**Exhibit 10.1**

 

 

 

**SECOND AMENDED AND RESTATED LOANAND SECURITY AGREEMENT**

**between**

**SILICONVALLEY BANK**

**and**

**QUICKLOGIC CORPORATION**

**June 30,2006**

 

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TABLEOF CONTENTS
|        | ** ** | ** **                                                      | ** ** | **Page** |
|--------|------------|-----------------------------------------------------------------|------------|----------|
|   |       |                                                            |       |     |
| 1.     |       | ACCOUNTING AND OTHER TERMS                                      |       | 1        |
|   |       |                                                            |       |     |
| 2.     |       | LOAN AND TERMS OF PAYMENT                                       |       | 2        |
|   |       |                                                            |       |     |
| 3.     |       | CONDITIONS OF LOANS                                             |       | 5        |
|   |       |                                                            |       |     |
| 4.     |       | CREATION OF SECURITY INTEREST                                   |       | 6        |
|   |       |                                                            |       |     |
| 5.     |       | REPRESENTATIONS AND WARRANTIES                                  |       | 6        |
|   |       |                                                            |       |     |
| 6.     |       | AFFIRMATIVE COVENANTS                                           |       | 9        |
|   |       |                                                            |       |     |
| 7.     |       | NEGATIVE COVENANTS                                              |       | 11       |
|   |       |                                                            |       |     |
| 8.     |       | EVENTS OF DEFAULT                                               |       | 13       |
|   |       |                                                            |       |     |
| 9.     |       | BANK’S RIGHTS AND REMEDIES                                 |       | 15       |
|   |       |                                                            |       |     |
| 10.    |       | NOTICES                                                         |       | 17       |
|   |       |                                                            |       |     |
| 11.    |       | CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL  REFERENCE |       | 17       |
|   |       |                                                            |       |     |
| 12.    |       | GENERAL PROVISIONS                                              |       | 18       |
|   |       |                                                            |       |     |
| 13.    |       | DEFINITIONS                                                     |       | 20       |

 

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**This SECOND AMENDED AND RESTATED LOAN AND SECURITYAGREEMENT** (the “Agreement”) dated June 30, 2006, betweenSILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa Clara,California 95054 and QUICKLOGIC CORPORATION, a Delaware corporation (“Borrower”),whose address is 1277 New Orleans Drive, Sunnyvale, CA  94089-1138, provides the terms on which Bankwill lend to Borrower and Borrower will repay Bank.

**RECITALS**

A.            Borrower and Bank havepreviously entered into that certain Loan and Security Agreement dated as ofJune 28, 2002, as amended and restated by that certain Amended and RestatedLoan and Security Agreement dated June 20, 2003, and as further amended by thatcertain Loan Modification Agreement dated as of June 28, 2004, and as further amendedby that certain Loan Modification Agreement dated as of June 27, 2005(collectively, the “Original Agreement”).

B.            Borrower and Bankdesire to amend and restate the Original Agreement, as modified, as set forthherein.

C.            Immediately prior to the amendmentand restatement of the Original Agreement in accordance with the terms andconditions hereof, certain loans and advances remain outstanding under theOriginal Agreement, as modified (collectively, the “Outstanding Debt”).

D.            In connection with theOutstanding Debt, Bank made equipment advances in the amount of $4,500,000, ofwhich (i) $148,928.62 is currently outstanding as of the Closing Date for theequipment line “B” advances; (ii) $648,279.25 is currently outstanding as ofthe Closing Date for the equipment line “C” advances; and (iii) $877,303.26 isoutstanding as of the Closing Date for the equipment line “D” advances(collectively, the “Outstanding Equipment Advances”).  The Outstanding Equipment Advances arepayable in accordance with the terms and amortization schedules currentlygoverning such Outstanding Equipment Advances, and no other advances thereundermay be made.

E.             It is not the intention ofthe Bank or the Borrower that this Agreement constitute a novation of theindebtedness governed by the Original Agreement, as modified, and from andafter the effective date of this Agreement, the Outstanding Debt and theOutstanding Equipment Advances shall remain owing to Bank on terms set forthunder the Original Agreement, as modified, and the Original Agreement shall befurther amended and restated in accordance with the terms and provisionshereof.

NOW, THEREFORE, Borrower and Bank hereby agree asfollows:

1.             ACCOUNTINGAND OTHER TERMS.

Accounting terms not defined in this Agreement will beconstrued following GAAP. Calculations and determinations must be madefollowing GAAP.  The term “financialstatements” includes the notes and schedules. The terms “including” and “includes” always mean “including (orincludes) without limitation,” in this or any Loan Document.

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2.             LOANAND TERMS OF PAYMENT.

2.1           Promiseto Pay.

Borrower will pay Bank the unpaid principal amount ofall Credit Extensions and interest due on the unpaid principal amount of theCredit Extensions.

2.1.1                                        Non-FormulaRevolving Advances.

(a)           Availability.  Subject to the terms and conditions of thisAgreement, Bank will make Advances on a non-formula basis (the “Non-FormulaAdvances”) in an aggregate amount not to exceed the amount calculatedas the Committed Non-Formula Revolving Line minus the sum of: (x)FX Reserve, plus, (y) the aggregate amounts deemed outstanding under thesublimit described in Section 2.1.5, plus, (z) the amount ofall outstanding Letters of Credit (including drawn but unreimbursed Letters ofCredit). Amounts borrowed under this Section may be repaid and reborrowedduring the term of this Agreement.

(b)           Termination.  The Committed Non-Formula Revolving Lineterminates on the Revolving Maturity Date, when all outstanding Advances areimmediately payable.

2.1.2                                        RequestingAdvances.

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 mustpromptly confirm the notification by delivering to Bank the Payment/AdvanceForm attached as Exhibit B.  Bankwill credit Advances to Borrower’s deposit account.  Bank may make Advances under this Agreementbased on instructions from a Responsible Officer or his or her designee orwithout instructions if the Advances are necessary to meet Obligations whichhave become due.  Bank may rely on anytelephone notice given by a person whom Bank believes is a Responsible Officeror designee. Borrower will indemnify Bank for any loss Bank suffers due to suchreliance unless such loss is due to Bank’s gross negligence or willfulmisconduct.

2.1.3                                        Letters ofCredit Sublimit.

(a)           Bank will issue lettersof credit for Borrower’s account not exceeding the Availability (“Letters ofCredit”).

(b)           Each Letter of Creditwill have an expiry date of no later than one hundred eighty (180) days afterthe Revolving Maturity Date, but Borrower’s reimbursement obligation will besecured by cash on terms acceptable to Bank at any time after the RevolvingMaturity Date if the term of this Agreement is not extended by Bank.  Borrower agrees to execute any furtherdocumentation in connection with the Letters of Credit as Bank may reasonablyrequest.

2.1.4                                        ForeignExchange Sublimit.

Subject to the limits set forth below in this Section2.1.4, Borrower may enter into foreign exchange forward contracts with the Bankunder which Borrower commits to purchase from or sell to Bank a set amount offoreign currency more than one business day after the contract date (the “FXForward Contract”) (the amount equal to 10% of the aggregate outstanding FXForward 

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Contracts is hereinafter referred to as the “FXReserve”).  The FX Reserve may notexceed the Availability.  The total FXForward Contracts at any one time may not exceed the amount calculated as 10multiplied by the FX Reserve.  Bank mayterminate the FX Forward Contracts if an Event of Default occurs and continues.

2.1.5                                        CashManagement Services Sublimit.

Borrower may use for Bank’s Cash Management Servicesup to an amount equal to the Availability (“Cash Management ServicesSublimit”).  Such services mayinclude merchant services, direct deposit of payroll, business credit card,clearing house services, control disbursement accounts and check cashingservices identified in various cash management services agreements related tosuch services (the “Cash Management Services”).  The aggregate amount of the credit limits under all such agreements withrespect to Cash Management Services shall be deemed to be the amount of theCash Management Services for the purposes of calculating the Cash ManagementServices Sublimit.  All amountsBank pays for any Cash Management Services will be treated as Advances underSection 2.1.1.  Bank will advise Borrowerof any amounts that would affect the Cash Management Services Sublimit.

2.1.6                                        Prepayment.

Borrower may prepay any or all amounts owing under theCommitted Non-Formula Revolving Line, without penalty or premium, by paying allprincipal and accrued interest as of the date of prepayment.

2.1.7                                        EquipmentAdvances.

(a)           Availability.  Between the effective date of this Agreementand June 28, 2007 (the “Equipment Availability End Date”), Bank will makeadvances (“Equipment Advance” and, collectively, “Equipment Advances”) not toexceed the Committed Equipment Line.  TheEquipment Advances may only be used to finance the acquisition of EligibleEquipment.  Lender shall advance toBorrower 100% of the documented cost of Eligible Equipment.  Unless otherwise agreed to by Bank, not morethan 75% of the Committed Equipment Line may be used to finance EligibleEquipment comprised of software licenses, mask sets, foreign domiciledequipment, leasehold improvements, sales tax, shipping, warranty charges,freight, and installation expenses (“Soft Costs”).  Unless otherwise agreed to by Bank, not lessthan 25% of the proceeds of the Committed Equipment Line shall be used tofinance Eligible Equipment other than Soft Costs (“Hard Costs”).  Eligible Equipment may include new and/orused equipment and furniture, purchased within 90 days (determined based uponthe applicable invoice date of such Eligible Equipment) before the date of eachEquipment Advance and may not exceed 100% of the Equipment invoice.  Each Equipment Advance must be for a minimumof $50,000 and only one Equipment Advance per month shall be available.

(b)           Repayment.  Interest accrues from the date of eachEquipment Advance at the rate in Section 2.3(a).  Each Equipment Advance for Soft Costs shallimmediately amortize and be payable in 30 equal monthly installments ofprincipal, plus accrued interest, beginning on the first day of each monthfollowing the date of the Equipment Advance of such Soft Costs.  Each Equipment Advance for Hard Costs shallimmediately amortize and be payable in 36 equal monthly installments ofprincipal, plus accrued interest, beginning on the first day of each monthfollowing the date of the Equipment Advance for such Hard Costs.  After repayment, no Equipment Advance may bereborrowed.

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(c)           To obtain an EquipmentAdvance, Borrower must notify Bank (the notice is irrevocable) by facsimile nolater than 12:00 noon Pacific time 1 Business Day before the day on which theEquipment Advance is to be made.  Thenotice in the form of Exhibit B (Payment/Advance Form) must be signed by aResponsible Officer or designee and include a copy of the invoice for theEquipment being financed.

(d)           Prepayment.  Borrower may prepay any or all amounts owingunder any Equipment Advance; provided that prepayments for any FixedRate Advances after the Closing Date are subject to a prepayment fee of 1% ofthe aggregate amount of principal outstanding on any such Equipment Advance.

(e)           Prepayment Upon anEvent of Loss.  Borrower shall bearthe risk of any loss, theft, destruction, or damage of or to the FinancedEquipment.  If, during the term of thisAgreement, any item of Financed Equipment becomes obsolete or is lost, stolen,destroyed, damaged beyond repair, rendered permanently unfit for use, or seizedby a governmental authority for any reason for a period equal to at least theremainder of the term of this Agreement (an “Event of Loss”), then, if no Eventof Default has occurred or is continuing, within ten (10) days following suchEvent of Loss, at Borrower’s option, Borrower shall (i) pay to Bank on accountof the Obligations all accrued interest to the date of the prepayment, plus alloutstanding principal owing with respect to the Financed Equipment subject tothe Event of Loss; or (ii) repair or replace any Financed Equipment subject toan Event of Loss provided the repaired or replaced Financed Equipment is ofequal or like value to the Financed Equipment subject to an Event of Loss andprovided further that Bank has a first priority perfected security interest insuch repaired or replaced Financed Equipment.

2.2           Overadvances.

If Borrower’s Obligations under Section 2.1.1,2.1.2, 2.1.3, 2.1.4 and 2.1.5 at any time exceed the Committed Non-FormulaRevolving Line, Borrower must immediately pay Bank the excess.

2.3           InterestRate, Payments.

(a)           Interest Rate.

(i)            Non-Formula Advancesaccrue interest on the outstanding principal balance at a per annum rate equalto the greater of (A) 50 basis points (.5%) above the Prime Rate or (B) 8.5%.

(ii)           Equipment Advancesafter the Closing Date accrue interest on the outstanding principal balance at(y) a per annum rate of 100 basis points (1.00%) above the Prime Rate or (z) afixed rate equal to 400 basis points (4%) above the Treasury Rate.  After an Event of Default, Obligations accrueinterest at 5% above the rate effective immediately before the Event ofDefault. The interest rate increases or decreases when the Prime Ratechanges.  Interest is computed on a 360day year for the actual number of days elapsed.

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(b)           Payments.  Interest due on the Committed Non-FormulaRevolving Line is payable on the first day of each month.  Interest due on the Equipment Advances ispayable on the first day of each month. Bank may debit any of Borrower’s deposit accounts for principal andinterest payments owing under this Agreement or any amounts Borrower owesBank.  Bank will promptly notify Borrowerwhen it debits Borrower’s accounts. These debits are not a set-off. Payments received after 12:00 noon Pacific time are considered receivedat the opening of business on the next Business Day.  When a payment is due on a day that is not aBusiness Day, the payment is due the next Business Day and additional fees orinterest accrue, however solely making such payment on the next Business Dayshall not result in an Event of Default.

2.4           Fees.

Borrower will pay:

(a)           Bank Expenses.All Bank Expenses (including reasonable attorneys’ fees and reasonableexpenses) incurred through and after the date of this Agreement, payable whendue.

(b)           Revolving Line ofCredit Fee.  On or before the ClosingDate, a Committed Non-Formula Revolving Line fee equal to $25,000 due, payableand fully earned on the Closing Date; and on the one year anniversary of theClosing Date, a fee equal to $17,500 due, payable and fully earned on the suchdate.

(c)           Equipment Line Fee.  On or before the Closing Date, an equipmentline fee (the “Equipment Line Fee”) equal to $5,000 due, payable and fullyearned on the Closing Date; provided that the Equipment Line Fee shallbe waived if 50% of the Committed Equipment Line is drawn on the Closing Date.

3.             CONDITIONSOF LOANS.

3.1           ConditionsPrecedent to Initial Credit Extension.

Bank’s obligation to make the initial Credit Extensionis subject to the condition precedent that it receive, in form and substancesatisfactory to Bank, such documents, and completion of such other matters, asBank may reasonably deem necessary or appropriate, including, withoutlimitation:

(a)           Borrower shall have delivered duly executed original signatures to theLoan Documents to which it is a party;

(b)            Borrower shall have delivered its Operating Documents and a goodstanding certificate of Borrower certified by the Secretary of State of theState of California as of a date no later than thirty (30) days after theeffective date of this Agreement, unless waived by Bank; and

(c)           Borrower shall havedelivered duly executed original signatures to the completed BorrowingResolutions for Borrower.

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3.2           ConditionsPrecedent to all Credit Extensions.

Bank’s obligations to make each Credit Extension,including the initial Credit Extension, is subject to the following:

(a)           timely receipt of anyPayment/Advance Form; and

(b)           the representations andwarranties in Section 5 must be materially true on the date of thePayment/Advance Form and on the effective date of each Credit Extension exceptfor representations and warranties made as of a specified earlier date, whichmust be materially true as of such earlier date and no Event of Default mayhave occurred and be continuing, or result from the Credit Extension. EachCredit Extension is Borrower’s representation and warranty on that date thatthe representations and warranties of Section 5 remain true except forrepresentations and warranties made as of a specified earlier date, which mustbe materially true as of such earlier date.

4.             CREATIONOF SECURITY INTEREST.

4.1           Grantof Security Interest.

Borrower grants Bank a continuing security interest inall presently existing and later acquired Collateral to secure all Obligationsand performance of each of Borrower’s duties under the Loan Documents.  Except for Permitted Liens, any securityinterest will be a first priority security interest in the Collateral.  Bank may place a “hold” on any depositaccount pledged as Collateral. Notwithstanding the foregoing, the security interest granted herein doesnot extend to and the term “Collateral” does not include: (A) any license orcontract rights to the extent (i) the granting of a security interest in itwould be contrary to applicable law, or (ii) that such rights are nonassignableby their terms (but only to the extent such prohibition is enforceable underapplicable law) without the consent of the licensor or other party (but only tothe extent such consent has not been obtained) and (B) pledges of morethan 65% of foreign subsidiaries’ stock. If this Agreement is terminated, Bank’s lien and security interest inthe Collateral will continue until Borrower fully satisfies its Obligations.

5.             REPRESENTATIONSAND WARRANTIES.

Borrower represents and warrants as follows:

5.1           DueOrganization and Authorization.

Borrower and each material Subsidiary is duly existingand in good standing in its state of formation and qualified and licensed to dobusiness in, and in good standing in, any state in which the conduct of itsbusiness or its ownership of property requires that it be qualified, exceptwhere the failure to do so could not reasonably be expected to cause a MaterialAdverse Change.

The execution, delivery and performance of the LoanDocuments have been duly authorized, and do not conflict with Borrower’sformation documents, nor constitute an event of default under any materialagreement by which Borrower is bound. Borrower is not in default under any agreement to which or by which itis bound in which the default could reasonably be expected to cause a MaterialAdverse Change.

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5.2           Collateral.

Borrower has good title to the Collateral, free ofLiens except Permitted Liens.  TheAccounts are bona fide, existing obligations, and the service or property hasbeen performed or delivered to the account debtor or its agent for immediateshipment to and unconditional acceptance by the account debtor.  All Inventory, net of inventory reserves, isin all material respects of good and marketable quality, free from materialdefects.  To the best of Borrower’s knowledge,Borrower is the sole owner of the Intellectual Property, except fornon-exclusive licenses granted to its customers in the ordinary course ofbusiness. To the best of Borrower’s knowledge, each Patent is valid andenforceable and no part of the Intellectual Property has been judged invalid orunenforceable, in whole or in part, and no claim has been made that any part ofthe Intellectual Property violates the rights of any third party, except to theextent such claim could not reasonably be expected to cause a Material AdverseChange.

5.3           Litigation.

Except as shown in the Disclosure Letter, there are noactions or proceedings pending or, to the knowledge of Borrower’s ResponsibleOfficers, threatened by or against Borrower or any material Subsidiary  in which a likely adverse decision couldreasonably be expected to cause a Material Adverse Change.

5.4           NoMaterial Adverse Change in Financial Statements.

All consolidated financial statements for Borrowerdelivered to Bank fairly present in all material respects Borrower’sconsolidated financial condition and Borrower’s consolidated results ofoperations as of the date of such financial statements.  There has not been any material adversechange in Borrower’s consolidated financial condition since the date of themost recent financial statements submitted to Bank.

5.5           Solvency.

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

5.6           RegulatoryCompliance.

Borrower is not an “investment company” or a company “controlled”by an “investment company” under the Investment Company Act.  Borrower is not engaged as one of itsimportant activities in extending credit for margin stock (underRegulations T and U of the Federal Reserve Board of Governors).  Borrower has complied in all materialrespects with the Federal Fair Labor Standards Act.  Borrower has not violated any laws,ordinances or rules, the violation of which could reasonably be expected tocause a Material Adverse Change.  None ofBorrower’s or any Subsidiary’s properties or assets has been used by Borroweror any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons,in disposing, producing, storing, treating, or transporting any hazardoussubstance other than legally.  Borrowerand each Subsidiary has timely filed all required tax returns and paid, or madeadequate provision to pay, all material 

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taxes, except those being contested in good faith withadequate reserves under GAAP.  Borrowerand each Subsidiary has obtained all consents, approvals and authorizations of,made all 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.

5.7           Subsidiaries.

Borrower does not own any stock, partnership interestor other equity securities except for Permitted Investments.

5.8           TaxReturns and Payments; Pension Contributions.

To the best of Borrower’s knowledge, Borrower hastimely filed all required tax returns and reports, and Borrower has timely paidall federal, state and local taxes, assessments, deposits and contributionsowed by Borrower.  Borrower may deferpayment of any contested taxes, provided that Borrower (a) in good faithcontests its obligation to pay the taxes by appropriate proceedings promptlyand diligently instituted and conducted, (b) notifies Bank in writing of thecommencement of, and any material development in, the proceedings, (c) postsbonds or takes any other steps required to prevent the governmental authoritylevying such contested taxes from obtaining a Lien upon any of the Collateralthat is other than a “Permitted Lien”. Borrower is unaware of any claims or adjustments proposed for any ofBorrower’s prior tax years which could result in additional taxes becoming dueand payable by Borrower.  To the best ofBorrower’s knowledge, Borrower has paid all amounts necessary to fund allpresent pension, profit sharing and deferred compensation plans in accordancewith their terms, and Borrower has not withdrawn from participation in, and hasnot permitted partial or complete termination of, or permitted the occurrenceof any other event with respect to, any such plan which could reasonably beexpected to result in any liability of Borrower, including any liability to thePension Benefit Guaranty Corporation or its successors or any othergovernmental agency.

5.9           Useof Proceeds.

Borrower shall use the proceeds of the CreditExtensions to fund its equipment purchases and for general corporate purposes,and not for personal, family, household or agricultural purposes.

5.10         FullDisclosure.

No written representation, warranty or other statementof Borrower in any certificate or written statement given to Bank (takentogether with all such written certificates and written statements to Bank andBorrower’s filings with the Securities & Exchange Commission) 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 Bankthat the projections and forecasts provided by Borrower in good faith and basedupon reasonable assumptions are not viewed as facts and that actual resultsduring the period or periods covered by such projections and forecasts maydiffer from the projected and forecasted results.

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6.             AFFIRMATIVECOVENANTS.

Borrower will do all of the following:

6.1           GovernmentCompliance.

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’sbusiness or operations.  Borrower willcomply, and have each Subsidiary comply, with all laws, ordinances andregulations to which it is subject, noncompliance with which could have amaterial adverse effect on Borrower’s business or operations or wouldreasonably be expected to cause a Material Adverse Change.

6.2           FinancialStatements, Reports, Certificates.

(a)           Borrower will deliverto Bank:  (i) as soon as available, butno later than 45 days after the last day of each month, a company preparedconsolidated balance sheet and income statement, prepared under GAAP,consistently applied, without footnotes and subject to year-end adjustments,covering Borrower’s consolidated operations during the period, in a form andcertified 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 opinion which is unqualified or as isotherwise consented to by Bank on the financial statements from an independentcertified public accounting firm reasonably acceptable to Bank; (iii) within 5days of filing, notice to Bank of the filing of all statements, reports andnotices made available to Borrower’s security holders or to any holders ofSubordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed withthe Securities and Exchange Commission (“SEC”) unless such 10-K, 10-Q,and 8-K reports are available in the SEC’s EDGAR database in which caseBorrower shall not be required to deliver the same; (iv) as soon as availablebut in no event after December 20 of every year, Borrower’s budget andfinancial projections as approved by the Borrower’s Board of Directors; (v)such other financial information Bank reasonably requests; and (vi) promptnotice of any material change in the composition of the Intellectual Property,including any subsequent ownership right of Borrower in or to any Copyright,Patent or Trademark not shown in any intellectual property security agreementbetween Borrower and Bank or knowledge of an event that materially adverselyaffects the value of the Intellectual Property.

(b)           Within 45 days afterthe last day of each month, Borrower will deliver to Bank with the monthlyfinancial statements a Compliance Certificate signed by a Responsible Officerin the form of Exhibit C.

(c)           Bank has the right toaudit Borrower’s Collateral at Borrower’s expense, but the audits will beconducted no more often than every year unless an Event of Default has occurredand is continuing.

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6.3           Inventory;Returns.

Borrower will keep all Inventory in good andmarketable condition, free from material defects.  Returns and allowances between Borrower andits account debtors will follow Borrower’s customary practices as they exist atexecution of this Agreement.  Borrowermust promptly notify Bank of all returns, recoveries, disputes older than 30days and claims, that  involve more than$200,000, excluding “ship from stock and debit transactions” and any returnsfrom distributors of unprogrammed Inventory which involve less than $500,000.

6.4           Taxes.

Borrower will make, and cause each Subsidiary to make,timely payment of all material federal, state, and local taxes or assessmentsand will deliver to Bank, on demand, appropriate certificates attesting to thepayment.

6.5           Accessto Collateral; Books and Records.

At reasonable times, on one Business Day’s notice(provided no notice is required if an Event of Default has occurred and iscontinuing), Bank, or its agents, shall have the right, upon one week’s noticeto Borrower, to inspect the Collateral and the right to audit and copy Borrower’sBooks.

6.6           Insurance.

Borrower will keep its business and the Collateralinsured for risks and in amounts, as Bank may reasonably request.  Insurance policies will be in a form, withcompanies, and in amounts that are satisfactory to Bank in Bank’s reasonablediscretion.  All property policies willhave a lender’s loss payable endorsement showing Bank as an additional losspayee and all liability policies will show the Bank as an additional insuredand provide that the insurer must give Bank at least 20 days notice beforecanceling its policy.  At Bank’s request,Borrower will deliver certified copies of policies and evidence of all premiumpayments.  If no Event of Default hasoccurred and is continuing, proceeds payable under any casualty policy will, atBorrower’s option, be payable to Borrower to replace the property subject tothe claim, provided that any such replacement property shall be deemedCollateral in which Bank has been granted a first priority securityinterest.  If an Event of Default hasoccurred and is continuing, then, at Bank’s option, proceeds payable under anypolicy will be payable to Bank on account of the Obligations.

6.7           Depositand Investment Accounts.

Borrower will maintain 60% of its cash and cashequivalents in depository, investment and operating accounts with Bank and Bank’saffiliates which shall be held in the form of cash and such other investmentsas are consistent with Borrower’s investment policy as approved by its Board ofDirectors.

6.8           FinancialCovenants.

Borrower will maintain as of the last day of eachmonth:

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(i)            **Tangible NetWorth**.  A Tangible Net Worthof at least $31,000,000.

(ii)           **Quick Ratio(Adjusted)**.  A ratio of QuickAssets to Current Liabilities minus Deferred Revenue of at least 1.55 to 1.00.

6.9           Protectionof Intellectual Property Right.

Borrower shall:  (a) protect, defend and maintain the validityand enforceability of its material intellectual property; (b) promptly adviseBank in writing of material infringements of its intellectual property; and (c)not allow any intellectual property material to Borrower’s business to beabandoned, forfeited or dedicated to the public without Bank’s writtenconsent.  Notwithstanding anything to the contrary contained in this section,Borrower confirms that on June 28, 2004, Bank and Borrower entered into (i) aNegative Pledge Agreement in which Borrower agreed, subject to certainexceptions, not to encumber its Intellectual Property and (ii) a LoanModification Agreement dated June 28, 2004 in which the definition ofCollateral was amended to reflect that Intellectual Property created, modifiedacquired or obtained on or after June 28, 2004 (but not before such date) shallnot be deemed as part of the Collateral.

 

6.10         Control Agreements.

With respect to depositaccounts or investment accounts maintained at domestic financial institutionsother than Bank, within 10 Business Days of the opening of any such depositaccount or investment account, Borrower will execute and deliver to Bank,control agreements in form satisfactory to Bank in order for Bank to perfectits security interest in Borrower’s deposit accounts or investment accounts;provided that with respect to deposit accounts existing as of the Closing Date,Borrower shall provide such control agreements with respect to all suchaccounts as are reasonably deemed material by Bank on or before July 30,2003.

6.11         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.

7.             NEGATIVECOVENANTS.

Borrower will not do any of the following without Bank’sprior written consent, which will not be unreasonably withheld:

7.1           Dispositions.

Convey, sell, lease, transfer or otherwise dispose of(collectively “Transfer”), or permit any of its Subsidiaries to Transfer, allor any part of its business or property, other than Transfers (i) ofInventory and Equipment in the ordinary course of business; (ii) ofnon-exclusive licenses and similar arrangements for the use of the property ofBorrower or its Subsidiaries in the ordinary course of business; (iii) ofworn-out or obsolete Equipment; (iv) other Transfers which in theaggregate do not exceed $200,000 in any fiscal year; or (v) other Transfersotherwise permitted pursuant to Section 7 hereof.

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7.2           Changesin Business, Ownership, Management or Business Locations.

(i)            Engagein or permit any of its Subsidiaries to engage in any business other than thebusinesses currently engaged in by Borrower or reasonably related thereto, (ii)direct or indirect acquisition by any persons (as such term is used in Section13(d) and Section 14(d) (2) of the Exchange Act) or related personsconstituting a group (as such term is used in Rule 13d-5 under the ExchangeAct), of beneficial ownership of the issued and outstanding shares of votingstock of the Borrower, the result of which acquisition is that such person orgroup possesses in excess of 35% of the combined voting power of all thenissued and outstanding stock of the Borrower, (iii) without contemporaneous written notice, relocate its chiefexecutive office, or add any new offices or business locations, or (iv) withoutat least 30 days written notice, change the jurisdiction of its incorporation.

7.3           Mergersor Acquisitions.

Merge or consolidate, or permit any of itsSubsidiaries to merge or consolidate, with any other Person, or acquire, orpermit any of its Subsidiaries to acquire, all or substantially all of thecapital stock or property of another Person, except where (i) such transactionsdo not in the aggregate result in a decrease of more than 25% of Tangible NetWorth****and (ii) no Event of Default hasoccurred, is continuing or would exist after giving effect to thetransactions.  A Subsidiary may merge orconsolidate into another Subsidiary or into Borrower.

7.4           Indebtedness.

Create, incur, assume, or be liable for anyIndebtedness, including guaranties of non-Borrower obligations, or permit anySubsidiary to do so, other than Permitted Indebtedness.

7.5           Encumbrance.

Create, incur, or allow any Lien on any of itsproperty, or assign or convey any right to receive income, including the saleof any Accounts, or permit any of its Subsidiaries to do so, except forPermitted Liens, or permit any Collateral not to be subject to the firstpriority security interest granted here, subject to Permitted Liens.

7.6           Distributions;Investments.

Directly or indirectly acquire or own any Person, ormake any Investment in any Person, other than Permitted Investments, or permitany of its Subsidiaries to do so; pay any dividends or make any distribution orpayment or redeem, retire or purchase any capital stock, except for (A)repurchases of stock from former employees, consultants or directors ofBorrower provided no Default or Event of Default has occurred and is continuing,or would be caused by such repurchase, and provided that the aggregate amountof such repurchases shall not exceed $100,000 in the aggregate in any fiscalyear, (B) distributions payable solely in Borrower’s capital stock, or (C)conversion of any convertible debt into capital stock of Borrower.

7.7           Transactionswith Affiliates.

Directly or indirectly enter into or permit anymaterial transaction with any Affiliate except transactions that are in theordinary course of Borrower’s business, on terms less favorable to Borrowerthan would be obtained in an arm’s length transaction with a non-affiliatedPerson.

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7.8           SubordinatedDebt.

Make or permit any payment on any Subordinated Debt,except under the terms of the Subordinated Debt, or amend any provision in anydocument relating to the Subordinated Debt without Bank’s prior writtenconsent.

7.9           Compliance.

Become an “investment company” or a company controlledby an “investment company,” under the Investment Company Act of 1940 orundertake as one of its important activities extending credit to purchase orcarry margin stock, or use the proceeds of any Credit Extension for thatpurpose; 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 be expectedto cause a Material Adverse Change, or permit any of its Subsidiaries to do so.

8.             EVENTSOF DEFAULT.

Any one of the following is an Event of Default:

8.1           PaymentDefault.

If Borrower fails to pay any of the Obligations within3 days after their due date.  During theadditional period the failure to cure the default is not an Event of Default(but no Credit Extension will be made during the cure period);

8.2           CovenantDefault.

If Borrower does not perform any obligation inSection 6 or violates any covenant in Section 7 or does not performor observe any other material term, condition or covenant in this Agreement,any Loan Documents, or in any agreement between Borrower and Bank and as to anydefault under a term, condition or covenant that can be cured, has not curedthe default within 10 business days after it occurs, or if the default cannotbe cured within 10 business days or cannot be cured after Borrower’s attemptswithin 10 business day period, and the default may be cured within a reasonabletime, then Borrower has an additional period (of not more than 30 days) toattempt to cure the default.  During theadditional time, the failure to cure the default is not an Event of Default(but no Credit Extensions will be made during the cure period);

8.3           MaterialAdverse Change.

(i)            Amaterial impairment in the perfection or priority of Bank’s security interestin the Collateral or in the value of such Collateral other than normaldepreciation which is not covered by adequate insurance occurs; or (ii) Bankdetermines, based upon information available to it and in its reasonablejudgment, that there is a reasonable likelihood that Borrower will fail tocomply with one or more of the financial covenants in Section 6 during the nextsucceeding financial reporting period.

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8.4           Attachment.

If any material portion of Borrower’s assets isattached, seized, levied on, or comes into possession of a trustee or receiverand the attachment, seizure or levy is not removed in 10 business days, or ifBorrower is enjoined, restrained, or prevented by court order from conducting amaterial part of its business or if a judgment or other claim becomes a Lien ona material 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 business days after Borrower receives notice.  These are not Events of Default if stayed orif a bond is posted pending contest by Borrower (but no Credit Extensions willbe made during the cure period);

8.5           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);

8.6           OtherAgreements.

If there is a default in any agreement betweenBorrower and a third party that gives the third party the right to accelerateany Indebtedness exceeding $250,000 or that could reasonably be expected tocause a Material Adverse Change;

8.7           Judgments.

If a money judgment(s) in the aggregate of at least$250,000 is rendered against Borrower and is unsatisfied and unstayed for 10Business Days (but no Credit Extensions will be made before the judgment isstayed or satisfied);

8.8           Misrepresentations.

If Borrower or any Responsible Officer of Borrowermakes any material misrepresentation or material misstatement (when takentogether with Borrower’s filings with the Securities & Exchange Commission)now or later in any warranty or representation in this Agreement or in anycommunication delivered to Bank or to induce Bank to enter this Agreement orany Loan Document; or

8.9           SubordinatedDebt.

A default or breach occurs under any agreement betweenBorrower and any creditor of Borrower that signed a subordination,intercreditor, or other similar agreement with Bank, or any creditor that hassigned such an agreement with Bank breaches any terms of such agreement.

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8.10         Guaranty.

Any guaranty of any Obligations ceases for any reasonto be in 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.

9.             BANK’SRIGHTS AND REMEDIES.

9.1           Rightsand Remedies.

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

(a)           Declare all Obligationsimmediately due and payable (but if an Event of Default described inSection 8.5 occurs all Obligations are immediately due and payable withoutany action by Bank);

(b)           Stop advancing money orextending credit for Borrower’s benefit under this Agreement or under any otheragreement between Borrower and Bank;

(c)           Settle or adjustdisputes and claims directly with account debtors for amounts, on terms and inany order that Bank considers advisable;

(d)           Make any payments anddo any acts it considers necessary and reasonable to protect its securityinterest in the Collateral.  Borrowerwill assemble the Collateral if Bank requires and make it available as Bankdesignates.  Bank may enter premiseswhere the Collateral is located, take and maintain possession of any part ofthe Collateral, and pay, purchase, contest, or compromise any Lien whichappears to be prior or superior to its security interest and pay all expensesincurred. Borrower grants Bank a license to enter and occupy any of itspremises, without charge, to exercise any of Bank’s rights or remedies;

(e)           Apply to theObligations any (i) balances and deposits of Borrower it holds, or(ii) any amount held by Bank owing to or for the credit or the account ofBorrower;

(f)            Ship, reclaim,recover, store, finish, maintain, repair, prepare for sale, advertise for sale,and sell the Collateral.  Bank is granteda non-exclusive, royalty-free license or other right to use, without charge,Borrower’s labels, Patents, Copyrights, Mask Works, rights of use of any name,trade secrets, trade names, Trademarks, service marks, and advertising matter,or any similar property as it pertains to the Collateral, in completingproduction of, advertising for sale, and selling any Collateral and, inconnection with Bank’s exercise of its rights under this Section, Borrower’srights under all licenses and all franchise agreements inure to Bank’s benefit;and

(g)           Dispose of theCollateral according to the Code.

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9.2           Powerof Attorney.

Effective only when an Event of Default occurs andcontinues until Borrower pays the Obligations in full, Borrower irrevocablyappoints Bank as its lawful attorney to: (i) endorse Borrower’s name on any checks or other forms of paymentor security; (ii) sign Borrower’s name on any invoice or bill of ladingfor any Account or drafts against account debtors, (iii) make, settle, andadjust all claims under Borrower’s insurance policies; (iv) settle andadjust disputes and claims about the Accounts directly with account debtors,for amounts and on terms Bank determines reasonable; and (v) transfer theCollateral into the name of Bank or a third party as the Code permits.  Bank may exercise the power of attorney tosign Borrower’s name on any documents necessary to perfect or continue theperfection of any security interest regardless of whether an Event of Defaulthas occurred.  Bank’s appointment asBorrower’s attorney in fact, and all of Bank’s rights and powers, coupled withan interest, are irrevocable until all Obligations have been fully repaid andperformed and Bank’s obligation to provide Credit Extensions terminates.

9.3           AccountsCollection.

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 in trust for Bank and, if requestedby Bank, immediately deliver the payments to Bank in the form received from theaccount debtor, with proper endorsements for deposit.

9.4           BankExpenses.

If Borrower fails to pay any amount or furnish anyrequired proof of payment to third persons, Bank may make all or part of thepayment or obtain insurance policies required in Section 6.5, and take anyaction under the policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and due and payable within 10Business Days of written notice to Borrower, bearing interest at the thenapplicable rate and secured by the Collateral. No payments by Bank are deemed an agreement to make similar payments inthe future or Bank’s waiver of any Event of Default.

9.5           Bank’sLiability for Collateral.

If Bank complies with reasonable banking practices andSection 9-207 of the Code, it is not liable for: (a) the safekeeping of theCollateral; (b) any loss or damage to the Collateral; (c) any diminutionin the value of the Collateral; or (d) any act or default of any carrier,warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction of theCollateral.

9.6           RemediesCumulative.

Bank’s rights and remedies under this Agreement, theLoan Documents, and all other agreements are cumulative.  Bank has all rights and remedies providedunder the Code, by law, or in equity. Bank’s exercise of one right or remedy isnot an election, and Bank’s waiver of any Event of Default is not a continuingwaiver. Bank’s delay is not a waiver, election, or acquiescence. No waiver iseffective unless signed by Bank and then is only effective for the specificinstance and purpose for which it was given.

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9.7           DemandWaiver.

Borrower waives demand, notice of default or dishonor,notice of payment and nonpayment, notice of any default, nonpayment atmaturity, release, compromise, settlement, extension, or renewal of accounts,documents, instruments, chattel paper, and guarantees held by Bank on whichBorrower is liable.

10.           NOTICES

All notices or demands by any party about thisAgreement or any other related agreement must be in writing and be personallydelivered or sent by an overnight delivery service, by certified mail, postageprepaid, return receipt requested, or by telefacsimile to the addresses setforth at the beginning of this Agreement. A party may change its notice address by giving the other party writtennotice.

11.           CHOICE OF LAW, VENUE, JURY TRIAL WAIVER ANDJUDICIAL REFERENCE.

California law governs the Loan Documents withoutregard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the Stateand Federal courts in Santa Clara County, California; provided, however, thatnothing in this Agreement shall be deemed to operate to preclude Bank frombringing suit or taking other legal action in any other jurisdiction to realizeon the Collateral or any other security for the Obligations, or to enforce ajudgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdictionin any action or suit commenced in any such court, and Borrower hereby waivesany objection that it may have based upon lack of personal jurisdiction,improper venue, or forum non conveniens and hereby consents to the granting ofsuch legal or equitable relief as is deemed appropriate by such court.  Borrower hereby waives personal service ofthe summons, complaints, and other process issued in such action or suit andagrees that service of such summons, complaints, and other process may be madeby registered or certified mail addressed to Borrower at the address set forthin Section 10 of this Agreement and that service so made shall be deemedcompleted upon the earlier to occur of Borrower’s actual receipt thereof orthree (3) days after deposit in the U.S. mails, proper postage prepaid.

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

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the abovewaiver of the right to a trial by jury is not enforceable, the parties heretoagree that any and all disputes or 

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controversies of any nature between them arising atany time shall be decided by a reference to a private judge, mutually selectedby the parties (or, if they cannot agree, by the Presiding Judge of the SantaClara County, California Superior Court) appointed in accordance withCalifornia Code of Civil Procedure Section 638 (or pursuant to comparable provisionsof federal law if the dispute falls within the exclusive jurisdiction of thefederal courts), sitting without a jury, in Santa Clara County, California; andthe parties hereby submit to the jurisdiction of such court.  The reference proceedings shall be conductedpursuant to and in accordance with the provisions of California Code of CivilProcedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grantprovisional relief, including without limitation, entering temporaryrestraining orders, issuing preliminary and permanent injunctions andappointing receivers.  All suchproceedings shall be closed to the public and confidential and all recordsrelating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisionalrelief, but a judge has not been appointed at that point pursuant to thejudicial reference procedures, then such party may apply to the Santa ClaraCounty, California Superior Court for such relief.  The proceeding before the private judge shallbe conducted in the same manner as it would be before a court under the rulesof evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted inthe same manner as it would be before a court under the rules of discoveryapplicable to judicial proceedings.  Theprivate judge shall oversee discovery and may enforce all discovery rules andorder applicable to judicial proceedings in the same manner as a trial courtjudge.  The parties agree that theselected or appointed private judge shall have the power to decide all issuesin the action or proceeding, whether of fact or of law, and shall report astatement of decision thereon pursuant to the California Code of CivilProcedure § 644(a).  Nothing in thisparagraph shall limit the right of any party at any time to exercise self-helpremedies, foreclose against collateral, or obtain provisional remedies.  The private judge shall also determine allissues relating to the applicability, interpretation, and enforceability ofthis paragraph.

12.           GENERALPROVISIONS.

12.1         Successorsand Assigns.

This Agreement binds and is for the benefit of thesuccessors and permitted assigns of each party. Borrower may not assign this Agreement or any rights under it withoutBank’s prior written consent which may be granted or withheld in Bank’sdiscretion.  Bank has the right, withoutthe consent of or notice to Borrower, to sell, transfer, negotiate, or grantparticipation in all or any part of, or any interest in, Bank’s obligations,rights and benefits under this Agreement.

12.2         Indemnification.

Borrower will indemnify, defend and hold harmless Bankand its officers, employees, and agents against:  (a) all obligations, demands, claims, andliabilities asserted by any other party in connection with the transactionscontemplated by the Loan Documents; and (b) all losses or Bank Expensesincurred, or paid by Bank from, following, or consequential to transactionsbetween Bank and Borrower (including reasonable attorneys fees and expenses),and in each case of (a) and (b) above, except for any such obligations, claims,liabilities and losses caused by Bank’s gross negligence or willful misconduct.

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12.3         Limitationof Actions.

Any claim or cause of action by Borrower against Bank,its directors, officers, employees, agents, accountants, attorneys, or anyother Person affiliated with or representing Bank based upon, arising from, orrelating to this Loan Agreement or any other Loan Document, or any othertransaction contemplated hereby or thereby or relating hereto or thereto, orany other matter, cause or thing whatsoever, occurred, done, omitted orsuffered to be done by Bank, its directors, officers, employees, agents,accountants or attorneys, shall be barred unless asserted by Borrower by thecommencement of an action or proceeding in a court of competent jurisdiction by(a) the filing of a complaint within one year from the earlier of (i) the dateany of Borrower’s officers or directors had knowledge of the first act, theoccurrence or omission upon which such claim or cause of action, or any partthereof, is based, or (ii) the date this Agreement is terminated, and (b) theservice of a summons and complaint on an officer of Bank, or on any otherperson authorized to accept service on behalf of Bank, within thirty (30) daysthereafter.  Borrower agrees that suchone-year period is a reasonable and sufficient time for Borrower to investigateand act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, orextended except by the written consent of Bank in its sole discretion.  This provision shall survive any terminationof this Loan Agreement or any other Loan Document.

12.4         Timeof Essence.

Time is of the essence for the performance of allobligations in this Agreement.

12.5         Severabilityof Provision.

Each provision of this Agreement is severable fromevery other provision in determining the enforceability of any provision.

12.6         Amendmentsin Writing, Integration.

All amendments to this Agreement must be in writingand signed by Borrower and Bank.  ThisAgreement represents the entire agreement about this subject matter, andsupersedes prior negotiations or agreements. All prior agreements, understandings, representations, warranties, andnegotiations between the parties about the subject matter of this Agreementmerge into this Agreement and the Loan Documents.

12.7         Counterparts.

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

12.8         Survival.

All covenants, representations and warranties made inthis Agreement continue in full force while any Obligations remainoutstanding.  The obligations of Borrowerin Section 12.2 to indemnify Bank will survive until all statutes oflimitations for actions that may be brought against Bank have run.

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12.9         Confidentiality.

In handling any confidential information, Bank willexercise the same degree of care that it exercises for its own proprietaryinformation, but disclosure of information may be made (i) to Bank’ssubsidiaries or affiliates in connection with their present or prospective businessrelations with Borrower, (ii) to prospective transferees or purchasers ofany interest in the loans so long as such transfer or purchase is subject to aconfidentiality agreement reasonably acceptable to Borrower, (iii) asrequired by law, regulation, subpoena, or other order, (iv) as required inconnection with Bank’s examination or audit and (v) as Bank considersappropriate in exercising remedies under this Agreement.  Confidential information does not includeinformation that either: (a) is in the public domain or in Bank’s possessionwhen disclosed to Bank, or becomes part of the public domain after disclosureto Bank; or (b) is disclosed to Bank by a third party, if Bank does not knowthat the third party is prohibited from disclosing the information.

12.10       Attorneys’ Fees, Costs and Expenses.

In any action or proceeding between Borrower and Bankarising out of the Loan Documents, the prevailing party will be entitled torecover its reasonable attorneys’ fees and other reasonable costs and expensesincurred, in addition to any other relief to which it may be entitled.

13.           DEFINITIONS

13.1         Definitions.

In this Agreement:

“**Accounts**” areall existing and later arising accounts, contract rights, and other obligationsowed Borrower in connection with its sale or lease of goods (includinglicensing software and other technology) or provision of services,**all credit insurance, guaranties, other security and allmerchandise returned or reclaimed by Borrower and Borrower’s Books relating toany of the foregoing.

“**Advance**” or “**Advances**” is any Non-Formula Advance.

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

“**Availability**”means, as of any date of determination, the amount that Borrower is entitled toborrow as Advances under Section 2.1.1 (after giving effect to all thenoutstanding Advances and all sublimit reserves applicable thereunder).

“**Bank Expenses**”are all audit fees and expenses and reasonable costs and reasonable expenses(including reasonable attorneys’ fees and expenses) for preparing, negotiating,administering, defending and enforcing the Loan Documents (including appeals orInsolvency Proceedings).

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“**Borrower’s Books**”are all Borrower’s books and records including ledgers, records regardingBorrower’s assets or liabilities, the Collateral, business operations orfinancial condition and all computer programs or discs or any equipmentcontaining the information.

“**Borrowing Resolutions**” of the Borrowershall be in substantially the form set forth as Exhibit D hereto.

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

“**Cash Management Services**”are defined in Section 2.1.5.

“**Closing Date**”is the date of this Agreement.

“**Code**” is theCalifornia Uniform Commercial Code.

“**Collateral**” isthe property described on Exhibit A.

“**Committed Equipment Line**”is a Credit Extension of up to $2,000,000.

“**Committed Non-FormulaRevolving Line**” is Non-Formula Advances of up to $5,000,000.

“**Contingent Obligation**”is, for any Person, any direct or indirect liability, contingent or not, ofthat Person for (i) any indebtedness, lease, dividend, letter of credit orother obligation of another such as an obligation directly or indirectlyguaranteed, endorsed, co-made, discounted or sold with recourse by thatPerson, or for which that Person is directly or indirectly liable;(ii) any obligations for undrawn letters of credit for the account of thatPerson; and (iii) all obligations from any interest rate, currency orcommodity swap agreement, interest rate cap or collar agreement, or otheragreement or arrangement designated to protect a Person against fluctuation ininterest rates, currency exchange rates or commodity prices;  but “Contingent Obligation” does not includeendorsements in the ordinary course of business.  The amount of a Contingent Obligation is thestated or determined amount of the primary obligation for which the ContingentObligation is made or, if not determinable, the maximum reasonably anticipatedliability for it determined by the Person in good faith; but the amount may notexceed the maximum of the obligations under the guarantee or other supportarrangement.

“**Copyrights**” areall copyright rights, applications or registrations and like protections ineach work or authorship or derivative work, whether published or not (whetheror not it is a trade secret) now or later existing, created, acquired or held.

“**Credit Extension**”is each Non-Formula Advance, Equipment Advance, Letter of Credit, ExchangeContract, or any other extension of credit by Bank for Borrower’s benefit.

“**Current Liabilities**”are the aggregate amount of Borrower’s Total Liabilities which mature withinone (1) year, including Letters of Credit (including drawn but unreimbursedLetters of Credit).

“**Deferred Revenue**”means deferred revenue as defined by GAAP.

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“**Disclosure Letter**”means the disclosure letter from Borrower to Bank of even date herewith.

“**Eligible Equipment**”is all present and future machinery, equipment, tenant improvements, furniture,fixtures, vehicles, tools, parts and attachments in which Lender has a validsecurity interest and Soft Costs.

“**Equipment**” isall present and future machinery, equipment, tenant improvements, furniture,fixtures, vehicles, tools, parts and attachments in which Borrower has anyinterest.

“**Equipment Advance**”is defined in Section 2.1.7.

“**Equipment Availability EndDate**” is defined in Section 2.1.7.

“**Equipment Advance(s)**”is defined in Section 2.1.7.

“**Equipment Line Fee**”is defined in Section 2.4(c).

“**ERISA**” is theEmployment Retirement Income Security Act of 1974, and its regulations.

“**Event of Loss**”is defined in Section 2.1.7(e).

“**Financed Equipment**”is all present and future Eligible Equipment in which Borrower has anyinterest, the purchase of which is financed by an Equipment Advance.

“**Fixed Rate Advance**”is any Equipment Advance subject to interest under the fixed Treasury Rate.

“**FX Forward Contract**”is defined in Section 2.1.4.

“**FX Reserve** “ isdefined in Section 2.1.4.

“**GAAP**” isgenerally accepted accounting principles.

“**Guarantor**” isany present or future guarantor of the Obligations.

“**Hard Costs**” isdefined in Section 2.1.7(a).

“**Indebtedness**”is (a) indebtedness for borrowed money or the deferred price of property orservices, such as reimbursement and other obligations for surety bonds andletters of credit, (b) obligations evidenced by notes, bonds, debentures orsimilar instruments, (c) capital lease obligations and (d) ContingentObligations.

“**Insolvency Proceeding**”are proceedings by or against any Person under the United States BankruptcyCode, or any other bankruptcy or insolvency law, including assignments for thebenefit of creditors, compositions, extensions generally with its creditors, orproceedings seeking reorganization, arrangement, or other relief.

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“**Intellectual Property**”is:

(a)           Copyrights, Trademarks, Patents, andMask Works including amendments, renewals, extensions, and all licenses orother rights to use and all license fees and royalties from the use;

(b)           Any trade secrets and anyintellectual property rights in computer software and computer softwareproducts now or later existing, created, acquired or held;

(c)           All design rights which may beavailable to Borrower now or later created, acquired or held;

(d)           Any claims for damages (past, presentor future) for infringement of any of the rights above, with the right, but notthe obligation, to sue and collect damages for use or infringement of theintellectual property rights above;

(e)           All proceeds and products of theforegoing, including all insurance, indemnity or warranty payments.

“**Inventory**” ispresent and future inventory in which Borrower has any interest, includingmerchandise, raw materials, parts, supplies, packing and shipping materials,work in process and finished products intended for sale or lease or to befurnished under a contract of service, of every kind and description now orlater owned by or in the custody or possession, actual or constructive, ofBorrower, including inventory temporarily out of its custody or possession orin transit and including returns on any accounts or other proceeds (includinginsurance proceeds) from the sale or disposition of any of the foregoing andany documents of title.

“**Investment**” isany beneficial ownership of (including stock, partnership interest or othersecurities) any Person, or any loan, advance or capital contribution to anyPerson.

“**Letter of Credit**”is defined in Section 2.1.3.

“**Lien**” is amortgage, lien, deed of trust, charge, pledge, security interest or otherencumbrance.

“**Loan Documents**”are, collectively, this Agreement, any note, or notes or guaranties executed byBorrower or Guarantor, and any other present or future agreement betweenBorrower and/or for the benefit of Bank in connection with this Agreement, allas amended, extended or restated.

“**Mask Works**” areall mask works or similar rights available for the protection of semiconductorchips, now owned or later acquired.

“**Material Adverse Change**”is defined in Section 8.3.

“**Non-Formula Advance**”or “**Non-Formula Advances**” is a loan advance(or advances) under the Committed Non-Formula Revolving Line.

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“**Obligations**”are debts, principal, interest, Bank Expenses and other amounts Borrower owesBank now or later, including cash management services, letters of credit andforeign exchange contracts, if any and including interest accruing afterInsolvency Proceedings begin and debts, liabilities, or obligations of Borrowerassigned to Bank.

“**Patents**” arepatents, patent applications and like protections, including improvements,divisions, continuations, renewals, reissues, extensions and continuations-in-partof the same.

“**Permitted Indebtedness**”is:

(f)            Borrower’s indebtedness to Bankunder this Agreement or any other Loan Document;

(g)           Indebtedness existing on the ClosingDate and shown on the Disclosure Letter;

(h)           Subordinated Debt including, but notlimited to Subordinated Debt associated with Borrower’s future investment of upto $3,666,900 in Tower Semiconductor;

(i)            Indebtedness to trade creditorsincurred in the ordinary course of business;

(j)            Indebtedness secured by Permitted Liens;

(k)           Indebtedness of Borrower to anySubsidiary and Contingent Obligations of any Subsidiary with respect toobligations of Borrower (provided that the primary obligations are notprohibited hereby), and Indebtedness of any Subsidiary to any other Subsidiaryand Contingent Obligations of any Subsidiary with respect to obligations of anyother Subsidiary (provided that the primary obligations are not prohibitedhereby);

(l)            Other Indebtedness not otherwisepermitted by Section 7.4 not exceeding $250,000 in the aggregate outstanding atany time;

(m)          Extensions, refinancings,modifications, amendments and restatements of any items of PermittedIndebtedness (a) through (f) above, provided that the principal amount thereofis not increased or the terms thereof are not modified to impose moreburdensome terms upon Borrower or its Subsidiary, as the case may be; and

(g)           Indebtednessof Borrower to (i) finance directors’ and officers’ liability insurance and(ii) to finance Borrower’s “Cadence” and “Mentor Graphics” software licensing.

“**Permitted Investments**”are:

Investments shown on the Disclosure Letter andexisting on the Closing Date; and

(a)           (i) marketable directobligations issued or unconditionally guaranteed by the United States or itsagency or any state maturing within one year from its acquisition,(ii) commercial paper maturing no more than 1 year after its creation andhaving the highest rating from either Standard & Poor’s Corporation orMoody’s Investors Service, Inc., and (iii)  certificates of deposit issuedmaturing no more than one year after issue.

24

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(b)           Investments consisting of theendorsement of negotiable instruments for deposit or collection or similartransactions in the ordinary course of Borrower;

(c)           Investments accepted in connection withTransfers permitted by Section 7.1, 7.3 and 7.6;

(d)           Investments by Borrower inSubsidiaries in the form of: (A) capital stock of Subsidiaries not toexceed $500,000 in the aggregate in any fiscal year and (B) all otheradvancements, so long as any such investment is made for the purpose of fundingoperational requirements of the relevant Subsidiary and so long as noSubsidiary maintains cash and cash equivalents at any time in excess of: (i)$250,000 for Quicklogic India; (ii) $750,000 for Quicklogic Canada; and (iii)$75,000 for each subsidiary other than Quicklogic India and QuicklogicCanada.  In the event that any Subsidiarydoes maintain cash and cash equivalents in excess of the aforementionedlimitation, any transfer of cash by Borrower to any Subsidiary shall not bepermitted under the terms of this Agreement.

(e)           Investments consisting of (i) traveladvances and employee relocation loans and other employee loans and advances inthe ordinary course of business, and (ii) loans to employees, officers ordirectors relating to the purchase of equity securities of Borrower or itsSubsidiaries pursuant to employee stock purchase plans or agreements approvedby Borrower’s Board of Directors;

(f)            Investments (including debtobligations) received in connection with the bankruptcy or reorganization ofcustomers or suppliers and in settlement of delinquent obligations of, andother disputes with, customers or suppliers arising in the ordinary course ofbusiness;

(g)           Investments consisting of notesreceivable of, or prepaid royalties and other credit extensions, to customersand suppliers who are not Affiliates, in the ordinary course of business;provided that this paragraph (h) shall not apply to Investments of Borrower inany Subsidiary;

(h)           Investments made pursuant to Borrower’sinvestment policy, as approved by Bank from time to time;

(i)            Joint ventures or strategicalliances in the ordinary course of Borrower’s business consisting of thenon-exclusive licensing of technology, the development of technology or theproviding of technical support, provided that any cash investments by Borrowerdo not exceed $250,000 in the aggregate in any fiscal year; and

(j)            Investments in Tower Semiconductor(Israel) of $3,666,900 in October of 2002 and of $3,666,900 on or afterMay 2003.

“**Permitted Liens**”are:

(a)           Liens existing on the Closing Dateand shown on the Disclosure Letter or arising under this Agreement or otherLoan Documents;

25

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(b)           Liens for taxes, fees, assessments orother government charges or levies, either not delinquent or being contested ingood faith and for which Borrower maintains adequate reserves on its Books, ifthey have no priority over any of Bank’s security interests;

(c)           Purchase money Liens (i) onEquipment or software acquired or held by Borrower or its Subsidiaries incurredfor financing the acquisition of the Equipment (including Liens arising inconnection with capital leases), or (ii) existing on equipment whenacquired, if the Lien is confined to the property, attachments and improvementsand the proceeds of the equipment;

(d)           Licenses or sublicenses granted inthe ordinary course of Borrower’s business and any interest or title of alicensor or under any license or sublicense, if the licenses and sublicensespermit granting Bank a security interest;

(e)           Leases or subleases granted in theordinary course of Borrower’s business, including in connection with Borrower’sleased premises or leased property and capital leases of Equipment or software;

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

(g)           Liens arising from judgments, decreesor attachments in circumstances not constituting an Event of Default underSection 8.4 or 8.7;

(h)           Liens approved by Bank in writing,granted to lenders to secure Permitted Indebtedness;

(i)            Liens in favor of other financialinstitutions arising in connection with Borrower’s deposit accounts held atsuch institutions, provided that Bank has a perfected security interest in theamounts held in such deposit accounts;

(j)            Liens arising from Indebtedness ofBorrower in connection with financing Borrower’s directors’ and officers’liability insurance and Borrower’s “Cadence” or “Mentor Graphics” softwarelicensing.

(k)           Lienson insurance proceeds securing the payment of financed insurance premiums;

(k)           Other Liens not described abovearising in the ordinary course of business and not having or not reasonablylikely to have a material adverse effect on Borrower and its Subsidiaries takenas a whole.

“**Person**” is anyindividual, sole proprietorship, partnership, limited liability company, jointventure, company association, trust, unincorporated organization, association,corporation, institution, public benefit corporation, firm, joint stockcompany, estate, entity or government agency.

26

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“**Prime Rate**” isBank’s most recently announced “prime rate,” even if it is not Bank’s lowestrate.

“**Quick Assets**”is, on any date, the Borrower’s consolidated, unrestricted and cash and cashequivalents, accounts receivable, investments with maturities of fewer than 12months and long-term investments with maturities of more than 12 months held atBank or its affiliates, determined according to GAAP.

“**Quicklogic Canada**”means QuickLogic Canada Company.

“**Quicklogic India**”means QuickLogic (India) Private Limited.

“**Responsible****Officer**” is each of the Chief Executive Officer, thePresident, the Chief Financial Officer, the Controller and the in-house generalcounsel of Borrower.

“**Revolving Maturity Date**”is June 28, 2008.

**“Revolving Obligations”**is thesum of : (i) any amounts deemed outstanding under the Cash Management ServicesSublimit, plus (ii) the amount of all outstanding Letters of Credit(including drawn but unreimbursed Letters of Credit), plus (iii) the FXReserve, plus (iv) outstanding Advances.

“**Soft Costs**” isdefined in Section 2.1.7(a).

“**Subordinated Debt**”is debt incurred by Borrower subordinated to Borrower’s indebtedness owed toBank and which is reflected in a written agreement in a manner and formreasonably acceptable to Bank and approved by Bank in writing.

“**Subsidiary**” isfor any Person, or any other business entity of which more than 50% of thevoting stock or other equity interests is owned or controlled, directly orindirectly, by the Person or one or more Affiliates of the Person.

“**Tangible Net Worth**”is, on any date, the consolidated total assets of Borrower and its Subsidiariesminus, (i) any amounts attributable to (a) goodwill, (b) intangibleitems such as unamortized debt discount and expense, Patents, trade and servicemarks and names, and Copyrights, (ii) Total Liabilities; plus realized or unrealized writedowns relating to Borrower’s investment in Tower Semiconductor that are chargedon or after January 1, 2003.

“**Total****Liabilities**” is on any day, obligations that should, underGAAP, be classified as liabilities on Borrower’s consolidated balance sheet,including all Indebtedness, and current portion Subordinated Debt allowed to bepaid, but excluding all other Subordinated Debt.

“**Trademarks**” aretrademark and service mark rights, registered or not, applications to registerand registrations and like protections, and the entire goodwill of the businessof Assignor connected with the trademarks.

“**Treasury Rate**”is the per annum rate of interest (based on a year of 360- days) equal to thesum of the U.S. Treasury note yield to maturity for a term equal to theTreasury Note Maturity date as quoted in The Wall Street Journal on the date ofthe applicable Advance.

“**Treasury Note Maturity**”is the term of 36 months.

[Signature Page toFollow]

27

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IN WITNESS WHEREOF, the undersigned parties haveexecuted this Second Amended and Restated Loan and Security Agreement as of thedate first set forth above.
|            | **BORROWER:**           | ** **           |
|------------|-------------------------|----------------------|
| ** ** | ** **              | ** **           |
|       | QUICKLOGIC  CORPORATION |                 |
|       |                    |                 |
|       |                    |                 |
|       | By:                     | /s/ Carl M.  Mills   |   |
|       |                    |                 |
|       | Title:                  | VP Finance and  CFO  |   |
|       |                    |                 |
|       |                    |                 |
| ** ** | **BANK:**               | ** **           |
| ** ** | ** **              | ** **           |
|       | SILICON VALLEY  BANK    |                 |
|       |                    |                 |
|       |                    |                 |
|       | By:                     | /s/ Rick Freeman     |   |
|       |                    |                 |
|       | Title:                  | Relationship Manager |   |
|            |                         |                      |  |  |  |

 

28

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**EXHIBIT A**

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

All goods and equipment now owned or hereafteracquired, 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 hereafter acquired,including, without limitation, all merchandise, raw materials, parts, supplies,packing and shipping materials, work in process and finished products includingsuch inventory as is held for sale or lease, or to be furnished under acontract 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 general intangibles now ownedor hereafter acquired, including, without limitation, goodwill, trademarks,service marks, trade styles, trade names, patents, patent applications, leases,license agreements, franchise agreements, blueprints, drawings, purchaseorders, customer lists, route lists, infringements, claims, computer programs,computer discs, computer tapes, literature, reports, catalogs, design rights,income tax refunds, payments of insurance, payment intangibles, and rights topayment of any kind;

All now existing and hereafter arising accounts(including health-care insurance receivables), contract rights, royalties,license rights and all other forms of obligations owing to Borrower arising outof the sale or lease of goods, the licensing of technology or the rendering ofservices by Borrower, whether or not earned by performance, and any and allcredit insurance, guaranties, and other security therefor, as well as allmerchandise returned to or reclaimed by Borrower;

All documents (including negotiable documents), cash,deposit accounts, securities, securities entitlements, securities accounts,investment property, financial assets, letters of credit, letter of creditrights, money, certificates of deposit, instruments (including promissorynotes) and chattel paper (including tangible and electronic chattel paper) nowowned or hereafter acquired and Borrower’s Books relating to the foregoing;

All copyright rights, copyright applications, copyrightregistrations and like protections in each work of authorship and derivativework thereof, whether published or unpublished, now owned or hereafteracquired; all trade secret rights, including all rights to unpatentedinventions, know-how, operating manuals, license rights and agreements andconfidential information, now owned or hereafter acquired; all mask work orsimilar rights available for the protection of semiconductor chips, now ownedor hereafter acquired; all claims for damages by way of any past, present andfuture infringement of any of the foregoing; and

All Borrower’s Books relating to the foregoing, andthe computers and equipment containing said books and records, and any and allclaims, rights and interests in any of the above and all substitutions for,additions and accessions to and proceeds thereof.

----

Notwithstanding theforegoing, the Collateral shall not include any of the following created,modified or amended (to the extent of the modification or amendment), acquiredor obtained on or after June 28, 2004: Any copyrights, copyright applications,copyright registration and like protection in each work of authorship andderivative work thereof, whether published or unpublished, now owned orhereafter acquired; any patents, patent applications and like protectionsincluding without limitation improvements, divisions, continuations, renewals,reissues, extensions and continuations-in-part of the same, trademarks,servicemarks and applications therefor, whether registered or not, and thegoodwill of the business of Borrower connected with and symbolized by suchtrademarks, any trade secret rights, including any rights to unpatentedinventions, know-how, operating manuals, license rights and agreements andconfidential information, now owned or hereafter acquired; or any claims fordamage by way of any past, present and future infringement of any of theforegoing (collectively, the “Intellectual Property”), except that theCollateral shall include the proceeds of all the Intellectual Property that areaccounts, (i.e. accounts receivable) of Borrower, or general intangiblesconsisting of rights to payment, if a judicial authority (including a U.S.Bankruptcy Court) holds that a security interest in the underlying IntellectualProperty is necessary to have a security interest in such accounts and generalintangibles of Borrower that are proceeds of the Intellectual Property, thenthe Collateral shall automatically, and effective as of the Closing Date,include the Intellectual Property to the extent necessary to permit perfectionof Bank’s security interest in such accounts and general intangibles ofBorrower that are proceeds of the Intellectual Property.

Notwithstanding the foregoing, the collateral does notinclude any license or contract rights to the extent (i) the granting of asecurity interest in it would be contrary to applicable law, or (ii) that suchrights are nonassignable by their terms (but only to the extent suchprohibition is enforceable under applicable law) without the consent of thelicensor or other party (but only to the extent such consent has not beenobtained).

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**EXHIBIT B**

LOAN PAYMENT/ADVANCETELEPHONE REQUEST FORMDEADLINE FOR PROCESSING IS 12 NOON, P.S.T.
| TO: CENTRAL CLIENT SERVICE  DIVISION | DATE:  |   |   |
|--------------------------------------|--------|--------|--------|
|                                 |   |   |
| FAX #: (408)  496-2426               | TIME:  |   |   |
|                                      |        |        |        |  |

 
| FROM:                          | QuickLogic Corporation |
|--------------------------------|------------------------|
|                           |                   |   |
| 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: |   |
|---------------------|--------|
|                |

 

AllBorrower’s representations and warranties in the Loan and SecurityAgreement are true, correct and complete inall material respects on the date of the telephone request for and Advanceconfirmed by this Borrowing Certificate; but those representations andwarranties expressly referring to another date shall be true, correct andcomplete in all material respects as of that date.

BANK USE ONLY

TELEPHONEREQUEST:

Thefollowing person is authorized to request the loan payment transfer/loan advanceon the advance designated account and is known to me.
|                 |                        |   |
|----------------------|-----------------------------|--------|
| Authorized Requester |                        |   | Phone # |
|                 |                        |   |
|                 |                        |   |
| Received By (Bank)   |                        |   | Phone # |
|                 |                        |   |
|                 |                        |
|                 | Authorized Signature (Bank) |
|                      |                             |        |  |  |  |

 

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**EXHIBIT C**

**COMPLIANCE CERTIFICATE**
| TO:    | SILICON VALLEY BANK       |
|--------|---------------------------|
|   | 3003 Tasman  Drive        |
|   | Santa Clara, CA  95054    |
|   |                      |
| FROM:  | QUICKLOGIC CORPORATION    |
|   | 1227 Orleans  Drive       |
|   | Sunnyvale, CA  94089-1138 |

 

The undersignedauthorized officer of QuickLogic Corporation (“Borrower”) certifies that underthe terms and conditions of the Loan and Security Agreement between Borrowerand Bank (the “Agreement”), (i) Borrower is in complete compliance for theperiod ending                                   with all required covenants except as noted below and (ii) all representationsand warranties in the Agreement are true and correct in all material respectson this date, except for representations and warranties made as of a specificearlier date, which are to be true and correct in all material respects as ofsuch earlier date.  Attached are therequired documents supporting the certification.  The Officer certifies that these are preparedin accordance with Generally Accepted Accounting Principles (GAAP) consistentlyapplied from one period to the next except as explained in an accompanyingletter, footnotes or year end adjustments. The Officer acknowledges that no borrowings may be requested at any timeor date of determination that Borrower is not in compliance with any of theterms of the Agreement, and that compliance is determined not just at the datethis certificate is delivered.

**Please indicate compliance statusby circling Yes/No under “Complies” column**.
| **Reporting and  Financial Covenants**             | ** ** | **Required**                            | ** ** | **Complies** |
|----------------------------------------------------|------------|-----------------------------------------|------------|--------------|
|                                               |       |                                    |       |         |   |   |
| Monthly  financial statements + CC                 |       | Monthly within 45 days                  |       | Yes          |   | No |
| Annual (Audited)                                   |       | Annual within 120 of FYE                |       | Yes          |   | No |
| Board Approved  Projections                        |       | Prior to December 20th                  |       | Yes          |   | No |
| Accounts Payable  and Accounts Receivable Listings |       | Within 30 days of the end of each month |       | Yes          |   | No |
| 10-Q, 10-K  and 8-K                                |       | Within 5 days after filing with SEC     |       | Yes          |   | No |
| Minimum Tangible  Net Worth                        |       | Monthly; $31,000,000                    |       | Yes          |   | No |
| Quick Ratio  (Adjusted)                            |       | 1.55to 1.00                             |       | Yes          |   | No |

 
| Have there been updates to  Borrower’s intellectual property, if appropriate? | Yes | No |
|------------------------------------------------------------------------------------|-----|----|

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**Comments Regarding Exceptions:** See Attached. 

 

Sincerely, 

 

QuickLogic Corporation 

 

 
|           |   |
|-----------|--------|
| Signature |
|      |
|      |   |
| Title     |
|      |
|      |   |
| Date      |

 

 
| **BANK USE ONLY**   |              |
|---------------------|-------------------|
| ** **          |              |
| Received by:        |              |   |   |
|                | authorized signer |   |   |
|                |              |   |   |
| Date:               |              |   |   |
|                |              |   |   |
| Verified:           |              |   |   |
|                | authorized signer |   |   |
|                |              |   |   |
| Date:               |              |   |   |
|                |              |   |   |
| Compliance  Status: | Yes               | No |   |
|                     |                   |  |  |  |  |  |  |  |

 

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**EXHIBIT D**

 

**CORPORATE BORROWING RESOLUTION**
| **Borrower:** | **QuickLogic Corporation  1227 Orleans Drive  Sunnyvale, CA 94089-1138** | **Bank:** | **Silicon Valley Bank  3003 Tasman Drive  Santa Clara, CA 95054-1191** |
|---------------|--------------------------------------------------------------------------|-----------|------------------------------------------------------------------------|

 

I, the Secretary orAssistant Secretary of QuickLogic Corporation (“Borrower”), CERTIFY thatBorrower is a corporation duly organized and existing under the laws of theState of Delaware.

I****certifythat at a meeting of Borrower’s Board of Directors (or by other authorizedcorporate action) duly held, the following resolutions were adopted:

It is resolved that anyone****of the following officers of Borrower,whose name, title and signature is below:
| **NAMES**          | ** ** | **POSITIONS**                      | ** ** | **ACTUAL SIGNATURES** | ** ** |
|--------------------|------------|------------------------------------|------------|----------------------------|------------|
| E. Thomas Hart     |       | Chairman, President  & CEO     |       |                       |       |
| Carl M. Mills      |       | Vice President, Finance  & CFO |       |                       |       |
| David F.  Peterson |       | Corporate Controller               |       |                       |       |
| Timothy Saxe       |       | Vice President, Engineering        |       |                       |       |

 

may act for Borrower, and:

**Borrow Money.**  Borrow money from Silicon Valley Bank (“Bank”).

**Execute Loan Documents.**  Execute any loan documents Bank requires.

**Grant Security**.  Grant Bank a security interest in any ofBorrower’s assets.

**Negotiate Items.**  Negotiate or discount all drafts, tradeacceptances, promissory notes, or other indebtedness in which Borrower has aninterest and receive cash or otherwise use the proceeds.

**Letters of Credit.**  Apply for letters of credit from Bank.

**Foreign Exchange Contracts.**  Executespot or forward foreign exchange contracts.

**Further Acts**.  Designate other individuals to requestadvances, pay fees and costs and execute other documents or agreements(including documents or agreement that waive Borrowers right to a jury trial)they think necessary to effectuate these Resolutions.

Further resolved that allacts authorized by these Resolutions and performed before they were adopted areratified. These Resolutions remain in effect and Bank may rely on them untilBank receives written notice of their revocation.

I****certifythat the persons listed above are Borrower’sofficers with the titles and signatures shown following their names and thatthese resolutions have not been modified are currently effective.

----

CERTIFIED TO AND ATTESTED BY:
| X      |                               |   |   |
|--------|------------------------------------|--------|--------|
|   | *Secretary or  Assistant Secretary |   |   |
|   |                               |
|   |                               |
| X      |                               |   |   |

 

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*NOTE: In case theSecretary or other certifying officer is designated by the foregoingresolutions as one of the signing officers, this resolution should also besigned by a second Officer or Director of Borrower.

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