**Exhibit 10.7**

** **

**Executed**

 

**PARTICIPATIONAGREEMENT**

 

THIS PARTICIPATION AGREEMENT (“Agreement”)dated as of July     ,**2005, is by and between WELLS FARGO BUSINESS CREDIT, INC., aMinnesota corporation (“Lender”) and OPTA CORPORATION (formerly known asLOTUS PACIFIC, INC.), a Delaware corporation (“Participant”).

 

**WITNESSETH:**

 

A.     Lender hasentered into financing arrangements with Borrower (as defined below) pursuantto which Lender may, upon certain terms and conditions, make secured loans andprovide other financial accommodations to Borrower as set forth in the Creditand Security Agreement dated July 21, 2003, by and between Lender andBorrower, as amended by the First Amendment to Credit and Security Agreementdated December 18, 2003, the Second Amendment to Credit and SecurityAgreement dated February 11, 2004, the Third Amendment to Credit andSecurity Agreement dated May 20, 2004, and as further amended by the “ForbearanceAgreement” dated November 1, 2004 (the “Forbearance Agreement”), theletter agreement (the “3/9/05 Letter Agreement”) dated March 9, 2005, andthe First Amended Forbearance Agreement (the “7/22/05 Forbearance Agreement”)dated July 22, 2005 (as the same now exists or may hereafter be amended,modified, supplemented, extended, renewed or replaced, collectively, the “LoanAgreement”); and

 

B.     Participantunconditionally guaranteed repayment of all Obligations (as defined in the LoanAgreement) owing from Borrower to Lender pursuant to the terms of the separate “Guarantyby Corporation” dated as of July 16, 2003, that Participant signed anddelivered to Lender (the “Guaranty”); and

 

C.     Participantacknowledges that Borrower is in material breach and default of its duties andobligations under the Loan Agreement; and

 

D.     NotwithstandingBorrower’s breaches and defaults, Participant wishes to acquire from Lender,upon the terms and conditions hereinafter set forth, an undivided fractionalinterest in all present and future loans and other financial accommodationsprovided by Lender to Borrower under the Loan Agreement and, to the extentnecessary to repay the Participation (as hereinafter defined), an undividedfractional interest in the Collateral.

 

NOW, THEREFORE, in consideration of the premises andthe mutual covenants and promises herein contained, the parties hereto agree asfollows:

 

1.                         Definitions

 

As used above and in this Agreement, the followingterms shall have the meanings ascribed to them below:

 

1.1    “Availability”shall mean, at any time, the amount of the Revolving Advances and Letters ofCredit available to Borrower at such time based on the applicable advancepercentage multiplied by the value of eligible Collateral as set forth in theLoan Agreement, as determined by Lender in its sole discretion, and subject tothe applicable sublimits and reserves established by Lender in its solediscretion.

 

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1.2    “Borrower”shall mean OPTA SYSTEMS, LLC, a Delaware limited liability company, and itssuccessors and assigns, including, without limitation, a receiver,administrator, custodian, liquidator, trustee or debtor-in-possession on behalfof such person or on behalf of any such successor or assign.

 

1.3    “Collateral”shall have the meaning set forth in the Loan Agreement.

 

1.4    “Collections”shall mean all cash or other immediately available funds received by Lender forapplication to the Obligations, whether as proceeds of Collateral or otherwise.

 

1.5    “Eventof Default” shall have the meaning set forth in the Loan Agreement.

 

1.6    “FinancingAgreements” shall mean, collectively, the Loan Agreement and allagreements, documents and instruments at any time executed and/or delivered byBorrower, any obligor or any other person with, to or in favor of Lender inconnection therewith or related thereto, as all of the foregoing now exist ormay hereafter be amended, modified, supplemented, extended, renewed, restatedor replaced.

 

1.7    “Lettersof Credit” shall have the meaning set forth in the Loan Agreement.

 

1.8    “Loans”shall mean all Revolving Advances or other loans made by Lender to Borrower pursuantto the Loan Agreement.

 

1.9    “Participation”shall have the meaning set forth in Section 2.1 hereof.

 

1.10  “ParticipantCommitment” shall mean $3,200,000.00.

 

1.11  “ParticipationPercentage” shall mean Eighty percent (80%).

 

1.12  “RevolvingAdvances” shall have the meaning set forth in the Loan Agreement.

 

1.13  “SettlementPeriod” shall mean each week or such other period of time as the partiesmay agree between settlements in respect of the Participation as provided in Section 3.3hereof.

 

1.14  All capitalizedterms as used herein shall have the meanings given to such terms in the LoanAgreement, unless otherwise defined herein. All references to Participant andLender pursuant to the definitions set forth above, or to any other personherein, shall include their respective successors and assigns. All referencesto any term in the plural shall include the singular and all references to anyterm in the singular shall include the plural. For purposes of this Agreement,all references to the pro rata share of Participant herein shall be determinedbased on the Participation Percentage.

 

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2.                         Purchaseand Sale of Participation

 

2.1    Lenderhereby agrees to sell to Participant and Participant hereby unconditionally andirrevocably agrees to purchase from Lender an undivided fractional interest inall present and future Loans made from time to time by Lender to Borrower equalto the Participation Percentage, but in no event to exceed the ParticipantCommitment at any time outstanding. Participant hereby assumes its pro ratashare of all commitments and obligations of Lender under the FinancingAgreements or otherwise in connection with the Loans and Letters of Credit.Such interests of Participant in the Loans and Letters of Credit provided forin this Section 2.1 are referred to herein as the “Participation.”Participant shall participate in the Collections and the Collateral, but onlyto the extent necessary to earn interest (or other compensation, if any) as providedbelow and to be repaid principal to the extent of the Participation.

 

2.2    Therelationship between Lender and Participant under this Agreement is and shallbe that of a seller and purchaser of an undivided fractional interest, not adebtor-creditor relationship. Lender has not guaranteed repayment toParticipant of, nor agreed to repurchase from Participant, any portion of theParticipation at any time. Lender does not assume and shall not have anyliability to Participant for the repayment of monies paid hereunder byParticipant to Lender on account of the purchase of the Participation orinterest thereon (or other compensation, if any). Nothing contained hereinshall confer upon Lender or Participant any interest in, or subject either ofthem to any liability for, or in respect of, the business, assets, profits,losses or liabilities of the other, except only as to the Participation.

 

2.3    Participantshall pay Lender the amount of the Participant Commitment in immediatelyavailable U.S. funds no later than July 26, 2005. An amount equal toeighty percent (80%) of the outstanding Revolving Advances shall constitute thepurchase price for the Participation and belong to Lender and the balance (ifany) of the Participant Commitment shall be deposited by Lender into asegregated non-interest bearing account belonging to Participant (the “LoanFunding Account”) for use by Lender in funding Participant’s share of anyfuture Revolving Advances to be made under the Loan Agreement during theForbearance Period (as defined in the 7/22/05 Forbearance Agreement).Furthermore, Participant shall deposit with Lender (no later than July 26,2005) immediately available U.S. funds in the amount of $800,000.00 (the “CashCollateral”) which will be held in a segregated non-interest bearing accountand serve as additional collateral for repayment of the Obligations owing toLender under the Loan Agreement and the Guaranty. Participant hereby grants toLender a first-priority lien and security interest in the Cash Collateral.Contemporaneously with and only upon Participant’s execution of this Agreementpayment by Participant to Lender of the Participant Commitment and the CashCollateral, Lender will release its Lien on the Collateral that constitutesIntellectual Property Rights. Participant shall pay Lender a fee (the “ServicingFee”) for administering the Loans in an amount equal to one-half of one percent(.5%) of the average daily amount of Revolving Advances outstanding under theLoan Agreement. The Servicing Fee shall be payable monthly (for all or anyportion of a month) upon demand by Lender. Furthermore, Participant shall, uponrequest by Lender, reimburse Lender for all of Lender’s costs and expenses (including attorneys’fees) incurred in relation to the negotiation and documentation of thisAgreement and the transactions contemplated by this Agreement.

 

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2.4    Participant shall be deemed to have purchased its Participationto each Loan on the date such Loan is made, but Participant’s right to receiveits share of any interest paid in respect thereof shall accrue from the dateLender receives immediately available funds from Participant for itsParticipation Percentage in such Loan.

 

2.5    Nothing contained in this Agreement and no action taken by Lenderwith respect to the Loan Agreement or this Agreement shall impair, limit,release, discharge, alter, amend or modify the duties, obligations andliabilities of Participant under the Guaranty.

 

3.                         Administration

 

3.1    The Obligations, the Collateral, and the Collections shall beheld by Lender in Lender’s name, but, to the extent of the Participation, asagent for Participant solely as to Participant’s share of Collections receivedby Lender and subject to Participant’s rights with respect thereto as set forthherein. Except with respect to Participant’s pro rata share of Collectionsactually received and retained by Lender, Lender shall not be an agent ortrustee for Participant in administering or servicing the Financing Agreements,nor with respect to any rights, remedies or benefits thereunder, includingmaking the Loans, providing Letters of Credit, the perfection of securityinterests and other liens in the Collateral, attempts to effect Collections,execution of agreements in connection therewith, or the exercise of any otherrights and remedies of a lender or secured party with respect thereto. Lendershall not be deemed a fiduciary for Participant.

 

3.2    Lender shall have the right to carry out the provisions of theFinancing Agreements with Borrower, and to exercise all rights and privilegesaccruing to it by reason of the provisions thereof, and to enforce its rightsthereunder for the joint benefit of Lender and Participant, according to Lender’sdiscretion and the exercise of its business judgment, in accordance with itsnormal operating procedures. Lender will use normal prudence and judgment inthe servicing of the arrangements of Lender with Borrower and to the carryingout of the terms of the Financing Agreements. Except as otherwise specificallyprovided herein, Lender shall have the right to agree to amendments,modifications, waivers or releases of Borrower, and with respect to anyprovision of the Financing Agreements or any rights of Lender in and to any Collateralor to consent to any action or failure to act by Borrower. Lender shall nothave any liability to Participant with respect to any action taken or omittedby Lender, its employees or agents, in connection with the Financing Agreementsor for any error in judgment, except for its own gross negligence or willfulmisconduct. Lender does not assume, and shall not have, any responsibility orliability, express or implied, for the enforceability or collectability of theFinancing Agreements, the Collateral or the condition of Borrower, financial orotherwise, or the Collateral, or for the accuracy of any credit or otherinformation furnished by or on behalf of Borrower, unless Lender has acted withgross negligence or willful misconduct.

 

3.3    Lender shall transmit to Participant after the end of eachSettlement Period a statement of the account of Borrower with Lendersummarizing the Loans, the status of the

 

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Collateral and the Collections received by Lender during such precedingSettlement Period. The statement of account for such Settlement Period shallstate the net loan balance and Collateral balance with Borrower, and the netamount either due from Lender to Participant or the net amount due from Participantto Lender, as the case may be, and the balance in the Loan Funding Account bothbefore and after the credit or debit, as the case may be, to such Account onaccount of Revolving Advances made or repaid during such Settlement Period. Anysums due from Lender to Participant on account of the net amount of theprincipal amount of Revolving Advances repaid in excess of the principal amountof Revolving Advances made during such Settlement Period shall be paid bycrediting such Account. Any sums due from Participant to Lender on account ofthe net amount of the principal amount of Revolving Advances made in excess ofRevolving Advances repaid during such Settlement Period shall be paid bydebiting such Account. Any sums due from Participant to Lender will be paidwithin five (5) business days of demand made by Lender. In the event thatParticipant fails to purchase and pay for the Participation as requiredpursuant to this Agreement or otherwise defaults in its obligations to Lenderunder this Agreement, Participant shall pay all costs and expenses of everykind incurred by Lender for collection or enforcement of same, includingattorneys’ fees and legal expenses. So long as Participant shall be in defaultof any of its obligations hereunder or under the Guaranty and any amount ofobligations shall be due and owing, Participant shall not be entitled to anypayments pursuant to the settlement provided for in this Section 3.3**or other payments pursuant to Section 4below, or to any right to approve any amendments or waivers as provided herein.Any amounts so withheld from Participant will be applied to the amounts owingby Participant. Lender’s books and records showing the account between Lenderand Borrower and statements of account rendered to Participant shall beconsidered accurate unless objected to by Participant in writing within fifteen(15) days from their date.

 

3.4    Lenderwill deliver to Participant on or about the tenth (10th) day of each calendarmonth, a copy of the monthly statement of account with Borrower for thepreceding calendar month.

 

3.5    In theevent of the liquidation of the Collateral, all costs and expenses ofcollection of the Loans and/or disposition or realization upon the Collateral,including, without limitation, attorneys’ fees and expenses, shall constitute apart of the Loans by Lender to Borrower under this Agreement and shall be borneby Lender and Participant pro rata in accordance with their respectiveinterests in the Loans hereunder. In the event of liquidation, all Collections thereafterreceived shall be applied as follows: (a) first, to the payment in full ofthe expenses of the collection and enforcement of the Obligations and for theprotection, preservation, maintenance or sale, disposition or other realizationupon any of the Collateral, including all reasonable expenses, liabilities andadvances incurred or made by Lender in connection therewith (includingattorneys’ fees and legal expenses); (b) second, to the payment ofinterest, fees and indemnities payable by Borrower under the FinancingAgreements; and (c) third, to the payment in full of all other Obligations(and in the case of Letters of Credit, to be held as cash collateral) in suchamounts, order and manner as Lender may determine.

 

3.6    Lender may(with or without Participant’s consent) modify, alter or amend any provision ofthe Financing Agreements or waive or release any rights against Borrower.Furthermore, Lender may release any Collateral without the consent ofParticipant: (i) upon the termination of the Loan Agreement and paymentand satisfaction in full by Borrower of all

 

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Loans and the delivery of cash collateral in respect of Letters ofCredit, (ii) constituting property being sold or disposed of by Borrowerin connection with any sale or other disposition permitted under the LoanAgreement, (iii) constituting property in which Borrower owned no interestat the time the security interest was granted or at any time thereafter, (iv) constitutingproperty leased to Borrower under a lease which has expired or been terminatedin a transaction permitted under the Loan Agreement or (v) upon the saleor other disposition of any Collateral which in the good faith determination ofLender is not material or otherwise in connection with the liquidation byLender of the Collateral.

 

3.7    Except asotherwise provided in Section 3.8 below, Lender shall not, intentionallyand with actual knowledge, make Revolving Advances to Borrower that would causethe aggregate principal amount of the outstanding Revolving Advances to exceedthe Availability as of the date of such Revolving Advances, without Participant’sconsent, except that:

 

(a)         inthe event Lender obtains actual knowledge that the outstanding RevolvingAdvances exceeds the Availability, Lender shall use all reasonable efforts tomake arrangements with Borrower, acceptable to Lender, intended to eliminatesuch excess amounts within a reasonable time;

 

(b)        Lendermay, from time to time, make Revolving Advances with actual knowledge that suchRevolving Advances will cause the total outstanding Revolving Advances toexceed the Availability at such time by an amount up to ten percent (10%) ofsuch Availability, provided, that, as of the date of the first such RevolvingAdvances, Lender has made arrangements with the Borrower intended to eliminatesuch excess amounts within a reasonable time.

 

3.8    Lendermay, from time to time, at its option, intentionally and with actual knowledge,make Revolving Advances in excess of the Availability at such time by more thanten percent (10%) of such Availability or make Revolving Advances in excess ofthe Maximum Line, but such Revolving Advances shall be for the sole account ofLender, except as Lender and Participant may otherwise agree. Any suchRevolving Advances made by Lender intentionally and with actual knowledge thatcause the total outstanding Revolving Advances to exceed the Availability atsuch time by more than ten percent (10%) or the Maximum Line, as the case maybe, shall be prior in right of payment to all other Revolving Advances, suchthat any Collections shall be applied first to the Revolving Advances whichexceed the Availability and thereafter to the balance of the RevolvingAdvances.

 

3.9    In theevent that at any time, whether before or after the termination of thisAgreement, there shall be any claim, action, suit or proceeding of any kind,arising directly or indirectly out of the financing arrangements between Lenderand Borrower under or in relation to the Financing Agreements or otherwise,including, without limitation, any action brought against Lender by Borrower,or by any other person claiming by, through or under Borrower, to recoverdamages for any act taken or omitted by Lender under the Financing Agreements orin pursuing any rights or remedies of Lender against Borrower, any accountdebtors of Borrower, or for recovery or return of payments or Collateral orproceeds thereof received by Lender, then Participant shall be required to payto Lender its pro rata share of such amount as Lender shall be

 

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required to pay by reason of a judgment, final decree, or other order,entered in connection with any such claim, action, suit or proceeding or byreason of any compromise or settlement agreed to by Lender, including, withoutlimitation, all interest and costs assessed against or incurred by Lender indefending or compromising such action. Lender shall notify Participant of thecommencement against Lender of any such claim, action, suit or proceeding whichLender, in good faith, believes may result in a material judgment againstLender; provided, that, the failure to give such notice shall not entitleParticipant to any greater rights or reduce Participant’s obligations withrespect to such claim, action, suit or proceeding or otherwise than if Lenderdid not herein specifically obligate itself to give such notice to Participant.Participant shall not, under the terms of this Section 3.9 or otherwisehave any obligation or liability to Lender in the case of Lender’s own grossnegligence or willful misconduct.

 

3.10  If Borrowerbecomes subject to a case under the U.S. Bankruptcy Code and if Lender desiresto permit the use of cash collateral or to provide financing to Borrower undereither Section 363 or Section 364 of the U.S. Bankruptcy Code, Lendermay, in its discretion, continue to make Loans and provide Letters of Creditafter the commencement and during the continuation of such case and such Loansand Letters of Credit shall be subject to the Participation and the termshereof. Notwithstanding anything to the contrary contained in Section 3.6hereof, the consent of Participant to any amendments or waivers with respect tothe Financing Agreements in connection therewith shall not be required to theextent such amendments make the terms of the Financing Agreements morefavorable or such amendments or waivers are required as a result of thecommencement of the case of Borrower under the U.S. Bankruptcy Code.

 

4.                         Compensation

 

4.1    Lenderagrees to accrue and account to Participant on or about the tenth (10th) day ofeach calendar month, the interest due Participant in respect of theParticipation during the previous calendar month. Participant shall accrueinterest in respect of the closing daily balances in the Borrower’s loanaccount for each day during the immediately preceding calendar month as suchinterest is earned and actually received by Lender from Borrower pursuant tothe terms of the Financing Agreements, to the extent of the actual amountsfunded in respect thereof by Participant pursuant to the Participation, at arate equal to the interest rate payable to Lender under the terms of theFinancing Agreements and in the event Lender exercises its option to receivethe higher rate of interest provided for in the Loan Agreement after an Eventof Default then at such higher rate. Any amount accrued and payable in respectof interest to Participant hereunder shall bear interest at the Base Rate andshall be calculated and payable monthly in arrears and shall be calculated onthe basis of a three hundred sixty (360) day year based on actual days elapsed.The interest rate shall increase or decrease by an amount equal to eachincrease or decrease in the Base Rate, effective on the effective date of anysuch change. All accrued interest and any other sums owing to Participant willbe paid within five (5) business days following the end of the ForbearancePeriod under the 7/22/05 Forbearance Agreement.

 

4.2    Theinterest earned and due Participant in respect of the Loans as set forth aboveshall be the sole compensation to Participant. Without limiting the foregoing,in no event shall Participant be entitled to any compensation in the form ofany unused line fee, any letter of credit fee, any forbearance fee, anytermination fee, or any other fee paid by Borrower to Lender pursuant to theLoan Agreement.

 

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5.                         CreditDecision: Independent Investigation

 

5.1    Lendermakes no representation or warranty (express or implied) and shall have noresponsibility, as to the validity, value, enforceability or collectability ofthe Participation or the Obligations, the Financing Agreements, or as to thetitle to, validity, priority, value, perfection or sufficiency of theCollateral, or any other guarantees or collateral of any kind, or as to thefinancial condition of Borrower or any account debtors. Participant hasconducted its own independent investigation as to the business and financial conditionof Borrower, and is thoroughly familiar with, and has complete and currentinformation concerning the financial condition and creditworthiness of Borrowerand the Collateral. Participant has, independently and without reliance uponLender and based on such documents and information as it has deemedappropriate, made its own credit analysis and decision to enter into thisAgreement. Participant has not in any way relied on Lender or any of itsemployees in purchasing the Participation. Participant agrees that it will,independently and without reliance upon Lender and based on such documents andinformation as it shall deem appropriate at the time, continue to make its owncredit analysis and decisions with respect to the Participation sold and transferredto it pursuant to this Agreement.

 

5.2    Participantacknowledges that it has received and reviewed or had the opportunity toreceive and review copies of the Financing Agreements and such financial dataor other information concerning Borrower or the Collateral existing on the datehereof as Participant has requested from Borrower or Lender.

 

5.3    Participantacknowledges that Borrower is in material breach and default of its duties andobligations under the Loan Agreement.

 

6.        Miscellaneous.

 

6.1    Successorsand Assigns. This Agreement shall be binding upon the parties hereto andtheir respective successors and assigns and shall inure to the benefit ofparties and their respective successors, participants and assigns. Participantshall not sell, pledge, assign, sub-participate or otherwise transfer itsrights under this Agreement, without the prior written consent of Lender.

 

6.2    Notices.All notices, requests and demands to or upon the respective parties heretoshall be in writing and shall be deemed duly given, made or received: ifdelivered in person, immediately upon delivery; if by telex, telegram orfacsimile transmission, immediately upon sending and upon confirmation ofreceipt; if by nationally recognized overnight courier service with instructionsto deliver the next Banking Day, one (1) Banking Day after sending; and ifmailed by certified mail, return receipt requested, five (5) days aftermailing to the parties at their addresses set forth below (or to such otheraddresses as the parties may designate in accordance with the provisions ofthis Section):

 

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To Lender:     WellsFargo Business Credit, Inc.Attn: Darcy Della Flora100 W. Washington Street, 15th Floor MAC S4101-158 Phoenix, Arizona 85003 Telephone: (602) 378-2469 Telefax: (602) 378-6215with a copy to:John R. Clemency, Esq. Greenberg Traurig, LLP2375 East Camelback Road, Suite 700 Phoenix, Arizona 85016 Telephone: (602) 445-8575 Telefax: (602) 445-8680

 

To Participant:                  Opta Corporation1350 Old Bayshore Highway, Suite 740 Burlingame, California 94010 Attn: Sean Wang, COO Telephone: (949) 475-1880 Telefax: (949) 475-1808

 

with a copy to:

 

John M. IinoReed Smith LLP1901 Avenue of the Stars, Suite 700Los Angeles, CA 90067Telephone: (310) 734-5251Telefax: (310) 734-5299

 

Lender or Participant may change the address to which all notices,requests and other communications are to be sent to it by giving written noticeof such address change to the other party in conformity with this Section 6.2,but such change shall not be effective until notice of such change has beenreceived by the other party.

 

6.3    PaymentReturns. If any payment received by Lender from Borrower and distributed orcredited in whole or in part to Participant is later rescinded or is otherwisereturned by Lender for whatever reason (including, without limitation,settlement of an alleged claim or the voiding of such payment as a preference),Participant, upon demand by Lender, shall immediately pay to Lender the amountreceived by Participant in respect of the amounts so returned. This covenantshall survive the termination of this Agreement.

 

6.4    Other Transactions. Each of Lender and Participantconfirms that it has no loans or financing transactions with Borrower, exceptthose transactions which are the subject of this Agreement and the FinancingAgreements or have been disclosed in writing to the other

 

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party and each agrees not to, enter into any other financingarrangement with Borrower without notifying the other party hereto.

 

6.5    Insolvency.Participant will have no standing with respect to the Participation in anyproceeding under the U.S. Bankruptcy Code, any state insolvency laws or whichotherwise involve Borrower, and no claim, dispute, accounting or other issuepertaining to Participant’s relationship with Lender under this Agreement shallbe heard or disposed of in any such proceeding relating to Borrower.

 

6.6*   *Counterparts. ThisAgreement may be executed in any number of counterparts, each of which shall bean original with the same force and effect as if the signatures thereto andhereto were upon the same instrument.

 

6.7    GoverningLaw. The validity, construction and effect of this Agreement shall begoverned by the internal laws of the State of Arizona (applicable to contractsmade and performed in such State).

 

6.8    Consentto Jurisdiction; Waiver of Jury Trial. Lender and Participant each herebywaive trial by jury to any action or proceeding arising out of or in connectionwith this Agreement and further hereby waive any right of offset or right tointerpose any counterclaim (other than compulsory counterclaims) in any suchaction. Each of the parties hereto expressly submits in advance to the exclusivejurisdiction of the state and federal courts located in Maricopa County,Arizona in any action or proceeding relating to any claim, dispute or othermatter pertaining directly or indirectly to this Agreement.

 

6.9    CompleteAgreement. This written Agreement is intended by the parties as a finalexpression of their agreement and is intended as a complete statement of theterms and conditions of their agreement.

 

6.10  No ThirdParties Benefited. Except as expressly provided in Section 7.1, thisAgreement is solely for the benefit of Lender and Participant and theirrespective successors, participants and assigns, and no other person shall haveany right, benefit, priority or interest under, or because of the existence of,this Agreement.

 

6.11  Certain Noticesto Participant. Notwithstanding any other provision of this Agreement.Lender shall not except**afterthree (3) days’ prior written notice to Participant****(except to the extent that Participantshall consent in writing to a shorter notice period) commence foreclosure orother remedial action against Borrower or any Collateral.

 

7.                         Term

 

7.1    Participantmay not terminate this Agreement.

 

7.2    ThisAgreement shall continue in full force and effect until the earlier of the dateon which (i) Lender has received final payment in full of all of theObligations and cash collateral for any contingent Obligations in amounts andon terms acceptable to Lender, and (ii) Participant has received finalpayment in full of the Participation, together with its share of interest asprovided in this Agreement.

 

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7.3    Terminationof this Agreement (in accordance with this Agreement) shall not affect therespective rights or obligations hereunder incurred prior to the effective dateof such termination including obligations to participate in post-terminationLoans or Letters of Credit in the event of liquidation to the extent providedin this Agreement.

 

7.4    Participantagrees that a default by Participant under this Agreement shall constitute adefault under the Guaranty and a default under the Guaranty shall constitute adefault under this Agreement.

 

7.5    Anyfailure for any reason on the part of Borrower to comply with the terms andconditions of the 7/22/05 Forbearance Agreement between Borrower and Lender,including, without limitation, Borrower’s failure to satisfy, pay and dischargeall of the Obligations upon the expiration of the Forbearance Period (asdefined in the 7/22/05 Forbearance Agreement), shall constitute a default byParticipant under this Agreement.

 

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IN WITNESS WHEREOF, the parties have executed thisAgreement as of the day and year first written above.

 
|   | WELLS  FARGO BUSINESS CREDIT, INC.                                                 |
|--------|------------------------------------------------------------------------------------|
|   |                                                                               |   |
|   | By:                                                                                |   |  |   |
|   | Name:  Darcy Della Flora  Its: Vice President                                      |
|   |                                                                               |   |
|   |                                                                               |   |
|   | OPTA  CORPORATION (formerly known as  LOTUS PACIFIC, INC.), a Delaware corporation |
|   |                                                                               |
|   | By:                                                                                |  |   |
|   | Name:  Sean Wang  Its: COO                                                         |

 

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**Exhibit A**

To Second Amendment toForbearance Agreement

 

**AMENDMENTTOPARTICIPATION AGREEMENT**

 

THIS AMENDMENT TO PARTICIPATION AGREEMENT (“ParticipationAmendment”) dated as of August 25, 2005, is by and between WELLS FARGOBUSINESS CREDIT, a division of Wells Fargo Bank, NA (“Lender”) and OPTACORPORATION (formerly known as LOTUS PACIFIC, INC.), a Delaware corporation (“Participant”).

 

**WITNESSETH:**

 

A.        Lenderhas entered into financing arrangements with Borrower (as defined below)pursuant to which Lender may, upon certain terms and conditions, make securedloans and provide other financial accommodations to Borrower as set forth inthe Credit and Security Agreement dated July 21, 2003, by and betweenLender and Borrower, as amended by the First Amendment to Credit and SecurityAgreement dated December 18, 2003, the Second Amendment to Credit andSecurity Agreement dated February 11, 2004, the Third Amendment to Creditand Security Agreement dated May 20, 2004, and as further amended by the “ForbearanceAgreement” dated November 1, 2004 (the “Forbearance Agreement”),several letter agreements, including the letter agreement (the “3/9/05Letter Agreement”) dated March 9, 2005, the First Amended ForbearanceAgreement (the “7/22/05 Forbearance Agreement”) dated July 22,2005, and the letter agreement (the “7/26/05 Letter Agreement”) dated July 26,2005 (as the same now exists or may hereafter be amended, modified,supplemented, extended, renewed or replaced, collectively, the “LoanAgreement”); and

 

B.         Concurrentlywith the execution and delivery of this Participation Amendment, Borrower andLender are executing and delivering a Second Amended Forbearance Agreement (the“Second Amendment”) for the purpose of increasing the Maximum Line (asdefined in the Loan Agreement) from $4,000,000 to $6,000,000 as requested byBorrower; and

 

C.         Participantacknowledges that Borrower was on July 22, 2005 and continues to be inmaterial breach and default of its duties and obligations under the LoanAgreement; and

 

D.        NotwithstandingBorrower’s breaches and defaults, Participant has acquired from Lender, uponthe terms and conditions set forth in a Participation Agreement dated July 26,2005 (the “Participation Agreement”), an undivided fractional interestin all present and future loans and other financial accommodations provided byLender to Borrower under the Loan Agreement and, to the extent necessary torepay the Participation, an undivided fractional interest in the Collateral;and

 

E.         NotwithstandingBorrower’s breaches and defaults, Participant wishes to increase such undividedfractional interest upon the terms and conditions hereinafter set forth; and

 

F.         Participantacknowledges and confirms its unconditional guaranty of repayment of up to$5,000,000 of the Obligations from Borrower to Lender pursuant to the terms ofthe separate “Guaranty by Corporation” dated as of July 16, 2003, thatParticipant signed and delivered to Lender (the “Guaranty”); and

 

G.         Inaddition to terms defined in this Participation Amendment, capitalized termsused herein shall have the meanings ascribed to them in the ParticipationAgreement.

 

1

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NOW, THEREFORE, in consideration of the premises andthe mutual covenants and promises herein contained, the parties hereto agree asfollows:

 

1.         Amendments.

 

(a)    TheParticipant Commitment is hereby temporarily increased from $3,200,000 to$5,200,000 by restating Section 1.10 of the Participation Agreement toread as follows:

 

1.10   “Participant Commitment” shallmean (i) $5,200,000 for the period from and including August 25, 2005to and including September 30, 2005, at which time the Maximum Line underthe Loan Agreement is reduced to an amount not greater than $4,000,000, and (ii) $3,200,000at all other times.

 

(b)    TheParticipation Percentage is hereby temporarily increased from 80% to 86.66667%by restating Section 1.11 of the Participation Agreement to read asfollows:

 

1.11   “Participation Percentage” shallmean (i) 86.66667% for the period from and including August 25, 2005to and including September 30, 2005, at which time the Maximum Line underthe Loan Agreement is reduced to an amount not greater than $4,000,000, and (ii) 80%at all other times.

 

2.         Purchaseand Sale of Increase in Participation.

 

(a)    Participantshall pay to the Lender $2,000,000, the amount of the increase in theParticipant Commitment, in immediately available U.S. funds no later than August 25,2005. A portion thereof, in the amount of 6.66667% of the Revolving Advancesoutstanding at the opening of business on such date, shall constitute thepurchase price for the increased Participation in such Revolving Advances andbelong to Lender and the balance of such $2,000,000 shall be deposited byLender into the Loan Funding Account (as defined in the ParticipationAgreement) for use by Lender in funding Participant’s share of additionalRevolving Advances to be made under the Loan Agreement, including RevolvingAdvances to be made on August 25, 2005.

 

(b)    On thefirst date on which the Maximum Line under the Loan Agreement is reduced to anamount not greater than $4,000,000 and the amount of Revolving Advancesoutstanding is not greater than $4,000,000 Lender shall pay to Participant$2,000,000 in immediately available funds from the Loan Funding Account. To theextent necessary, Lender will pay Participant from Lender’s own funds an amountequal to 6.66667% of the then outstanding Revolving Advances to reconcile thereturn of the Participation Interest to 80% of the Loans.

 

3.         Counterparts.This Agreement may be executed in any number of counterparts, each of whichshall be an original with the same force and effect as if the signaturesthereto and hereto were upon the same instrument.

 

4.         GoverningLaw. The validity, construction and effect of this Agreement shall begoverned by the internal laws of the State of Arizona (applicable to contractsmade and performed in such State).

 

5.         SecondAmended Forbearance Agreement. Participant hereby acknowledges receipt of acopy of the Second Amendment and consents to the terms thereof.

 

2

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6.         ContinuedEffect of Participation Agreement. Except as otherwise provided herein, allterms of the Participation Agreement shall remain in full force and effect.

 

IN WITNESS WHEREOF, the parties have executed thisParticipation Amendment as of the day and year first written above.

 
|   | WELLS FARGO BUSINESS CREDIT, a  division of Wells Fargo Bank, NA                   |
|--------|------------------------------------------------------------------------------------|
|   |                                                                               |
|   | By:                                                                                |   |  |
|   | Name: Darcy Della Flora                                                            |
|   | Its: Vice President                                                                |
|   |                                                                               |   |
|   |                                                                               |   |
|   | OPTA CORPORATION (formerly known as  LOTUS PACIFIC, INC.), a Delaware  corporation |
|   |                                                                               |   |
|   | By:                                                                                |  |
|   | Name: Sean Wang                                                                    |
|   | Its: COO                                                                           |

 

3

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**Exhibit A**To Third Amendment toForbearance Agreement

 

**SECOND AMENDMENTTOPARTICIPATION AGREEMENT**

 

THIS SECOND AMENDMENT TOPARTICIPATION AGREEMENT (“Second Participation Amendment”) dated as of October 13,2005, is by and between WELLS FARGO BUSINESS CREDIT, a division of Wells FargoBank, NA (“Lender”) and OPTA CORPORATION (formerly known as LOTUS PACIFIC,INC.), a Delaware corporation (“Participant”).

 

**WITNESSETH:**

 

A.        Lender has entered into financing arrangements with Borrower(as defined below) pursuant to which Lender may, upon certain terms andconditions, make secured loans and provide other financial accommodations toBorrower as set forth in the Credit and Security Agreement dated July 21,2003, by and between Lender and Borrower, as amended by the First Amendment toCredit and Security Agreement dated December 18, 2003, the Second Amendmentto Credit and Security Agreement dated February 11, 2004, the ThirdAmendment to Credit and Security Agreement dated May 20, 2004, and asfurther amended by the “Forbearance Agreement” dated November 1, 2004 (the“Forbearance Agreement”), several letter agreements, including theletter agreement (the “3/9/05 Letter Agreement”) dated March 9,2005, the First Amended Forbearance Agreement (the “7/22/05 ForbearanceAgreement”) dated July 22, 2005, the letter agreement (the “7/26/05Letter Agreement”) dated July 26, 2005, and the Second AmendedForbearance Agreement (the “8/25/05 Forbearance Agreement”) dated August 25,2005 (as the same now exists or may hereafter be amended, modified,supplemented, extended, renewed or replaced, collectively, the “Loan Agreement”);and

 

B.         Concurrently with the execution and delivery of this SecondParticipation Amendment, Borrower and Lender are executing and delivering aThird Amended Forbearance Agreement (the “Third Amendment”) for thepurpose of providing Borrower additional accommodations, including (among otherthings) an extension of the Forbearance Period and the provision of $2,000,000in Overline Advances under the Credit Facility as provided in the ThirdAmendment; and

 

C.         Participant acknowledges that Borrower was on July 22,2005 and continues to be in material breach and default of its duties andobligations under the Loan Agreement; and

 

D.        Notwithstanding Borrower’s breaches and defaults, Participanthas acquired from Lender, upon the terms and conditions set forth in aParticipation Agreement dated July 26, 2005 (the “ParticipationAgreement”), an undivided fractional interest in all present and futureloans and other financial accommodations provided by Lender to Borrower underthe Loan Agreement and, to the extent necessary to repay the Participation, anundivided fractional interest in the Collateral; and

 

E.         Notwithstanding Borrower’s breaches and defaults,Participant wishes to increase its Participation Commitment to include theOverline Advances upon the terms and conditions hereinafter set forth; and

 

F.         Participant acknowledges and confirms its unconditionalguaranty of repayment of up to $5,000,000 of the Obligations from Borrower toLender pursuant to the terms of the

 

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separate “Guaranty by Corporation” dated asof July 16, 2003, that Participant signed and delivered to Lender (the “Guaranty”);and

 

G.         In addition to terms defined in this ParticipationAmendment, capitalized terms used herein shall have the meanings ascribed tothem in the Participation Agreement and in the Third Amendment.

 

NOW, THEREFORE, inconsideration of the premises and the mutual covenants and promises hereincontained, the parties hereto agree as follows:

 

1.         Amendments.(a)  The Participation Commitment is hereby amended by restating Section 1.10of the ParticipationAgreement to provide as follows:

 

1.10          “Participation Commitment” shall mean (i) $3,200,000with respect to Revolving Advances that are not Overline Advances; and**(ii) $2,000,000 with respect to Overline Advances.

 

(b)            The Participation Percentage is hereby amended byrestating Section 1.11 of the Participation Agreement to provide asfollows:

 

1.11          “Participation Percentage” shall mean (i) 80% withrespect to Revolving Advances that are not Overline Advances; and (ii) 100%with respect to Overline Advances.

 

2.         Purchase and Sale of Participation in Overline Advances.On deposit in the Loan Funding Account is $2,000,000 that is available forreturn to Participant under the terms of the “Amendment to ParticipationAgreement” dated as of August 25, 2005 (the “$2MM LFA Funds”). In lieuof obtaining a return of the $2MM LFA Funds, Participant will keep the $2MM LFAFunds on deposit in the Loan Funding Account for use in acquiring and fundingthe Overline Advances. Lender will make Overline Advances only to the extentthat the $2MM LFA Funds remain in the Loan Funding Account. Servicing Fee.The Servicing Fee owed to Lender will be assessed against Overline Advancesmade under the Credit Facility in accordance with the Third Amendment.

 

4.         Counterparts. This Agreement may be executed in anynumber of counterparts, each of which shall be an original with the same forceand effect as if the signatures thereto and hereto were upon the sameinstrument. Governing Law. The validity, construction and effect of thisAgreement shall be governed by the internal laws of the State of Arizona(applicable to contracts made and performed in such State). Third AmendedForbearance Agreement. Participant hereby acknowledges receipt of a copy ofthe Third Amendment and consents to the terms thereof. Continued Effect ofParticipation Agreement. Except as otherwise provided herein, all terms ofthe Participation Agreement shall remain in full force and effect. IN WITNESSWHEREOF, the parties have executed this Participation Amendment as of the dayand year first written above.

 

2

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|                       | WELLS FARGO BUSINESS CREDIT, a  division of Wells Fargo Bank, NA                   |
|----------------------------|------------------------------------------------------------------------------------|
|                       |                                                                               |
|                       | By:                                                                                |   |  |
|                       | Name: Darcy Della Flora                                                            |
|                       | Its: Vice President                                                                |
|                       |                                                                               |   |
|                       |                                                                               |   |
|                       | OPTA CORPORATION (formerly known as  LOTUS PACIFIC, INC.), a Delaware  corporation |
|                       |                                                                               |   |
|                       | By:                                                                                |   |  |
|                       | Name:                                                                              | Tom  Gong |
|                       | Its:                                                                               | CFO &  Controller |
|                       |                                                                               |
|                       |                                                                               |
| AGREED AND ACCEPTED this   |                                                                               |
| 13th day of October, 2005: |                                                                               |
|                       |                                                                               |
| OPTA SYSTEMS, LLC          |                                                                               |
|                       |                                                                               |
| By:                        |                                                                                    |   |   |
| Name:                      | Chris  Porter                                                                      |   |   |
| Its:                       | Senior  Vice President                                                             |   |   |
|                            |                                                                                    |  |  |  |  |  |  |  |  |  |

 

3

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**Opta Corporation**

1350 Old Bayshore Highway, Suite 600,Burlingame, CA 94010

Tel. (650) 579-3610·Fax (650) 579-3606

 

 

December 22, 2005

 

Wells Fargo Business Credit, a

Division of Wells Fargo Bank, NA

Attn:  Darcy Della Flora

100 W. Washington Street, 15th Floor

MAC S4101-158

Phoenix, Arizona  85003

 

Ladies and Gentlemen:

 

Reference is hereby made to: (i) the “Third Amended ForbearanceAgreement” (the “Agreement”), effective as of October 13, 2005 (the “ThirdForbearance Agreement”), by and between Wells Fargo Business Credit, a divisionof Wells Fargo Bank, NA (“Lender”) and Opta Systems, LLC (“Borrower”); and (ii) the“Second Amendment To Participation Agreement” dated as of October 13,2005 (the “Second Amended Participation Agreement”) between Lender and OptaCorporation (formerly known as Lotus Pacific, Inc., “Participant” or “Guarantor”).  Unless otherwise indicated, capitalized termsused in this Letter Agreement will correspond to the capitalized terms used inthe Third Forbearance Agreement and in the Second Amended ParticipationAgreement.  Through their execution ofthe attached Consent, the Guarantor and Subordinated Creditors agree to theamendments of the Third Amended Forbearance Agreement and the Second AmendedParticipation Agreement that are outlined below.

 

Borrower and Participant understand that Lender is willing to agree toamend the Third Amended Forbearance Agreement and the Second AmendedParticipation Agreement as follows:

 

1.             The amount of theOverline Advances under the §2(b) of the Third Amended ForbearanceAgreement is increased from $2,000,000 to $2,400,000.

 

2.             The amount of theParticipation Commitment under §1(a) of the Second Amended ParticipationAgreement (and §1.10 of the Participation Agreement) related to OverlineAdvances is increased from $2,000,000 to $2,400,000.

 

3.             Participant willdeposit into the Loan Funding Account funds necessary to for the increasedamount of the Overline Advances under the Third Amended Forbearance Agreementand the Second Amended Participation Agreement (as amended by this LetterAgreement).

 

All other terms and conditions of the Third Amended ForbearanceAgreement and the Second Amended Participation Agreement remain in full forceand effect.  Please provide in the spacebelow the signature of a duly authorized representative of Lender to indicateLender’s agreement and consent to the above-referenced amendments to the ThirdAmended Forbearance Agreement

 

----

 

and the Second Amended Participation Agreement.

 
|                        |                                                                                    |             | Sincerely, |   |
|-----------------------------|-----------------------------------------------------------------------------------------|------------------|------------|--------|
|                        |                                                                                    |
|                        | OPTA SYSTEMS, LLC                                                                       |
|                        |                                                                                    |
|                        | By:                                                                                     | /s/ Chris Porter |       |
|                        | Its:   Senior Vice President                                                  |
|                        |                                                                                    |
|                        |                                                                                    |
|                        | OPTA CORPORATION (formerly known  as Lotus Pacific, Inc.), a Delaware  corporation |
|                        |                                                                                    |
|                        | By:                                                                                     | /s/Tom Gong      |       |
|                        | Title:    Controller                                                          |
|                        |                                                                                    |
| Agreed and consented to:    |                                                                                    |
|                        |                                                                                    |
| WELLS FARGO BUSINESS CREDIT |                                                                                    |
|                        |                                                                                    |
|                        |                                                                                    |
| By:                         | /s/ Darcy Della Flora                                                                   |             |       |
| Its:  Vice President   |                                                                                    |
|                             |                                                                                         |                  |            |        |  |  |  |  |  |  |  |

 

2

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**CONSENT AND AGREEMENT OF GUARANTOR AND SUBORDINATEDCREDITORS**

 

With respect to the “Letter Agreement”dated as of December 16, 2005 (the “Agreement”) between:  (i) Wells Fargo Business Credit, adivision of Wells Fargo Bank, NA and (ii) OPTA SYSTEMS, LLC., theundersigned agree for the benefit of Lender as follows:

 

# 1.             Unless otherwise indicated,capitalized terms used in this Consent and Agreement of Guarantor andSubordinated Creditors (“Consent”) will correspond to the capitalized termsused in the Agreement, the Third Amended Forbearance Agreement, and the SecondAmended Participation Agreement. Guarantor and Subordinated Creditors acknowledge: (i) receiving acopy of and reading the Agreement, and (ii) the continuing effectivenessof the Guaranty and the Subordination Agreements to which they are parties, andany other agreements, documents, or instruments securing or otherwise relatingto the Guaranty and Subordination Agreements previously executed and deliveredby the undersigned to Lender.

#  

# 2.             Guarantor and SubordinatedCreditors consent to the modification of the Loan Documents and all othermatters in the Agreement.

#  

# 3.             Guarantor and SubordinatedCreditors agree that all references, if any, to the Obligations, the CreditAgreement, the Collateral, and the Loan Documents in the Guaranty and theSubordination Agreements shall be deemed to refer to such agreements,documents, and instruments as modified by the Agreement.

#  

# 4.             Guarantor and SubordinatedCreditors reaffirm their obligations to Lender under the SubordinationAgreements and Guaranty (as modified by the Agreement), and agree that theGuaranty and Subordination Agreements shall continue in full force and effectand remain unchanged, except as specifically modified by the Agreement.

#  

# 5.             Guarantor and SubordinatedCreditors acknowledge and confirm that they have no claims, counterclaims,defenses, offsets, or adverse claims of any kind with respect to theenforcement of Lender’s rights and remedies against Borrower and againstGuarantor under the Guaranty and the other Loan Documents and against theSubordinated Creditors under the Subordination Agreements.

#  

IN WITNESS WHEREOF, Guarantor andSubordinated Creditors have executed this Consent.

 

3

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| DATED as of the 21st day of December, 2005. | OPTA CORPORATION (formerly known as  LOTUS PACIFIC, INC.), a Delaware  corporation |
|---------------------------------------------|------------------------------------------------------------------------------------|
|                                        |                                                                               |
|                                        |                                                                               |
|                                        | By:                                                                                | /s/ Sean Wang |   |
|                                        | Its: COO                                                                           |
|                                        |                                                                               |
|                                        | **GUARANTOR**                                                                      |
|                                        |                                                                               |
|                                        |                                                                               |
| DATED as of the 21st day of December, 2005. | T.C.L. MULTIMEDIA TECHNOLOGY  HOLDINGS LIMITED                                     |
|                                        |                                                                               |
|                                        |                                                                               |
|                                        | By:                                                                                | /s/ Yuan Bing |   |
|                                        | Its: Vice General Manager                                                          |
|                                        |                                                                               |
|                                        | **SUBORDINATED CREDITOR**                                                          |
|                                        |                                                                               |
|                                        |                                                                               |
| DATED as of the 21st day of December, 2005. | OPTA CORPORATION (formerly known as  LOTUS PACIFIC, INC.)                          |
|                                        |                                                                               |
|                                        |                                                                               |
|                                        | By:                                                                                | /s/ Sean Wang |   |
|                                        | Its: COO                                                                           |
|                                        |                                                                               |
|                                        | **SUBORDINATED CREDITOR**                                                          |

 

4

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