Exhibit 10.1

 

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SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

(ACCOUNTS AND INVENTORY)

OBLIGOR#

1480177482

  

    NOTE #

    75

  

AGREEMENT DATE

March 8, 2006

CREDIT LIMIT

$5,000,000

  

    INTEREST RATE

    Base Rate

   OFFICER NO./INITIALS

THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into on
March 8, 2006, between COMERICA BANK, a Michigan banking corporation, successor
by merger to Comerica Bank-California (“Bank”) as secured party, whose Western
Division headquarters office is 333 West Santa Clara Street, San Jose,
California and the undersigned (“Borrower”), whose sole place of business (if it
has only one), chief executive office (if it has more than one place of
business) or residence (if an individual) is located at the address set forth
below its name on the signature page to this Agreement.

WHEREAS, Borrower and Bank are parties to that certain Amended and Restated Loan
and Security Agreement dated August 31, 2000 (as modified, amended, supplemented
or revised from time to time, the “Prior Agreement”) pursuant to which Bank has
made certain credit facilities available to Borrower. Borrower and Bank desire
to amend and restate the Prior Agreement in its entirety in accordance herewith.

NOW THEREFOR, in consideration of the mutual covenants and conditions hereof,
the parties to this Agreement hereby agree the Prior Agreement is hereby amended
and restated in full as follows:

1. DEFINITIONS.

1.1 “Accounts” shall mean and includes all presently existing and hereafter
arising accounts, including without limitation all accounts receivable, contract
rights and other forms of right to payment for monetary obligations or
receivables for property sold or to be sold, leased, licensed, assigned or
otherwise disposed of, or for services rendered or to be rendered (including
without limitation all health-care-insurance receivables and the licensing of
software and other technology) owing to Borrower, and any supporting
obligations, credit insurance, guaranties or security therefor, irrespective of
whether earned by performance.

1.2 “Agreement” shall mean and includes this Second Amended and Restated Loan
and Security Agreement (Accounts and Inventory), any concurrent or subsequent
rider to this Second Amended and Restated Loan and Security Agreement (Accounts
and Inventory) and any extensions, supplements, amendments or modifications to
this Second Amended and Restated Loan and Security Agreement (Accounts and
Inventory) and/or to any such rider.

1.3 “Bank Expenses” shall mean and includes: all reasonable costs or expenses
required to be paid by Borrower under this Agreement which are paid or advanced
by Bank; taxes and insurance premiums of every nature and kind of Borrower paid
by Bank; filing, recording, publication and search fees, appraiser fees, auditor
fees and costs, and title insurance premiums paid or incurred by Bank in
connection with Bank’s transactions with Borrower; costs and expenses incurred
by Bank in collecting the Accounts (with or without suit) to correct any default
or enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing of,
preparing for sale and/or advertising to sell the Collateral, whether or not a
sale is consummated; costs and expenses of suit incurred by Bank in enforcing or
defending this Agreement or any portion hereof, including, but not limited to,
expenses incurred by Bank in attempting to obtain relief from any stay,
restraining order, injunction or similar process which prohibits Bank from
exercising any of its rights or remedies; and reasonable attorneys’ fees and
expenses incurred by Bank in advising, structuring, drafting, reviewing,
amending, terminating, enforcing, defending or concerning this Agreement, or any
portion hereof or any agreement related hereto, whether or not suit is brought.
Bank Expenses shall include Bank’s in-house legal charges at reasonable rates.

1.4 “Base Rate” shall mean that variable rate of interest so announced by Bank
at its headquarters office in Detroit, Michigan as its “Base Rate” from time to
time and which serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto.

1.5 “Borrower’s Books” shall mean and includes all of Borrower’s books and
records including but not limited to minute books; ledgers; records indicating,
summarizing or evidencing Borrower’s assets (including, without limitation, the
Accounts), liabilities, business operations or financial condition, and all
information relating thereto, computer programs; computer disk or tape files;
computer printouts; computer runs; and other computer prepared information and
equipment of any kind.

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1.6 “Collateral” shall mean the property described in Exhibit “A” attached
hereto.

1.7 “Copyrights” shall mean any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.

1.8 “Credit” shall mean all Indebtedness, except that Indebtedness arising
pursuant to any other separate contract, instrument, note, or other separate
agreement which, by its terms, provides for a specified interest rate and term.

1.9 “Credit Limit” shall mean Five Million Dollars ($5,000,000).

1.10 “Current Liabilities” shall mean, in respect of a Person and as of any
applicable date of determination, all liabilities of such Person that should be
classified as current in accordance with GAAP.

1.11 “Daily Balance” shall mean the amount determined by taking the amount of
the Credit owed at the beginning of a given day, adding any new Credit advanced
or incurred on such date, and subtracting any payments or collections which are
deemed to be paid and are applied by Bank in reduction of the Credit on that
date under the provisions of this Agreement.

1.12 “Debt” shall mean, as of any applicable date of determination, all items of
indebtedness, obligation or liability of a Person, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, joint or
several, that should be classified as liabilities in accordance with GAAP. In
the case of Borrower, the term “Debt” shall include, without limitation, the
Indebtedness.

1.13 “Exchange Contract” has the meaning set forth in Section 2.4.

1.14 “Exchange Contract Obligations” shall mean the gross amount of all
outstanding Exchange Contracts.

1.15 “Event of Default” shall mean one or more of those events described in
Section 7 contained herein below.

1.16 “GAAP” shall mean, as of any applicable period, generally accepted
accounting principles in effect during such period.

1.17 “General Intangibles” shall mean and includes all of Borrower’s present and
future general intangibles and other personal property (including without
limitation all payment intangibles, electronic chattel paper, contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, plans, diagrams, schematics, purchase orders, customer
lists, monies due or recoverable from pension funds, route lists, rights to
payment (including without limitation, rights to payment evidenced by chattel
paper, documents or instruments) and other rights under any royalty or licensing
agreements, infringement claims, software (including without limitation any
computer program that is embedded in goods that consist solely of the medium in
which the program is embedded), information contained on computer disks or
tapes, literature, reports, catalogs, insurance premium rebates, tax refunds,
and tax refund claims), other than goods, Accounts, Inventory, Negotiable
Collateral, and Borrowers Books.

1.18 “Indebtedness” shall mean and includes any and all loans, advances, Letter
of Credit Obligations, Exchange Contract Obligations, overdrafts, debts,
liabilities (including, without limitation, any and all amounts charged to
Borrower’s loan account pursuant to any agreement authorizing Bank to charge
Borrower’s loan account), obligations, lease payments, guaranties, covenants and
duties owing by Borrower to Bank of any kind and description whether advanced
pursuant to or evidenced by this Agreement; by any note or other Instrument; or
by any other agreement between Bank and Borrower and whether or not for the
payment of money, whether direct or indirect, absolute or contingent, due or to
become due now existing or hereafter arising, including, without limitation, any
interest, fees, expenses, costs and other amounts owed to Bank that but for the
provisions of the United States Bankruptcy Code would have accrued after the
commencement of any Insolvency Proceeding, and including, without limitation,
any debt, liability, or obligations owing from Borrower to others which Bank may
have obtained by assignment, participation, purchase or otherwise, and further
including, without limitation, all interest not paid when due and all Bank
Expenses which Borrower is required to pay or reimburse by this Agreement, by
law, or otherwise.

1.19 “Insolvency Proceeding” shall mean and includes any proceeding or case
commenced by or against Borrower, or any guarantor of Borrower’s Indebtedness,
or any of Borrower’s account debtors, under any provisions of the Bankruptcy
Code, as amended, or any other bankruptcy or insolvency law, including, but not
limited to assignments for the benefit of creditors, formal or informal
moratoriums, composition or extensions with some or all creditors, any
proceeding seeking a reorganization, arrangement or any other relief under the
Bankruptcy Code, as amended, or any other bankruptcy or insolvency law.

 

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1.20 “Intellectual Property” means all of Borrower’s right, title, and interest
in and to the following:

a. Copyrights, Trademarks and Patents;

b. Any and all trade secrets, and any and all intellectual property rights in
computer software and computer software products now or hereafter existing,
created, acquired or held;

c. Any and all design rights which may be available to Borrower now or hereafter
existing, created, acquired or held;

d. Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;

e. All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;

f. All amendments, renewals and extensions of any of the Copyrights, Trademarks
or Patents; and

g. All proceeds and products of the foregoing, including without limitation all
payments under insurance or any indemnity or warranty payable in respect of any
of the foregoing.

1.21 “Inventory” shall mean and includes all present and future inventory in
which Borrower has any interest, including, but not limited to, goods held by
Borrower for sale or lease or to be furnished under a contract of service and
all of Borrower’s present and future raw materials, work in process, finished
goods (including without limitation any computer program embedded in any of the
foregoing goods and any supporting information provided in connection therewith
that (i) is associated with the goods in such a manner that the program
customarily is considered part of the goods or that (ii) by becoming the owner
of the goods, a person acquires a right to use the program in connection with
the goods), together with any advertising materials and packing and shipping
materials, wherever located and any documents of title representing any of the
above, and any equipment, fixtures or other property used in the storing,
moving, preserving, identifying, accounting for and shipping or preparing for
the shipping of inventory, and any and all other items hereafter acquired by
Borrower by way of substitution, replacement, return, repossession or otherwise,
and all additions and accessions thereto, and the resulting product or mass, and
any documents of title respecting any of the above.

1.22 “Judicial Officer or Assignee” shall mean and includes any trustee,
receiver, controller, custodian, assignee for the benefit of creditors or any
other person or entity having powers or duties like or similar to the powers and
duties of trustee, receiver, controller, custodian or assignee for the benefit
of creditors.

1.23 “Letter of Credit Obligations” shall mean, as of any applicable date of
determination, the sum of the undrawn amount of any letter(s) of credit issued
by Bank upon the application of and/or for the account of Borrower, plus any
unpaid reimbursement obligations owing by Borrower to Bank in respect of any
such letter(s) of credit.

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

1.25 “Liquidity Ratio” shall mean, as of the date of determination thereof, a
ratio: (a) the numerator of which is the sum of all unrestricted cash and cash
equivalents deposited in accounts maintained at the Bank as of the date of such
determination, and (b) the denominator of which is the Credit Limit.

1.26 “Negotiable Collateral” shall mean and include all of Borrower’s present
and future letters of credit, advises of credit, letter-of-credit rights,
certificates of deposit, notes, drafts, money, documents (including without
limitation all negotiable documents), instruments (including without limitation
all promissory notes), tangible chattel paper or any other similar property.

1.27 “Patents” means all patents, patent applications and like protections
including without limitation improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.

1.28 “Permitted Indebtedness” means:

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

 

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b. Indebtedness existing on the date of closing and disclosed in the Schedule;

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

d. Subordinated Debt;

1.29 “Permitted Investment” means:

a. Investments existing on the date of closing disclosed in the Schedule; and

b. Investments made in accordance with Borrower’s Investment Policy Guidelines,
attached hereto as Exhibit “D”. Changes to the attached Investment Policy
Guidelines are subject to the Bank’s prior written consent, which consent shall
not be unreasonably withheld.

1.30 “Permitted Liens” means the following:

a. Any Liens existing on the date of closing and disclosed in the Schedule
(excluding Liens to be satisfied with the proceeds of the Advances) or arising
under this Agreement or the other Loan Documents;

b. Liens for taxes, fees, assessments or other governmental charges or levies,
either not delinquent or being contested in good faith by appropriate
proceedings and for which Borrower maintains adequate reserves, provided the
same have no priority over any of Bank’s security interests;

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

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

1.31 “Person” or “person” shall mean and includes any individual, corporation,
partnership, joint venture, firm, association, trust, unincorporated
association, joint stock company, government, municipality, political
subdivision or agency or other entity.

1.32 “Quick Assets” shall mean, as of any applicable date of determination,
unrestricted cash and cash equivalents, certificates of deposit or marketable
securities with maturities not to exceed one year and net accounts receivable
arising from the sale of goods and services, and United States government
securities and/or claims against the United States government of Borrower and
its subsidiaries.

1.33 “Quick Ratio” shall mean, as of an applicable date of determination, Quick
Assets divided by Current Liabilities, less deferred revenue.

1.34 “Subordinated Debt” shall mean indebtedness of Borrower to third parties
which has been subordinated to the Indebtedness pursuant to a subordination
agreement in form and content satisfactory to Bank.

1.35 “Subordination Agreement” shall mean a subordination agreement in form
satisfactory to Bank making all present and future indebtedness of Borrower to
any Person who has entered into a Subordination Agreement in favor of Bank from
time to time subordinate to the Indebtedness.

1.36 “Tangible Effective Net Worth” shall mean, with respect to any Person and
as of any applicable date of determination, Tangible Net Worth plus Subordinated
Debt.

 

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1.37 “Tangible Net Worth” shall mean, with respect to any Person and as of any
applicable date of determination, the excess of:

a. the net book value of all assets of such Person (excluding affiliate
receivables, patents, patent rights, trademarks, trade names, franchises,
copyrights, licenses, goodwill, and all other intangible assets of such Person)
after all appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization), over

b. all Debt of such Person at such time.

1.38 “Trademarks” means any trademark and servicemark rights, whether registered
or not, applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower connected with
and symbolized by such trademarks.

Any and all terms used in the foregoing definitions and elsewhere in this
Agreement shall be construed and defined in accordance with the meaning and
definition of such terms under and pursuant to the California Uniform Commercial
Code (hereinafter referred to as the “Uniform Commercial Code”) as amended,
revised or replaced from time to time. Notwithstanding the foregoing, the
parties intend that the terms used herein which are defined in the Uniform
Commercial Code have, at all times, the broadest and most inclusive meanings
possible. Accordingly, if the Uniform Commercial Code shall in the future be
amended or held by a court to define any term used herein more broadly or
inclusively than the Uniform Commercial Code in effect on the date of this
Agreement, then such term, as used herein, shall be given such broadened
meaning. If the Uniform Commercial Code shall in the future be amended or held
by a court to define any term used herein more narrowly, or less inclusively,
than the Uniform Commercial Code in effect on the date of this Agreement, such
amendment or holding shall be disregarded in defining terms used in this
Agreement.

2. LOAN AND TERMS OF PAYMENT.

For value received, Borrower promises to pay to the order of Bank such amount,
as provided for below, together with interest, as provided for below.

2.1 Upon the request of Borrower, made at any time and from time to time during
the term hereof, and so long as no Event of Default has occurred, Bank shall
lend to Borrower an amount equal to the Credit Limit; provided, however, that
the Daily Balance shall not exceed the Credit Limit, minus all Letter of Credit
Obligations and all Exchange Contract Obligations. If at any time for any
reason, the amount of Indebtedness owed by Borrower to Bank pursuant to this
Section 2.1 and Section 2.3 of this Agreement is greater than the aggregate
amount available to be drawn under this Section 2.1, Borrower shall immediately
pay to Bank, in cash, the amount of such excess.

2.2 Except as hereinbelow provided, the Credit shall bear interest, on the Daily
Balance owing, at a fluctuating rate of interest equal to the Base Rate.

All interest chargeable under this Agreement that is based upon a per annum
calculation shall be computed on the basis of a three hundred sixty (360) day
year for actual days elapsed. The Base Rate as of the date of this Agreement is
seven and one half percent (7.50%) per annum. In the event that the Base Rate
announced is, from time to time hereafter, changed, adjustment in the Base Rate
shall be made and based on the Base Rate in effect on the date of such change.
The Base Rate, as adjusted, shall apply to the Credit until the Base Rate is
adjusted again.

All interest payable by Borrower under the Credit shall be due and payable on
the first day of each calendar month during the term of this Agreement. A late
payment charge equal to five percent (5%) of each late payment may be charged on
any payment not received by Bank within ten (10) calendar days after the payment
due date, but acceptance of payment of this charge shall not waive any Event of
Default under this Agreement. Upon the occurrence of an Event of Default
hereunder, and without constituting a waiver of any such Event of Default, then
during the continuation thereof, at Bank’s option, the Credit shall bear
interest, on the Daily Balance owing, at a rate equal to three percent (3%) per
year in excess of the rate applicable immediately prior to the occurrence of the
Event of Default, and such rate of interest shall fluctuate thereafter from time
to time at the same time and in the same amount as any fluctuation in the rate
of interest applicable immediately prior to any such occurrence.

2.3 Subject to the terms and conditions of this Agreement, upon the request of
Borrower, made at any time and from time to time during the term hereof, and so
long as no Event of Default has occurred, Bank agrees to issue or cause to be
issued letters of credit for the account of Borrower during the term of this
Agreement in the aggregate outstanding face amount not to exceed (i) the Credit
Limit, minus (ii) the then outstanding Daily Balance. All letters of credit
shall be, in form and substance, acceptable to Bank in its sole discretion and
shall be subject to the terms and conditions of Bank’s form of standard Letter
of Credit Application and Agreement.

 

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The obligation of Borrower to immediately reimburse Bank for drawings made under
letters of credit shall be absolute, unconditional and irrevocable in accordance
with the terms of this Agreement and the Letter of Credit Application and
Agreement with respect to each such letter of credit. Borrower shall indemnify,
defend, protect and hold Bank harmless from any loss, cost, expense, or
liability, including, without limitation, reasonable attorney’s fees incurred by
Bank, whether in-house or outside counsel is used, arising out of or in
connection with any letters of credit.

2.4 Subject to the terms of this Agreement, Borrower may utilize up to Three
Million and 00/100 Dollars ($3,000,000.00) of the Credit for foreign exchange
contracts with Bank (the “Exchange Contracts”). Borrower shall execute all
standard form applications and agreements of Bank in connection with the
Exchange Contracts pursuant to which Bank shall sell to or purchase from
Borrower foreign currency on a spot or future basis and, without limiting any of
the terms of such applications and agreements, Borrower will pay all standard
fees and charges of Bank in connection with the Exchange Contracts. No Exchange
Contracts shall be purchased or sold unless, on the date of the proposed sale or
purchase, the advances available to Borrower under the Credit are equal to ten
percent (10%) of the face amount of such Exchange Contracts. Except in Bank’s
discretion, the aggregate amount of Exchange Contract Obligations shall not at
any time exceed Thirty Million and 00/100 Dollars ($30,000,000.00).

a. Bank may, in its discretion, terminate the Exchange Contracts at any time
(a) that an Event of Default occurs; or (b) that there is no sufficient
availability under the Credit and Borrower does not have available funds in its
bank account to satisfy the Exchange Contract. If Bank terminates the Exchange
Conti and without limitation of any applicable indemnities, Borrower agrees to
reimburse Bank for any and all fees, costs and expenses relating thereto or
arising in connection therewith.

2.5 In addition to any other amounts due or to become due under this Agreement,
Borrower shall pay to Bank the following fees:

a. In connection with the financial accommodations provided to Borrower under
this Agreement, on the date hereof, a commitment fee in an amount equal to Eight
Thousand Five Hundred Dollars ($8,500), which shall be fully earned and
non-refundable on the date of payment thereof.

b. In connection with the financial accommodations provided to Borrower under
this Agreement, an annual fee in the amount of Eight Thousand Five Hundred
Dollars ($8,500), which shall be due and payable in arrears on the first
anniversary date of the date of this Agreement, and which shall be fully earned
and non-refundable on the date of payment thereof. In the event that this
Agreement is terminated prior to any such payment date, Borrower shall pay to
Bank the ratable portion of the annual fee accrued since the last payment date
through any such termination date.

c. In addition to all Bank’s customary charges, commissions, fees and costs
payable to Bank in connection with the letters of credit in accordance with
Letter of Credit Application and Agreement, Borrower shall pay Bank a fee equal
to one and one half percentage points (1.50%) per annum (as adjusted from time
to time by Bank and separately agreed upon between Borrower and Bank), computed
on the basis of a three hundred sixty (360) day year for actual days elapsed, of
the aggregate amount of all Letter of Credit Obligations outstanding hereunder.

3. TERM.

3.1 This Agreement shall remain in full force and effect until March 7, 2008,
unless earlier terminated by notice by Borrower. Notice of such termination by
Borrower shall be effectuated by mailing of a registered or certified letter not
less than thirty (30) days prior to the effective date of such termination,
addressed to Bank at the address set forth herein and the termination shall be
effective as of the date so fixed in such notice.

3.2 Notwithstanding the foregoing, should Borrower be in default of one or more
of the provisions of this Agreement, Bank may terminate this Agreement at any
time without notice. Notwithstanding the foregoing, should either Bank or
Borrower become insolvent or unable to meet its debts as they mature, or fail,
suspend, or go out of business, the other party shall have the right to
terminate this Agreement at any time without notice. On the date of termination
all Indebtedness shall become immediately due and payable without notice or
demand; provided, however, that no such notice of termination by Borrower shall
be effective until the payment in full in cash of all Indebtedness to Bank
(including without limitation the expiration or cash collateralization of all
Letter of Credit Obligations and Exchange Contract Obligations in accordance
with the terms and conditions of this Agreement). Any notice of termination
given by Borrower shall be irrevocable unless Bank otherwise agrees in writing,
and Bank shall have no obligation to make any loans or issue any letters of
credit on or after the termination date stated in such notice. Borrower may
elect to terminate this Agreement in its entirety only. No section of this
Agreement or type of loan available hereunder may be terminated singly.

 

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3.3 All undertakings, agreements, covenants, warranties, and representations of
Borrower contained in this Agreement or any other document, instrument or
agreement entered into with or in favor of Bank in connection herewith shall
survive any such termination, and Bank shall retain its security interest in and
to all existing Collateral and Collateral arising thereafter, any and all liens
thereon, and all of its rights and remedies under this Agreement or any other
document, instrument or agreement entered into with or in favor of Bank in
connection herewith notwithstanding such termination until the payment in full
in cash of all Indebtedness to Bank (including, without limitation, the
expiration or cash collateralization of all Letter of Credit Obligations and
Exchange Contract Obligations in accordance with the terms and conditions of
this Agreement and the payment in full of all applicable termination charges, if
any). Notwithstanding the satisfaction in full of the Indebtedness, Bank shall
not be required to terminate its security interests in the Collateral unless,
with respect to any loss or damage Bank may incur as a result of dishonored
checks or other items of payment received by Bank and applied to the
Indebtedness, Bank shall, at its option, (a) have received a written agreement,
executed by Borrower and by any Person whose loans or other advances to Borrower
are used in whole or in part to satisfy the Indebtedness, indemnifying Bank from
any such loss or damage, or (b) have retained such monetary reserves and liens
on the Collateral for such period of time as Bank, in its reasonable discretion,
may deem necessary to protect Bank from any such loss or damage.

3.4 After termination and when Bank has received either (i) payment in full of
Borrower’s Indebtedness to Bank or (ii) a deposit of unencumbered cash (in form
and subject to documentation reasonably acceptable to Bank) in an amount equal
to such Indebtedness as security for such Indebtedness and is readily available
for payment of such Indebtedness, Bank shall reassign to Borrower all Collateral
held by Bank, and shall execute a termination of all security agreements and
security interests given by Borrower to Bank.

4. CREATION OF SECURITY INTEREST.

4.1 Borrower hereby grants to Bank a continuing security interest in all
presently existing and hereafter arising Collateral in order to secure prompt
repayment of any and all Indebtedness owed by Borrower to Bank and in order to
secure prompt performance by Borrower of each and all of its covenants and
obligations under this Agreement and otherwise created. Bank’s security interest
in the Collateral shall attach to all Collateral without further act on the part
of Bank or Borrower. In the event that any Collateral, including proceeds, is
evidenced by or consists of Negotiable Collateral, Borrower, immediately upon
the request of Bank, shall (a) endorse or assign such Negotiable Collateral to
Bank, (b) deliver actual physical possession of such Negotiable Collateral to
Bank, and (c) mark conspicuously all of its records pertaining to such
Negotiable Collateral with a legend, in form and substance satisfactory to Bank
(and in the case of Negotiable Collateral consisting of tangible chattel paper,
immediately mark all such tangible chattel paper with a conspicuous legend in
form and substance satisfactory to Bank), indicating that the Negotiable
Collateral is subject to the security interest granted to Bank hereunder.

4.2 Bank’s security interest in the Accounts shall attach to all Accounts
without further act on the part of Bank or Borrower. Upon request from Bank,
Borrower shall provide Bank with schedules describing all Accounts created or
acquired by Borrower (including without limitation agings listing the names and
addresses of, and amounts owing by date by account debtors), and shall execute
and deliver written assignments of all Accounts to Bank all in a form acceptable
to Bank; provided, however, Borrower’s failure to execute and deliver such
schedules and/or assignments shall not affect or limit Bank’s security interest
and other rights in and to the Accounts. Together with each schedule, Borrower
shall furnish Bank with copies of Borrower’s customers’ invoices or the
equivalent, and original shipping or delivery receipts for all merchandise sold,
and Borrower warrants the genuineness thereof. Upon the occurrence of an Event
of Default, Bank or Bank’s designee may notify customers or account debtors of
Bank’s security interest in the Collateral and direct such customers or account
debtors to make payments directly to Bank, but unless and until Bank does so or
gives Borrower other written instructions, Borrower shall collect all Accounts
for Bank, receive in trust all payments thereon as Bank’s trustee, and, if so
requested to do so from Bank, Borrower shall immediately deliver said payments
to Bank in their original form as received from the account debtor and all
letters of credit, advices of credit, instruments, documents, chattel paper or
any similar property evidencing or constituting Collateral. Notwithstanding
anything to the contrary contained herein, if sales of Inventory are made for
cash, Borrower shall immediately deliver to Bank, in identical form, all such
cash, checks, or other forms of payment which Borrower receives. The receipt of
any check or other item of payment by Bank shall not be considered a payment on
account until such check or other item of payment is honored when presented for
payment, in which event, said check or other item of payment shall be deemed to
have been paid to Bank two (2) calendar days after the date Bank actually
receives such check or other item of payment.

4.3 Bank’s security interest in Inventory shall attach to all Inventory without
further act on the part of Bank or Borrower. Borrower will at Borrower’s expense
pledge, assemble and deliver such Inventory to Bank or to a third party as
Bank’s bailee; or hold the same in trust for Bank’s account or store the same in
a warehouse in Bank’s name; or deliver to Bank documents of title representing
said Inventory; or evidence of Bank’s security interest in some other manner
acceptable to Bank. Until a default by Borrower under this Agreement or any
other Agreement between Borrower and Bank, Borrower may, subject to the
provisions hereof and consistent herewith, sell the Inventory, but only in the
ordinary course of Borrower’s business. A sale of Inventory in Borrower’s
ordinary course of business does not include an exchange or a transfer in
partial or total satisfaction of a debt owing by Borrower.

 

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4.4 Concurrently with Borrower’s execution of this Agreement, and at any time or
times hereafter at the request of Bank, Borrower shall (a) execute and deliver
to Bank security agreements, mortgages, assignments, certificates of title,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents that Bank may reasonably request, in form satisfactory to
Bank, to perfect and maintain perfected Bank’s security interest in the
Collateral and in order to fully consummate all of the transactions contemplated
under this Agreement, (b) cooperate with Bank in obtaining a control agreement
in form and substance satisfactory to Bank with respect to all deposit accounts,
electronic chattel paper, investment property, and letter-of-credit rights, and
(c) in the event that any Collateral is in the possession of a third party,
Borrower shall join with Bank in notifying such third party of Bank’s security
interest and obtaining an acknowledgment from such third party that it is
holding such Collateral for the benefit of Bank. By authenticating or becoming
bound by this Agreement, Borrower authorizes the filing of initial financing
statement(s), and any amendment(s) covering the Collateral to perfect and
maintain perfected Bank’s security interest in the Collateral. Upon the
occurrence of an Event of Default, Borrower hereby irrevocably makes,
constitutes and appoints Bank (and any of Bank’s officers, employees or agents
designated by Bank) as Borrower’s true and lawful attorney-in-fact with power to
sign the name of Borrower on any security agreement, mortgage, assignment,
certificate of title, affidavit, letter of authority, notice of other similar
documents which must be executed and/or filed in order to perfect or continue
perfected Bank’s security interest in the Collateral, and to take such actions
in its own name or in Borrower’s name as Bank, in its sole discretion, deems
necessary or appropriate to establish exclusive possession or control (as
defined in the Uniform Commercial Code) over any Collateral of such nature that
perfection of Bank’s security interest may be accomplished by possession or
control.

4.5 Bank (through any of its officers, employees or agents) shall have the right
at any time or times after the occurrence of an Event of Default, provided that
reasonable notice is provided, during Borrower’s usual business hours, or during
the usual business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower’s Books in order to verify the amount
or condition of, or any other matter, relating to, said Collateral and
Borrower’s financial condition.

4.6 Effective only upon the occurrence of an Event of Default, Borrower appoints
Bank or any other person whom Bank may designate as Borrower’s attorney-in-fact,
with power: to endorse Borrower’s name on any checks, notes, acceptances, money
order, drafts or other forms of payment or security that may come into Bank’s
possession; to sign Borrower’s name on any invoice or bill of lading relating to
any Accounts, on drafts against account debtors, on schedules and assignments of
Accounts, on verifications of Accounts and on notices to account debtors; to
establish a lock box arrangement and/or to notify the post office authorities to
change the address for delivery of Borrower’s mail addressed to Borrower to an
address designated by Bank, to receive and open all mail addressed to Borrower,
and to retain all mail relating to the Collateral and forward all other mail to
Borrower; to send, whether in writing or by telephone, requests for verification
of Accounts; and to do all things necessary to carry out this Agreement.
Borrower ratifies and approves all acts of the attorney-in-fact. Neither Bank
nor its attorney-in-fact will be liable for any acts or omissions or for any
error of judgement or mistake of fact or law. This power being coupled with an
interest, is irrevocable so long as any Accounts in which Bank has a security
interest remain unpaid and until the Indebtedness has been fully satisfied.

4.7 In order to protect or perfect any security interest which Bank is granted
hereunder, Bank may, in its sole discretion, discharge any lien or encumbrance
or bond the same, pay any insurance, maintain guards, warehousemen, or any
personnel to protect the Collateral, pay any service bureau, or, obtain any
records, and all costs for the same shall be added to the Indebtedness and shall
be payable on demand.

4.8 Borrower agrees that Bank may provide information relating to this Agreement
or relating to Borrower to Bank’s parent, affiliates, subsidiaries and service
providers.

4.9 Pursuant to the Negative Pledge Agreement dated as of March 28, 2003,
Borrower, for itself and its Subsidiaries, agrees that it will not and that it
will not permit its Subsidiaries to pledge or otherwise grant a security
interest in the Intellectual Property to any Person, other than the Bank, or
enter into or be subject to any agreement with any other Person pursuant to
which Borrower agrees for the benefit of such other Person that Borrower will
not pledge or grant a security interest in the Intellectual Property, all
without the Bank’s prior written consent.

5. CONDITIONS PRECEDENT.

5.1 Conditions precedent to the making of the loans and the extension of the
financial accommodations hereunder, Borrower shall execute, or cause to be
executed, and deliver to Bank, in form and substance satisfactory to Bank and
its counsel, the following:

a. This Agreement and other documents, instruments and agreements required by
Bank;

 

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b. Certified copies of all actions taken by Borrower, any grantor of a security
interest to Bank to secure the Indebtedness, and any guarantor of the
Indebtedness, authorizing the execution, delivery and performance of this
Agreement and any other documents, instruments or agreements entered into in
connection herewith, and authorizing specific officers to execute and deliver
any such documents, instruments and agreements;

c. A certificate of good standing showing that Borrower is in good standing
under the laws of the state of its incorporation or formation and certificates
indicating that Borrower is qualified to transact business and is in good
standing in any other state in which it conducts business;

d. UCC searches and financing statements, tax lien and litigation searches,
fictitious business statement filings, insurance certificates, notices or other
similar documents which Bank may require and in such form as Bank may require,
in order to reflect, perfect or protect Bank’s first priority security interest
in the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement;

e. Evidence that Borrower has obtained insurance and acceptable endorsements;

f. Such collateral access agreements from each lessor, warehouseman, bailee, and
other Person as Bank may require, duly executed by each such Person; and

g. Warranties and representations of officers.

6. WARRANTIES. REPRESENTATIONS AND COVENANTS.

6.1 If so requested by Bank, Borrower shall, at such intervals designated by
Bank, during the term hereof execute and deliver a Report of Accounts Receivable
or similar report, in form customarily used by Bank.

6.2 If any warranty is breached as to any Account, or any Account is not paid in
full by an account debtor within ninety (90) days from the date of invoice, or
an account debtor disputes liability or makes any claim with respect thereto, or
a petition in bankruptcy or other application for relief under the Bankruptcy
Code or any other insolvency law is filed by or against an account debtor, or an
account debtor makes an assignment for the benefit of creditors, becomes
insolvent, fails or goes out of business, then Bank may deem ineligible any and
all Accounts owing by that account debtor. Bank shall retain its security
interest in all Accounts, whether eligible or ineligible, until all Indebtedness
has been fully paid and satisfied. Returns and allowances, if any, as between
Borrower and its customers, will be on the same basis and in accordance with the
usual customary practices of Borrower, as they exist at this time. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000). Any merchandise which is returned by an account
debtor or otherwise recovered shall be set aside, marked with Bank’s name, and
Bank shall retain a security interest therein. Borrower shall promptly notify
Bank of all disputes and claims and settle or adjust them on terms approved by
Bank. After default by Borrower hereunder, no discount, credit or allowance
shall be granted to any account debtor by Borrower and no return of merchandise
shall be accepted by Borrower without Bank’s consent. Bank may, after default by
Borrower, settle or adjust disputes and claims directly with account debtors for
amounts and upon terms which Bank considers advisable, and in such cases Bank
will credit Borrower’s loan account with only the net amounts received by Bank
in payment of the Accounts, after deducting all Bank Expenses in connection
therewith.

6.3 Borrower warrants, represents, covenants and agrees that:

a. Borrower has good and marketable title to the Collateral. Bank has and shall
continue to have a first priority perfected security interest in and to the
Collateral. The Collateral shall at all times remain free and clear of all
Liens, except for Permitted Liens;

b. All Accounts are and will, at all times pertinent hereto, be bona fide
existing obligations created by the sale and delivery of merchandise or the
rendition of services to account debtors in the ordinary course of business,
free of all Liens, except for Permitted Liens and are unconditionally owed to
Borrower without defenses, disputes, offsets counterclaims, rights of return or
cancellation, and Borrower shall have received no notice of actual or imminent
bankruptcy or insolvency of any account debtor at the time an Account due from
such account debtor is assigned to Bank; and

c. At the time each Account is assigned to Bank, all property giving rise to
such Account shall have been delivered to the account debtor or to the agent for
the account debtor for immediate shipment to, and unconditional acceptance by,
the account debtor. Borrower shall deliver to Bank, as Bank may from time to
time require, delivery receipts, customer’s purchase orders, shipping
instructions, bills of lading and any other evidence of shipping arrangements.
Absent such a request by Bank, copies of all such documentation shall be held by
Borrower as custodian for Bank.

 

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6.4 Borrower is the sole owner of the Intellectual Property, except for licenses
granted by Borrower to its customers in the ordinary course of business. To the
best of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents is
valid and enforceable, and no part of the Intellectual Property has been judged
invalid or unenforceable, in whole or in part, and no claim has been made to
Borrower that any part of the Intellectual Property violates the rights of any
third party except to the extent such claim would not reasonably be expected to
cause a Material Adverse Effect. Except as set forth in the Schedule, Borrower’s
rights as a licensee of intellectual property do not give rise to more than five
percent (5%) of its gross revenue in any given month, including without
limitation revenue derived from the sale, licensing, rendering or disposition of
any product or service.

6.5 Borrower shall keep the Inventory only at the following locations: 20400
Stevens Creek Boulevard, Suite 400, Cupertino, California 95014 and the owner or
mortgagees of the respective locations are:
                                        .

a. Borrower, immediately upon demand by Bank therefor, shall now and from time
to time hereafter, at such intervals as are reasonably requested by Bank,
deliver to Bank, designations of Inventory specifying Borrower’s cost of
Inventory, the wholesale market value thereof and such other matters and
information relating to the Inventory as Bank may request;

b. All of the Inventory is and shall remain free from all purchase money or
other security interests, or Liens, except for Permitted Liens;

c. Borrower does now keep and hereafter at all times shall keep correct and
accurate records itemizing and describing the kind, type, quality and quantity
of the Inventory, its cost therefor and selling price thereof, and the daily
withdrawals therefrom and additions thereto, all of which records shall be
available upon demand to any of Bank’s officers, agents and employees for
inspection and copying;

d. All Inventory, now and hereafter at all times, shall be new Inventory of good
and merchantable quality free from material defects;

e. Inventory is not now and shall not at any time or times hereafter be located
or stored with a bailee, warehouseman or other third party without Bank’s prior
written consent, and, in such event, Borrower will concurrently therewith cause
any such bailee, warehouseman or other third party to issue and deliver to Bank,
warehouse receipts in Bank’s name evidencing the storage of Inventory and/or an
acknowledgment by such bailee of Bank’s prior rights in the Inventory, in each
case in form and substance acceptable to Bank, in any event, Borrower shall
instruct any third party to hold all such Inventory for Bank’s account subject
to Bank’s security interests and its instructions; and

f. Bank shall have the right upon demand now and/or at all times hereafter,
during Borrower’s usual business hours, after reasonable notice, to inspect and
examine the Inventory and to check and test the same as to quality, quantity,
value and condition and Borrower agrees to reimburse Bank for Bank’s reasonable
costs and expenses in so doing.

6.6 Borrower represents, warrants and covenants with Bank that Borrower will
not, without Bank’s prior written consent:

a. Grant a security interest in or permit a lien, claim or encumbrance upon any
of the Collateral or the Intellectual Property to any person, association, firm,
corporation, entity or governmental agency or instrumentality;

b. Permit any levy, attachment or restraint to be made affecting any of
Borrower’s assets;

c. Permit any Judicial Officer or Assignee to be appointed or to take possession
of any or all of Borrower’s assets;

d. Other than sales of Inventory in the ordinary course of Borrower’s business,
to sell, lease, or otherwise dispose of, move, or transfer, whether by sale or
otherwise, any of Borrower’s assets;

e. Change its name, the location of its sole place of business, chief executive
office or residence, business structure, corporate identity or structure, form
of organization or the state in which it has been formed or organized; add any
new fictitious names, liquidate, merge or consolidate with or into any other
business organization;

 

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f. Move or relocate any Collateral;

g. Acquire any other business organization unless such acquisition is permitted
under Clause r. of this Section 6;

h. Enter into any transaction not in the usual course of Borrower’s business;

i. Make any change in Borrower’s financial structure or in any of its business
objectives, purposes or operations which would materially adversely affect the
ability of Borrower to repay Borrower’s Indebtedness;

j. Incur any debts outside the ordinary course of Borrower’s business, except
Permitted Indebtedness;

k. Make loans, advances or extensions of credit to any Person, except Permitted
Indebtedness;

l. Guarantee or otherwise, directly or indirectly, in any way be or become
responsible for obligations of any other Person, whether by agreement to
purchase the indebtedness of any other Person, agreement for the furnishing of
funds to any other Person through the furnishing of goods, supplies or services,
by way of stock purchase, capital contribution, advance or loan, for the purpose
of paying or discharging (or causing the payment or discharge of) the
indebtedness of any other Person, or otherwise, except for the endorsement of
negotiable instruments by Borrower in the ordinary course of business for
deposit or collection and Permitted Indebtedness;

m. Make any payment on account of any Subordinated Debt except for regularly
scheduled payments of interest and principal in accordance with the provisions
of any Subordination Agreement executed by Bank and the subordinated debt
holder, or amend any provision contained in any documentation relating to any
such Subordinated Debt without Bank’s prior written consent;

n. (a) Sell, lease, transfer or otherwise dispose of properties and assets
(whether in one transaction or in a series of transactions) except as to the
sale of Inventory in the ordinary course of business; (b) change its name,
consolidate with or merge into any other corporation, permit another corporation
to merge into it, acquire all or substantially all the properties or assets of
any other Person, enter into any reorganization or recapitalization or
reclassify its capital stock, except as permitted under Clause r. of this
Section 6, or (c) enter into any sale-leaseback transaction;

o. Purchase or hold beneficially any stock or other securities of, or make any
investment or acquire any securities or other interest whatsoever in, any other
Person, except for Permitted Investments;

p. Allow any fact, condition or event to occur or exist with respect to any
employee pension or profit sharing plans established or maintained by it which
might constitute grounds for termination of any such plan or for the court
appointment of a trustee to administer any such plan;

q. Use any loan or other extension of credit under this Agreement or any other
document, instrument or agreement entered into by Borrower with or in favor of
Bank in connection with this Agreement for any purpose other than to refinance
existing revolving debt, to provide working capital for its operations and for
other general business purposes. In no event shall the funds from any such loan
or other extension of credit be used directly or indirectly by any Person for
personal, family, household or agricultural purposes or for the purpose, whether
immediate, incidental or ultimate, of purchasing, acquiring or carrying any
“margin stock” or any “margin securities” (as such terms are defined
respectively in Regulation U and Regulation G promulgated by the Board of
Governors of the Federal Reserve System) or to extend credit to others directly
or indirectly for the purpose of purchasing or carrying any such margin stock or
margin securities. Borrower hereby represents and warrants that Borrower is not
engaged principally, or as one of Borrower’s important activities, in the
business of extending credit to others for the purpose of purchasing or carrying
such margin stock or margin securities; and

r. Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with or into any other business organization (other than mergers or
consolidations of a Subsidiary into another Subsidiary or into Borrower), or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of another Person (collectively, “Merger and
Acquisition Activities”). Notwithstanding the foregoing, Borrower may engage in
Merger and Acquisition Activities in which (i) such Merger and Acquisition
Activities are generally in Borrower’s industry, (ii) Borrower is the surviving
entity as a result of such transaction and there is no substantial change in
Borrower’s executive management and the (iii) the consideration consists of its
common stock or cash, and further provided that Borrower may not engage in any
Merger and Acquisition Activities if an Event of Default has occurred and is
continuing at the time of such proposed transaction or if an Event of Default
would exist after giving effect to such transaction.

 

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6.7 Borrower represents, warrants, covenants and agrees that:

a. Borrower’s true and correct legal name is that set forth on the signature
page to this Agreement. Except as disclosed in writing to Bank on or before the
date of this Agreement, Borrower has not done business under any name other than
that set forth on the signature page to this Agreement;

b. If Borrower is an individual, the location (as determined pursuant to the
Uniform Commercial Code) of Borrower’s principal residence is that set forth
following Borrower’s name on the signature page to this Agreement;

c. If Borrower is a registered organization that is organized under the laws of
any one of the states comprising the United States (e.g. corporation, limited
partnership, registered limited liability partnership or limited liability
company), and is located (as determined pursuant to the Uniform Commercial Code)
in the state under the laws of which it was organized, Borrower’s form of
organization and the state in which it has been organized are those set forth
immediately following Borrower’s name on the signature page to this Agreement;

d. If Borrower is a registered organization organized under the laws of the
United States, and Borrower is located in the state that United States law
designates as its location or, if United States law authorizes Borrower to
designate the state for its location, the state designated by Borrower, or if
neither of the foregoing are applicable, at the District of Columbia (in each
case as determined in accordance with the Uniform Commercial Code), Borrower’s
form of organization and the state or district in which it is located are those
set forth immediately following Borrower’s name on the signature page to this
Agreement;

e. If Borrower is a domestic organization that is not a registered organization
under the laws of the United States or any state thereof (e.g. general
partnership, joint venture, trust, estate or association), and Borrower is
located (as determined pursuant to the Uniform Commercial Code) at its sole
place of business or, if it has more than one place of business, at its chief
executive office, Borrower’s form of organization and the address of that
location are those set forth on the signature page to this Agreement; and

f. If Borrower is a foreign individual or foreign organization or a branch or
agency of a bank that is not organized under the laws of the United States or a
state thereof, Borrower is located (as determined pursuant to the Uniform
Commercial Code) at the address set forth following Borrower’s name on the
signature page to this Agreement.

6.8 If Borrower is a corporation, Borrower represents, warrants and covenants as
follows:

a. Borrower will not make any distribution or declare or pay any dividend (other
than dividends payable in stock) to any shareholder, whether now or hereafter
outstanding, or purchase, acquire, repurchase, or redeem or retire any of its
capital stock; provided, however, Borrower may repurchase the stock of former
employees pursuant to stock repurchase agreements as long as an Event of Default
does not exist prior to such repurchase or would not exist after giving effect
to such repurchase;

b. Borrower is and shall at all times hereafter be a corporation duly organized
and existing in good standing under the laws of the state of its incorporation
and qualified and licensed to do business in California or any other state in
which it conducts its business;

c. Borrower has the right and power and is duly authorized to enter into this
Agreement; and

d. The execution by Borrower of this Agreement shall not constitute a breach of
any provision contained in Borrower’s articles of incorporation or by-laws.

6.9 The execution of and performance by Borrower of all of the terms and
provisions contained in this Agreement shall not result in a breach of or
constitute an event of default under any agreement to which Borrower is now or
hereafter becomes a party.

6.10 Borrower shall promptly notify Bank in writing of its acquisition by
purchase, lease or otherwise of any after acquired property of the type included
in the Collateral, with the exception of purchases of Inventory in the ordinary
course of business.

6.11 All assessments and taxes, whether real, personal or otherwise, due or
payable by, or imposed, levied or assessed against, Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or

 

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deposit thereof. Borrower will make timely payment or deposit of all F.I.C.A.
payments and withholding taxes required of it by applicable laws, and will upon
request furnish Bank with proof satisfactory to it that Borrower has made such
payments or deposit. If Borrower fails to pay any such assessment, tax,
contribution, or make such deposit, or furnish the required proof, Bank may, in
its sole and absolute discretion and without notice to Borrower, (i) make
payment of the same or any part thereof, or (ii) set up such reserves in
Borrower’s loan account as Bank deems necessary to satisfy the liability
therefor, or both. Bank may conclusively rely on the usual statements of the
amount owing or other official statements issued by the appropriate governmental
agency. Each amount so paid or deposited by Bank shall constitute a Bank Expense
and an additional advance to Borrower.

6.12 There are no actions or proceedings pending by or against Borrower or any
guarantor of Borrower before any court or administrative agency and Borrower has
no knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions involving Borrower
or any guarantor of Borrower, except as heretofore specifically disclosed in
writing to Bank. If any of the foregoing arise during the term of the Agreement,
Borrower shall immediately notify Bank in writing.

6.13 Insurance.

a. Borrower, at its expense, shall keep and maintain its assets insured against
loss or damage by fire, theft, explosion, sprinklers and all other hazards and
risks ordinarily insured against by other owners who use such properties in
similar businesses for the full insurable value thereof. Borrower shall also
keep and maintain business interruption insurance and public liability and
property damage insurance relating to Borrower’s ownership and use of the
Collateral and its other assets. All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be satisfactory to Bank.
Borrower shall deliver to Bank evidence of the payments of such policies of
insurance and evidence of insurance on an ACORD 27 (in the case of property
insurance) or ACORD 25 (in the case of liability insurance) form of certificate,
each in effect for a period of not less than one year following the date of this
Agreement. All such policies of insurance (except those of public liability and
property damage) shall contain an endorsement in a form satisfactory to Bank
showing Bank as a loss payee thereof, with a waiver of warranties satisfactory
to Bank, and all proceeds payable thereunder shall be payable to Bank and, upon
receipt by Bank, shall be applied on account of the Indebtedness owing to Bank.
To secure the payment of the Indebtedness, Borrower grants Bank a security
interest in and to all such policies of insurance (except those of public
liability and property damage) and the proceeds thereof, and Borrower shall
direct all insurers under such policies of insurance to pay all proceeds thereof
directly to Bank.

b. Upon the occurrence of an Event of Default,

c. Borrower hereby irrevocably appoints Bank (and any of Bank’s officers,
employees or agents designated by Bank) as Borrower’s attorney for the purpose
of making, selling and adjusting claims under such policies of insurance,
endorsing the name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance.
Borrower will not cancel any of such policies without Bank’s prior written
consent. Each such insurer shall agree by endorsement upon the policy or
policies of insurance issued by it to Borrower as required above, or by
independent instruments furnished to Bank, that it will give Bank at least ten
(10) days written notice before any such policy or policies of insurance shall
be altered or canceled, and that no act or default of Borrower, or any other
person, shall affect the right of Bank to recover under such policy or policies
of insurance required above or to pay any premium in whole or in part relating
thereto. Bank, without waiving or releasing any Indebtedness or any Event of
Default, may, but shall have no obligation to do so, obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect to such policies which Bank deems advisable. All sums so disbursed by
Bank, as well as reasonable attorneys’ fees incurred by Bank, whether in-house
or outside counsel is used, court costs, expenses and other charges relating
thereto, shall constitute Bank Expenses and are payable on demand.

6.14 All financial statements and information relating to Borrower which have
been or may hereafter be delivered by Borrower to Bank are true and correct and
have been prepared in accordance with GAAP consistently applied and there has
been no material adverse change in the financial condition of Borrower since the
submission of such financial information to Bank.

6.15 Financial Reporting.

a. Borrower at all times hereafter shall maintain a standard and modern system
of accounting in accordance with GAAP consistently applied with ledger and
account cards and/or computer tapes and computer disks, computer printouts and
computer records pertaining to the Collateral which contain information as may
from time to time be requested by Bank, not modify or change its method of
accounting or enter into, modify or terminate any agreement presently existing,
or at any time hereafter entered into with any third party accounting firm
and/or service bureau for the preparation and/or storage of Borrower’s
accounting records without notifying Bank in writing and without said accounting
firm and/or

 

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service bureau agreeing to provide information regarding the Accounts and
Inventory and Borrower’s financial condition to Bank; permit Bank and any of its
employees, officers or agents, upon demand, during Borrower’s usual business
hours, or the usual business hour of third persons having control thereof, to
have access to and examine all of Borrower’s Books relating to the Collateral,
Borrower’s Indebtedness to Bank, Borrower’s financial condition and the results
of Borrower’s operations and in connection therewith, permit Bank or any of its
agents, employees or officers to copy and make extracts therefrom.

b. Borrower shall deliver to Bank within fifty (50) days after the end of each
of the first three fiscal quarters of Borrower, a company prepared balance sheet
and profit and loss statement covering Borrower’s operations and deliver to Bank
within ninety five (95) days after the end of each of Borrower’s fiscal years an
unqualified audited statement of the financial condition of Borrower for each
such fiscal year, including but not limited to, a balance sheet and profit and
loss statement and any other report requested by Bank relating to the Collateral
and the financial condition of Borrower, and a covenant compliance certificate
(delivered to Bank along with the quarterly and annual financial statements)
signed by an authorized officer of Borrower and such officers certification to
the effect that all reports, statements, computer disk or tape files, computer
printouts, computer runs, or other computer prepared information of any kind or
nature relating to the foregoing or documents delivered or caused to be
delivered to Bank under this subparagraph are complete, correct and thoroughly
present the financial condition of Borrower and that there exists on the date of
delivery to Bank no condition or event which constitutes a breach or Event of
Default under this Agreement

c. In addition to the financial statements requested above, Borrower agrees to
provide or cause to be provided to the Bank:

 

  (1) intellectual property reports within ninety five (95) days after the end
of each fiscal year of Borrower;

 

  (2) such budgets, sales projections, operating plans or other financial
information generally prepared by Borrower in the ordinary course of business as
Bank may reasonably request from time to time; and

 

  (3) if applicable, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders of
Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the
Securities and Exchange Commission, which copies may be provided by delivery of
electronic links to public filings to Bank, within five (5) days of filing (or
95 days of calendar quarter end for the form 10-K or 50 days of calendar quarter
end for the form 10-Q).

6.16 Borrower shall maintain the following financial ratios and covenants on a
consolidated and non-consolidated basis:

 

  a. a Quick Ratio of not less than 2.00 to 1.00, which shall be monitored on a
quarterly basis; and

 

  b. a Liquidity Ratio of at least 1.00 to 1.00 at all times.

All financial covenants shall be computed in accordance with GAAP consistently
applied except as otherwise specifically set forth in this Agreement. All monies
due from affiliates (including officers, directors and shareholders) shall be
excluded from Borrower’s assets for all purposes hereunder.

6.17 Borrower shall promptly supply Bank (and cause any guarantor to supply
Bank) with such other information (including tax returns) concerning its
financial affairs (or that of any guarantor) as Bank may request from time to
time hereafter, and shall promptly notify Bank of any material adverse change in
Borrower’s financial condition and of any condition or event which constitutes a
breach of or an event which constitutes an Event of Default under this
Agreement.

6.18 Borrower is now and shall be at all times hereafter solvent and able to pay
its debts (including trade debts) as they mature.

6.19 Borrower shall immediately and without demand reimburse Bank for all sums
expended by Bank in connection with any action brought by Bank to correct any
default or enforce any provision of this Agreement, including all Bank Expenses;
Borrower authorizes and approves all advances and payments by Bank for items
described in this Agreement as Bank Expenses.

6.20 Each warranty, representation and agreement contained in this Agreement
shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any

 

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investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank, either now or hereafter.

6.21 Borrower shall keep all of its principal bank accounts with Bank and, upon
the occurrence of an Event of Default, shall notify Bank immediately in writing
of the existence of any other bank account, deposit account, or any other
account into which money can be deposited.

6.22 Borrower shall furnish to Bank: (a) as soon as possible, but in no event
later than thirty (30) days after Borrower knows or has reason to know that any
reportable event with respect to any deferred compensation plan has occurred, a
statement of the chief financial officer of Borrower setting forth the details
concerning such reportable event and the action which Borrower proposes to take
with respect thereto, together with a copy of the notice of such reportable
event given to the Pension Benefit Guaranty Corporation, if a copy of such
notice is available to Borrower; (b) promptly after the filing thereof with the
United States Secretary of Labor or the Pension Benefit Guaranty Corporation,
copies of each annual report with respect to each deferred compensation plan;
(c) promptly after receipt thereof, a copy of any notice Borrower may receive
from the Pension Benefit Guaranty Corporation or the Internal Revenue Service
with respect to any deferred compensation plan; provided, however, this
subparagraph shall not apply to notice of general application issued by the
Pension Benefit Guaranty Corporation or the Internal Revenue Service; and
(d) when the same is made available to participants in the deferred compensation
plan, all notices and other forms of information from time to time disseminated
to the participants by the administrator of the deferred compensation plan.

6.23 Borrower is now and shall at all times hereafter remain in compliance with
all federal, state and municipal laws, regulations and ordinances relating to
the handling, treatment and disposal of toxic substances, wastes and hazardous
material and shall maintain all necessary authorizations and permits.

7. EVENTS OF DEFAULT.

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

a. If Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, or agreement, contained in this Agreement (other
than as described in clause (c) below), or any other present or future document,
instrument or agreement between Borrower and Bank and in the case of such
noncompliance under Sections 6.8, 6.10, 6.13, 6.15 and 6.16 of this Agreement,
the continuation of such noncompliance for a period of 10 days (the “Cure
Period”) after the earlier of Borrower’s knowledge thereof or Borrower’s receipt
of notice from Bank thereof; provided, however, that if the default cannot by
its nature be cured within the 10 day period or cannot after diligent attempts
by Borrower be cured within such 10 day period, and such default is likely to be
cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed 30 days) to attempt to
cure such default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default but no extensions of
Credit will be made during such cure period;

b. If any representation, statement, report or certificate made or delivered by
Borrower, or any of its officers, employees or agents to Bank is not true and
correct;

c. If Borrower fails to pay when due and payable or declared due and payable,
all or any portion of Borrower’s Indebtedness (whether of principal, interest,
taxes, reimbursement of Bank Expenses, or otherwise);

d. If there is a material impairment of the prospect of repayment of all or any
portion of Borrower’s Indebtedness or a material impairment of the value or
priority of Bank’s security interest in the Collateral;

e. If all or any material portion of Borrower’s assets are attached, seized,
subject to a writ or distress warrant, or are levied upon, or come into the
possession of any Judicial Officer or Assignee and the same are not released,
discharged or bonded against within ten (10) days thereafter, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower’s assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower’s assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no extensions of Credit will be made during such cure period);

 

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f. If any Insolvency Proceeding is filed or commenced by or against Borrower
without being dismissed within thirty (30) days thereafter (provided that no
extensions of Credit will be made prior to the dismissal of such Insolvency
Proceeding);

g. If any proceeding is filed or commenced by or against Borrower for its
dissolution or liquidation;

h. If Borrower is enjoined, restrained or in any way prevented by court order
from continuing to conduct all or any material part of its business affairs;

i. If a notice of lien, levy or assessment is filed of record with respect to
any or all of Borrower’s assets by the United States Government, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at any time
hereafter to any one or more of such entities becomes a lien, whether inchoate
or otherwise, upon any or all of Borrower’s assets and the same is not paid on
the payment date thereof;

j. If a judgment or other claim (individually or in the aggregate in excess of
$250,000) becomes a lien or encumbrance upon any or all of Borrower’s assets and
the same is not satisfied, dismissed or bonded against within ten (10) days
thereafter (provided that no extensions of Credit will be made prior to the
satisfaction or stay of such judgment);

k. If Borrower’s records are prepared and kept by an outside computer service
bureau at the time this Agreement is entered into or during the term of this
Agreement such an agreement with an outside service bureau is entered into, and
at any time thereafter, without first obtaining the written consent of Bank,
Borrower terminates, modifies, amends or changes its contractual relationship
with said computer service bureau or said computer service bureau fails to
provide Bank with any requested information or financial data pertaining to
Bank’s Collateral, Borrower’s financial condition or the results of Borrower’s
operations;

l. If Borrower permits a default in any material agreement to which Borrower is
a party with third parties so as to result in an acceleration of the maturity of
Borrower’s indebtedness in excess of $250,000 to others, whether under any
indenture, agreement or otherwise;

m. If Borrower makes any payment on account of indebtedness which has been
subordinated to Borrower’s Indebtedness to Bank except as otherwise permitted
under the terms of this Agreement;

n. If any misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower, or if any
such warranty or representation is withdrawn by any officer or director;

o. If any party subordinating its claims to that of Bank’s or any guarantor of
Borrower’s Indebtedness dies, terminates its subordination or guaranty, violates
the terms of the subordination or guaranty, becomes insolvent, or an Insolvency
Proceeding is commenced by or against any such subordinating party or guarantor;

p. If Borrower is an individual and Borrower dies;

q. If there is a change of ownership or control of fifty one percent (51%) or
more of the issued and outstanding stock of Borrower; or

r. If any reportable event, which Bank determines constitutes grounds for the
termination of any deferred compensation plan by the Pension Benefit Guaranty
Corporation or for the appointment by the appropriate United States District
Court of a trustee to administer any such plan, shall have occurred and be
continuing thirty (30) days after written notice of such determination shall
have been given to Borrower by Bank, or any such Plan shall be terminated within
the meaning of Title IV of the Employment Retirement Income Security Act
(“ERISA”), or a trustee shall be appointed by the appropriate United States
District Court to administer any such plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any plan and in case of any
event described in this Section 7, the aggregate amount of Borrower’s liability
to the Pension Benefit Guaranty Corporation under Sections 4062, 4063 or 4064 of
ERISA shall exceed five percent (5%) of Borrower’s Tangible Effective Net Worth.

Notwithstanding anything contained in Section 7 to the contrary, Bank shall
refrain from exercising its rights and remedies and Event of Default shall
thereafter not be deemed to have occurred by reason of the occurrence of any of
the events set forth in Sections 7.e, 7.f or 7.j of this Agreement if, within
ten (10) days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event is the
institution of Insolvency Proceedings against Borrower, Bank shall not be
obligated to make advances to Borrower during such cure period.

 

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8. BANK’S RIGHTS AND REMEDIES.

8.1 Upon the occurrence of an Event of Default by Borrower under this Agreement,
Bank may, at its election, without notice of its election and without demand, do
any one or more of the following, all of which are authorized by Borrower:

a. Declare Borrower’s Indebtedness, whether evidenced by this Agreement,
installment notes, demand notes or otherwise, immediately due and payable to
Bank;

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

c. Terminate this Agreement as to any future liability or obligation of Bank,
but without affecting Bank’s rights and security interests in the Collateral,
and the Indebtedness of Borrower to Bank;

d. Without notice to or demand upon Borrower or any guarantor, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, take and maintain possession of the Collateral and the
premises (at no charge to Bank), or any part thereof, and to pay, purchase,
contest or compromise any encumbrance, charge or lien which in the opinion of
Bank appears to be prior or superior to its security interest and to pay all
expenses incurred in connection therewith;

e. Without limiting Bank’s rights under any security interest, Bank is hereby
granted a license or other right to use, without charge, Borrower’s labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any property of a similar nature as it
pertains to the Collateral, in completing production of, advertising for sale
and selling any Collateral and Borrower’s rights under all licenses and all
franchise agreement shall inure to Bank’s benefit, and Bank shall have the right
and power to enter into sublicense agreements with respect to all such rights
with third parties on terms acceptable to Bank;

f. Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sales and sell (in the manner provided for herein) the Inventory;

g. Sell or dispose the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower’s premises) as is commercially
reasonable in the opinion of Bank. It is not necessary that the Collateral be
present at any such sale. At any sale or other disposition of the Collateral
pursuant to this Section, Bank disclaims all warranties which would otherwise be
given under the Uniform Commercial Code, including without limitation a
disclaimer of any warranty relating to title, possession, quiet enjoyment or the
like, and Bank may communicate these disclaimers to a purchaser at such
disposition. This disclaimer of warranties will not render the sale commercially
unreasonable;

h. Bank shall give notice of the disposition of the Collateral as follows:

(1) Bank shall give Borrower and each holder of a security interest in the
Collateral who has filed with Bank a written request for notice, a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some disposition other than a public sale is to be made of the Collateral,
the time on or after which the private sale or other disposition is to be made;

(2) The notice shall be personally delivered or mailed, postage prepaid, to
Borrower’s address appearing in this Agreement, at least ten (10) calendar days
before the date fixed for the sale, or at least ten (10) calendar days before
the date on or after which the private sale or other disposition is to be made,
unless the Collateral is perishable or threatens to decline speedily in value.
Notice to persons other than Borrower claiming an interest in the Collateral
shall be sent to such addresses as have been furnished to Bank or as otherwise
determined in accordance with Section 9611 of the Uniform Commercial Code; and

(3) If the sale is to be a public sale, Bank shall also give notice of the time
and place by publishing a notice one time at least ten (10) calendar days before
the date of the sale in a newspaper of general circulation in the county in
which the sale is to be held; and

(4) Bank may credit bid and purchase at any public sale.

 

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i. Borrower shall pay all Bank Expenses incurred in connection with Bank’s
enforcement and exercise of any of its rights and remedies as herein provided,
whether or not suit is commenced by Bank;

j. Any deficiency which exists after disposition of the Collateral as provided
above will be paid immediately by Borrower. Any excess will be returned, without
interest and subject to the rights of third parties, to Borrower by Bank, or, in
Bank’s discretion, to any party who Bank believes, in good faith, is entitled to
the excess;

k. Without constituting a retention of Collateral in satisfaction of an
obligation within the meaning of 9620 of the Uniform Commercial Code or an
action under California Code of Civil Procedure 726, apply any and all amounts
maintained by Borrower as deposit accounts (as that term is defined under 9102
of the Uniform Commercial Code) or other accounts that Borrower maintains with
Bank against the Indebtedness;

l. The proceeds of any sale or other disposition of Collateral authorized by
this Agreement shall be applied by Bank first upon all expenses authorized by
the Uniform Commercial Code and all reasonable attorney fees and legal expenses
incurred by Bank, whether in-house or outside counsel is used, the balance of
the proceeds of the sale or other disposition shall be applied in the payment of
the Indebtedness, first to interest, then to principal, then to remaining
Indebtedness and the surplus, if any, shall be paid over to Borrower or to such
other person(s) as may be entitled to it under applicable law. Borrower shall
remain liable for any deficiency, which it shall pay to Bank immediately upon
demand. Borrower agrees that Bank shall be under no obligation to accept any
noncash proceeds in connection with any sale or disposition of Collateral unless
failure to do so would be commercially unreasonable. If Bank agrees in its sole
discretion to accept noncash proceeds (unless the failure to do so would be
commercially unreasonable), Bank may ascribe any commercially reasonable value
to such proceeds. Without limiting the foregoing, Bank may apply any discount
factor in determining the present value of proceeds to be received in the future
or may elect to apply proceeds to be received in the future only as and when
such proceeds are actually received in cash by Bank; and

m. The following shall be the basis for any finder of fact’s determination of
the value of any Collateral which is the subject matter of a disposition giving
rise to a calculation of any surplus or deficiency under Section 9615(f) of the
Uniform Commercial Code: (i) The Collateral which is the subject matter of the
disposition shall be valued in an “as is” condition as of the date of the
disposition, without any assumption or expectation that such Collateral will be
repaired or improved in any manner; (ii) the valuation shall be based upon an
assumption that the transferee of such Collateral desires a resale of the
Collateral for cash promptly (but no later than 30 days) following the
disposition; (iii) all reasonable closing costs customarily borne by the seller
in commercial sales transactions relating to property similar to such Collateral
shall be deducted including, without limitation, brokerage commissions, tax
prorations, attorney’s fees, whether in-house or outside counsel is used, and
marketing costs; (iv) the value of the Collateral which is the subject matter of
the disposition shall be further discounted to account for any estimated holding
costs associated with maintaining such Collateral pending sale (to the extent
not accounted for in (iii) above), and other maintenance, operational and
ownership expenses; and (v) any expert opinion testimony given or considered in
connection with a determination of the value of such Collateral must be given by
persons having at least 5 years experience in appraising property similar to the
Collateral and who have conducted and prepared a complete written appraisal of
such Collateral taking into consideration the factors set forth above. The
“value” of any such Collateral shall be a factor in determining the amount of
proceeds which would have been realized in a disposition to a transferee other
than a secured party, a person related to a secured party or a secondary obligor
under Section 9615(f) of the Uniform Commercial Code.

8.2 In addition to any and all other rights and remedies available to Bank under
or pursuant to this Agreement or any other documents, instrument or agreement
contemplated hereby, Borrower acknowledges and agrees that (i) at any time
following the occurrence and during the continuance of any Event of Default,
and/or (ii) termination of Bank’s commitment or obligation to make loans or
advances or otherwise extend credit to or in favor of Borrower hereunder, in the
event that and to the extent that there are any Letter of Credit Obligations and
Exchange Contract Obligations outstanding at such time, upon demand of Bank,
Borrower shall deliver to Bank, or cause to be delivered to Bank, cash
collateral in an amount not less than such Letter of Credit Obligations and
Exchange Contract Obligations, which cash collateral shall be held and retained
by Bank as cash collateral for the repayment of such Letter of Credit
Obligations and Exchange Contract Obligations, together with any and all other
Indebtedness of Borrower to Bank remaining unpaid, and Borrower pledges to Bank
and grants to Bank a continuing first priority security interest in such cash
collateral so delivered to Bank. Alternatively, Borrower shall cause to be
delivered to Bank an irrevocable standby letter of credit issued in favor of
Bank by a bank acceptable to Bank, in its sole discretion, in an amount not less
than such Letter of Credit Obligations, and upon terms acceptable to Bank, in
its sole discretion.

8.3 Bank’s rights and remedies under this Agreement and all other agreements
shall be cumulative. Bank shall have all other rights and remedies not
inconsistent herewith as provided by law or in equity. No exercise by Bank of
one right or remedy shall be deemed an election, and no waiver by Bank of any
default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election or acquiescence by Bank.

 

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9. TAXES AND EXPENSES REGARDING BORROWER’S PROPERTY. If Borrower fails to pay
promptly when due to another person or entity, monies which Borrower is required
to pay by reason of any provision in this Agreement, Bank may, but need not, pay
the same and charge Borrower’s loan account therefor, and Borrower shall
promptly reimburse Bank. All such sums shall become additional Indebtedness
owing to Bank, shall bear interest at the rate hereinabove provided, and shall
be secured by all Collateral. Any payments made by Bank shall not constitute
(i) an agreement by it to make similar payments in the future, or (ii) a waiver
by Bank of any default under this Agreement. Bank need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance
or lien and the receipt of the usual official notice of the payment thereof
shall be conclusive evidence that the same was validly due and owing. Such
payments shall constitute Bank Expenses and additional advances to Borrower.

10. WAIVERS.

10.1 Borrower agrees that checks and other instruments received by Bank in
payment or on account of Borrower’s Indebtedness constitute only conditional
payment until such items are actually paid to Bank and Borrower waives the right
to direct the application of any and all payments at any time or times hereafter
received by Bank on account of Borrower’s Indebtedness and Borrower agrees that
Bank shall have the continuing exclusive right to apply and reapply such
payments in any manner as Bank may deem advisable, notwithstanding any entry by
Bank upon its books.

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

10.3 Bank shall not in any way or manner be liable or responsible for (a) the
safekeeping of the Inventory; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All risk of loss, damage or
destruction of Inventory shall be borne by Borrower.

10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm and/or
service bureau or consultant in connection with any information requested by
Bank pursuant to or in accordance with this Agreement, and agrees that a Bank
may contact directly any such accountants, accounting firm and/or service bureau
or consultant in order to obtain such information.

10.5 Co-Borrowers. Each Borrower agrees as follows:

a. Each Borrower agrees that it is jointly and severally, directly, and
primarily liable to Bank for payment in full of the Indebtedness and that such
liability is independent of the duties, obligations and liabilities of the other
Borrower. The Agreement and each other document, instrument and agreement
entered into by any one or more of the Borrowers in connection therewith
(collectively, hereinafter, the “Loan Documents”) are a primary and original
obligation of each Borrower, are not the creation of a surety relationship, and
are an absolute, unconditional, and continuing promise of payment and
performance which shall remain in full force and effect without respect to
future changes in conditions, including any change of law or any invalidity or
irregularity with respect to the Loan Documents. Each Borrower acknowledges that
the obligations of such Borrower undertaken herein might be construed to
consist, at least in part, of the guaranty of obligations of persons or entities
other than such Borrower (including any other Borrower party hereto) and, in
full recognition of that fact, each Borrower consents and agrees that Bank may,
at any time and from time to time, without notice or demand, whether before or
after any actual or purported termination, repudiation, or revocation of the
Agreement and the other Loan Documents by any one or more Borrowers, and without
affecting the enforceability or continuing effectiveness hereof as to each
Borrower: (a) supplement, restate, modify, amend, increase, decrease, extend,
renew, accelerate, or otherwise change the time for payment or the terms of the
Indebtedness or any part thereof, including any increase or decrease of the
rate(s) of interest thereon; (b) supplement, restate, modify, amend, increase,
decrease or waive, or enter into or give any agreement, approval, or consent
with respect to, the Indebtedness or any part thereof, or any of the Loan
Documents or any additional security or guaranties, or any condition, covenant,
default, remedy, right, representation or term thereof or thereunder; (c) accept
new or additional instruments, documents or agreements in exchange for or
relative to any of the Loan Documents or the Indebtedness or any part thereof;
(d) accept partial payments on the Indebtedness; (e) receive and hold additional
security or guaranties for the Indebtedness or any part thereof; (f) release,
reconvey, terminate, waive, abandon, fail to perfect, subordinate, exchange,
substitute, transfer, or enforce any security or guaranties, and apply any
security and direct the order or manner of sale thereof as Bank in its sole and
absolute discretion may determine; (g) release any Person from any personal
liability with respect to the Indebtedness or any part thereof; (h) settle,
release on terms satisfactory to Bank or by operation of applicable laws, or
otherwise liquidate or enforce any Indebtedness and any security therefor or
guaranty thereof in any manner, consent to the transfer of any security and bid
and purchase at any sale; or (i) consent to the merger, change, or any other
restructuring or termination of the corporate or partnership existence of any
Borrower or any other Person, and correspondingly restructure the Indebtedness,
and any such merger, change, restructuring, or termination shall not affect the
liability of any Borrower or the continuing effectiveness hereof, or the
enforceability hereof with respect to all or any part of the Indebtedness.

 

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b. Upon the occurrence and during the continuance of any Event of Default, Bank
may enforce the Agreement and the other Loan Documents independently as to each
Borrower and independently of any other remedy or security Bank at any time may
have or hold in connection with the Indebtedness, and it shall not be necessary
for Bank to marshal assets in favor of any Borrower or any other Person or to
proceed upon or against or exhaust any security or remedy before proceeding to
enforce the Agreement and the other Loan Documents. Each Borrower expressly
waives any right to require Bank to marshal assets in favor of any Borrower or
any other Person or to proceed against any other Borrower or any Collateral
provided by any Person, and agrees that Bank may proceed against Borrowers or
any Collateral in such order as it shall determine in its sole and absolute
discretion.

c. Bank may file a separate action or actions against any Borrower, whether
action is brought or prosecuted with respect to any security or against any
other person, or whether any other person is joined in any such action or
actions. Each Borrower agrees that Bank and any Borrower and any affiliate of
any Borrower may deal with each other in connection with the Indebtedness or
otherwise, or alter any contracts or agreements now or hereafter existing
between any of them, in any manner whatsoever, all without in any way altering
or affecting the continuing efficacy of the Agreement or the other Loan
Documents.

d. Bank’s rights under the Loan Documents shall be reinstated and revived, and
the enforceability of the Agreement and the other Loan Documents shall continue,
with respect to any amount at any time paid on account of the Indebtedness which
thereafter shall be required to be restored or returned by Bank, all as though
such amount had not been paid. The rights of Bank created or granted herein and
the enforceability of the Agreement and the other Loan Documents at all times
shall remain effective to cover the full amount of all the Indebtedness even
though the Indebtedness, including any part thereof or any other security or
guaranty therefor, may be or hereafter may become invalid or otherwise
unenforceable as against any Borrower and whether or not any other Borrower
shall have any personal liability with respect thereto.

e. To the maximum extent permitted by applicable law and to the extent that a
Borrower is deemed a guarantor, each Borrower expressly waives any and all
defenses now or hereafter arising or asserted by reason of (a) any disability or
other defense of any other Borrower with respect to the Indebtedness, (b) the
unenforceability or invalidity of any security or guaranty for the Indebtedness
or lack of perfection or continuing perfection or failure of priority of any
security for the Indebtedness, (c) the cessation for any cause whatsoever of the
liability of any other Borrower (other than by reason of the full payment and
performance of all Indebtedness), (d) any failure of the Bank to marshal assets
in favor of Bank or any Borrower or any other person, (e) any failure of Bank to
give notice of sale or other disposition of collateral to any Borrower or any
other Person or any defect in any notice that may be given in connection with
any sale or disposition of collateral, (f) any failure of Bank to comply with
applicable law in connection with the sale or other disposition of any
collateral or other security for any Obligation, including any failure of Bank
to conduct a commercially reasonable sale or other disposition of any collateral
or other security for any Obligation, (g) any act or omission of Bank or others
that directly or indirectly results in or aids the discharge or release of any
Borrower or the Indebtedness or any security or guaranty therefor by operation
of law or otherwise, (h) any law which provides that the obligation of a surety
or guarantor must neither be larger in amount nor in other respects more
burdensome than that of the principal or which reduces a surety’s or guarantor’s
obligation in proportion to the principal obligation, (i) any failure of Bank to
file or enforce a claim in any bankruptcy or other proceeding with respect to
any Person, (j) the election by Bank of the application or non-application of
Section 1111(b)(2) of the United States Bankruptcy Code, (k) any extension of
credit or the grant of any lien under Section 364 of the United States
Bankruptcy Code, (1) any use of cash collateral under Section 363 of the United
States Bankruptcy Code, (m) any agreement or stipulation with respect to the
provision of adequate protection in any bankruptcy proceeding of any Person,
(n) the avoidance of any lien in favor of Bank for any reason, or (o) any action
taken by Bank that is authorized by the Agreement or any other provision of any
Loan Document. Until such time as all of the Indebtedness have been fully,
finally, and indefeasibly paid in full in cash: (i) each Borrower hereby waives
and postpones any right of subrogation it has or may have as against any other
Borrower with respect to the Indebtedness; and (ii) in addition, each Borrower
also hereby waives and postpones any right to proceed or to seek recourse
against or with respect to any property or asset of any other Borrower. Each
Borrower expressly waives all setoffs and counterclaims and all presentments,
demands for payment or performance, notices of nonpayment or nonperformance,
protests, notices of protest, notices of dishonor and all other notices or
demands of any kind or nature whatsoever with respect to the Indebtedness, and
all notices of acceptance of the Agreement or the other Loan Documents or of the
existence, creation or incurring of new or additional Indebtedness.

f. In the event that all or any part of the Indebtedness at any time are secured
by any one or more deeds of trust or mortgages or other instruments creating or
granting liens on any interests in real property, each Borrower authorizes Bank,
upon the occurrence of and during the continuance of any Event of Default, at
its sole option, without notice or demand and without affecting the obligations
of any Borrower, the enforceability of the Agreement and the other Loan
Documents, or the validity or enforceability of any liens of Bank, to foreclose
any or all of such deeds of trust or mortgages or other instruments by judicial
or nonjudicial sale.

 

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g. Without limiting the generality of any other waiver or other provision set
forth in this Agreement, each Borrower waives all rights and defenses that such
Borrower may have because the Indebtedness is secured by real property. This
means, among other things:

(1) Bank may collect from any Borrower without first foreclosing on any real or
personal property pledged as Collateral by any other Borrower to secure the
Indebtedness.

(2) If Bank forecloses on any real property pledged as Collateral by any
Borrower:

 

(a) the amount of the debt may be reduced only by the price for which that
Collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price.

 

(b) Bank may collect from any Borrower even if Bank, by foreclosing on the real
property pledged as Collateral, has destroyed any right that Borrower may have
to collect from any other Borrower.

This is an unconditional and irrevocable waiver of any rights and defenses each
Borrower may have because the Indebtedness is secured by Real Property. These
rights and defenses include, but are not limited to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure.

h. To the fullest extent permitted by applicable law, to the extent that a
Borrower is deemed a guarantor, each Borrower expressly waives any defenses to
the enforcement of the Agreement and the other Loan Documents or any rights of
Bank created or granted hereby or to the recovery by Bank against any Borrower
or any other Person liable therefor of any deficiency after a judicial or
nonjudicial foreclosure or sale, even though such a foreclosure or sale may
impair the subrogation rights of Borrowers and may preclude Borrowers from
obtaining reimbursement or contribution from other Borrowers. To the fullest
extent permitted by applicable law, each Borrower expressly waives any
suretyship defenses or benefits that it otherwise might or would have under
applicable law. WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS AGREEMENT, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH BORROWER WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN
ELECTION OF REMEDIES BY BANK, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A
NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR THE INDEBTEDNESS, HAS
DESTROYED SUCH BORROWER’S RIGHTS OF SUBROGATION AND REIMBURSEMENT AGAINST THE
OTHER BORROWERS BY OPERATION OF LAW, INCLUDING BUT NOT LIMITED TO SECTION 580d
OF THE CALIFORNIA CODE OF CIVIL PROCEDURE, OR OTHERWISE.

10.6 THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS
A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING
(OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE,
KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR
ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS AGREEMENT OR THE INDEBTEDNESS.

10.7 Judicial Reference Provision.

This Reference Provision will be applicable so long as, under applicable law and
precedent, a pre-dispute Jury Trial Waiver provision similar to that contained
in Section 10.6 of this Agreement is invalid or unenforceable. Delay in
requesting appointment of a referee pending review of any such decision, or
participation in litigation pending review, will not be deemed a waiver of this
Reference Provision.

a. Other than (i) non-judicial foreclosure of security interests in real or
personal property, (ii) the appointment of a receiver or (iii) the exercise of
other provisional remedies (any of which may be initiated pursuant to applicable
law), any controversy, dispute or claim (each, a “Claim”) between the parties
arising out of or relating to the Agreement, will be resolved by a reference
proceeding in California in accordance with the provisions of Section 638 et
seq. of the California Code of Civil Procedure (“CCP”), or their successor
sections, which shall constitute the exclusive remedy for the resolution of any
Claim, including whether the Claim is subject to the reference proceeding.
Except as otherwise provided in the Agreement, venue for the reference
proceeding will be in the Superior Court or Federal District Court in the County
or District where venue is otherwise appropriate under applicable law (the
“Court”).

b. The referee shall be a retired Judge or Justice selected by mutual written
agreement of the parties. If the parties do not agree, the referee shall be
selected by the Presiding Judge of the Court (or his or her representative). A
request for appointment of a referee may be heard on an ex parte or expedited
basis, and the parties agree that irreparable harm would result if ex parte
relief is not granted. The referee shall be appointed to sit with all the powers
provided by law. Each party shall have one peremptory challenge pursuant to CCP
§170.6. Pending appointment of the referee, the Court has power to issue
temporary or provisional remedies.

 

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c. The parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee shall be requested to (a) set the matter
for a status and trial-setting conference within fifteen (15) days after the
date of selection of the referee, (b) if practicable, try all issues of law or
fact within ninety (90) days after the date of the conference and (c) report a
statement of decision within twenty (20) days after the matter has been
submitted for decision. Any decision rendered by the referee will be final,
binding and conclusive, and judgment shall be entered pursuant to CCP §644.

d. The referee will have power to expand or limit the amount and duration of
discovery. The referee may set or extend discovery deadlines or cutoffs for good
cause, including a party’s failure to provide requested discovery for any reason
whatsoever. Unless otherwise ordered, no party shall be entitled to “priority”
in conducting discovery, depositions may be taken by either party upon seven
(7) days written notice, and all other discovery shall be responded to within
fifteen (15) days after service. All disputes relating to discovery which cannot
be resolved by the parties shall be submitted to the referee whose decision
shall be final and binding.

e. Except as expressly set forth in this Agreement, the referee shall determine
the manner in which the reference proceeding is conducted including the time and
place of hearings, the order of presentation of evidence, and all other
questions that arise with respect to the course of the reference proceeding. All
proceedings and hearings conducted before the referee, except for trial, shall
be conducted without a court reporter, except that when any party so requests, a
court reporter will be used at any hearing conducted before the referee, and the
referee will be provided a courtesy copy of the transcript. The party making
such a request shall have the obligation to arrange for and pay the court
reporter. Subject to the referee’s power to award costs to the prevailing party,
the parties will equally share the cost of the referee and the court reporter at
trial.

f. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, provide all temporary or provisional
remedies, enter equitable orders that will be binding on the parties and rule on
any motion which would be authorized in a trial, including without limitation
motions for summary judgment or summary adjudication. The referee shall issue a
decision at the close of the reference proceeding which disposes of all claims
of the parties that are the subject of the reference. The referee’s decision
shall be entered by the Court as a judgment or an order in the same manner as if
the action had been tried by the Court. The parties reserve the right to appeal
from the final judgment or order or from any appealable decision or order
entered by the referee. The parties reserve the right to findings of fact,
conclusions of laws, a written statement of decision, and the right to move for
a new trial or a different judgment, which new trial, if granted, is also to be
a reference proceeding under this provision.

g. If the enabling legislation which provides for appointment of a referee is
repealed (and no successor statute is enacted), any dispute between the parties
that would otherwise be determined by reference procedure will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
or Justice, in accordance with the California Arbitration Act §1280 through
§1294.2 of the CCP as amended from time to time. The limitations with respect to
discovery set forth above shall apply to any such arbitration proceeding.

THE PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS REFERENCE
PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY, AND THAT THEY ARE IN
EFFECT WAIVING THEIR RIGHT TO TRIAL BY JURY IN AGREEING TO THIS REFERENCE
PROVISION. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH
COUNSEL OF THEIR OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY AND FOR THEIR
MUTUAL BENEFIT AGREES THAT THIS REFERENCE PROVISION WILL APPLY TO ANY DISPUTE
BETWEEN THEM WHICH ARISES OUT OF OR IS RELATED TO THE AGREEMENT.

10.8 In the event that Bank elects to waive any rights or remedies hereunder, or
compliance with any of the terms hereof, or delays or fails to pursue or enforce
any term, such waiver, delay or failure to pursue or enforce shall only be
effective with respect to that single act and shall not be construed to affect
any subsequent transactions or Bank’s right to later pursue such rights and
remedies.

11. ONE CONTINUING LOAN TRANSACTION. All loans and advances heretofore, now or
at any time or times hereafter made by Bank to Borrower under this Agreement or
any other agreement between Bank and Borrower, shall constitute one loan secured
by Bank’s security interests in the Collateral and by all other security
interests, liens, encumbrances heretofore, now or from time to time hereafter
granted by Borrower to Bank.

 

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    LOAN AND SECURITY AGREEMENT     (ACCOUNTS AND INVENTORY)

 

Notwithstanding the above, (i) to the extent that any portion of the
Indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in Borrower’s principal
dwelling which is not a purchase money security interest as to that portion,
unless expressly provided to the contrary in another place, or (ii) if Borrower
(or any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Indebtedness of Borrower (or any of them), unless expressly
provided to the contrary in another place.

12. NOTICES. Unless otherwise provided in this Agreement, all notices or demands
by either party on the other relating to this Agreement shall be in writing and
sent by regular United States mail, postage prepaid, properly addressed to
Borrower or to Bank at the addresses stated in this Agreement, or to such other
addresses as Borrower or Bank may from time to time specify to the other in
writing. Requests for information made to Borrower by Bank from time to time
hereunder may be made orally or in writing, at Bank’s discretion.

13. AUTHORIZATION TO DISBURSE. Bank is hereby authorized to make loans and
advances hereunder upon telephonic or other instructions received from anyone
purporting to be an officer, employee, or representative of Borrower, or at the
discretion of Bank if said loans and advances are necessary to meet any
Indebtedness of Borrower to Bank. Bank shall have no duty to make inquiry or
verify the authority of any such party, and Borrower shall hold Bank harmless
from any damage, claims or liability by reason of Bank’s honor of, or failure to
honor, any such instructions.

14. PAYMENTS. Borrower hereby authorizes Bank to deduct the full amount of any
interest, fees, costs, or Bank Expenses due under this Agreement and not paid or
collected when due in accordance with the terms and conditions hereof from any
account maintained by Borrower with Bank. Should there be insufficient funds in
any such account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower; provided, however,
that Bank shall not be obligated to advance funds to cover any such payment.

15. DESTRUCTION OF BORROWER’S DOCUMENTS. Any documents, schedules, invoices or
other papers delivered to Bank, may be destroyed or otherwise disposed of by
Bank six (6) months after they are delivered to or received by Bank, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower’s expense, for
their return.

16. CHOICE OF LAW. The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined according to the laws of the
State of California. The parties agree that all actions or proceedings arising
in connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or the County of Santa
Clara.

17. GENERAL PROVISIONS.

17.1 This Agreement shall be binding and deemed effective when executed by
Borrower and accepted and executed by Bank at its Western Division headquarters
office.

17.2 This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that Borrower
may not assign this Agreement or any rights hereunder without Bank’s prior
written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment by Bank shall release Borrower or any guarantor from
their obligations to Bank. Bank may assign this Agreement and its rights and
duties hereunder. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in Bank’s rights
and benefits hereunder. In connection therewith, Bank may disclose all documents
and information which Bank now or hereafter may have relating to Borrower or
Borrower’s business.

17.3 Paragraph headings and paragraph numbers have been set forth herein for
convenience only; unless the contrary is compelled by the context, everything
contained in each paragraph applies equally to this entire Agreement. Unless the
context of this Agreement clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, and the
term “including” is not limiting. The words “hereof,” “herein,” “hereby,”
“hereunder,” and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement.

17.4 Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Bank or Borrower, whether under any rule of
construction or otherwise; on the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto.

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

 

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    LOAN AND SECURITY AGREEMENT     (ACCOUNTS AND INVENTORY)

 

17.6 This Agreement cannot be changed or terminated orally. This Agreement
contains the entire agreement of the parties hereto and supersedes all prior
agreements, understandings, representations, warranties and negotiations, if
any, related to the subject matter hereof, and none of the parties shall be
bound by anything not expressed in writing.

17.7 The parties intend and agree that their respective rights, duties, powers,
liabilities, obligations and discretions shall be performed, carried out,
discharged and exercised reasonably and in good faith.

17.8 In addition, if this Agreement is secured by a deed of trust or mortgage
covering real property, then the trustor or mortgagor shall not mortgage or
pledge the mortgaged premises as security for any other indebtedness or
obligations. This Agreement, together with all other indebtedness secured by
said deed of trust or mortgage, shall become due and payable immediately,
without notice, at the option of Bank, (a) if said trustor or mortgagor shall
mortgage or pledge the mortgaged premises for any other indebtedness or
obligations or shall convey, assign or transfer the mortgaged premises by deed,
installment sale contract or other instrument; (b) if the title to the mortgaged
premises shall become vested in any other person or party in any manner
whatsoever, or (c) if there is any disposition (through one or more
transactions) of legal or beneficial title to a controlling interest of said
trustor or mortgagor.

17.9 Each undersigned Borrower hereby agrees that it is jointly and severally,
directly, and primarily liable to Bank for payment and performance in full of
all duties, obligations and liabilities under this Agreement and each other
document, instrument and agreement entered into by Borrower with or in favor of
Bank in connection herewith, and that such liability is independent of the
duties, obligations and liabilities of any other Borrower or any other guarantor
of the Indebtedness, as applicable. Each reference herein to Borrower shall mean
each and every Borrower party hereto, individually and collectively, jointly and
severally.

17.10 This Agreement may be executed by the parties hereto in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together but one and the same agreement. This Agreement,
together with each other document, instrument and agreement entered into with or
in favor of Bank in connection herewith and in connection with the Prior
Agreement, to the extent not amended and restated hereby, constitute the entire
understanding among the parties hereto with respect to the subject matter hereof
and, as applicable amends and restates in full the Prior Agreement and any other
agreement, written or oral, with respect thereto. Borrower ratifies and
reaffirms the continuing effectiveness of all promissory notes, guaranties,
security agreements, mortgages, deeds of trust, environmental agreements, and
all other instruments, documents and agreements entered into in connection with
the Prior Agreement that are not amended and restated in connection with this
Agreement.

[SIGNATURES ON NEXT PAGE]

 

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    LOAN AND SECURITY AGREEMENT     (ACCOUNTS AND INVENTORY)

 

IN WITNESS WHEREOF, the parties hereto have caused this Loan and Security
Agreement (Accounts and Inventory) to be executed as of the date first
hereinabove written.

 

    BORROWER:

Accepted and effective as of: March 8, 2006

at Bank’s Western Division Headquarters Office

 

CHORDIANT SOFTWARE, INC.,

a Delaware corporation

    By:  

/s/ Peter Norman

COMERICA BANK,   Name:   Peter Norman a Michigan banking corporation   Title:  
Chief Financial Officer By:  

/s/ Benjamin Yu

    Name:   Benjamin Yu     Title:   Vice President    

 

Address for Bank Notices:

 

75 East Trimble Road

San Jose, California 95131

Attn: Credit Manager

Fax number: (408) 556-5091

  

Address for Borrower Notices:

 

20400 Stevens Creek Blvd.

Suite 400

Cupertino, California 95014

Attention: George de Urioste

Fax number: (408) 517-0270

 

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    LOAN AND SECURITY AGREEMENT     (ACCOUNTS AND INVENTORY)

 

PERMITTED INDEBTEDNESS SCHEDULE

 

26

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    LOAN AND SECURITY AGREEMENT     (ACCOUNTS AND INVENTORY)

 

PERMITTED INVESTMENTS SCHEDULE

 

27

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    LOAN AND SECURITY AGREEMENT     (ACCOUNTS AND INVENTORY)

 

PERMITTED LIENS SCHEDULE

 

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    LOAN AND SECURITY AGREEMENT     (ACCOUNTS AND INVENTORY)

 

EXHIBIT “A”

COLLATERAL DESCRIPTION ATTACHMENT TO

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

 

(a) all accounts (including health-care-insurance receivables), chattel paper
(including tangible and electronic chattel paper), deposit accounts, documents
(including negotiable documents), equipment (including all accessions and
additions thereto), general intangibles (including payment intangibles and
software), goods (including fixtures), instruments (including promissory notes),
inventory (including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment
property (including securities and securities entitlements), letter of credit
rights, money, and all of Debtor’s books and records with respect to any of the
foregoing, and the computers and equipment containing said books and records;

 

(b) all common law and statutory copyrights and copyright registrations,
applications for registration, now existing or hereafter arising, in the United
States of America or in any foreign jurisdiction, obtained or to be obtained on
or in connection with any of the foregoing, or any parts thereof or any
underlying or component elements of any of the foregoing, together with the
right to copyright and all rights to renew or extend such copyrights and the
right (but not the obligation) of Secured Party to sue in its own name and/or in
the name of the Debtor for past, present and future infringements of copyright;

 

(c) all trademarks, service marks, trade names and service names and the
goodwill associated therewith, together with the right to trademark and all
rights to renew or extend such trademarks and the right (but not the obligation)
of Secured Party to sue in its own name and/or in the name of the Debtor for
past, present and future infringements of trademark;

 

(d) all (i) patents and patent applications filed in the United States Patent
and Trademark Office or any similar office of any foreign jurisdiction, and
interests under patent license agreements, including, without limitation, the
inventions and improvements described and claimed therein, (ii) licenses
pertaining to any patent whether Debtor is licensor or licensee, (iii) income,
royalties, damages, payments, accounts and accounts receivable now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past, present or future infringements
thereof, (iv) right (but not the obligation) to sue in the name of Debtor and/or
in the name of Secured Party for past, present and future infringements thereof,
(v) rights corresponding thereto throughout the world in all jurisdictions in
which such patents have been issued or applied for, and (vi) reissues,
divisions, continuations, renewals, extensions and continuations-in-part with
respect to any of the foregoing; and

 

(e) any and all cash proceeds and/or noncash proceeds of any of the foregoing,
including, without limitation, insurance proceeds, and all supporting
obligations and the security therefor or for any right to payment. All terms
above have the meanings given to them in the California Uniform Commercial Code,
as amended or supplemented from time to time, including revised Division 9 of
the Uniform Commercial Code-Secured Transactions, added by Stats. 1999, c.991
(S.B. 45), Section 35, operative July 1, 2001.

Notwithstanding the foregoing, the Collateral shall not include any copyrights,
patents, trademarks, servicemarks and applications therefor, now owned or
hereafter acquired, or any claims for damages by way of any past, present and
future infringement of any of the foregoing (collectively, the “Intellectual
Property”); provided, however, that the Collateral shall include all accounts
and general intangibles that consist of rights to payment from the sale,
licensing or disposition of all or any part of, or rights in, the Intellectual
Property (the “Rights to Payment”). Notwithstanding the foregoing, if and only
if a judicial authority (including a U.S. Bankruptcy Court) holds that a
security interest in the underlying Intellectual Property is necessary to have a
security interest in the Rights to Payment, then the Collateral shall
automatically, and effective as of August 31, 2000, include the Intellectual
Property but only to the extent necessary to permit perfection Bank’s security
interest in the Rights to Payment and Bank shall have no right, title and
interest in the Intellectual Property other than to perfect its security
interest in the Rights to Payment.

 

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Exhibit 10.1

EXHIBIT “B”

TECHNOLOGY & LIFE SCIENCES DIVISION

LOAN ANALYSIS

LOAN ADVANCE/PAYDOWN REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 3:00* P.M, P.S.T.

DEADLINE FOR WIRE TRANSFERS IS 1.30 P.M, P.S.T.

*At month end and the day before a holiday, the cut off time is 1:30 P.M.,
P.S.T.

 

TO: Loan Analysis    DATE:                             TIME:                 
FAX #: (650) 846-6840                  

 

FROM:  

 

  TELEPHONE REQUEST (For Bank Use Only):   Borrower’s Name   FROM:  

 

  The following person is authorized to request the loan payment transfer/loan
advance on the designated account and is known to me.   Authorized Signer’s Name
  FROM:  

 

    Authorized Signature (Borrower)           Authorized Requester & Phone #
PHONE #:  

 

              Received by (Bank) & Phone #
FROM ACCOUNT#:                                              
(please include Note number, if applicable)  
TO ACCOUNT #:                                                    
        Authorized Signature (Bank) (please include Note number, if applicable)
 

 

REQUESTED TRANSACTION TYPE

 

REQUESTED DOLLAR AMOUNT

  For Bank Use Only PRINCIPAL INCREASE* (ADVAN  
$                                                                  Date Rec’d:
PRINCIPAL PAYMENT (ONLY)   $                                      
                           Time:     Comp. Status     YES     NO OTHER
INSTRUCTIONS:     Status Date:

 

    Time:

 

    Approval:

 

   

All representations and warranties of Borrower stated in the Loan Agreement are
true, correct and complete in all material respects as of the date of the
telephone request for and advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties the date expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.

*IS THERE A WIRE REQUEST TIED TO THIS LOAN ADVANCE? (PLEASE CIRCLE ONE)
    YES    NO

If YES, the Outgoing Wire Transfer Instructions must be completed below.

 

OUTGOING WIRE TRANSFER INSTRUCTIONS    Fed Reference Number    Bank Transfer
Number The items marked with an asterisk (*) are required to be completed.

 

*Beneficiary Name    *Beneficiary Account Number *Beneficiary Address   
Currency Type                            US DOLLARS ONLY *ABA Routing Number (9
Digits) *Receiving Institution Name *Receiving Institution Address *Wire Amount
   $

For Bank Use Only

CRA Purpose Code                  Risk Rate                  CRA Inc.
$             Mat Date of Adv                  Mgmt Class                 

FED Call Code                  Autopay Info                  Coll Code
                 Coll desc                  SIC                  Rate
            

Pymt Sched                  Other                  Test Key #                 
Appv’d                  Appv’d                  Confirm                 

Entered By                  Printed (Initials)                  Bkg Office #
                 Reviewed By                 

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

Exhibit 10.1

LOAN AND SECURITY AGREEMENT

(ACCOUNTS AND INVENTORY)

EXHIBIT “C”

COMPLIANCE CERTIFICATE

 

TO: COMERICA BANK

 

FROM: CHORDIANT SOFTWARE, INC.

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

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

 

Reporting Covenant

   Required    Complies

Quarterly Financial Statements (10Q)

   within 50 days of quarter-end    Yes    No

Annual (CPA Audited, 10K)

   within 95 days of FYE    Yes    No

Annual intellectual property report

   within 95 days of FYE    Yes    No

Financial Covenant

   Required    Actual    Complies

Minimum Liquidity Ratio at all times

   1.00:1.00            :1.00    Yes    No

Minimum Quick Ratio on a quarterly basis

   2.00:1.00            :1.00    Yes    No

 

Comments Regarding Exceptions:    BANK USE ONLY          See Attached.         
      Received by:   

 

      Sincerely,    AUTHORIZED SIGNER          Date:   

 

     

 

 

   Verified:   

 

      SIGNATURE    AUTHORIZED SIGNER      

 

 

   Date:   

 

      TITLE            

 

 

   Compliance Status    Yes        No DATE            

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

    LOAN AND SECURITY AGREEMENT     (ACCOUNTS AND INVENTORY)

 

EXHIBIT “D”

Investment Policy Guidelines to be Attached

 

2