Exhibit 10.20

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of March 14, 2008
(the “Effective Date”) between SILICON VALLEY BANK, a California corporation,
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054 (“Bank”), and FINISAR CORPORATION, a Delaware corporation
(“Borrower”), provides the terms on which Bank shall lend to Borrower and
Borrower shall repay Bank.  The parties agree as follows:

 

1                                         ACCOUNTING AND OTHER TERMS

 

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

 

2                                         LOAN AND TERMS OF PAYMENT

 

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

 

2.1.1                     Revolving Advances.

 

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

 

(b)                                 Termination; Repayment.  The Revolving Line
terminates on the Revolving Line Maturity Date, when the principal amount of all
Advances, the unpaid interest thereon, and all other Obligations relating to the
Revolving Line shall be immediately due and payable.

 

2.1.2                     Letters of Credit Sublimit.

 

(a)                                  As part of the Revolving Line, Bank shall
issue or have issued Letters of Credit for Borrower’s account.  The face amount
of outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and any Letter of Credit Reserve), together with the FX Reserve and the
aggregate amount of Credit Extensions made pursuant to Section 2.1.4, may not
exceed Fifteen Million Dollars ($15,000,000.00).  Such aggregate amounts
utilized or reserved under this Section 2.1.2 shall at all times reduce the
amount otherwise available for Advances under the Revolving Line.  If, on the
Revolving Line Maturity Date, there are any outstanding Letters of Credit, then
on such date Borrower shall provide to Bank cash collateral in an amount equal
to 105% of the face amount of all such Letters of Credit plus all interest,
fees, and costs due or to become due in connection therewith (as estimated by
Bank in its good faith business judgment), to secure all of the Obligations
relating to said Letters of Credit.  All Letters of Credit shall be in form and
substance acceptable to Bank in its sole discretion and shall be subject to the
terms and conditions of Bank’s standard Application and Letter of Credit
Agreement (the “Letter of Credit Application”).  Borrower agrees to execute any
further documentation in connection with the Letters of Credit as Bank may
reasonably request.  Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Bank and
opened for Borrower’s account or by Bank’s interpretations of any Letter of
Credit issued by Bank for Borrower’s account, and Borrower understands and
agrees that Bank shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower’s instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto.

 

(b)                                 The obligation of Borrower to immediately
reimburse Bank for drawings made under Letters of Credit shall be absolute,
unconditional, and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement, such Letters of Credit, and the Letter of
Credit Application.

 

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

 

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

 

2.1.3                     Foreign Exchange Sublimit.  As part of the Revolving
Line, Borrower may enter into foreign exchange contracts with Bank under which
Borrower commits to purchase from or sell to Bank a specific amount of Foreign
Currency (each, a “FX Forward Contract”) on a specified date (the “Settlement
Date”).  FX Forward Contracts shall have a Settlement Date of at least one
(1) FX Business Day after the contract date and shall be subject to a reserve of
ten percent (10%) of each outstanding FX Forward Contract in a maximum aggregate
amount equal to Fifteen Million Dollars ($15,000,000.00) (the “FX Reserve”),
inclusive of Credit Extensions relating to Sections 2.1.2 and 2.1.4.  The
aggregate amount of FX Forward Contracts at any one time may not exceed ten
(10) times the amount of the FX Reserve.  The amount otherwise available for
Credit Extensions under the Revolving Line shall be reduced by an amount equal
to ten percent (10%) of each outstanding FX Forward Contract.  Any amounts
needed to fully reimburse Bank will be treated as Advances under the Revolving
Line and will accrue interest at the interest rate applicable to Advances.

 

2.1.4                     Cash Management Services Sublimit.  Borrower may use
up to Fifteen Million Dollars ($15,000,000.00) of the Revolving Line, inclusive
of Credit Extensions relating to Sections 2.1.2 and the FX Reserve, for Bank’s
cash management services which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in Bank’s
various cash management services agreements (collectively, the “Cash Management
Services”).  The dollar amount of any Cash Management Services provided under
this sublimit will reduce the amount otherwise available under the Revolving
Line.  Any amounts used or reserved by Borrower for any Cash Management Services
will reduce the amount otherwise available for Credit Extensions under the
Revolving Line.  Any amounts Bank pays on behalf of Borrower for any Cash
Management Services will be treated as Advances under the Revolving Line and
will accrue interest at the interest rate applicable to Advances.

 

2.2                               Overadvances.  If, at any time, the Credit
Extensions under Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the Revolving
Line, Borrower shall immediately pay to Bank in cash such excess.

 

2.3                               General Provisions Relating to the Credit
Extensions.  Each Credit Extension shall, at Borrower’s option in accordance
with the terms of this Agreement, be either in the form of a Prime Rate Credit
Extension or a LIBOR Credit Extension; provided, however, that in no event shall
Borrower maintain at any time LIBOR Credit Extensions having more than two
(2) different Interest Periods.  Borrower shall pay interest accrued on the
Credit Extensions at the rates and in the manner set forth in Section 2.4(a).

 

2.4                               Payment of Interest on the Credit Extensions.

 

(a)                                  Computation of Interest.  Interest on the
Credit Extensions and all fees payable hereunder shall be computed on the basis
of a 360-day year and the actual number of days elapsed in the period during
which such interest accrues.  In computing interest on any Credit Extension, the
date of the making of such Credit Extension shall be included and the date of
payment shall be excluded; provided, however, that if any Credit Extension is
repaid on the same day on which it is made, such day shall be included in
computing interest on such Credit Extension.

 

(b)                                 Credit Extensions.  Each Credit Extension
shall bear interest on the outstanding principal amount thereof from the date
when made, continued or converted until paid in full at a rate per annum equal
to the Prime Rate plus the Prime Rate Margin for Prime Rate Credit Extensions or
the LIBOR Rate plus the LIBOR Rate Margin for LIBOR Credit Extensions.  On and
after the expiration of any Interest Period applicable to any LIBOR Credit
Extension outstanding on the date of occurrence of an Event of Default or
acceleration of the Obligations, the Effective Amount of such LIBOR Credit
Extension shall, during the continuance of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Prime Rate plus
five percent (5.0%).  Pursuant to the terms hereof, interest on each Credit
Extension shall be paid in arrears on each Interest Payment Date.  Interest
shall also be paid on the date of any prepayment of any Credit Extension
pursuant to this Agreement for the portion of any Credit Extension so prepaid
and upon payment (including prepayment) in full thereof.  All accrued but unpaid
interest on the Credit Extensions shall be due and payable on the Revolving Line
Maturity Date.

 

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(c)                                  Default Interest.  Except as otherwise
provided in Section 2.4(b), after an Event of Default and during the continuance
thereof, Obligations shall bear interest five percent (5.00%) above the rate
effective immediately before the Event of Default (the “Default Rate”).  Payment
or acceptance of the increased interest provided in this Section 2.4(c) is not a
permitted alternative to timely payment and shall not constitute a waiver of any
Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

 

(d)                                 Prime Rate Credit Extensions.  Each change
in the interest rate of the Prime Rate Credit Extensions based on changes in the
Prime Rate shall be effective on the effective date of such change and to the
extent of such change.  Bank shall use its best efforts to give Borrower prompt
notice of any such change in the Prime Rate; provided, however, that any failure
by Bank to provide Borrower with notice hereunder shall not affect Bank’s right
to make changes in the interest rate of the Prime Rate Credit Extensions based
on changes in the Prime Rate.

 

(e)                                  LIBOR Credit Extensions.  The interest rate
applicable to each LIBOR Credit Extension shall be determined in accordance with
Section 3.6(a) hereunder.  Subject to Sections 3.6 and 3.7, such rate shall
apply during the entire Interest Period applicable to such LIBOR Credit
Extension, and interest calculated thereon shall be payable on the Interest
Payment Date applicable to such LIBOR Credit Extension.

 

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

 

(g)                                 Payments.  Unless otherwise provided,
interest is payable monthly on the first calendar day of each month.  Payments
of principal and/or interest received after 12:00 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, as applicable, shall continue to
accrue.

 

2.5                               Fees.  Borrower shall pay to Bank:

 

(a)                                  Commitment Fee.  A fully earned,
non-refundable commitment fee of Two Hundred Thousand Dollars ($200,000.00) on
the Effective Date;

 

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

 

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

 

3                                         CONDITIONS OF LOANS

 

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

 

(a)                                  Duly executed original signatures to the
Loan Documents to which it is a party;

 

(b)                                 Duly executed original signatures to the
Control Agreements required pursuant to this Agreement;

 

(c)                                  Borrower shall have delivered its Operating
Documents and a good standing certificate of Borrower certified by the Secretary
of State of the State of Delaware as of a date no earlier than thirty (30) days
prior to the Effective Date;

 

(d)                                 Duly executed original signatures to the
completed Borrowing Resolutions for Borrower;

 

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

 

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(f)                                    Borrower shall have delivered a
landlord’s consent with respect to each of Borrower’s leased locations executed
in favor of Bank;

 

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

 

(h)                                 Borrower shall have paid the fees and Bank
Expenses then due as specified in Section 2.5 hereof.

 

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

 

(a)                                  timely receipt of a Notice of Borrowing;

 

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

 

(c)                                  in Bank’s sole discretion, there has not
been any material impairment in the general affairs, management, results of
operation, financial condition or the prospect of repayment of the Obligations,
nor has there been any material adverse deviation by Borrower from the most
recent business plan of Borrower presented to and accepted by Bank.

 

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

 

3.4                               Procedure for the Borrowing of Credit
Extensions.

 

(a)                                  Subject to the prior satisfaction of all
other applicable conditions to the making of a Credit Extension set forth in
this Agreement, each Credit Extension shall be made upon Borrower’s irrevocable
written notice delivered to Bank in the form of a Notice of Borrowing, each
executed by a Responsible Officer of Borrower or his or her designee or without
instructions if the Credit Extensions are necessary to meet Obligations which
have become due.  Bank may rely on any telephone notice given by a person whom
Bank believes is a Responsible Officer or designee.  Borrower will indemnify
Bank for any loss Bank suffers due to such reliance.  Such Notice of Borrowing
must be received by Bank prior to 11:00 a.m.  Pacific time, (i) at least three
(3) Business Days prior to the requested Funding Date, in the case of LIBOR
Credit Extensions, and (ii) at least one (1) Business Day prior to the requested
Funding Date, in the case of Prime Rate Credit Extensions, specifying:

 

(1)                                  the amount of the Credit Extension, which,
if a LIBOR Credit Extension is requested, shall be in an aggregate minimum
principal amount of $1,000,000 or in any integral multiple of $1,000,000 in
excess thereof;

 

(2)                                  the requested Funding Date;

 

(3)                                  whether the Credit Extension is to be
comprised of LIBOR Credit Extensions or Prime Rate Credit Extensions; and

 

(4)                                  the duration of the Interest Period
applicable to any such LIBOR Credit Extensions included in such notice;
provided, however, that if the Notice of Borrowing shall fail to specify the

 

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duration of the Interest Period for any Credit Extension comprised of LIBOR
Credit Extensions, such Interest Period shall be one (1) month.

 

(b)                                 The proceeds of all such Credit Extensions
(other than Letters of Credit) will then be made available to Borrower on the
Funding Date by Bank by transfer to the Designated Deposit Account and,
subsequently, by wire transfer to such other account as Borrower may instruct in
the Notice of Borrowing.  No Credit Extensions shall be deemed made to Borrower,
and no interest shall accrue on any such Credit Extension, until the related
funds have been deposited in the Designated Deposit Account or, with respect to
Letters of Credit, Bank has honored draws thereon.

 

3.5                               Conversion and Continuation Elections.

 

(a)                                  So long as (i) no Event of Default or
Default exists; (ii) Borrower shall not have sent any notice of termination of
this Agreement; and (iii) Borrower shall have complied with such customary
procedures as Bank has established from time to time for Borrower’s requests for
LIBOR Credit Extensions, Borrower may, upon irrevocable written notice to Bank:

 

(1)                                  elect to convert on any Business Day, Prime
Rate Credit Extensions in an amount equal to One Million Dollars ($1,000,000.00)
or any integral multiple of One Million Dollars ($1,000,000.00) in excess
thereof into LIBOR Credit Extensions;

 

(2)                                  elect to continue on any Interest Payment
Date any LIBOR Credit Extensions maturing on such Interest Payment Date (or any
part thereof in an amount equal to One Million Dollars ($1,000,000.00) or any
integral multiple of $1,000,000 in excess thereof); provided, however, that if
the aggregate amount of LIBOR Credit Extensions shall have been reduced, by
payment, prepayment, or conversion of part thereof, to be less than One Million
Dollars ($1,000,000.00), such LIBOR Credit Extensions shall automatically
convert into Prime Rate Credit Extensions, and on and after such date the right
of Borrower to continue such Credit Extensions as, and convert such Credit
Extensions into, LIBOR Credit Extensions shall terminate; or

 

(3)                                  elect to convert on any Interest Payment
Date any LIBOR Credit Extensions maturing on such Interest Payment Date (or any
part thereof in an amount equal to One Million Dollars ($1,000,000.00) or any
integral multiple of One Million Dollars ($1,000,000.00) in excess thereof) into
Prime Rate Credit Extensions.

 

(b)                                 Borrower shall deliver a Notice of
Conversion/Continuation in accordance with Section 10 to be received by Bank
prior to 11:00 a.m.  Pacific time at least (i) three (3) Business Days in
advance of the Conversion Date or Continuation Date, if any Credit Extensions
are to be converted into or continued as LIBOR Credit Extensions; and (ii) one
(1) Business Day in advance of the Conversion Date, if any Credit Extensions are
to be converted into Prime Rate Credit Extensions, in each case specifying the:

 

(1)                                  proposed Conversion Date or Continuation
Date;

 

(2)                                  aggregate amount of the Credit Extensions
to be converted or continued which, if any Credit Extensions are to be converted
into or continued as LIBOR Credit Extensions, shall be in an aggregate minimum
principal amount of $1,000,000 or in any integral multiple of $1,000,000 in
excess thereof;

 

(3)                                  nature of the proposed conversion or
continuation; and

 

(4)                                  duration of the requested Interest Period.

 

(c)                                  If upon the expiration of any Interest
Period applicable to any LIBOR Credit Extensions, Borrower shall have failed to
timely select a new Interest Period to be applicable to such LIBOR Credit
Extensions, Borrower shall be deemed to have elected to convert such LIBOR
Credit Extensions into Prime Rate Credit Extensions.

 

(d)                                 Any LIBOR Credit Extensions shall, at Bank’s
option, convert into Prime Rate Credit Extensions in the event that (i) an Event
of Default or Default shall exist, or (ii) the aggregate principal amount of the
Prime Rate Credit Extensions which have been previously converted to LIBOR
Credit Extensions, or the

 

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aggregate principal amount of existing LIBOR Credit Extensions continued, as the
case may be, at the beginning of an Interest Period shall at any time during
such Interest Period exceed the Revolving Line.  Borrower agrees to pay Bank,
upon demand by Bank (or Bank may, at its option, charge the Designated Deposit
Account or any other account Borrower maintains with Bank) any amounts required
to compensate Bank for any loss (including loss of anticipated profits), cost,
or expense incurred by Bank, as a result of the conversion of LIBOR Credit
Extensions to Prime Rate Credit Extensions pursuant to any of the foregoing.

 

(e)                                  Notwithstanding anything to the contrary
contained herein, Bank shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable LIBOR market to fund
any LIBOR Credit Extensions, but the provisions hereof shall be deemed to apply
as if Bank had purchased such deposits to fund the LIBOR Credit Extensions.

 

3.6                               Special Provisions Governing LIBOR Credit
Extensions.

 

Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to LIBOR Credit Extensions as to
the matters covered:

 

(a)                                  Determination of Applicable Interest Rate. 
As soon as practicable on each Interest Rate Determination Date, Bank shall
determine (which determination shall, absent manifest error in calculation, be
final, conclusive and binding upon all parties) the interest rate that shall
apply to the LIBOR Credit Extensions for which an interest rate is then being
determined for the applicable Interest Period and shall promptly give notice
thereof (in writing or by telephone confirmed in writing) to Borrower.

 

(b)                                 Inability to Determine Applicable Interest
Rate.  In the event that Bank shall have determined (which determination shall
be final and conclusive and binding upon all parties hereto), on any Interest
Rate Determination Date with respect to any LIBOR Credit Extension, that by
reason of circumstances affecting the London interbank market adequate and fair
means do not exist for ascertaining the interest rate applicable to such Credit
Extension on the basis provided for in the definition of LIBOR, Bank shall on
such date give notice (by facsimile or by telephone confirmed in writing) to
Borrower of such determination, whereupon (i) no Credit Extensions may be made
as, or converted to, LIBOR Credit Extensions until such time as Bank notifies
Borrower that the circumstances giving rise to such notice no longer exist, and
(ii) any Notice of Borrowing or Notice of Conversion/Continuation given by
Borrower with respect to Credit Extensions in respect of which such
determination was made shall be deemed to be rescinded by Borrower.

 

(c)                                  Compensation for Breakage or
Non-Commencement of Interest Periods.  Borrower shall compensate Bank, upon
written request by Bank (which request shall set forth the manner and method of
computing such compensation), for all reasonable losses, expenses and
liabilities, if any (including any interest paid by Bank to lenders of funds
borrowed by it to make or carry its LIBOR Credit Extensions and any loss,
expense or liability incurred by Bank in connection with the liquidation or
re-employment of such funds) such that Bank may incur: (i) if for any reason
(other than a default by Bank or due to any failure of Bank to fund LIBOR Credit
Extensions due to impracticability or illegality under Sections 3.7(d) and
3.7(e)) a borrowing or a conversion to or continuation of any LIBOR Credit
Extension does not occur on a date specified in a Notice of Borrowing or a
Notice of Conversion/Continuation, as the case may be, or (ii) if any principal
payment or any conversion of any of its LIBOR Credit Extensions occurs on a date
prior to the last day of an Interest Period applicable to that Credit Extension.

 

(d)                                 Assumptions Concerning Funding of LIBOR
Credit Extensions.  Calculation of all amounts payable to Bank under this
Section 3.6 and under Section 3.4 shall be made as though Bank had actually
funded each of its relevant LIBOR Credit Extensions through the purchase of a
Eurodollar deposit bearing interest at the rate obtained pursuant to the
definition of LIBOR Rate in an amount equal to the amount of such LIBOR Credit
Extension and having a maturity comparable to the relevant Interest Period;
provided, however, that Bank may fund each of its LIBOR Credit Extensions in any
manner it sees fit and the foregoing assumptions shall be utilized only for the
purposes of calculating amounts payable under this Section 3.6 and under
Section 3.4.

 

(e)                                  LIBOR Credit Extensions After Default. 
After the occurrence and during the continuance of an Event of Default,
(i) Borrower may not elect to have a Credit Extension be made or continued as,
or converted to, a LIBOR Credit Extension after the expiration of any Interest
Period then in effect for such Credit Extension and (ii) subject to the
provisions of Section 3.6(c), any Notice of Conversion/Continuation given by
Borrower with respect to a requested conversion/continuation that has not yet
occurred shall be deemed to be

 

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rescinded by Borrower and be deemed a request to convert or continue Credit
Extensions referred to therein as Prime Rate Credit Extensions.

 

3.7                               Additional Requirements/Provisions Regarding
LIBOR Credit Extensions.

 

(a)                                  If for any reason (including voluntary or
mandatory prepayment or acceleration), Bank receives all or part of the
principal amount of a LIBOR Credit Extension prior to the last day of the
Interest Period for such Credit Extension, Borrower shall immediately notify
Borrower’s account officer at Bank and, on demand by Bank, pay Bank the amount
(if any) by which (i) the additional interest which would have been payable on
the amount so received had it not been received until the last day of such
Interest Period exceeds (ii) the interest which would have been recoverable by
Bank by placing the amount so received on deposit in the certificate of deposit
markets, the offshore currency markets, or United States Treasury investment
products, as the case may be, for a period starting on the date on which it was
so received and ending on the last day of such Interest Period at the interest
rate determined by Bank in its reasonable discretion.  Bank’s determination as
to such amount shall be conclusive absent manifest error.

 

(b)                                 Borrower shall pay Bank, upon demand by
Bank, from time to time such amounts as Bank may determine to be necessary to
compensate it for any costs incurred by Bank that Bank determines are
attributable to its making or maintaining of any amount receivable by Bank
hereunder in respect of any Credit Extensions relating thereto (such increases
in costs and reductions in amounts receivable being herein called “Additional
Costs”), in each case resulting from any Regulatory Change which:

 

(i)                                     changes the basis of taxation of any
amounts payable to Bank under this Agreement in respect of any Credit Extensions
(other than changes which affect taxes measured by or imposed on the overall net
income of Bank by the jurisdiction in which Bank has its principal office);

 

(ii)                                  imposes or modifies any reserve, special
deposit or similar requirements relating to any extensions of credit or other
assets of, or any deposits with, or other liabilities of Bank (including any
Credit Extensions or any deposits referred to in the definition of LIBOR); or

 

(iii)                               imposes any other condition affecting this
Agreement (or any of such extensions of credit or liabilities).

 

Bank will notify Borrower of any event occurring after the Closing Date which
will entitle Bank to compensation pursuant to this Section 3.7 as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation.  Bank will furnish Borrower with a statement setting forth the
basis and amount of each request by Bank for compensation under this
Section 3.7.  Determinations and allocations by Bank for purposes of this
Section 3.7 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Credit Extensions, of making or maintaining Credit
Extensions, or on amounts receivable by it in respect of Credit Extensions, and
of the additional amounts required to compensate Bank in respect of any
Additional Costs, shall be conclusive absent manifest error.

 

(c)                                  If Bank shall determine that the adoption
or implementation of any applicable law, rule, regulation, or treaty regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by Bank (or its applicable lending office) with any respect or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank, or comparable agency, has or would have the
effect of reducing the rate of return on capital of Bank or any person or entity
controlling Bank (a “Parent”) as a consequence of its obligations hereunder to a
level below that which Bank (or its Parent) could have achieved but for such
adoption, change, or compliance (taking into consideration policies with respect
to capital adequacy) by an amount deemed by Bank to be material, then from time
to time, within fifteen (15) days after demand by Bank, Borrower shall pay to
Bank such additional amount or amounts as will compensate Bank for such
reduction.  A statement of Bank claiming compensation under this
Section 3.7(c) and setting forth the additional amount or amounts to be paid to
it hereunder shall be conclusive absent manifest error.

 

(d)                                 If, at any time, Bank, in its sole and
absolute discretion, determines that (i) the amount of LIBOR Credit Extensions
for periods equal to the corresponding Interest Periods are not available to
Bank in the offshore currency interbank markets, or (ii) LIBOR does not
accurately reflect the cost to Bank of lending the LIBOR Credit Extensions, then
Bank shall promptly give notice thereof to Borrower.  Upon the giving of such
notice, Bank’s obligation to make the LIBOR Credit Extensions shall terminate;
provided, however, Credit

 

7

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Extensions shall not terminate if Bank and Borrower agree in writing to a
different interest rate applicable to LIBOR Credit Extensions.

 

(e)                                  If it shall become unlawful for Bank to
continue to fund or maintain any LIBOR Credit Extensions, or to perform its
obligations hereunder, upon demand by Bank, Borrower shall prepay the Credit
Extensions in full with accrued interest thereon and all other amounts payable
by Borrower hereunder (including, without limitation, any amount payable in
connection with such prepayment pursuant to Section 3.7(a)).  Notwithstanding
the foregoing, to the extent a determination by Bank as described above relates
to a LIBOR Credit Extension then being requested by Borrower pursuant to a
Notice of Borrowing or a Notice of Conversion/Continuation, Borrower shall have
the option, subject to the provisions of Section 3.6(c), to (i) rescind such
Notice of Borrowing or Notice of Conversion/Continuation by giving notice (by
facsimile or by telephone confirmed in writing) to Bank of such rescission on
the date on which Bank gives notice of its determination as described above, or
(ii) modify such Notice of Borrowing or Notice of Conversion/Continuation to
obtain a Prime Rate Credit Extension or to have outstanding Credit Extensions
converted into or continued as Prime Rate Credit Extensions by giving notice (by
facsimile or by telephone confirmed in writing) to Bank of such modification on
the date on which Bank gives notice of its determination as described above.

 

4                                         CREATION OF SECURITY INTEREST

 

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

 

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

 

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

 

5                                         REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

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

 

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The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s organizational documents, nor
constitute an event of default under any material agreement by which Borrower is
bound.  Borrower is not in default under any agreement to which it is a party or
by which it is bound in which the default could have a material adverse effect
on Borrower’s business.

 

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

 

The Collateral is not in the possession of any third party bailee {such as a
warehouse) except as otherwise provided in the Perfection Certificate.  None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as Borrower has given Bank notice
pursuant to Section 7.2.  In the event that Borrower, after the date hereof,
intends to store or otherwise deliver any portion of the Collateral to a bailee,
then Borrower will first receive the written consent of Bank and such bailee
must execute and deliver a bailee agreement in form and substance satisfactory
to Bank in its sole discretion.

 

All Inventory is in all material respects of good and marketable quality, free
from material defects.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is bound by, any license or other agreement with respect to which Borrower is
the licensee that prohibits or otherwise restricts Borrower from granting a
security interest in Borrower’s interest in such license or agreement or any
other property.  Borrower shall provide written notice to Bank within
ten (10) days of entering or becoming bound by any such license or agreement
which is reasonably likely to have a material impact on Borrower’s business or
financial condition (other than over-the-counter software that is commercially
available to the public).  Borrower shall take such steps as Bank requests to
obtain the consent of, or waiver by, any person whose consent or waiver is
necessary for all such licenses or contract rights to be deemed “Collateral” and
for Bank to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such license or agreement (such consent
or authorization may include a licensor’s agreement to a contingent assignment
of the license to Bank if Bank determines that is necessary in its good faith
judgment), whether now existing or entered into in the future.

 

5.3                               Litigation.  Except as disclosed in
(a) Borrower’s 10-Q filed on December 12, 2007, or (b) the Perfection
Certificate, there are no actions or proceedings pending or, to the knowledge of
the Responsible Officers, threatened in writing against Borrower or any of its
Subsidiaries involving more than Five Hundred Thousand Dollars ($500,000.00).

 

5.4                               No Material Deterioration in Financial
Statements.  All consolidated financial statements for Borrower and any of its
Subsidiaries delivered to Bank fairly present in all material respects
Borrower’s consolidated financial condition and Borrower’s consolidated results
of operations.  There has not been any material deterioration in Borrower’s
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

 

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

 

5.6                               Regulatory Compliance.   Borrower is not an
“investment company” or a company “controlled” by an “investment company” under
the Investment Company Act of 1940.  Borrower is not engaged as one of its
important activities in extending credit for margin stock (under Regulations T
and U of the Federal Reserve Board of Governors).  Borrower has complied in all
material respects with the Federal Fair Labor Standards Act.  Borrower has not
violated any laws, ordinances or rules, the violation of which could reasonably
be expected to have a material adverse effect on its business.  None of
Borrower’s or any of its Subsidiaries’ properties or assets has been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous
Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally.  Borrower and each of its Subsidiaries
have obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted.

 

5.7                               Subsidiaries; Investments.  Borrower does not
own any stock, partnership interest or other equity securities except for
Permitted Investments and its equity interest in its Subsidiaries.

 

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

 

5.9                               Use of Proceeds.  Borrower shall use the
proceeds of the Credit Extensions solely as working capital and to fund its
general business requirements and not for personal, family, household or
agricultural purposes.  Without limiting the foregoing, Borrower may use the
Credit Extensions to pay obligations on the Indenture as they become due
pursuant to the terms of the Indentures in effect on the Effective Date.

 

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

 

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

 

6                                         AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1                               Government Compliance.  Maintain its and all
its Subsidiaries’ legal existence and good standing in their respective
jurisdictions of formation and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to have a material
adverse effect on Borrower’s business or operations.  Borrower shall comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, the noncompliance with which could have a material adverse effect
on Borrower’s business.

 

6.2                               Financial Statements, Reports, Certificates.

 

(a)                                  Deliver to Bank:  (i) as soon as available,
but no later than thirty (30) days after the last day of each month, a company
prepared consolidated balance sheet and income statement covering Borrower’s
consolidated operations during the period certified by a Responsible Officer and
in a form acceptable to Bank; (ii) as soon as available, but no later than
ninety (90) days after the last day of Borrower’s fiscal year (or, by April 30,
2008 with respect to Borrower’s fiscal year ended April 30, 2007), audited
consolidated financial statements prepared under GAAP on form 10-K, consistently
applied, together with an unqualified opinion on the financial statements from
an independent certified public accounting firm acceptable to Bank in its
reasonable discretion; (iii) within five (5) days of delivery, copies of all
statements, reports and notices made available to Borrower’s security holders or
to any holders of Subordinated Debt; (iv) as soon as available, but no later
than the earlier to occur of (A) five (5) days after filing, and (B) forty-five
(45) days following each quarter, all reports on Form 10-Q as filed with the
Securities and Exchange Commission (provided, however, such documents shall be
delivered to Bank by April 30, 2008 with respect to Borrower’s quarters
ended/ending October 31, 2006, January 31, 2007, July 31, 2007, October 31, 2007
and January 31, 2008); (v) within five (5) days after filing, all reports on
form 8-K filed with the Securities and Exchange Commission; (vi) a prompt report
of any material legal actions pending or threatened against Borrower or

 

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any of its Subsidiaries; (vii) as requested by Bank, Board-approved projections;
and (viii) budgets, sales projections, operating plans and other financial
information reasonably requested by Bank.

 

Borrower’s 10-K, 10-Q, and 8-K reports required to be delivered pursuant to this
Section 6.2(a) shall be deemed to have been delivered on the date on which
Borrower posts such report or provides a link thereto on Borrower’s or another
website on the internet.

 

(b)                                 Within thirty (30) days after the last day
of each month, deliver to Bank with the monthly financial statements, a duly
completed Compliance Certificate signed by a Responsible Officer setting forth
calculations showing compliance with the financial covenants set forth in this
Agreement.

 

6.3                               Inventory; Returns.  Keep all Inventory in
good and marketable condition, free from material defects.  Returns and
allowances between Borrower and its Account Debtors shall follow Borrower’s
customary practices as they exist at the Effective Date.  Borrower must promptly
notify Bank of all returns, recoveries, disputes and claims that involve more
than Five Hundred Thousand Dollars ($500,000.00).

 

6.4                               Taxes; Pensions.  Make, and cause each of its
Subsidiaries to make, timely payment of all foreign, federal, state, and local
taxes or assessments (other than taxes and assessments which Borrower is
contesting pursuant to the terms of Section 5.8 hereof) and shall deliver to
Bank, on demand, appropriate certificates attesting to such payments, and pay
all amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms.

 

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

 

6.6                               Operating Accounts.

 

(a)                                  Maintain its and its Subsidiaries’ primary
operating, depository and securities/investment accounts with Bank and Bank’s
affiliates.  In addition, all of Borrower’s cash management services shall be
maintained with or through Bank.  Any Guarantor shall maintain all depository,
operating and securities accounts with Bank, or SVB Securities.

 

(b)                                 In the event that the aggregate amount of
Borrower’s unrestricted cash and Cash Equivalents maintained with Bank and
Bank’s affiliates is less than Fifty Million Dollars ($50,000,000.00) at any
time, Borrower shall immediately pay to Bank a one-time fee equal to Fifty
Thousand Dollars ($50,000.00), which fee shall be deemed to be earned as of the
Effective Date.

 

(c)                                  Provide Bank five (5) days prior written
notice before establishing any Collateral Account at or with any bank or
financial institution other than Bank or its Affiliates.  In addition, for each
Collateral Account that Borrower or Guarantor at any time maintains, Borrower
shall cause the applicable bank or financial institution (other than Bank) at or
with which any Collateral Account is maintained to execute and deliver a Control
Agreement or other appropriate instrument with respect to such Collateral
Account to perfect Bank’s Lien in such Collateral Account in accordance with the
terms hereunder, which Control Agreement may not be terminated without the prior
written consent of Bank.  The provisions of the previous sentence shall not
apply to (i) deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of Borrower’s
employees and identified to Bank by Borrower as such, (ii) deposit accounts
established by Borrower in foreign countries to facilitate commercial
transactions conducted in the ordinary course of Borrower’s business and where
Borrower reasonably contemplates that the funds in such deposit accounts will be
disbursed within thirty (30) days from the date deposited, except for any
minimum amounts required to be maintained in such deposit accounts by the
financial institution in which they are held, and (iii) funds currently held by
U.S.  Bank Trust National Association pursuant to the Indenture, together with
non-accelerated regularly scheduled payments made

 

11

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by Borrower to U.S.  Bank Trust National Association in accordance with the
terms of the Indenture in effect on the Effective Date, provided that the
aggregate amount of such funds does not exceed Four Million Two Hundred Fifty
Thousand Dollars ($4,250,000.00) at any time.

 

6.7                               Financial Covenants.

 

Borrower shall maintain at all times, to be tested as of the last day of each
month, unless otherwise noted:

 

(a)                                  Adjusted Quick Ratio.  An Adjusted Quick
Ratio of at least (i) 0.90 to 1.0 through and including the month ending
June 30, 2008, (ii) 1.0 to 1.0 as of the month ending July 31, 2008 through and
including the month ending September 30, 2008, and(iii) 1.25 to 1.0 as of the
month ending October 31, 2008 and thereafter.

 

(b)                                 EBITDA.  As of the last day of each of
Borrower’s fiscal quarters, commencing with the fiscal quarter ended October 31,
2007, Borrower shall have EBITDA of at least Five Million Dollars
($5,000,000.00) for the six-month period ending on such date.

 

6.8                               Protection of Intellectual Property Rights. 
Borrower shall protect, defend and maintain the validity and enforceability of
its intellectual property as Borrower reasonably deems necessary and consistent
with the exercise of its business judgment in good faith.

 

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

 

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

 

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

 

7                                         NEGATIVE COVENANTS

 

Borrower shall not do any of the following without Bank’s prior written consent:

 

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

 

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

 

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

 

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

 

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

 

(e)           Transfers otherwise permitted by the Loan Documents;

 

(f)                                    sales or discounting of delinquent
accounts in the ordinary course of business, including, without limitation,
sales or discounting made pursuant to the Purchase Agreement;

 

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(g)                                 Transfers associated with the making or
disposition of Permitted Investments;

 

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

 

(i)                                     Transfers of assets (other than Accounts
and Inventory (unless such Transfer is in the ordinary course of Borrower’s
business)) not otherwise permitted in this Section 7.1, provided, that the
aggregate book value of all such Transfers by Borrower and its Subsidiaries,
together, shall not exceed in any fiscal year, five percent (5.0%) of Borrower’s
consolidated total assets as of the last day of the fiscal year immediately
preceding the date of determination.

 

Notwithstanding the foregoing, Borrower shall not make any payments pursuant to
the terms of the Indenture other than non-accelerated regularly scheduled
payments pursuant to the terms of the Indenture.

 

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

 

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

 

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 herein, or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Bank) with
any Person which directly or indirectly prohibits or has the effect of
prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging,
granting a security interest in or upon, or encumbering any of Borrower’s or any
Subsidiary’s intellectual property, except as is otherwise permitted in
Section 7.1 hereof and the definition of “Permitted Liens” herein.

 

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

 

7.7                               Distributions; Investments.  (a) Pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock other than Permitted Distributions; or (b) 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.

 

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

 

7.9                               Subordinated Debt.  (a) Make or permit any
payment on any Subordinated Debt, except under the terms of the subordination,
intercreditor, or other similar agreement to which such Subordinated Debt is
subject, or (b) amend any provision in any document relating to the Subordinated
Debt which would increase the amount thereof or adversely affect the
subordination thereof to Obligations owed to Bank.

 

7.10                        Compliance.  Become an “investment company” or a
company controlled by an “investment company”, under the Investment Company Act
of 1940 or undertake as one of its important activities extending credit to
purchase or carry margin stock (as defined in Regulation U of the Board of
Governors of the Federal

 

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Reserve System), or use the proceeds of any Credit Extension for that purpose;
fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply
with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
plan which could reasonably be expected to result in any liability of Borrower,
including any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.

 

8                                         EVENTS OF DEFAULT

 

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

 

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

 

8.2                               Covenant Default.

 

(a)                                  Borrower fails or neglects to perform any
obligation in Sections 6.2, 6.6, or 6.7, or violates any covenant in Section 7;
or

 

(b)                                 Borrower fails or neglects to perform, keep,
or observe any other term, provision, condition, covenant or agreement contained
in this Agreement, any Loan Documents, and as to any default (other than those
specified in this Section 8) under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within
ten (10) days after the occurrence thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional period (which shall not in any case exceed thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to cure the default shall not be deemed an Event of Default (but no
Credit Extensions shall be made during such cure period).  Grace periods
provided under this Section shall not apply, among other things, to financial
covenants or any other covenants set forth in subsection (a) above;

 

8.3                               Material Adverse Change.  A Material Adverse
Change occurs;

 

8.4                               Attachment.  (a) Any material portion of
Borrower’s assets is attached, seized, levied on, or comes into possession of a
trustee or receiver and the attachment, seizure or levy is not removed in ten
(10) days; (b) the service of process seeking to attach, by trustee or similar
process, any material funds of Borrower, or of any entity under control of
Borrower (including a Subsidiary), on deposit with Bank or Bank’s Affiliate;
(c) Borrower is enjoined, restrained, or prevented by court order from
conducting a material part of its business; (d) a judgment or other claim in
excess of One Million Dollars ($1,000,000.00) becomes a Lien on any of
Borrower’s assets; or (e) a notice of lien, levy, or assessment is filed against
any of Borrower’s assets by any government agency and not paid within ten
(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 shall be made during the cure period);

 

8.5                               Insolvency (a) Borrower is unable to pay its
debts (including trade debts) as they become due or otherwise becomes insolvent;
(b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is
begun against Borrower and not dismissed or stayed within forty-five (45) days
(but no Credit Extensions shall be made while of any of the conditions described
in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

 

8.6                               Other Agreements.  If there is a default in
any agreement to winch Borrower is a party with a third party or parties
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount in excess of One
Million Dollars ($1,000,000.00) or that could result in a Material Adverse
Change.

 

8.7                               Judgments.  A judgment or judgments for the
payment of money in an amount, individually or in the aggregate, of at least One
Million Dollars ($1,000,000.00) (not covered by independent third-party
insurance)

 

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shall be rendered against Borrower and shall remain unsatisfied and unstayed for
a period often (10) days after the entry thereof (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);

 

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

 

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

 

8.10                        Guaranty.  (a) Any guaranty of any Obligations
terminates or ceases for any reason to be in full force and effect; (b) any
Guarantor does not perform any obligation or covenant under any guaranty of the
Obligations; (c) any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or
8.8.  occurs with respect to any Guarantor; (d) the death, liquidation, winding
up, or termination of existence of any Guarantor; or (e) (i) a material
impairment in the perfection or priority of Bank’s Lien in the collateral
provided by Guarantor or in the value of such collateral or (ii) a material
adverse change in the general affairs, management, results of operation,
condition (financial or otherwise) or the prospect of repayment of the
Obligations occurs with respect to any Guarantor;

 

8.11                        Reimbursement Agreement.  The occurrence of an Event
of Default (as defined in the Reimbursement Agreement) under the Reimbursement
Agreement; or

 

8.12                        Purchase Agreement.  The occurrence of an Event of
Default (as defined in the Purchase Agreement) under the Purchase Agreement.

 

9                                         BANK’S RIGHTS AND REMEDIES

 

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

 

(d)                                 terminate any FX Forward Contracts;

 

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

 

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

 

(g)                                 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;

 

(h)                                 ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell the
Collateral.  Bank is hereby granted a non-exclusive, royalty-free license or
other right to use, without charge, 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

 

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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;

 

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

 

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

 

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

 

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

 

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

 

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

 

9.5                               Application of Payments and Proceeds.  Unless
an Event of Default has occurred and is continuing, Bank shall apply any funds
in its possession, whether from Borrower account balances, payments, or proceeds
realized as the result of any collection of Accounts or other disposition of the
Collateral, first, to Bank Expenses, including without limitation, the
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Bank in the exercise of its rights under this Agreement; second, to
the interest due upon any of the Obligations; and third, to the principal of the
Obligations and any applicable fees and other charges, in such order as Bank
shall determine in its sole discretion.  Any surplus shall be paid to Borrower
or other Persons legally entitled thereto; Borrower shall remain liable to Bank
for any deficiency.  If an Event of Default has occurred and is continuing, Bank
may apply any funds in its possession, whether from Borrower account balances,
payments, proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, or otherwise, to the Obligations in such order as
Bank shall determine in its sole discretion.  Any surplus shall be paid to
Borrower or other Persons legally entitled thereto; Borrower shall remain liable
to Bank for any deficiency.  If Bank, in its good faith business judgment,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Bank shall have the
option, exercisable at any time, of either reducing the Obligations by the
principal amount of the purchase price or deferring the reduction of the
Obligations until the actual receipt by Bank of cash therefor.

 

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

 

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

 

9.8          Demand Waiver.  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.

 

10           NOTICES

 

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

 

If to Borrower:

 

Finisar Corporation

 

 

1389 Moffett Park Drive

 

 

Sunnyvale, California 94089

 

 

Attn: Stephen K. Workman

 

 

Fax: (408) 541-4154

 

 

Email: steve.workman@finisar.com

 

 

 

with a copy to:

 

Finisar Corporation

 

 

1389 Moffett Park Drive

 

 

Sunnyvale, California 94089

 

 

Attn: Gabe Kralik

 

 

Fax: (408) 541-5660

 

 

Email: gabe.kralik@finisar.com

 

 

 

If to Bank:

 

Silicon Valley Bank

 

 

2400 Geng Road, Suite 200

 

 

Palo Alto, California 94303

 

 

Attn: Mr.  Nick Tsiagkasl

 

 

Fax: (650) 320-0016

 

 

Email: ntsiagkas@svb.com

 

 

 

with a copy to:

 

Riemer & Braunstein LLP

 

 

Three Center Plaza

 

 

Boston, Massachusetts 02108

 

 

Attn: David A. Ephraim, Esquire

 

 

Fax: (617) 880-3456

 

 

Email: DEphraim@riemerlaw.com

 

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11                                  CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
AND JUDICIAL REFERENCE

 

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. 
NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR
PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON
THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS
PROPERTY.

 

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

 

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

 

12                                  GENERAL PROVISIONS

 

12.1        Successors and Assigns.  This Agreement binds and is for the benefit
of the successors and permitted assigns of each party.  Borrower may not assign
this Agreement or any rights or obligations under it without Bank’s prior
written consent (which may be granted or withheld in Bank’s discretion).  Bank
has the right,

 

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without the consent of or notice to Borrower, to sell, transfer, assign,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan
Documents.

 

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

 

12.3        Limitation of Actions.  Any claim or cause of action by Borrower
against Bank, its directors, officers, employees, agents, accountants,
attorneys, or any other Person affiliated with or representing Bank based upon,
arising from, or relating to this Agreement or any other Loan Document, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, occurred, done, omitted or
suffered to be done by Bank, its directors, officers, employees, agents,
accountants or attorneys, shall be barred unless asserted by Borrower by the
commencement of an action or proceeding in a court of competent jurisdiction by
(a) the filing of a complaint within one year from the earlier of (i) the date
any of Borrower’s officer or directors had knowledge of the first act, the
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based, or (ii) the date this Agreement is terminated, and (b) the
service of a summons and complaint on an officer of Bank, or on any other person
authorized to accept service on behalf of Bank, within thirty (30) days
thereafter.  Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action.  The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Bank in its sole discretion.  This
provision shall survive any termination of this Agreement or any other Loan
Document.

 

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

 

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

 

12.6        Amendments in Writing; Integration.  All amendments to this
Agreement must be in writing signed by both Bank and Borrower.  This Agreement
and the Loan Documents represent the entire agreement about this subject matter
and supersede prior negotiations or agreements.  All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.

 

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

 

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

 

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

 

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

 

12.11      Right of Set Off.  Borrower hereby grants to Bank, a lien, security
interest and right of set off as security for all Obligations to Bank, whether
now existing or hereafter arising upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity under the control of Bank
(including a Bank subsidiary) or in transit to any of them.  At any time after
the occurrence and during the continuance of an Event of Default, without demand
or notice, Bank may set off the same or any part thereof and apply the same to
any liability or obligation of Borrower even though unmatured and regardless of
the adequacy of any other collateral securing the Obligations.  ANY AND ALL
RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

13                                  DEFINITIONS

 

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

 

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

 

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

 

“Additional Costs” is defined in Section 3.7(b).

 

“Adjusted Quick Ratio” is the ratio of Quick Assets to Current Liabilities minus
Deferred Revenue.

 

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

 

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

 

“Agreement” is defined in the preamble hereof.

 

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

 

“Bank” is defined in the preamble hereof.

 

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

 

“Borrower” is defined in the preamble hereof.

 

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

 

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors and delivered by such Person to Bank
approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as Exhibit A to such
certificate is a true, correct,

 

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and complete copy of the resolutions then in full force and effect authorizing
and ratifying the execution, delivery, and performance by such Person of the
Loan Documents to which it is a party, (c) the name(s) of the
Person(s) authorized to execute the Loan Documents on behalf of such Person,
together with a sample of the true signature(s) of such Person(s), and (d) that
Bank may conclusively rely on such certificate unless and until such Person
shall have delivered to Bank a further certificate canceling or amending such
prior certificate.

 

“Business Day” is any day other than a Saturday, Sunday or other day on which
banking institutions in the State of California are authorized or required by
law or other governmental action to close, except that if any determination of a
“Business Day” shall relate to a LIBOR Credit Extension, the term “Business Day”
shall also mean a day on which dealings are carried on in the London interbank
market.

 

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

 

“Cash Management Services” is defined in Section 2.1.4.

 

“Change in Control” means any event, transaction, or occurrence as a result of
which (a) any “person” (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange
Act”)), other than a trustee or other fiduciary holding securities under an
employee benefit plan of Borrower, is or becomes a beneficial owner (within the
meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly,
of securities of Borrower, representing twenty-five percent (25.0%) or more of
the combined voting power of Borrower’s then outstanding securities; or
(b) during any period of twelve consecutive calendar months, individuals who at
the beginning of such period constituted the Board of Directors of Borrower
(together with any new directors whose election by the Board of Directors of
Borrower was approved by a vote of at least two-thirds of the directors then
still in office who either were directions at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason other than death or disability to constitute a majority of the
directors then in office.

 

“Claims” are defined in Section 12.2.

 

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

 

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

 

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

 

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

 

“Communication” is defined in Section 10.

 

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

 

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation directly
or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by
that Person, or for which that Person is directly or indirectly liable; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) all obligations from any interest rate, currency or commodity swap
agreement, interest rate cap or collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in interest

 

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rates, currency exchange rates or commodity prices; but “Contingent Obligation”
does not include endorsements in the ordinary course of business.  The amount of
a Contingent Obligation is the stated or determined amount of the primary
obligation for which the Contingent Obligation is made or, if not determinable,
the maximum reasonably anticipated liability for it determined by the Person in
good faith; but the amount may not exceed the maximum of the obligations under
any guarantee or other support arrangement.

 

“Continuation Date” means any date on which Borrower elects to continue a LIBOR
Credit Extension into another Interest Period.

 

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

 

“Conversion Date” means any date on which Borrower elects to convert a Prime
Rate Credit Extension to a LIBOR Credit Extension or a LIBOR Credit Extension to
a Prime Rate Credit Extension.

 

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

 

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

 

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

 

“Default Rate” is defined in Section 2.4(c).

 

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

 

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

 

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

 

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

 

“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the
extent deducted in the calculation of Net Income, depreciation expense and
amortization expense, plus (d) income tax expense, plus (e) stock compensation
expense, plus (f) non-cash charges related to inventory obsolescence, plus
(g) non-cash charges related to acquisitions, plus (h) non-cash charges related
to impairment of minority investments or goodwill in accordance with GAAP, plus
(i) non-cash charges related to modification of outstanding debt obligations
required by GAAP.

 

“Effective Amount” means with respect to any Credit Extension on any date, the
aggregate outstanding principal amount thereof after giving effect to any
borrowing and prepayments or repayments thereof occurring on such date.

 

“Effective Date” is defined in the preamble of this Agreement.

 

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

 

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

 

“Event of Default” is defined in Section 8.

 

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

 

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

 

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

 

“FX Forward Contract” is defined in Section 2.1.3.

 

“FX Reserve” is defined in Section 2.1.3.

 

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

 

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

 

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

 

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

 

“Indenture” is, collectively, (a) that certain Indenture dated as of October 15,
2001, executed by and between Borrower, as issuer, and U.S.  Bank Trust National
Association, as trustee, relating to 5.25% Convertible Subordinated Notes due
2008, as supplemented from time to time, (b) that certain Indenture dated as of
October 15, 2003, executed by and between Borrower, as issuer, and U.S.  Bank
Trust National Association, as trustee, relating to 2.50% Convertible
Subordinated Notes due 2010, as supplemented from time to time, and (c) that
certain Indenture dated as of October 12, 2006, executed by and between
Borrower, as issuer, and U.S.  Bank Trust National Association, as trustee,
relating to 2.50% Convertible Subordinated Notes due 2010, as supplemented from
time to time.

 

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

 

“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower, including, without
limitation or duplication, all commissions, discounts, or related amortization
and other fees and charges with respect to letters of credit and bankers’
acceptance financing and the net costs associated with interest rate swap, cap,
and similar arrangements, and the interest portion of any deferred payment
obligation (including leases of all types).

 

“Interest Payment Date” means, with respect to any LIBOR Credit Extension, the
last day of each Interest Period applicable to such LIBOR Credit Extension and,
with respect to Prime Rate Credit Extensions, the first (1st) calendar day of
each month (or, if the first (lst) day of the month does not fall on a Business
Day, then on the first Business Day following such date), and each date a Prime
Rate Credit Extension is converted into a LIBOR Credit Extension to the extent
of the amount converted to a LIBOR Credit Extension.

 

23

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“Interest Period” means, as to any LIBOR Credit Extension, the period commencing
on the date of such LIBOR Credit Extension, or on the conversion/continuation
date on which the LIBOR Credit Extension is converted into or continued as a
LIBOR Credit Extension, and ending on the date that is one (1), two (2), or
three (3) months thereafter, in each case as Borrower may elect in the
applicable Notice of Borrowing or Notice of Conversion/Continuation; provided,
however, that (a) no Interest Period with respect to any LIBOR Credit Extension
shall end later than the Revolving Line Maturity Date, (b) the last day of an
Interest Period shall be determined in accordance with the practices of the
LIBOR interbank market as from time to time in effect, (c) if any Interest
Period would otherwise end on a day that is not a Business Day, that Interest
Period shall be extended to the following Business Day unless, in the case of a
LIBOR Credit Extension, the result of such extension would be to carry such
Interest Period into another calendar month, in which event such Interest Period
shall end on the preceding Business Day, (d) any Interest Period pertaining to a
LIBOR Credit Extension that begins on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last Business Day of
the calendar month at the end of such Interest Period, and (e) interest shall
accrue from and include the first Business Day of an Interest Period but exclude
the last Business Day of such Interest Period.

 

“Interest Rate Determination Date” means each date for calculating the LIBOR for
purposes of determining the interest rate in respect of an Interest Period.  
The Interest Rate Determination Date shall be the second Business Day prior to
the first day of the related Interest Period for a LIBOR Credit Extension.

 

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

 

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

 

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

 

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

 

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

 

“LIBOR” means, for any Interest Rate Determination Date with respect to an
Interest Period for any Credit Extension to be made, continued as or converted
into a LIBOR Credit Extension, the rate of interest per annum determined by Bank
to be the per annum rate of interest at which deposits in United States Dollars
are offered to Bank in the London interbank market (rounded upward, if
necessary, to the nearest 1/l00th of one percent (0.01%)) in which Bank
customarily participates at 11:00 a.m.  (local time in such interbank market)
two (2) Business Days prior to the first day of such Interest Period for a
period approximately equal to such Interest Period and in an amount
approximately equal to the amount of such Credit Extension.

 

“LIBOR Credit Extension” means a Credit Extension that bears interest based at
the LIBOR Rate plus the LIBOR Rate Margin.

 

“LIBOR Rate” means, for each Interest Period in respect of LIBOR Credit
Extensions comprising part of the same Credit Extensions, an interest rate per
annum (rounded upward to the nearest 1/16th of one percent (0.0625%)) equal to
LIBOR for such Interest Period divided by one (1) minus the Reserve Requirement
for such Interest Period.

 

“LIBOR Rate Margin” is two and one-half of one percent (2.50%).

 

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

 

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

 

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“Material Adverse Change” is (a) a material impairment in the perfection or
priority of Bank’s Lien in the Collateral or in the value of such Collateral;
(b) a material adverse change in the business, operations, or condition
(financial or otherwise) of Borrower; (c) a material impairment of the prospect
of repayment of any portion of the Obligations; or (d) Bank determines, based
upon information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower shall fail to comply with one or more of the
financial covenants in Section 6.7 during the next succeeding financial
reporting period.

 

“Net Income” means, as calculated for Borrower for any period as at any date of
determination, the net profit (or loss), after provision for taxes, of Borrower
for such period taken as a single accounting period.

 

“Notice of Borrowing” means a notice given by Borrower to Bank in accordance
with Section 3.2(a), substantially in the form of Exhibit C, with appropriate
insertions.

 

“Notice of Conversion/Continuation” means a notice given by Borrower to Bank in
accordance with Section 3.5, substantially in the form of Exhibit D, with
appropriate insertions.

 

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

 

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

 

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

 

“Perfection Certificate” is defined in Section 5.1.

 

“Permitted Distributions” means:

 

(a)                                 purchases of capital stock from former
employees, consultants and directors pursuant to repurchase agreements or other
similar agreements in an aggregate amount not to exceed One Hundred Thousand
Dollars ($100,000.00) in any fiscal year provided that at the time of such
purchase no Default or Event of Default has occurred and is continuing;

 

(b)                                distributions or dividends consisting solely
of Borrower’s capital stock;

 

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

 

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

 

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

 

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

 

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

 

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

 

“Permitted Indebtedness” is:

 

(a)                                 Borrower’s Indebtedness to Bank under this
Agreement and the other Loan Documents;

 

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(b)                                Indebtedness existing on the Effective Date
and shown on the Perfection Certificate;

 

(c)                                 Subordinated Debt;

 

(d)                                Indebtedness under the Indenture;

 

(e)                                 unsecured Indebtedness to trade creditors
incurred in the ordinary course of business; and

 

(f)                                   extensions, refinancings, modifications,
amendments and restatements of any items of Permitted Indebtedness (a) through
(d) above, provided that the principal amount thereof is not increased or the
terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.

 

“Permitted Investments” are: (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,
(iv) any other investments administered through Bank, (v) any Investments
currently owned by Borrower that were made in accordance with Borrower’s
investment policy in effect at the time the Investment was made, and (vi) any
Investments made hereafter in accordance with Borrower’s investment policy, as
amended from time to time, provided that such investment policy (and any such
amendments thereto) has been approved by Bank.

 

“Permitted Liens” are:

 

(a)                                 Liens existing on the Effective Date and
shown on the Perfection Certificate or arising under this Agreement and the
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 Borrower’s Books, if
they have no priority over any of Bank’s Liens;

 

(c)                                 purchase money Liens and capital leases
(i) on Equipment acquired or held by Borrower incurred for financing the
acquisition of the Equipment securing no more than Five Hundred Thousand Dollars
($500,000.00) in the aggregate amount outstanding, or (ii) existing on Equipment
when acquired, if the Lien is confined to the property and improvements and the
proceeds of the Equipment; and

 

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

 

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

 

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

 

“Prime Rate Credit Extension” means a Credit Extension that bears interest based
at the Prime Rate plus the Prime Rate Margin.

 

“Prime Rate Margin” is zero percent (0.00%).

 

“Purchase Agreement” is that certain Non-Recourse Receivables Purchase Agreement
dated as of October 28, 2004 between Borrower and Bank, as has been and as may
be further amended from time to time.

 

“Quick Assets” is, on any date, Borrower’s unrestricted cash, Cash Equivalents,
net billed trade accounts receivable and all of Borrower’s investments
determined according to GAAP.

 

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

 

“Regulatory Change” means, with respect to Bank, any change on or after the date
of this Agreement in United States federal, state, or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives, or requests applying to a class of
lenders including Bank, of or

 

26

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under any United States federal or state, or any foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.

 

“Reimbursement Agreement” is that certain Letter of Credit Reimbursement
Agreement dated as of April 29, 2005 between Borrower and Bank, as has been and
as may be further amended from time to time.

 

“Reserve Requirement” means, for any Interest Period, the average maximum rate
at which reserves (including any marginal, supplemental, or emergency reserves)
are required to be maintained during such Interest Period under Regulation D
against “Eurocurrency liabilities” (as such term is used in Regulation D) by
member banks of the Federal Reserve System Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves required to
be maintained by Bank by reason of any Regulatory Change against (a) any
category of liabilities which includes deposits by reference to which the LIBOR
Rate is to be determined as provided in the definition of LIBOR or (b) any
category of extensions of credit or other assets which include Credit
Extensions.

 

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

 

“Revolving Line” is an Advance or Advances in an aggregate amount of up to Fifty
Million Dollars ($50,000,000.00) outstanding at any time.

 

“Revolving Line Maturity Date” is March 13, 2009.

 

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

 

“Settlement Date” is defined in Section 2.1.3.

 

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

 

“Subsidiary” is, with respect to any Person, any Person of which more than fifty
percent (50.0%) of the voting stock or other equity interests (in the case of
Persons other man corporations) is owned or controlled, directly or indirectly,
by such Person or one or more Affiliates of such Person.

 

“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 current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.

 

“Transfer” is defined in Section 7.1.

 

“United States Dollars” is the lawful currency of the United States of America.

 

[signature page to follow]

 

27

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

 

BORROWER:

 

FINISAR CORPORATION

 

By:

  /s/ S.K. Workman

 

Name:

  S.K. Workman

 

Title:

  Sr. VP Finance and CFO

 

 

 

 

BANK:

 

 

 

SILICON VALLEY BANK

 

 

 

By:

  /s/ Nack Tsiagkas

 

Name:

  Nick Tsiagkas

 

Title:

  Relationship Manager

 

 

 

[Signature page to Loan and Security Agreement]

 

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

 

EXHIBIT A

 

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

 

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

 

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

 

Notwithstanding the foregoing, the Collateral does not include any of the
following, whether now owned or hereafter acquired any copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of Borrower connected with and symbolized
thereby, know-how, operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing; provided, however, the Collateral shall
include all Accounts, license and royalty fees and other revenues, proceeds, or
income arising out of or relating to any of the foregoing.

 

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

 

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EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

TO:

 

SILICON VALLEY BANK

Date:

 

 

 

 

 

 

FROM:

FINISAR CORPORATION

 

 

 

The undersigned authorized officer of FINISAR CORPORATION (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement”), (1) Borrower is in complete compliance for
the period ending _______ with all required covenants except as noted below,
(2) there are no Events of Default, (3) all representations and warranties in
the Agreement are true and correct in all material respects on this date except
as noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date,
(4) Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower has timely paid all foreign, federal, state
and local taxes, assessments, deposits and contributions owed by Borrower except
as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached are the
required documents supporting the certification. The undersigned certifies that
these are prepared in accordance with GAAP consistently applied from one period
to the next except as explained in an accompanying letter or footnotes. The
undersigned acknowledges that no borrowings may be requested at any time or date
of determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.

 

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

 

Reporting Covenant

 

 

Required

 

 

Complies

 

 

 

 

 

 

 

Monthly Financial Statements and compliance Certificate

 

 

Monthly within 30 days

 

 

Yes  No

Annual financial statements (CPA Audited) on 10-K

 

 

FYE within 90 days

 

 

Yes  No

10-Q

 

 

Quarterly, within 5 days after filing with
SEC or 45 days after quarter

 

 

Yes  No

8-K

 

 

Within 5 days after SEC filing

 

 

Yes  No

Board approved projections

 

 

As requested by Bank

 

 

Yes  No

 

 

 

 

 

 

 

Financial Covenant

 

 

Required

 

 

Actual

 

 

Complies

 

 

 

 

 

 

 

 

 

 

Adjusted Quick Ratio (montly)

 

 

: 1.0

*

 

: 1.0

 

 

Yes  No

EBITDA (quarterly)

 

 

$

**

 

$

 

 

Yes  No

 

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

*As set forth in Section 6.7(a) of the Loan and Security Agreement.

**As set forth in Section 6.7(b) of the Loan and Security Agreement.

 

1

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The following financial covenant analyses and information set forth in Schedule
1 attached hereto are true and accurate as of the date of this Certificate.

 

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

 

 

 

 

FINISAR CORPORATION

BANK USE ONLY

 

 

By:

 

 

Received by:

 

Name:

 

 

 

AUTHORIZED SIGNER

Title:

 

 

Date:

 

 

 

 

 

 

 

Verified:

 

 

 

AUTHORIZED SIGNER

 

Date:

 

 

 

 

Compliance Status:

Yes  No

 

2

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Schedule 1 to Compliance Certificate
Financial Covenants of Borrower

 

Dated:

___________________

 

 

 

In the event of a conflict between this Schedule and the Loan Agreement, the
terms of the Loan Agreement shall control.

 

I.             Adjusted Quick Ratio (Section 6.7(a))

 

Required:               ____: 1.00 (see Section  6.7(a))

 

Actual:                   ___: 1.00

 

A.

 

Aggregate value of the unrestricted cash and Cash Equivalents of Borrower

$___________

 

 

 

 

 

 

B.

 

Aggregate value of the net billed trade accounts receivable of Borrower

$___________

 

 

 

 

 

 

C.

 

Investments of Borrower

 

 

 

 

 

 

 

D.

 

Quick Assets (the sum of lines A through C)

$___________

 

 

 

 

 

 

E.

 

Aggregate value of liabilities of Borrower (including all Indebtedness to Bank)
that mature within one (1) year and current portion of Subordinated Debt
permitted by Bank to be paid by Borrower

$___________

 

 

 

 

 

 

F.

 

Current Liabilities (line E))

$___________

 

 

 

 

 

 

G.

 

Deferred Revenue

$___________

 

 

 

 

 

 

H.

 

Line F minus line G

$___________

 

 

 

 

 

 

I.

 

Adjusted Quick Ratio (line D divided by line H)

 

 

 

Is line H equal to or greater than          : 1.00 (see Section 6.7(a))?

 

_______

 

No, not in compliance

 

__________

Yes, in compliance

 

II.            EBITDA (Section 6.7(b))

 

Required:

$5,000,000 (for prior two quarters)

 

 

 

 

 

 

 

Actual:

 

$                                  

 

 

 

 

Is EBITDA for prior two quarters at least $5,000,000?

 

_______

 

No, not in compliance

 

__________

Yes, in compliance

 

3

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EXHIBIT C

 

FORM OF NOTICE OF BORROWING

 

FINISAR CORPORATION

 

 

Date:

____________________

 

To:

 

SILICON VALLEY BANK

 

 

3003 Tasman Drive

 

 

Santa Clara, CA 95054

 

 

Attention: Corporate Services Department

 

RE:

 

Loan and Security Agreement dated as of                             , 2008 (as
amended, modified, supplemented or restated from time to time, the “Loan
Agreement”), by and Finisar Corporation (the “Borrower”) Silicon Valley Bank
(the “Bank”)

 

Ladies and Gentlemen:

 

The undersigned refers to the Loan Agreement, the terms defined therein and used
herein as so defined, and hereby gives you notice irrevocably, pursuant to
Section 3.4(a) of the Loan Agreement, of the borrowing of a Credit Extension.

 

1.             The Funding Date, which shall be a Business Day, of the requested
borrowing is                               .

 

2.             The aggregate amount of the requested borrowing is $
                       .

 

3.             The requested Credit Extension shall consist of
$                     of Prime Rate Credit Extensions and $                   of
LIBOR Credit Extensions.

 

4.             The duration of the Interest Period for the LIBOR Credit
Extensions included in the requested Credit Extension shall be             
months.

 

The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the date of the proposed Credit Extension
before and after giving effect thereto, and to the application of the proceeds
therefrom, as applicable:

 

(a)           all representations and warranties of Borrower contained in the
Loan Agreement are true, accurate and complete in all material respects as of
the date hereof; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date;

 

(b)           no Default or Event of Default has occurred and is continuing, or
would result from such proposed Credit Extension; and

 

(c)           the requested Credit Extension will not cause the aggregate
principal amount of the outstanding Credit Extensions to exceed, as of the
designated Funding Date, the Revolving Line.

 

4

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

 

BORROWER

FINISAR CORPORATION

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

For internal Bank use only

 

 

LIBOR Pricing Date

 

 

 

 

LIBOR

 

 

 

LIBOR Variance

 

 

Maturity Date

 

 

 

 

 

 

 

____________________

%

 

 

 

5

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EXHIBIT D

 

FORM OF NOTICE OF CONVERSION/CONTINUATION

 

FINISAR CORPORATION

 

 

Date:

 

 

To:

 

SILICON VALLEY BANK

 

 

3003 Tasman Drive

 

 

Santa Clara, CA 95054

 

 

Attention:

 

RE:

 

Loan and Security Agreement dated as of                             , 2008 (as
amended, modified, supplemented or restated from time to time, the “Loan
Agreement”), by and Finisar Corporation (the “Borrower”) Silicon Valley Bank
(the “Bank”)

 

Ladies and Gentlemen:

 

The undersigned refers to the Loan Agreement, the terms defined therein being
used herein as therein defined, and hereby gives you notice irrevocably,
pursuant to Section 3.5 of the Loan Agreement, of the [conversion]
[continuation] of the Credit Extensions specified herein, that:

 

1.             The date of the [conversion] [continuation] is          ,
20      .

 

2.             The aggregate amount of the proposed Credit Extensions to be
[converted] is $                                or [continued] is $
                     .

 

3.             The Credit Extensions are to be [converted into] [continued as]
[LIBOR] [Prime Rate] Credit Extensions.

 

4.             The duration of the Interest Period for the LIBOR Credit
Extensions included in the [conversion] [continuation] shall be                 
months.

 

The undersigned, on behalf of Borrower, hereby certifies that the following
statements are true on the date hereof, and will be true on the date of the
proposed [conversion] [continuation], before and after giving effect thereto and
to the application of the proceeds therefrom:

 

(a)           all representations and warranties of Borrower stated in the Loan
Agreement are true, accurate and complete in all material respects as of the
date hereof; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date; and

 

(b)           no Default or Event of Default has occurred and is continuing, or
would result from such proposed [conversion] [continuation].

 

[Signature page follows.]

 

1

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

 

BORROWER

FINISAR CORPORATION

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

For internal Bank use only

 

 

LIBOR Pricing Date

 

 

 

 

LIBOR

 

 

 

LIBOR Variance

 

 

Maturity Date

 

 

 

 

 

 

 

____________________

%

 

 

 

1

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