with which
could have a material adverse effect on Borrower’s business

6.2 Financial Statements, Reports, Certificates.

(a) Deliver to Bank: (i) as soon as available, but no later than the earlier of
(A) five (5) days after filing with the Securities Exchange Commission (“SEC”)
or (B) 50 days after each fiscal quarter or 90 days after each fiscal year end,
the Borrower’s 10K, 10Q, and 8K reports; (ii) a Compliance Certificate together
with delivery of the 10K and 10Q reports; (iii) within 45 days after the end of
each fiscal year, annual financial projections for the following fiscal year (on
a quarterly basis) as approved by Borrower’s board of directors, together with
any related business forecasts used in the preparation of such annual financial
projections; (iv) a prompt report of any legal actions pending or threatened
against Borrower or any Subsidiary that could reasonably be expected to result
in damages or costs to Borrower or any Subsidiary of $1,000,000 or more; and
(v) budgets, sales projections, operating plans or other financial information
Bank reasonably requests. Notwithstanding anything contained in this
Section 6.2(a), until such time as Borrowers are current with their SEC filings,
Borrowers shall deliver to Bank in substitution of its timely 10K and 10Q
reports, not later than forty-five (45) days after the end of each fiscal
quarter, a company-prepared consolidated balance sheet and income statement
covering Parent’s and each of its Subsidiaries operations during the period
certified by a Responsible Officer and in a form acceptable to Bank, and
accompanied by a Compliance Certificate.

Borrower’s 10K, 10Q, and 8K reports required to be delivered pursuant to
Section 6.2(a)(i) shall be deemed to have been delivered on the date on which
Borrower posts such report or provides a link thereto on Borrower’s or another
website on the Internet; provided, that Borrower shall provide paper copies to
Bank of the Compliance Certificates required by Section 6.2(a)(ii).

(b) Within 45 days after the last day of each month, Borrower will deliver to
Bank a cash balance report, including account statements detailing cash
management, types of investments held and maturity dates.

 

-7-

--------------------------------------------------------------------------------

(c) Within forty-five (45) days after the last day of any month in which any
Advances, or any other Credit Extensions hereunder in excess of $500,000, are
outstanding, deliver to Bank a duly completed Borrowing Base Certificate signed
by a Responsible Officer, with (i) aged listings of accounts receivable and
accounts payable (by invoice date) and (ii) a Deferred Revenue report. In each
other month, Borrower shall deliver to Bank aged listings of accounts receivable
and accounts payable (by invoice date) within forty-five (45) days after the
last day of such month.

6.3 Inspections and Audits. Allow Bank to audit Borrower’s Collateral at
Borrower’s expense. Following an initial audit, to be completed within
forty-five (45) days after the Effective Date, such audits shall be conducted no
more often than once every year unless a Default or an Event of Default has
occurred and is continuing.

6.4 Taxes; Pensions. Make, and cause each of its Subsidiaries to make, timely
payment of all foreign, federal, state, and local taxes or assessments (other
than taxes and assessments which Borrower is contesting pursuant to the terms of
Section 5.9 hereof) and shall deliver to Bank, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms.

6.5 Insurance. Keep its business and the Collateral insured for risks and in
amounts standard for companies in Borrower’s industry and location and as Bank
may reasonably request. Insurance policies shall be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies shall have a
loss payable endorsement showing Bank as an additional loss payee and waive
subrogation against Bank, and all liability policies shall show, or have
endorsements showing, Bank as an additional insured. All policies (or the loss
payable and additional insured endorsements) shall provide that the insurer must
give Bank at least twenty (20) days notice before canceling, amending, or
declining to renew its policy. At Bank’s request, Borrower shall deliver
certified copies of policies and evidence of all premium payments. If Borrower
fails to obtain insurance as required under this Section 6.5 or to pay any
amount or furnish any required proof of payment to third persons and Bank, Bank
may make all or part of such payment or obtain such insurance policies required
in this Section 6.5, and take any action under the policies Bank deems prudent.

6.6 Operating Accounts.

(a) Maintain a depository account with Bank or Bank’s affiliates.

(b) In addition, for each Collateral Account that Borrower at any time
maintains, Borrower shall cause the applicable bank or financial institution
(other than Bank) at or with which any Collateral Account is maintained to
execute and deliver a Control Agreement or other appropriate instrument with
respect to such Collateral Account to perfect Bank’s Lien in such Collateral
Account in accordance with the terms hereunder. The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the benefit
of Borrower’s employees and identified to Bank by Borrower as such.

6.7 Financial Covenants.

Borrower shall maintain at all times, to be tested as of the last day of each
quarter, unless otherwise noted, on a consolidated basis with respect to
Borrower and its Subsidiaries:

(a) Quick Ratio. A ratio of Quick Assets to Current Liabilities minus Deferred
Revenue of at least 1.0 to 1.0.

(b) Tangible Net Worth. A Tangible Net Worth of at least $57,000,000, increasing
by 50% of quarterly Net Income and 50% of issuances of equity after the
Effective Date and the principal amount of Subordinated Debt.

6.8 Protection of Intellectual Property Rights. Borrower shall: (a) protect,
defend and maintain the validity and enforceability of its intellectual
property; (b) promptly advise Bank in writing of material infringements of its
intellectual property; and (c) not allow any intellectual property material to
Borrower’s business to be abandoned, forfeited or dedicated to the public
without Bank’s written consent.

 

-8-

--------------------------------------------------------------------------------

6.9 Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Bank may deem them reasonably necessary to prosecute
or defend any third-party suit or proceeding instituted by or against Bank with
respect to any Collateral or relating to Borrower.

6.10 Designated Senior Indebtedness. Borrower shall designate all principal of,
interest (including all interest accruing after the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding), and all fees, costs,
expenses and other amounts accrued or due under this Agreement as “Designated
Senior Indebtedness”, or such similar term, in any future Subordinated Debt
incurred by Borrower after the date hereof, if such Subordinated Debt contains
such term or similar term and if the effect of such designation is to grant to
Bank the same or similar rights as granted to Bank as a holder of “Designated
Senior Indebtedness” under such Indebtedness.

6.11 Further Assurances. Borrower shall execute any further instruments and take
further action as Bank reasonably requests to perfect or continue Bank’s Lien in
the Collateral or to effect the purposes of this Agreement.

7 NEGATIVE COVENANTS

No Borrower shall do any of the following without Bank’s prior written consent,
which consent shall not be unreasonably withheld:

7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively “Transfer”), or permit any of its Subsidiaries to Transfer, all or
any part of its business or property, except for:

(a) Transfers in the ordinary course of business for reasonably equivalent
consideration;

(b) Transfers to a Borrower or any of its Subsidiaries from a Borrower or any of
its Subsidiaries;

(c) Transfers of property for fair market value;

(d) Transfers of property in connection with sale-leaseback transactions;

(e) Transfers of property to the extent such property is exchanged for credit
against, or proceeds are promptly applied to, the purchase price of other
property used or useful in the business of Borrower or its Subsidiaries;

(f) Transfers constituting non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business and other non-perpetual licenses that may be exclusive in some
respects other than territory (and/or that may be exclusive as to territory only
in discreet geographical areas outside of the United States), but that could not
result in a legal transfer of Borrower’s title in the licensed property;

(g) Transfers otherwise permitted by the Loan Documents;

(h) sales or discounting of delinquent accounts in the ordinary course of
business;

(i) Transfers associated with the making or disposition of a Permitted
Investment;

(j) Transfers in connection with a permitted acquisition of a portion of the
assets or rights acquired;

(k) Transfers associated with the granting of Permitted Liens; and

(l) Transfers not otherwise permitted in this Section 7.1, provided, that the
aggregate book value of all such Transfers by Borrower and its Subsidiaries,
together, shall not exceed $500,000 in any fiscal year.

 

-9-

--------------------------------------------------------------------------------

7.2 Changes in Business; Change in Control; Jurisdiction of Formation.

Engage in any material line of business other than those lines of business
conducted by Borrower and its Subsidiaries on the date hereof and any businesses
reasonably related, complementary or incidental thereto or reasonable extensions
thereof; permit or suffer any Change in Control. Borrower will not, without
prior written notice, change its jurisdiction of formation.

7.3 Mergers or Acquisitions.

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with any Person other than with Borrower or any Subsidiary, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of a Person other than Borrower or any Subsidiary,
except where no Event of Default has occurred and is continuing or would result
from such action during the term of this Agreement, and (a) Borrower is the
surviving entity or (b) such merger or consolidation is a Transfer otherwise
permitted pursuant to Section 7.1 hereof.

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

7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, or
assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, permit any Collateral not to be subject to the first priority security
interest granted herein, or enter into any agreement, document, instrument or
other arrangement (except with or in favor of Bank) with any Person which
directly or indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
intellectual property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Lien” herein.

7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except
pursuant to the terms of Section 6.6.(b) hereof.

7.7 Distributions; Investments. (a) Directly or indirectly acquire or own any
Person, or make any Investment in any Person, other than Permitted Investments,
or permit any of its Subsidiaries to do so; or (b) pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock other
than Permitted Distributions.

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower except for
(a) transactions that are in the ordinary course of Borrower’s business, upon
fair and reasonable terms (when viewed in the context of any series of
transactions of which it may be a part, if applicable); or (b) transactions
among Borrower and its Subsidiaries and among Borrower’s Subsidiaries so long as
no Event of Default exists or could result therefrom.

7.9 Subordinated Debt. Make or permit any payment on or amendments of any
Subordinated Debt, except (a) payments pursuant to the terms of the Subordinated
Debt; (b) payments made with Borrower’s capital stock or other Subordinated
Debt; (c) amendments to Subordinated Debt so long as such Subordinated Debt
remains subordinated in right of payment to this Agreement and any Liens
securing such Subordinated Debt remain subordinate in priority to Bank’s Lien
hereunder; or (d) other purchases or payments of Subordinated Debt, provided
that the aggregate amount of such purchases or payments made pursuant to this
clause (d), when combined with all other distributions, dividends or purchases
of Borrower’s capital stock in cash, shall not exceed $500,000 in any fiscal
year, and no Event of Default then exists or could result from such purchases.

7.10 Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock (as defined in Regulation U of the Board of Governors of the Federal
Reserve System), or use the proceeds of any Credit Extension for that 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 other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business, or permit any of its Subsidiaries to

 

-10-

--------------------------------------------------------------------------------

do so; withdraw or permit any Subsidiary to withdraw from participation in,
permit partial or complete termination of, or permit the occurrence of any other
event with respect to, any present pension, profit sharing and deferred
compensation plan which could reasonably be expected to result in any liability
of Borrower, including any liability to the Pension Benefit Guaranty Corporation
or its successors or any other governmental agency.

8 EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

8.1 Payment Default. Borrowers fail to (a) make any payment of principal or
interest on any Credit Extension on its due date, or (b) pay any other
Obligations within three (3) Business Days after such Obligations are due and
payable. During the cure period, the failure to cure the payment default is not
an Event of Default (but no Credit Extension will be made during the cure
period);

8.2 Covenant Default.

(a) Borrowers fail or neglect to perform any obligation in Sections 6.2 (except
as set forth in subsection (b) below), 6.6, 6.7, 6.10, 6.11 or violates any
covenant in Section 7;

(b) Borrowers fail or neglect to perform any obligation in Section 6.2(a)(iii),
6.2(a)(v), 6.2(b) or 6.2(c), or the obligation to deliver company-prepared
quarterly financial statements and the accompanying Compliance Certificate
contained in the last sentence of Section 6.2(a), and has failed to cure such
default within five (5) days after the occurrence thereof; or

(c) Borrowers fail or neglect to perform, keep, or observe any other term,
provision, condition, covenant or agreement contained in this Agreement, any
Loan Documents, and as to any default (other than those specified in Section 8
below) under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure the default within eight (8) Business Days
after the occurrence thereof; provided, however, that if the default cannot by
its nature be cured within the eight (8) Business Day period or cannot after
diligent attempts by Borrowers be cured within such eight (8) Business Day
period, and such default is likely to be cured within a reasonable time, then
Borrowers shall have an additional 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 cure the default shall not be deemed an Event of
Default (but no Credit Extensions shall be made during such cure period). Grace
periods provided under this section shall not apply, among other things, to
financial covenants or any other covenants set forth in subsections (a) or
(b) above;

8.3 Material Adverse Change. A Material Adverse Change occurs;

8.4 Attachment. (a) Any material portion of any Borrower’s assets is attached,
seized, levied on, or comes into possession of a trustee or receiver and the
attachment, seizure or levy is not removed in eight () Business Days; (b) the
service of process upon a Borrower seeking to attach, by trustee or similar
process, any funds of such Borrower on deposit with Bank, or any entity under
control of Bank (including a subsidiary); (c) any Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business; (d) a judgment or other claim in excess of $500,000 becomes a Lien on
any of a Borrower’s assets; or (e) a notice of lien, levy, or assessment is
filed against any of a Borrower’s assets by any government agency and not paid
within eight(8) Business Days after such Borrower receives notice. These are not
Events of Default if stayed or if a bond is posted pending contest by such
Borrower (but no Credit Extensions shall be made during the cure period);

8.5 Insolvency. Any Borrower is unable to pay its debts (including trade debts)
as they become due or otherwise becomes insolvent; (b) any Borrower begins an
Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against any
Borrower and not dismissed or stayed within thirty (30) days (but no Credit
Extensions shall be made while of any of the conditions described in clause
(a) exist and/or until any Insolvency Proceeding is dismissed);

8.6 Other Agreements. If any Borrower fails to (a) make any payment that is due
and payable with respect to any Material Indebtedness and such failure continues
after the applicable grace or notice period, if any, specified in the agreement
or instrument relating thereto, or (b) perform or observe any other condition or
covenant,

 

-11-

--------------------------------------------------------------------------------

or any other event shall occur or condition exist under any agreement or
instrument relating to any Material Indebtedness, and such failure continues
after the applicable grace or notice period, if any, specified in the agreement
or instrument relating thereto and the effect of such failure, event or
condition is to cause the holder or holders of such Material Indebtedness to
accelerate the maturity of such Material Indebtedness or cause the mandatory
repurchase of any Material Indebtedness;

8.7 Judgments. A judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least $1,000,000) (not covered by
independent third-party insurance) shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of ten (10) days after the entry
thereof (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment);

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in any writing delivered to Bank or to induce Bank to enter
this Agreement or any Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made;

8.9 Subordinated Debt. A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination,
intercreditor, or other similar agreement with Bank, or any creditor that has
signed such an agreement with Bank breaches any terms of such agreement; or

8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any
reason to be in full force and effect; (b) any Guarantor does not perform any
obligation or covenant under any guaranty of the Obligations; (c) any
circumstance described in Sections, 8.4, 8.5, 8.7, or 8.8. occurs with respect
to any Guarantor, (d) the liquidation, winding up, or termination of existence
of any Guarantor; or (e) (i) a material impairment in the perfection or priority
of Bank’s Lien in the collateral provided by Guarantor or in the value of such
collateral or (ii) a material adverse change in the general affairs, management,
results of operation, condition (financial or otherwise) or the prospect of
repayment of the Obligations occurs with respect to any Guarantor.

9 BANK’S RIGHTS AND REMEDIES

9.1 Rights and Remedies. Upon the expiration of any cure period, if any, if an
Event of Default occurs and while it continues Bank may, without notice or
demand, do any or all of the following:

(a) declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);

(b) stop advancing money or extending credit for Borrowers’ benefit under this
Agreement or under any other agreement between any Borrower and Bank;

(c) demand that Borrowers (i) deposit cash with Bank in an amount equal to the
aggregate amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrowers shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of any Letters of Credit;

(d) terminate any FX Forward Contracts;

(e) settle or adjust disputes and claims directly with Account Debtors for
amounts on terms and in any order that Bank considers advisable, notify any
Person owing Borrowers money of Bank’s security interest in such funds, and
verify the amount of such account;

(f) make any payments and do any acts it considers necessary or reasonable to
protect the Collateral and/or its security interest in the Collateral. Borrowers
shall assemble the Collateral if Bank requests and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Each Borrower grants Bank a license to
enter and occupy any of its premises, without charge, to exercise any of Bank’s
rights or remedies;

 

-12-

--------------------------------------------------------------------------------

(g) apply to the Obligations any (i) balances and deposits of Borrowers it
holds, or (ii) any amount held by Bank owing to or for the credit or the account
of Borrowers;

(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrowers’ labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank’s exercise of its rights under this Section, Borrowers’
rights under all licenses and all franchise agreements inure to Bank’s benefit;

(i) place a “hold” on any account maintained with Bank and/or deliver a notice
of exclusive control, any entitlement order, or other directions or instructions
pursuant to any Control Agreement or similar agreements providing control of any
Collateral;

(j) demand and receive possession of Borrower’s Books; and

(k) exercise all rights and remedies available to Bank under the Loan Documents
or at law or equity, including all remedies provided under the Code (including
disposal of the Collateral pursuant to the terms thereof).

9.2 Power of Attorney. Each Borrower hereby irrevocably appoints Bank as its
lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, but in no event once Borrower has cured such
Event of Default, to: (a) endorse such Borrower’s name on any checks or other
forms of payment or security; (b) sign such Borrower’s name on any invoice or
bill of lading for any Account or drafts against Account Debtors; (c) settle and
adjust disputes and claims about the Accounts directly with Account Debtors, for
amounts and on terms Bank determines reasonable; (d) make, settle, and adjust
all claims under such Borrower’s insurance policies; (e) pay, contest or settle
any Lien, charge, encumbrance, security interest, and adverse claim in or to the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; and (f) transfer the Collateral into the name
of Bank or a third party as the Code permits. Each Borrower hereby appoints Bank
as its lawful attorney-in-fact to sign such Borrower’s name on any documents
necessary to perfect or continue the perfection of any security interest
regardless of whether an Event of Default has occurred until all Obligations
have been satisfied in full and Bank is under no further obligation to make
Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney
in fact, and all of Bank’s rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.

9.3 Accounts Verification; Collection. Whether or not an Event of Default has
occurred and is continuing, Bank may notify any Person owing a Borrower money of
Bank’s security interest in such funds and verify the amount of such account.
After the occurrence of an Event of Default, any amounts received by Borrowers
shall be held in trust by Borrowers for Bank, and, if requested by Bank,
Borrowers shall immediately deliver such receipts to Bank in the form received
from the Account Debtor, with proper endorsements for deposit.

9.4 Protective Payments. If any Borrower fails to obtain the insurance called
for by Section 6.5 or fails to pay any premium thereon or fails to pay any other
amount which Borrowers are obligated to pay under this Agreement or any other
Loan Document, Bank may obtain such insurance or make such payment, and all
amounts so paid by Bank are Bank Expenses and immediately due and payable,
bearing interest at the then highest applicable rate, and secured by the
Collateral. Bank will make reasonable efforts to provide Borrowers with notice
of Bank obtaining such insurance at the time it is obtained or within a
reasonable time thereafter. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank’s waiver of any Event of Default.

9.5 Application of Payments and Proceeds. Unless an Event of Default has
occurred and is continuing, Bank shall apply any funds in its possession,
whether from Borrowers account balances, payments, or proceeds realized as the
result of any collection of Accounts or other disposition of the Collateral,
first, to Bank Expenses, including without limitation, the reasonable costs,
expenses, liabilities, obligations and attorneys’ fees incurred by Bank in the
exercise of its rights under this Agreement; second, to the interest due upon
any of the Obligations; and third, to the principal of the Obligations and any
applicable fees and other charges, in such order as Bank shall determine in its
sole discretion. Any surplus shall be paid to Borrowers or other Persons legally
entitled

 

-13-

--------------------------------------------------------------------------------

thereto; Borrowers shall remain liable to Bank for any deficiency. If an Event
of Default has occurred and is continuing, Bank may apply any funds in its
possession, whether from Borrowers’ account balances, payments, proceeds
realized as the result of any collection of Accounts or other disposition of the
Collateral, or otherwise, to the Obligations in such order as Bank shall
determine in its sole discretion. Any surplus shall be paid to Borrowers or
other Persons legally entitled thereto; Borrowers shall remain liable to Bank
for any deficiency. If Bank, in its good faith business judgment, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Bank shall have the option, exercisable at
any time, of either reducing the Obligations by the principal amount of the
purchase price or deferring the reduction of the Obligations until the actual
receipt by Bank of cash therefor.

9.6 Bank’s Liability for Collateral. So long as Bank complies with reasonable
banking practices regarding the safekeeping of the Collateral in the possession
or under the control of Bank, Bank shall not be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other Person. Borrowers bear all risk of
loss, damage or destruction of the Collateral.

9.7 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to
require strict performance by Borrowers of any provision of this Agreement or
any other Loan Document shall not waive, affect, or diminish any right of Bank
thereafter to demand strict performance and compliance herewith or therewith. No
waiver hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is given. Bank’s
rights and remedies under this Agreement and the other Loan Documents are
cumulative. Bank has all rights and remedies provided under the Code, by law, or
in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s
waiver of any Event of Default is not a continuing waiver. Bank’s delay in
exercising any remedy is not a waiver, election, or acquiescence.

9.8 Demand Waiver. Each Borrower waives demand, 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 held by Bank on which Borrowers are
liable.

10 NOTICES

All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”) by any party to this Agreement or any other Loan
Document must be in writing and shall be deemed to have been validly served,
given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon
transmission, when sent by electronic mail or facsimile transmission; (c) one
(1) Business Day after deposit with a reputable overnight courier with all
charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of
which shall be addressed to the party to be notified and sent to the address,
facsimile number, or email address indicated below. Bank or any Borrower may
change its address or facsimile number by giving the other party written notice
thereof in accordance with the terms of this Section 10.

 

If to Borrowers:   c/o Sunrise Telecom Incorporated  

302 Enzo Drive

San Jose, CA 95138

  Attn: Director, Tax & Treasury   Fax: (408) 360-1215   Email:
osadri@sunrisetelecom.com If to Bank:   Silicon Valley Bank   2400 Hanover
Street   Palo Alto, CA 94304   Attn:Tom Smith,   Fax: (650) 320-0016   Email:
tsmith@svb.com

 

-14-

--------------------------------------------------------------------------------

11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

California law governs the Loan Documents without regard to principles of
conflicts of law. Borrowers and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. Each Borrower
expressly submits and consents in advance to such jurisdiction in any action or
suit commenced in any such court, and each Borrower hereby waives any objection
that it may have based upon lack of personal jurisdiction, improper venue, or
forum non conveniens and hereby consents to the granting of such legal or
equitable relief as is deemed appropriate by such court. Each Borrower hereby
waives personal service of the summons, complaints, and other process issued in
such action or suit and agrees that service of such summons, complaints, and
other process may be made by registered or certified mail addressed to Borrowers
at the address set forth in Section 10 of this Agreement and that service so
made shall be deemed completed upon the earlier to occur of Borrowers’ actual
receipt thereof or three (3) days after deposit in the U.S. mails, proper
postage prepaid.

BORROWERS AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL. WITHOUT
INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE
RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is
not enforceable, the parties hereto agree that any and all disputes or
controversies of any nature between them arising at any time shall be decided by
a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.

12 GENERAL PROVISIONS

12.1 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrowers may not assign this
Agreement or any rights or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrowers, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan
Documents.

12.2 Indemnification. Each Borrower agrees, jointly and severally, to indemnify,
defend and hold Bank and its directors, officers, employees, agents, attorneys,
or any other Person affiliated with or representing Bank harmless against:
(a) all obligations, demands, claims, and liabilities (collectively, “Claims”)
asserted by any other party in connection with the transactions contemplated by
the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by
Bank from, following, or arising from transactions between Bank and Borrowers
(including reasonable attorneys’ fees and expenses), except for Claims and/or
losses directly caused by Bank’s gross negligence or willful misconduct.

 

-15-

--------------------------------------------------------------------------------

12.3 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.

12.4 Severability of Provisions. Each provision of this Agreement is severable
from every other provision in determining the enforceability of any provision.

12.5 Amendments in Writing; Integration. All amendments to this Agreement must
be in writing signed by both Bank and Borrowers. This Agreement and the Loan
Documents represent the entire agreement about this subject matter and supersede
prior negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement and the Loan Documents merge 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, are an original, and all taken together, constitute one
Agreement.

12.7 Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been satisfied. The obligation of Borrowers in Section 12.2 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.

12.8 Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any
interest in the Credit Extensions (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by law,
regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise
required in connection with Bank’s examination or audit; and (e) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (i) is in the public
domain or in Bank’s possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (ii) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.

12.9 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between
Borrowers and Bank arising out of or relating to the Loan Documents, the
prevailing party shall be entitled to recover its reasonable attorneys’ fees and
other costs and expenses incurred, in addition to any other relief to which it
may be entitled.

13 DEFINITIONS

13.1 Definitions. As used in this Agreement, the following terms have the
following meanings:

“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrowers.

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

“Affiliate” of any Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person’s senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person’s managers and members.

“Agreement” is defined in the preamble hereof.

 

-16-

--------------------------------------------------------------------------------

“Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the
Borrowing Base minus (b) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) plus an amount equal to the
Letter of Credit Reserves, minus (c) the FX Reserve, and minus (d) the
outstanding principal balance of any Advances (including any amounts used for
Cash Management Services).

“Bank” is defined in the preamble hereof.

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred with respect to Borrowers.

“Bankruptcy-Related Defaults” is defined in Section 9.1.

“Borrower” and “Borrowers” are defined in the preamble hereof

“Borrower’s Books” are all of any Borrower’s books and records including
ledgers, federal and state tax returns, records regarding such Borrower’s assets
or liabilities, the Collateral, business operations or financial condition, and
all computer programs or storage or any equipment containing such information.

“Borrowing Base” is Five Million Dollars ($5,000,000) plus eighty percent
(80%) of Eligible Accounts, as determined by Bank from Borrowers’ most recent
Borrowing Base Certificate; provided, however, that Bank may decrease the
foregoing percentage in its good faith business judgment based on events,
conditions, contingencies, or risks which, as determined by Bank, may adversely
affect Collateral.

“Borrowing Base Certificate” is that certain certificate in the form attached
hereto as Exhibit C.

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors and delivered by such Person to Bank
approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as Exhibit A to such
certificate is a true, correct, and complete copy of the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of
such Person, together with a sample of the true signature(s) of such Person(s),
and (d) that Bank may conclusively rely on such certificate unless and until
such Person shall have delivered to Bank a further certificate canceling or
amending such prior certificate.

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

“Cash Management Services” is defined in Section 2.1.4.

“Cash Management Services Sublimit” is defined in Section 2.1.4.

“Change in Control” means any event, transaction, or occurrence as a result of
which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as an amended (the “Exchange Act”)),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of Borrower, is or becomes a beneficial owner (within the meaning
Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of any Borrower, representing fifty percent (50%) or more of the
combined voting power of such Borrower’s then outstanding securities; or
(b) during any period of twelve consecutive calendar months, individuals who at
the beginning of such period constituted the Board of Directors of any Borrower

 

-17-

--------------------------------------------------------------------------------

(together with any new directors whose election by the Board of Directors of
such Borrower was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason other than death or disability to constitute a majority of the
directors then in office.

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of California; provided, that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of California, the term
“Code” shall mean the Uniform Commercial Code as enacted and in effect in such
other jurisdiction solely for purposes on the provisions thereof relating to
such attachment, perfection, priority, or remedies and for purposes of
definitions relating to such provisions.

“Collateral” is any and all properties, rights and assets of Borrowers described
on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

“Communication” is defined in Section 10.

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit D.

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation directly
or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by
that Person, or for which that Person is directly or indirectly liable; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) all obligations from any interest rate, currency or commodity swap
agreement, interest rate cap or collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest
rates, currency exchange rates or commodity prices; but “Contingent Obligation”
does not include endorsements in the ordinary course of business. The amount of
a Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
any guarantee or other support arrangement.

“Control Agreement” is any control agreement entered into among the depository
institution at which any Borrower maintains a Deposit Account or the securities
intermediary or commodity intermediary at which any Borrower maintains a
Securities Account or a Commodity account, such Borrower, and Bank pursuant to
which Bank obtains control (within the meaning of the Code) over such Deposit
Account, Securities Account, or Commodity Account.

“Credit Extension” is any Advance, Letter of Credit, FX Forward Contract, amount
utilized for Cash Management Services, or any other extension of credit by Bank
for Borrowers’ benefit.

“Current Assets” are amounts that under GAAP should be included on that date as
current assets on Parent’s consolidated balance sheet.

“Current Liabilities” are all obligations and liabilities of Borrowers to Bank,
plus, without duplication, the aggregate amount of Parent’s consolidated Total
Liabilities that mature within one (1) year.

“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.

“Default Rate” is defined in Section 2.3(b).

 

-18-

--------------------------------------------------------------------------------

“Deferred Revenue” is all amounts received or invoiced in advance of performance
under contracts and not yet recognized as revenue.

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

“Designated Deposit Account” is Borrowers’ deposit account, account number
                , maintained with Bank.

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

“Domestic Subsidiary” means a Subsidiary organized under the laws of the United
States or any state or territory thereof or the District of Columbia.

“Effective Date” is the date Bank executes this Agreement and as indicated on
the signature page hereof.

“Eligible Accounts” are Accounts which arise in the ordinary course of any
Borrower’s business that meet all Borrowers’ representations and warranties in
Section 5.3. Bank reserves the right at any time and from time to time after the
Effective Date, to adjust any of the criteria set forth below and to establish
new criteria in its good faith business judgment. Unless Bank agrees otherwise
in writing, Eligible Accounts shall not include:

(a) Accounts that the Account Debtor has not paid within ninety (90) days of
invoice date;

(b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose
Accounts have not been paid within ninety (90) days of invoice date;

(c) Credit balances over ninety (90) days from invoice date;

(d) Accounts owing from an Account Debtor, including Affiliates, whose total
obligations to Borrower exceed twenty-five (25%) of all Accounts, for the
amounts that exceed that percentage, unless Bank approves in writing;

(e) Accounts owing from an Account Debtor which does not have its principal
place of business in the United States except for Eligible Foreign Accounts;

(f) Accounts owing from an Account Debtor which is a federal, state or local
government entity or any department, agency, or instrumentality thereof except
for Accounts of the United States if the Borrower has assigned its payment
rights to Bank and the assignment has been acknowledged under the Federal
Assignment of Claims Act of 1940, as amended;

(g) Accounts owing from an Account Debtor to the extent that the Borrower is
indebted or obligated in any manner to the Account Debtor (as creditor, lessor,
supplier or otherwise—sometimes called “contra” accounts, accounts payable,
customer deposits or credit accounts), with the exception of customary credits,
adjustments and/or discounts given to an Account Debtor by such Borrower in the
ordinary course of its business;

(h) Accounts for demonstration or promotional equipment, or in which goods are
consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”,
“bill and hold”, or other terms if Account Debtor’s payment may be conditional;

(i) Accounts for which the Account Debtor is Borrower’s Affiliate, officer,
employee, or agent;

(j) Accounts in which the Account Debtor disputes liability or makes any claim
(but only up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out of
business;

(k) Accounts owing from an Account Debtor with respect to which a Borrower has
received Deferred Revenue (but only to the extent of such Deferred Revenue);

 

-19-

--------------------------------------------------------------------------------

(l) Accounts for which Bank in its good faith business judgment determines
collection to be doubtful; and

(m) other Accounts Bank deems ineligible in the exercise of its good faith
business judgment.

“Eligible Foreign Accounts” are Accounts for which the Account Debtor does not
have its principal place of business in the United States but are otherwise
Eligible Accounts that are (a) covered by credit insurance satisfactory to Bank,
less any deductible; (b) supported by letter(s) of credit acceptable to Bank; or
(c) that Bank approves in writing.

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

“ERISA” is the Employment Retirement Income Security Act of 1974, and its
regulations.

“Event of Default” is defined in Section 8.

“Foreign Currency” means lawful money of a country other than the United States.

“Foreign Subsidiary” means any Subsidiary which is not a Domestic Subsidiary.

“Funding Date” is any date on which a Credit Extension is made to or on account
of Borrowers which shall be a Business Day.

“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by Borrower is available to Bank from the entity from which Bank shall buy
or sell such Foreign Currency.

“FX Forward Contract” is defined in Section 2.1.3.

“FX Reserve” is defined in Section 2.1.3.

“GAAP” is generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.

“Guarantor” is any present or future guarantor of the Obligations.

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of
property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and
(d) Contingent Obligations.

 

-20-

--------------------------------------------------------------------------------

“Insolvency Proceeding” is any proceeding by or against any Person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.

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

“Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.1.2.

“Letter of Credit Application” is defined in Section 2.1.2(a).

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).

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

“Loan Documents” are, collectively, this Agreement, the Perfection Certificate,
any note, or notes or guaranties executed by any Borrower or any Guarantor, and
any other present or future agreement between any Borrower, any Guarantor and/or
for the benefit of Bank in connection with this Agreement, all as amended,
restated, or otherwise modified.

“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrowers; or (c) a material impairment of the
prospect of repayment of any portion of the Obligations.

“Material Indebtedness” is any Indebtedness the principal amount of which is
equal to or greater than $500,000.

“Net Income” means, as calculated on a consolidated basis for Parent and its
Subsidiaries for any period as at any date of determination, the net profit (or
loss), after provision for taxes, of Parent and its Subsidiaries for such period
taken as a single accounting period.

“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Bank Expenses and other amounts Borrowers owe Bank now or later,
whether under this Agreement, the Loan Documents, or otherwise, including,
without limitation, all obligations relating to letters of credit, cash
management services, and foreign exchange contracts, if any, and including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrowers assigned to Bank, and the performance of Borrowers’
duties under the Loan Documents.

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 30 days prior to the Effective Date, and, (a) if
such Person is a corporation, its bylaws in current form, (b) if such Person is
a limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.

“Parent” is defined in the preamble to this Agreement.

“Payment/Advance Form” is that certain form attached hereto as Exhibit B.

“Perfection Certificate” is defined in Section 5.1.

 

-21-

--------------------------------------------------------------------------------

“Permitted Distributions” means:

(a) purchases of capital stock from former employees, consultants and directors
pursuant to repurchase agreements or other similar agreements in an aggregate
amount not to exceed $500,000 in any fiscal year provided that at the time of
such purchase no Default or Event of Default has occurred and is continuing;

(b) distributions or dividends consisting solely of Parent's capital stock;

(c) purchases for value of any rights distributed in connection with any
stockholder rights plan;

(d) purchases of capital stock or options to acquire such capital stock with the
proceeds received from a substantially concurrent issuance of capital stock or
convertible securities;

(e) purchases of capital stock pledged as collateral for loans to employees;

(f) purchases of capital stock in connection with the exercise of stock options
or stock appreciation rights by way of cashless exercise or in connection with
the satisfaction of withholding tax obligations;

(g) purchases of fractional shares of capital stock arising out of stock
dividends, splits or combinations or business combinations; and

(h) the settlement or performance of such Person’s obligations under any equity
derivative transaction, option contract or similar transaction or combination of
transactions.

“Permitted Indebtedness” is:

(a) Borrowers’ Indebtedness to Bank under this Agreement or any other Loan
Document;

(b)(i) any Indebtedness that does not exceed $250,000 in principal amount
existing on the Effective Date, and (ii) any Indebtedness in excess of $250,000
in principal amount existing on the Effective Date and shown on the Perfection
Certificate;

(c) Subordinated Debt;

(d) unsecured Indebtedness to trade creditors and with respect to surety bonds
and similar obligations incurred in the ordinary course of business;

(e) guaranties of Permitted Indebtedness, guaranties of real property leases of
Subsidiaries in existing as of the Effective Date, and other such guaranties of
real property leases of Subsidiaries arising after the Effective Date not in
excess of $1,000,000 in the aggregate at any time;

(f) Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business;

(g) Indebtedness consisting of interest rate, currency, or commodity swap
agreements, interest rate cap or collar agreements or arrangements designated to
protect a Person against fluctuations in interest rates, currency exchange
rates, or commodity prices;

(h) Indebtedness between Borrower and any of its Subsidiaries or among any of
Borrower’s Subsidiaries;

(i) Indebtedness with respect to documentary letters of credit;

(j) capitalized leases and purchase money Indebtedness not to exceed $500,000 in
the aggregate in any fiscal year secured by Permitted Liens;

(k) Indebtedness of entities acquired in any permitted merger or acquisition
transaction;

 

-22-

--------------------------------------------------------------------------------

(l) refinanced Permitted Indebtedness, provided that the amount of such
Indebtedness is not increased except by an amount equal to a reasonable premium
or other reasonable amount paid in connection with such refinancing and by an
amount equal to any existing, but unutilized, commitment thereunder; and

(m) other Indebtedness, if, on the date of incurring any Indebtedness pursuant
to this clause (m), the outstanding aggregate amount of all Indebtedness
incurred pursuant to this clause (m) does not exceed $500,000 in the aggregate
at any time.

“Permitted Investments” are:

(a) Investments existing on the Effective Date;

(b) (i) marketable direct obligations issued or unconditionally guaranteed by
the United States or its agencies or any State maturing within one (1) year from
its acquisition, (ii) commercial paper maturing no more than 2 years after its
creation and having the highest rating from either Standard & Poor’s Corporation
or Moody’s Investors Service, Inc., and (iii) Bank’s certificates of deposit
maturing no more than two (2) years after issue;

(c) Investments approved by the Parent’s Board of Directors or otherwise
pursuant to a Board-approved investment policy;

(d) Investments in or to Borrowers;

(e) Investments consisting of Collateral Accounts in the name of any Borrower or
any Subsidiary so long as Bank has a first priority, perfected security interest
in such Collateral Accounts;

(f) Investments consisting of extensions of credit to any Borrower’s or its
Subsidiaries’ customers in the nature of accounts receivable, prepaid royalties
or notes receivable arising from the sale or lease of goods, provision of
services or licensing activities of Borrowers;

(g) Investments received in satisfaction or partial satisfaction of obligations
owed by financially troubled obligors;

(h) Investments acquired in exchange for any other Investments in connection
with or as a result of a bankruptcy, workout, reorganization or
recapitalization;

(i) Investments acquired as a result of a foreclosure with respect to any
secured Investment;

(j) Investments consisting of interest rate, currency, or commodity swap
agreements, interest rate cap or collar agreements or arrangements designated to
protect a Person against fluctuations in interest rates, currency exchange
rates, or commodity prices;

(k) Investments consisting of loans and advances to employees in an aggregate
amount not to exceed $500,000; and

(l) other Investments, if, on the date of incurring any Investments pursuant to
this clause (l), the outstanding aggregate amount of all Investments incurred
pursuant to this clause (l) does not exceed $500,000 in the aggregate in any
fiscal year.

“Permitted Liens” are:

(a) (i) Liens securing Permitted Indebtedness described under clause (b) of the
definition of “Permitted Indebtedness” or (ii) Liens arising under this
Agreement or other Loan Documents;

(b) Liens for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which Borrowers
maintain adequate reserves on their Books, if they have no priority over any of
Bank’s Liens;

 

-23-

--------------------------------------------------------------------------------

(c) Liens (including with respect to capital leases) (i) on property (including
accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof) acquired or held by Borrowers or
their Subsidiaries incurred for financing such property (including accessions,
additions, parts, replacements, fixtures, improvements and attachments thereto,
and the proceeds thereof), or (ii) existing on property (and accessions,
additions, parts, replacements, fixtures, improvements and attachments thereto,
and the proceeds thereof) when acquired, if the Lien is confined to such
property (including accessions, additions, parts, replacements, fixtures,
improvements and attachments thereto, and the proceeds thereof);

(d) Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) through (c), but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing Lien
and the principal amount of the indebtedness it secures may not increase;

(e) leases or subleases of real property granted in the ordinary course of
business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property or intellectual property) granted in the
ordinary course of Borrowers’ business, if the leases, subleases, licenses and
sublicenses do not prohibit granting Bank a security interest;

(f) non-exclusive license of intellectual property granted to third parties in
the ordinary course of business, and licenses of intellectual property that
could not result in a legal transfer of title of the licensed property that may
be exclusive in respects other than territory and that may be exclusive as to
territory only as to discreet geographical areas outside of the United States;

(g) leases or subleases granted in the ordinary course of any Borrower’s
business, including in connection with such Borrower’s leased premises or leased
property;

(h) Liens in favor of custom and revenue authorities arising as a matter of law
to secure the payment of custom duties in connection with the importation of
goods;

(i) Liens on insurance proceeds securing the payment of financed insurance
premiums;

(j) customary Liens granted in favor of a trustee to secure fees and other
amounts owing to such trustee under an indenture or other similar agreement;

(k) Liens on assets acquired in mergers and acquisitions not prohibited by
Section 7 of this Agreement;

(l) Liens consisting of pledges of cash, cash equivalents or government
securities to secure swap or foreign exchange contracts or letters of credit;

(m) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Sections 8.4 or 8.7;

(n) Liens in favor of other financial institutions arising in connection with
any Borrower’s deposit or securities accounts held at such institutions;

(o) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other
like Liens arising in the ordinary course of business which are not overdue for
a period of more than 30 days or which are being contested in good faith and by
appropriate proceeding if adequate reserves with respect thereto are maintained
on the books of the applicable Person;

(p) pledges or deposits in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and compliance with other social
security requirements applicable to Borrowers;

(q) Liens consisting of pledges or deposits of cash, cash equivalents or
government securities to secure real property leases in existence as of the
Effective Date, and additional pledges or deposits not in excess of $500,000 to
secure real property leases arising after the Effective Date; and

 

-24-

--------------------------------------------------------------------------------

(r) Liens not otherwise permitted, provided that (i) the amount of all such
Liens is not in excess of $500,000 (with any such Lien valued as the amount of
the obligation secured by such Lien) and (ii) such Liens are subordinate in
priority to Bank’s Lien hereunder.

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

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not
Bank’s lowest rate.

“Quick Assets” is, on any date, Parent’s consolidated, unrestricted cash, Cash
Equivalents, net billed accounts receivable and investments.

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made

“Responsible Officer” is any of the Chief Executive Officer, President, Chief
Financial Officer and Director of Tax & Treasury of each Borrower.

“Revolving Line” is an Advance or Advances in an aggregate amount of up to Ten
Million Dollars ($10,000,000) outstanding at any time.

“Revolving Line Maturity Date” is August 13, 2008.

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

“Settlement Date” is defined in Section 2.1.3.

“Subordinated Debt” is (a) Indebtedness incurred by Borrowers subordinated to
Borrowers’ Indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form reasonably acceptable to Bank and approved by
Bank in writing, and (b) to the extent the terms of subordination do not change
adversely to Bank, refinancings, refundings, renewals, amendments or extensions
of the foregoing.

“Subsidiary” means, with respect to any Person, any Person of which more than
50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by such Person or one or more Affiliates of such Person.

“Tangible Net Worth” is, on any date, the consolidated total assets of Parent
and its Subsidiaries minus (a) any amounts attributable to (i) goodwill,
(ii) intangible items including unamortized debt discount and expense, patents,
trade and service marks and names, copyrights and research and development
expenses except prepaid expenses, (iii) notes, accounts receivable and other
obligations owing to Borrowers and their Subsidiaries from officers or other
Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total
Liabilities

“Total Liabilities” is on any day, obligations that should, under GAAP, be
classified as liabilities on Parent’s consolidated balance sheet, including all
Indebtedness, and current portion of Subordinated Debt permitted by Bank to be
paid by Borrowers, but excluding all other Subordinated Debt.

“Transfer” is defined in Section 7.1.

“Unused Revolving Line Facility Fee” is defined in Section 2.4(c).

[Signature page follows.]

 

-25-

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

 

BORROWERS: SUNRISE TELECOM INCORPORATED By:  

/S/ RICHARD D. KENT

Name:   Richard D. Kent Title:   Chief Financial Officer SUNRISE TELECOM
BROADBAND INC. By:  

/S/ RICHARD D. KENT

Name:   Richard D. Kent Title:   Director BANK: SILICON VALLEY BANK By:  

/S/ TOM SMITH

Name:   Tom Smith Title:   Senior Relationship Manager Effective Date: August
13, 2007

[Signature page to Loan and Security Agreement]

--------------------------------------------------------------------------------

EXHIBIT A

The Collateral consists of all of each Borrower’s right, title and interest in
and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles (except as provided below), commercial
tort claims, documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts, fixtures,
letters of credit rights (whether or not the letter of credit is evidenced by a
writing), securities, and all other investment property, supporting obligations,
and financial assets, whether now owned or hereafter acquired, wherever located;
and

all Borrower’s Books relating to the foregoing, and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include any of the
following, whether now owned or hereafter acquired (a) leasehold interests under
real property leases, (b) more than 65% of the presently existing and hereafter
arising issued and outstanding shares of capital stock owned by any Borrower of
any Foreign Subsidiary which shares entitle the holder thereof to vote for
directors or any other matter, or (c) any copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing; provided, however, the Collateral shall include all Accounts,
license and royalty fees and other revenues, proceeds, or income arising out of
or relating to any of the foregoing.

Pursuant to the terms of a certain negative pledge arrangement with Bank, each
Borrower has agreed not to encumber any of its copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrowers connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing, without Bank’s prior written consent.

--------------------------------------------------------------------------------

EXHIBIT B

Loan Payment/Advance Request Form

DEADLINE FOR SAME DAY PROCESSING IS NOON P.S.T.

 

Fax To:            Date:  

 

LOAN PAYMENT:

Sunrise Telecom Incorporated/Sunrise Telecom Broadband Inc.

 

From Account #  

 

    To Account #  

 

  (Deposit Account #)       (Loan Account #)

Principal $  

 

    and/or Interest $  

 

 

Authorized Signature:  

 

    Phone Number:  

 

Print Name/Title:  

 

     

LOAN ADVANCE:

Complete Outgoing Wire Request section below if all or a portion of the funds
from this loan advance are for an outgoing wire.

 

From Account #  

 

    To Account #  

 

  (Loan Account #)       (Deposit Account #)

 

Amount of Advance $  

 

   

All Borrower’s representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
request for an advance; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date:

 

Authorized Signature:  

 

    Phone Number:  

 

Print Name/Title:  

 

     

OUTGOING WIRE REQUEST:

Complete only if all or a portion of funds from the loan advance above is to be
wired.

Deadline for same day processing is noon, P.S.T.

 

Beneficiary Name:  

 

    Amount of Wire: $  

 

Beneficiary Bank:  

 

    Account Number:  

 

City and State:  

 

   

 

Beneficiary Bank Transit (ABA) #:  

 

    Beneficiary Bank Code (Swift, Sort, Chip, etc.):  

 

      (For International Wire Only)  

 

Intermediary Bank:  

 

    Transit (ABA) #:  

 

For Further Credit to:  

 

 

Special Instruction:  

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

 

Authorized Signature:  

 

      2nd Signature (if required):  

 

Print Name/Title:  

 

    Print Name/Title:  

 

Telephone #:  

 

    Telephone #:  

 

 

1

--------------------------------------------------------------------------------

EXHIBIT C

BORROWING BASE CERTIFICATE

Borrowers: Sunrise Telecom Incorporated/Sunrise Telecom Broadband Inc.

Lender: Silicon Valley Bank

Commitment Amount:    $10,000,000

 

ACCOUNTS RECEIVABLE    1.    Accounts Receivable Book Value as of
                            $                     2.    Additions (please
explain on reverse)    $                     3.    TOTAL ACCOUNTS RECEIVABLE   
$                     ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)    4.
   Amounts over 90 days due    $                     5.    Balance of 50% over
90 day accounts    $                     6.    Credit balances over 90 days   
$                     7.    Concentration Limits    $                     8.   
Foreign Accounts (other than Eligible Foreign Accounts)    $                    
9.    Governmental Accounts    $                     10.    Contra Accounts   
$                     11.    Promotion or Demo Accounts    $                    
12.    Intercompany/Employee Accounts    $                     13.    Disputed
Accounts    $                     14.    Deferred Revenue   
$                     15.    Other (please explain on reverse)   
$                     16.    TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS   
$                     17.    Eligible Accounts (#3 minus #16)   
$                     18.    ELIGIBLE AMOUNT OF ACCOUNTS (     % of #17)   
$                     INVENTORY    19.    N/A    $                     20.   
N/A    $                     BALANCES    21.    Maximum Loan Amount   
$                     22.    Total Funds Available [Lesser of #21 or #18]   
$                     23.    Present balance owing on Line of Credit   
$                     24.    Outstanding under Sublimits   
$                     25.    RESERVE POSITION (#22 minus #23 and #24)   
$                    

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.

 

    BANK USE ONLY COMMENTS:     Received by:  

 

        AUTHORIZED SIGNER       Date:  

 

By:  

 

    Verified:  

 

  Authorized Signer       AUTHORIZED SIGNER Date:  

 

    Date:  

 

      Compliance Status:   Yes    No        

 

1

--------------------------------------------------------------------------------

EXHIBIT D

COMPLIANCE CERTIFICATE

 

TO:    SILICON VALLEY BANK           Date:  

 

FROM:   

 

           

The undersigned authorized officer of                                         
(“Borrower”) certifies that under the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the “Agreement”), (1) Borrower is
in complete compliance for the period ending
                                         with all required covenants except as
noted below, (2) there are no Events of Default, (3) all representations and
warranties in the Agreement are true and correct in all material respects on
this date except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed
all required tax returns and reports, and Borrower has timely paid all foreign,
federal, state and local taxes, assessments, deposits and contributions owed by
Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of
the Agreement, and (5) no Liens have been levied or claims made against Borrower
or any of its Subsidiaries relating to unpaid employee payroll or benefits of
which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The
undersigned certifies that these are prepared in accordance with generally GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The undersigned acknowledges that no
borrowings may be requested at any time or date of determination that Borrower
is not in compliance with any of the terms of the Agreement, and that compliance
is determined not just at the date this certificate is delivered. Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

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

 

Reporting Covenant

  

Required

   Complies Quarterly financial statements with Compliance Certificate   
Quarterly within 45 days    Yes    No Annual financial projections    FYE within
45 days    Yes    No 10-Q, 10-K and 8-K (see 6.2(a))    Within 5 days after
filing with SEC, but not later than 50 days after each quarter and 90 days after
each FYE    Yes    No Borrowing Base Certificate, A/R & A/P Agings and Deferred
Revenue Report    Monthly within 45 days when Credit Extensions in excess of
$500,000 are outstanding; A/R and A/P agings monthly within 45 days otherwise   
Yes    No Cash Balance Report    Monthly within 45 days    Yes    No

 

Financial Covenant

   Required    Actual    Complies

Maintain on a Quarterly Basis:

        

Minimum Quick Ratio

     1.0:1.0              :1.0    Yes    No

Minimum Tangible Net Worth (see calculation)

   $ 57,000,000    $                         Yes    No

 

1

--------------------------------------------------------------------------------

The following financial covenant analys[is][es] and information set forth in
Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

Sunrise Telecom Incorporated     BANK USE ONLY Sunrise Telecom Broadband Inc.  
      Received by:  

 

        AUTHORIZED SIGNER By:  

 

    Date:  

 

Name:  

 

      Title:  

 

    Verified:  

 

        AUTHORIZED SIGNER       Date:  

 

      Compliance Status:   Yes    No

 

2

--------------------------------------------------------------------------------

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated:                         

 

I. Quick Ratio (Section 6.7(a))

Required: 1.00:1.00

Actual:

 

  A.    Aggregate value of the unrestricted cash and cash equivalents   
$                       B.    Aggregate value of the net billed accounts
receivable    $                       C.    Aggregate value of the investments
   $                       D.    Quick Assets (the sum of lines A through C)   
$                       E.    Aggregate value of Obligations to Bank   
$                       F.   

Aggregate value of liabilities of Parent and its Subsidiaries (including all
Indebtedness)

that mature within one (1) year and current portion of Subordinated Debt
permitted by Bank to be paid by Borrower

   $                       G.    Current Liabilities (the sum of lines E and F)
   $                       H.   

Aggregate value of all amounts received or invoiced by Borrower in advance

of performance under contracts and not yet recognized as revenue

   $                       I.    Quick Ratio (line D divided by line G, less
Line H)    __________

Is line I equal to or greater than     :1:00?

 

             No, not in compliance                 Yes, in compliance

II.

 

3

--------------------------------------------------------------------------------

VII. Tangible Net Worth (Section 6.7(b))

Required: $57,000,000 plus 50% of quarterly Net Income and 50% of proceeds of
new equity or debt

Actual:

 

  A.    Aggregate value of total assets of Borrower and its Subsidiaries   
$                       B.    Aggregate value of goodwill of Borrower [and its
Subsidiaries]    $                       C.    Aggregate value of intangible
assets of Borrower [and its Subsidiaries]    $                       D.   
Aggregate value of any reserves not already deducted from assets   
$                       E.    Aggregate value of liabilities of Parent and its
Subsidiaries (including all Indebtedness) and current portion of Subordinated
Debt permitted by Bank to be paid by Borrowers (but no other Subordinated Debt)
   $                       F.    Tangible Net Worth (line A minus line B minus
line C minus line D minus line E)    $                       G.    50% of
quarterly Net Income (cumulative since Effective Date)    $                    
  H.    50% of new equity or debt (cumulative since Effective Date)   
$                    

Is line F equal to or greater than $57,000,000 plus Line G and plus Line H?

 

             No, not in compliance                 Yes, in compliance

 

4

--------------------------------------------------------------------------------

SCHEDULE 5.4

CHRIS STOVAL (DERIVATIVELY ON BEHALF OF SUNRISE TELECOM, INC. V. PAUL A.
MARSHALL ET AL.

SUNRISE TELECOM INCORPORATED V. VEEX INC. ET AL.

IN THE MATTER OF BTT COMMUNICATIONS TECHNOLOGY LTD. V. SUNRISE TELECOM
INCORPORATED ET AL

 

5

--------------------------------------------------------------------------------

SCHEDULE 5.5

All of Borrower’s consolidated financial statements delivered to Bank prior to
the Effective Date are preliminary and unaudited.

Borrower is currently preparing its Quarterly Report of Form 10-Q for the period
ended September 30, 2005 as well as its Annual Report on Form 10-K for the
fiscal year ended December 31, 2005. The Annual Report will contain a
restatement of its audited consolidated financial statements and related
disclosures for the three years ended December 31, 2004 and a restatement of its
consolidated statements of operations and consolidated balance sheet data for
the five years ended December 31, 2004.

 

6

--------------------------------------------------------------------------------

SCHEDULE 5.7

Borrower is conducting an on going review of the implementation of its import
policies and procedures and its implementation of current import laws and
regulations.

 

7

--------------------------------------------------------------------------------

SCHEDULE 5.8

 

SUNRISE TELECOM AVANTRON DIVISION CORP.      Nova Scotia, Canada SUNRISE TELECOM
BROADBAND CORP.      Nova Scotia, Canada SUNRISE TELECOM BROADBAND, INC.     
Georgia, U.S.A. SUNRISE TELECOM CANADA, INC.      California, U.S.A. SUNRISE
TELECOM (SHEN ZHEN) CO. LTD.      Republic of China (WFOE) SUNRISE TELECOM
FRANCE SAS      Evry, France SUNRISE TELECOM GERMANY GmbH      Tubingen, Germany
SUNRISE TELECOM ITALY, S.R.L.      Modena, Italy SUNRISE TELECOM KK      Tokyo,
Japan SUNRISE TELECOM KOREA      Seoul, Korea SUNRISE TELECOM LATIN AMERICA,
S.A. de C.V.      Mexico City, Mexico SUNRISE LUCIOL GmbH      Vaud, Switzerland
SUNRISE TELECOM SPAIN      Madrid, Spain SUNRISE TELECOM S.R.L. (fka Sunrise
Telecom Pro.Tel Division)      Modena, Italy TAIWAN SUNRISE TELECOM COMPANY
LIMITED      Taipei, Taiwan

 

8