**Exhibit10.18**

 

BUSINESS FINANCINGAGREEMENTdated as of July 8, 2004betweenBRIDGE BANK, NATIONAL ASSOCIATIONandAML COMMUNICATIONS, INC., a Delaware corporation (“Borrower”).

 

Borrower and Lender agree as follows:

 

1.               Definitions andConstruction.

 

1.1   Definitions.  In this Agreement:

 

“Account Balance” means at any time theaggregate of the Receivable Amounts of all Eligible Receivables at such time.

 

“Account Debtor” has the meaning in theCalifornia Uniform Commercial Code and includes any person liable on anyReceivable, including without limitation, any guarantor of any Receivable andany issuer of a letter of credit or banker’s acceptance assuring paymentthereof.

 

“Adjustments” means all discounts, allowances,disputes, offsets, defenses, rights of recoupment, rights of return, warrantyclaims, or short payments, asserted by or on behalf of any Account Debtor withrespect to any Receivable.

 

“Advance” means a Formula Advance made pursuantto Section 2.2.

 

“Advance Rate” means 80% or such greater or lesserpercentage as Lender may from time to time establish in its sole discretionupon notice to Borrower.

 

“Agreement” means this Business FinancingAgreement.

 

“Borrowing Base” means at any time the sum ofthe product of the Account Balance and the Advance Rate.

 

“Collateral” means all of Borrower’s rights andinterest in any and all personal property, whether now existing or hereafteracquired or created and wherever located, and all products and proceeds thereofand accessions thereto, including the following (collectively, the“Collateral”):  accounts, includinghealth care insurance receivables, chattel paper, inventory, equipment,instruments, including promissory notes, investment property, documents,deposit accounts, letter of credit rights, any commercial tort claim ofBorrower which is now or hereafter identified by Borrower or Lender, generalintangibles, and supporting obligations.

 

“Collections” means all payments from or onbehalf of an Account Debtor with respect to Receivables.

 

“Compliance Certificate” means a certificate inthe form attached to this Agreement by the chief financial officer of Borrowerthat, among other things, the representations and warranties set forth in thisAgreement are true and correct as of the date such certificate is delivered.

 

“Credit Limit” means $1,500,000.00, of which upto $1,000,000 may be used for Formula Advances, and up to $500,000 may be usedfor Equipment Advances, subject to Section 2.2 and 2.3.

 

“Debt Service Coverage” means a ratio of (a) thesum of net profit after tax, interest expense, and depreciation andamortization divided by (b) the sum of interest expense and current portion oflong-term debt divided by 12.

 

“Default” means any Event of Default or anyevent that with notice, lapse of time or otherwise would constitute an Event ofDefault.

 

“Eligible Receivable”means a Receivable (net of any prepaid or pre-billed maintenance revenue) thatsatisfies all of the following:

 

(a)           The Receivable has been created byBorrower in the ordinary course of Borrower’s business and without anyobligation on the part of Borrower to render any further performance.

 

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(b)           There are no conditions which must besatisfied before Borrower is entitled to receive payment of the Receivable, andthe Receivable does not arise from COD sales, consignments or guaranteed sales.

 

(c)           The Account Debtor upon theReceivable does not claim any defense to payment of the Receivable, whetherwell founded or otherwise.

 

(d)           The Receivable is not the obligationof an Account Debtor who has asserted or may assert any counterclaims oroffsets against Borrower (including offsets for any “contra accounts” owed byBorrower to the Account Debtor for goods purchased by Borrower or for servicesperformed for Borrower).

 

(e)           The Receivable represents a genuineobligation of the Account Debtor and to the extent any credit balances exist infavor of the Account Debtor, such credit balances shall be deducted incalculating the Receivable Amount.

 

(f)            Borrower has sent an invoice to theAccount Debtor in the amount of the Receivable.

 

(g)           Borrower is not prohibited by thelaws of the state where the Account Debtor is located from bringing an actionin the courts of that state to enforce the Account Debtor’s obligation to paythe Receivable.  Borrower has taken allappropriate actions to ensure access to the courts of the state where theAccount Debtor is located, including, where necessary, the filing of a Noticeof Business Activities Report or other similar filing with the applicable stateagency or the qualification by Borrower as a foreign corporation authorized totransact business in such state.

 

(h)           The Receivable is owned by Borrowerfree of any title defects or any liens or interests of others except thesecurity interest in favor of Lender, and Lender has a perfected, firstpriority security interest in such Receivable.

 

(i)            The Account Debtor on the Receivableis not any of the following:  (i) anemployee, affiliate, parent or subsidiary of Borrower, or an entity which hascommon officers or directors with Borrower; (ii) the U.S. government or anyagency or department of the U.S. government unless Borrower complies with theprocedures in the Federal Assignment of Claims Act of 1940 (41 U.S.C.§15) withrespect to the Receivable, and the underlying contract expressly provides thatneither the U.S. government nor any agency or department thereof shall have theright of set-off against Borrower (“Eligible Government Receivables”); (iii)any person or entity located in a foreign country unless (A) the Receivable issupported by an irrevocable letter of credit issued by a bank acceptable toLender, and (B) if requested by Lender, the original of such letter of creditand/or any usance drafts drawn under such letter of credit and accepted by the issuingor confirming bank have been delivered to Lender; or (iv) an Account Debtor asto which 25% percent or more of the aggregate dollar amount of all outstandingReceivables owing from such Account Debtor have not been paid within 90 daysfrom invoice date.

 

(j)            The Receivable is not in default (aReceivable will be considered in default if any of the following occur: (i) theReceivable is not paid within 90 days from its invoice date; (ii) the AccountDebtor obligated upon the Receivable suspends business, makes a generalassignment for the benefit of creditors, or fails to pay its debts generally asthey come due; or (iii) any petition is filed by or against the Account Debtorobligated upon the Receivable under any bankruptcy law or any other law or lawsfor the relief of debtors).

 

(k)           The Receivable does not arise fromthe sale of goods which remain in Borrower’s possession or under Borrower’scontrol.

 

(l)            The Receivable is not evidenced by apromissory note or chattel paper, nor is the Account Debtor obligated toBorrower under any other obligation which is evidenced by a promissory note.

 

(m)          The Receivable is not that portion ofReceivables due from an Account Debtor which is in excess of 25% of Borrower’saggregate dollar amount of all outstanding Receivables.

 

(n)           The Receivable is otherwiseacceptable to Lender.

 

“Equipment Advance” means a cash advance underSection 2.3.

 

“Event of Default” has the meaning set forth inSection 9.1.

 

“Facility Fee” means $7,500.00.

 

“Finance Charge” means for each ReconciliationPeriod an interest amount equal to the Finance Charge

 

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Percentage of the averagedaily outstanding Advances during such Reconciliation Period with respect toFormula Advances, and the Finance Charge Percentage of the average dailyoutstanding Equipment Advances with respect to Equipment Advances.

 

“Finance Charge Percentage” means a rate peryear equal to (a) the Prime Rate plus 2.00% with respect to Formula Advances,and (b) the Prime Rate plus 3.50% with respect to Equipment Advances.

 

“FormulaAdvance” means a cash advance made under Section 2.2(a).

 

“FundingRequest” means a writing signed by an authorized representative of Borrowerrequesting an Advance in form and substance acceptable to Lender that (i) as toa Formula Advance, accurately identifies the Eligible Receivables andReceivable Amounts, and includes for each such Receivable the correct amountowed by the Account Debtor, the name and address of the Account Debtor, the invoicenumber, the invoice date and the account code, and (ii) as to an EquipmentAdvance, identifies the equipment being financed and includes a copy of theinvoice for such equipment and proof of payment for such equipment.

 

“Lender” means Bridge Bank, NationalAssociation, and its successors and assigns.

 

“Minimum Utilization Fee” means for anyReconciliation Period the amount (if any) by which $500.00 exceeds the totalamount of Finance Charges with respect to Formula Advances and EquipmentAdvances for that Reconciliation Period.

 

“Obligations” means all liabilities andobligations of Borrower to Lender of any kind or nature, present or future,arising under or in connection with this Agreement or under any other document,instrument or agreement, whether or not evidenced by any note, guarantee orother instrument, whether arising on account or by overdraft, whether direct orindirect (including those acquired by assignment) absolute or contingent,primary or secondary, due or to become due, now owing or hereafter arising, andhowever acquired; including, without limitation, all Advances, Finance Charges,fees, interest, expenses, professional fees and attorneys’ fees.

 

“Overadvance” means that the total amount ofthe Formula Advances then outstanding exceeds the lesser of $1,000,000 or theBorrowing Base.

 

“Prime Rate” means for any day, a variable rateof interest, per annum, most recently published by the Wall Street Journal, asthe “prime rate,” provided that if such day is not a business day, the Prime Ratefor such day shall be such rate on such transactions on the next precedingbusiness day as so published in the Wall Street Journal on the next succeedingbusiness day. The Prime Rate shall at no event be less than 4.00%.

 

“Receivable Amount” means as to any Receivable,the Receivable Amount due from the Account Debtor after deducting alldiscounts, credits, offsets, payments or other deductions of any naturewhatsoever, whether or not claimed by the Account Debtor.

 

“Receivables” means Borrower’s rights topayment arising in the ordinary course of Borrower’s business, includingaccounts, chattel paper, instruments, contract rights, documents, generalintangibles, letters of credit, drafts, and bankers acceptances.

 

“Reconciliation Date” means the last calendarday of each Reconciliation Period.

 

“Reconciliation Period” means each calendarmonth.

 

“Termination Date” means the earlier of (a) oneyear from the date hereof, or (b) the date on which Lender elects to terminatethis Agreement pursuant to the terms herein.

 

“Termination Fee” means a payment equal to 1.0%of the Credit Limit.

 

1.2         Construction:

 

(a)           In this Agreement:  (i) references to the plural includethe singular and to the singular include the plural; (ii) references toany gender include any other gender; (iii) the terms “include” and“including” are not limiting; (iv) the term “or” has the inclusive meaningrepresented by the phrase “and/or,” (v) unless otherwise specified, section andsubsection references are to this Agreement, and (vi) any reference to anystatute, law, or regulation shall include all amendments thereto and revisionsthereof.

 

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(b)           Neither this Agreement nor anyuncertainty or ambiguity herein shall be construed or resolved using anypresumption against either Borrower or Lender, whether under any rule ofconstruction or otherwise.  On thecontrary, this Agreement has been reviewed by each party hereto and theirrespective counsel.  In case of anyambiguity or uncertainty, this Agreement shall be construed and interpretedaccording to the ordinary meaning of the words used to accomplish fairly thepurposes and intentions of all parties hereto.

 

(c)           Titles and section headings used inthis Agreement are for convenience only and shall not be used in interpretingthis Agreement.

 

2.               Advances.

 

2.1         Funding Requests.  Borrower may request that Lender make anAdvance or Equipment Advance by delivering to Lender a Funding Request.  Lender shall be entitled to rely on all theinformation provided by Borrower to Lender on or with the Funding Request andto rely on the signature on any Funding Request as an authorized signature ofBorrower.

 

2.2         Revolving Credit Line.  Subject to the terms and conditions of thisAgreement, from the date on which this Agreement becomes effective until theTermination Date, Borrower may request cash advances under this Section fromtime to time.  Lender has no obligationto Amounts borrowed under this Section may be repaid and reborrowed during theterm of this Agreement.  It shall be acondition to each Advance that (a) all of the representations andwarranties set forth in Section 6 are true and correct on the date of suchAdvance as though made at and as of each such date and (b) no Default hasoccurred and is continuing, or would result from such Advance

 

(a)           Borrower may request Formula Advancesin an aggregate amount not to exceed the lesser of $1,000,000 or the BorrowingBase; provided that in no event shall Lender be obligated to make any FormulaAdvance that results in an Overadvance or while any Overadvance is outstanding.

 

2.3         Equipment Advances.  Subject to the terms and conditions of thisAgreement, from the date hereof through six months from the date of thisAgreement, Borrower may request Equipment Advances of up to an aggregateprincipal amount of $500,000 to finance the acquisition of Equipment.  Each Equipment Advance shall not exceed 100%of the invoice price of Equipment (which is not to including soft costs)approved by Bank from time to time.  Onthe last day of each month, Borrower shall pay Lender all accrued FinanceCharges on all outstanding Equipment Advances during such month. Any EquipmentAdvances outstanding on the earlier of (i) six months from the date of thisAgreement or (ii) the date that Borrower has requested Equipment Advances in anaggregate principal amount of $500,000 (the “Term Out Date”) shall be payablein thirty-six (36) equal monthly installments of principal, plus all accruedFinance Charges, beginning the last day of the month after the Term Out Date(or on the Term Out Date if it is the last day of the month) and continuing onthe same day of each month thereafter until all of the Equipment Advances havebeen repaid in full, provided, if this Agreement is terminated prior to allEquipment Advances are paid in full, all outstanding principal balance plus allaccrued Finance Charges of Equipment Advances shall be due at the time of thetermination. Once the Equipment Advances are termed out, the Finance ChargePercentage for Equipment Advances shall be fixed at such rate effective as ofthe Term Out Date. Equipment Advances may be prepaid, but may not bereborrowed.

 

2.4         Rights in Respect of  Receivables.  Lender shall have the exclusive right to receive all Collectionson the Receivable and no Adjustments will be made without the Lender’sconsent.  Lender shall have, withrespect to any goods related to the Receivables, all the rights and remedies ofan unpaid seller under the California Uniform Commercial Code and otherapplicable law, including the rights of replevin, claim and delivery,reclamation and stoppage in transit.

 

2.5         Due Diligence.  Lender may at any time and from time to timecontact Account Debtors and other persons obligated or knowledgeable in respectof Receivables to confirm the Receivable Amount of such Receivables, todetermine whether Receivables constitute Eligible Receivables, and for anyother purpose in connection with this Agreement.  Lender may audit Borrower’s Receivables and any and all recordspertaining to the Collateral, at Lender’s sole discretion and at Borrower’sexpense.

 

3.               Collections,Charges and Remittances.

 

3.1         Collections. At Lender’sdiscretion, all Collections received by Lender may either be (a) credited toBorrower’s deposit account with Bank, or (b) applied to repay when due theAdvances and other Obligations;

 

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once allObligations have been paid in full, Lender agrees to remit to Borrower theremaining amount of Collections it receives; provided, however, in the event of(b) Lender agrees to make a commercially reasonable attempt to provide noticeto Borrower.  Lender shall creditCollections with respect to Receivables received by Lender to Borrower’sAccount Balance within three business days of the date received.  Lender has no duty to do any act other thanto turn over such amounts as required above. If an item of Collections is not honored or Lender does not receive goodfunds for any reason, the amount of any application shall be reversed as if theCollections had not been received and Finance Charges under Section 3.2shall accrue thereon.

 

3.2         Finance Charges.  On each Reconciliation Date Borrower shallpay to Lender the Finance Charge for the Reconciliation Period ending on suchReconciliation Date.  Lender may effectpayment of the Finance Charges under Section 4.2 or charge such Finance Chargesas an Advance.

 

3.3         Fees.

 

(a)           Facility Fee.  On the date of this Agreement and on eachanniversary thereof prior to the termination of this Agreement, Borrower shallpay to Lender the Facility Fee; provided, Borrower is allowed to pay the firstyear’s Facility Fee in four equal quarterly installments, due on the date ofthis Agreement and every three months thereafter. In the event this Agreementis terminated prior to the first anniversary of this Agreement, any unpaidportion of the Facility Fee shall be due at the time of termination.

 

(b)           Termination Fee.  In the event this Agreement is terminatedwithin 12 months of the date of this Agreement, Borrower shall pay theTermination Fee to Lender; provided that such Termination Fee shall be waivedif this Agreement is terminated on terms acceptable to Lender in connectionwith Borrower’s entry into a financing agreement with an affiliate of Lender.

 

(c)           Intentionally omitted.

 

3.4         Reporting.  Within 15 days after the end of eachReconciliation Period, Lender shall send to Borrower a report covering thetransactions for that Reconciliation Period, including the amount of all Collections,Adjustments made by Lender, Finance Charges, and other fees and charges.  The accounting shall be deemed correct andconclusive unless Borrower makes written objection to Lender within 30 daysafter the Lender mails the accounting to Borrower.

 

3.5         Adjustments.  In the event of a breach of Sections 6or 7, or in the event any Adjustment or dispute is asserted by any AccountDebtor, Borrower shall promptly advise Lender and shall, subject to theLender’s approval, resolve such disputes and advise Lender of anyadjustments.  Lender shall have theright, at any time, to take possession of any rejected, returned, or recoveredpersonal property.  If such possessionis not taken by Lender, Borrower shall at Lender’s request resell it forLender’s account at Borrower’s expense with the proceeds made payable toLender.  While Borrower retainspossession of any returned goods, Borrower shall segregate said goods and markthem as property of Lender.

 

3.6         Lockbox Account Collection Services.  Borrower, Lender and lockbox provideracceptable to Lender shall immediately enter into a three party agreementacceptable to Lender (the “Lockbox Agreement”).  Borrower shall use the lockbox address as the remit to andpayment address for all of Borrower’s Collections and it will be considered animmediate Event of Default if this does not occur or is not operational within60 days of the date of this Agreement. All Collections received to the lockbox will be deposited to a non-interestbearing bank-control account maintained with Lender and Borrower will not haveaccess to that account.  Upon theoccurrence of the initial Advance or initial Equipment Advance and thereafter,Borrower will immediately notify, transfer and deliver to Lender allCollections Borrower receives. Additionally, Lender may request that AccountDebtors pay (by wire transfer or otherwise) Collections to Lender directly.

 

4.               Overadvances.

 

4.1         Overadvances.  Upon any occurrence of an Overadvance,Borrower shall immediately pay down the Advances so that, after giving effectto such payments, no Overadvance exists.

 

4.2         Borrower’s Payment.  When any Overadvance or other amount owingto Lender becomes due, Lender shall inform Borrower of the manner of paymentwhich may be any one or more of the following in Lender’s sole discretion:  (a) in cash immediately upon demandtherefor; (b) by deduction from or offset against the amount that otherwisewould be forwarded to Borrower in respect of any further Advances that

 

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may be made byLender; or (c) by any combination of the foregoing as Lender may from timeto time choose. Borrowerhereby authorizes Lender to debit its checking account #0101032605 maintainedwith Lender for any and all Obligations due under this Agreement.

 

5.     Powerof Attorney.  Borrower irrevocablyappoints Lender and its successors and assigns as Borrower’s true and lawfulattorney in fact, and authorizes Lender, at Borrower’s sole expense, (a)whether or not there has been an Event of Default, to (i) receive and openall mail addressed to Borrower for the purpose of collecting the Receivables;(ii) endorse Borrower’s name on any checks or other forms of payment onthe Receivables; (iii) execute on behalf of Borrower any and allinstruments, documents, financing statements and the like to perfect Lender’sinterests in the Receivables and Collateral; (iv) notify Account Debtors thatthe underlying Receivables have been assigned to Lender and that paymentthereof is to be made to the order of Lender and sent directly to Lender; and(v) do all acts and things necessary or expedient, in furtherance of anysuch purposes, and (b) upon the occurrence and during the continuance of anyEvent of Default, without limiting Lender’s other rights and remedies, to(i) sell, assign, transfer, pledge, compromise, or discharge the whole orany part of the Collateral; (ii) demand, collect, receive, sue, and givereleases to any Account Debtor for the monies due or which may become due uponor with respect to the Receivables and to compromise, prosecute, or defend anyaction, claim, case or proceeding relating to the Collateral, including thefiling of a claim or the voting of such claims in any bankruptcy case, all inLender’s name or Borrower’s name, as Lender may choose; and (iii) prepare,file and sign Borrower’s name on any notice, claim, assignment, demand, draft,or notice of or satisfaction of lien or mechanics’ lien or similar documentwith respect to the Collateral.

 

6.               Representationsand Warranties.** **Borrowerrepresents and warrants:

 

(a)       With respect to eachEligible Receivable:

 

(i)        It is the owner with legal right tosell, transfer and assign it;

 

(ii)       The correct Receivable Amount has beenaccurately reported to Lender and is not disputed;

 

(iii)      Lender has the right to endorse and/ orrequire Borrower to endorse all payments received on Receivables and allproceeds of Collateral; and

 

(iv)      No representation, warranty or otherstatement of Borrower in any certificate or written statement given to Lendercontains any untrue statement of a material fact or omits to state a materialfact necessary to make the statement contained in the certificates or statementnot misleading.

 

(b)      Borrower is duly existing and in goodstanding in its state of formation and qualified and licensed to do businessin, and in good standing in, any state in which the conduct of its business orits ownership of property requires that it be qualified.

 

(c)       The execution, delivery and performanceof this Agreement has been duly authorized, and does not conflict withBorrower’s organizational documents, nor constitute an Event of Default underany material agreement by which Borrower is bound.  Borrower is not in default under any agreement to which or bywhich it is bound.

 

(d)      Borrower has good title to the Collateraland all inventory is in all material respects of good and marketable quality,free from material defects.

 

(e)       Borrower’s name, form of organization,chief executive office, and the place where the records concerning allReceivables and Collateral are kept is set forth at the beginning of thisAgreement, Borrower is located at its address for notices set forth in thisAgreement.

 

(f)       If Borrower owns, holds or has anyinterest in, any copyrights (whether registered, or unregistered), patents ortrademarks, and licenses of any of the foregoing, such interest has beenspecifically disclosed and identified to Lender in writing.

 

7.               MiscellaneousProvisions.  Borrower will:

 

(a)       Maintain its corporate existence and goodstanding in its jurisdictions of incorporation and maintain its qualificationin each jurisdiction necessary to Borrower’s business or operations.

 

(b)      Give Lender at least 30 days prior writtennotice of changes to its name, organization, chief executive office or locationof records.

 

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(c)       Pay all its taxes including grosspayroll, withholding and sales taxes when due and will deliver satisfactoryevidence of payment to Lender if requested.

 

(d)      Provide to Lender a written report within10 days, if payment of any Receivable does not occur by its due date andinclude the reasons for the delay.

 

(e)       Provide to Lender copies of all ofBorrower’s Forms 10-K, 10-Q and 8-K (or equivalents) within 5 days of filingany of the foregoing with the Securities and Exchange Commission.

 

(f)       Execute any further instruments and takefurther action as Lender requests to perfect or continue Lender’s securityinterest in the Collateral or to effect the purposes of this Agreement.

 

(g)      Immediately notify, transfer and deliverto Lender all Collections Borrower receives.

 

(h)      Not create, incur, assume, or be liablefor any indebtedness.

 

(i)        Immediately notify Lender if Borrowerhereafter obtains any interest in any copyrights, patents, trademarks orlicenses that are significant in value or are material to the conduct of itsbusiness or the value of any Receivable.

 

(j)        Provide to Lender (i) within 5 daysafter the end of each month the following for such month and the period then ending,in each case in form and substance acceptable to Lender:  borrowing base certificate, accountsreceivable and payable aging report and deferred revenue report and (ii) within30 days after the end of each month and the period then ending a ComplianceCertificate and financial statements including balance sheet, income statementand cash flow statement.

 

(k)       Provide to Lender by July 31, 2004 for2003, and within 120 days after fiscal year end for subsequent years, auditedfinancial statements in form and substance acceptable to Lender, together withan unqualified opinion of an independent certified public accountant acceptableto Lender.

 

(m)      Permit and cooperate with Lender from timeto time hereafter to audit Borrower’s Receivables at Borrower’s expense.  Such audit shall be conducted prior to theinitial Advance and every six months thereafter as otherwise requested byLender.  The results of such audit mustbe acceptable to Lender.

 

(n)    Maintain its primarydepository and operating accounts with Lender.

 

(o)    Maintain net profit after tax,on a quarterly basis, in an amount greater than $.01.

 

(p)    Effective the month endingApril 2004 and each month thereafter and while any Equipment Advances remainsunpaid, maintain a Debt Service Coverage ratio of at least 1.25 to 1.00.

 

(q)    At all times insure all of thetangible Collateral and carry such other business insurance, with insurersreasonably acceptable to Lender, in such form and amounts as Lender mayreasonably require and that are customary and in accordance with standardpractices for Borrower’s industry and locations, and Borrower shall provideevidence of such insurance to Lender within 30 days from the initial Advance orEquipment Advance, whichever is earlier. All such insurance policies shall name Lender as an additional losspayee, and shall contain a lenders loss payee endorsement in form reasonablyacceptable to Lender.  Upon receipt ofthe proceeds of any such insurance, Lender shall apply such proceeds inreduction of the Obligations, as Lender shall determine in its good faithbusiness judgment, provided that no Default or Event of Default has occurredand is continuing.  If Borrower fails toprovide or pay for any insurance, Lender may, but is not obligated to, obtainthe same at Borrower’s expense. Borrower shall promptly deliver to Lender copies of all material reportsmade to insurance companies.

 

8.     SecurityInterest.  To secure the promptpayment and performance to Lender of all of the Obligations, Borrower herebygrants to Lender a continuing security interest in the Collateral.  Borrower is not authorized to sell, assign,transfer or otherwise convey any Collateral without Lender’s prior writtenconsent, except for the sale of finished inventory in the Borrower’s usualcourse of business.  Borrower agrees tosign any instruments and documents requested by Lender to evidence, perfect, orprotect the interests of Lender in the Collateral.  Borrower agrees to deliver to Lender the originals of allinstruments, chattel paper and documents evidencing or related to Receivablesand other Collateral.  Borrower shallnot grant or permit any lien or security interest in the Collateral or anyinterest therein.

 

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9.     Defaultand Remedies.

 

9.1   Eventsof Default.  The occurrence of anyone or more of the following shall constitute an Event of Default hereunder.

 

(a)           Failure to Pay.  Borrower fails to make a payment under thisAgreement.

 

(b)           Lien Priority.  Lender fails to have an enforceable first lien(except for any prior liens to which Lender has consented in writing) on orsecurity interest in the Collateral.

 

(c)           False Information.  Borrower (or any guarantor) has given Lenderfalse or misleading information or representations.

 

(d)           Death.  If Borrower is a partnership, any generalpartner dies or becomes legally incompetent; or any guarantor dies or becomeslegally incompetent.

 

(e)           Bankruptcy.  Borrower (or any guarantor) files abankruptcy petition, a bankruptcy petition is filed against Borrower (or anyguarantor) or Borrower (or any guarantor) makes a general assignment for thebenefit of creditors.

 

(f)            Receivers.  A receiver or similar official is appointedfor a substantial portion of Borrower’s (or any guarantor’s) business, or thebusiness is terminated.

 

(g)           Judgments.  Any judgments or arbitration awards areentered against Borrower (or any guarantor), or Borrower (or any guarantor)enters into any settlement agreements with respect to any litigation orarbitration.

 

(h)           Material AdverseChange.  A material adverse changeoccurs, or is reasonably likely to occur, in Borrower’s (or any guarantor’s)business condition (financial or otherwise), operations, properties orprospects, or ability to repay the credit; or Lender determines that it isinsecure for any other reason.

 

(i)            Cross-default.  Any default occurs under any agreement inconnection with any credit Borrower (or any guarantor) or any of Borrower’srelated entities or affiliates has obtained from anyone else or which Borrower(or any guarantor) or any of Borrower’s related entities or affiliates hasguaranteed.

 

(j)            Default underRelated Documents.  Any defaultoccurs under any guaranty, subordination agreement, security agreement, deed oftrust, mortgage, or other document required by or delivered in connection withthis Agreement or any such document is no longer in effect.

 

(k)           Other Agreements.  Borrower (or any guarantor) or any ofBorrower’s related entities or affiliates fails to meet the conditions of, orfails to perform any obligation under any other agreement Borrower (or anyguarantor) or any of Borrower’s related entities or affiliates has with Lenderor any affiliate of Lender.

 

(l)            Other Breach UnderAgreement.  Borrower fails to meetthe conditions of, or fails to perform any obligation under, any term of thisAgreement not specifically referred to above.

 

9.2   Remedies.  Upon the occurrence of an Event of Default,(1) without implying any obligation to do so, Lender may cease makingAdvances or Equipment Advances, or extending any other financial accommodationsto Borrower; (2) all or a portion of the Obligations shall be, at theoption of and upon demand by Lender, or with respect to an Event of Defaultdescribed in Section 9.1(e), automatically and without notice or demand,due and payable in full; (3) regardless of an occurrence of an Event of Default, Lender may notify Account Debtorsthat the underlying Receivables have been assigned to Lender and that paymentthereof is to be made to the order of Lender and sent directly to Lender, and(4) Lender shall have and may exercise all the rights and remedies underthis Agreement and under applicable law, including the rights and remedies of asecured party under the California Uniform Commercial Code, all the power of attorneyrights described in Section 5 with respect to all Collateral, and theright to collect, dispose of, sell, lease, use, and realize upon allReceivables and all Collateral in any commercial reasonable manner.

 

10.   Accrualof Interest.  If any amount owed byBorrower hereunder is not paid when due, including, without limitation, amountsdue under Section 3.3, Overadvances, amounts due under Section 11,and any other Obligations, such amounts shall bear interest at a per annum rateequal to the per annum rate of the Finance Charges until the earlier of(i) payment in good funds or (ii) entry of a final judgment thereof,at which time the

 

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principal amount of any money judgment remainingunsatisfied shall accrue interest at the highest rate allowed by applicablelaw.  All interest and Finance Chargeshereunder calculated at an annual rate shall be based on a year of 360 days,which results in a higher effective rate of interest than if a year of 365 or366 days were used.

 

11.   Fees,Costs and Expenses; Indemnification. The Borrower will pay to Lender upon demand all fees, costs and expenses(including fees of attorneys and professionals and their costs and expenses)that Lender incurs or may from time to time impose in connection with any ofthe following: (a) preparing, negotiating, administering, and enforcingthis Agreement or any other agreement executed in connection herewith,including any amendments, waivers or consents in connection with any of theforegoing, (b) any litigation or dispute (whether instituted by Lender,Borrower or any other person) in any way relating to the Receivables, theCollateral, this Agreement or any other agreement executed in connectionherewith or therewith, (c) enforcing any rights against Borrower or anyguarantor, or any Account Debtor, (d) protecting or enforcing its interestin the Receivables or the Collateral, (e) collecting the Receivables andthe Obligations, or (f) the representation of Lender in connection with anybankruptcy case or insolvency proceeding involving Borrower, any Receivable,the Collateral, any Account Debtor, or any guarantor.  Borrower shall indemnify and hold Lender harmless from andagainst any and all claims, actions, damages, costs, expenses, and liabilitiesof any nature whatsoever arising in connection with any of the foregoing.

 

12.   Integration,Severability, Waiver, and Choice of Law. This Agreement and any related security or other agreements required bythis Agreement, collectively: (a) represent the sum of the understandings andagreements between Lender and Borrower concerning this credit; (b) replace anyprior oral or written agreements between Lender and Borrower concerning thiscredit; and (c) are intended by Lender and Borrower as the final, complete andexclusive statement of the terms agreed to by them.  In the event of any conflict between this Agreement and any otheragreements required by this Agreement, this Agreement will prevail.  If any provision of this Agreement is deemedinvalid by reason of law, this Agreement will be construed as not containingsuch provision and the remainder of the Agreement shall remain in full forceand effect.  This Agreement may besigned in two or more counterparts, each of which shall be deemed an original,but all of which shall constitute one instrument.  Lender retains all of its rights, even if it makes an Advanceafter a default.  If Lender waives adefault, it may enforce a later default. Any consent or waiver under, or amendment of, this Agreement must be inwriting, and no such consent, waiver, or amendment shall imply any obligationby Lender to make any subsequent consent, waiver, or amendment.  The state and federal courts of Santa ClaraCounty, California shall have exclusive jurisdiction over matters arising outof this Agreement. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED INACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.

 

13.   Notices.  All notices shall be given to Lender andBorrower at the addresses or faxes set forth on the signature page of thisAgreement and shall be deemed to have been delivered and received: (a) ifmailed, three (3) calendar days after deposited in the United States mail,first class, postage pre-paid, (b) one (1) calendar day after deposit withan overnight mail or messenger service; or (c) on the same date ofconfirmed transmission if sent by hand delivery, telecopy, or telefax.

 

14.   JuryTrial; Arbitration.  EACH PARTY TOTHIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,DEMAND, ACTION OR CAUSE OF ACTION ARISING IN CONNECTION WITH THE OBLIGATIONS ORIN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THEPARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY OBLIGATION, OR THETRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTERARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTYHEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OFACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TOTHIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITHANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THEWAIVER OF THEIR RIGHT TO TRIAL BY JURY. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER, HASDETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL,AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.

 

IF THE JURY WAIVERIN THIS SECTION 14 IS FOR ANY REASON NOT ENFORCEABLE, THEN ANY DISPUTE,CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY

 

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OF THETRANSACTIONS CONTEMPLATED HEREIN SHALL BE SETTLED BY FINAL AND BINDINGARBITRATION TO BE HELD IN SANTA CLARA COUNTY, CALIFORNIA AND IN ACCORDANCE WITHTHE THEN-CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATIONASSOCIATION.  JUDGMENT UPON ANY AWARDRESULTING FROM ARBITRATION MAY BE ENTERED INTO AND ENFORCED BY ANY STATE ORFEDERAL COURT HAVING JURISDICTION THEREOF.

 

15.   Term andTermination.  This Agreement shallbecome effective upon the execution and delivery hereof by Borrower and Lenderand shall continue in full force and effect for one year from the datehereof.  Upon the Termination Date, theunpaid balance of the Obligations, including all outstanding EquipmentAdvances, shall be due and payable without demand or notice.

 

16.   OtherAgreements.  (i) Any securityagreements, liens and/or security interests securing payment of any obligationsof Borrower owing to Lender or its affiliates also secure the Obligations, andare valid and subsisting and are not adversely affected by execution of thisAgreement.  An Event of Default underthis Agreement constitutes a default under other outstanding agreements betweenBorrower and Lender or its affiliates; (ii) Lender reserves the right to issue press releases,advertisements, and other promotional materials describing any successfuloutcome of services provided on Borrower’s behalf.  Borrower agrees that Lender shall have the right to identifyBorrower by name in those materials.

 

IN WITNESS WHEREOF, Borrower and Lender have executedthis Agreement on the day and year above written.

 
| BORROWER:                                         | LENDER:                           |
|---------------------------------------------------|-----------------------------------|
|                                              |                              |
| AML COMMUNICATIONS, INC., a Delaware  corporation | BRIDGE BANK, NATIONAL ASSOCIATION |
|                                              |                              |
|                                              |                              |
| By                                                | /s/ Jacob Inbar                   |   | By | /s/ Michael J.  Field |   |
| Name:                                             | Jacob Inbar                       |   | Name: | Michael J. Field |   |
| Title:                                            | President                         |   | Title: | Vice President |   |
|                                              |                              |
| Address for Notices:                              | Address for Notices:              |
| 1000 Avenida Acaso                                | 2120 El Camino Real               |
| Camarillo, CA 93012                               | Santa Clara, CA 95050             |
| Fax: (805) 484-2191                               | Fax: (408) 423-8510               |
|                                                   |                                   |  |  |  |  |  |  |  |  |

 

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