Exhibit 10.20

 

SECOND AMENDED AND RESTATED

 

LOAN AND SECURITY AGREEMENT

 

by and between

 

Silicon Valley Bank

 

and

 

California Micro Devices Corporation

 

September 29, 2004

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”)
dated September 29, 2004, between SILICON VALLEY BANK (“Bank”), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and CALIFORNIA MICRO DEVICES
CORPORATION, a California corporation (“Borrower”), whose address is 430 N.
McCarthy Blvd., #100, Milpitas, California 95035, provides the terms on which
Bank will lend to Borrower and Borrower will repay Bank. The parties agree as
follows:

 

1. ACCOUNTING AND OTHER TERMS

 

Accounting terms not defined in this Agreement will be construed following GAAP.
Calculations and determinations must be made following GAAP. The term “financial
statements” includes the notes and schedules. The terms “including” and
“includes” always mean “including (or includes) without limitation,” in this or
any Loan Document.

 

2. LOAN AND TERMS OF PAYMENT

 

2.1 Promise to Pay.

 

Borrower promises to pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.

 

2.1.1 Revolving Advances.

 

(a) Bank will make Advances not exceeding the Committed Revolving Line minus the
Sublimit Utilization Amount. Amounts borrowed under this Section may be repaid
(without penalty) and reborrowed during the term of this Agreement.

 

(b) To obtain an Advance, Borrower must notify Bank by facsimile or telephone by
12:00 p.m. Pacific time on the Business Day the Advance is to be made. Borrower
must promptly confirm the notification by delivering to Bank the Payment/Advance
Form attached as Exhibit B. Bank will credit Advances to Borrower’s deposit
account. Bank may make Advances under this Agreement based on instructions from
a Responsible Officer or his or her authorized designee or without instructions
if the Advances are necessary to meet Obligations which have become due. Bank
may rely on any telephone notice given by a person whom Bank reasonably believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to such reliance.

 

(c) The Committed Revolving Line terminates on the Revolving Maturity Date, when
all Advances are immediately payable.

 

(d) Bank’s obligation to lend the undisbursed portion of the Obligations will
terminate if, in Bank’s sole discretion, there has been a material adverse
change in the general affairs, management, results of operations, condition
(financial or otherwise) or the prospect of repayment of the Obligations, or
there has been any material adverse deviation by Borrower from the most recent
business plan of Borrower presented to and accepted by Bank prior to the
execution of this Agreement.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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2.1.2 Letters of Credit Sublimit.

 

Bank will issue or have issued Letters of Credit for Borrower’s account not
exceeding the Committed Revolving Line minus the sum of (a) all amounts for
services utilized under the Cash Management Services Sublimit, (b) the FX
Reserve and (c) the sum of the outstanding principal balance of the Advances.
Each Letter of Credit will have an expiry date of no later than 180 days after
the Revolving Maturity Date, but Borrower’s reimbursement obligation will be
secured by cash on terms acceptable to Bank on or before the Revolving Maturity
Date if the term of this Agreement is not extended by Bank. Borrower agrees to
execute any further documentation in connection with the Letters of Credit as
Bank may reasonably request.

 

2.1.3 Foreign Exchange Sublimit.

 

If there is availability under the Committed Revolving Line, then Borrower may
enter in foreign exchange forward contracts with the Bank under which Borrower
commits to purchase from or sell to Bank a set amount of foreign currency more
than one business day after the contract date (the “FX Forward Contract”). Bank
will subtract 10% of each outstanding FX Forward Contract from the foreign
exchange sublimit which is a maximum of the Committed Revolving Line minus the
sum of (a) all amounts for services utilized under the Cash Management Services
Sublimit, (b) the amount of all outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit), and (c) the sum of the outstanding
principal balance of the Advances (the “FX Reserve”). The total FX Forward
Contracts at any one time may not exceed 10 times the amount of the FX Reserve.
Bank may terminate the FX Forward Contracts if an Event of Default occurs.

 

2.1.4 Cash Management Services Sublimit.

 

Borrower may use up to the Committed Revolving Line minus the sum of (a) the
amount of all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit), (b) the FX Reserve and (c) the sum of the outstanding
principal balance of the Advances (the “Cash Management Services Sublimit”) for
Bank’s Cash Management Services, which may include merchant services, direct
deposit of payroll, business credit card, and check cashing services identified
in various cash management services agreements related to such services (the
“Cash Management Services”). Such aggregate amounts utilized under the Cash
Management Services Sublimit will at all times reduce the amount otherwise
available to be borrowed under the Committed Revolving Line. Any amounts Bank
pays on behalf of Borrower or any amounts that are not paid by Borrower for any
Cash Management Services will be treated as Advances under the Committed
Revolving Line and will accrue interest at the rate for Advances.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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2.2 Overadvances.

 

If Borrower’s Obligations under Section 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the
Committed Revolving Line, Borrower must immediately pay Bank the excess.

 

2.3 Interest Rate, Payments.

 

(a) Interest Rate. Advances accrue interest on the outstanding principal balance
at a per annum rate equal to the Prime Rate. After an Event of Default,
Obligations accrue interest at 5 percent above the rate effective immediately
before the Event of Default. The interest rate increases or decreases when the
Prime Rate changes. Interest is computed on a 360 day year for the actual number
of days elapsed.

 

(b) Payments. Interest due on the Committed Revolving Line is payable on the 1st
day of each month. Bank may debit any of Borrower’s deposit accounts including
Account Number ** for principal and interest payments owing or any amounts
Borrower owes Bank. Bank will promptly notify Borrower when it debits Borrower’s
accounts. These debits are not a set-off. Payments received after 12:00 noon
Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.

 

2.4 Fees.

 

Borrower will pay:

 

(a) Loan Fee. A fully earned, non-refundable term loan fee of $50,000; and

 

(b) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
reasonable expenses) incurred through and after the date of this Agreement, are
payable when due.

 

3. CONDITIONS OF LOANS

 

3.1 Conditions Precedent to Initial Credit Extension.

 

Bank’s obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.

 

3.2 Conditions Precedent to all Credit Extensions.

 

Bank’s obligations to make each Credit Extension, including the initial Credit
Extension, is subject to the following:

 

(a) timely receipt of any Payment/Advance Form; and

 

(b) the representations and warranties in Section 5 must be true on the date of
the Payment/Advance Form and on the effective date of each Credit Extension and
no

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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Event of Default may have occurred and be continuing, or result from the Credit
Extension. Each Credit Extension is Borrower’s representation and warranty on
that date that the representations and warranties of Section 5 remain true.

 

4. CREATION OF SECURITY INTEREST

 

4.1 Grant of Security Interest.

 

Borrower grants Bank a continuing security interest in all presently existing
and later acquired Collateral to secure all Obligations and performance of each
of Borrower’s duties under the Loan Documents. Except for Permitted Liens, any
security interest will be a first priority security interest in the Collateral.
Bank may place a “hold” on any deposit account pledged as Collateral. If this
Agreement is terminated, Bank’s lien and security interest in the Collateral
will continue until Borrower fully satisfies its Obligations and all obligations
of the Bank to make Credit Extensions or otherwise extend credit accommodations
have terminated.

 

4.2 Authorization to File Financing Statements.

 

Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to perfect or protect Bank’s interest in the Collateral.

 

4.3 Release of Account Control Agreement.

 

Upon payment in full of the Obligations, provided that Bank has no further
obligation to make any Credit Extension to Borrower, Bank shall terminate the
account control agreements.

 

5. REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants that the following statements are true and
correct on the date hereof and Borrower covenants that the following statements
will continue to be true and correct throughout the term of this Agreement and
so long as any Obligations are outstanding:

 

5.1 Due Organization and Authorization.

 

Borrower and each Subsidiary is duly existing and in good standing in its state
of formation (or reincorporation) and qualified and licensed to do business in,
and in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be qualified, except where the failure to
do so could not reasonably be expected to cause a Material Adverse Change.
Borrower has not changed its state of formation or its organizational structure
or type or any organizational number (if any) assigned by its jurisdiction of
formation.

 

The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could reasonably be expected to cause a Material
Adverse Change.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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

5.2 Collateral.

 

Borrower has good title to the Collateral, and good and marketable title to its
real property, free of Liens except Permitted Liens. Borrower has no other
deposit account, other than the deposit accounts described in the Schedule
(which Schedule Borrower may update from time to time by written notice to
Bank). Except as set forth in the Schedule (which Schedule Borrower may update
from time to time by written notice to Bank), (a) the Accounts are bona fide,
existing obligations, and the service or property has been performed or
delivered to the account debtor or its agent for immediate shipment to and
unconditional acceptance by the account debtor, and (b) the Collateral is not in
the possession of any third party bailee (such as at a warehouse). In the event
that Borrower, after the date hereof, intends to store or otherwise deliver the
Collateral to such a bailee, then Borrower will receive the prior written
consent of Bank and such bailee must acknowledge in writing that the bailee is
holding such Collateral for the benefit of Bank. Except as set forth in the
Schedule (which Schedule Borrower may update from time to time by written notice
to Bank), Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor. All Inventory is in all material respects of good and
marketable quality, free from material defects. Borrower is the sole owner of
the Intellectual Property, except for exclusive and non-exclusive licenses
granted to its customers in the ordinary course of business. Each Patent is
valid and enforceable and no part of the Intellectual Property has been judged
invalid or unenforceable, in whole or in part, and no claim has been made that
any part of the Intellectual Property violates the rights of any third party,
except to the extent such invalidity, unenforceability, judgment, or claim could
not reasonably be expected to cause a Material Adverse Change.

 

5.3 Litigation.

 

Except as set forth in the Schedule (which Schedule Borrower may update from
time to time by written notice to Bank), there are no actions or proceedings
pending or, to the knowledge of Borrower’s Responsible Officers, threatened by
or against Borrower or any Subsidiary which could result in damages or costs to
Borrower or any Subsidiary of $100,000 or more, or in which an adverse decision
could reasonably be expected to cause a Material Adverse Change.

 

5.4 No Material Adverse Change in Financial Statements.

 

All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower’s
consolidated financial condition and Borrower’s consolidated results of
operations. There has not been any material deterioration in Borrower’s
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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5.5 Solvency.

 

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

 

5.6 Regulatory Compliance.

 

Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP and
which do not result in any tax lien on any of the Collateral. Borrower and each
Subsidiary has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted,
except where the failure to do so could not reasonably be expected to cause a
Material Adverse Change.

 

5.7 Subsidiaries.

 

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

 

5.8 Full Disclosure.

 

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

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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6. AFFIRMATIVE COVENANTS

 

Borrower will do all of the following for so long as Bank has an obligation to
lend, or there are outstanding Obligations:

 

6.1 Government Compliance.

 

Borrower will maintain its and all Subsidiaries’ legal existence and good
standing in its jurisdiction of formation (or reincorporation) and maintain
qualification in each jurisdiction in which the failure to so qualify would
reasonably be expected to cause a material adverse effect on Borrower’s business
or operations. Borrower will comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it or its properties is subject,
noncompliance with which could have a material adverse effect on Borrower’s
business or operations or would reasonably be expected to cause a Material
Adverse Change.

 

6.2 Financial Statements, Reports, Certificates.

 

(a) Borrower will deliver to Bank: (i) as soon as available, but no later than
within 5 days of filing with the SEC, Borrower’s Report on Form 10-Q containing
consolidated financial statements prepared under GAAP, consistently applied,
subject to year-end audit adjustments; (ii) as soon as available, but no later
than within 5 days of filing with the SEC, Borrower’s Report on Form 10-K
containing audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm reasonably
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could reasonably result in
damages or costs to Borrower or any Subsidiary of $100,000 or more; and (iv)
budgets, sales projections, operating plans, 8-K filings or other financial
information Bank reasonably requests, including, within 45 days of the end of
each fiscal year, an operating forecast for the next fiscal year.

 

(b) Within 30 days after the last day of each month, Borrower will deliver to
Bank a report of cash holdings.

 

(c) Within 5 days after the date of filing with the SEC, Borrower will deliver
to Bank with the financial statements required in subsection (a) above, a
Compliance Certificate signed by a Responsible Officer in the form of Exhibit C.

 

(d) Promptly, but in any event within five days from the date Borrower has
actual notice thereof, Borrower shall provide to Bank written notice of any
material pending or threatened claim, action or proceeding involving any
environmental law, any written communication from any governmental authority
relating to any violation of environmental law, or any release, escape, dumping,
spill or similar discharge or emission on or from its real property of any
substance defined as hazardous under any applicable environmental law.

 

(e) Borrower will allow Bank to audit Borrower’s Collateral at Borrower’s
reasonable expense. Such audits will be conducted no more often than every 6
months unless an Event of Default or an event which, with notice or passage of
time or both would constitute an Event of Default, has occurred and is
continuing.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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6.3 Inventory; Returns.

 

Borrower will keep all Inventory in good and marketable condition, free from
material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower’s customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $300,000, excluding distributor
stock rotation.

 

6.4 Taxes.

 

Borrower will make, and cause each Subsidiary to make, timely payment of all
material federal, state, and local taxes or assessments (other than taxes and
assessments which Borrower is contesting in good faith, with adequate reserves
maintained in accordance with GAAP and which do not result in any tax lien on
any of the Collateral) and will deliver to Bank, on demand, appropriate
certificates attesting to the payment.

 

6.5 Insurance.

 

Borrower will keep its business and the Collateral insured for risks and in
amounts as Bank may reasonably request. Without limiting the foregoing, Borrower
will keep the Tempe Property insured against loss or damage by fire or other
risks on terms and in amounts that are no less favorable than insurance
maintained by owners of similar properties, that are in accordance with normal
industry practice and are in amounts equal to the replacement cost of the
improvements on the real property. Insurance policies will be in a form and with
companies that are satisfactory to Bank in Bank’s reasonable discretion. All
property policies will have a lender’s loss payable endorsement showing Bank as
an additional loss payee and all liability policies will show the Bank as an
additional insured and provide that the insurer must give Bank at least 20 days
notice before canceling its policy. At Bank’s request, Borrower will deliver
certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy will, at Bank’s reasonable option, be payable to Bank
on account of the Obligations.

 

6.6 Bank Accounts. Borrower will maintain its primary depository and operating
accounts with Bank.

 

6.7 Financial Covenants. Borrower will maintain as of the last day of each
quarter:

 

(a) Quick Ratio. A ratio of (i) unrestricted cash and cash equivalents plus
short and long-term marketable securities and Accounts to (ii) Current
Liabilities of at least ** to 1.00.

 

(b) Tangible Net Worth. A Tangible Net Worth of at least **.

 

6.8 Intellectual Property Rights.

 

At all times during the term of this Agreement, Borrower will (i) protect,
defend and maintain the validity and enforceability of the Intellectual Property
material to Borrower’s business and, so long as any Credit Extensions are
outstanding, promptly advise Bank in writing of material infringements and (ii)
not allow any Intellectual Property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Bank’s written consent.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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6.9 Further Assurances.

 

Borrower will execute any further instruments and take further action as Bank
reasonably requests to perfect or continue Bank’s security interest in the
Collateral or to effect the purposes of this Agreement.

 

7. NEGATIVE COVENANTS

 

Borrower will not do any of the following without Bank’s prior written consent,
which will not be unreasonably withheld, for so long as Bank has an obligation
to lend or there are any outstanding Obligations:

 

7.1 Dispositions.

 

Convey, sell, lease, transfer or otherwise dispose of (collectively “Transfer”),
or permit any of its Subsidiaries to Transfer, all or any part of its business
or property, except for Transfers (a) of Inventory in the ordinary course of
business; (b) of exclusive or non-exclusive licenses and similar arrangements
for the use of the property of Borrower or its Subsidiaries in the ordinary
course of business; or (c) of worn-out or obsolete Inventory and Equipment.

 

7.2 Changes in Business, Non-Ordinary Course Transactions, Ownership, or
Business Locations.

 

Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower or reasonably related thereto,
or enter into any transaction outside the ordinary course of business, or permit
any person or group of persons (within the meaning of Rule 13d-5 and successor
rules promulgated under Section 13 of the Securities Exchange Act of 1934, as
amended (the “34 Act”)) to (a) acquire beneficial ownership (within the meaning
of Rule 13d-3 promulgated by the Securities Exchange Commission under the 34
Act) of thirty percent (30%) or more of the outstanding equity securities of
Borrower entitled to vote for members of the board of directors, or (b) acquire
all or substantially all substantially all of the assets of Borrower and its
Subsidiaries taken as a whole. Borrower will not, without at least 30 days prior
written notice to the Bank, relocate its chief executive office change its state
of formation (including reincorporation), change its organizational number or
name or add any new offices or business locations (including warehouses but
excluding “hubs” maintained to hold goods for sale to Motorola, Inc.) in which
Borrower maintains or stores over $500,000 in Collateral.

 

7.3 Mergers or Acquisitions.

 

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with any other Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person
(collectively, “Mergers or Acquisitions”),

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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

except that a Subsidiary may merge or consolidate into another Subsidiary or
into Borrower; and Borrower may enter into Mergers or Acquisitions so long as no
Event of Default has occurred, is continuing or would result therefrom.

 

7.4 Indebtedness.

 

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

 

7.5 Encumbrance.

 

Create, incur, or allow any Lien on any of its property, or assign or convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral
not to be subject to the first priority security interest granted here, subject
to Permitted Liens.

 

7.6 Distributions; Investments.

 

Directly or indirectly acquire or own any Person, or make any Investment in any
Person, other than Permitted Investments, or permit any of its Subsidiaries to
do so. Pay any cash dividends or make any distribution or payment or redeem,
retire or purchase any capital stock, except for the repurchase of stock from
employees, officers, and directors of Borrower pursuant to the terms of
applicable repurchase agreement in an aggregate amount not to exceed $50,000 in
the aggregate in any fiscal year, provided that no Event of Default has occurred
or is continuing or would exist after giving effect to such repurchases.

 

7.7 Transactions with Affiliates.

 

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

 

7.8 Subordinated Debt.

 

Make or permit any payment on any Subordinated Debt, except under the terms of
the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank’s prior written consent.

 

7.9 Compliance.

 

Become an “investment company” or a company controlled by an “investment
company,” under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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

reasonably be expected to have a material adverse effect on Borrower’s business
or operations or would reasonably be expected to cause a Material Adverse
Change, or permit any of its Subsidiaries to do so.

 

8. EVENTS OF DEFAULT

 

Any one of the following is an Event of Default:

 

8.1 Payment Default.

 

If Borrower fails to pay any of the Obligations within 3 days after their due
date. During the additional period the failure to cure the default is not an
Event of Default (but no Credit Extension will be made during the cure period);

 

8.2 Covenant Default.

 

If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7; or

 

If Borrower does not perform or observe any other material term, condition or
covenant in this Agreement, any Loan Documents, or in any agreement between
Borrower and Bank and as to any obligation, performance, covenant violation or
default under a term, condition or covenant that can be cured, has not performed
the obligation, come into compliance with the covenant or cured the default
within 10 days after it occurs, or if the default cannot be cured within 10 days
or cannot be cured after Borrower’s attempts within 10 day period, and the
obligation may be performed, the covenant can be complied with, or the default
may be cured within a reasonable time, then Borrower has an additional period
(of not more than 30 days) to attempt to perform the obligation, comply with the
covenant or cure the default. During the additional time, the failure to cure
the default is not an Event of Default (but no Credit Extensions will be made
during the cure period);

 

8.3 Material Adverse Change.

 

If there (i) occurs a material adverse change in the business, operations, or
condition (financial or otherwise) of the Borrower, or (ii) is a material
impairment of the prospect of repayment of any portion of the Obligations or
(iii) is a material impairment of the value or priority of Bank’s security
interests in the Collateral (each of (i), (ii) and (iii) above shall be referred
to herein as a “Material Adverse Change”);

 

8.4 Attachment.

 

If any of Borrower’s assets having a value in the aggregate of more than
$500,000 is seized, or comes into possession of a trustee or receiver, or is
attached or levied on and the attachment or levy is not removed in 10 days, or
if Borrower is enjoined, restrained, or prevented by court order from conducting
a material part of its business or if a judgment or other claim becomes a Lien
on a material portion of Borrower’s assets, or if a notice of lien, levy, or
assessment is filed against any of Borrower’s assets by any government agency
and not paid

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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within 10 days after Borrower receives notice. These are not Events of Default
if stayed or if a bond is posted pending contest by Borrower (but no Credit
Extensions will be made during the cure period);

 

8.5 Insolvency.

 

If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or
an Insolvency Proceeding is begun against Borrower and not dismissed or stayed
within 30 days (but no Credit Extensions will be made before any Insolvency
Proceeding is dismissed);

 

8.6 Other Agreements.

 

If there is a default in any agreement between Borrower and a third party that
gives the third party the right to accelerate any Indebtedness exceeding
$750,000 or that could cause a Material Adverse Change;

 

8.7 Judgments.

 

If a money judgment(s) in the aggregate of at least $750,000 is rendered against
Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions
will be made before the judgment is stayed or satisfied); or

 

8.8 Misrepresentations.

 

If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.

 

9. BANK’S RIGHTS AND REMEDIES

 

9.1 Rights and Remedies.

 

When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:

 

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

 

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

 

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

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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

 

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

 

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

 

(g) Require Borrower to provide cash collateral in the face amount of all
undrawn Letters of Credit; and

 

(h) Dispose of the Collateral according to the Code.

 

Notwithstanding anything contained herein, Bank shall not exercise any remedy it
may have pursuant to (c), (d), (f) or (h) above if no Obligations are then
existing.

 

9.2 Power of Attorney.

 

Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower’s name
on any checks or other forms of payment or security; (ii) sign Borrower’s name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower’s insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower’s name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank’s
appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank’s obligation to provide Credit Extensions
terminates.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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9.3 Accounts Collection.

 

When an Event of Default occurs and continues, Bank may notify any Person owing
Borrower money of Bank’s security interest in the funds and demand payment of,
and collect any Accounts, general intangibles and other Collateral, and, in
connection therewith, Borrower irrevocably authorizes Bank to endorse or sign
Borrower’s name on all collections, receipts, instruments and other documents,
and, in Bank’s good faith business judgment, to grant extensions of time to pay,
compromise claims and settle Accounts and general intangibles for less than face
value. When an Event of Default occurs and continues, Borrower shall collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the account debtor, with proper
endorsements for deposit.

 

9.4 Bank Expenses.

 

If Borrower fails to pay any amount or furnish any required proof of payment to
third persons, Bank may make all or part of the payment or obtain insurance
policies required in Section 6.5, and take any action under the policies Bank
deems prudent. Any reasonable amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank’s waiver of any Event of Default.

 

9.5 Bank’s Liability for Collateral.

 

If Bank complies with reasonable banking practices and Section 9207 of the Code,
it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or
damage to the Collateral; (c) any diminution in the value of the Collateral; or
(d) any act or default of any carrier, warehouseman, bailee, or other person.
Borrower otherwise bears all risk of loss, damage or destruction of the
Collateral.

 

9.6 Remedies Cumulative.

 

Bank’s rights and remedies under this Agreement, the Loan Documents, and all
other agreements are cumulative. Bank has all rights and remedies provided under
the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an
election, and Bank’s waiver of any Event of Default is not a continuing waiver.
Bank’s delay is not a waiver, election, or acquiescence. No waiver is effective
unless signed by Bank and then is only effective for the specific instance and
purpose for which it was given.

 

9.7 Demand Waiver.

 

Borrower waives demand, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees held by Bank on which Borrower is liable.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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10. NOTICES

 

All notices or demands by any party about this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by facsimile to the addresses set forth at the beginning of this Agreement. A
party may change its notice address by giving the other party written notice.

 

11. CHOICE OF LAW, FORUM AND JURY TRIAL WAIVER

 

California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Clara County, California.

 

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12. GENERAL PROVISIONS

 

12.1 Successors and Assigns.

 

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

 

12.2 Indemnification.

 

Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank’s gross negligence or willful misconduct.

 

12.3 Time of Essence.

 

Time is of the essence for the performance of all obligations in this Agreement.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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12.4 Severability of Provision.

 

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

 

12.5 Amendments in Writing, Integration.

 

All amendments to this Agreement must be in writing and signed by Borrower and
Bank. This Agreement together with the other Loan Documents represents the
entire agreement about this subject matter, and supersedes prior negotiations or
agreements. All prior agreements, understandings, representations, warranties,
and negotiations between the parties about the subject matter of this Agreement
merge into this Agreement and the Loan Documents.

 

12.6 Counterparts.

 

This Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
are an original, and all taken together, constitute one Agreement.

 

12.7 Survival.

 

All covenants, representations and warranties made in this Agreement continue in
full force while any Obligations remain outstanding. The obligations of Borrower
in Section 12.2 to indemnify Bank will survive until all statutes of limitations
for actions that may be brought against Bank have run.

 

12.8 Confidentiality.

 

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

 

12.9 Attorneys’ Fees, Costs and Expenses.

 

In any action or proceeding between Borrower and Bank arising out of the Loan
Documents, the prevailing party will be entitled to recover its reasonable
attorneys’ fees and other reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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13. DEFINITIONS

 

13.1 Definitions.

 

In this Agreement:

 

“Accounts” are all existing and later arising accounts, contract rights, and
other obligations owed Borrower in connection with its sale or lease of goods
(including licensing software and other technology) or provision of services,
all credit insurance, guaranties, other security and all merchandise returned or
reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.

 

“Advance” or “Advances” is a loan advance (or advances) under the Committed
Revolving Line.

 

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

 

“Bank Expenses” are all audit fees and expenses and reasonable costs and
expenses (including reasonable attorneys’ fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings), or otherwise relating to Borrower
or the Loan Documents, including, but not limited to, any reasonable attorneys’
fees and costs Bank incurs in order to do the following: obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
Bank’s rights; prosecute actions against, or defend actions by, account debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any bankruptcy claim, third-party claim, or other claim; protect, obtain
possession of, lease, dispose of, or otherwise enforce Bank’s security interest
in, the Collateral; and otherwise represent Bank in any litigation relating to
Borrower.

 

“Borrower’s Books” are all Borrower’s books and records including ledgers,
records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.

 

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

 

“Cash Management Services” are defined in Section 2.1.4.

 

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

 

“Closing Date” is the date of this Agreement.

 

“Code” is the Uniform Commercial Code, as applicable.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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“Collateral” is the property described on Exhibit A.

 

“Committed Revolving Line” is Advances of up to $15,000,000 outstanding at any
time.

 

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

 

“Copyrights” are all copyright rights, applications or registrations and like
protections in each work or authorship or derivative work, whether published or
not (whether or not it is a trade secret) now or later existing, created,
acquired or held.

 

“Credit Extension” is each Advance, Letter of Credit, Exchange Contract, or any
other extension of credit by Bank for Borrower’s benefit.

 

“Current Liabilities” are the aggregate amount of Borrower’s Total Liabilities
which mature within one (1) year, and include the face amount of all outstanding
Letters of Credit, all FX Forward Contracts and Cash Management Services.

 

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

 

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

 

“FRB” means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.

 

“FX Forward Contract” is defined in Section 2.1.3.

 

“FX Reserve” is defined in Section 2.1.3.

 

“GAAP” is generally accepted accounting principles.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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

 

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

 

“Intellectual Property” is:

 

(a) Copyrights, Trademarks, Patents, and Mask Works including amendments,
renewals, extensions, and all licenses or other rights to use and all license
fees and royalties from the use;

 

(b) Any trade secrets and any intellectual property rights in computer software
and computer software products now or later existing, created, acquired or held;

 

(c) All design rights which may be available to Borrower now or later created,
acquired or held;

 

(d) Any claims for damages (past, present or future) for infringement of any of
the rights above, with the right, but not the obligation, to sue and collect
damages for use or infringement of the intellectual property rights above;

 

All associated goodwill, and all proceeds and products of the foregoing,
including all insurance, indemnity or warranty payments.

 

“Inventory” is present and future inventory in which Borrower has any interest,
including merchandise, raw materials, parts, supplies, packing and shipping
materials, work in process and finished products intended for sale or lease or
to be furnished under a contract of service, of every kind and description now
or later owned by or in the custody or possession, actual or constructive, of
Borrower, including inventory temporarily out of its custody or possession or in
transit and including returns on any accounts or other proceeds (including
insurance proceeds) from the sale or disposition of any of the foregoing and any
documents of title.

 

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

 

“Letter of Credit” is defined in Section 2.1.2.

 

“Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or
other encumbrance, including without limitation, a leasehold or other interest.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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

 

“Mask Works” are all mask works or similar rights available for the protection
of semiconductor chips, now owned or later acquired.

 

“Material Adverse Change” is defined in Section 8.3.

 

“Obligations” are debts, principal, interest, Bank Expenses and other amounts
Borrower owes Bank now or later, including cash management services, letters of
credit and foreign exchange contracts, if any, and including interest accruing
after Insolvency Proceedings begin and debts, liabilities, or obligations of
Borrower assigned to Bank.

 

“Patents” are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.

 

“Permitted Indebtedness” is:

 

(a) Borrower’s indebtedness to Bank under this Agreement or any other Loan
Document;

 

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

 

(c) Subordinated Debt;

 

(d) Indebtedness to trade creditors and for payroll obligations and taxes
incurred in the ordinary course of business; and

 

(e) Indebtedness secured by Permitted Liens.

 

“Permitted Investments” are:

 

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

 

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

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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(c) Joint ventures and other strategic alliances entered into in the ordinary
course of Borrower’s business, provided that any cash investments by Borrower
shall not exceed $50,000 in the aggregate in any fiscal year.

 

“Permitted Liens” are:

 

(a) Liens existing on the Closing Date and shown on the Schedule or arising
under this Agreement or other Loan Documents;

 

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

 

(c) Purchase money Liens (i) on Equipment acquired or held by Borrower or its
Subsidiaries incurred for financing the acquisition of the Equipment, or (ii)
existing on equipment when acquired, if the Lien is confined to the property and
improvements and the proceeds of the equipment;

 

(d) Licenses or sublicenses granted in the ordinary course of Borrower’s
business and any interest or title of a licensor or under any license or
sublicense, if the licenses and sublicenses permit granting Bank a security
interest;

 

(e) Leases or subleases granted in the ordinary course of Borrower’s business,
including in connection with Borrower’s leased premises or leased property;

 

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

 

(g) Liens securing claims of materialmen, mechanics, carriers, warehousemen,
landlords, repairmen, and the like incurred in the ordinary course of business
which are not delinquent or remain payable without penalty;

 

(h) Deposits made in the ordinary course of business with respect to workers
compensation insurance, unemployment insurance, and other social security
legislation (other than any Lien imposed by ERISA); and

 

(i) Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off or similar rights and remedies as
to deposit accounts or other funds maintained with a creditor depository
institution; provided that (i) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by the
Borrower in excess of those set forth by regulations promulgated by the FRB, and
(ii) such deposit account is not intended by the Borrower or any Subsidiary to
provide collateral to the depository institution.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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

 

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

 

“Responsible Officer” is each of the Chief Executive Officer, the President, the
Chief Financial Officer and the Controller of Borrower.

 

“Revolving Maturity Date” is September 28, 2005.

 

“Schedule” is any attached schedule, including Schedule A hereto.

 

“Sublimit Utilization Amount” means the sum of (a) all amounts for services
utilized under the Cash Management Services Sublimit, (b) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) and (c) the FX Reserve.

 

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s
indebtedness owed to Bank and which is reflected in a written agreement in a
manner and form acceptable to Bank and approved by Bank in writing.

 

“Subsidiary” is for any Person, or any other business entity of which more than
50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.

 

“Tangible Net Worth” is, on any date, the consolidated total assets of Borrower
and its Subsidiaries minus (i) any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, Patents, trade
and service marks and names, Copyrights and research and development expenses
except prepaid expenses, (c) restricted cash, and (d) reserves not already
deducted from assets, and (ii) Total Liabilities.

 

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

 

“Trademarks” are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Borrower connected with the trademarks.

 

[next page is signature page]

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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BORROWER: CALIFORNIA MICRO DEVICES CORPORATION

By:

 

 

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Title:

 

 

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BANK: SILICON VALLEY BANK

By:

 

 

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Title:

 

 

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** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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SCHEDULE A TO LOAN AND SECURITY AGREEMENT

 

The exact correct corporate name of Borrower is (attach a copy of the formation
documents, e.g., articles, partnership agreement):             California Micro
Devices Corporation            

 

Borrower’s State of formation:             California                        
                        

 

Borrower has operated under only the following other names (if none, so state):
                    None                 
                                       

 

All other addresses at which the Borrower does business are as follows (attach
additional sheets if necessary and include all warehouse addresses): 2000 West
14th Street, Tempe, AZ 85281; 3901 N Route 23, Suite b, Marengo, IL 60152; and
Rm 2602, Sino Plaza, 255 Gloucester Road, Causeway Bay, Hong Kong

 

Borrower has deposit accounts and/or investment accounts located only at the
following institutions:                     Silicon Valley Bank and US Bancorp
through Silicon Valley Asset Management. Borrower is in process of establishing
investment accounts at UBS and at Piper Jaffrey                    

 

List Acct. Numbers (if at institution other than
Bank):                                                 

 

Liens existing on the Closing Date and disclosed to and accepted by Bank in
writing: various leases; see “Outstanding Indebtedness” list below. In addition,
US Bancorp has filed a UCC-1 covering debt owed under equipment leases which the
Company treats as operating leases rather than capital leases for purposes of
its financial statements. Therefore, the underlying lease obligation is not
included in the “Outstanding Indebtedness” list below.

 

Investments existing on the Closing Date and disclosed to and accepted by Bank
in writing:

 

See listing above                                      
                                                                               

 

Subordinated Debt:    None.

 

Indebtedness on the Closing Date and disclosed to and consented to by Bank in
writing:

 

Great Bay    $166,279 Other Leases    $38,672

 

Borrower is not subject to litigation which would have a material adverse effect
on the Borrower’s financial condition, except the following (attach additional
comments, if needed):

 

See disclosures in the Company’s most recent quarterly and annual filings with
the SEC. In addition, the Company has pending wrongful termination litigation
(** and **) arising from its Tempe Arizona facility. The Company offered to
settle one case in September, 2002, for $** and the other for $**; however,
neither offer has been accepted.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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See disclosures in the Company’s most recent quarterly and annual filings with
the SEC.

 

Tax ID Number             94-2672609                        
                                        
                                             

 

Organizational Number, if any:            none                        
                                                                         

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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EXHIBIT A

 

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

 

All goods and equipment now owned or hereafter acquired, including, without
limitation, all machinery, fixtures, vehicles (including motor vehicles and
trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

 

All inventory, now owned or hereafter acquired, including, without limitation,
all merchandise, raw materials, parts, supplies, packing and shipping materials,
work in process and finished products including such inventory as is temporarily
out of Borrower’s custody or possession or in transit and including any returns
upon any accounts or other proceeds, including insurance proceeds, resulting
from the sale or disposition of any of the foregoing and any documents of title
representing any of the above;

 

All contract rights and general intangibles now owned or hereafter acquired,
including, without limitation, goodwill, servicemarks, trade styles, trade
names, leases, license agreements, franchise agreements, blueprints, drawings,
purchase orders, customer lists, route lists, infringements, claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs, design
rights, income tax refunds, payments of insurance and rights to payment of any
kind;

 

All now existing and hereafter arising accounts, contract rights, royalties,
license rights and all other forms of obligations owing to Borrower arising out
of the sale or lease of goods, the licensing of technology or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower;

 

All documents, cash, deposit accounts, securities, securities entitlements,
securities accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower’s Books relating to the foregoing; and

 

All Borrower’s Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.

 

Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyrights, mask works, mask work applications, copyright applications,
copyright or mask work registrations and like protection in each work of
authorship and derivative work thereof, whether published or unpublished, now
owned or hereafter acquired; any patents, patent applications and like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same,
trademarks,

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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servicemarks and applications therefor, whether registered or not (collectively,
the “Intellectual Property”), except that the Collateral shall include the
proceeds of all the Intellectual Property that are accounts, (i.e. accounts
receivable) of Borrower, or general intangibles consisting of rights to payment,
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 such accounts and general intangibles of Borrower that are
proceeds of the Intellectual Property, then the Collateral shall automatically,
and effective as of the Closing Date, include the Intellectual Property to the
extent necessary to permit perfection of Bank’s security interest in such
accounts and general intangibles of Borrower that are proceeds of the
Intellectual Property.

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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EXHIBIT B

 

LOAN PAYMENT/ADVANCE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.T.

 

Fax To:   Date:                    

Loan Payment:

            California Micro Devices Corporation (Borrower)

From Account #                                        
                            

 

To Account #                                        
                            

            (Deposit Account #)   (Loan Account #)                    

Principal $                                        
                                

 

and/or Interest $                                        
                                         

All Borrower’s representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date.

Authorized Signature:                                 
                           

 

Phone Number:                                             

LOAN ADVANCE:

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

From Account #                                        
                            

 

To Account #                                        
                            

            (Loan Account #)   (Deposit Account #)                    

Amount of Advance $                                                         

       

All Borrower’s representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone transfer request for an advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date.

Authorized Signature:                                 
                           

 

Phone Number:                                             

OUTGOING WIRE REQUEST

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

Deadline for same day processing is 12:00pm, P.T.

Beneficiary Name:                                       
                         

 

Account of Wire: $                                                             

Beneficiary Name:                                       
                         

 

Account of Wire: $                                                             

City and Sate:                                       
                                              

Beneficiary Bank Transit (ABA) #                                    

 

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

(For International Wire Only)

Intermediary Bank:                                                             

 

Transit (ABA) #                                        
                        :

For Further Credit to:                                       
                                        
                                        
                                                  

Special Instruction:                                      
                                        
                                        
                                                   

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

Authorized Signature:                                                         

 

2nd Signature (if Required):                                      
                  

Print Name/Title:                                      
                            

 

Print Name/Title:                                   
                                     

Telephone:                                     
                                        

 

Telephone:                                     
                                              

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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EXHIBIT C

COMPLIANCE CERTIFICATE

 

TO:

  

SILICON VALLEY BANK

    

3003 Tasman Drive

    

Santa Clara, CA 95054

FROM:

  

California Micro Devices Corporation

 

The undersigned authorized officer (“Officer”) of California Micro Devices
Corporation (“Borrower”) certifies that under the terms and conditions of the
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 in the Agreement are true and correct in all material respects on
this date. In addition, the Officer certifies that Borrower and each Subsidiary
(i) has timely filed all required tax returns and paid, or made adequate
provision to pay, all material taxes, except those being contested in good faith
with adequate reserves under GAAP and (ii) does not have any legal actions
pending or threatened against Borrower or any Subsidiary of which Borrower has
not notified Bank in accordance with Section 6.2 of the Agreement. Attached are
the required documents supporting the certifications contained herein. The
Officer certifies that these are prepared in accordance with GAAP consistently
applied from one period to the next except as explained in an accompanying
letter or footnotes. The Officer acknowledges that no borrowings may be
requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.

 

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

 

Reporting Covenant

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Required

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   Complies

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Compliance Certificate

   With 10Q, 10K    Yes    No

10Q, 10K (Audited)

   Within 5 days of issuance    Yes    No

Cash Holding Report

   Monthly within 30 days    Yes    No

Annual Forecast

   Annually within 45 days of FYE    Yes    No Budgets, sales projections,
operating plans, or other financial information as Lender may request   
Promptly after Lender requests    Yes    No

 

Financial Covenant

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   Required

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  Actual

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   Complies

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Maintain (at quarter end):

                  

Minimum Quick Ratio

   **           :1.00    Yes    No

Minimum Tangible Net Worth

   **   $                    Yes    No

Borrower only has deposit accounts located at the following institutions:

                  

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

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Comments Regarding Exceptions: See Attached.

   BANK USE ONLY

Sincerely,

 

  

Received by:                                       
                                          

California Micro Devices Corporation

   AUTHORIZED SIGNER

 

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SIGNATURE

  

Date:                                     
                                                    

 

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TITLE

 

 

  

Verified:                                     
                                                    

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DATE

   AUTHORIZED SIGNER     

Date:                                     
                                                            

  

 

Compliance Status:

   Yes        No

 

** CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO CERTAIN PORTIONS OF
THIS AGREEMENT AND THE CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.