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Exhibit 10.1
 
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

This SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”)
dated as of March 25, 2013 (the “Effective Date”) is among SILICON VALLEY BANK,
a California corporation (“Bank”), and GIGOPTIX, INC., a Delaware corporation
(“GigOptix”), CHIPX, INCORPORATED, a Delaware corporation and wholly-owned
Subsidiary of GigOptix (“ChipX”), and ENDWAVE CORPORATION, a Delaware
corporation and wholly-owned Subsidiary of GigOptix (“Endwave” and together with
GigOptix and ChipX, individually and collectively, jointly and severally,
“Borrower”), provides the terms on which Bank shall lend to Borrower and
Borrower shall repay Bank. The parties agree as follows:

Recitals.

A.             Bank and Borrower have entered into that certain Amended and
Restated Loan and Security Agreement dated as of December 9, 2011 (as amended,
the “Prior Loan Agreement”).

B.             Borrower has requested, and Bank has agreed, to replace, amend
and restate the Prior Loan Agreement in its entirety. Bank and Borrower hereby
agree that the Prior Loan Agreement is amended and restated in its entirety as
follows:

1              ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP; provided that
if at any time any change in GAAP would affect the computation of any financial
ratio or requirement set forth in any Loan Document, and either Borrower or Bank
shall so request, Borrower and Bank shall negotiate in good faith to amend such
ratio or requirement to preserve the original intent thereof in light of such
change in GAAP; provided, further, that, until so amended, (a) such ratio or
requirement shall continue to be computed in accordance with GAAP prior to such
change therein and (b) Borrower shall provide Bank financial statements and
other documents required under this Agreement or as reasonably requested
hereunder setting forth a reconciliation between calculations of such ratio or
requirement made before and after giving effect to such change in GAAP.
Capitalized terms not otherwise defined in this Agreement shall have the
meanings set forth in Section 13 of this Agreement. All other terms contained in
this Agreement, unless otherwise indicated, shall have the meaning provided by
the Code to the extent such terms are defined therein.

2              LOAN AND TERMS OF PAYMENT

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

2.1.1        Financing of Accounts

(a)            Availability. Subject to the terms of this Agreement, Borrower
may request that Bank finance Eligible Accounts. At all times when Borrower is
not Borrowing Base Eligible (as hereinafter defined), Bank may, in its good
faith business discretion in each instance, finance specific Eligible Accounts
by extending credit to Borrower in an amount equal to the result of the Advance
Rate multiplied by the face amount of the Eligible Account. At all times that
Borrower is Borrowing Base Eligible, Borrower may request that Bank finance
Eligible Accounts on an aggregate basis. Bank shall finance Eligible Accounts on
an aggregate basis by extending credit to Borrower in an amount not to exceed
the result of the Advance Rate multiplied by the aggregate face amount of the
Eligible Accounts (the “Borrowing Base”). Bank may, in its sole discretion,
change the percentage of the Advance Rate for a particular Eligible Account on a
case by case basis. When Bank finances an Eligible Account (an “Advance”), the
Eligible Account becomes a “Financed Receivable.”

(b)            Maximum Advances. At all times that Borrower is Borrowing Base
Eligible, the aggregate principal amount of the Advances shall not exceed the
lesser of (i) Three Million Five Hundred Thousand Dollars ($3,500,000) or (ii)
the amount available under the Borrowing Base. At all times that Borrower is not
Borrowing Base Eligible, the aggregate face amount of all Financed Receivables
outstanding at any time may not exceed the Facility Amount. In addition and
notwithstanding the foregoing, the aggregate amount of Advances outstanding at
any time may not exceed Three Million Five Hundred Thousand Dollars
($3,500,000).

 
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(c)            Borrowing Procedure. Subject to the prior satisfaction of all
other applicable conditions to the making of an Advance set forth in this
Agreement, to obtain an Advance, Borrower must deliver to Bank an Invoice
Transmittal executed by a Responsible Officer or his or her designee for each
Eligible Account it offers, or if Borrower is Borrowing Base Eligible, Borrower
shall instead deliver a Payment/Advance Form executed by a Responsible Officer
or his or her designee, together with a Borrowing Base Certificate. Bank may
rely on information set forth in or provided with each Invoice Transmittal and
Payment/Advance Form. In addition, upon Bank’s request, Borrower shall deliver
to Bank any contracts, purchase orders, or other underlying supporting
documentation with respect to each Eligible Account.

(d)            End of Borrowing Base Eligible Status. On any day that Borrower
is no longer Borrowing Base Eligible all outstanding Advances must be supported
by specific Eligible Accounts. Borrower shall deliver to Bank, as soon as
possible, but in no event more than one (1) Business Day after Borrower is no
longer Borrowing Base Eligible, an Invoice Transmittal and a Payment/Advance
Form in the form attached hereto as Exhibit E containing detailed invoice
reporting, signed by a Responsible Officer together with a current accounts
receivable aging and a copy of each invoice, all in accordance with Section 6.2
hereof and subject to the terms of this Agreement, including, without
limitation, Section 2.1.1 hereof, each such Eligible Account financed shall
thereafter be deemed to be a Financed Receivable for purposes of this Agreement.
At all times that Borrower is not Borrowing Base Eligible, if the outstanding
principal amount of the Obligations exceeds the amount of Advances available
against Eligible Accounts (as determined by Bank), Borrower shall immediately
pay to Bank the excess and, in connection with same, hereby irrevocably
authorizes Bank to debit any account of Borrower maintained by Borrower with
Bank or any of Bank’s Affiliates for the amount of such excess.

(e)            Credit Quality; Confirmations. Bank may, at its option, conduct a
credit check of the Account Debtor for each Account requested by Borrower for
financing hereunder to approve any such Account Debtor’s credit before agreeing
to finance such Account. Bank may also verify directly with the respective
Account Debtors the validity, amount and other matters relating to the Accounts
(including confirmations of Borrower’s representations in Section 5.3 of this
Agreement) by means of mail, telephone or otherwise, either in the name of
Borrower or Bank from time to time in its sole discretion.

(f)             Accounts Notification/Collection. Bank may notify any Account
Debtor of Bank’s security interest in the Borrower’s Accounts and verify and/or
collect them.

(g)            Early Termination. The Revolving Line may be terminated prior to
the Maturity Date as follows: (i) by Borrower, effective three (3) Business Days
after written notice of termination is given to Bank; or (ii) by Bank at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If the Revolving Line is terminated (A) by Bank in accordance with
clause (ii) in the foregoing sentence, or (B) by Borrower for any reason,
Borrower shall pay to Bank a non-refundable termination fee in an amount equal
to Seventeen Thousand Five Hundred Dollars ($17,500) (the “Early Termination
Fee”). The Early Termination Fee shall be due and payable on the effective date
of such termination and thereafter shall bear interest at a rate equal to the
highest rate applicable to any of the Obligations. Notwithstanding the
foregoing, Bank agrees to waive the Early Termination Fee if Bank closes on the
refinance and re-documentation of this Agreement under another division of Bank
(in its sole and exclusive discretion) prior to the Maturity Date.

(h)            Maturity. All Revolving Line Obligations outstanding hereunder
shall be immediately due and payable in full on the Maturity Date.

(i)             Suspension of Advances. Borrower’s ability to request that Bank
finance Eligible Accounts hereunder will terminate if, in Bank’s sole
discretion, there has been a material adverse change in the general affairs,
management, results of operation, condition (financial or otherwise) or the
prospect of repayment of the Obligations, or there has been any material adverse
deviation by Borrower from the most recent business plan of Borrower presented
to and accepted by Bank prior to the Effective Date.

 
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(j)             Overadvances. If, at any time during which Borrower is Borrowing
Base Eligible, the outstanding principal amount of the Advances exceeds the
lesser of either Three Million Five Hundred Dollars ($3,500,000) or the
Borrowing Base, Borrower shall immediately pay to Bank in cash such excess.

2.1.2        Non-Formula Advances.

(a)            Availability. Subject to the terms and conditions of this
Agreement, Bank agrees to make advances to Borrower (each a “Non-Formula
Advance” and collectively the “Non-Formula Advances”), from time to time, prior
to the Non-Formula Maturity Date, in an aggregate amount not to exceed the
Non-Formula Loan Commitment. Amounts borrowed under the Non-Formula Revolving
Line may be repaid and, prior to the Non-Formula Maturity Date, reborrowed,
subject to the applicable terms and conditions precedent herein.

(b)            Borrowing Procedure. Subject to the prior satisfaction of all
other applicable conditions to the making of a Non-Formula Advance set forth in
this Agreement, to obtain a Non-Formula Advance, Borrower must deliver to Bank a
Payment/Advance Form executed by a Responsible Officer or his or her designee.
Bank may rely on information set forth in or provided with each Payment/Advance
Form.

(c)            Maturity. All Non-Formula Line Obligations outstanding hereunder
shall be immediately due and payable in full on the Non-Formula Maturity Date.

(d)            Suspension of Advances. Borrower’s ability to request Non-Formula
Advances will terminate if, in Bank’s sole discretion, there has been a material
adverse change in the general affairs, management, results of operation,
condition (financial or otherwise) or the prospect of repayment of the
Obligations, or there has been any material adverse deviation by Borrower from
the most recent business plan of Borrower presented to and accepted by Bank
prior to the Effective Date.

(e)            Early Termination. The Non-Formula Revolving Line may be
terminated prior to the Non-Formula Maturity Date as follows: (i) by Borrower,
effective three (3) Business Days after written notice of termination is given
to Bank; or (ii) by Bank at any time after the occurrence of an Event of
Default, without notice, effective immediately. If the Non-Formula Revolving
Line is terminated (A) by Bank in accordance with clause (ii) in the foregoing
sentence, or (B) by Borrower for any reason, Borrower shall pay to Bank a
non-refundable termination fee in an amount equal to Seventeen Thousand Five
Hundred Dollars ($17,500) (the “Non-Formula Termination Fee”). The Non-Formula
Termination Fee shall be due and payable on the effective date of such
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations. Notwithstanding the foregoing, Bank
agrees to waive the Non-Formula Termination Fee if Bank closes on the refinance
and re-documentation of this Agreement under another division of Bank (in its
sole and exclusive discretion) prior to the Non-Formula Maturity Date.

2.2           Collections, Finance Charges, Interest, Remittances and Fees. The
Obligations shall be subject to the fees, interest and Finance Charges set forth
in this Section 2. Unpaid fees, interest and Finance Charges may, in Bank’s
discretion, accrue interest at the then highest rate applicable to the
Obligations.

2.3           Collections. When Borrower is Borrowing Base Eligible, Collections
will be credited to Borrower’s operating account (for the avoidance of doubt,
all Collections shall be directed to the Lockbox in accordance with Section 2.9
below, even when Borrower is Borrowing Base Eligible). When Borrower is not
Borrowing Base Eligible, (i) Collections will be credited to the Financed
Receivable Balance for such Financed Receivable and (ii) if Bank receives a
payment for both a Financed Receivable and a non-Financed Receivable, the funds
will first be applied to the Financed Receivable and the excess will be remitted
to Borrower, subject to Section 2.9 of this Agreement. Notwithstanding anything
to the contrary contained herein, if an Event of Default has occurred and is
continuing, Bank may apply Collections to the Obligations in any order it
chooses.

2.4           Facility Fee. A fully earned, non-refundable facility fee of
Thirty Four Thousand Dollars ($34,000), of which Twenty-Two Thousand Dollars
($22,000) is due upon the Effective Date and the remaining Twelve Thousand
Dollars ($12,000) is due on the one-year anniversary of the Effective Date (the
“Facility Fee”).

 
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2.5           Finance Charges; Interest.

2.5.1        Finance Charges. In computing Finance Charges on the Revolving Line
Obligations under this Agreement when Borrower is not Borrowing Base Eligible,
all Collections received by Bank shall be deemed applied by Bank on account of
the Revolving Line Obligations three (3) Business Days after receipt of the
Collections. When Borrower is not Borrowing Base Eligible, Borrower will pay a
finance charge (the “Finance Charge”) on the Financed Receivable Balance which
is equal to the Applicable Rate divided by three hundred sixty (360) multiplied
by the number of days each such Financed Receivable is outstanding multiplied by
the outstanding Financed Receivable Balance. At all times that Borrower is
Borrowing Base Eligible, Borrower will pay a Finance Charge on the unpaid
principal balance of the Advances which is equal to the Applicable Rate divided
by three hundred sixty (360) multiplied by the number of days each such Advance
is outstanding multiplied by the unpaid principal balance of such Advance
divided by the Advance Rate. At all times that Borrower is Borrowing Base
Eligible the Finance Charge shall be payable monthly on the first day of each
month. At all times that Borrower is not Borrowing Base Eligible, the Finance
Charge is payable when the Advance made based on such Financed Receivable is
repaid in accordance with Section 2.12 of this Agreement. Immediately upon the
occurrence of an Event of Default, the Applicable Rate will increase an
additional five percent (5.0%) per annum, unless Bank otherwise elects from time
to time in its sole discretion to impose a smaller increase.

2.5.2        Interest on Non-Formula Advances.

(a)            Interest Rate. Subject to Section 2.5.2(b), the principal amount
outstanding for each Non-Formula Advance shall accrue interest at a floating per
annum rate equal to the greater of (i) one and three quarters of one percent
(1.75%) above the Prime Rate or (ii) five percent (5%), which interest shall be
due and payable on the third Business Day after the funding date of the
applicable Non-Formula Advance.

(b)            Default Rate. Immediately upon the occurrence and during the
continuance of an Event of Default, Non-Formula Obligations shall bear interest
at a rate per annum which is five percent (5.0%) above the rate that is
otherwise applicable thereto, unless Bank otherwise elects from time to time in
its sole discretion to impose a smaller increase. Payment or acceptance of the
increased interest rate provided in this Section 2.5.2(b) is not a permitted
alternative to timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies of Bank.

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

(d)            Payment; Interest Computation. Interest on each Non-Formula
Advance shall be computed on the basis of a 360-day year for the actual number
of days elapsed. In computing interest, (i) all payments received after 12:00
p.m. Pacific time on any day shall be deemed received at the opening of business
on the next Business Day, and (ii) the date of the making of any Non-Formula
Advance shall be included and the date of payment shall be excluded; provided,
however, that if any Non-Formula Advance is repaid on the same day on which it
is made, such day shall be included in computing interest on such Non-Formula
Advance.

2.6           Collateral Handling Fee. At all times that Borrower’s Net Cash is
equal to or greater than Four Million Dollars ($4,000,000), Borrower shall not
pay any Collateral Handling Fee (as hereinafter defined). At all times that
Borrower’s Net Cash is less than Four Million Dollars ($4,000,000), Borrower
shall pay a collateral handling fee (“Collateral Handling Fee”) as follows: (a)
at all times that Borrower’s Net Cash is between $1.00 and $4,000,000 Borrower
shall pay a Collateral Handling Fee equal to fifteen hundredths of one percent
(0.15%) per Reconciliation Period of the Financed Receivable Balance for each
Financed Receivable outstanding based upon a three hundred sixty (360) day year;
and (b) at all times Net Cash is less than $1.00, Borrower shall pay a
Collateral Handling Fee equal to three hundred twenty-five thousandths of one
percent (0.325%) per Reconciliation Period of the Financed Receivable Balance
for each Financed Receivable outstanding based upon a three hundred sixty (360)
day year. The Collateral Handling Fee is charged on a daily basis and is equal
to the Collateral Handling Fee divided by thirty (30), multiplied by the number
of days each such Financed Receivable is outstanding, multiplied by the
outstanding Financed Receivable Balance. The Collateral Handling Fee is payable
when the Advance made based on such Financed Receivable is repaid in accordance
with Section 2.12 of this Agreement. In computing Collateral Handling Fees under
this Agreement, all Collections received by Bank shall be deemed applied by Bank
on account of Revolving Line Obligations three (3) Business Days after receipt
of the Collections. Immediately upon the occurrence of an Event of Default, the
Collateral Handling Fee will increase an additional 0.50%.

 
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2.7           Accounting. After each Reconciliation Period, Bank will provide
Borrower with an accounting of the transactions for that Reconciliation Period,
including the amount of all Financed Receivables, all Collections, Adjustments,
Finance Charges, Collateral Handling Fees and the Facility Fee. If Borrower does
not object to the accounting in writing within thirty (30) days it shall be
considered accurate. All Finance Charges and other interest and fees are
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed.

2.8           Deductions. Bank may deduct fees, Bank Expenses, Finance Charges,
Collateral Handling Fees, Advances which become due pursuant to Section 2.12 of
this Agreement, and other amounts due pursuant to this Agreement from any
Advances made or Collections received by Bank.

2.9           Lockbox; Account Collection Services

(a)            Borrower shall direct each Account Debtor (and each depository
institution where proceeds of Accounts are on deposit) to remit payments with
respect to the Accounts to a lockbox account established with Bank or to wire
transfer payments to a cash collateral account that Bank controls (collectively,
the “Lockbox”). It will be considered an immediate Event of Default if the
Lockbox is not established and operational on the Effective Date and at all
times thereafter.

(b)            Upon receipt by Borrower of any proceeds of Accounts, Borrower
shall immediately transfer and deliver same to Bank, along with a detailed cash
receipts journal.

(c)            During any period when Borrower is Borrowing Base Eligible,
provided no Event of Default exists or an event that with notice or lapse of
time will be an Event of Default, Bank will promptly turn over to Borrower the
proceeds of all the Accounts. During any period when Borrower is not Borrowing
Base Eligible, provided no Event of Default exists or an event that with notice
or lapse of time will be an Event of Default, within three (3) days of receipt
of any proceeds of the Accounts by Bank (whether received by Bank in the
Lockbox, directly from Borrower, or otherwise), Bank will turn over to Borrower
such proceeds other than (i) Collections applied by Bank pursuant to Section 2.3
of this Agreement, and (ii) such proceeds which shall be used by Bank to repay
any other amounts due to Bank, such as the Finance Charge, the Facility Fee,
Collateral Handling Fee, and Bank Expenses; provided, however, Bank may hold any
proceeds of the Accounts (whether received by Bank in the Lockbox, directly from
Borrower, or otherwise and whether or not in respect of Financed Receivables) as
a reserve until the end of the applicable Reconciliation Period if Bank, in its
discretion, determines that other Financed Receivable(s) may no longer qualify
as an Eligible Account at any time prior to the end of the subject
Reconciliation Period. All monies applied to the Revolving Line Obligations
shall be applied in accordance with the procedures set forth in Section 2.3
above.

(d)            This Section 2.9 does not impose any affirmative duty on Bank to
perform any act other than as specifically set forth herein. All Accounts and
the proceeds thereof are Collateral, and if an Event of Default occurs, Bank
may, without notice, apply the proceeds of such Accounts to the Obligations.

2.10         Bank Expenses. Borrower shall pay all Bank Expenses (including
reasonable attorneys’ fees and expenses for documentation and negotiation of
this Agreement) incurred through and after the Effective Date, when due.

2.11         Good Faith Deposit. Borrower has paid to Bank a deposit of $10,000
(the “Good Faith Deposit”) to initiate Bank’s due diligence review process. The
Good Faith Deposit will be applied to the Facility Fee on the Effective Date.

2.12         Repayment of Obligations; Adjustments

2.12.1     Repayment.

(a)            Advances. At all times that Borrower is not Borrowing Base
Eligible, Borrower will repay each Advance on the earliest of: (i) the date on
which payment is received of the Financed Receivable with respect to which the
Advance was made, (ii) the date on which the Financed Receivable is no longer an
Eligible Account, (iii) the date on which any Adjustment is asserted to the
Financed Receivable (but only to the extent of the Adjustment if the Financed
Receivable otherwise remains an Eligible Account), (iv) the date on which there
is a breach of any representation or warranty in Section 5.3 of this Agreement
or of any covenant in the Loan Documents, or (v) the Maturity Date (including
any early termination). Each payment will also include all accrued Finance
Charges and Collateral Handling Fees with respect to such Advance and all other
amounts then due and payable hereunder. Notwithstanding the foregoing, at any
time that Borrower is Borrowing Base Eligible, Borrower will repay each Advance
on the earliest of: (x) the date on which there is a breach of any warranty or
representation set forth in Section 5.3, (y) the Maturity Date (including any
early termination), or (c) to the extent required under Section 2.1.1(d).

 
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(b)            Non-Formula Advances. All unpaid principal and accrued and unpaid
interest on each Non-Formula Advance is due and payable in full on the earliest
of (i) the third (3rd) Business Day after the funding date of such Non-Formula
Advance or (b) the Non-Formula Maturity Date (including any early termination).

2.12.2     Repayment on Event of Default. When there is an Event of Default,
Borrower will, if Bank demands (or, upon the occurrence of an Event of Default
under Section 8.5 of this Agreement, immediately without notice or demand from
Bank) repay all of the Obligations. The demand may, at Bank’s option, include
the Advance for each Financed Receivable then outstanding and all accrued
Finance Charges, interest, the Early Termination Fee, the Non-Formula
Termination Fee, Collateral Handling Fee, attorneys’ and professional fees,
court costs and expenses, Bank Expenses and any other Obligations.

2.12.3     Debit of Accounts. Bank may debit any of Borrower’s deposit accounts
for payments or any amounts Borrower owes Bank hereunder. Bank shall promptly
notify Borrower when it debits Borrower’s accounts. These debits shall not
constitute a set-off.

2.13         Power of Attorney. Borrower irrevocably appoints Bank and its
successors and assigns as attorney-in-fact and authorizes Bank and its successor
and assigns, to: (a) following the occurrence of an Event of Default, (i) sell,
assign, transfer, pledge, compromise, or discharge all or any part of the
Financed Receivables; (ii) demand, collect, sue, and give releases to any
Account Debtor for monies due and compromise, prosecute, or defend any action,
claim, case or proceeding about the Financed Receivables, including filing a
claim or voting a claim in any bankruptcy case in Bank’s or Borrower’s name, as
Bank chooses; and (iii) prepare, file and sign Borrower’s name on any notice,
claim, assignment, demand, draft, or notice of or satisfaction of lien or
mechanics’ lien or similar document; and (b) regardless of whether an Event of
Default has occurred and is continuing, (i) notify all Account Debtors to pay
Bank directly; (ii) receive, open, and dispose of mail addressed to Borrower;
(iii) endorse Borrower’s name on checks or other instruments (to the extent
necessary to pay amounts owed pursuant to any of the Loan Documents); and (iv)
execute on Borrower’s behalf any instruments, documents, financing statements to
perfect Bank’s interests in the Financed Receivables and Collateral and do all
acts and things necessary or prudent, as determined solely and exclusively by
Bank, to protect or preserve, Bank’s rights and remedies under the Loan
Documents, as directed by Bank.

3              CONDITIONS OF LOANS

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

(a)            duly executed original signatures to this Agreement;

(b)            duly executed original signatures to each Acknowledgment of
Amendment and Reaffirmation of Guaranty attached hereto as Schedules 1 and 2;

(c)            the Operating Documents and good standing certificates of
Borrower, with regard to each jurisdiction in which Borrower is registered to do
business, each certified by the applicable governmental authority as of a date
no earlier than thirty (30) days prior to the Effective Date;

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

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

(f)             the Perfection Certificates of each Borrower, together with the
duly executed original signatures thereto; and

(g)            payment of the fees and Bank Expenses then due as specified in
Section 2.4 hereof.

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

(a)            timely receipt of an executed Payment/Advance Form;

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

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

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

4              CREATION OF SECURITY INTEREST

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

Borrower acknowledges that it previously has entered, and/or may in the future
enter, into Bank Services Agreements with Bank. Regardless of the terms of any
Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank
thereunder shall be deemed to be Obligations hereunder and that it is the intent
of Borrower and Bank to have all such Obligations secured by the first priority
perfected security interest in the Collateral granted herein (subject only to
Permitted Liens that may have superior priority to Bank’s Lien in this
Agreement).

 
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If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are satisfied
in full, and at such time, Bank shall, at Borrower’s sole cost and expense,
terminate its security interest in the Collateral and all rights therein shall
revert to Borrower. In the event (a) all Obligations (other than inchoate
indemnity obligations), except for Bank Services, are satisfied in full, and (b)
this Agreement is terminated, Bank shall terminate the security interest granted
herein upon Borrower providing cash collateral acceptable to Bank in its good
faith business judgment for Bank Services, if any. In the event such Bank
Services consist of outstanding Letters of Credit, Borrower shall provide to
Bank cash collateral in an amount equal to 105% (110% for Letters of Credit
denominated in a Foreign Currency) of the Dollar Equivalent of the face amount
of all such Letters of Credit plus all interest, fees, and costs due or to
become due in connection therewith (as estimated by Bank in its good faith
business judgment), to secure all of the Obligations relating to such Letters of
Credit.

4.2           Authorization to File Financing Statements. Borrower hereby
authorizes Bank to file financing statements, without notice to Borrower, with
all appropriate jurisdictions to perfect or protect Bank’s interest or rights
hereunder. Any such financing statements may indicate the Collateral as “all
assets of the Debtor” or words of similar effect, or as being of an equal or
lesser scope, or with greater detail, all in Bank’s discretion.

5              REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

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

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law, (iii)
contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any of its Subsidiaries or any of their property or assets may
be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority
(except such Governmental Approvals which have already been obtained and are in
full force and effect) or (v) constitute an event of default under any material
agreement by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound in which the default
could reasonably be expected to have a material adverse effect on Borrower’s
business.

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

 
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The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral are currently being maintained at locations
other than as provided in the Perfection Certificate or as permitted pursuant to
Section 7.2 of this Agreement.

Borrower is the sole owner of the Intellectual Property which it owns or
purports to own except for (a) non-exclusive licenses granted to its customers
in the ordinary course of business, (b) over-the-counter software that is
commercially available to the public, and (c) material Intellectual Property
licensed to Borrower and noted on the Perfection Certificate. Each Patent which
it owns or purports to own and which is material to Borrower’s business is valid
and enforceable, and no part of the Intellectual Property which Borrower owns or
purports to own and which is material to Borrower’s business has been judged
invalid or unenforceable, in whole or in part. To the best of Borrower’s
knowledge, no claim has been made that any part of the Intellectual Property
violates the rights of any third party except to the extent such claim would not
reasonably be expected to have a material adverse effect on Borrower’s business.
Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is it bound by, any Restricted License.

5.3           Financed Receivables. Borrower represents and warrants for each
Financed Receivable:

(a)            Such Financed Receivable is an Eligible Account;

(b)            Borrower is the owner of and has the legal right to sell,
transfer, assign and encumber such Financed Receivable;

(c)            The correct amount is on the Invoice Transmittal and is not
disputed;

(d)            Payment is not contingent on any obligation or contract and
Borrower has fulfilled all its obligations as of the Invoice Transmittal date;

(e)            Such Financed Receivable is based on an actual sale and delivery
of goods and/or services rendered, is due to Borrower, is not past due or in
default, has not been previously sold, assigned, transferred, or pledged and is
free of any liens, security interests and encumbrances other than Permitted
Liens;

(f)            There are no defenses, offsets, counterclaims or agreements for
which the Account Debtor may claim any deduction or discount;

(g)            Borrower reasonably believes no Account Debtor is insolvent or
subject to any Insolvency Proceedings;

(h)            Borrower has not filed or had filed against it Insolvency
Proceedings and does not anticipate any filing;

(i)             Bank has the right to endorse and/ or require Borrower to
endorse all payments received on Financed Receivables and all proceeds of
Collateral; and

(j)             No representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statement contained in the certificates or statement not misleading.

5.4           Litigation. There are no actions or proceedings pending or, to the
knowledge of Borrower’s Responsible Officers, threatened in writing by or
against Borrower or any Subsidiary in which an adverse decision could reasonably
be expected to cause a Material Adverse Change.

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

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

5.7           Regulatory Compliance. Borrower is not an “investment company” or
a company “controlled” by an “investment company” under the Investment Company
Act of 1940, as amended. Borrower is not engaged as one of its important
activities in extending credit for margin stock (under Regulations X, T and U of
the Federal Reserve Board of Governors). Neither Borrower nor any of its
Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or
a “subsidiary company” of a “holding company” as each term is defined and used
in the Public Utility Holding Company Act of 2005. Borrower has complied in all
material respects with the Federal Fair Labor Standards Act. Borrower has not
violated any laws, ordinances or rules, the violation of which could reasonably
be expected to cause a Material Adverse Change. None of Borrower’s or any
Subsidiary’s properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower’s knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than
legally. Borrower and each of its Subsidiaries 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 to
continue their respective businesses as currently conducted.

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

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

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

6              AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1           Government Compliance

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

 
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(b)            Obtain all of the Governmental Approvals necessary for the
performance by Borrower of its obligations under the Loan Documents to which it
is a party and the grant of a security interest to Bank in all of its property.
Borrower shall promptly provide copies of any such obtained Governmental
Approvals to Bank.

(c)            Deliver to Bank, within five (5) days after the same are sent or
received, copies of all correspondence, reports, documents and other filings
with any Governmental Authority regarding compliance with or maintenance of
Governmental Approvals or Requirements of Law or that could reasonably be
expected to have a material adverse effect on any of the Governmental Approvals
or otherwise on the operations of Borrower or any of its Subsidiaries.

6.2           Financial Statements, Reports, Certificates. Deliver to Bank:

(a)            Borrowing Base Reports. Within thirty (30) days after the last
day of each month, aged listings of accounts receivable and accounts payable (by
invoice date) (the “Borrowing Base Reports”);

(b)            Borrowing Base Certificate. If Borrower is Borrowing Base
Eligible, provide Bank within thirty (30) days after the last day of each month,
a Borrowing Base Certificate signed by a Responsible Officer of Borrower;

(c)            Financed Receivable Report. Upon Bank’s request, provide a
written report on any Financed Receivable, where payment of such Financed
Receivable does not occur by its due date and include the reasons for the delay;

(d)            Deferred Revenue Report. As soon as available, but no later than
thirty (30) days following each Reconciliation Period, a Deferred Revenue
report, in form and detail acceptable to Bank;

(e)            Monthly Financial Statements. As soon as available, but no later
than thirty (30) days after the last day of each month, company prepared
consolidated and consolidating balance sheet and income statements covering
Borrower’s and each of its Subsidiary’s operations for such month certified by a
Responsible Officer and in a form acceptable to Bank (the “Monthly Financial
Statements”);

(f)            Monthly Compliance Certificate. Within thirty (30) days after the
last day of each month and together with the Monthly Financial Statements, a
duly completed Compliance Certificate signed by a Responsible Officer,
certifying that as of the end of such month, Borrower was in full compliance
with all of the terms and conditions of this Agreement, and setting forth
calculations showing compliance with the financial covenants set forth in this
Agreement and such other information as Bank shall reasonably request;

(g)            Annual Audited Financial Statements. As soon as available, but no
later than one hundred eighty (180) days after the last day of Borrower’s fiscal
year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm acceptable to
Bank in its reasonable discretion;

(h)            Other Statements. Within five (5) days of delivery, copies of all
statements, reports and notices made available to Borrower’s security holders or
to any holders of Subordinated Debt;

(i)             SEC Filings. Within five (5) days of filing, copies of all
periodic and other reports, proxy statements and other materials filed by
Borrower with the SEC, any Governmental Authority succeeding to any or all of
the functions of the SEC or with any national securities exchange, or
distributed to its shareholders, as the case may be. Documents required to be
delivered pursuant to the terms hereof (to the extent any such documents are
included in materials otherwise filed with the SEC) may be delivered
electronically and if so delivered, shall be deemed to have been delivered on
the date on which Borrower posts such documents, or provides a link thereto, on
Borrower’s website on the Internet at Borrower’s website address;

(j)             Financial Projections. As soon as available, but not later than
thirty (30) days after the last day of Borrower’s fiscal year, annual
consolidated financial projections for the following fiscal year commensurate in
form and substance with those provided to Borrower’s Board of Directors;

 
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(k)            Legal Action Notice. A prompt report of any legal actions pending
or threatened in writing against Borrower or any of its Subsidiaries that could
result in damages or costs to Borrower or any of its Subsidiaries of,
individually or in the aggregate, One Hundred Thousand Dollars ($100,000) or
more;

(l)             Intellectual Property Notice. Prompt written notice of (i) any
material change in the composition of the Intellectual Property, (ii) the
registration of any copyright, including any subsequent ownership right of
Borrower in or to any copyright, patent or trademark not shown in the IP
Security Agreements, and (iii) Borrower’s knowledge of an event that could
reasonably be expected to materially and adversely affect the value of the
Intellectual Property; and

(m)           Other Financial Information. Budgets, sales projections, operating
plans and other financial information reasonably requested by Bank.

 6.3          Taxes. Make, and cause each Subsidiary to make, timely payment of
all foreign, federal, state, and local taxes or assessments (other than taxes
and assessments which Borrower is contesting in good faith, with adequate
reserves maintained in accordance with GAAP) and will deliver to Bank, on
demand, appropriate certificates attesting to such payments.

6.4           Insurance. Keep its business and the Collateral insured for risks
and in amounts standard for companies in Borrower’s industry and location, and
as Bank may reasonably request. Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
shall have a lender’s loss payable endorsement showing Bank as lender loss payee
and waive subrogation against Bank, and all liability policies shall show, or
have endorsements showing, Bank as an additional insured. All policies (or the
lender loss payable and additional insured endorsements) shall provide that the
insurer must give Bank at least twenty (20) days’ notice before canceling,
amending, or declining to renew its policy. At Bank’s request, Borrower shall
deliver certified copies of policies and evidence of all premium payments.
Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on
account of the Obligations. If Borrower fails to obtain insurance as required
under this Section 6.4 or to pay any amount or furnish any required proof of
payment to third persons and Bank, Bank may make all or part of such payment or
obtain such insurance policies required in this Section 6.4, and take any action
under the policies Bank deems prudent.

6.5           Operating Accounts.

(a)            Maintain its primary and its Domestic Subsidiaries’ (including
Guarantors) primary operating and other deposit accounts and securities accounts
with Bank and Bank’s Affiliates, which accounts shall represent at least 85% of
the dollar value of Borrower’s and such Subsidiaries’ cash and Cash Equivalents.
Borrower agrees to conduct all letter of credit and foreign exchange
transactions through Bank.

(b)            Provide Bank five (5) days prior written notice before
establishing any Collateral Account at or with any bank or financial institution
other than Bank or Bank’s Affiliates. For each domestic Collateral Account that
Borrower at any time maintains, Borrower shall cause the applicable bank or
financial institution (other than Bank) at or with which any domestic Collateral
Account is maintained to execute and deliver a Control Agreement or other
appropriate instrument with respect to such Collateral Account to perfect Bank’s
Lien in such Collateral Account in accordance with the terms hereunder which
Control Agreement may not be terminated without the prior written consent of
Bank. The provisions of the previous sentence shall not apply to (a) deposit
accounts exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for the benefit of Borrower’s employees and identified to
Bank by Borrower as such, (b) Borrower’s accounts at Comerica Bank so long as
such accounts do not exceed One Hundred Fifty Thousand Dollars ($150,000) in the
aggregate, or (c) Borrower’s accounts at PayPal so long as such accounts do not
exceed Fifty Thousand Dollars (50,000) in the aggregate.

6.6           Inventory; Returns; Notices of Adjustments. Keep all Inventory in
good and marketable condition, free from material defects. Returns and
allowances between Borrower and its Account Debtors shall follow Borrower’s
customary practices as they exist at the Effective Date. If, at any time during
the term of this Agreement, any Account Debtor asserts an Adjustment in excess
of One Hundred Thousand Dollars ($100,000), Borrower issues a credit memorandum,
or any representation, warranty or covenant set forth in this Agreement or the
other Loan Documents is no longer true in all material respects, Borrower will
promptly advise Bank.

 
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6.7           Protection and Registration of Intellectual Property Rights

(a)            (i) Protect, defend and maintain the validity and enforceability
of its Intellectual Property; (ii) promptly advise Bank in writing of material
infringements of its Intellectual Property; and (iii) not allow any Intellectual
Property material to Borrower’s business to be abandoned, forfeited or dedicated
to the public without Bank’s written consent.

(b)            If Borrower (i) obtains any Patent, registered Trademark,
registered Copyright, registered mask work, or any pending application for any
of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for
any Patent or the registration of any Trademark, then Borrower shall immediately
provide written notice thereof to Bank and shall execute such intellectual
property security agreements and other documents and take such other actions as
Bank shall request in its good faith business judgment to perfect and maintain a
first priority perfected security interest in favor of Bank in such property. If
Borrower decides to register any Copyrights or mask works in the United States
Copyright Office, Borrower shall: (x) provide Bank with at least fifteen (15)
days prior written notice of Borrower’s intent to register such Copyrights or
mask works together with a copy of the application it intends to file with the
United States Copyright Office (excluding exhibits thereto); (y) execute an
intellectual property security agreement and such other documents and take such
other actions as Bank may request in its good faith business judgment to perfect
and maintain a first priority perfected security interest in favor of Bank in
the Copyrights or mask works intended to be registered with the United States
Copyright Office; and (z) record such intellectual property security agreement
with the United States Copyright Office contemporaneously with filing the
Copyright or mask work application(s) with the United States Copyright Office.
Borrower shall promptly provide to Bank copies of all applications that it files
for Patents or for the registration of Trademarks, Copyrights or mask works,
together with evidence of the recording of the intellectual property security
agreement necessary for Bank to perfect and maintain a first priority perfected
security interest in such property.

(c)            Provide written notice to Bank within ten (10) days of entering
or becoming bound by any Restricted License (other than over-the-counter
software that is commercially available to the public). Borrower shall take such
steps as Bank requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for (i) any Restricted License to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such Restricted
License, whether now existing or entered into in the future, and (ii) Bank to
have the ability in the event of a liquidation of any Collateral to dispose of
such Collateral in accordance with Bank’s rights and remedies under this
Agreement and the other Loan Documents.

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

6.9           Access to Collateral; Books and Records. Allow Bank, or its
agents, at reasonable times, on one (1) Business Day’s notice (provided no
notice is required if an Event of Default has occurred and is continuing), to
inspect the Collateral and audit and copy Borrower’s Books. Such inspections or
audits shall be conducted no more often than once every twelve (12) months (or
more frequently as conditions may warrant), unless an Event of Default has
occurred and is continuing. The foregoing inspections and audits shall be at
Borrower’s expense, and the charge therefor shall be $850 per person per day (or
such higher amount as shall represent Bank’s then-current standard charge for
the same), plus reasonable out-of-pocket expenses. The cost to Borrower of
Bank’s audits shall not exceed, in aggregate, $12,500 per year. In the event
Borrower and Bank schedule an audit more than ten (10) days in advance, and
Borrower cancels or seeks to reschedule the audit with less than ten (10) days
written notice to Bank, then (without limiting any of Bank’s rights or
remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket
expenses incurred by Bank to compensate Bank for the anticipated costs and
expenses of the cancellation or rescheduling.

6.10         Formation or Acquisition of Subsidiaries. At the time that Borrower
or any Guarantor forms any direct or indirect Subsidiary or acquires any direct
or indirect Subsidiary after the Effective Date, Borrower and such Guarantor
shall (a) cause such new Subsidiary to provide to Bank a Guaranty, (b) cause
such new Subsidiary to provide to Bank a Guaranty, a Security Agreement and an
Intellectual Property Security Agreement, together with such appropriate
financing statements and/or Control Agreements, all in form and substance
satisfactory to Bank (including being sufficient to grant Bank a first priority
Lien (subject to Permitted Liens) in and to the assets of such newly formed or
acquired Subsidiary), (c) provide to Bank appropriate certificates and powers
and financing statements, pledging all of the direct or beneficial ownership
interest in such new Subsidiary, in form and substance satisfactory to Bank, and
(d) provide to Bank all other documentation in form and substance satisfactory
to Bank, which in its opinion is appropriate with respect to the execution and
delivery of the applicable documentation referred to above. Any document,
agreement, or instrument executed or issued pursuant to this Section 6.10 shall
be a Loan Document.

 
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6.11         Further Assurances. Execute any further instruments and take
further action as Bank reasonably requests to perfect or continue Bank’s Lien in
the Collateral or to effect the purposes of this Agreement. Deliver to
Bank, within five (5) days after the same are sent or received, copies of all
correspondence, reports, documents and other filings with any Governmental
Authority regarding compliance with or maintenance of Governmental Approvals or
Requirements of Law or that could reasonably be expected to have a material
effect on any of the Governmental Approvals or otherwise on the operations of
Borrower or any of its Subsidiaries.

7              NEGATIVE COVENANTS

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

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

7.2           Changes in Business, Management, Ownership, or Business Locations.
(a) Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower and such Subsidiary, as
applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i)
have a change in management such that the Key Person ceases to hold such office
with Borrower and a replacement acceptable to Borrower’s Board of Directors is
not made within ninety (90) days after such departure; (ii) enter into any
transaction or series of related transactions in which the stockholders of
GigOptix who were not stockholders immediately prior to the first such
transaction own more than 40% of the voting stock of GigOptix immediately after
giving effect to such transaction or related series of such transactions (other
than by the sale of GigOptix’s equity securities in a public offering or to
venture capital investors so long as Borrower identifies to Bank the venture
capital investors prior to the closing of the transaction and provides to Bank a
description of the material terms of the transaction); (iii) cause or allow
ChipX, Endwave, GigOptix-Helix AG, Gig-Optix, LLC or Lumera Corporation to cease
being a wholly-owned Subsidiary of GigOptix; or (iv) allow GigOptix Israel or
ChipX UK to cease being a wholly-owned Subsidiary of ChipX.

Borrower shall not, without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Ten Thousand
Dollars ($10,000) in Borrower’s assets or property) or deliver any portion of
the Collateral valued, individually or in the aggregate, in excess of Ten
Thousand Dollars ($10,000) to a bailee at a location other than to a bailee and
at a location already disclosed in the Perfection Certificate, (2) change its
jurisdiction of organization, (3) change its organizational structure or type,
(4) change its legal name, or (5) change any organizational number (if any)
assigned by its jurisdiction of organization. If Borrower intends to deliver any
portion of the Collateral valued, individually or in the aggregate, in excess of
Ten Thousand Dollars ($10,000) to a bailee, and Bank and such bailee are not
already parties to a bailee agreement governing both the Collateral and the
location to which Borrower intends to deliver the Collateral, then Borrower will
first receive the written consent of Bank, and such bailee shall execute and
deliver a bailee agreement in form and substance satisfactory to Bank in its
sole discretion.

7.3           Mergers or Acquisitions. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.

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

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

7.6           Maintenance of Collateral Accounts. Maintain any Collateral
Account except pursuant to the terms of Section 6.5 of this Agreement.

7.7           Distributions; Investments. (a) Pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock;
provided that (i) Borrower may convert any of its convertible securities into
other securities pursuant to the terms of such convertible securities or
otherwise in exchange thereof and (ii) Borrower may pay dividends solely in
Borrower’s equity securities; or (b) directly or indirectly make any Investment
other than Permitted Investments, or permit any of its Subsidiaries to do so.

7.8           Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower, except
for transactions that are in the ordinary course of Borrower’s business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated Person and
transactions permitted pursuant to the terms of Section 7.2 hereof.

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

7.10         Compliance. Become an “investment company” or a company controlled
by an “investment company”, under the Investment Company Act of 1940, as
amended, or undertake as one of its important activities extending credit to
purchase or carry margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System), or use the proceeds of any Credit
Extension for that purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA,
to occur; fail to comply with the Federal Fair Labor Standards Act or violate
any other law or regulation, if the violation could reasonably be expected to
have a material adverse effect on Borrower’s business, or permit any of its
Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

8              EVENTS OF DEFAULT

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

8.1           Payment Default. Borrower fails to pay any of the Obligations when
due;

8.2           Covenant Default. Borrower (a) fails or neglects to perform any
obligation in Section 2.1.1(j), Section 2.9 or Section 6 of this Agreement or
violates any covenant in Section 7 of this Agreement or (b) fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant or agreement contained in this Agreement, any Loan Documents and as to
any default under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure the default within ten (10) days after the
occurrence thereof and shall not be deemed an Event of Default until the
expiration of such cure period; provided, however, grace and cure periods
provided under this Section 8.2(b) shall not apply to financial covenants or any
other covenants that are required to be satisfied, completed or tested by a date
certain or as set forth in clause (a) above;

 
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8.3           Material Adverse Change. A Material Adverse Change occurs;

8.4           Attachment; Levy; Restraint on Business

(a) (i) The service of process seeking to attach, by trustee or similar process,
any funds of Borrower or of any entity under the control of Borrower (including
a Subsidiary) on deposit or otherwise maintained with Bank or any Bank
Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s
assets by any government agency, and the same under subclauses (i) and (ii)
hereof are not, within ten (10) days after the occurrence thereof, discharged or
stayed (whether through the posting of a bond or otherwise); provided, however,
no Credit Extensions shall be made during any ten (10) day cure period; or

(b) (i) any material portion of Borrower’s assets is attached, seized, levied
on, or comes into possession of a trustee or receiver, or (ii) any court order
enjoins, restrains, or prevents Borrower from conducting any material part of
its business;

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

8.6           Other Agreements. There is, under any agreement to which Borrower
or any Guarantor is a party with a third party or parties, (a) any default
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount individually or in
the aggregate in excess of Two Hundred Fifty Thousand Dollars ($250,000); or (b)
any default by Borrower or Guarantor, the result of which could result in a
Material Adverse Change to Borrower’s or any Guarantor’s business;

8.7           Judgments. One or more final judgments, orders, or decrees for the
payment of money in an amount, individually or in the aggregate, of at least Two
Hundred Fifty Thousand Dollars ($250,000) (not covered by independent
third-party insurance as to which liability has been accepted by such insurance
carrier) shall be rendered against Borrower and the same are not, within ten
(10) days after the entry thereof, discharged or execution thereof stayed or
bonded pending appeal, or such judgments are not discharged prior to the
expiration of any such stay (provided that no Credit Extensions will be made
prior to the discharge, stay, or bonding of such judgment, order, or decree);

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

8.9           Subordinated Debt. Any document, instrument, or agreement
evidencing any Subordinated Debt shall for any reason be revoked or invalidated
or otherwise cease to be in full force and effect, any Person shall be in breach
thereof or contest in any manner the validity or enforceability thereof or deny
that it has any further liability or obligation thereunder, or the Obligations
shall for any reason be subordinated or shall not have the priority contemplated
by this Agreement or the subordination agreement;

8.10         Guaranty. (a) Any guaranty of any Obligations terminates or ceases
for any reason to be in full force and effect; (b) any Guarantor does not
perform any obligation or covenant under any guaranty of the Obligations; (c)
any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8 occurs with
respect to any Guarantor; or (d) the liquidation, winding up, or termination of
existence of any Guarantor; or

8.11         Governmental Approvals. Any Governmental Approval shall have been
(a) revoked, rescinded, suspended, modified in an adverse manner or not renewed
in the ordinary course for a full term or (b) subject to any decision by a
Governmental Authority that designates a hearing with respect to any
applications for renewal of any of such Governmental Approval or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or non-renewal (i) has, or could reasonably be expected to have, a
Material Adverse Change, or (ii) adversely affects the legal qualifications of
Borrower or any of its Subsidiaries to hold such Governmental Approval in any
applicable jurisdiction and such revocation, rescission, suspension,
modification or non-renewal could reasonably be expected to affect the status of
or legal qualifications of Borrower or any of its Subsidiaries to hold any
Governmental Approval in any other jurisdiction.

 
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9              BANK’S RIGHTS AND REMEDIES

9.1           Rights and Remedies. When an Event of Default occurs and continues
beyond any applicable grace period Bank may, without notice or demand, do any or
all of the following:

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

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

(c)            for any Letters of Credit, demand that Borrower (i) deposit cash
with Bank in an amount equal to 105% (110% for Letters of Credit denominated in
a Foreign Currency) of the Dollar Equivalent of the aggregate face amount of all
Letters of Credit remaining undrawn (plus all interest, fees, and costs due or
to become due in connection therewith (as estimated by Bank in its good faith
business judgment)), to secure all of the Obligations relating to such Letters
of Credit, as collateral security for the repayment of any future drawings under
such Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid
or payable over the remaining term of any Letters of Credit;

(d)            terminate any FX Contracts;

(e)            settle or adjust disputes and claims directly with Account
Debtors for amounts, on terms and in any order that Bank considers advisable and
notify any Person owing Borrower money of Bank’s security interest in such funds
and verify the amount of such account. Borrower shall collect all payments in
trust for Bank and, if requested by Bank, immediately deliver the payments to
Bank in the form received from the Account Debtor, with proper endorsements for
deposit;

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

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

(h)            ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name,
trade secrets, trade names, Trademarks, and advertising matter, or any similar
property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank’s
exercise of its rights under this Section 9.1, Borrower’s rights under all
licenses and all franchise agreements inure to Bank’s benefit;

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

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

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

9.2           Protective Payments. If Borrower fails to obtain the insurance
called for by Section 6.4 of this Agreement or fails to pay any premium thereon
or fails to pay any other amount which Borrower is obligated to pay under this
Agreement or any other Loan Document, Bank may obtain such insurance or make
such payment, and all amounts so paid by Bank are Bank Expenses and immediately
due and payable, bearing interest at the then highest rate applicable to the
Obligations, and secured by the Collateral. Bank will make reasonable efforts to
provide Borrower with notice of Bank obtaining such insurance at the time it is
obtained or within a reasonable time thereafter. No payments by Bank are deemed
an agreement to make similar payments in the future or Bank’s waiver of any
Event of Default.

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

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

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

9.6           Borrower Liability. Either Borrower may, acting singly, request
Credit Extensions hereunder. Each Borrower hereby appoints the other as agent
for itself for all purposes hereunder, including with respect to requesting
Credit Extensions hereunder. Each Borrower hereunder shall be jointly and
severally obligated to repay all Credit Extensions made hereunder, regardless of
which Borrower actually receives said Credit Extensions, as if each Borrower
hereunder directly received all Credit Extensions. Each Borrower waives (a) any
suretyship defenses available to it under the Code or any other applicable law,
including, without limitation, the benefit of California Civil Code Section 2815
permitting revocation as to future transactions and the benefit of California
Civil Code Sections 1432, 2809, 2810, 2819, 2839, 2845, 2847, 2848, 2849, 2850,
and 2899 and 3433, and (b) any right to require Bank to: (i) proceed against any
Borrower or any other person; (ii) proceed against or exhaust any security; or
(iii) pursue any other remedy. Bank may exercise or not exercise any right or
remedy it has against any Borrower or any security it holds (including the right
to foreclose by judicial or non-judicial sale) without affecting any Borrower’s
liability.

Notwithstanding any other provision of this Agreement or other related document,
each Borrower irrevocably waives all rights that it may have at law or in equity
(including, without limitation, any law subrogating Borrower to the rights of
Bank under this Agreement) to seek contribution, indemnification or any other
form of reimbursement from any other Borrower, or any other Person now or
hereafter primarily or secondarily liable for any of the Obligations, for any
payment made by Borrower with respect to the Obligations in connection with this
Agreement or otherwise and all rights that it might have to benefit from, or to
participate in, any security for the Obligations as a result of any payment made
by Borrower with respect to the Obligations in connection with this Agreement or
otherwise. Any agreement providing for indemnification, reimbursement or any
other arrangement prohibited under this Section 9.6 shall be null and void. If
any payment is made to a Borrower in contravention of this Section 9.6, such
Borrower shall hold such payment in trust for Bank and such payment shall be
promptly delivered to Bank for application to the Obligations, whether matured
or unmatured.

 
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10            NOTICES

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

 
If to Borrower:
GigOptix, Inc.

130 Baytech Drive
San Jose, CA 95134
Attn: ________________________________
Fax: _________________________________
Email: _______________________________

 
If to Bank:
Silicon Valley Bank

2400 Hanover Street
Palo Alto, CA 94304
Attn: Megan Willard
Fax: 650-494-1377
Email: mwillard@svb.com

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

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

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

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

12            GENERAL PROVISIONS

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

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

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

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

12.5         Correction of Loan Documents. Bank may correct patent errors and
fill in any blanks in the Loan Documents consistent with the agreement of the
parties.

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

12.7         Amendments in Writing; Waiver; Integration. No purported amendment
or modification of any Loan Document, or waiver, discharge or termination of any
obligation under any Loan Document, shall be enforceable or admissible unless,
and only to the extent, expressly set forth in a writing signed by the party
against which enforcement or admission is sought. Without limiting the
generality of the foregoing, no oral promise or statement, nor any action,
inaction, delay, failure to require performance or course of conduct shall
operate as, or evidence, an amendment, supplement or waiver or have any other
effect on any Loan Document. Any waiver granted shall be limited to the specific
circumstance expressly described in it, and shall not apply to any subsequent or
other circumstance, whether similar or dissimilar, or give rise to, or evidence,
any obligation or commitment to grant any further waiver. The Loan Documents
represent the entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of the Loan Documents merge into the Loan Documents.

12.8         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, is an original, and all taken together, constitute
one Agreement.

12.9         Survival. All covenants, representations and warranties made in
this Agreement continue in full force until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity
obligations and any other obligations which, by their terms, are to survive the
termination of this Agreement) have been paid in full and satisfied. Without
limiting the foregoing, except as otherwise provided in Section 4.1, the grant
of security interest by Borrower in Section 4.1 shall survive until the
termination of all Bank Services Agreements. The obligation of Borrower in
Section 12.2 of this Agreement to indemnify Bank shall survive until the statute
of limitations with respect to such claim or cause of action shall have run.

12.10      Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with
Bank, each a “Bank Entity” and collectively, the “Bank Entities”); (b) to
prospective transferees or purchasers of any interest in the Credit Extensions
(provided, however, Bank shall use its best efforts to obtain any prospective
transferee’s or purchaser’s agreement to the terms of this Section 12.10); (c)
as required by law, regulation, subpoena, or other order; (d) to Bank’s
regulators or as otherwise required in connection with Bank’s examination or
audit; (e) as Bank considers appropriate in exercising remedies under the Loan
Documents; and (f) to third-party service providers of Bank so long as such
service providers have executed a confidentiality agreement with Bank with terms
no less restrictive than those contained herein. Confidential information does
not include information that is: (i) either in the public domain other than as a
result of Bank’s breach of this section or is in Bank’s possession when
disclosed to Bank; or (ii) disclosed to Bank by a third party on a
nonconfidential basis if Bank does not know that the third party is prohibited
from disclosing the information.

Bank Entities may use anonymous forms of confidential information for aggregate
datasets, for analyses or reporting, and for any other uses not expressly
prohibited in writing by Borrower. The provisions of the immediately preceding
sentence shall survive termination of this Agreement.

12.11      Electronic Execution of Documents. The words “execution,” “signed,”
“signature” and words of like import in any Loan Document shall be deemed to
include electronic signatures or the keeping of records in electronic form, each
of which shall be of the same legal effect, validity and enforceability as a
manually executed signature or the use of a paper-based recordkeeping systems,
as the case may be, to the extent and as provided for in any applicable law,
including, without limitation, any state law based on the Uniform Electronic
Transactions Act.

12.12      Captions. The headings used in this Agreement are for convenience
only and shall not affect the interpretation of this Agreement.

12.13      Construction of Agreement. The parties mutually acknowledge that they
and their attorneys have participated in the preparation and negotiation of this
Agreement. In cases of uncertainty this Agreement shall be construed without
regard to which of the parties caused the uncertainty to exist.

 
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12.14      Relationship. The relationship of the parties to this Agreement is
determined solely by the provisions of this Agreement. The parties do not intend
to create any agency, partnership, joint venture, trust, fiduciary or other
relationship with duties or incidents different from those of parties to an
arm’s-length contract.

12.15      Third Parties. Nothing in this Agreement, whether express or implied,
is intended to: (a) confer any benefits, rights or remedies under or by reason
of this Agreement on any persons other than the express parties to it and their
respective permitted successors and assigns; (b) relieve or discharge the
obligation or liability of any person not an express party to this Agreement; or
(c) give any person not an express party to this Agreement any right of
subrogation or action against any party to this Agreement.

12.16      No Novation. Nothing contained herein shall in any way impair the
Prior Loan Agreement and other Loan Documents now held for the Obligations, nor
affect or impair any rights, powers, or remedies under the Prior Loan Agreement
or any Loan Document, it being the intent of the parties hereto that this
Agreement shall not constitute a novation of the Prior Loan Agreement or an
accord and satisfaction of the Obligations. Borrower hereby ratifies and
reaffirms the validity and enforceability of all of the liens and security
interests heretofore granted pursuant to the Loan Documents, as collateral
security for the Obligations, and acknowledges that all of such liens and
security interests, and all Collateral heretofore pledged as security for the
Obligations, continues to be and remains Collateral for the Obligations from and
after the date hereof.

13            DEFINITIONS

13.1         Definitions. As used in the Loan Documents, the word “shall” is
mandatory, the word “may” is permissive, the word “or” is not exclusive, the
words “includes” and “including” are not limiting, the singular includes the
plural, and numbers denoting amounts that are set off in brackets are negative.
As used in this Agreement, the following capitalized terms have the following
meanings:

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

“Account Debtor” is as defined in the Code and shall include, without
limitation, any person liable on any Financed Receivable, such as, a guarantor
of the Financed Receivable and any issuer of a letter of credit or banker’s
acceptance.

“Adjustments” are all discounts allowances, returns, recoveries, disputes,
claims of any kind (including, without limitation, counterclaims or warranty
claims), offsets, defenses, rights of recoupment, rights of return, or short
payments, asserted by or on behalf of any Account Debtor for any Financed
Receivable.

“Advance” is defined in Section 2.1.1 of this Agreement.

“Advance Rate” is eighty percent (80.0%), net of any offsets related to each
specific Account Debtor, including, without limitation, Deferred Revenue, or
such other percentage as Bank establishes under Section 2.1.1 of this Agreement.

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

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

“Applicable Rate” is a floating per annum rate equal to the greater of (a) the
Prime Rate plus six tenths of one percent (0.60%) or (b) three and eighty-five
hundredths of one percent (3.85%).

“Bank” is defined in the preamble of this Agreement.

“Bank Entities” is defined in Section 12.10.

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

“Bank Services” are any products, credit services, and/or financial
accommodations previously, now, or hereafter provided to Borrower or any of its
Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any
letters of credit, cash management services (including, without limitation,
merchant services, direct deposit of payroll, business credit cards, and check
cashing services), interest rate swap arrangements, and foreign exchange
services as any such products or services may be identified in Bank’s various
agreements related thereto (each, a “Bank Services Agreement”).

“Borrower” is defined in the preamble of this Agreement.

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

“Borrowing Base” is defined in Section 2.1.1(a).

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

“Borrowing Base Eligible” means that Borrower’s Net Cash is equal to or greater
than Four Million Dollars ($4,000,000); provided, however, that if an Event of
Default has occurred and is continuing then Bank may, in its sole discretion,
cause Borrower to no longer be Borrowing Base Eligible. If Borrower is
transitioning from not being Borrowing Base Eligible to being Borrowing Base
Eligible then Borrower must deliver a current Borrowing Base Certificate to Bank
prior to becoming Borrowing Base Eligible.

“Borrowing Resolutions” are, with respect to any Person, those resolutions
substantially in the form attached hereto as Exhibit C.

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

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

“Claims” is defined in Section 12.2 of this Agreement.

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

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

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

“Collateral Handling Fee” is defined in Section 2.6 of this Agreement.

 
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“Collections” are all funds received by Bank from or on behalf of an Account
Debtor for Financed Receivables.

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

“Compliance Certificate” is attached as Exhibit B.

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

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

“Copyrights” are 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.

“Credit Extension” is any Advance , Non-Formula Advance, or any other extension
of credit by Bank for Borrower’s benefit under this Agreement.

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

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

“Dollars,”“dollars” or use of the sign “$” means only lawful money of the United
States and not any other currency, regardless of whether that currency uses the
“$” sign to denote its currency or may be readily converted into lawful money of
the United States.

“Dollar Equivalent” is, at any time, (a) with respect to any amount denominated
in Dollars, such amount, and (b) with respect to any amount denominated in a
Foreign Currency, the equivalent amount therefor in Dollars as determined by
Bank at such time on the basis of the then-prevailing rate of exchange in San
Francisco, California, for sales of the Foreign Currency for transfer to the
country issuing such Foreign Currency.

“Early Termination Fee” is defined in Section 2.1.1(g) of this Agreement.

“Effective Date” is defined in the preamble hereof.

“Eligible Accounts” are billed Accounts in the ordinary course of Borrower’s
business that meet all Borrower’s representations and warranties in Section 5.3
of this Agreement, have been, at the option of Bank, confirmed in accordance
with Section 2.1.1(e) of this Agreement, and are due and owing from Account
Debtors deemed creditworthy by Bank in its sole discretion. Without limiting the
fact that the determination of which Accounts are eligible hereunder is a matter
of Bank discretion in each instance, Eligible Accounts shall not include the
following Accounts (which listing may be amended or changed in Bank’s discretion
with notice to Borrower):

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

(b)            Accounts that the Account Debtor has not paid within ninety (90)
days of invoice date regardless of invoice payment period terms;

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

(d)            Accounts owing from an Account Debtor which does not have its
principal place of business in the United States unless (i) such Accounts are
otherwise Eligible Accounts and are owing from a Permitted Foreign Account
Debtor or (ii) otherwise approved by Bank in writing on a case-by-case basis in
its sole discretion;

(e)            Accounts billed and/or payable outside of the United States;

(f)            Accounts owing from an Account Debtor to the extent that Borrower
is indebted or obligated in any manner to the Account Debtor (as creditor,
lessor, supplier or otherwise - sometimes called “contra” accounts, accounts
payable, customer deposits or credit accounts);

(g)            Accounts for which the Account Debtor is a federal, state or
local government entity or any department, agency, or instrumentality thereof
except for Accounts of the United States if the payee has assigned its payment
rights to Bank and the assignment has been acknowledged under the Federal
Assignment of Claims Act of 1940, as amended, excepting Accounts of the United
States in an aggregate amount of up to Five Hundred Thousand Dollars ($500,000);

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

(i)             Accounts owing from an Account Debtor where goods or services
have not yet been rendered to the Account Debtor (sometimes called memo billings
or pre-billings);

(j)             Accounts subject to contractual arrangements between Borrower
and an Account Debtor where payments shall be scheduled or due according to
completion or fulfillment requirements where the Account Debtor has a right of
offset for damages suffered as a result of Borrower’s failure to perform in
accordance with the contract (sometimes called contracts accounts receivable,
progress billings, milestone billings, or fulfillment contracts);

(k)            Accounts owing from an Account Debtor the amount of which may be
subject to withholding based on the Account Debtor’s satisfaction of Borrower’s
complete performance (but only to the extent of the amount withheld; sometimes
called retainage billings);

(l)             Accounts subject to trust provisions, subrogation rights of a
bonding company, or a statutory trust;

(m)           Accounts owing from an Account Debtor that has been invoiced for
goods that have not been shipped to the Account Debtor unless Bank, Borrower,
and the Account Debtor have entered into an agreement acceptable to Bank in its
sole discretion wherein the Account Debtor acknowledges that (i) it has title to
and has ownership of the goods wherever located, (ii) a bona fide sale of the
goods has occurred, and (iii) it owes payment for such goods in accordance with
invoices from Borrower (sometimes called “bill and hold” accounts);

(n)            Accounts for which the Account Debtor has not been invoiced;

(o)            Accounts that represent non-trade receivables or that are derived
by means other than in the ordinary course of Borrower’s business;

(p)            Accounts subject to chargebacks or other payment deductions taken
by an Account Debtor;

(q)            Accounts arising from product returns and/or exchanges (sometimes
called “warranty” or “RMA” accounts);

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

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

(t)            Accounts for which Bank in its good faith business judgment
determines collection to be doubtful, including, without limitation, accounts
represented by “refreshed” or “recycled” invoices.

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

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

“Events of Default” are set forth in Section 8 of this Agreement.

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

“Facility Amount” is Four Million Three Hundred Seventy-Five Thousand Dollars
($4,375,000).

“Facility Fee” is defined in Section 2.4 of this Agreement.

“Finance Charges” is defined in Section 2.5 of this Agreement.

“Financed Receivables” are all those Eligible Accounts, including their proceeds
which Bank finances and makes an Advance, as set forth in Section 2.1.1 of this
Agreement. A Financed Receivable stops being a Financed Receivable (but remains
Collateral) when the Advance made for the Financed Receivable has been fully
paid.

“Financed Receivable Balance” is the total outstanding gross face amount, at any
time, of any Financed Receivable.

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

“FX Contract” is any foreign exchange contract by and between Borrower and Bank
under which Borrower commits to purchase from or sell to Bank a specific amount
of Foreign Currency on a specified date.

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

“Good Faith Deposit” is defined in Section 2.11 of this Agreement.

“Governmental Approval” is any consent, authorization, approval, order, license,
franchise, permit, certificate, accreditation, registration, filing or notice,
of, issued by, from or to, or other act by or in respect of, any Governmental
Authority.

“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.

 
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“Guarantor” is any present or future guarantor of the Obligations, including
Lumera Corporation and GigOptix, LLC.

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

“Indemnified Person” is defined in Section 12.2 of this Agreement.

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

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

(a)            its Copyrights, Trademarks and Patents;

(b)            any and all trade secrets and trade secret rights, including,
without limitation, any rights to unpatented inventions, know-how, operating
manuals;

(c)            any and all source code;

(d)            any and all design rights which may be available to Borrower;

(e)            any and all claims for damages by way of past, present and future
infringement of any of the foregoing, 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; and

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

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

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

“Invoice Transmittal” shows Eligible Accounts which Bank may finance and, for
each such Account, includes the Account Debtor’s, name, address, invoice amount,
invoice date and invoice number.

“IP Agreements” are those certain Intellectual Property Security Agreements
executed and delivered by Borrower and Guarantors to Bank, as amended, modified
or restated from time to time.

“Key Person” means Borrower’s Chief Executive Officer, who is, as of the
Effective Date, Avi Katz.

“Letter of Credit” is a standby or commercial letter of credit issued by Bank
upon request of Borrower based upon an application, guarantee, indemnity, or
similar agreement.

“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security
interest or other encumbrance of any kind, whether voluntarily incurred or
arising by operation of law or otherwise against any property.

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

 
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“Lockbox” is defined in Section 2.9 of this Agreement.

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

“Maturity Date” is March 9, 2015.

“Net Cash” is measured as of the last day of each Reconciliation Period, and
means an amount equal to Borrower’s unrestricted cash and Investments with
maturities of fewer than twelve (12) months held at or through Bank, minus the
outstanding Obligations.

“Non-Formula Advance” is defined in Section 2.1.2.

“Non-Formula Loan Commitment” is Three Million Five Hundred Thousand Dollars
($3,500,000).

“Non-Formula Maturity Date” is March 9, 2015.

“Non-Formula Revolving Line” means all Non-Formula Advances made under Section
2.1.2.

“Non-Formula Obligations” are all Obligations with respect to the Non-Formula
Revolving Line.

“Non-Formula Termination Fee” is defined in Section 2.1.2(e) of this Agreement.

“Obligations” are Borrower’s obligation to pay when due any debts, principal,
interest, Bank Expenses, and other amounts Borrower owes Bank now or later,
whether under this Agreement, the other Loan Documents, or otherwise, including,
without limitation, any interest accruing after Insolvency Proceedings begin and
debts, liabilities, or obligations of Borrower assigned to Bank, and the
performance of Borrower’s duties under the Loan Documents.

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

“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.

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

“Perfection Certificate” is defined in Section 5.1 of this Agreement.

“Permitted Foreign Account Debtors” means Cisco Systems, National Instruments,
Huawei, ZTE, Opnext, Oclaro, Alcatel-Lucent, Coreoptics, Barco Silex, Fujitsu,
Mitsubishi, Sumitomo, Sony and NTT Electronics Corporation.

“Permitted Indebtedness” is:

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

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

 
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(c)            Subordinated Debt;

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

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

(f)            Indebtedness secured by Liens permitted under clauses (a) and (c)
of the definition of “Permitted Liens” hereunder; and

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

“Permitted Investments” are:

(a)            Investments (including, without limitation, Subsidiaries)
existing on the Effective Date and shown on the Perfection Certificate and;

(b)            Investments consisting of Cash Equivalents;

(c)            Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of Borrower;

(d)            Investments consisting of deposit accounts in which Bank has a
perfected security interest;

(e)            Investments accepted in connection with Transfers permitted by
Section 7.1;

(f)            Investments (i) by Borrower in GigOptix-Helix AG not to exceed
Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any calendar
quarter or in another Borrower and (ii) by Subsidiaries that are not Borrowers
in other Subsidiaries or in Borrower;

(g)            Investments consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the ordinary course of
business, and (ii) loans to employees, officers or directors relating to the
purchase of equity securities of Borrower or its Subsidiaries pursuant to
employee stock purchase plans or agreements approved by Borrower’s Board of
Directors;

(h)            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 business; and

(i)             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 paragraph (h)
shall not apply to Investments of Borrower in any Subsidiary.

“Permitted Liens” are:

(a)            Liens existing on the Effective Date and shown on the Perfection
Certificate or arising under this Agreement and the other Loan Documents;

(b)            Liens for taxes, fees, assessments or other government charges or
levies, either (i) not due and payable or (ii) being contested in good faith and
for which Borrower maintains adequate reserves on its Books, provided that no
notice of any such Lien has been filed or recorded under the Internal Revenue
Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

(c)            purchase money Liens (i) on Equipment acquired or held by
Borrower incurred for financing the acquisition of the Equipment securing no
more than Fifty Thousand Dollars ($50,000) in the aggregate amount outstanding,
or (ii) existing on Equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the Equipment;

 
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(d)            Liens of carriers, warehousemen, suppliers, or other Persons that
are possessory in nature arising in the ordinary course of business so long as
such Liens attach only to Inventory, securing liabilities in the aggregate
amount not to exceed Fifty Thousand Dollars ($50,000) and which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto;

(e)            Liens to secure payment of workers’ compensation, employment
insurance, old-age pensions, social security and other like obligations incurred
in the ordinary course of business (other than Liens imposed by ERISA);

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

(g)            leases or subleases of real property granted in the ordinary
course of Borrower’s business (or, if referring to another Person, in the
ordinary course of such Person’s business), and leases, subleases, non-exclusive
licenses or sublicenses of personal property (other than Intellectual Property)
granted in the ordinary course of Borrower’s business (or, if referring to
another Person, in the ordinary course of such Person’s business), if the
leases, subleases, licenses and sublicenses do not prohibit granting Bank a
security interest therein;

(h)            non-exclusive license of Intellectual Property granted to third
parties in the ordinary course of business;

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

(j)             Liens in favor of other financial institutions arising in
connection with Borrower’s deposit and/or securities accounts held at such
institutions, provided that Bank has a perfected security interest in the
amounts held in such deposit and/or securities accounts.

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

“Prime Rate” is the “prime rate” as published from time to time by The Wall
Street Journal in the “Money Rates” section of its Western Edition newspaper. In
the event that The Wall Street Journal ceases publishing such rate for any
reason, then the “Prime Rate” shall mean Bank’s most recently announced “prime
rate,” even if it is not Bank’s lowest rate.

“Reconciliation Period” is each calendar month.

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

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

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

“Restricted License” is any material license or other agreement with respect to
which Borrower is the licensee (a) that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property, or (b) for which a default under or
termination of could interfere with Bank’s right to sell any Collateral.

 
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“Revolving Line” means all Advances made under Section 2.1.1 hereof.

“Revolving Line Obligations” are all Obligations with respect to the Revolving
Line.

“Schedule” is the schedule of exceptions annexed hereto.

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

“Subordinated Debt” is indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests
having ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more intermediaries,
or both, by such Person. Unless the context otherwise requires, each reference
to a Subsidiary herein shall be a reference to a Subsidiary of Borrower or
Guarantor.

“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.

“Transfer” is defined in Section 7.1 of this Agreement.

[Signature page follows.]

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

BORROWER:
       
GIGOPTIX, INC.
       
By
/s/ Avi Katz
 
Name: 
Avi Katz
 
Title:
CEO & COB
       
CHIPX, INCORPORATED
       
By
/s/ Avi Katz
 
Name:
Avi Katz
 
Title:
COB
       
ENDWAVE CORPORATION
       
By
/s/ Avi Katz
 
Name:
Avi Katz
 
Title:
COB
       
BANK
       
SILICON VALLEY BANK
       
By:
/s/ Megan Willard
 
Name:
Megan Willard
 
Title:
VP
 

 
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EXHIBIT A

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

All goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles, commercial tort claims (including,
without limitation, Case number 1-11-CV-199643 titled GigOptix, Inc. v. Optomai,
Inc., Et Al, pending in the Superior Court in Santa Clara County, California and
Case number 500-17-046262-088 titled Endwave Corporation v. Advantech Advanced
Microwave Technologies Inc. pending in the Canadian Superior Court in Montreal,
Quebec), documents, instruments (including any promissory notes), chattel paper
(whether tangible or electronic), cash, deposit accounts, fixtures, letters of
credit rights (whether or not the letter of credit is evidenced by a writing),
securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; and

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

 
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EXHIBIT B

Logo 1 [logo1.jpg]

SPECIALTY FINANCE DIVISION

Compliance Certificate

I, an authorized officer of GigOptix, Inc., acting on behalf of GigOptix, Inc.,
ChipX, Incorporated and Endwave Corporation (collectively, “Borrower”) certify
under the Loan and Security Agreement (as amended, the “Agreement”) between
Borrower and Silicon Valley Bank (“Bank”) as follows for the period ending
_____________________________ (all capitalized terms used herein shall have the
meaning set forth in this Agreement):

Borrower represents and warrants for each Financed Receivable:

Each Financed Receivable is an Eligible Account;

Borrower is the owner with legal right to sell, transfer, assign and encumber
such Financed Receivable;

The correct amount is on the Invoice Transmittal and is not disputed;

Payment is not contingent on any obligation or contract and Borrower has
fulfilled all its obligations as of the Invoice Transmittal date;

Each Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted Liens;

There are no defenses, offsets, counterclaims or agreements for which the
Account Debtor may claim any deduction or discount;

Borrower reasonably believes no Account Debtor is insolvent or subject to any
Insolvency Proceedings;

Borrower has not filed or had filed against it Insolvency Proceedings and does
not anticipate any filing;

Bank has the right to endorse and/ or require Borrower to endorse all payments
received on Financed Receivables and all proceeds of Collateral; and

No representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.

Additionally, Borrower represents and warrants as follows:

Borrower and each Subsidiary is duly existing and in good standing in its state
of formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. The execution,
delivery and performance of the Loan Documents have been duly authorized, and do
not conflict with Borrower’s organizational documents, nor constitute an event
of default under any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse Change.

 
 

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Borrower has good title to the Collateral, free of Liens except Permitted Liens.
All inventory is in all material respects of good and marketable quality, free
from material defects.

Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act of 1940, as amended.
Neither Borrower nor any of its Subsidiaries is a “holding company” or an
“affiliate” of a “holding company” or a “subsidiary company” of a “holding
company” as each term is defined and used in the Public Utility Holding Company
Act of 2005. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations X, T and U of the Federal
Reserve Board of Governors). Borrower has complied in all material respects with
the Federal Fair Labor Standards Act. Borrower has not violated any laws,
ordinances or rules, the violation of which could reasonably be expected to
cause a Material Adverse Change. None of Borrower’s or any Subsidiary’s
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower’s knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Borrower
and each Subsidiary has timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested in
good faith with adequate reserves under GAAP. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted except where the
failure to obtain or make such consents, declarations, notices or filings would
not reasonably be expected to cause a Material Adverse Change.

Collateral Handling Fee Calculation

Trigger
Required
Actual
Identify Which Applies
       
Net Cash
Above $4,000,000 (No CHF)
$______
Yes No
 
$1.00-$4,000,000 (0.15% CHF)
 
Yes No
 
Less than $1.00 (0.325% CHF)
 
Yes No

All other representations and warranties in this Agreement are true and correct
in all material respects on this date, and Borrower represents that there is no
existing Event of Default.

Sincerely,

GigOptix, Inc., on behalf of itself and all Borrowers

________________________
Signature

________________________
Title
________________________
Date

 
 

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EXHIBIT C

BORROWING RESOLUTIONS

[see attached]

 
 

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EXHIBIT D

BORROWING BASE CERTIFICATE

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

 
Borrower: GigOptix, Inc., Chipx, Incorporated and Endwave Corporation
Lender: Silicon Valley Bank
Commitment Amount:      $3,500,000

ACCOUNTS RECEIVABLE
 
1.
Accounts Receivable (invoiced) Book Value as of ____________________
$_______________
2.
Additions (Please explain on next page)
$_______________
3.
Less: Intercompany / Employee / Non-Trade Accounts
$_______________
4.
NET TRADE ACCOUNTS RECEIVABLE
$_______________
     
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
 
5.
90 Days Past Invoice Date
$_______________
6.
Credit Balances over 90 Days
$_______________
7.
Balance of 50% over 90 Day Accounts (Cross-Age or Current Affected)
$_______________
8.
Foreign Account Debtor Accounts1
$_______________
9.
Foreign Invoiced and/or Collected Accounts
$_______________
10.
Contra / Customer Deposit Accounts
$_______________
11.
U.S. Government Accounts2
$_______________
12.
Promotion or Demo Accounts; Guaranteed Sale or Consignment Sale Accounts
$_______________
13.
Accounts with Memo or Pre-Billings
$_______________
14.
Contract Accounts; Accounts with Progress / Milestone Billings
$_______________
15.
Accounts for Retainage Billings
$_______________
16.
Trust / Bonded Accounts
$_______________
17.
Bill and Hold Accounts
$_______________
18.
Unbilled Accounts
$_______________
19.
Non-Trade Accounts (If not already deducted above)
$_______________
20.
Accounts with Extended Term Invoices (Net 90+)
$_______________
21.
Chargebacks Accounts / Debit Memos
$_______________
22.
Product Returns/Exchanges
$_______________
23.
Disputed Accounts; Insolvent Account Debtor Accounts
$_______________
24.
Deferred Revenue / Other (Please explain on next page)
$_______________
25.
TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
$_______________
     
26.
Eligible Accounts (#4 minus #25)
$_______________
27.
ELIGIBLE AMOUNT OF ACCOUNTS (80% of #26)
$_______________
     
BALANCES
 
28.
Maximum Loan Amount
$3,500,000
29.
Total Funds Available (lesser of #27 or #28)
$_______________
30.
Present balance owing on Line of Credit
$_______________
31.
RESERVE POSITION (#29 minus #30)
$_______________

[Continued on following page.]
 
___________________________ 
1 Unless permitted in (d) of “Eligible Accounts”.
2 Exclusion applies to Accounts in excess of $500,000 owing from the US
Government without compliance with Assignment of Claims.

 
1

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Explanatory comments from previous page:

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

Image 1 [image1.jpg]
COMMENTS: By: ___________________________ Authorized Signer Date: BANK USE ONLY
Received by: _____________________ authorized signer Date:
__________________________ Verified: ________________________ authorized signer
Date: ___________________________ Compliance Status: Yes No

 
2

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EXHIBIT E – LOAN PAYMENT/ADVANCE REQUEST FORM

Deadline for same day processing is Noon Pacific Time

Fax To: (650) 494-1377
Date: _____________________

Image 2 [image2.jpg]
 
Image 3 [image3.jpg]
 
Image 4 [image4.jpg]
Loan Payment: GigOptix, Inc., ChipX, Incorporated and Endwave Corporation From
Account #________________________________ To Account
#__________________________________________________ (Deposit Account #) (Loan
Account #) Principal $____________________________________ and/or Interest
$________________________________________________ Authorized Signature: Phone
Number: Print Name/Title: Loan Advance: Complete Outgoing Wire Request section
below if all or a portion of the funds from this loan advance are for an
outgoing wire. From Account #________________________________ To Account
#__________________________________________________ (Loan Account #) (Deposit
Account #) Amount of Advance $___________________________ All Borrower’s
representations and warranties in the Second Amended and Restated Loan and
Security Agreement are true, correct and complete in all material respects on
the date of the request for an advance; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date: Authorized Signature: Phone Number: Print Name/Title: Outgoing
Wire Request: Complete only if all or a portion of funds from the loan advance
above is to be wired. Deadline for same day processing is noon, Pacific Time
Beneficiary Name: _____________________________ Amount of Wire: $ Beneficiary
Bank: ______________________________ Account Number: City and State: Beneficiary
Bank Transit (ABA) #: Beneficiary Bank Code (Swift, Sort, Chip, etc.): (For
International Wire Only) Intermediary Bank: Transit (ABA) #: For Further Credit
to: Special Instruction: By signing below, I (we) acknowledge and agree that my
(our) funds transfer request shall be processed in accordance with and subject
to the terms and conditions set forth in the agreements(s) covering funds
transfer service(s), which agreements(s) were previously received and executed
by me (us). Authorized Signature: ___________________________ 2nd Signature (if
required): _______________________________________ Print Name/Title:
______________________________ Print Name/Title:
______________________________________________ Telephone #: Telephone #:

 
 

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Schedule 1

ACKNOWLEDGMENT OF AMENDMENT
AND REAFFIRMATION OF GUARANTY

Section 1.            Guarantor hereby acknowledges and confirms that it has
reviewed and approved the terms and conditions of the Second Amended and
Restated Loan and Security Agreement dated as of even date herewith (the
“Amendment”).

Section 2.            Guarantor hereby consents to the Amendment and agrees that
the Guaranty relating to the Obligations of Borrower to Bank and the Security
Agreement and Intellectual Property Security Agreement securing the obligations
of Guarantor thereunder shall continue in full force and effect, shall be valid
and enforceable and shall not be impaired or otherwise affected by the execution
of the Amendment or any other document or instrument delivered in connection
herewith.

Section 3.            Guarantor represents and warrants that, after giving
effect to the Amendment, all representations and warranties contained in the
Guaranty, Security Agreement and Intellectual Property Security Agreement are
true, accurate and complete as if made the date hereof.

Section 4.            Guarantor hereby acknowledges and agrees that this
Acknowledgment of Amendment and Reaffirmation of Guaranty shall not be deemed to
create any obligation on the part of Bank to obtain an acknowledgement or
reaffirmation from Guarantor in connection with any future amendments to the
Second Amended and Restated Loan and Security Agreement.
 
GUARANTOR
GIGOPTIX, LLC
           
By:
/S/ Avi S. Katz
           
Name:
Avi S. Katz
           
Title:
CEO
 

 
 

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Schedule 2

ACKNOWLEDGMENT OF AMENDMENT
AND REAFFIRMATION OF GUARANTY

Section 1.            Guarantor hereby acknowledges and confirms that it has
reviewed and approved the terms and conditions of the Second Amended and
Restated Loan and Security Agreement dated as of even date herewith (the
“Amendment”).

Section 2.            Guarantor hereby consents to the Amendment and agrees that
the Guaranty relating to the Obligations of Borrower to Bank and the Security
Agreement and Intellectual Property Security Agreement securing the obligations
of Guarantor thereunder shall continue in full force and effect, shall be valid
and enforceable and shall not be impaired or otherwise affected by the execution
of the Amendment or any other document or instrument delivered in connection
herewith.

Section 3.            Guarantor represents and warrants that, after giving
effect to the Amendment, all representations and warranties contained in the
Guaranty, Security Agreement and Intellectual Property Security Agreement are
true, accurate and complete as if made the date hereof.

Section 4.            Guarantor hereby acknowledges and agrees that this
Acknowledgment of Amendment and Reaffirmation of Guaranty shall not be deemed to
create any obligation on the part of Bank to obtain an acknowledgement or
reaffirmation from Guarantor in connection with any future amendments to the
Second Amended and Restated Loan and Security Agreement.
 
GUARANTOR
LUMERA CORPORATION
           
By:
/S/ Avi S. Katz
           
Name:
Avi S. Katz
           
Title:
CEO
 

 
 

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