Exhibit 10.5

LOAN AND SECURITY AGREEMENT

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This LOAN AND SECURITY AGREEMENT is entered into as of February 14, 2007, by and
between Comerica Bank (“Bank”), Nanometrics Incorporated (“Borrower”), Accent
Optical Technologies Nanometrics, Inc. (“Accent”) and Nanometrics IVS Division,
Inc., (“IVS”, and with Accent, each individually a “Guarantor”, and together,
collectively, jointly and severally “Guarantors”).

RECITALS

Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which Bank
will advance credit to Borrower, and Borrower will repay the amounts owing to
Bank.

Each Guarantor is affiliated with Borrower and will derive direct and indirect
benefits from Bank’s extension of credit to Borrower. Each Guarantor, in order
to induce Bank to extend credit to Borrower, and in order to secure such
Guarantor’s obligations to Bank under the Loan Documents, hereby agrees to enter
into this Agreement.

AGREEMENT

The parties agree as follows:

 

  1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions. As used in this Agreement, all capitalized terms shall have the
definitions set forth on Exhibit A. Any term used in the Code and not defined
herein shall have the meaning given to the term in the Code.

1.2 Accounting Terms. Any accounting term not specifically defined on Exhibit A
shall be construed in accordance with GAAP and all calculations shall be made in
accordance with GAAP. The term “financial statements” shall include the
accompanying notes and schedules.

 

  2. LOAN AND TERMS OF PAYMENT.

2.1 Credit Extensions.

(a) Promise to Pay. Borrower promises to pay to Bank, in lawful money of the
United States of America, or such Alternative Currency as may be applicable
hereunder from time to time, the aggregate unpaid principal amount of all Credit
Extensions made by Bank to Borrower, together with interest on the unpaid
principal amount of such Credit Extensions at rates in accordance with the terms
hereof.

(b) Advances Under Revolving Line.

(i) Amount. Subject to and upon the terms and conditions of this Agreement
(1) Borrower may request Advances so long as the Outstanding Utilization does
not exceed the lesser of (A) the Revolving Line, or (B) $7,500,000 plus the
Borrowing Base, and (2) amounts borrowed pursuant to this Section 2.1(b) may be
repaid and reborrowed at any time prior to the Revolving Maturity Date, at which
time all Advances under this Section 2.1(b) shall be immediately due and
payable. Borrower may prepay any Advances without penalty or premium.

(ii) Form of Request. Whenever Borrower desires a U.S. Base Rate Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. Pacific time (1:00 p.m. Pacific time for wire transfers), on the
Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit C. Requests for all Advances, other than U.S. Base Rate Advances, shall
be made in accordance with the requirements of the Interest Rate Addendum and
promptly confirmed by a Payment/Advance Form in substantially the form of

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Exhibit C. Bank is authorized to make Advances under this Agreement, based upon
instructions received from a Responsible Officer or a designee of a Responsible
Officer, or without instructions if in Bank’s discretion such Advances are
necessary to meet Obligations which have become due and remain unpaid. Bank
shall be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer or a designee thereof, and
Borrower shall indemnify and hold Bank harmless for any damages or loss suffered
by Bank as a result of such reliance. Bank will credit the amount of Advances
made under this Section 2.1(b) to Borrower’s deposit account.

(iii) Letter of Credit Sublimit. Subject to the availability under the Revolving
Line, and in reliance on the representations and warranties of Borrower set
forth herein, at any time and from time to time from the date hereof through the
Business Day immediately prior to the Revolving Maturity Date, Bank shall issue
for the account of Borrower such Letters of Credit as Borrower may request by
delivering to Bank a duly executed letter of credit application on Bank’s
standard form; provided, however, that the outstanding and undrawn amounts under
all such Letters of Credit (i) shall not at any time exceed the Letter of Credit
Sublimit, and (ii) shall be subtracted from the Revolving Line, or the Borrowing
Base, as applicable, in the same manner as U.S. Dollar Advances. If any term of
in the letter of credit application on Bank’s standard form conflicts with this
Agreement, this Agreement shall govern. Any drawn but unreimbursed amounts under
any Letters of Credit shall be charged as U.S. Base Rate Advances against the
Revolving Line. All Letters of Credit shall be in form and substance acceptable
to Bank in its sole discretion and shall be subject to the terms and conditions
of Bank’s form application and letter of credit agreement. Borrower will pay any
standard issuance and other fees that Bank notifies Borrower it will charge for
issuing and processing Letters of Credit.

(iv) Credit Card Services Sublimit. Subject to the terms and conditions of this
Agreement, Borrower may request corporate credit cards and standard and
e-commerce merchant account services from Bank (collectively, the “Credit Card
Services”). The aggregate limit of the corporate credit cards and merchant
credit card processing reserves shall not exceed the Credit Card Services
Sublimit, provided that availability under the Revolving Line shall be reduced
by the aggregate limits of the corporate credit cards issued to Borrower and
merchant credit card processing reserves. In addition, Bank may, in its sole
discretion, charge as U.S. Base Rate Advances any amounts that become due or
owing to Bank in connection with the Credit Card Services. The terms and
conditions (including repayment and fees) of such Credit Card Services shall be
subject to the terms and conditions of the Bank’s standard forms of application
and agreement for the Credit Card Services, which Borrower hereby agrees to
execute.

(v) Foreign Exchange Sublimit. Subject to and upon the terms and conditions of
this Agreement (including but not limited to availability under the Revolving
Line) and any other agreement that Borrower may enter into with Bank in
connection with foreign exchange transactions (“Foreign Exchange Contracts”),
Borrower may request Bank to enter into Foreign Exchange Contracts with Borrower
due not later than the Revolving Maturity Date. Borrower shall pay any standard
issuance and other fees that Bank notifies Borrower will be charged for issuing
and processing Foreign Exchange Contracts for Borrower. The “FX Amount” shall
equal the amount determined by multiplying (i) the aggregate amount, in United
States Dollars, of FX Contracts between Borrower and Bank remaining outstanding
as of any date of determination by (ii) the applicable Foreign Exchange Reserve
Percentage as of such date. The Foreign Exchange Reserve Percentage shall be ten
percent (10%). The aggregate FX Amount outstanding at any time may not exceed
the Foreign Exchange Sublimit.

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

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2.2 Overadvances. If at any time the Outstanding Utilization exceeds the lesser
of (A) the Revolving Line, or (B) $7,500,000 plus the Borrowing Base, Borrower
shall immediately pay to Bank, in cash, the amount of such excess.

2.3 Interest Rates, Payments, and Calculations.

(a) Interest Rates.

(i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear
interest, on the outstanding daily balance thereof, as set forth in the Interest
Rate Addendum.

(b) Default Rate. All Obligations shall bear interest, from and after the
occurrence and during the continuance of an Event of Default, at a rate equal to
3 percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.

(c) Payments. Interest for U.S. Base Rate Advances hereunder shall be due and
payable on the first Business Day of each month during the term hereof. Interest
for all other Advances shall be due and payable on the last day of the
applicable interest period in the same currency such Advance was originally
funded. Bank shall, at its option, charge such interest, all Bank Expenses, and
all Periodic Payments against any of Borrower’s deposit accounts or against the
Revolving Line, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder. In the event
any charges related to Alternative Currency Advances, payable in an Alternative
Currency, are made by Bank against the Revolving Line at any time, such charges
will be made in an amount equal to the U.S. Dollar Equivalent as of the date of
such charges.

(d) Repayment. The principal amount of each Advance other than U.S. Base Rate
Advances shall be due and payable at the end of the interest period applicable
to such Advance pursuant to the Interest Rate Addendum. Each Alternative
Currency Advance shall be payable in the same currency such Advance was
originally funded.

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

(f) Time. All payments by Borrower of principal of, or interest, or of fees,
shall be made without setoff or counterclaim on the date specified for payment
under this Agreement not later than 1:00 p.m. (Eastern Time) in immediately
available funds to Bank.

2.4 Crediting Payments. Prior to the occurrence and while no Event of Default is
continuing, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default and while it is continuing, Bank shall have
the right, in its sole discretion, to immediately apply any wire transfer of
funds, check, or other item of payment Bank may receive to conditionally reduce
Obligations, but such applications of funds shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon Pacific time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Except as provided in the Interest Rate
Addendum, whenever any payment to Bank under the Loan Documents would otherwise
be due (except by reason of acceleration) on a date that is not a Business Day,
such payment shall instead be due on the next Business Day, and additional fees
or interest, as the case may be, shall accrue and be payable for the period of
such extension.

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2.5 Fees. Borrower shall pay to Bank the following:

(a) Facility Fee. A fee equal to $10,000, which shall be nonrefundable and which
Bank acknowledges receipt of prior to the Closing Date;

(b) Unused Revolving Line Fee. On the first Business Day of each month
commencing on the first Business Day of the month following the Closing Date and
until and on the Revolving Maturity Date, an unused revolving line commitment
fee in an amount equal to 0.25% per annum times the result of (i) the Revolving
Line, less (ii) the average daily outstanding balance for the aggregate
U.S. Dollar Advances and the U.S. Dollar Equivalent of all Alternative Currency
Advances during the Measurement Period. “Measurement Period” means the period
from the first day of the previous month (or from the Closing Date if the
Closing Date occurred in such previous month or from the first day of the month
in which the Revolving Maturity Date occurs if they fee is being paid on the
Revolving Maturity Date) through the last day of the previous month (or through
the Revolving Maturity Date if the fee is being paid on the Revolving Maturity
Date).

(c) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the
Closing Date, and, after the Closing Date, all Bank Expenses, as and when they
become due.

2.6 Term. This Agreement shall become effective on the Closing Date and, subject
to Section 13.7, shall continue in full force and effect for so long as any
Obligations remain outstanding or Bank has any obligation to make Credit
Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have
the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.

 

  3. CONDITIONS OF LOANS.

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

(a) this Agreement;

(b) an officer’s certificate of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement;

(c) an officer’s certificate of each Guarantor with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement and the
execution and delivery of the Guaranty by such Guarantor;

(d) a financing statement (Form UCC-1) for Borrower and each Guarantor;

(e) the Guarantees;

(f) the Stock Pledge Agreement;

(g) agreement to provide insurance;

(h) payment of the fees and Bank Expenses then due specified in Section 2.5;

(i) current SOS Reports indicating that except for Permitted Liens, there are no
other security interests or Liens of record in the Collateral;

(j) an audit of the Collateral, the results of which shall be satisfactory to
Bank;

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(k) current financial statements, including audited statements for Borrower’s
most recently ended fiscal year for which audited financial statements are
available, together with an unqualified opinion, company prepared consolidated
and consolidating balance sheets and income statements for the most recently
ended fiscal quarter in accordance with Section 6.2, and such other updated
financial information as Bank may reasonably request;

(l) current Compliance Certificate in accordance with Section 6.2;

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

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

(a) timely receipt by Bank of a request for such Advance and the Payment/Advance
Form as provided in Section 2.1 and the Interest Rate Addendum; and

(b) the representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Payment/Advance
Form and on the effective date of each Credit Extension as though made at and as
of each such date, and no Event of Default shall have occurred and be
continuing, or would exist after giving effect to such Credit Extension
(provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date). The making of each Credit Extension shall be deemed
to be a representation and warranty by Borrower on the date of such Credit
Extension as to the accuracy of the facts referred to in this Section 3.2.

 

  4. CREATION OF SECURITY INTEREST.

4.1 Grant of Security Interest. Borrower and each Guarantor grants and pledges
to Bank a continuing security interest in the Collateral to secure prompt
repayment of any and all Obligations and to secure prompt performance by
Borrower and each Guarantor of each of its respective covenants and duties under
the Loan Documents (i.e., the Collateral of each Guarantor secures its
Obligations under its Guaranty). Except as set forth in the Schedule and except
for the Permitted Liens, such security interest constitutes a valid, security
interest in the presently existing Collateral, and will constitute a valid
security interest in later-acquired Collateral (and shall constitute a first
priority perfected security interest to the extent that a security interest
therein may be perfected by the filing of a financing statement with the
Delaware Secretary of State). Notwithstanding any termination, Bank’s Lien on
the Collateral shall remain in effect for so long as any Obligations are
outstanding. Notwithstanding anything to the contrary herein, the term
“Collateral” shall not include any rights or interest in any personal property
(including Equipment) to the extent that: (i) such personal property constitutes
collateral for Permitted Indebtedness and (ii) under the terms of the applicable
loan agreement, lease, or other contract with respect thereto, the valid grant
of a security interest or lien therein to Bank is prohibited under the terms of
such loan agreement, lease, or other contract (including where the violation of
any such prohibition would result in the termination of the applicable contract)
and such prohibition has not been or is not waived or the consent of the other
party to such loan agreement, lease, or other contract has not been obtained.
Bank agrees to execute any UCC termination statements or other instruments
necessary to release its security interest with respect to any such personal
property or equipment financed by a third party.

4.2 Perfection of Security Interest. Borrower and each Guarantor authorizes Bank
to file at any time financing statements, continuation statements, and
amendments thereto that (i) either specifically describe the Collateral or
describe the Collateral as all assets of Borrower or such Guarantor of the kind
pledged hereunder, and (ii) contain any other information required by the Code
for the sufficiency of filing office acceptance of any financing statement,
continuation statement, or amendment, including whether Borrower or such
Guarantor is an organization, the type of organization and any organizational
identification number issued to Borrower or such Guarantor, if applicable. Any
such financing statements may be signed by Bank on behalf of Borrower or any
Guarantor, as provided in the Code, and may be filed at any time in any
jurisdiction whether or not Revised Article 9 of the Code is then in effect in
that jurisdiction. Borrower and each Guarantor shall from time to time endorse
and

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deliver to Bank, at the request of Bank, all Negotiable Collateral and other
documents that Bank may reasonably request, in form satisfactory to Bank, to
perfect and continue perfected Bank’s security interests in the Collateral and
in order to fully consummate all of the transactions contemplated under the Loan
Documents. Borrower and each Guarantor shall have possession of the Collateral,
except where expressly otherwise provided in this Agreement or where Bank
chooses to perfect its security interest by possession in addition to the filing
of a financing statement. Where Collateral is in possession of a third party
bailee, Borrower or Guarantors shall take such steps as Bank reasonably requests
for Bank to (i) obtain an acknowledgment, in form and substance satisfactory to
Bank, of the bailee that the bailee holds such Collateral for the benefit of
Bank, (ii) obtain “control” of any Collateral consisting of investment property,
deposit accounts, letter-of-credit rights or electronic chattel paper (as such
items and the term “control” are defined in Revised Article 9 of the Code) by
causing the securities intermediary or depositary institution or issuing bank to
execute a control agreement in form and substance satisfactory to Bank. Borrower
and Guarantors will not create any chattel paper without placing a legend on the
chattel paper acceptable to Bank indicating that Bank has a security interest in
the chattel paper. Borrower or Guarantors from time to time may deposit with
Bank specific cash collateral to secure specific Obligations; Borrower and each
Guarantor authorizes Bank to hold such specific balances in pledge and to
decline to honor any drafts thereon or any request by Borrower or such Guarantor
or any other Person to pay or otherwise transfer any part of such balances for
so long as the specific Obligations are outstanding.

4.3 Right to Inspect. Bank (through any of its officers, employees, or agents)
shall have the right, upon reasonable prior notice, from time to time during
Borrower’s or any Guarantor’s usual business hours but no more than twice a year
(unless an Event of Default has occurred and is continuing), to inspect
Borrower’s or such Guarantor’s Books and to make copies thereof and to check,
test, and appraise the Collateral in order to verify Borrower’s and Guarantors’
financial condition or the amount, condition of, or any other matter relating
to, the Collateral.

 

  5. REPRESENTATIONS AND WARRANTIES.

Borrower represents and warrants as follows:

5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing under the laws of the state in which it is
incorporated and qualified and licensed to do business in any state in which the
conduct of its business or its ownership of property requires that it be so
qualified, except where the failure to do so would not reasonably be expected to
cause a Material Adverse Effect.

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

5.3 Collateral. Borrower has rights in or the power to transfer the Collateral,
and its title to the Collateral is free and clear of Liens, adverse claims, and
restrictions on transfer or pledge except for Permitted Liens. Except (i) as set
forth in the Schedule, (ii) for inventory in transit or located at customer
sites or contract manufacturers in the ordinary course of Borrower’s business,
(iii) service inventory in an amount not exceeding $500,000 at any time, and
(iv) as permitted under Section 7.10 with respect to moving Inventory and
Equipment to new locations, all Collateral is located solely in the Collateral
States. The Eligible Accounts are bona fide existing obligations. The property
or services giving rise to such Eligible Accounts has been delivered or rendered
to the account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has not received notice of actual or
imminent Insolvency Proceeding of any account debtor whose accounts are included
in any Borrowing Base Certificate as an Eligible Account. All Inventory is in
all material respects of good and merchantable quality, free from all material
defects, except for Inventory for which adequate reserves have been made. Except
as set forth in the Schedule and as permitted by Section 6.7, none of the
Collateral consisting of deposit accounts or investment property is maintained
with a Person other than Bank or Bank’s Affiliates.

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5.4 Intellectual Property. Borrower is the sole owner of the Intellectual
Property, except for (i) licenses granted by Borrower in the ordinary course of
business, and (ii) jointly-developed Intellectual Property that is co-owned with
other parties. To the best of Borrower’s knowledge, each of the Copyrights,
Trademarks and Patents is valid and enforceable, and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in part, and no
claim has been made to Borrower that any part of the Intellectual Property
violates the rights of any third party except to the extent such claim would not
reasonably be expected to cause a Material Adverse Effect.

5.5 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule or as disclosed to Bank pursuant to Section 7.2, Borrower has not done
business under any name other than that specified on the signature page hereof,
and its exact legal name as of the Closing Date is as set forth in the first
paragraph of this Agreement. Except as disclosed to Bank pursuant to
Section 7.2, chief executive office of Borrower is located in the Chief
Executive Office State at the address indicated in Section 10 hereof.

5.6 Litigation. Except as set forth in the Schedule and in Borrower’s filings
with the Securities and Exchange Commission, there are no actions or proceedings
pending by or against Borrower or any Subsidiary before any court or
administrative agency in which a likely adverse decision would reasonably be
expected to have a Material Adverse Effect.

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

5.8 Solvency, Payment of Debts. Borrower is able to pay its debts (including
trade debts) as they mature; the fair saleable value of Borrower’s assets
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; and Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement.

5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met
the minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower’s failure
to comply with ERISA that is reasonably likely to result in Borrower’s incurring
any liability that could have a Material Adverse Effect. Borrower is not an
“investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied in all material respects with all the provisions
of the Federal Fair Labor Standards Act. Borrower is in compliance with all
environmental laws, regulations and ordinances except where the failure to
comply is not reasonably likely to have a Material Adverse Effect. Borrower has
not violated any statutes, laws, ordinances or rules applicable to it, the
violation of which could reasonably be expected to have a Material Adverse
Effect. Borrower and each Subsidiary have filed or caused to be filed all tax
returns required to be filed, and have paid, or have made adequate provision for
the payment of, all taxes reflected therein except those being contested in good
faith with adequate reserves under GAAP or where the failure to file such
returns or pay such taxes would not reasonably be expected to have a Material
Adverse Effect.

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

5.11 Government Consents. Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower’s business as currently conducted,
except where the failure to do so would not reasonably be expected to cause a
Material Adverse Effect.

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5.12 Inbound Licenses. Except as disclosed on the Schedule or where any
prohibition or restriction would not be effective to prevent the granting of a
security interest under applicable law, Borrower is not a party to, nor is bound
by, any license or other agreement that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property.

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

 

  6. AFFIRMATIVE COVENANTS.

Borrower covenants that, until payment in full of all outstanding Obligations,
and for so long as Bank may have any commitment to make a Credit Extension
hereunder, Borrower shall do all of the following:

6.1 Good Standing and Government Compliance. Borrower shall maintain its and
each of its Subsidiaries’ corporate existence and good standing in the
Borrower’s State of Organization, shall maintain qualification and good standing
in each other jurisdiction in which the failure to so qualify could reasonably
be expected to have a Material Adverse Effect, and shall furnish to Bank the
organizational identification number issued to Borrower by the authorities of
the state in which Borrower is organized, if applicable. Borrower shall meet,
and shall cause each Subsidiary to meet, the minimum funding requirements of
ERISA with respect to any employee benefit plans subject to ERISA. Borrower
shall comply in all material respects with all applicable Environmental Laws,
and maintain all material permits, licenses and approvals required thereunder
where the failure to do so could reasonably be expected to have a Material
Adverse Effect. Borrower shall comply, and shall cause each Subsidiary to
comply, with all statutes, laws, ordinances and government rules and regulations
to which it is subject, and shall maintain, and shall cause each of its
Subsidiaries to maintain, in force all licenses, approvals and agreements, the
loss of which or failure to comply with which would reasonably be expected to
have a Material Adverse Effect.

6.2 Financial Statements, Reports, Certificates. Borrower shall deliver to Bank:
(i) as soon as available, but in any event within 50 days after the end of each
calendar quarter, a company prepared consolidated and consolidating balance
sheet and income statement covering Borrower’s operations during such period,
Form 10-Q filed with the Securities and Exchange Commission and a customer
detail list report, in a form reasonably acceptable to Bank and certified by a
Responsible Officer; (ii) as soon as available, but in any event within 100 days
after the end of Borrower’s fiscal year, audited consolidated and consolidating
financial statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an opinion which is unqualified or otherwise consented to
in writing by Bank on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank, along with copies of all
statements, reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all reports on
Forms 10-K filed with the Securities and Exchange Commission; (iii) promptly
upon receipt of notice thereof, a report of any legal actions pending or
threatened in writing against Borrower or any Subsidiary that could result in
damages or costs to Borrower or any Subsidiary of $100,000 or more;
(iv) promptly upon receipt, each management letter prepared by Borrower’s
independent certified public accounting firm regarding Borrower’s management
control systems; and (v) such budgets, sales projections, operating plans or
other financial information generally prepared by Borrower in the ordinary
course of business as Bank may reasonably request from time to time.

(a) Within 30 days after the last day of each month, Borrower shall deliver to
Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto, a Compliance Certificate certified
as of the last day of the applicable month and signed by a Responsible Officer
in substantially the form of Exhibit E hereto, together with aged listings by
invoice date of domestic accounts receivable and accounts payable and with the
Borrower’s domestic cash position as of such month’s end, provided that, the
deliveries under this Section 6.2(a) shall be delivered to Bank within 25 days
after the last day of each calendar month after December 31, 2007.

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(b) As soon as possible and in any event within 3 calendar days after becoming
aware of the occurrence or existence of an Event of Default hereunder, a written
statement of a Responsible Officer setting forth details of the Event of
Default, and the action which Borrower has taken or proposes to take with
respect thereto.

(c) Bank shall have a right from time to time hereafter to audit Borrower’s
Accounts and appraise Collateral at Borrower’s expense, provided that such
audits will be conducted no more often than every 6 months unless an Event of
Default has occurred and is continuing.

Borrower may deliver to Bank on an electronic basis (including email of
electronic links to documents filed with the Securities and Exchange Commission)
any certificates, reports or information required pursuant to this Section 6.2,
and Bank shall be entitled to rely on the information contained in the
electronic files, provided that Bank in good faith believes that the files were
delivered by a Responsible Officer. If Borrower delivers this information
electronically, it shall also deliver to Bank by U.S. Mail, reputable overnight
courier service, hand delivery, facsimile or .pdf file within 5 Business Days of
submission of the unsigned electronic copy the certification of monthly
financial statements, the intellectual property report, the Borrowing Base
Certificate and the Compliance Certificate, each bearing the physical signature
of the Responsible Officer.

6.3 Inventory; Returns. Borrower shall keep all Inventory in good and
merchantable condition, free from all material defects except for Inventory for
which adequate reserves have been made. Returns and allowances, if any, as
between Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist on the
Closing Date or as Borrower shall otherwise notify Bank from time to time.
Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes and claims involving more than $250,000.

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

6.5 Insurance.

(a) Borrower, at its expense, shall keep the Collateral insured against loss or
damage by fire, theft, explosion, sprinklers, and all other hazards and risks,
and in such amounts, as ordinarily insured against by other owners in similar
businesses conducted in the locations where Borrower’s business is conducted on
the date hereof. Borrower shall also maintain liability and other insurance in
amounts and of a type that are customary to businesses similar to Borrower’s.

(b) All such policies of insurance shall be in such form, with such companies,
and in such amounts as reasonably satisfactory to Bank. All policies of property
insurance shall contain a lender’s loss payable endorsement, in a form
satisfactory to Bank, showing Bank as an additional loss payee, and all
liability insurance policies shall show Bank as an additional insured and
specify that the insurer must give at least 20 days notice to Bank before
canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver
to Bank certified copies of the policies of insurance and evidence of all
premium payments. If no Event of Default has occurred and is continuing,
proceeds payable under any casualty policy will, at Borrower’s option, be
payable to Borrower to replace the property subject to the claim, provided that
any such replacement property shall be deemed Collateral in which Bank has been
granted a first priority security interest. If an Event of Default has occurred
and is continuing, all proceeds payable under any such policy shall, at Bank’s
option, be payable to Bank to be applied on account of the Obligations.

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6.6 Primary Depository. Borrower shall maintain all domestic depository and
operating accounts with Bank at all times after the date that is 5 months after
the Closing Date for lockbox accounts, and 45 days after the Closing Date for
all other domestic depository and operating accounts. At all times as of the
Closing Date, Borrower shall maintain the lesser of (i) $20,000,000 or 75% of
the outstanding balances of its investment accounts with Bank.

6.7 Financial Covenants. As of the last day of each fiscal month, Borrower shall
maintain the following financial ratios and covenants:

(a) Minimum Liquidity Ratio. A ratio of Cash plus Eligible Accounts to all
Indebtedness to Bank of at least 1.50 to 1.00, where Cash in the numerator of
such ratio shall be no less than $5,000,000 at any time that the Outstanding
Utilization exceeds 50% of the Revolving Line; provided, that, this covenant
shall be effective only at such times as any Credit Extension is outstanding.

(b) Tangible Net Worth Plus Subordinated Debt. A Tangible Net Worth plus
Subordinated Debt of not less than $80,000,000, provided, that, such requirement
shall increase cumulatively each quarter by the sum of (i) 50% of the
Profitability for such quarter and (ii) 75% of any New Equity for such quarter.

6.8 Registration of Intellectual Property Rights

(a) Borrower shall register or cause to be registered on an expedited basis (to
the extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as the case may be, those
registrable intellectual property rights now owned or hereafter developed or
acquired by Borrower, to the extent that Borrower, in its reasonable business
judgment, deems it appropriate to so protect such intellectual property rights.

(b) Borrower shall give Bank not less than 30 days prior written notice of the
filing of any applications or registrations with the United States Copyright
Office, including the title of such intellectual property rights to be
registered, as such title will appear on such applications or registrations, and
the date such applications or registrations will be filed.

(c) Except to the extent that Borrower, in its reasonable business judgment,
deems it appropriate not to do so, Borrower shall (i) protect, defend and
maintain the validity and enforceability of the trade secrets, Trademarks,
Patents and Copyrights, (ii) use commercially reasonable efforts to detect
infringements of the Trademarks, Patents and Copyrights and promptly advise Bank
in writing of material infringements detected and (iii) not allow any material
Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the
public.

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

 

  7. NEGATIVE COVENANTS.

Borrower covenants and agrees that, so long as any credit hereunder shall be
available and until the outstanding Obligations are paid in full or for so long
as Bank may have any commitment to make any Credit Extensions, Borrower will not
do any of the following without Bank’s prior written consent:

7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of
(collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Permitted Transfers.

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7.2 Change in Name, Location, Executive Office, or Executive Management; Change
in Business; Change in Fiscal Year; Change in Control. Change its name or the
Borrower’s State of Organization or relocate its chief executive office without
30 days prior written notification to Bank; replace its chief executive officer
or chief financial officer without prompt written notification to Bank; engage
in any business, or permit any of its Subsidiaries to engage in any business,
other than or reasonably related or incidental to the businesses currently
engaged in by Borrower; change its fiscal year end; have a Change in Control.

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization (other than mergers or consolidations of a Subsidiary into another
Subsidiary or into Borrower), or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person, except where (i) no Event of Default has occurred, is continuing or
would exist after giving effect to such transactions, (ii) such transactions do
not result in a Change in Control, and (iii) Borrower is the surviving entity
(if the transaction is a merger involving Borrower).

7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness, or prepay any Indebtedness or take any actions which
impose on Borrower an obligation to prepay any Indebtedness, except Indebtedness
to Bank.

7.5 Encumbrances. Create, incur, assume or allow any Lien with respect to any of
its property (including the Intellectual Property), or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries so to do, except for Permitted Liens, or covenant
to any other Person that Borrower in the future will refrain from creating,
incurring, assuming or allowing any Lien with respect to any of Borrower’s
property (including the Intellectual Property), except with respect to
(a) specific property serving as collateral for Indebtedness permitted under
clause (c) of the definition of Permitted Indebtedness or to be sold pursuant to
an executed agreement with respect to a Transfer permitted by Section 7.1,
(b) restrictions by reason of customary provisions restricting Liens contained
in leases, licenses and similar agreements entered into in the ordinary course
of business (provided that such restrictions are limited to the property or
assets subject to such leases, licenses or similar agreements, as the case may
be), and (c) restrictions and conditions, applicable to any Subsidiary or
property acquired after the date hereof, if such restrictions and conditions
existed at the time such Subsidiary or property was acquired, were not created
in anticipation of such acquisition and apply solely to such acquired
Subsidiary.

7.6 Distributions. Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital stock
other than (i) a dividend payable solely in shares of capital stock;
(ii) payments of cash in lieu of fractional shares upon conversion of
convertible securities or upon any stock dividend, stock split or combination or
business combination; (iii) acquisitions of capital stock of Borrower, solely by
issuance of capital stock, in connection with either (A) the exercise of stock
options or warrants by way of cashless exercise, or (B) in connection with the
satisfaction of withholding tax obligations related to the exercise of stock
options; (iv) redeem, retire or purchase capital stock of Borrower from any
officer, director, employee or consultant of Borrower or its Subsidiaries upon
the resignation, termination, or death of such officer, director, employee or
consultant in an aggregate amount not to exceed $250,000 in the aggregate in any
fiscal year; and (v) in connection with any transaction not prohibited by
Section 7.3, Borrower or any of its Subsidiaries may, (A) receive or accept the
return of capital stock of Borrower constituting a portion of the purchase price
in settlement of indemnification claims, or (B) make payments or distributions
to dissenting stockholders pursuant to applicable law provided, that, none of
the foregoing shall be permitted if an Event of Default exists prior to or would
exist immediately after any such transaction.

7.7 Investments. Directly or indirectly acquire or own, or make any Investment
in or to any Person, or permit any of its Subsidiaries so to do, other than
Permitted Investments, or maintain any deposit account or securities account in
the United States with a Person other than Bank or Bank’s Affiliates or permit
any Subsidiary to do so unless such Person has entered into a control agreement
with Bank, in form and substance reasonably satisfactory to Bank, or suffer or
permit any Subsidiary to be a party to, or be bound by, an agreement that
restricts such Subsidiary from paying dividends or otherwise distributing
property to Borrower other than restrictions (i) in agreements evidencing
Indebtedness permitted by clause (c) of the definition of Permitted Indebtedness
that impose restrictions solely with respect to the property so acquired or
leased pursuant to such

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agreements, (ii) by reason of customary provisions restricting assignments,
subletting or other transfers contained in leases, licenses, joint venture
agreements and similar agreements entered into in the ordinary course of
business, (iii) that are or were created by virtue of any transfer of, agreement
to transfer or option or right with respect to any property, assets or capital
stock not otherwise prohibited under this Agreement, and (iv) existing by virtue
of, or arising under, applicable law, regulation, order, approval, license,
permit, grant or similar restriction, in each case mandatory and imposed by a
governmental authority.

7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower (other than a
Subsidiary) except for (i) transactions that are in the ordinary course of
Borrower’s business, upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm’s length transaction with a
non-affiliated Person; (ii) reasonable and customary fees paid to members of the
board of directors (or similar governing body) of Borrower; and
(iii) compensation arrangements for officers and other employees of Borrower and
its Subsidiaries entered into in the ordinary course of business.

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

7.10 Inventory and Equipment. Except with respect to inventory in transit, at a
customer location or at a contract manufacturer, store the Inventory or the
Equipment with a value in excess of $250,000, with a bailee, warehouseman, or
similar third party located unless the third party has been notified of Bank’s
security interest and Bank (a) has received an acknowledgment from the third
party that it is holding or will hold the Inventory or Equipment for Bank’s
benefit or (b) is in possession of the warehouse receipt, where negotiable,
covering such Inventory or Equipment. Except for Inventory sold in the ordinary
course of business or that is located at the locations specified in the previous
sentence and except for such other locations as Bank may approve in writing or
locations outside the United States, Borrower shall keep the Inventory and
Equipment only at the location set forth in Section 10 and such other locations
of which Borrower gives Bank prior written notice.

7.11 No Investment Company; Margin Regulation. Become or be controlled by an
“investment company,” within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose.

 

  8. EVENTS OF DEFAULT.

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

8.1 Payment Default. If Borrower fails to pay any principal or interest within
three days of when due or any other the Obligations within 30 days of receipt of
an invoice therefor;

8.2 Covenant Default.

(a) If Borrower fails to perform any obligation under Section 6.2, 6.5, 6.6 or
6.7 or violates any of the covenants contained in Article 7 of this Agreement;
or

(b) If Borrower fails or neglects to perform or observe any other material term,
provision, condition, covenant contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and Bank
and as to any default under such other term, provision, condition or covenant
that can be cured, has failed to cure such default within 10 days after Borrower
receives notice thereof or any officer of Borrower becomes aware thereof;
provided, however, that if the default cannot by its nature be cured within the
10 day period or cannot after diligent attempts by Borrower be cured within such
10 day period, and such

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default is likely to be cured within a reasonable time, then Borrower shall have
an additional reasonable period (which shall not in any case exceed 30 days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default but no Credit
Extensions will be made;

8.3 Intentionally Omitted.

8.4 Material Adverse Change. If there is a material impairment in the prospect
of repayment of any portion of the Obligations or a material impairment in the
perfection, value or priority of Bank’s security interests in the Collateral;

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

8.6 Insolvency. If an Insolvency Proceeding is commenced by Borrower, or if an
Insolvency Proceeding is commenced against Borrower and is not dismissed or
stayed within 45 days (provided that no Credit Extensions will be made prior to
the dismissal of such Insolvency Proceeding);

8.7 Other Agreements. If there is a default or other failure to perform in any
agreement to which 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
$1,000,000;

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

8.9 Judgments. If a judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least $1,000,000 shall be rendered
against Borrower and shall remain unsatisfied and unstayed for a period of 10
days (provided that no Credit Extensions will be made prior to the satisfaction
or stay of the judgment); or

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

8.11 Guaranty. If any Guaranty ceases for any reason to be in full force and
effect, or any Guarantor fails to perform any obligation under any Guaranty, the
Stock Pledge Agreement or this Agreement (collectively, the “Guaranty
Documents”), or any event of default occurs under any Guaranty Document or any
Guarantor revokes or purports to revoke a Guaranty, or any material
misrepresentation or material misstatement exists now or hereafter in any
warranty or representation set forth in any Guaranty Document or in any
certificate delivered to Bank in connection with any Guaranty Document, or if
any of the circumstances described in Sections 8.2 through 8.10 occur with
respect to any Guarantor, or if the representations and warranties made with
respect to Borrower in Article 5 are not true with respect to any Guarantor, or
if any Guarantor fails to comply with Sections 6.1, 6.3 through 6.6, 6.8 through
6.10, and 7.1 through 7.11, to the fullest extent possible as if it were the
Borrower thereunder.

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  9. BANK’S RIGHTS AND REMEDIES.

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

(a) Declare all Obligations, whether evidenced by this Agreement, by any of the
other Loan Documents, or otherwise, immediately due and payable (provided that
upon the occurrence of an Event of Default described in Section 8.6, all
Obligations shall become immediately due and payable without any action by
Bank);

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

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

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

(e) Make such payments and do such acts as Bank considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if Bank so requires, and to make the Collateral
available to Bank as Bank may designate. Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Bank’s determination appears to be prior
or superior to its security interest and to pay all expenses incurred in
connection therewith. With respect to any of Borrower’s owned premises, Borrower
hereby grants Bank a license to enter into possession of such premises and to
occupy the same, without charge, in order to exercise any of Bank’s rights or
remedies provided herein, at law, in equity, or otherwise;

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

(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein) the Collateral.
Bank is hereby granted a license or other right, solely pursuant to the
provisions of this Section 9.1, to use, without charge, Borrower’s labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrower’s rights under all
licenses and all franchise agreements shall inure to Bank’s benefit;

(h) Sell the Collateral at either a public or private sale, or both, by way of
one or more contracts or transactions, for cash or on terms, in such manner and
at such places (including Borrower’s premises) as Bank determines is
commercially reasonable, and apply any proceeds to the Obligations in whatever
manner or order Bank deems appropriate. Bank may sell the Collateral without
giving any warranties as to the Collateral. Bank may specifically disclaim any
warranties of title or the like. This procedure will not be considered adversely
to affect the commercial reasonableness of any sale of the Collateral. If Bank
sells any of the Collateral upon credit, Borrower will be credited only with
payments actually made by the purchaser, received by Bank, and applied to the
indebtedness of the purchaser. If the purchaser fails to pay for the Collateral,
Bank may resell the Collateral and Borrower shall be credited with the proceeds
of the sale;

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(i) Bank may credit bid and purchase at any public sale;

(j) Apply for the appointment of a receiver, trustee, liquidator or conservator
of the Collateral, without notice and without regard to the adequacy of the
security for the Obligations and without regard to the solvency of Borrower, any
guarantor or any other Person liable for any of the Obligations; and

(k) Any deficiency that exists after disposition of the Collateral as provided
above will be paid immediately by Borrower.

Bank may comply with any applicable state or federal law requirements in
connection with a disposition of the Collateral and compliance will not be
considered adversely to affect the commercial reasonableness of any sale of the
Collateral.

9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank’s designated officers, or employees) as Borrower’s true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank’s security interest in the Accounts; (b) endorse
Borrower’s name on any checks or other forms of payment or security that may
come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims
under and decisions with respect to Borrower’s policies of insurance; (f) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable;
(g) to modify, in its sole discretion, any intellectual property security
agreement entered into between Borrower and Bank without first obtaining
Borrower’s approval of or signature to such modification by amending Exhibits A,
B, and C, thereof, as appropriate, to include reference to any right, title or
interest in any Copyrights, Patents or Trademarks acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents or Trademarks in which Borrower no longer has or claims
to have any right, title or interest; and (h) to file, in its sole discretion,
one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of Borrower where
permitted by law; provided Bank may exercise such power of attorney to sign the
name of Borrower on any of the documents described in clauses (g) and (h) above,
regardless of whether an Event of Default has occurred. The appointment of Bank
as Borrower’s attorney in fact, and each and every one of Bank’s rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank’s obligation to
provide advances hereunder is terminated.

9.3 Accounts Collection. At any time after the occurrence and during the
continuation of an Event of Default, Bank may notify any Person owing funds to
Borrower of Bank’s security interest in such funds and verify the amount of such
Account. Borrower shall collect all amounts owing to Borrower for Bank, receive
in trust all payments as Bank’s trustee, and immediately deliver such payments
to Bank in their original form as received from the account debtor, with proper
endorsements for deposit.

9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the terms
of this Agreement, then Bank may do any or all of the following after reasonable
notice to Borrower: (a) make payment of the same or any part thereof; (b) set up
such reserves under the Revolving Line as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.5 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. Any amounts so paid
or deposited by Bank shall constitute Bank Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the future
or a waiver by Bank of any Event of Default under this Agreement.

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9.5 Bank’s Liability for Collateral. Bank has no obligation to clean up or
otherwise prepare the Collateral for sale. All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.

9.6 No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy
the Obligations by collecting them from any other person liable for them and
Bank may release, modify or waive any collateral provided by any other Person to
secure any of the Obligations, all without affecting Bank’s rights against
Borrower. Borrower waives any right it may have to require Bank to pursue any
other Person for any of the Obligations.

9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the
Loan Documents, and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by Bank of one right or remedy shall be
deemed an election, and no waiver by Bank of any Event of Default on Borrower’s
part shall be deemed a continuing waiver. No delay by Bank shall constitute a
waiver, election, or acquiescence by it. No waiver by Bank shall be effective
unless made in a written document signed on behalf of Bank and then shall be
effective only in the specific instance and for the specific purpose for which
it was given. Borrower expressly agrees that this Section 9.7 may not be waived
or modified by Bank by course of performance, conduct, estoppel or otherwise.

9.8 Demand; Protest. Except as otherwise provided in this Agreement, Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment and any other notices relating to the Obligations.

 

  10. NOTICES.

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

 

If to Borrower
or a Guarantor:    Nanometrics Incorporated    1550 Buckeye Drive    Milpitas,
CA 95035    Attn: Chief Financial Officer    FAX: (408) 232-5910 If to Bank:   
Comerica Bank    75 East Trimble Road    Mail Code 4770    San Jose, CA 95131   
Attn: Manager    FAX: (408) 556-5091 with a copy to:    Comerica Bank   
Technology and Life Sciences Division    226 Airport Parkway, M/C4120    San
Jose, CA 95110    Attn: Stephanie R. Karic    FAX: (408) 451-8568

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

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

11.1 This Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of California, without regard to principles of
conflicts of law. Each party hereto hereby submits to the exclusive jurisdiction
of the state and Federal courts located in the County of Santa Clara, State of
California.

11.2 JURY TRIAL WAIVER. THE UNDERSIGNED ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED UNDER CERTAIN
CIRCUMSTANCES. TO THE EXTENT PERMITTED BY LAW, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS CHOICE, KNOWINGLY AND
VOLUNTARILY, AND FOR THE MUTUAL BENEFIT OF ALL PARTIES, WAIVES ANY RIGHT TO
TRIAL BY JURY IN THE EVENT OF LITIGATION ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY RELATED LOAN DOCUMENT OR ANY OTHER DOCUMENT, INSTRUMENT OR
AGREEMENT BETWEEN THE UNDERSIGNED PARTIES.

11.3 JUDICIAL REFERENCE PROVISION.

(a) In the event the Jury Trial Waiver set forth in Section 11.2 is not
enforceable, the parties elect to proceed under this Judicial Reference
Provision.

(b) With the exception of the items specified in clause (c), below, any
controversy, dispute or claim (each, a “Claim”) between the parties arising out
of or relating to this Agreement or other Loan Document or any other document,
instrument or agreement between the undersigned parties (collectively in this
Section, the “Comerica Documents”), will be resolved by a reference proceeding
in California in accordance with the provisions of Sections 638 et seq. of the
California Code of Civil Procedure (“CCP”), or their successor sections, which
shall constitute the exclusive remedy for the resolution of any Claim, including
whether the Claim is subject to the reference proceeding. Except as otherwise
provided in the Comerica Documents, venue for the reference proceeding will be
in the state or federal court in the county or district where the real property
involved in the action, if any, is located or in the state or federal court in
the county or district where venue is otherwise appropriate under applicable law
(the “Court”).

(c) The matters that shall not be subject to a reference are the following:
(i) nonjudicial foreclosure of any security interests in real or personal
property, (ii) exercise of self-help remedies (including, without limitation,
set-off), (iii) appointment of a receiver and (iv) temporary, provisional or
ancillary remedies (including, without limitation, writs of attachment, writs of
possession, temporary restraining orders or preliminary injunctions). This
reference provision does not limit the right of any party to exercise or oppose
any of the rights and remedies described in clauses (i) and (ii) or to seek or
oppose from a court of competent jurisdiction any of the items described in
clauses (iii) and (iv). The exercise of, or opposition to, any of those items
does not waive the right of any party to a reference pursuant to this reference
provision as provided herein.

(d) The referee shall be a retired judge or justice selected by mutual written
agreement of the parties. If the parties do not agree within ten (10) days of a
written request to do so by any party, then, upon request of any party, the
referee shall be selected by the Presiding Judge of the Court (or his or her
representative). A request for appointment of a referee may be heard on an ex
parte or expedited basis, and the parties agree that irreparable harm would
result if ex parte relief is not granted. Pursuant to CCP § 170.6, each party
shall have one peremptory challenge to the referee selected by the Presiding
Judge of the Court (or his or her representative).

(e) The parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee shall be requested, subject to change in
the time periods specified herein for good cause shown, to (i) set the matter
for a status and trial-setting conference within fifteen (15) days after the
date of selection of the referee, (ii) if practicable, try all issues of law or
fact within one hundred twenty (120) days after the date of the conference and
(iii) report a statement of decision within twenty (20) days after the matter
has been submitted for decision.

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

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

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

(h) The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, enter equitable orders that will be binding
on the parties and rule on any motion which would be authorized in a court
proceeding, including without limitation motions for summary judgment or summary
adjudication. The referee shall issue a decision at the close of the reference
proceeding which disposes of all claims of the parties that are the subject of
the reference. Pursuant to CCP § 644, such decision shall be entered by the
Court as a judgment or an order in the same manner as if the action had been
tried by the Court and any such decision will be final, binding and conclusive.
The parties reserve the right to appeal from the final judgment or order or from
any appealable decision or order entered by the referee. The parties reserve the
right to findings of fact, conclusions of laws, a written statement of decision,
and the right to move for a new trial or a different judgment, which new trial,
if granted, is also to be a reference proceeding under this provision.

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

(j) THE PARTIES RECOGNIZE AND AGREE THAT ALL CONTROVERSIES, DISPUTES AND CLAIMS
RESOLVED UNDER THIS REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY
A JURY. AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL
OF ITS, HIS OR HER OWN CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY, AND FOR THE
MUTUAL BENEFIT OF ALL PARTIES, AGREES THAT THIS REFERENCE PROVISION WILL APPLY
TO ANY CONTROVERSY, DISPUTE OR CLAIM BETWEEN OR AMONG THEM ARISING OUT OF OR IN
ANY WAY RELATED TO, THIS AGREEMENT OR OTHER LOAN DOCUMENTS OR THE OTHER COMERICA
DOCUMENTS.

 

  12. GENERAL PROVISIONS.

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

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

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

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

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

12.5 Amendments in Writing, Integration. All amendments to or terminations of
this Agreement or the other Loan Documents must be in writing. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement
and the other Loan Documents, if any, are merged into this Agreement and the
Loan Documents.

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

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

12.8 Confidentiality. In handling any confidential information, Bank and all
employees and agents of Bank shall exercise the same degree of care that Bank
exercises with respect to its own proprietary information of the same types to
maintain the confidentiality of any non-public information thereby received or
received pursuant to this Agreement except that disclosure of such information
may be made (i) to the subsidiaries or Affiliates of Bank in connection with
their present or prospective business relations with Borrower or any Guarantor,
(ii) to prospective transferees or purchasers of any interest in the Loans,
provided that they have entered into a comparable confidentiality agreement in
favor of Borrower and Guarantors and have delivered a copy to Borrower and
Guarantors, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.

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

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

 

BORROWER:     BANK:   NANOMETRICS INCORPORATED     COMERICA BANK  

/s/ Douglas J. McCutcheon

   

/s/ Stephanie Karic

  By:   Douglas J. McCutcheon     By:   Stephanie Karic   Title:   Chief
Financial Officer     Title:   Vice President   GUARANTORS:         ACCENT
OPTICAL TECHNOLOGIES NANOMETRICS, INC.        

/s/ Douglas J. McCutcheon

        By:   Douglas J. McCutcheon         Title:   Secretary        
NANOMETRICS IVS DIVISION, INC.        

/s/ Douglas J. McCutcheon

        By:   Douglas J. McCutcheon         Title:   Secretary        

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

EXHIBIT A

DEFINITIONS

“Accounts” means all presently existing and hereafter arising accounts, contract
rights, payment intangibles and all other forms of obligations owing to Borrower
of any Guarantor arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower or any Guarantor and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower or any Guarantor and Borrower’s and Guarantor’s Books
relating to any of the foregoing.

“Advance” or “Advances” means a cash advance or cash advances under the
Revolving Line including U.S. Dollar Advances and Alternative Currency Advances.

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

“Alternative Currency” shall mean Euro, Korean Won, or Japanese Yen which is
requested by Borrower in accordance with the terms of the Loan Agreement as the
currency in which an Alternative Currency Advance requested is to be made.

“Alternative Currency Advance” shall mean any Advance made under the Loan
Agreement in an Alternative Currency.

“Applicable Interest Rate” shall have the meaning set forth in the Interest Rate
Addendum.

“Approved Foreign Accounts” means Accounts that are not Eligible Foreign
Accounts and with respect to which the account debtor is listed on the Schedule.

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

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

“Borrowing Base” means an amount equal to 80% of Eligible Accounts, as
determined by Bank with reference to the most recent Borrowing Base Certificate
delivered by Borrower.

“Business Day” shall mean any day on which commercial banks are open for
domestic and international business in California and if related to an
Alternative Currency determination, a day on which commercial banks are open in
the relevant interbank market for such Alternative Currency transactions.

“Capitalized Expenditures” means current period cash expenditures that are
amortized over a period of time in accordance with GAAP.

“Cash” means domestic unrestricted cash and cash equivalents.

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

“Chief Executive Office State” means California, where Borrower’s chief
executive office is located.

“Closing Date” means the date of this Agreement.

“Code” means the California Uniform Commercial Code as amended or supplemented
from time to time.

“Collateral” means the property described on Exhibit B attached hereto and all
Negotiable Collateral and to the extent not described on Exhibit B, except to
the extent any such property (i) is nonassignable by its terms without the
consent of the licensor thereof or another party (but only to the extent such
prohibition on transfer is enforceable under applicable law, including, without
limitation, Sections 9406 and 9408 of the Code), (ii) the granting of a security
interest therein is contrary to applicable law, provided that upon the cessation
of any such restriction or prohibition, such property shall automatically become
part of the Collateral, or (iii) exceeds 65% of the presently existing and
hereafter arising issued and outstanding shares of capital stock owned by
Borrower or any Guarantor of any Foreign Subsidiary which shares entitle the
holder thereof to vote for directors or any other matter.

“Collateral States” means California, Massachusetts and Oregon.

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

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

“Credit Card Services Sublimit” means a sublimit for corporate credit cards and
e-commerce or merchant account services under the Revolving Line not to exceed
$100,000.

“Credit Extension” means each Advance, or any other extension of credit by Bank
to or for the benefit of Borrower hereunder.

“Eligible Accounts” means those Accounts that arise in the ordinary course of
Borrower’s or any Guarantor’s business that comply with all of Borrower’s and
Guarantors’ representations and warranties to Bank set forth in Section 5.3;
provided, that Bank may change the standards of eligibility by giving Borrower
30 days prior written notice. Unless otherwise agreed to by Bank, Eligible
Accounts shall not include the following:

 

(a) Accounts that the account debtor has failed to pay in full within 90 days of
invoice date;

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(b) Credit balances over 90 days;

 

(c) Accounts with respect to an account debtor, 25% of whose Accounts the
account debtor has failed to pay within 90 days of invoice date;

 

(d) Accounts with respect to an account debtor, including Subsidiaries and
Affiliates, whose total obligations to Borrower and Guarantors exceed 20% of all
Accounts (except that such limitation shall not be applicable with respect to
Accounts with respect to which the account debtor is either Samsung or Applied
Materials), to the extent such obligations exceed the aforementioned percentage,
except as approved in writing by Bank;

 

(e) Accounts with respect to which the account debtor does not have its
principal place of business in the United States, except for (i) Eligible
Foreign Accounts, and (ii) Approved Foreign Accounts up to $3,000,000 in the
aggregate;

 

(f) Accounts with respect to which the account debtor is the United States or
any department, agency, or instrumentality of the United States;

 

(g) Accounts with respect to which Borrower or any Guarantor is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower or such Guarantor, but only to the extent of any amounts owing to the
account debtor against amounts owed to Borrower or such Guarantor;

 

(h) Accounts with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, demo or promotional, or
other terms by reason of which the payment by the account debtor may be
conditional;

 

(i) Accounts with respect to which the account debtor is an officer, employee,
agent or Affiliate of Borrower or any Guarantor;

 

(j) Accounts that have not yet been billed to the account debtor or that relate
to deposits (such as good faith deposits) or other property of the account
debtor held by Borrower or a Guarantor for the performance of services or
delivery of goods which Borrower or such Guarantor has not yet performed or
delivered;

 

(k) Accounts with respect to which the account debtor disputes liability or
makes any claim with respect thereto as to which Bank believes, in its sole
discretion, that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business;

 

(l) Accounts the collection of which Bank reasonably determines after inquiry
and consultation with Borrower to be doubtful; and

 

(m) Retentions and hold-backs.

“Eligible Foreign Accounts” means Accounts with respect to which the account
debtor does not have its principal place of business in the United States and
that are (i) supported by one or more letters of credit in an amount and of a
tenor, and issued by a financial institution, acceptable to Bank, (ii) insured
by the Export Import Bank of the United States, (iii) generated by an account
debtor with its principal place of business in Canada, provided that the Bank
has perfected its security interest in the appropriate Canadian province, or
(iv) approved by Bank on a case-by-case basis. All Eligible Foreign Accounts
must be calculated in U.S. Dollars.

“Environmental Laws” means all laws, rules, regulations, orders and the like
issued by any federal state, local foreign or other governmental or
quasi-governmental authority or any agency pertaining to the environment or to
any hazardous materials or wastes, toxic substances, flammable, explosive or
radioactive materials, asbestos or other similar materials.

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

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

“Euro” or “Euros” means the Euro, as established pursuant to the Treaty
Establishing the European Economic Community, as amended by the Treaty on the
European Union (the “Maastrict Treaty”) and freely transferable and convertible
into U.S. Dollars in the offshore exchange market.

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

“Foreign Exchange Sublimit” means a sublimit for Foreign Exchange Contracts
under the Revolving Line not to exceed $5,000,000.

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

“Guarantor” shall have the meaning set forth in the recitals to this Agreement.

“Guaranty” means an Unconditional Guaranty dated as of even date herewith
executed by a Guarantor in favor of Bank in form and substance acceptable to
Bank.

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

“Insolvency Proceeding” means any proceeding commenced by or against any Person
or entity under any provision of the United States Bankruptcy Code, as amended,
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extension
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

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

 

(a) Copyrights, Trademarks and Patents;

 

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

 

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

 

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

 

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

 

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

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“Interest Rate Addendum” the Interest Rates Addendum to Loan and Security
Agreement attached thereto as Exhibit F.

“Inventory” means all present and future inventory in which Borrower has any
interest.

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

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

“Letter of Credit” means a commercial or standby letter of credit or similar
undertaking issued by Bank at Borrower’s request in accordance with
Section 2.1(b)(iii).

“Letter of Credit Sublimit” means a sublimit for Letters of Credit under the
Revolving Line not to exceed $2,000,000.

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

“Loan Documents” means, collectively, this Agreement, and any other document,
instrument or agreement entered into in connection with this Agreement, all as
amended or extended from time to time.

“Material Adverse Effect” means a material adverse effect on (i) the business
operations, condition (financial or otherwise) or prospects of Borrower and its
Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents,
(iii) Borrower’s interest in, or the value, perfection or priority of Bank’s
security interest in the Collateral.

“Negotiable Collateral” means all of Borrower’s and Guarantors’ present and
future letters of credit of which it is a beneficiary, drafts, instruments
(including promissory notes), securities, documents of title, and chattel paper,
and Borrower’s and Guarantors’ Books relating to any of the foregoing.

“New Equity” means cash proceeds received after the Closing Date from the sale
or issuance of Borrower’s equity securities or Subordinated Debt.

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

“Outstanding Utilization” means the sum of all U.S. Dollar Advances, plus the
U.S. Dollar Equivalent of all Alternative Currency Advances, plus amounts
outstanding under the Letter of Credit Sublimit and the Credit Card Services
Sublimit plus the FX Amount.

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

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

“Permitted Indebtedness” means:

 

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

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

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

 

(c) Indebtedness not to exceed $500,000 in the aggregate in any fiscal year of
Borrower secured by a lien described in clause (c) of the defined term
“Permitted Liens,” provided such Indebtedness does not exceed the lesser of the
cost or fair market value of the equipment financed with such Indebtedness;

 

(d) Indebtedness of Borrower to any Subsidiary, Indebtedness of any Guarantor to
Borrower or another Guarantor, Indebtedness of any non-Guarantor Subsidiary to
any other non-Guarantor Subsidiary, and Indebtedness of any non-Guarantor
Subsidiary to Borrower or a Guarantor to the extent permitted under clause
(e) of the definition of Permitted Investments;

 

(e) Other Indebtedness not otherwise permitted by Section 7.4 not exceeding
$1,000,000 in the aggregate outstanding at any time;

 

(f) Subordinated Debt;

 

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

 

(h) Extensions, refinancings and renewals of any items of Permitted
Indebtedness, provided that the principal amount is not increased or the terms
modified to impose more burdensome terms upon Borrower or its Subsidiary, as the
case may be.

“Permitted Investment” means:

 

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

 

(b) Marketable direct obligations issued or unconditionally guaranteed by the
United States of America or any agency or any State thereof maturing within one
year from the date of acquisition thereof, (ii) commercial paper maturing no
more than one year from the date of creation thereof and currently having rating
of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s
Investors Service, (iii) certificates of deposit maturing no more than one year
from the date of investment therein, (iv) money market funds; and (v) other
Investments set forth in Borrower’s investment policy which has been approved by
Bank;

 

(c) Investments accepted in connection with Permitted Transfers;

 

(d) Investments of Subsidiaries in or to Guarantors or Borrower, Investments by
Borrower in Guarantors, and Investments by Borrower or Guarantors in
non-Guarantor Subsidiaries;

 

(e) Investments consisting of travel advances and other short-term advances to
employees in the ordinary course of business; and Investments not to exceed
$100,000 in the aggregate in any fiscal year consisting of employee relocation
loans and loans to employees relating to the purchase of equity securities of
Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements
approved by Borrower’s Board of Directors;

 

(f) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of Borrower’s business;

 

(g) Investments consisting of notes receivable of, or prepaid royalties and
other credit extensions, to customers and suppliers who are not Affiliates, in
the ordinary course of business, provided that this subparagraph (h) shall not
apply to Investments of Borrower in any Subsidiary; and

 

(h) Joint ventures or strategic alliances in the ordinary course of Borrower’s
business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support, provided that
any cash Investments by Borrower do not exceed $1,000,000 in the aggregate in
any fiscal year.

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

“Permitted Liens” means the following:

 

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

 

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

 

(c) Liens securing Indebtedness (including capital leases) not to exceed
$5,000,000 in the aggregate (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such Equipment, or (ii) existing on such Equipment at
the time of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
Equipment;

 

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

 

(e) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Sections 8.5 or 8.9;

“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition
by Borrower or any Subsidiary of:

 

(a) Inventory in the ordinary course of business;

 

(b) licenses and similar arrangements for the use of the property of Borrower or
its Subsidiaries in the ordinary course of business;

 

(c) worn-out, obsolete or unneeded Equipment;

 

(d) Transfers in connection with transactions permitted by the other provisions
of Article 7;

 

(e) Transfers consisting of payments made by Borrower in the ordinary course of
business; or

 

(f) other assets of Borrower or its Subsidiaries that do not in the aggregate
exceed $500,000 during any fiscal year.

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

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

“Profitability” means net income in accordance with GAAP.

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

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

“Revolving Line” means a Credit Extension of up to $15,000,000 (inclusive of any
amounts outstanding under the Letter of Credit Sublimit the Credit Card Services
Sublimit and the Foreign Exchange Sublimit).

“Revolving Maturity Date” means February 14, 2009.

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

“SOS Reports” means the official reports from the Secretaries of State of each
Collateral State, Chief Executive Office State and the Person’s State of
Organization and other applicable federal, state or local government offices
identifying all current security interests filed in the Collateral and Liens of
record as of the date of such report.

“Stock Pledge Agreement” means that certain Stock Pledge Agreement, executed as
of even date herewith by Borrower and Guarantors in favor of Bank in form and
substance acceptable to Bank.

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

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

“Tangible Net Worth” means at any date as of which the amount thereof shall be
determined, the sum of the capital stock, partnership interest or limited
liability company interest of Borrower and its Subsidiaries minus amortization,
intangible assets and good will, determined in accordance with GAAP.

“Total Liabilities” means at any date as of which the amount thereof shall be
determined, all obligations that should, in accordance with GAAP be classified
as liabilities on the consolidated balance sheet of Borrower, including in any
event, to the extent not already included, all Indebtedness.

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

“U.S. Base Rate” shall have the meaning set forth in the Interest Rate Addendum.

“U.S. Base Rate Advance” shall mean any U.S. Dollar Advance made to Borrower
bearing interest at the U.S. Base Rate.

“U.S. Dollars”, “U.S. $” and the sign “$” shall mean lawful money of the United
States of America.

“U.S. Dollar Advance” shall mean any Advance made to Borrower in U.S. Dollars.

“U.S. Dollar Equivalent” shall mean, as of any date, with respect to any
Alternative Currency Advance, the amount of U.S. Dollars which is equivalent to
the then outstanding principal amount of such Alternative Currency Advance at
the most favorable spot exchange rate determined by Bank to be available to Bank
for the sale of U.S. Dollars for such Alternative Currency at the relevant time.

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

DEBTORS:   NANOMETRICS INCORPORATED   ACCENT OPTICAL TECHNOLOGIES NANOMETRICS,
INC.   NANOMETRICS IVS DIVISION, INC. SECURED PARTY:   COMERICA BANK

EXHIBIT B

COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT

All personal property of debtor of every kind, whether presently existing or
hereafter created or acquired, and wherever located, including but not limited
to: (a) all accounts (including health-care-insurance receivables), chattel
paper (including tangible and electronic chattel paper), deposit accounts,
documents (including negotiable documents), equipment (including all accessions
and additions thereto), general intangibles (including payment intangibles and
software), goods (including fixtures), instruments (including promissory notes),
inventory (including all goods held for sale or lease or to be furnished under a
contract of service, and including returns and repossessions), investment
property (including securities and securities entitlements), letter of credit
rights, money, and all of debtor’s books and records with respect to any of the
foregoing, and the computers and equipment containing said books and records;
and (b) any and all cash proceeds and/or noncash proceeds thereof, including,
without limitation, insurance proceeds, and all supporting obligations and the
security therefor or for any right to payment. All terms above have the meanings
given to them in the California Uniform Commercial Code, as amended or
supplemented from time to time.

Notwithstanding the foregoing, the Collateral shall not include (i) any
intellectual property, including copyrights, patents, trademarks, servicemarks
and applications therefor, now owned or hereafter acquired, or any claims for
damages by way of any past, present and future infringement of any of the
foregoing (collectively, the “Intellectual Property”); provided, however, that
the Collateral shall include all accounts and general intangibles that consist
of rights to payment from the sale, licensing or disposition of all or any part
of, or rights in, the Intellectual Property (the “Rights to Payment”)
(ii) property that is nonassignable by its terms without the consent of the
licensor thereof or another party (but only to the extent such prohibition on
transfer is enforceable under applicable law, including, without limitation,
Sections 9406 and 9408 of the Code), (iii) property in which the granting of a
security interest therein is contrary to applicable law, provided that upon the
cessation of any such restriction or prohibition, such property shall
automatically become part of the Collateral, or (iv) capital stock exceeding 65%
of the presently existing and hereafter arising issued and outstanding shares of
capital stock owned by Borrower or any Guarantor of any Foreign Subsidiary which
shares entitle the holder thereof to vote for directors or any other matter.
Notwithstanding the foregoing, if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in the Rights to Payment, then
the Collateral shall automatically, and effective as of the date of this
Agreement, include the Intellectual Property to the extent necessary to permit
perfection of Bank’s security interest in the Rights to Payment.

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

Exhibit C

TECHNOLOGY & LIFE SCIENCES DIVISION

LOAN ANALYSIS

LOAN ADVANCE/PAYDOWN REQUEST FORM

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

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

FOREIGN CURRENCY AND LIBOR ADVANCES

ARE SUBJECT TO NOTICE REQUIREMENTS AS SET FORTH IN THE INTEREST RATE ADDENDUM

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

 

TO: Loan Analysis       DATE:  

 

     TIME:  

 

  FAX #: (650) 846-6840                 

 

FROM:   

Nanometrics, Inc.

   TELEPHONE REQUEST (For Bank Use Only):    Borrower’s Name             The
following person is authorized to request the loan payment transfer/loan advance
on the designated account and is known to me. FROM:   

 

         Authorized Signer’s Name       FROM:   

 

     

 

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

 

     

 

         Received by (Bank) & Phone # FROM ACCOUNT#:   

 

      (please include Note number, if applicable)      

 

TO ACCOUNT #:   

 

      Authorized Signature (Bank) (please include Note number, if applicable)   
  

 

REQUESTED TRANSACTION TYPE   REQUESTED DOLLAR AMOUNT    For Bank Use Only
PRINCIPAL INCREASE* (ADVANCE)   $  

 

   Date Rec’d:                       PRINCIPAL PAYMENT (ONLY)   $  

 

   Time:              Comp. Status:    YES    NO OTHER INSTRUCTIONS (Include
Type of Interest and Interest Period if Applicable):    Status Date:      

 

   Time:      

 

   Approval:      

 

        

 

        

All representations and warranties of Borrower stated in the Loan Agreement are
true, correct and complete in all material respects as of the date of the
telephone request for and advance confirmed by this Borrowing Certificate,
including without limitation the representation that Borrower has paid for and
owns the equipment financed by the Bank; provided, however, that those
representations and warranties the date expressly referring to another date
shall be true, correct and complete in all material respects as of such date.

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

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

 

OUTGOING WIRE TRANSFER INSTRUCTIONS       Fed Reference Number    Bank
Transfer Number The items marked with an asterisk (*) are required to be
completed. *Beneficiary Name          *Beneficiary Account Number         
*Beneficiary Address          *Currency Type          *ABA Routing Number (9
Digits)          *Receiving Institution Name          *Receiving Institution
Address          *Wire Amount    $      

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

EXHIBIT D

BORROWING BASE CERTIFICATE

 

Borrower:                 Nanometrics Incorporated    Bank:    Comerica Bank  
      Technology & Life Sciences Division Commitment Amount:   $15,000,000      
Loan Analysis Department         Five Palo Alto Square, Suite 800         3000
El Camino Real         Palo Alto, CA 94306         Phone: (650) 846-6820        
Fax: (650) 846-6840

 

ACCOUNTS RECEIVABLE                     1   Accounts Receivable Book Value as of
                    2   Additions (please explain on reverse)                
    3   TOTAL ACCOUNTS RECEIVABLE AS OF                                        $
  

 

  ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)                     2.  
Amounts over 90 days   $   

 

               3.   Credit Balances over 90 days   $   

 

               4.   Balance of 25% over 90 days   $   

 

               5.   Concentration limits 20%   $   

 

               6.   Foreign Accounts (not Eligible or Approved)   $   

 

               7.   Government Accounts   $   

 

               8.   Contra Accounts   $   

 

               9.   Promotion or Demo Accounts   $   

 

               10.   Intercompany/Employee Accounts   $   

 

               11.   Unbilled / Goods or Services Undelivered   $   

 

               12.   Disputed Accounts   $   

 

               13.   Approved Foreign Accounts (in excess of $3,000,000)   $   

 

               14.   Other (please explain below)   $   

 

               15.   TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS            $   

 

      16.   Eligible Accounts (#1-#15)   $   

 

               17.   LOAN VALUE OF ACCOUNTS RECEIVABLE (80% of #16)            $
  

 

  BALANCES                     18.   Maximum Loan Amount   $   

15,000,000

               19.  
Total Funds Available (lesser of (a) #18 or (b) #17 +$7,500,000)            $   

 

      20.   Outstanding under Sublimits (L/C, CCS , and FES)            $   

 

      21.   Present balance outstanding on Line of Credit            $   

 

      22.   Reserve Position (#19 minus #20 and #21)            $   

 

  LIQUIDITY                     23.   Total domestic Cash and Cash Equivalents  
         $   

 

 

The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan Agreement
between the undersigned and Comerica Bank.

Comments:

 

              BANK USE ONLY           Rec’d By:   

 

        Date:   

 

        Reviewed By:   

 

        Date:   

 

  

 

           Authorized Signer           

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

EXHIBIT E

COMPLIANCE CERTIFICATE

 

Please send all Required Reporting to:    Comerica Bank          Technology &
Life Sciences Division          Loan Analysis Department          Five Palo Alto
Square, Suite 800          3000 El Camino Real          Palo Alto, CA 94306   
      Phone: (650) 846-6820          Fax: (650) 846-6840    FROM:    Nanometrics
Incorporated      

The undersigned authorized Officer of Nanometrics, Inc. (“Borrower”), hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is
in complete compliance for the period ending                      with all
required covenants, including without limitation the ongoing registration of
intellectual property rights in accordance with Section 6.8, except as noted
below and (ii) all representations and warranties of Borrower stated in the
Agreement are true and correct in all material respects as of the date hereof.
Attached herewith are the required documents supporting the above certification.
The Officer further certifies that these are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) and are consistently applied
from one period to the next except as explained in an accompanying letter or
footnotes.

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

 

REPORTING COVENANTS

       

REQUIRED

                      

COMPLIES

Consolidated F/S, Customer Detail Report      Quarterly, within 50 days    YES
   NO Compliance Certificate      Monthly, within 30 days*    YES    NO CPA
Audited, Unqualified F/S      Annually, within 100 days of FYE    YES    NO A/R
Aging      Monthly, within 30 days*    YES    NO A/P Aging      Monthly, within
30 days*    YES    NO Borrowing Base Certificate      Monthly, within 30 days*
   YES    NO If Public:            10-Q      Quarterly, within 5 days of SEC
filing (50 days)    YES    NO 10-K      Annually, within 5 days of SEC filing
(100 days)    YES    NO

FINANCIAL COVENANTS

       

REQUIRED

            

ACTUAL

       

COMPLIES

TO BE TESTED MONTHLY, UNLESS OTHERWISE NOTED:             Minimum Liquidity
Ratio**      1.50:1.00                                          :1.00         
      YES    NO Domesic Unrestricted Cash & Cash Equivalents            $   

 

      YES    NO Minimum TNW Plus Subordinated Debt      $80,000,000       $   

 

      YES    NO

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

*

25 days for each month after December 31, 2007.

**

Minimum Liquidity Ratio defined as Domestic Unrestricted Cash and Cash
Equivalents plus Eligible Accounts Receivable divided by all outstanding
Indebtedness to Bank. When utilization of the credit facility exceeds 50%, the
minumum domestic Unrestricted Cash and Cash Equivalents in the numerator should
be no less than $5,000,000.

Please Enter Below Comments Regarding Covenant Violations:

The Officer further acknowledges that at any time Borrower is not in compliance
with all the terms set forth in the Agreement, including, without limitation,
the financial covenants, no credit extensions will be made.

Very truly yours,

 

              BANK USE ONLY     

 

                   Authorized Signer      Rec’d by:   

 

        Date:   

 

  

Name:

     Reviewed by:   

 

        Date:   

 

        Financial Compliance Status:                                
    YES / NO   

Title:

          

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

Exhibit F

Interest Rate

Addendum To Loan and Security Agreement

This Addendum to Loan and Security Agreement (this “Addendum”) is entered into
as of this 14th day of February 2007, by and between Comerica Bank (“Bank”),
Nanometrics, Inc. (“Borrower”), Accent Optical Technologies Nanometrics Inc.
(“Accent”), and Nanometrics IVS Inc. (“IVS”, and with Accent, each individually
a “Guarantor”, and together, collectively, jointly and severally “Guarantors”).
This Addendum supplements the terms of the Loan and Security Agreement of even
date herewith.

1. Definitions. Capitalized terms not otherwise defined herein shall have the
meaning set forth in the Loan Agreement.

a. Advance. As used herein, “Advance” means a borrowing requested by Borrower
and made by Bank under the Loan Agreement, including a U.S. Dollar Advance and
an Alternative Currency Advance.

b. Alternative Currency Advance. As used herein, “Alternative Currency Advance”
shall mean any Advance made under the Loan Agreement in an Alternative Currency.

c. Alternative Currency. As used herein, “Alternative Currency” shall mean Euro,
Korean Won, or Japanese Yen which is requested by Borrower in accordance with
the terms of the Loan Agreement as the currency in which an Alternative Currency
Advance requested is to be made.

d. Applicable Interest Rate. As used herein, “Applicable Interest Rate” shall
mean (i) with respect to U.S. Dollar Advances, as elected by Borrower, either
the U.S. LIBOR Rate, or U.S. Base Rate, (ii) with respect to Euro Advances, the
Euro Rate, (iii) with respect to Won Advances, as elected by Borrower, either
the SIBOR Rate, or the TIBOR Rate, and (iv) with respect to Yen Advances, the
TIBOR Rate;

e. Business Day. As used herein, “Business Day” shall mean any day on which
commercial banks are open for domestic and international business in California
and if related to an Alternative Currency determination, a day on which
commercial banks are open in the relevant interbank market for such Alternative
Currency transactions.

f. Euro Advance. As used herein, “Euro Advance” shall mean any Advance made
under the Loan Agreement to Borrower in Euros and which bears interest at the
Euro Rate.

g. Euro Rate. As used herein, “Euro Rate” shall have the meaning set forth in
Section 2(b) of this Agreement.

h. Euro. As used herein, “Euro” or “Euros” means the Euro, as established
pursuant to the Treaty Establishing the European Economic Community, as amended
by the Treaty on the European Union (the “Maastrict Treaty”) and freely
transferable and convertible into U.S. Dollars in the offshore exchange market.

i. Interest Period. As used herein, “Interest Period” means, with respect to any
Advance that is not a U.S. Base Rate Advance:

 

  (1)

initially, the period commencing on, as the case may be, the date the Advance is
made (or, in the case of a U.S. Dollar Advance only, the date on which such
Advance is

 

1

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

 

converted to a U.S. LIBOR Advance), and continuing for, in every case, a 30, 60
or 90 day period one thereafter so long as the Applicable Interest Rate is
quoted for such period in the applicable interbank market, as such period is
selected by Borrower as provided in the Loan Agreement or in this Addendum; and

 

  (2) thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Advance and continuing for, in every case, a
30, 60 or 90 day period thereafter so long as the Applicable Interest Rate is
quoted for such period in the applicable interbank market, as such period is
selected by Borrower in the notice of continuation as provided in this Addendum.

 

  (3) notwithstanding the foregoing, (i) any Interest Period which would
otherwise end on a day which is not a Business Day shall be extended to the next
succeeding Business Day, provided, that, if the next succeeding Business Day
falls in another calendar month, the Interest Period shall end on the preceding
Business Day, and (ii) no Interest Period shall extend beyond the Maturity Date.

j. Japanese Yen. As used herein, “Japanese Yen” means Japanese Yen freely
transferable and convertible into U.S. Dollars in the offshore exchange market.

k. Korean Won. As used herein, “Korean Won” means Korean Won freely transferable
and convertible into U.S. Dollars in the offshore exchange market.

l. LIBOR. As used herein, “LIBOR” means the rate per annum (rounded upward if
necessary, to the nearest whole 1/100 of 1%) and determined pursuant to the
following formula:

 

LIBOR =  

Base LIBOR

      100% - LIBOR Reserve Percentage    

 

  (1) “Base LIBOR” means (i) with respect to U.S. LIBOR Advances, the rate per
annum determined by Bank at which deposits for the relevant Interest Period
would be offered to Bank in the approximate amount of the relevant U.S. LIBOR
Advance in the inter-bank LIBOR market selected by Bank, upon request of Bank at
10:00 a.m. California time, on the day that is the first day of such Interest
Period, and (ii) with respect to Euro Advances, the rate per annum determined by
Bank at which deposits for the relevant Interest Period would be offered to Bank
in the approximate amount of the relevant Euro Advance in the inter-bank LIBOR
market selected by Bank, upon request of Bank at 10:00 a.m. Eastern Time, on the
day that is two Business Days prior to the first day of such Interest Period,
provided, that, if the applicable market is closed at the time of such
determination, and in the event of a rate increase in excess of 0.25% between
the time of such determination and the beginning of the next Business Day of
such inter-bank LIBOR market, the amount of such rate increase shall be added to
the rate per annum initially determined by Bank.

 

  (2) “LIBOR Reserve Percentage” means the reserve percentage prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
“Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable LIBOR Period.

m. Loan Agreement. As used herein, “Loan Agreement” means the Loan and Security
Agreement of even date herewith.

 

2

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n. Regulation D. As used herein, “Regulation D” means Regulation D of the Board
of Governors of the Federal Reserve System as amended or supplemented from time
to time.

o. Regulatory Development. As used herein, “Regulatory Development” means any or
all of the following: (i) any change in any law, regulation or interpretation
thereof by any public authority (whether or not having the force of law);
(ii) the application of any existing law, regulation or the interpretation
thereof by any public authority (whether or not having the force of law); and
(iii) compliance by Bank with any request or directive (whether or not having
the force of law) of any public authority.

p. SIBOR. As used herein, “SIBOR” means the rate per annum (rounded upward if
necessary, to the nearest whole 1/100 of 1%) and determined pursuant to the
following formula:

 

SIBOR =   

Base SIBOR

         100% - SIBOR Reserve Percentage      

 

  (1) “Base SIBOR” means the rate per annum determined by Bank at which deposits
for the relevant Interest Period would be offered to Bank in the approximate
amount of the relevant Alternative Currency Advance in the inter-bank SIBOR
market selected by Bank, upon request of Bank at 10:00 a.m. Eastern Time, on the
day that is two Business Days prior to the first day of such Interest Period,
provided, that, if the applicable market is closed at the time of such
determination, and in the event of a rate increase in excess of 0.25% between
the time of such determination and the beginning of the next Business Day of
such inter-bank SIBOR market, the amount of such rate increase shall be added to
the rate per annum initially determined by Bank.

 

  (2) “SIBOR Reserve Percentage” means the full reserve requirement percentage
specified by the central bank or other regulatory authorities that Bank
determines would govern Bank with respect to its funding all or any portion of
the applicable Alternative Currency Advance at the SIBOR Rate (as adjusted by
Bank for expected changes in such reserve percentage during the applicable
Interest Period, and including, without limitation, any special supplemental,
marginal, emergency and other reserves determined by the Bank, in its sole
discretion, to be applicable).

q. SIBOR Rate. As used herein, “SIBOR Rate” shall have the meaning set forth in
Section 2(c)(2) of this Agreement.

r. TIBOR. As used herein, “TIBOR” means the rate per annum (rounded upward if
necessary, to the nearest whole 1/100 of 1%) and determined pursuant to the
following formula:

 

TIBOR =   

Base TIBOR

         100% - TIBOR Reserve Percentage      

 

  (1) “Base TIBOR” means the rate per annum determined by Bank at which deposits
for the relevant Interest Period would be offered to Bank in the approximate
amount of the relevant Alternative Currency Advance in the inter-bank TIBOR
market selected by Bank, upon request of Bank at 10:00 a.m. Eastern Time, on the
day that is two Business Days prior to the first day of such Interest Period,
provided, that, if the applicable market is closed at the time of such
determination, and in the event of a rate increase in excess of 0.25% between
the time of such determination and the beginning of the next Business Day of
such inter-bank TIBOR market, the amount of such rate increase shall be added to
the rate per annum initially determined by Bank.

 

  (2)

“TIBOR Reserve Percentage” means the full reserve requirement percentage
specified by the central bank or other regulatory authorities that Bank
determines would govern Bank with respect to its funding all or any portion of
the applicable Alternative Currency

 

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Advance at the TIBOR Rate (as adjusted by Bank for expected changes in such
reserve percentage during the applicable Interest Period, and including, without
limitation, any special supplemental, marginal, emergency and other reserves
determined by the Bank, in its sole discretion, to be applicable).

s. TIBOR Rate. As used herein, “TIBOR Rate” shall have the meaning set forth in
Section 2(c)(1) of this Agreement.

t. U.S. Base Rate Advance. As used herein “U.S. Base Rate Advance” shall mean
any U.S. Dollar Advance made to Borrower bearing interest at the U.S. Base Rate.

u. U.S. Base Rate. As used herein, “U.S. Base Rate” shall have the meaning set
forth in Section 2(a)(2) of this Agreement.

v. U.S. Dollar Advance. As used herein “U.S. Dollar Advance” shall mean any
Advance made to Borrower in U.S. Dollars.

w. U.S. Dollar Equivalent. As used herein, “U.S. Dollar Equivalent” shall mean,
as of any date, with respect to any Alternative Currency Advance, the amount of
U.S. Dollars which is equivalent to the then outstanding principal amount of
such Alternative Currency Advance at the most favorable spot exchange rate
determined by Bank to be available to Bank for the sale of U.S. Dollars for such
Alternative Currency at the relevant time.

x. U.S. LIBOR Advance. As used herein “U.S. LIBOR Advance” shall mean any
U.S. Dollar Advance made to Borrower bearing interest at the U.S. LIBOR Rate.

y. U.S. LIBOR Rate. As used herein, “U.S. LIBOR Rate” shall have the meaning set
forth in Section 2(a)(1) of this Agreement.

z. Won Advance. As used herein, “Won Advance” shall mean any Advance made to
Borrower in Korean Won.

aa. Yen Advance. As used herein, “Yen Advance” shall mean any Advance made to
Borrower in Japanese Yen.

2. Interest Rate Options.

a. Interest Rates for U.S. Dollar Advances. For each U.S. Dollar Advance,
Borrower shall have the following options regarding the interest rate to be paid
by Borrower on such Advance under the Loan Agreement:

 

  (1) A rate equal to Two and One Quarter percent (2.25%) above Bank’s LIBOR,
(the “U.S. LIBOR Rate”), which U.S. LIBOR Rate shall be in effect during the
relevant Interest Period; or

 

  (2) A rate equal to the Prime Rate (as defined in the Loan Agreement) and
quoted from time to time by Bank as such rate may change from time to time (the
“U.S. Base Rate”).

b. Interest Rates for Euro Advances. For each Euro Advance, Borrower shall pay
interest at a rate equal to Two and One Quarter percent (2.25%) above Bank’s
LIBOR, (the “Euro Rate”), which Euro Rate shall be in effect during the relevant
Interest Period.

 

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c. Interest Rates for Won Advances. For each Won Advance made to Borrower,
Borrower shall have the following options regarding the interest rate to be paid
by Borrower on such Advance under the Loan Agreement:

 

  (1) A rate equal to Two and One Quarter percent (2.25%) above Bank’s TIBOR,
(the “TIBOR Rate”), which TIBOR Rate shall be in effect during the relevant
Interest Period; or

 

  (2) A rate equal to Two and One Quarter percent (2.25%) above Bank’s SIBOR,
(the “SIBOR Rate”), which SIBOR Rate shall be in effect during the relevant
Interest Period.

d. Interest Rates for Yen Advances. For each Yen Advance, Borrower shall pay
interest at a rate equal to the TIBOR Rate, which shall be in effect during the
relevant Interest Period.

3. Minimum Advance. The minimum amount for any U.S. Dollar Advance will not be
less than Two Hundred and Fifty Thousand and 00/100 Dollars ($250,000). The
amount of any Alternative Currency Advance shall be such that the U.S. Dollar
Equivalent of such Alternative Currency Advance will not be less than Two
Hundred and Fifty Thousand and 00/100 Dollars ($250,000).

4. Maximum Number of Applicable Interest Rates and Interest Periods. The
aggregate number of Applicable Interest Rates and Interest Periods at any time
in effect hereunder shall not exceed ten (10).

5. Payment of Interest on Advances. Interest on each Advance shall be payable
pursuant to the terms of the Loan Agreement. Interest on each Advance shall be
computed on the basis of a 360-day year and shall be assessed for the actual
number of days elapsed from the first day of the Interest Period applicable
thereto but not including the last day thereof.

6. Bank’s Records Re: Advances. With respect to each Advance, Bank is hereby
authorized to note the date, principal amount, interest rate and any Interest
Period applicable thereto and any payments made thereon on Bank’s books and
records (either manually or by electronic entry) and/or on any schedule attached
to the Loan Agreement, which notations shall be prima facie evidence of the
accuracy of the information noted.

7. Selection/Conversion of Interest Rate Options for U.S. Dollar Advances. At
the time any U.S. Dollar Advance is requested under the Loan Agreement and/or
Borrower wishes to select the U.S. LIBOR Rate for all or a portion of the
outstanding principal balance of U.S. Dollar Advances under the Loan Agreement,
and at the end of each applicable Interest Period, Borrower shall give Bank a
notice specifying (a) the interest rate option selected by Borrower; (b) the
principal amount subject thereto; and (c) if the U.S. LIBOR Rate is selected,
the length of the applicable Interest Period. Any such notice may be given by
telephone so long as, with respect to each U.S. LIBOR Advance requested by
Borrower, (i) Bank receives written confirmation from Borrower not later than
three (3) Business Days after such telephone notice is given; and (ii) such
notice is given to Bank prior to 10:00 a.m., California time, on the first day
of the Interest Period. For each U.S. LIBOR Rate requested hereunder, Bank will
quote the fixed Applicable Interest Rate to Borrower at approximately 10:00
a.m., California time, on the first day of the Interest Period. If Borrower does
not immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination of the rate by Bank; provided,
however, that if Borrower fails to accept any such quotation given, then the
quoted rate shall expire and Bank shall have no obligation to permit a U.S.
LIBOR Advance to be selected on such day. If no specific designation of interest
is made at the time any U.S. Dollar Advance is requested under the Loan
Agreement or at the end of any Interest Period, Borrower shall be deemed to have
selected the U.S. Base Rate for such U.S. Dollar Advance or the principal amount
to which such Interest Period applied. At any time the U.S. LIBOR Rate is in
effect, Borrower may, at the end of the applicable Interest Period, convert to
the U.S. Base Rate. At any time the U.S. Base Rate is in effect, Borrower may
convert to the U.S. LIBOR Rate, and shall designate an Interest Period.

 

5

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8. Selection of Interest Rate Options for Alternative Currency Advances. At the
time any Alternative Currency Advance is requested under the Loan Agreement, and
at the end of each applicable Interest Period, Borrower shall give Bank a notice
specifying (a) the interest rate option selected by Borrower, if such an option
is available; (b) the principal amount and type of Alternative Currency subject
thereto; and (c) the length of the applicable Interest Period. Any such notice
may be given by telephone so long as, with respect to each Alternative Currency
Advance requested by Borrower, (i) Bank receives written confirmation from
Borrower not later than three (3) Business Days after such telephone notice is
given; and (ii) such notice is given to Bank prior to 10:00 a.m., Eastern Time,
two Business Days prior to the first day of the Interest Period. For each
Alternative Currency Advance requested by Borrower, Bank will quote the fixed
Applicable Interest Rate to Borrower at approximately 10:00 a.m., Easter Time,
two Business Days prior to the first day of the Interest Period. If Borrower
does not immediately accept the rate quoted by Bank, any subsequent acceptance
by Borrower shall be subject to a redetermination of the rate by Bank; provided,
however, that if Borrower fails to accept any such quotation given, then the
quoted rate shall expire and Bank shall have no obligation to permit such
Alternative Currency Advance to be made within the next two Business Days. If no
specific designation of interest is made at the end of any Interest Period
applicable to an Alternative Currency Advance, Borrower shall be deemed to have
requested a U.S. Dollar Advance in the amount of the U.S. Dollar Equivalent of
the principal amount of such Alternate Currency Advance plus any accrued and
unpaid interest due thereof, which U.S. Dollar Advance shall bear interest at
the U.S. Base Rate plus three percent.

9. Prepayment. If (i) any payment or prepayment of any outstanding principal
balance of any Advance to which an Interest Period is applicable, shall occur on
any day other than the last day of such Interest Period (whether voluntarily, by
acceleration, required payment, or otherwise), (ii) Borrower elects the U.S.
LIBOR Advance or an Alternative Currency Advance in accordance with the terms
and conditions hereof, and, subsequent to such election, but prior to the
commencement of the applicable Interest Period, Borrower revokes such election
for any reason whatsoever, (iii) the applicable interest rate in respect of any
outstanding U.S. Dollar Advances shall be changed, for any reason whatsoever,
from the U.S. LIBOR Rate to the U.S. Base Rate prior to the last day of the
applicable Interest Period, or (iv) if Borrower shall fail to make any payment
of principal or interest hereunder at any time with respect to any Advance,
other than as U.S. Base Rate Advance to which an Interest Period is applicable,
Borrower shall reimburse Bank, on demand, for any resulting loss, cost or
expense incurred by Bank as a result thereof, including, without limitation, any
such loss, cost or expense incurred in obtaining, liquidating, employing or
redeploying deposits from third parties. Such amount payable by Borrower to Bank
may include, without limitation, an amount equal to the excess, if any, of
(a) the amount of interest which would have accrued on the amount so prepaid, or
not so borrowed, refunded or converted, for the period from the date of such
prepayment or of such failure to borrow, refund or convert, through the last day
of the relevant Interest Period, at the Applicable Interest Rate for such
outstanding principal balance under the Loan Agreement, as provided in this
Addendum, over (b) the amount of interest (as reasonably determined by Bank)
which would have accrued to Bank on such amount by placing such amount on
deposit for a comparable period with leading banks in the applicable interbank
market. Calculation of any amounts payable to Bank under this paragraph shall be
made as though Bank shall have actually funded or committed to fund the relevant
outstanding principal balance of the Loan Agreement hereunder through the
purchase of an underlying deposit in an amount equal to the amount of such
outstanding principal balance of the Loan Agreement and having a maturity
comparable to the relevant Interest Period; provided, however, that Bank may
fund the outstanding principal balance of the Loan Agreement hereunder in any
manner it deems fit and the foregoing assumptions shall be utilized only for the
purpose of the calculation of amounts payable under this paragraph. Upon the
written request of Borrower, Bank shall deliver to Borrower a certificate
setting forth the basis for determining such losses, costs and expenses, which
certificate shall be conclusively presumed correct, absent manifest error. Any
prepayment hereunder shall also be accompanied by the payment of all accrued and
unpaid interest on the amount so prepaid. The outstanding principal balance of
any U.S. Base Rate Advance under the Loan Agreement may be prepaid without
penalty or premium. Partial prepayments hereunder shall be applied to the
installments hereunder in the inverse order of their maturities.

 

6

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BY INITIALING BELOW, BORROWER ACKNOWLEDGE(S) AND AGREE(S) THAT: (A) THERE IS NO
RIGHT TO PREPAY ANY ADVANCE, OTHER THAN U.S. BASE RATE ADVANCES, IN WHOLE OR IN
PART, WITHOUT PAYING THE PREPAYMENT AMOUNT SET FORTH HEREIN (“PREPAYMENT
AMOUNT”), EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE LAW; (B) BORROWER SHALL
BE LIABLE FOR PAYMENT OF THE PREPAYMENT AMOUNT IF BANK EXERCISES ITS RIGHT TO
ACCELERATE PAYMENT OF ANY SUCH ADVANCE AS PART OR ALL OF THE OBLIGATIONS OWING
UNDER THE LOAN AGREEMENT, INCLUDING WITHOUT LIMITATION, ACCELERATION UNDER A
DUE-ON-SALE PROVISION; (C) BORROWER WAIVES ANY RIGHTS UNDER SECTION 2954.10 OF
THE CALIFORNIA CIVIL CODE OR ANY SUCCESSOR STATUTE; AND (D) BANK HAS MADE EACH
SUCH ADVANCE PURSUANT TO THE LOAN AGREEMENT IN RELIANCE ON THESE AGREEMENTS.

 

 

  BORROWER’S INITIALS  

10. Hold Harmless and Indemnification. Borrower agrees to indemnify Bank and to
hold Bank harmless from, and to reimburse Bank on demand for, all losses and
expenses which Bank sustains or incurs as a result of (i) any payment of any
Advance to which an Interest Period is applicable, prior to the last day of such
Interest Period for any reason, including, without limitation, termination of
the Loan Agreement, whether pursuant to this Addendum or the occurrence of an
Event of Default; (ii) any termination of an Interest Period prior to the date
it would otherwise end in accordance with this Addendum; or (iii) any failure by
Borrower, for any reason, to borrow any portion of any requested Advance, other
than a U.S. Base Rate Advance.

11. Funding Losses. The indemnification and hold harmless provisions set forth
in this Addendum shall include, without limitation, all losses and expenses
arising from interest and fees that Bank pays to lenders of funds it obtains in
order to fund the loans to Borrower on the basis of any Advance(s) (other than
U.S. Base Rate Advances) and all losses incurred in liquidating or re-deploying
deposits from which such funds were obtained and loss of profit for the period
after termination. A written statement by Bank to Borrower of such losses and
expenses shall be conclusive and binding, absent manifest error, for all
purposes. This obligation shall survive the termination of this Addendum and the
payment of the Loan Agreement.

12. Regulatory Developments Or Other Circumstances Relating To Illegality or
Impracticality of Advances. If any Regulatory Development or other circumstances
relating to the interbank Euro-dollar markets, or any other applicable interbank
markets, shall, at any time, in Bank’s reasonable determination, make it
unlawful or impractical for Bank to fund or maintain, during any Interest
Period, to determine or charge interest rates based upon LIBOR, TIBOR or SIBOR,
Bank shall give notice of such circumstances to Borrower and:

 

  (i) In the case of an Interest Period in progress, Borrower shall, if
requested by Bank, promptly pay any interest which had accrued prior to such
request and the date of such request shall be deemed to be the last day of the
term of such Interest Period; and

 

  (ii) No such Interest Period may be designated thereafter until Bank
determines that such would be practical.

13. Additional Costs. Borrower shall pay to Bank from time to time, upon Bank’s
request, such amounts as Bank determines are needed to compensate Bank for any
costs it incurred which are attributable to Bank having made or maintained a
U.S. LIBOR Advance or Alternative Currency Advance or to Bank’s obligation to
make such Advances, or any reduction in any amount receivable by Bank hereunder
with respect to any such Advance or Applicable Interest Rate or such obligation
(such increases in costs and reductions in amounts receivable being herein
called “Additional Costs”), resulting from any Regulatory Developments, which
(i) change the basis of taxation of any amounts payable to Bank hereunder with
respect to taxation of any amounts payable to Bank hereunder with respect to any

 

7

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such Advance (other than taxes imposed on the overall net income of Bank for any
such Advance by the jurisdiction where Bank is headquartered or the jurisdiction
where Bank extends such Advance); (ii) impose or modify 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
such Advance or any deposits referred to in the definitions of LIBOR, SIBOR and
TIBOR); or (iii) impose any other condition affecting this Addendum (or any of
such extension of credit or liabilities). Bank shall notify Borrower of any
event occurring after the date hereof which entitles Bank to compensation
pursuant to this paragraph as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation. Determinations by Bank for
purposes of this paragraph, shall be conclusive, provided that such
determinations are made on a reasonable basis.

14. Legal Effect. Except as specifically modified hereby, all of the terms and
conditions of the Loan Agreement remain in full force and effect.

 

8

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IN WITNESS WHEREOF, the parties have agreed to the foregoing as of the date
first set forth above.

 

BORROWER:     BANK:   NANOMETRICS INCORPORATED     COMERICA BANK  

 

   

 

  By:  

 

    By:  

 

  Title:  

 

    Title:  

 

 

 

GUARANTORS: ACCENT OPTICAL TECHNOLOGIES NANOMETRICS, INC.

 

By:  

 

Title:  

 

NANOMETRICS IVS DIVISION, INC.

 

By:  

 

Title:  

 

 

9