Exhibit 10.2

	

 

 

 

 

 

 

LOAN AND SECURITY AGREEMENT

between

THERMA-WAVE, INC.,

as Borrower

and

SILICON VALLEY BANK,

as Lender

 

 

 

 

 

 

	

TABLE OF CONTENTS

	Page
1.	ACCOUNTING AND OTHER TERMS.	*
2.	LOAN AND TERMS OF PAYMENT	*

2.1	Credit Extensions.	*

2.2	Overadvances.	*

2.3	Interest Rate, Payments.	*

2.4	Fees.	*

3.	CONDITIONS OF LOANS	*

3.1	Conditions Precedent to Initial CreditExtension.	*

3.2	Conditions Precedent to all Credit Extensions.	*

4.	CREATION OF SECURITY INTEREST	*

4.1	Grant of Security Interest.	*

5.	REPRESENTATIONS AND WARRANTIES	*

5.1	Due Organization and Authorization.	*

5.2	Collateral.	*

5.3	Litigation.	*

5.4	No Material Adverse Change in FinancialStatements.	*

5.5	Solvency.	*

5.6	Regulatory Compliance.	*

5.7	Subsidiaries.	*

5.8	Full Disclosure.	*

6.	AFFIRMATIVE COVENANTS	*

6.1	Government Compliance.	*

6.2	Financial Statements, Reports, Certificates.	*

6.3	Inventory; Returns.	*

6.4	Taxes.	*

6.5	Insurance.	*

6.6	Primary and Investment Accounts.	*

6.7	Financial Covenants.	*

6.8	Registration of Intellectual Property Rights.	*

6.9	Control Agreements.	*

6.10	Further Assurances.	*

6.11	Exim Insurance.	*

6.12	Borrower Agreement.	*

6.13	Terms of Sale.	*

7.	NEGATIVE COVENANTS	*

7.1	Dispositions.	*

7.2	Changes in Business, Ownership, Management or BusinessLocations.	*

7.3	Mergers or Acquisitions.	*

7.4	Indebtedness.	*

7.5	Encumbrance.	*

7.6	Distributions; Investments.	*

7.7	Transactions with Affiliates.	*

7.8	Subordinated Debt.	*

7.9	Compliance.	*

7.10	Borrower Agreement and Exim Guarantee.	*

8.	EVENTS OF DEFAULT	*

8.1	Payment Default.	*

8.2	Covenant Default.	*

8.3	Material Adverse Change.	*

8.4	Attachment.	*

8.5	Insolvency.	*

8.6	Other Agreements.	*

8.7	Judgments.	*

8.8	Misrepresentations.	*

8.9	Guaranty.	*

8.10	Borrower Agreement Default .	*

8.11	Exim Guarantee .	*

9.	BANK'S RIGHTS AND REMEDIES	*

9.1	Rights and Remedies.	*

9.2	Power of Attorney.	*

9.3	Accounts Collection.	*

9.4	Bank Expenses.	*

9.5	Bank's Liability for Collateral.	*

9.6	Remedies Cumulative.	*

9.7	Demand Waiver.	*

9.8	Exim Direction.	*

9.9	Exim Notification.	*

10.	NOTICES	*

11.	CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER	*

12.	GENERAL PROVISIONS	*

12.1	Successors and Assigns.	*

12.2	Indemnification.	*

12.3	Time of Essence.	*

12.4	Severability of Provision.	*

12.5	Amendments in Writing, Integration.	*

12.6	Counterparts.	*

12.7	Survival.	*

12.8	Confidentiality.	*

12.9	Attorneys' Fees, Costs and Expenses.	*

13.	DEFINITIONS	*

13.1	Definitions.	*

**This LOAN AND SECURITY AGREEMENTdated June 13, 2003, between SILICON VALLEY BANK ("Bank"), whoseaddress is 3003 Tasman Drive, Santa Clara, California 95054 and THERMA-WAVE,INC., a Delaware corporation ("Borrower"), whose address is1250 Reliance Way, Fremont, California  94539 provides the terms on whichBank will lend to Borrower and Borrower will repay Bank. The parties agree asfollows:
ACCOUNTING AND OTHER TERMS.
Accounting terms not defined in this Agreement will beconstrued following GAAP. Calculations and determinations must be made followingGAAP.  The term "financial statements" includes the notes andschedules.  The terms "including" and "includes" always mean"including (or includes) without limitation," in this or any LoanDocument.
**LOAN AND TERMS OF PAYMENTCreditExtensions.

Borrower will pay Bank the unpaid principal amount of allCredit Extensions and interest on the unpaid principal amount of the CreditExtensions.

RevolvingAdvances.

Bank will make Advances under the Committed RevolvingLine as follows:

(1) 	Advances under the Domestic Committed Line not toexceed (X) the lesser of (A) the Domestic Committed Line minusthe sum of (x) the aggregate amounts deemed outstanding under the CashManagement Services sublimit described in Section 2.1.4,plus, (y) the amount of all outstanding Letters of Credit (includingsuch drawn but unreimbursed Letters of Credit) booked under the DomesticCommitted Line, plus (z) the FX Reserve (arising from FX ForwardContracts booked under the Domestic Committed Line), or (B)** **theDomestic Borrowing Base minus the sum of (x) the aggregate amountsdeemed outstanding under the Cash Management Services sublimit described inSection 2.1.4,plus, (y) the amount of all outstandingdomestic Letters of Credit (including such drawn but unreimbursed Letters ofCredit) booked under the Domestic Committed Line and (z) the FX Reserve(arising from FX Forward Contracts booked under the Domestic Committed Line);and  
(2)	Advances under the Exim Committed Line not to exceed(X) the lesser of (A) the Exim Committed Line minus the sum of (x) the FXReserve (arising from FX Forward Contracts booked under the Exim CommittedLine), plus, (y) the amount of all outstanding export related Letters ofCredit (including such drawn but unreimbursed Letters of Credit) booked underthe Exim Committed Line, plus, (z) the Domestic Standby Letter ofCredit Reserve or (B) the Exim Borrowing Base minus the sum of (x) the FXReserve (arising from FX Forward Contracts under the Exim Committed Line),plus, (y) the amount of all outstanding export related Letters of Credit(including such drawn but unreimbursed Letters of Credit) booked under the EximCommitted Line, plus, (z) the Domestic Standby Letter of CreditReserve.  The sum of subparagraphs (x) and (y) are sometimes referred to hereinas the "Exim Soft Advances".   
Amounts borrowed under this Section may be repaid andreborrowed during the term of this Agreement.
To obtain an Advance, Borrower must notify Bank byfacsimile or telephone by 12:00 noon Pacific time on the Business Day theAdvance is to be made.  Borrower must promptly confirm the notification bydelivering to Bank the Payment/Advance Form attached as Exhibit B andsubmit copies of Export Orders in connection with any Exim Advance.  Bank willcredit Advances to Borrower's deposit account.  Bank may make Advances underthis Agreement based on instructions from a Responsible Officer or his or herdesignee or without instructions if the Advances are necessary to meetObligations which have become due.  Bank may rely on any telephone notice givenby a person whom Bank believes is a Responsible Officer or designee. Borrowerwill indemnify Bank for any loss Bank suffers due to such reliance, unless suchloss is the result of Bank's gross negligence or willful misconduct.

The Committed Revolving Line terminates on the RevolvingMaturity Date, when all Advances are immediately payable.

Letters of Credit Sublimit.Bank will issue or have issued letters of credit (the"Letters of Credit") as follows: 

(1) 	Letters of Credit booked under the Domestic CommittedLine for Borrower's account not exceeding the lesser of:  (i) $5,000,000and (ii) Availability under the Domestic Committed Line;
(2)  	export related Letters of Credit booked under theExim Committed Line for Borrower's account not exceed the lesser of (i)$10,000,000 and (ii) Availability under the Exim Committed Line; and 
(3)	Excess Standby Letters of Credit.
Each Letter of Credit will have an expiry date of nolater than ninety (90) days after the Revolving Maturity Date, but Borrower'sreimbursement obligation will be secured by cash on terms acceptable to Bank(provided that Bank agrees that cash equal to 105% of the outstanding letter ofcredit shall be deemed acceptable) at any time after the Revolving Maturity Dateif the term of this Agreement is not extended by Bank.
  Borrower agrees toexecute any further documentation in connection with the Letters of Credit asBank may reasonably request.

Foreign ExchangeSublimit.
Subject to the limits set forth below in thisSection 2.1.3, Borrower may enter into foreign exchange forward contractswith the Bank under which Borrower commits to purchase from or sell to Bank aset amount of foreign currency more than one business day after the contractdate (the "FX Forward Contract") (the amount equal to 10% of theaggregate outstanding FX Forward Contracts is hereinafter referred to as the"FX Reserve").  The FX Reserve may not exceed the lesser of:(i) $15,000,000 and (ii) Availability under the Domestic CommittedLine and the Exim Committed Line.  The total FX Forward Contracts at any onetime may not exceed the amount calculated as 10 multiplied by theFX Reserve.  Bank may terminate the FX Forward Contracts if an Event ofDefault occurs and is continuing.
**Cash ManagementServices Sublimit.
Borrower may utilize Bank's Cash Management Services up to anamount equal to the lesser of: (i) $5,000,000 and (ii) Availabilityunder the Domestic Committed Line ("Cash Management ServicesSublimit").  Such services may include merchant services, direct deposit ofpayroll, business credit card, and check cashing services identified in variouscash management services agreements related to such services (the "CashManagement Services").  The aggregate amount of the credit limits under allsuch agreements with respect to the Cash Management Services shall be deemed tobe the amount of the Cash Management Services for the purposes of calculatingthe Cash Management Services Sublimit.  Bank will advise Borrower of anyamounts that would affect the Cash Management Services Sublimit.

Overadvances.

If Borrower's Obligations under Section 2.1 at any timeexceed: (i) the Committed Line (ii) the lesser of  (a) the Domestic CommittedLine, and (b) the Domestic Borrowing Base, or (iii) the lesser of (a) the EximCommitted Line, and (b) the Exim Borrowing Base; Borrower must immediately payBank the excess.

Interest Rate,Payments.

Interest Rate.  (i)Advances under the Domestic Committed Line accrue interest on the outstandingprincipal balance at a per annum rate of 150 basis points(1.50 percentage points) above the Prime Rate; and (ii) Advances underthe Exim Committed Line accrue interest on the outstanding principal balance ata per annum rate of 175 basis points (1.75 percentage points) above thePrime Rate.  While an Event of Default exists, Obligations accrue interest at 4percent above the rate effective immediately before the Event of Default. Theinterest rate increases or decreases when the Prime Rate changes.  Interest iscomputed on a 360 day year for the actual number of days elapsed.

Payments.  Interest due on the Domestic Committed Line ispayable on the first day of each month.  Interest due on the Exim Committed Lineis payable on the 11
th
 of each month. Bank may debit Borrower'sdeposit Account Number ____________________________ for principal and interestpayments owing or any amounts Borrower owes Bank, when due.  Bank will promptlynotify Borrower when it debits Borrower's accounts.  These debits are not a set-off.  Payments received after 12:00 noon Pacific time are considered received atthe opening of business on the next Business Day.  When a payment is due on aday that is not a Business Day, the payment is due the next Business Day andadditional fees or interest accrue.

Fees.

Borrower will pay:

Closing Fee.  A closing fee in the amount of $200,000 tobe fully earned and payable on the Closing Date.

Bank Expenses. All Bank Expenses (including reasonableattorneys' fees and reasonable expenses) incurred through and after the date ofthis Agreement, are payable when due.

Exim Bank Expenses.  On the Closing Date, Exim BankExpenses incurred through the date hereof. 

2.5	Use of Exim Advance Proceeds.

	Borrower will use the proceeds of the Exim Advances onlyfor the purposes specified in the Borrower Agreement.  Borrower will not use theproceeds of the Exim Advances for any purpose prohibited by the BorrowerAgreement.

CONDITIONS OF LOANSConditionsPrecedent to Initial Credit Extension.

Bank's obligation to make the initial Credit Extension issubject to the conditions precedent that it receive the following:
a fully executed copy of this Agreement;

a fully executed copy of the Borrower Agreement;

an intellectual property security agreement whichconfirms the grant to Bank of a security interest in the IntellectualProperty;

subordination agreements from all officers, directors,and Affiliates of Borrower wherein the obligations for borrowed money owing byBorrower to such parties are subordinated in favor of Borrower's obligationsowing to Bank;

borrowing resolutions;

receipt by Bank of the Closing Fee;

receipt by Bank of Borrower's insurance certificatestogether with a lender's loss payable endorsement reflecting Bank as a lender'sloss payee;

receipt by Bank of the results of UCC searches or otherevidence satisfactory to Bank (in each case dated as of a date reasonablysatisfactory to Bank) indicating the absence of liens on the assets of Borrower,except for Permitted Liens;

Bank shall have filed all such UCC financing statementsas Bank deems appropriate and shall have received UCC searches to reflect Bank'sfirst priority security interest subject only to Permitted Liens; providedhowever, this Section 3.1(i) shall not be a condition precedent to issuance ofletters of credit to replace those existing letters of credit, described onExhibit 3.1(i), outstanding on the Closing Date; provided further however, thatan Event of Default shall occur if all actions contemplated by this Section3.1(i) are not completed prior to September 1, 2003; 

Receipt by Bank of evidence of termination orauthorization to terminate the following UCC-1 financing statements:(i) No. 23271198, filed with the Secretary of State of Delaware andreflecting Comerica Bank-California as secured party and(ii) No. 0115660410, filed with the Secretary of State of Californiaand reflecting Comerica Bank-California as secured party; 

Bank's completion of an audit of Borrower's Collateral,with results satisfactory to Bank, at Borrower's expense; provided however, thisSection 3.1(j) shall not be a condition precedent to issuance of letters ofcredit to replace those existing letters of credit, described on Exhibit 3.1(i),outstanding on the Closing Date; provided further however, that an Event ofDefault shall occur if all actions contemplated by this Section 3.1(j) are notcompleted prior to September 1, 2003; and

Receipt by Bank of all other agreements, documents andfees that Bank may reasonably require in its good faith credit judgment inconnection with the transactions contemplated hereunder.

Conditions Precedent to all CreditExtensions.

Bank's obligations to make each Credit Extension, includingthe initial Credit Extension, is subject to the following:
timely receipt of any Payment/Advance Form; 

the representations and warranties in Section 5 mustbe materially true on the date of the Payment/Advance Form and on the effectivedate of each Credit Extension (except to the extent that they relate to anearlier date, in which case such representations and warranties shall continueto have been materially true as of such date) and no Event of Default may haveoccurred and be continuing, or result from the Credit Extension. Each CreditExtension is Borrower's representation and warranty on that date that therepresentations and warranties of Section 5 remain materially true (exceptto the extent that they relate to an earlier date, in which case suchrepresentations and warranties shall continue to have been materially true as ofsuch date);

receipt of the reports and certificates set forth inSection 6.2 required prior to each and every Credit Extension, including copiesof Export Orders in connection with any Exim Advance; and

the Exim Guarantee will be in full force andeffect.

CREATION OF SECURITY INTEREST
Grant of SecurityInterest.

Borrower grants Bank a continuing security interest in allpresently existing and later acquired Collateral to secure all Obligations andperformance of each of Borrower's duties under the Loan Documents.  Except forPermitted Liens, and except with respect to property located outside the UnitedStates, the security interest granted will be a first priority security interestin the Collateral.  If this Agreement is terminated, Bank's lien and securityinterest in the Collateral will continue until Borrower fully satisfies itsObligations arising hereunder (other than contingent indemnification obligationswith respect to unasserted claims), at which time Bank will release its Liens inthe Collateral and all rights therein will revert to Borrower.  Bank agrees toexecute and deliver to Borrower from time to time such Collateral releases asBorrower may request and as are necessary to give other lenders of lessors thatfinance the purchase of Equipment and related software after the date hereof afirst priority Lien in such Equipment and related software so long as the Liensand Indebtedness incurred with respect thereto are permitted under thisAgreement.

Notwithstanding the foregoing, the security interest grantedherein does not extend to and the term "Collateral" does not include:(A) Equipment and related software subject to the Permitted Liens of lenders orlessors providing financing for the acquisition of such property; (B)  anylicense or contract rights or any other property to the extent (i) the grantingof a security interest in it would be contrary to applicable law, or (ii) thatsuch rights are nonassignable by their terms (but only to the extent theprohibition is enforceable under applicable law, including, without limitation,Section 9406(d) of the Code) without the consent of the licensor or other party(but only to the extent such consent has not been obtained); and (C) more than65% of the presently existing and hereafter arising issued and outstandingshares of capital stock owned by Borrower of any foreign subsidiary which sharesentitle the holder thereof to vote for directors or any other matter.

REPRESENTATIONS ANDWARRANTIES
Except as set forth on the attached Schedule, Borrowerrepresents and warrants as follows:
DueOrganization and Authorization.

Borrower and each Subsidiary is duly existing and in goodstanding in its respective jurisdiction of formation and qualified and licensedto do business in, and in good standing in, any jurisdiction in which theconduct of its business or its ownership of property requires that it bequalified, except where the failure to do so could not reasonably be expected tocause a Material Adverse Change.
The execution, delivery and performance of the Loan Documentshave been duly authorized, and do not conflict with Borrower's formationdocuments, nor constitute an event of default under any material agreement bywhich Borrower is bound.  Borrower is not in default under any agreement towhich it is a party or by which it is bound in which the default couldreasonably be expected to cause a Material Adverse Change.
Collateral.

Borrower has good title to the Collateral, free of Liensexcept Permitted Liens.  

The Accounts designated as eligible accounts (EligibleAccounts, Eligible Retainage Accounts, Exim Eligible Foreign Accounts and EximEligible Foreign Retainage Accounts) in any borrowing base certificate, or otherreport submitted to Bank, are bona fide, existing obligations and the service orproperty has been performed or delivered to the account debtor or its agent(subject only to installation and warranty obligations arising in the ordinarycourse of Borrower's business), for immediate shipment to and unconditionalacceptance by the account debtor (except in the case of Retainage Accounts wherecustomary acceptance terms in the ordinary course of business shall apply).Borrower has no notice of any actual or imminent Insolvency Proceeding of anyaccount debtor whose accounts are an eligible account in any borrowing basecertificate.  

All Inventory designated as eligible inventory (EximEligible Foreign Inventory) in any borrowing base certificate, or other reportsubmitted to Borrower, is in all material respects of good and marketablequality, free from material defects, except for Inventory for which adequatereserves have been made in accordance with GAAP, which reserves have been, andat all times will be, disclosed to Bank in Borrower's borrowing basecertificates.   

Borrower is the sole owner of the Intellectual Property,except for: (i) non-exclusive licenses granted to others in the ordinary courseof business, and (ii) joint ownership rights and licensing and cross-licensingagreements with respect to Intellectual Property entered into from time to timein connection with strategic relationships and development agreements, approvedby Borrower's senior management, provided that such joint ownership rights,licenses and cross-licenses do not materially adversely impact Borrower'sability to conduct its business or the value of the Collateral.  To the best ofBorrower's knowledge and except as reported to Bank in writing, each of thePatents in which Borrower has an interest is valid and enforceable and no partof the Intellectual Property in which Borrower has an interest has been judgedinvalid or unenforceable, in whole or in part, and no claim has been made thatany part of the Intellectual Property in which Borrower has an interest violatesthe rights of any third party, except to the extent such invalidity,unenforceability or claim could not reasonably be expected to cause a MaterialAdverse Change.  

Litigation.

Except as shown in the Schedule and except as reported toBank in writing, there are no actions or proceedings pending or, to theknowledge of Borrower's Responsible Officers, threatened by or against Borroweror any Subsidiary  in which a likely adverse decision could reasonably beexpected to cause a Material Adverse Change.
NoMaterial Adverse Change in Financial Statements.

All consolidated financial statements for Borrower, and anySubsidiary, delivered to Bank fairly present in all material respects Borrower'sconsolidated financial condition and Borrower's consolidated results ofoperations.  There has not been any material deterioration in Borrower'sconsolidated financial condition since the date of the most recent financialstatements submitted to Bank.
Solvency.

The fair salable value of Borrower's assets (includinggoodwill minus disposition costs) exceeds the fair value of its liabilities; theBorrower is not left with unreasonably small capital after the transactions inthis Agreement; and Borrower is able to pay its debts (including trade debts) asthey mature.
Regulatory Compliance.

Borrower is not an "investment company" or acompany "controlled" by an "investment company" under theInvestment Company Act.  Borrower is not engaged as one of its importantactivities in extending credit for margin stock (under Regulations T and Uof the Federal Reserve Board of Governors).  Borrower has complied in allmaterial respects with the Federal Fair Labor Standards Act.  Borrower has notviolated any laws, ordinances or rules, the violation of which could reasonablybe expected to cause a Material Adverse Change.  None of Borrower's or anySubsidiary's properties or assets has been used by Borrower or any Subsidiaryor, to the best of Borrower's knowledge, by previous Persons, in disposing,producing, storing, treating, or transporting any hazardous substance other thanlegally.  Borrower and each Subsidiary has timely filed all required tax returnsand paid, or made adequate provision to pay, all material taxes, except thosebeing contested in good faith with adequate reserves under GAAP.  Borrower andeach Subsidiary has obtained all consents, approvals and authorizations of, madeall declarations or filings with, and given all notices to, all governmentauthorities that are necessary to continue its business as currently conducted,except where the failure to do so could not reasonably be expected to cause aMaterial Adverse Change.
Subsidiaries.

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

No written representation, warranty or other statement ofBorrower in any certificate or written statement given to Bank (taken togetherwith all such written certificates and written statements to Bank) contains anyuntrue statement of a material fact or omits to state a material fact necessaryto make the statements contained in the certificates or statements notmisleading.  It being recognized by Bank that the projections and forecastsprovided by Borrower in good faith and based upon reasonable assumptions are notviewed as facts and that actual results during the period or periods covered bysuch projections and forecasts may differ from the projected and forecastedresults.

AFFIRMATIVE COVENANTS
Borrower will do all of the following while Obligationsarising hereunder or any commitment by Bank to lend remain outstanding (otherthan contingent indemnification obligations for unasserted claims):
Government Compliance.

Borrower will maintain its and all Subsidiaries' legalexistence and good standing in its jurisdiction of formation and maintainqualification in each jurisdiction in which the failure to so qualify wouldreasonably be expected to cause a material adverse effect on Borrower's businessor operations.  Borrower will comply, and have each Subsidiary comply, with alllaws, ordinances and regulations to which it is subject, noncompliance withwhich could reasonably be expected to cause a Material Adverse Change.
Financial Statements, Reports,Certificates.

Borrower will deliver to Bank:  (i) as soon as available,but no later than 30 days after the last day of each month, a company preparedconsolidated balance sheet and income statement together with a statement ofcash flows covering Borrower's consolidated operations during the period, in aform and certified by a Responsible Officer acceptable to Bank; (ii) as soon asavailable, but no later than 120 days after the last day of Borrower's fiscalyear, audited consolidated financial statements prepared under GAAP,consistently applied, together with an unqualified opinion (except for a goingconcern qualification that does not constitute a Material Adverse Change) n thefinancial statements from an independent certified public accounting firmreasonably acceptable to Bank; (iii) within 5 days of filing, copies of allstatements, reports and notices made available to Borrower's security holders orto any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-Kfiled with the Securities and Exchange Commission; (iv) a prompt report of anylegal actions pending or threatened in writing against Borrower or anySubsidiary that could reasonably be expected to result in damages or costs toBorrower or any Subsidiary of $700,000 or more; (v) budgets, sales projections,operating plans or other financial information Bank reasonably requests; and(vi) prompt notice of any material change in the composition of the IntellectualProperty, including any subsequent ownership right of Borrower in or to anyCopyright, Patent or Trademark not shown in any intellectual property securityagreement between Borrower and Bank or knowledge of an event that materiallyadversely affects the value of the Intellectual Property.

Prior to each and every Credit Extension and in any eventwithin 30 days after the last day of each month, Borrower will deliver to BankBorrowing Base Certificates signed by a Responsible Officer in the forms ofExhibit C and E, with aged listings of accounts receivable and accountspayable, together with Inventory reports reasonably requested by Bank.  EachCredit Extension under the Exim Committed Line shall be supported by ExportOrders in connection with such Credit Extension.  

Within 30 days after the last day of each month, Borrowerwill deliver to Bank with the monthly financial statements a ComplianceCertificate signed by a Responsible Officer in the form ofExhibit D.

Bank has the right to audit Borrower's Collateral atBorrower's expense, but the audits will be conducted no more often than twiceyearly, during normal business hours, upon two (2) Business Days advance notice(telephonic or otherwise), except that during the existence of an Event ofDefault no such frequency or business hours limitations or notice requirementsshall apply.  

Borrower will deliver to Bank such other reports asreasonably requested by  Bank from time to time.

Borrower shall deliver all reports, certificates andother documents to Bank as provided in the Borrower Agreement, including,without limitation, the Borrowing Base Certificates on a monthly basis asdescribed on Exhibit D hereof, copies of Export Orders and any other informationthat Bank and Exim Bank may reasonably request.  

Inventory; Returns.

Borrower will keep all Inventory in good and marketablecondition, free from material defects except for Inventory for which adequatereserves have been made in accordance with GAAP, which reserves have been, andat all times will be with respect to Exim Eligible Inventory, disclosed to Bankin Borrower's Exim Borrowing Base Certificate.  Returns and allowances betweenBorrower and its account debtors will follow Borrower's customary practices asthey exist at execution of this Agreement.  Borrower must promptly notify Bankof all returns, recoveries, disputes and claims, that  involve more than$1,500,000.
Taxes.

Borrower will make, and cause each Subsidiary to make, timelypayment of all material federal, state, and local taxes or assessments (exceptfor taxes and assessments being contested in good faith with adequate reservesunder GAAP, provided that no Lien having any priority over Bank's securityinterests arising from such contest) and will deliver to Bank, on demand,appropriate certificates attesting to the payment.
Insurance.

Borrower will keep its business and the Collateral insuredfor risks and in amounts, as Bank may reasonably request.  Insurance policieswill be in a form, with companies, and in amounts that are satisfactory to Bankin Bank's reasonable discretion.  All property policies will have a lender'sloss payable endorsement showing Bank as an additional loss payee and allliability policies will show the Bank as an additional insured and provide thatthe insurer must give Bank at least 20 days notice before canceling its policy.At Bank's request, Borrower will deliver certified copies of policies andevidence of all premium payments. Proceeds payable under any policy (not subjectto a senior purchase money Permitted Lien) will, at Bank's option, be payable toBank on account of the Obligations; provided that, so long as no Event ofDefault or no event which, with notice or passage of time or both wouldconstitute an Event of Default, shall have occurred and be continuing, insuranceproceeds of less than $1,500,000 shall be released by Bank to Borrower to beapplied by Borrower to the repair or replacement of the property with respect towhich the insurance proceeds were paid, and Bank may request reasonableassurance that such proceeds will be so applied, and with Borrower herebygranting a security interest to Bank in such property and agreeing to take suchaction necessary, if any, to perfect such security interest.  

Primary and Investment Accounts.

Borrower will maintain its primary depository, operating andinvestment accounts with Bank, except that with respect to its investmentaccounts, Borrower will only be required to maintain 75% of its totalconsolidated depository, operating and investment balances with Bank or one ofits Affiliates.

Financial Covenants.

Borrower will maintain:

Quick Ratio (Adjusted)
.  As of the last day ofeach month, a ratio of Quick Assets to Current Liabilities minus currentportions of Deferred Revenue of at least 1.50 to 1.00.

**Profitability
.  Borrower will have a netprofit/loss (exclusive of non-cash charges related to (1) expensing, re-pricing, and variable accounting for stock options, and (2) the write-downof up to an additional $2,000,000 of intangible assets through the period endingon the original Revolving Maturity Date) of not less than the required amountset forth in the following table for the applicable period set forth oppositethereto.

Applicable Amount	Applicable Period
<$18,775,000>	Quarter-ended 03/31/03

<$8,500,000>	Quarter-ended 06/30/03

<$4,500,000>	Quarter-ended 09/30/03

<$2,000,000>	Quarter-ended 12/31/03

<$1,000,000>	Quarter-ended 03/31/04

$0	Each quarter-ended period thereafter.

Registration of Intellectual PropertyRights.

In the absence of an Event of Default, Borrower shall provideBank with quarterly reports of its applications for registration with the UnitedStates Patent and Trademark Office or the United States Copyright Office for itsIntellectual Property that is material to its business and shall provide Bankwith copies of any proposed applications.  During the existence of an Event ofDefault, Borrower will notify Bank 30 days prior to any registration ofIntellectual Property with the United States Patent and Trademark Office or theUnited States Copyright Office, and shall provide Bank with a copy of theproposed application.  Borrower will (i) protect, defend and maintain thevalidity and enforceability of the Intellectual Property that it owns where itis a reasonable business practice to do so as determined by Borrower's Board ofDirectors, and promptly advise Bank in writing of material infringements and(ii) not allow any Intellectual Property that it owns and is material tothe continued operation of Borrower's business to be abandoned, forfeited ordedicated to the public without Bank's written consent.

ControlAgreements.

With respect to deposit accounts or investment accountslocated in the United States and maintained at financial institutions other thanBank, within 7 days of the opening of any such deposit account or investmentaccount, Borrower will execute and deliver to Bank, control agreements in formreasonably satisfactory to Bank in order for Bank to perfect its securityinterest in Borrower's deposit accounts or investment accounts.  Notwithstandingthe foregoing sentence and provided that Borrower is in compliance with Section6.6, Borrower may maintain up to $350,000 in the aggregate in such depositaccounts or investment accounts without providing Bank with such controlagreements.  

FurtherAssurances.

Borrower will execute any further instruments and takefurther action as Bank reasonably requests to perfect or continue Bank'ssecurity interest in the Collateral or to effect the purposes of thisAgreement.

EximInsurance.

If required by Bank, Borrower will obtain, with respect toAccounts that are otherwise ineligible under Exim borrowing criteria and whereBorrower has requested or obtained an Advance, and pay when due all premiumswith respect to, and maintain uninterrupted foreign credit insurance.  Inaddition, Borrower will execute in favor of Bank an assignment of proceeds ofany insurance policy obtained by Borrower and issued by Exim Bank insuringagainst comprehensive commercial and political risk (the "EXIM BankPolicy").  The insurance proceeds from the EXIM Bank Policy assigned orpaid to Bank will be applied to the balance outstanding under this Agreement.Borrower will immediately notify Bank and Exim Bank in writing upon submissionof any claim under the Exim Bank Policy.  Then Bank will not be obligated tomake any further Credit Extensions to Borrower based on Exim Eligible ForeignAccounts without prior approval from Exim Bank.

BorrowerAgreement.

Borrower will comply with all terms of the BorrowerAgreement.  If any provision of the Borrower Agreement conflicts with anyprovision contained in this Exim Agreement, the more strict provision, withrespect to the Borrower, will control; provided, however, anyaction or event that is permitted hereunder shall be deemed to satisfy anyrequirement for consent of Bank under the Borrower Agreement.

Terms ofSale.

Borrower will, if required by Exim Bank or Bank, cause allsales of products on which the Exim Advances are based to satisfy at least oneof the following: (i) be supported by one or more irrevocable letters of creditin an amount and of matter, naming a beneficiary and issued by a financialinstitution acceptable to Bank and negotiated by Bank, (ii) be for any Accountwhich satisfies all of the requirements to constitute an Exim Eligible ForeignAccount, or (iii) where the Accounts from the Buyer exceed twenty-fivepercent (25%) of all Exim Eligible Foreign Accounts, to be preapproved inwriting, by Bank or Exim Bank.

NEGATIVECOVENANTS
Borrower will not do any of the following without Bank'sprior written consent, which will not be unreasonably withheld:
Dispositions.

Convey, sell, lease, transfer or otherwise dispose of(collectively "Transfer"), or permit any of its Subsidiaries toTransfer, all or any part of its business or property, other than Transfers: (i)of Inventory in the ordinary course of business; (ii) of (a) non-exclusivelicenses and similar arrangements for the use of the property of Borrower or itsSubsidiaries in the ordinary course of business; and (b) of joint-ownershiprights, licenses and cross-licenses entered into from time to time in connectionwith strategic relationships and development agreements, approved by Borrower'ssenior management, provided that such joint ownership rights, licenses andcross-licenses do not materially impact Borrower's ability to conduct itsbusiness or the value of the Collateral; (iii) worn-out, obsolete or surplusEquipment; (iv) constituting Permitted Liens or Permitted Investments; (v) ofassets in connection with the sale of Borrower's "Designated ProductLine", including inventory and related Intellectual Property; and (vi)other property that Borrower reasonably determines is not necessary or usefulfor the ordinary operations of Borrower, so long as  the disposition of samewill not have a material adverse effect on the business or operations ofBorrower.
Changes in Business, Ownership, Management or BusinessLocations.

Suffer a Change of Control, or engage in or permit any of itsSubsidiaries to engage in any business other than the businesses currentlyengaged in by Borrower and its Subsidiaries or reasonably related thereto.Borrower will not, without at least 30 days prior written notice, relocate itschief executive office or add any new offices or business locations.  NeitherBorrower nor any of its Subsidiaries shall be under any restriction with respectto the offer, sale or issuance of equity securities in a public or privateoffering so long as no Event of Default exists or will result from such publicor private offering.
Mergersor Acquisitions.

Merge or consolidate, or permit any of its Subsidiaries tomerge or consolidate, with any other Person, or acquire, or permit any of itsSubsidiaries to acquire, all or substantially all of the capital stock orproperty of another Person, except where (i) no Event of Default has occurredand is continuing or would result from such action during the term of thisAgreement and (ii) such transaction would not result in a decrease of more than25% of Tangible Net Worth. A Subsidiary may merge or consolidate into anotherSubsidiary or into Borrower.
Indebtedness.

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

Create, incur, or allow any Lien on any of its property, orassign or convey any right to receive income, including the sale of anyAccounts, or permit any of its Subsidiaries to do so, except for PermittedLiens, or permit any Collateral not to be subject to the first priority securityinterest granted here, subject to Permitted Liens.
Distributions; Investments.

Directly or indirectly acquire or own any Person, or make anyInvestment in any Person, other than Permitted Investments, or permit any of itsSubsidiaries to do so.  Pay any cash (or  property of Borrower other thanBorrower's capital stock) as dividends or make any cash distribution or payment(or distribution or payment of Borrower's property other than in the form ofBorrower's capital stock) or redeem, retire or purchase with cash (or anyproperty of Borrower) any capital stock; provided that (i) Borrower may convertany of its convertible securities into other securities pursuant to the terms ofsuch convertible securities or otherwise in exchange thereof, (ii) Borrower mayrepurchase the stock of former employees or consultants pursuant to stockrepurchase agreements so long (a) as an Event of Default does not exist at thetime of such repurchase and would not exist after giving effect to suchrepurchase, and (b) such repurchases do not exceed $500,000 in the aggregateduring any fiscal year of Borrower; and (iii) Borrower may make any open-marketpurchase or exchange of Borrower's publicly-traded equity securities, so long as(x) an Event of Default does not exist at the time of such purchase or exchangeand would not exist after giving effect to such purchase or exchange, and (y)such purchase and exchange do not exceed $1,500,000 in the aggregate during anyfiscal year of Borrower.
Transactions with Affiliates.

Directly or indirectly enter into or permit any materialtransaction with any Affiliate except transactions that are in the ordinarycourse of Borrower's business, on terms less favorable to Borrower than would beobtained in an arm's length transaction with a non-affiliated Person.
Subordinated Debt.

Make or permit any payment on any Subordinated Debt, exceptunder the terms of the Subordinated Debt, or amend any provision in any documentrelating to the Subordinated Debt without Bank's prior written consent.
Compliance.

Become an "investment company" or a companycontrolled by an "investment company," under the Investment CompanyAct of 1940 or undertake as one of its important activities extending credit topurchase or carry margin stock, or use the proceeds of any Credit Extension forthat purpose; fail to meet the minimum funding requirements of ERISA, permit aReportable Event or Prohibited Transaction, as defined in ERISA, to occur; failto comply with the Federal Fair Labor Standards Act or violate any other law orregulation, if the violation could reasonably be expected to have a materialadverse effect on Borrower's business or operations or would reasonably beexpected to cause a Material Adverse Change, or permit any of its Subsidiariesto do so. 
Borrower Agreement and EximGuarantee.

Violate or fail to comply with any provision of the BorrowerAgreement or take an action, or permit any action to be taken, that causes, orcould be expected to cause, the Exim Guarantee to not be in full force andeffect.  Notwithstanding the introductory sentence to this Section 7, at no timewill Bank give or be required to give its consent to the actions set forth inthis Section 7.10.

EVENTS OF DEFAULT
Any one of the following is an Event of Default:
PaymentDefault.

If Borrower fails to pay any of the Obligations within 3Business Days after their due date.  During the additional period the failure tocure the default is not an Event of Default (but no Credit Extension will bemade during the cure period).
Covenant Default.

If Borrower does not perform any obligation in Section 6or violates any covenant in Section 7 or does not perform or observe anyother material term, condition or covenant in this Agreement, any LoanDocuments, or in any agreement between Borrower and Bank and as to any defaultunder a term, condition or covenant that can be cured, has not cured the defaultwithin 10 days after it occurs, or if the default cannot be cured within 10 daysor cannot be cured after Borrower's attempts within 10 day period, and thedefault may be cured within a reasonable time, then Borrower has an additionalperiod (of not more than 30 days) to attempt to cure the default.  During theadditional time, the failure to cure the default is not an Event of Default (butno Credit Extensions will be made during the cure period).
MaterialAdverse Change.

If there (i) occurs a material adverse change in the businessoperations, or condition (financial or otherwise) of the Borrower; or (ii) is amaterial impairment of the prospect of repayment of any portion of theObligations; or (iii) is a material impairment of the value or priority ofBank's security interests in the Collateral.
Attachment.

If any material portion of Borrower's assets is attached,seized, levied on, or comes into possession of a trustee or receiver and theattachment, seizure or levy is not removed in 10 days, or if Borrower isenjoined, restrained, or prevented by court order from conducting a materialpart of its business or if a judgment or other claim becomes a Lien on amaterial portion of Borrower's assets, or if a notice of lien, levy, orassessment is filed against any of Borrower's assets by any government agencyand not paid within 10 days after Borrower receives notice.  These are notEvents of Default if stayed or if a bond is posted pending contest by Borrower(but no Credit Extensions will be made during the cure period).
Insolvency.

If Borrower becomes insolvent or if Borrower begins anInsolvency Proceeding or an Insolvency Proceeding is begun against Borrower andnot dismissed or stayed within 45 days (but no Credit Extensions will be madebefore any Insolvency Proceeding is dismissed).
OtherAgreements.

If there is a default in any agreement between Borrower and athird party that gives the third party the right to accelerate any Indebtednessexceeding $500,000 or that could cause a Material Adverse Change provided,however, that the Event of Default under this Section 8.6 caused by theoccurrence of a default under another agreement described in this Section 8.6shall be automatically cured for purposes of this Agreement upon the cure orwaiver of the default under such other agreement, if (i) Bank has not exercisedits right to accelerate the maturity of the Obligations under Section 9.1(a)hereof, and (ii) any such cure by Borrower does not result in an Event ofDefault under any other provision of this Agreement, and (iii) in connectionwith such cure, the agreement with the third party is not modified in a mannerwhich increases the payments from the Borrower to the third party or otherwisemakes it materially less advantageous to Borrower.
Judgments.

If a money judgment(s) in the aggregate of at least $200,000is rendered against Borrower and is unsatisfied, unstayed or not covered byadequate insurance or indemnity (as to which coverage has been confirmed toBank's reasonable satisfaction, provided that the terms of Section 8.4 remain ineffect notwithstanding any confirmation of such insurance or indemnity) for 10days (but no Credit Extensions will be made before the judgment is stayed orsatisfied).
Misrepresentations.

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

Any guaranty of any Obligations ceases for any reason to bein full force or any Guarantor does not perform any obligation under anyguaranty of the Obligations, or any material misrepresentation or materialmisstatement exists now or later in any warranty or representation in anyguaranty of the Obligations or in any certificate delivered to Bank inconnection with the guaranty, or any circumstance described inSections 8.4, 8.5 or 8.7 occurs to any Guarantor.
Borrower Agreement Default.

If Borrower violates any covenant in the Borrower Agreementor otherwise defaults thereunder. 
Exim Guarantee.

If the Exim Guarantee ceases for any reason to be in fullforce and effect, or if the Exim Bank declares the Exim Guarantee void orrevokes any obligations under the Exim Guarantee.

BANK'S RIGHTS AND REMEDIES
Rights and Remedies.

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

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

Stop advancing money or extending credit for Borrower'sbenefit under this Agreement or under any other agreement between Borrower andBank;

Settle or adjust disputes and claims directly withaccount debtors for amounts, on terms and in any order that Bank considersadvisable;

Make any payments and do any acts it considers necessaryor reasonable to protect its security interest in the Collateral.  Borrower willassemble the Collateral if Bank requires and make it available as Bankdesignates.  Bank may enter premises where the Collateral is located, take andmaintain possession of any part of the Collateral, and pay, purchase, contest,or compromise any Lien which appears to be prior or superior to its securityinterest and pay all expenses incurred. Borrower grants Bank a license to enterand occupy any of its premises, without charge, to exercise any of Bank's rightsor remedies;

(i) Bank may place a "hold" on any depositaccount of Borrower maintained with Bank, and (ii)  apply to the Obligations any(1) balances and deposits of Borrower it holds, or (2) any amount heldby Bank owing to or for the credit or the account of Borrower;

Ship, reclaim, recover, store, finish, maintain, repair,prepare for sale, advertise for sale, and sell the Collateral.  To the extentnot prohibited under applicable law or under an enforceable provision of acontract, Bank is granted a non-exclusive, royalty-free license or other rightto use while an Event of Default exists, without charge, Borrower's labels,Patents, Copyrights, Mask Works, rights of use of any name, trade secrets, tradenames, Trademarks, service marks, and advertising matter, or any similarproperty as it pertains to the Collateral, in completing production of,advertising for sale, and selling any Collateral and, in connection with Bank'sexercise of its rights under this Section, Borrower's rights under all licensesand all franchise agreements inure to Bank's benefit; and

Dispose of the Collateral according to theCode.

Notwithstanding anything to the contrary herein or in theLoan Documents, Bank will not deliver to any Person any notice of exclusivecontrol, any entitlement order, or other directions or instructions pursuant toany account control agreement or similar agreement providing for control of anydeposit, investment or other accounts of Borrower, unless an Event of Defaulthas occurred and is continuing.

Powerof Attorney.

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

Accounts Collection.

When an Event of Default occurs and continues, Bank maynotify any Person owing Borrower money of Bank's security interest in the fundsand verify the amount of the Account.  Borrower must collect all payments intrust for Bank and, if requested by Bank, immediately deliver the payments toBank in the form received from the account debtor, with proper endorsements fordeposit.

BankExpenses.

If Borrower fails to pay any amount or furnish any requiredproof of payment to third persons, Bank may make all or part of the payment orobtain insurance policies required in Section 6.5, and take any actionunder the policies Bank deems prudent.  Any amounts paid by Bank are BankExpenses and immediately due and payable, bearing interest at the thenapplicable rate and secured by the Collateral.  No payments by Bank are deemedan agreement to make similar payments in the future or Bank's waiver of anyEvent of Default.

Bank'sLiability for Collateral.

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

Remedies Cumulative.

Bank's rights and remedies under this Agreement, the LoanDocuments, and all other agreements are cumulative.  Bank has all rights andremedies provided under the Code, by law, or in equity. Bank's exercise of oneright or remedy is not an election, and Bank's waiver of any Event of Default isnot a continuing waiver. Bank's delay is not a waiver, election, oracquiescence. No waiver is effective unless signed by Bank and then is onlyeffective for the specific instance and purpose for which it was given.

DemandWaiver.

Borrower waives demand, notice of default or dishonor, noticeof 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 isliable.

EximDirection.

Upon the occurrence and during the continuance of an Event ofDefault, Exim Bank shall have right to (i) direct Bank to exercise the remediesspecified in Section 9.1 and (ii) request that Bank accelerate the maturity ofany other loans to Borrower. 

EximNotification.

Bank has the right to immediately notify Exim Bank in writingif it has knowledge of any of the following events:  (1) any failure to pay anyamount due under this Agreement; (2) the Borrowing Base is less than the sum ofthe outstanding Credit Extensions; (3) any failure to pay when due any amountpayable to Bank under any loan owing by Borrower to Bank; (4) the filing of anaction for debtor's relief by, against or on behalf of Borrower; (5) anythreatened or pending material litigation against Borrower, or any disputeinvolving Borrower.

If Bank sends a notice to Exim Bank, Bank has the right tosend Exim Bank a written report on the status of events covered by the noticeevery 30 days after the date of the original notification, until Bank files aclaim with Exim Bank or the defaults have been cured (but no Advances may berequired during the cure period unless Exim Bank gives its written approval).If directed by Exim Bank, Bank will have the right to exercise any rights it mayhave against the Borrower to demand the immediate repayment of all amountoutstandings under the Exim Loan Documents.

NOTICES
All notices or demands by any party about this Agreementor any other related agreement must be in writing and be personally delivered orsent by an overnight delivery service, by certified mail, postage prepaid,return receipt requested, or by telefacsimile to the addresses set forth at thebeginning of this Agreement.  A party may change its notice address by givingthe other party written notice.
CHOICE OF LAW , VENUE AND JURYTRIAL WAIVER
California law governs the Loan Documents without regardto principles of conflicts of law.  Borrower and Bank each submit to theexclusive jurisdiction of the State and Federal courts in Santa Clara County,California.  Any references in the Borrower Agreement to the laws of the Stateof New York, shall be deemed a reference to the laws of the State ofCalifornia.
**BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIALOF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANYCONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHERCLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THISAGREEMENT.  EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

GENERAL PROVISIONSSuccessorsand Assigns.

This Agreement binds and is for the benefit of the successorsand permitted assigns of each party.  Borrower may not assign this Agreement orany rights under it without Bank's prior written consent which may be granted orwithheld in Bank's discretion.  Bank has the right, without the consent of ornotice to Borrower, to sell, transfer, negotiate, or grant participation in allor any part of, or any interest in, Bank's obligations, rights and benefitsunder this Agreement; provided that if Bank grants any participation in Bank'srights and benefits under this Agreement, the Borrower shall only be required todeal with Bank with respect to the administration of the transactions under thisAgreement, including, without limitation, by only being required to give anynotices hereunder to Bank or take directions hereunder from Bank.
Indemnification.

Borrower will indemnify, defend and hold harmless Bank andits officers, employees, and agents against:  (a) all obligations, demands,claims, and liabilities asserted by any other party in connection with thetransactions contemplated by the Loan Documents; and (b) all losses or BankExpenses incurred, or paid by Bank from, following, or consequential totransactions between Bank and Borrower (including reasonable attorneys fees andexpenses), except for losses caused by Bank's gross negligence or willfulmisconduct.
Time ofEssence.

Time is of the essence for the performance of all obligationsin this Agreement.
Severability of Provision.

Each provision of this Agreement is severable from everyother provision in determining the enforceability of any provision.
Amendments in Writing, Integration.

All amendments to this Agreement must be in writing andsigned by Borrower and Bank.  This Agreement represents the entire agreementabout this subject matter, and supersedes prior negotiations or agreements.  Allprior agreements, understandings, representations, warranties, and negotiationsbetween the parties about the subject matter of this Agreement merge into thisAgreement and the Loan Documents.
Counterparts.

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

All covenants, representations and warranties made in thisAgreement continue in full force while any Obligations arising hereunder remainoutstanding (other than contingent indemnification obligations with respect tounasserted claims).  Borrower may terminate this Agreement at any time withoutpenalty or premium upon five (5) days' prior written notice to Bank with paymentin full of all outstanding monetary Obligations, so long as Borrower shall havefully secured with cash any outstanding reimbursement obligations pursuant toSection 2.1.2.  The obligations of Borrower in Section 12.2 to indemnifyBank will survive until all statutes of limitations for actions that may bebrought against Bank have run.
Confidentiality.

In handling any confidential information, Bank will exercisethe same degree of care that it exercises for its own proprietary information,but disclosure of information may be made (i) to Bank's subsidiaries oraffiliates in connection with their business with Borrower, (ii) toprospective transferees or purchasers of any interest in the loans that are notcompetitors of Borrower (provided, however, Bank shall use commerciallyreasonable efforts in obtaining such prospective transferees or purchasersagreement of the terms of this provision), (iii) as required by law,regulation, subpoena, or other order, (iv) as required in connection withBank's examination or audit and (v) as Bank considers appropriate inexercising remedies under this Agreement in its good faith judgment.Confidential information does not include information that either: (a) is in thepublic domain (other than as a result of Bank's disclosure) or in Bank'spossession when disclosed to Bank, or becomes part of the public domain afterdisclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank doesnot know that the third party is prohibited from disclosing the information.
Attorneys' Fees, Costs andExpenses.

In any action or proceeding between Borrower and Bank arisingout of the Loan Documents, the prevailing party will be entitled to recover itsreasonable attorneys' fees and other reasonable costs and expenses incurred, inaddition to any other relief to which it may be entitled.

DEFINITIONSDefinitions.

In this Agreement:

"**Accounts**" are all existing and laterarising accounts, contract rights, and other obligations owed Borrower inconnection with its sale or lease of goods (including licensing software andother technology) or provision of services,**all credit insurance,guaranties, other security and  all merchandise returned or reclaimed byBorrower and Borrower's Books relating to any of the foregoing.

"**Advance**" or "**Advances**" isa loan advance (or advances) under the Committed Revolving Line.

"**Affiliate**" of a Person is a Person thatowns or controls directly or indirectly the Person, any Person that controls oris controlled by or is under common control with the Person, and each of thatPerson's senior executive officers, directors, partners and, for any Person thatis a limited liability company, that Person's managers and members.
**"Availability" means, as of any date ofdetermination, the amount that Borrower is entitled to borrow as Advances underthe Committed Domestic Line or the Committed Exim Line, as applicable, (aftergiving effect to all then outstanding Advances and all sublimits and reservesapplicable thereunder).

"**Bank Expenses**" are all audit fees andexpenses and reasonable costs and expenses (including reasonable attorneys' feesand expenses) for preparing, negotiating, administering, defending and enforcingthe Loan Documents (including appeals or Insolvency Proceedings).
**"Borrower Agreement" is the Export-ImportBank of the United States Working Capital Guarantee Program Borrower Agreementbetween Borrower and Bank.

"**Borrower's Books**" are all Borrower's booksand records including ledgers, records regarding Borrower's assets orliabilities, the Collateral, business operations or financial condition and allcomputer programs or discs or any equipment containing the information.

"**Borrowing Base**" is the sum of:

the sum of (x) 80% of Eligible Accounts and (y) thelesser of (A) 50% all Eligible Retainage Accounts, and (B) $500,000, asdetermined by Bank from Borrower's most recent Domestic Borrowing BaseCertificate (the "Domestic Borrowing Base"), 
plus

the sum of (x) 90% of Exim Eligible Foreign Accounts, (y)the lesser of (A) 25% of all Exim Eligible Foreign Retainage Accounts, and (B)$500,000, and (z) the least of (I) 75% of Exim Eligible Foreign Inventory(valued at the lower of cost or market), (II) $4,000,000, and (III) 60% of theaggregate outstanding amount of Exim Advances including the Exim Soft Advances,as determined by Bank from Borrower's most recent Exim Borrowing BaseCertificate (the "Exim Borrowing Base").

provided, however, that Bank may lower thepercentages set forth in the Borrowing Base in its good faith credit judgmentafter performing an audit of Borrower's Collateral.

"**Business Day**" is any day that is not aSaturday, Sunday or a day on which the Bank is closed.
**"Cash Management Services" are defined inSection 2.1.4.
**"Change in Control" shall mean a transactionin which any "person" or "group" (within the meaning ofSection 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the"beneficial owner" (as defined in Rule 13d-3 under the SecuritiesExchange Act of 1934), directly or indirectly, of a sufficient number of sharesof all classes of stock then outstanding of Borrower ordinarily entitled to votein the election of directors, empowering such "person" or"group" to elect a majority of the Board of Directors of Borrower, whodid not have such power before such transaction.

"**Closing Date**" is the date of thisAgreement.

"**Code**" is the California Uniform CommercialCode.

"**Collateral**" is the property described onExhibit A.

"**Committed Revolving Line**" are Advances ofup to $15,000,000 in the aggregate, under the Exim Committed Line and theDomestic Committed Line.

"**Contingent Obligation**" is, for any Person,any direct or indirect liability, contingent or not, of that Person for(i) any indebtedness, lease, dividend, letter of credit or other obligationof another such as an obligation directly or indirectly guaranteed, endorsed,co-made, discounted or sold with recourse by that Person, or for which thatPerson is directly or indirectly liable; (ii) any obligations for undrawnletters of credit for the account of that Person; and (iii) all obligationsfrom any interest rate, currency or commodity swap agreement, interest rate capor collar agreement, or other agreement or arrangement designated to protect aPerson against fluctuation in interest rates, currency exchange rates orcommodity prices;  but "Contingent Obligation" does not includeendorsements in the ordinary course of business.  The amount of a ContingentObligation is the stated or determined amount of the primary obligation forwhich the Contingent Obligation is made or, if not determinable, the maximumreasonably anticipated liability for it determined by the Person in good faith;but the amount may not exceed the maximum of the obligations under the guaranteeor other support arrangement.

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

"**Credit Extension**" is each Advance, Letterof Credit, Exchange Contract, or any other extension of credit by Bank forBorrower's benefit.

"**Current Liabilities**" are the aggregateamount of Borrower's Total Liabilities that mature within one (1) year, whichCurrent Liabilities include the Obligations.

"**Deferred Revenue**" is all amounts receivedin advance of performance under a contract and not yet recognized asrevenue.
**"Designated Product Line" means Borrower'sproduct line as set forth on Schedule 13.1(D).
**"Domestic Advance" is a loan advance (oradvances) under the Domestic Committed Line.

"**Domestic Borrowing Base**" is defined in thedefinition of "Borrowing Base" set forth in thisSection 13.1.
**"Domestic Borrowing Base Certificate" is aDomestic Borrowing Base Certificate in the form of Exhibit C.

"**Domestic Committed Line**" is a  DomesticAdvance of up to $5,000,000, pursuant to Section 2.1.1(a)(1).

"**Domestic Standby Letter of Credit Reserve**"is an amount equal to the issued and outstanding (including drawn butunreimbursed Letters of Credit) Excess Standby Letters of Credit.

"**Eligible Accounts**" are Accounts in theordinary course of Borrower's business that meet all Borrower's representationsand warranties in Section 5; but Bank in its good faith businessjudgment may change eligibility standards by giving Borrower notice.  UnlessBank agrees otherwise in writing, Eligible Accounts will not include:

Accounts that the account debtor has not paid within 90days of invoice date;

Accounts for an account debtor, 50% or more of whoseAccounts have not been paid within 90 days of invoice date;

Credit balances over 90 days from invoice date;

Accounts for an account debtor, including Affiliates,whose total obligations to Borrower exceed 25% of all Accounts, for the amountsthat exceed that percentage, unless the Bank approves otherwise in writing,except that such percentage shall be 40% with respect to the domestic Accountsof the Significant Account Debtor;

Accounts for which the account debtor does not have itsprincipal place of business in the United States;

Accounts for which the account debtor is a federal entityor any department, agency, or instrumentality except for Accounts of the UnitedStates if the payee has assigned its payment rights to Bank and the assignmenthas been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C.ss.3727);

Accounts for which Borrower owes the account debtor, butonly up to the amount owed (sometimes called "contra" accounts,accounts payable, customer deposits or credit accounts);

Accounts for demonstration or promotional equipment, orin which goods are consigned, sales guaranteed, sale or return, sale onapproval, bill and hold, or other terms if account debtor's payment may beconditional;

Accounts for which the account debtor is Borrower'sAffiliate, officer, employee, or agent;

Accounts in which the account debtor disputes liabilityor makes any claim and Bank reasonably believes there may be a basis for dispute(but only up to the disputed or claimed amount), or if the Account Debtor issubject to an Insolvency Proceeding, or becomes insolvent, or goes out ofbusiness; and

Accounts for which Bank reasonably determinescollection
to be doubtful.

"**Eligible Retainage Accounts**" are Accountsthat would otherwise constitute Eligible Accounts but for the fact that suchAccounts are Retainage Accounts.

"**Equipment**" is all present and futuremachinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools,parts and attachments in which Borrower has any interest.

"**ERISA**" is the Employment Retirement IncomeSecurity Act of 1974, and its regulations.
**"Excess Standby Letters of Credit" arestandby Letters of Credit for which there is insufficient Availability under theDomestic Committed Line (and therefore are reserved against the Exim CommittedLine) in an aggregate face amount (including drawn but unreimbursed letters ofcredit) not to exceed the lesser of: (i) Availability under the EximCommitted Line and (ii) $3,500,000.
**"Exim Advance" is a loan advance (oradvances) under the Exim Committed Line.
**"Exim Bank" is the Export-Import Bank of theUnited States.
**"Exim Bank Expenses" are all audit fees andexpenses; reasonable costs or expenses (including reasonable attorneys' fees andexpenses) for preparing, negotiating, administering, defending and enforcing theExim Loan Documents (including appeals or Insolvency Proceedings) and the feesthat the Bank pays to the Exim Bank in consideration of the issuance of the EximGuarantee.

"**Exim Borrowing Base**" is defined in thedefinition of "Borrowing Base" set forth in thisSection 13.1.
**"Exim Borrowing Base Certificate" is a  EximBorrowing Base Certificate in the form of Exhibit C.
**"Exim Committed Line" is an Exim Advance ofup to $10,000,000, pursuant to Section 2.1.1(a)(2).

"**Exim Eligible Foreign Accounts**" areAccounts payable in United States Dollars that arise in the ordinary course ofBorrower's business from Borrower's sale of Exim Eligible Foreign Inventory (i)that the account debtor does not have its principal place of business in theUnited States and (ii) that have been assigned and comply with all ofBorrower's representations and warranties in; but Bank, in its good faithbusiness judgment, may change eligibility standards by giving Borrower notice.Unless Bank agrees otherwise in writing, Exim Eligible Foreign Accounts will notinclude:

(a)	Accounts with terms of sales greater than 90 days.

(b) Accounts which are more than sixty (60) calendar dayspast the original due date, unless it is insured through Exim Bank export creditinsurance for comprehensive commercial and political risk, or through Exim Bankapproved private insurers for a comparable coverage, in which case ninety (90)calendar days shall apply;

            (c) Credit balances over 60 days from due date ofthe relevant invoice;

(d) Accounts evidenced by a letter of credit until the dateof shipment of the items covered by the subject letter of credit;

(e) Accounts for which the account debtor is a military ordefense entity;

(f) Accounts for which Borrower owes the account debtor, butonly up to the amount owed (sometimes called "contra" accounts,accounts payable, customer deposits or credit accounts);

(g) Accounts for demonstration or promotional equipment, orin which goods are consigned, sales guaranteed, sale or return, sale onapproval, bill and hold, or other terms if account debtor's payment may beconditional;

(h) Accounts for which the account debtor is Borrower'sAffiliate, officer, employee, or agent;

(i) Accounts in which the account debtor disputes liabilityor makes any claim and Bank believes there may be a basis for dispute (but onlyup to the disputed or claimed amount), or if the Account Debtor is subject to anInsolvency Proceeding, or becomes insolvent, or goes out of business;

            (j) Accounts generated by the sale of productspurchased for military purposes;

(k) Accounts generated by the sales of Inventory whichconstitute defense articles or defense services;

(l) Accounts excluded from the Borrowing Base under theBorrower Agreement;

           (m) Accounts that arise from the sales of itemsnot in the ordinary course of Borrower's business;

(n)	Accounts not owned by Borrower or that are subject toany right, claim or interest of another person other than the lien in favor ofBank;

(o)	Accounts with respect to which an invoice has not beensent;

(p)	Accounts billed and payable outside the United Statedunless approved in writing by Exim Bank, however, limited to no more than 50% ofthe Exim Borrowing Base shall be of such accounts; and such Accounts are subjectto the following:
- Each subsidiary or affiliate is a party to the Loan Agreement;
- All proceeds are remitted to the United States on a monthly basis(excluding the retention of proceeds for the purpose of funding localexpenses);
- Accounts are derived from eligible exports originating from the UnitedStates;
- Bank obtains a valid first priority security interest (or equivalent) in thejurisdiction where the Accounts are located; and
- Bank obtains a legal opinion from local counsel with regard to theenforceability of such security interest.

(q)	Accounts from account debtors with balance of 50% over60 days past the invoice due date;

(r)	Accounts with open account term with balance more than25% concentration of total Exim Eligible Foreign Accounts, unless pre-approvedby Bank;

(s)	Accounts billed in currencies other than U.S. Dollars,unless approved in writing by Exim Bank;

(t)	Accounts from foreign buyers in countries where EximBank is legally prohibited from doing business or in which Exim Bank coverage isnot available (as designated in the Country Limitation Schedule);

(u)	Accounts backed by letters of credit unacceptable toBank in its reasonable and good faith credit judgment; 

            (v) Accounts for which Bank or Exim Bankdetermines collection****to be doubtful, with Bank's determination of sameto be reasonable;

(w) Accounts for which the items giving rise to such Accounthave not been shipped and delivered to and accepted by the Buyer or the servicesgiving rise to such Account have not been performed by Borrower and accepted bythe Buyer or the Account does not represent a final sale;

(x)	Accounts for which Borrower has made any agreementwith the Buyer for any deduction therefrom, except for discounts or allowancesmade in the ordinary course of business for prompt payment, all of whichdiscounts or allowances are reflected in the calculation of the face value ofeach respective invoice related thereto; and

	(y)  Accounts for which any of the items giving rise tosuch Account have been returned, rejected or repossessed.
**"Exim Eligible Foreign Inventory" isBorrower's Inventory purchased or manufactured for resale (to buyers locatedoutside the United States), located in the United States, other than Inventorythat is excluded under the Borrower Agreement and this Agreement.  Exim EligibleForeign Inventory will not include the following:

	(a)	Inventory not located in the UnitedStates;		
	(b)	Any demonstration Inventory or Inventory soldon consignment;

			(c)	Inventory consisting of proprietarysoftware not intended for sale;	

	(d)	Inventory previously exported from the UnitedStates;			

	(e)	Inventory which constitutes defense articles ordefense services; 		

	(f)	Inventory destined for shipment to prohibitedcountries in which Exim Bank is legally prohibited from doing business asdesignated in the most recent Country Limitation Schedule;		

	(g)	Inventory destined for shipment to a country inwhich Exim coverage is not available as designated in the most recent CountryLimitation Schedule;	

	(h)	Inventory which is to be incorporated into itemswhose sale would result in ineligible accounts receivable;

	(i)	Inventory with offsetting claims; 

	(j)	Inventory that is damaged, defective, obsolete,returned, recalled or unfit for further processing; 

	(k)	Inventory that is not subject to a valid,perfected first priority Lien in favor of Bank;

Inventory that is located at an address that has not beendisclosed to Bank in writing; and

Inventory that is in the possession of a processor orbailee, or located on premises leased or subleased to Borrower, or on premisessubject to a mortgage in favor of a Person other than Bank, unless suchprocessor or bailee or mortgagee or the lessor or sublessor of such premises, asthe case may be, has executed and delivered all documentation which Bank shallrequire to evidence the subordination or other limitation or extinguishment ofsuch Person's rights with respect to such Inventory and Bank's right to gainaccess thereto; and

Inventory incorporated into items which are destined forshipment to a country in which Exim coverage is not available as designated inthe most recent Country Limitation Schedule unless sold under a letter of creditreasonably acceptable to Exim Bank;

"**Exim Eligible Foreign Retainage Accounts**"are Accounts that would otherwise constitute Exim Eligible Foreign Accounts butfor the fact that such Accounts are Retainage Accounts.

"**Exim Guarantee**" is that certain MasterGuarantee Agreement or other agreement, as amended from time to time, the termsof which are incorporated into this Agreement.
**"Exim Loan Documents" means this Agreement,any note or notes executed by Borrower or any other agreement entered into inconnection with this Agreement, pursuant to which Exim Bank guaranteesBorrower's obligations under this Agreement.
**"Exim Soft Advances" is defined in Section2.1.1(a)(2). 
**"Export Order" is a written export order orcontract for the purchase by the buyer from the Borrower of any finished goodsor services which are intended for export.

"**FX Forward Contract**" is defined inSection 2.1.3.

"**FX Reserve** " is defined inSection 2.1.3.

"**GAAP**" is generally accepted accountingprinciples.

"**Guarantor**" is any present or futureguarantor of the Obligations, including sample.

"**Indebtedness**" is (a) indebtedness forborrowed money or the deferred price of property or services, such asreimbursement and other obligations for surety bonds and letters of credit,(b) obligations evidenced by notes, bonds, debentures or similarinstruments, (c) capital lease obligations and (d) ContingentObligations.

"**Insolvency Proceeding**" are proceedingscommenced by the filing of a petition for relief by or against any Person underthe United States Bankruptcy Code, or any other bankruptcy or insolvency law,including assignments for the benefit of creditors, compositions, extensionsgenerally with its creditors, or proceedings seeking reorganization,arrangement, or other relief.

"**Intellectual****Property**" is:

Copyrights, Trademarks, Patents, and Mask Worksincluding amendments, renewals, extensions, and all licenses or other rights touse and all license fees and royalties from the use;

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

All design rights which may be available to Borrower nowor later created, acquired or held;

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

All proceeds and products of the foregoing, including allinsurance, indemnity or warranty payments.

"**Inventory**" is present and future inventoryin which Borrower has any interest, including merchandise, raw materials, parts,supplies, packing and shipping materials, work in process and finished productsintended for sale or lease or to be furnished under a contract of service, ofevery kind and description now or later owned by or in the custody orpossession, actual or constructive, of Borrower, including inventory temporarilyout of its custody or possession or in transit and including returns on anyaccounts or other proceeds (including insurance proceeds) from the sale ordisposition of any of the foregoing and any documents of title.

"**Investment**" is any beneficial ownership of(including stock, partnership interest or other securities) any Person, or anyloan, advance or capital contribution to any Person.

"**Letter of Credit**" is defined in Section2.1.2.

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

"**Loan Documents**" are, collectively, thisAgreement, any note, or notes or guaranties executed by Borrower or Guarantor,and any other present or future agreement between Borrower and/or for thebenefit of Bank in connection with this Agreement, all as amended, extended orrestated.

"**Mask Works**" are all mask works or similarrights available for the protection of semiconductor chips, now owned or lateracquired.

"**Material Adverse Change**" is defined inSection 8.3.

"**Obligations**" are debts, principal,interest, Bank Expenses and other amounts Borrower owes Bank now or later,including cash management services, letters of credit and foreign exchangecontracts, if any and including interest accruing after Insolvency Proceedingsbegin and debts, liabilities, or obligations of Borrower assigned to Bank.

"**Patents**" are patents, patent applicationsand like protections, including improvements, divisions, continuations,renewals, reissues, extensions and continuations-in-part of the same.

"**Permitted Indebtedness**" is:

Borrower's indebtedness to Bank under thisAgreement or any other Loan Document;

Indebtedness existing on the Closing Date and shown onthe Schedule;

Subordinated Debt;

Indebtedness to trade creditors incurred in the ordinarycourse of business; 

Indebtedness secured by Permitted Liens; 

The following Indebtedness incurred in the ordinarycourse of Borrower's business: Indebtedness of Borrower to any Subsidiary andContingent Obligations of any Subsidiary with respect to obligations of Borrower(provided that the primary obligations of Borrower are not prohibited hereby),Indebtedness of any Subsidiary to Borrower or any domestic Subsidiary andContingent Obligations of any Subsidiary with respect to obligations of anotherSubsidiary (provided that the primary obligations of the other Subsidiary arenot prohibited hereby); and

    Extensions, refinancings, modifications, amendmentsand restatements of any items of Permitted Indebtedness described in (a) through(f) above, provided that (i) the principal amount thereof is not increased, (ii)the terms thereof are not modified to impose more burdensome terms upon Borroweror its Subsidiaries, and (iii) any subordination agreements relating theretowhich existed prior to the taking of such actions must be effective in allrespects after the completion of such actions. 

**"Permitted Investments" are:

Investments shown on the Schedule and existing onthe Closing Date; 

(i)  marketable direct obligations issued orunconditionally guaranteed by the United States or its agency or any Statematuring within 1 year from its acquisition, (ii) commercial paper maturingno more than 1 year after its creation and having the highest rating from eitherStandard & Poor's Corporation or Moody's Investors Service, Inc.,(iii) Bank's certificates of deposit issued maturing no more than 1 yearafter issue, and (iv) Investments permitted by Borrower's investment policy, acopy of which is attached hereto as Exhibit 13.1(P), together with Investmentsallowed from time to time by Borrower's Board of Directors with prior writtennotice to Bank;

Acquisitions permitted under Section 7.3;

Investments consisting of the endorsement of negotiableinstruments for deposit or collection or similar transactions in the ordinarycourse of Borrower's business;

Investments in the ordinary course of Borrower's businessconsisting of (i) travel advances and employee relocation loans and otheremployee loans, and (ii) loans to employees, officers or directors relating tothe purchase of equity securities of Borrower or its Subsidiaries pursuant toemployee stock purchase or employee stock option plans approved by Borrower'sBoard of Directors;

 Investments (including debt obligations) received inconnection with the bankruptcy or reorganization of customers or suppliers andin settlement of delinquent obligations of, and other disputes with, customersor suppliers pursuant to Borrower's customary practices as they exist atexecution of this Agreement; 

 Investments consisting of notes receivable of, orprepaid royalties and other credit extensions, to customers and suppliers whoare not Affiliates pursuant to Borrower's customary practices as they exist atexecution of  this Agreement;

  Strategic Investments in customers, vendors, suppliersand other Persons in the same industries as Borrower and its Subsidiaries,including the exercise of warrants to purchase capital stock of such Persons inan aggregate amount not to exceed $1,000,000 per year so long as no Event ofDefault exists or will result from such actions;

 Investments pursuant to or arising under currencyagreements or interest rate agreements entered into in the ordinary course ofbusiness and consistent with policies issued by Borrower's Board of Directors;

 Subject to the terms of Section 6.6, deposit andinvestment accounts of Borrower in which Bank has a Lien prior to any other Lien(other than Liens securing fees and expenses of the depository or investmentintermediary); 

 Investments in Subsidiaries, consisting of loans, cashInvestments, and other capital contributions, to cover operating expenses andcapital expenditures so long as such investments do not exceed $3,000,000 in theaggregate during any fiscal year of Borrower; and 

Subject to the terms and conditions of Section 6.6,Deposits and investment accounts of any Subsidiary maintained in the ordinarycourse of business 

**"Permitted Liens" are:

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

Liens for taxes, fees, assessments or other governmentcharges or levies, either not delinquent or being contested in good faith andfor which Borrower maintains adequate reserves on its Books, 
if
 they haveno priority over any of Bank's security interests;

Liens (i) on Equipment and related software acquiredor held by Borrower or its Subsidiaries incurred for financing the acquisitionof the Equipment, related software and related soft costs, or (ii) existingon Equipment when acquired, 
if
 the Lien is confined to the property andimprovements and the proceeds of the Equipment and related software;

Liens in favor of other financial institutions arising inconnection with Borrower's deposit or investment accounts held at suchinstitutions to secure fees and charges in connection with said accounts if suchdeposit or investment accounts are permitted by Section 6.6;

Statutory Liens securing claims or demands not yetdelinquent of materialmen, mechanics, carriers, warehousemen, landlords andother like Persons imposed without action of such parties;

Liens to secure payment of workers' compensation,employment insurance, old-age pensions, social security and other likeobligations arising in the ordinary course of Borrower's business forobligations not yet delinquent;

Liens on insurance proceeds in favor of insurancecompanies granted solely as security for financed premiums;

Liens in favor of customs and revenue authorities arisingas a matter of law to secure payment of customs duties in connection with theimportation of goods;

Liens arising from the filing of any financing statementrelating to operating leases otherwise permitted hereunder;

Liens that are not prior to the Bank's security interestswhich constitute rights of offset of a customary nature;

Licenses or sublicenses granted in the ordinarycourse of Borrower's business and any interest or title of a licensor or underany license or sublicense;

Leases or subleases granted in the ordinary course ofBorrower's business, including in connection with Borrower's leased premises orleased property;

Liens incurred in the extension, renewal or refinancingof the indebtedness secured by Liens described in (a) through (c), 
but
any extension, renewal or replacement Lien must be limited to the propertyencumbered by the existing Lien and the principal amount of the indebtedness maynot increase.

"**Person**" is any individual, soleproprietorship, partnership, limited liability company, joint venture, companyassociation, trust, unincorporated organization, association, corporation,institution, public benefit corporation, firm, joint stock company, estate,entity or government agency.

"**Prime Rate**" is Bank's most recentlyannounced "prime rate," even if it is not Bank's lowest rate.

"**Quick Assets**" is, on any date, the sum ofBorrower's consolidated, unrestricted cash, cash equivalents, and net billedaccounts receivable, and investments with maturities of less than twelvemonths,****determined according to GAAP.

"**Responsible****Officer**" is each of theChief Executive Officer, the President, the Chief Financial Officer and theController of Borrower.
**"Retainage Account" is a portion of anAccount that is conditional and remains subject to buyer's acceptance.

"**Revolving Maturity Date**" is June 13,2004.

"**Schedule**" is any attached schedule ofexceptions.
**"Significant Account Debtor" means theaccount debtor identified on Schedule 13.1(S). 

"**Subordinated Debt**" is debt incurred byBorrower subordinated to Borrower's indebtedness owed to Bank and which isreflected in a written agreement in a manner and form acceptable to Bank andapproved by Bank in writing.

"**Subsidiary**" is for any Person, or any otherbusiness entity of which more than 50% of the voting stock or other equityinterests is owned or controlled, directly or indirectly, by the Person or oneor more Affiliates of the Person.

"**Tangible Net Worth**" is, on any date, theconsolidated total assets of Borrower and its Subsidiaries minus,(i) any amounts attributable to (a) goodwill, (b) intangible items such asunamortized debt discount and expense, Patents, trade and service marks andnames, Copyrights and research and development expenses except prepaid expenses,and (c) reserves not already deducted from assets, and (ii) TotalLiabilities.

"**Total****Liabilities**" is on any day,obligations that should, under GAAP, be classified as liabilities on Borrower'sconsolidated balance sheet, including all Indebtedness, and current portionSubordinated Debt allowed to be paid, but excluding all other SubordinatedDebt.

"**Trademarks**" are trademark and servicemarkrights, registered or not, applications to register and registrations and likeprotections, and the entire goodwill of the business of Assignor connected withthe trademarks.

BORROWER:

THERMA-WAVE, INC.

 

By: 						
Title: 						
 

BANK:

SILICON VALLEY BANK

 

By: 						
Title: 						
EXHIBIT A

The Collateral consists of all of Borrower's right, titleand interest in and to the following whether now owned or hereafter arising andwhether the Borrower has rights now or hereafter has rights therein and whereverlocated:

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

All inventory, now owned or hereafteracquired, including, without limitation, all merchandise, raw materials, parts,supplies, packing and shipping materials, work in process and finished productsincluding such inventory as is held for sale or lease, or to be furnished undera contract of service or is temporarily out of Borrower's custody or possessionor in transit and including any returns or repossession upon any accounts orother proceeds, including insurance proceeds, resulting from the sale ordisposition of any of the foregoing and any documents of title representing anyof the above;

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

All now existing and hereafter arisingaccounts (including health-care insurance receivables), contract rights,royalties, license rights and all other forms of obligations owing to Borrowerarising out of the sale or lease of goods, the licensing of technology or therendering of services by Borrower, whether or not earned by performance, and anyand all credit insurance, guaranties, and other security therefor, as well asall merchandise returned to or reclaimed by Borrower;

All documents (including negotiabledocuments), cash, deposit accounts, securities, securities entitlements,securities accounts, investment property, financial assets, letters of credit,letter of credit rights, money, certificates of deposit, instruments (includingpromissory notes) and chattel paper (including tangible and electronic chattelpaper) now owned or hereafter acquired and Borrower's Books relating to theforegoing;

All copyright rights, copyrightapplications, copyright registrations and like protections in each work ofauthorship and derivative work thereof, whether published or unpublished, nowowned or hereafter acquired; all trade secret rights, including all rights tounpatented inventions, know-how, operating manuals, license rights andagreements and confidential information, now owned or hereafter acquired; allclaims for damages by way of any past, present and future infringement of any ofthe foregoing; and

All Borrower's Books relating to theforegoing, and the computers and equipment containing said books and records,and any and all claims, rights and interests in any of the above and allsubstitutions for, additions and accessions to and proceeds thereof.

EXHIBIT B

LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

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

TO: CENTRAL CLIENT SERVICE DIVISION	DATE:   				
FAX#:  (408) 496-2426				TIME:   				
FROM:  Therma-Wave, Inc.											
					CLIENT NAME (BORROWER)

REQUESTED BY:  											
					AUTHORIZED SIGNER'S NAME

AUTHORIZED SIGNATURE:  									
PHONE NUMBER: 											
FROM ACCOUNT #                         TO ACCOUNT # 						
REQUESTED TRANSACTION TYPE			REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE)		$						
PRINCIPAL PAYMENT (ONLY)			$						
INTEREST PAYMENT (ONLY)			$						
PRINCIPAL AND INTEREST (PAYMENT)	$						
OTHER INSTRUCTIONS: 										
													

All Borrower's representations and warranties in the Loan and SecurityAgreement are true, correct and complete in all material respects on the date ofthe telephone request for and Advance confirmed by this Borrowing Certificate;but those representations and warranties expressly referring to another dateshall be true, correct and complete in all material respects as of that date.

1

BANK USE ONLY

TELEPHONE REQUEST:  

The following person is authorized to request the loan payment transfer/loanadvance on the advance designated account and is known to me.

															
		Authorized Requester							Phone #

															
		Received By (Bank)							Phone #

 

													
						    Authorized Signature (Bank)

2
**EXHIBIT C******************************************************