Exhibit
10.18


 


BUSINESS FINANCING
AGREEMENT

dated as of July 8, 2004

between

BRIDGE BANK, NATIONAL ASSOCIATION

and

AML COMMUNICATIONS, INC., a Delaware corporation (“Borrower”).


 


Borrower and Lender agree as follows:


 


1.               Definitions and
Construction.


 


1.1   Definitions.  In this Agreement:


 


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


 


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


 


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


 


“Advance” means a Formula Advance made pursuant
to Section 2.2.


 


“Advance Rate” means 80% or such greater or lesser
percentage as Lender may from time to time establish in its sole discretion
upon notice to Borrower.


 


“Agreement” means this Business Financing
Agreement.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 

















 


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


 


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


 


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


 


(e)           The Receivable represents a genuine
obligation of the Account Debtor and to the extent any credit balances exist in
favor of the Account Debtor, such credit balances shall be deducted in
calculating the Receivable Amount.


 


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


 


(g)           Borrower is not prohibited by the
laws of the state where the Account Debtor is located from bringing an action
in the courts of that state to enforce the Account Debtor’s obligation to pay
the Receivable.  Borrower has taken all
appropriate actions to ensure access to the courts of the state where the
Account Debtor is located, including, where necessary, the filing of a Notice
of Business Activities Report or other similar filing with the applicable state
agency or the qualification by Borrower as a foreign corporation authorized to
transact business in such state.


 


(h)           The Receivable is owned by Borrower
free of any title defects or any liens or interests of others except the
security interest in favor of Lender, and Lender has a perfected, first
priority security interest in such Receivable.


 


(i)            The Account Debtor on the Receivable
is not any of the following:  (i) an
employee, affiliate, parent or subsidiary of Borrower, or an entity which has
common officers or directors with Borrower; (ii) the U.S. government or any
agency or department of the U.S. government unless Borrower complies with the
procedures in the Federal Assignment of Claims Act of 1940 (41 U.S.C.§15) with
respect to the Receivable, and the underlying contract expressly provides that
neither the U.S. government nor any agency or department thereof shall have the
right of set-off against Borrower (“Eligible Government Receivables”); (iii)
any person or entity located in a foreign country unless (A) the Receivable is
supported by an irrevocable letter of credit issued by a bank acceptable to
Lender, and (B) if requested by Lender, the original of such letter of credit
and/or any usance drafts drawn under such letter of credit and accepted by the issuing
or confirming bank have been delivered to Lender; or (iv) an Account Debtor as
to which 25% percent or more of the aggregate dollar amount of all outstanding
Receivables owing from such Account Debtor have not been paid within 90 days
from invoice date.


 


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


 


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


 


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


 


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


 


(n)           The Receivable is otherwise
acceptable to Lender.


 


“Equipment Advance” means a cash advance under
Section 2.3.


 


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


 


“Facility Fee” means $7,500.00.


 


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


 


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Percentage of the average
daily outstanding Advances during such Reconciliation Period with respect to
Formula Advances, and the Finance Charge Percentage of the average daily
outstanding Equipment Advances with respect to Equipment Advances.


 


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


 


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


 


“Funding
Request” means a writing signed by an authorized representative of Borrower
requesting an Advance in form and substance acceptable to Lender that (i) as to
a Formula Advance, accurately identifies the Eligible Receivables and
Receivable Amounts, and includes for each such Receivable the correct amount
owed by the Account Debtor, the name and address of the Account Debtor, the invoice
number, the invoice date and the account code, and (ii) as to an Equipment
Advance, identifies the equipment being financed and includes a copy of the
invoice for such equipment and proof of payment for such equipment.


 


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


 


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


 


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


 


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


 


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


 


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


 


“Receivables” means Borrower’s rights to
payment arising in the ordinary course of Borrower’s business, including
accounts, chattel paper, instruments, contract rights, documents, general
intangibles, letters of credit, drafts, and bankers acceptances.


 


“Reconciliation Date” means the last calendar
day of each Reconciliation Period.


 


“Reconciliation Period” means each calendar
month.


 


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


 


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


 


1.2         Construction:


 


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


 


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(b)           Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved using any
presumption against either Borrower or Lender, whether under any rule of
construction or otherwise.  On the
contrary, this Agreement has been reviewed by each party hereto and their
respective counsel.  In case of any
ambiguity or uncertainty, this Agreement shall be construed and interpreted
according to the ordinary meaning of the words used to accomplish fairly the
purposes and intentions of all parties hereto.


 


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


 


2.               Advances.


 


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


 


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


 


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


 


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


 


2.4         Rights in Respect of  Receivables.  Lender shall have the exclusive right to receive all Collections
on the Receivable and no Adjustments will be made without the Lender’s
consent.  Lender shall have, with
respect to any goods related to the Receivables, all the rights and remedies of
an unpaid seller under the California Uniform Commercial Code and other
applicable law, including the rights of replevin, claim and delivery,
reclamation and stoppage in transit.


 


2.5         Due Diligence.  Lender may at any time and from time to time
contact Account Debtors and other persons obligated or knowledgeable in respect
of Receivables to confirm the Receivable Amount of such Receivables, to
determine whether Receivables constitute Eligible Receivables, and for any
other purpose in connection with this Agreement.  Lender may audit Borrower’s Receivables and any and all records
pertaining to the Collateral, at Lender’s sole discretion and at Borrower’s
expense.


 


3.               Collections,
Charges and Remittances.


 


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


 


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


 


3.2         Finance Charges.  On each Reconciliation Date Borrower shall
pay to Lender the Finance Charge for the Reconciliation Period ending on such
Reconciliation Date.  Lender may effect
payment of the Finance Charges under Section 4.2 or charge such Finance Charges
as an Advance.


 


3.3         Fees.


 


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


 


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


 


(c)           Intentionally omitted.


 


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


 


3.5         Adjustments.  In the event of a breach of Sections 6
or 7, or in the event any Adjustment or dispute is asserted by any Account
Debtor, Borrower shall promptly advise Lender and shall, subject to the
Lender’s approval, resolve such disputes and advise Lender of any
adjustments.  Lender shall have the
right, at any time, to take possession of any rejected, returned, or recovered
personal property.  If such possession
is not taken by Lender, Borrower shall at Lender’s request resell it for
Lender’s account at Borrower’s expense with the proceeds made payable to
Lender.  While Borrower retains
possession of any returned goods, Borrower shall segregate said goods and mark
them as property of Lender.


 


3.6         Lockbox Account Collection Services.  Borrower, Lender and lockbox provider
acceptable to Lender shall immediately enter into a three party agreement
acceptable to Lender (the “Lockbox Agreement”).  Borrower shall use the lockbox address as the remit to and
payment address for all of Borrower’s Collections and it will be considered an
immediate Event of Default if this does not occur or is not operational within
60 days of the date of this Agreement. 
All Collections received to the lockbox will be deposited to a non-interest
bearing bank-control account maintained with Lender and Borrower will not have
access to that account.  Upon the
occurrence of the initial Advance or initial Equipment Advance and thereafter,
Borrower will immediately notify, transfer and deliver to Lender all
Collections Borrower receives. Additionally, Lender may request that Account
Debtors pay (by wire transfer or otherwise) Collections to Lender directly.


 


4.               Overadvances.


 


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


 


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


 


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


 


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


 


6.               Representations
and Warranties.  Borrower
represents and warrants:


 


(a)       With respect to each
Eligible Receivable:


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


7.               Miscellaneous
Provisions.  Borrower will:


 


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


 


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


 


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(c)       Pay all its taxes including gross
payroll, withholding and sales taxes when due and will deliver satisfactory
evidence of payment to Lender if requested.


 


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


 


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


 


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


 


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


 


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


 


(i)        Immediately notify Lender if Borrower
hereafter obtains any interest in any copyrights, patents, trademarks or
licenses that are significant in value or are material to the conduct of its
business or the value of any Receivable.


 


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


 


(k)       Provide to Lender by July 31, 2004 for
2003, and within 120 days after fiscal year end for subsequent years, audited
financial statements in form and substance acceptable to Lender, together with
an unqualified opinion of an independent certified public accountant acceptable
to Lender.


 


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


 


(n)    Maintain its primary
depository and operating accounts with Lender.


 


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


 


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


 


(q)    At all times insure all of the
tangible Collateral and carry such other business insurance, with insurers
reasonably acceptable to Lender, in such form and amounts as Lender may
reasonably require and that are customary and in accordance with standard
practices for Borrower’s industry and locations, and Borrower shall provide
evidence of such insurance to Lender within 30 days from the initial Advance or
Equipment Advance, whichever is earlier. 
All such insurance policies shall name Lender as an additional loss
payee, and shall contain a lenders loss payee endorsement in form reasonably
acceptable to Lender.  Upon receipt of
the proceeds of any such insurance, Lender shall apply such proceeds in
reduction of the Obligations, as Lender shall determine in its good faith
business judgment, provided that no Default or Event of Default has occurred
and is continuing.  If Borrower fails to
provide or pay for any insurance, Lender may, but is not obligated to, obtain
the same at Borrower’s expense. 
Borrower shall promptly deliver to Lender copies of all material reports
made to insurance companies.


 


8.     Security
Interest.  To secure the prompt
payment and performance to Lender of all of the Obligations, Borrower hereby
grants to Lender a continuing security interest in the Collateral.  Borrower is not authorized to sell, assign,
transfer or otherwise convey any Collateral without Lender’s prior written
consent, except for the sale of finished inventory in the Borrower’s usual
course of business.  Borrower agrees to
sign any instruments and documents requested by Lender to evidence, perfect, or
protect the interests of Lender in the Collateral.  Borrower agrees to deliver to Lender the originals of all
instruments, chattel paper and documents evidencing or related to Receivables
and other Collateral.  Borrower shall
not grant or permit any lien or security interest in the Collateral or any
interest therein.


 


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9.     Default
and Remedies.


 


9.1   Events
of Default.  The occurrence of any
one or more of the following shall constitute an Event of Default hereunder.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(h)           Material Adverse
Change.  A material adverse change
occurs, or is reasonably likely to occur, in Borrower’s (or any guarantor’s)
business condition (financial or otherwise), operations, properties or
prospects, or ability to repay the credit; or Lender determines that it is
insecure for any other reason.


 


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


 


(j)            Default under
Related Documents.  Any default
occurs under any guaranty, subordination agreement, security agreement, deed of
trust, mortgage, or other document required by or delivered in connection with
this Agreement or any such document is no longer in effect.


 


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


 


(l)            Other Breach Under
Agreement.  Borrower fails to meet
the conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to above.


 


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


 


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


 


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principal amount of any money judgment remaining
unsatisfied shall accrue interest at the highest rate allowed by applicable
law.  All interest and Finance Charges
hereunder calculated at an annual rate shall be based on a year of 360 days,
which results in a higher effective rate of interest than if a year of 365 or
366 days were used.


 


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


 


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


 


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


 


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


 


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


 


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OF THE
TRANSACTIONS CONTEMPLATED HEREIN SHALL BE SETTLED BY FINAL AND BINDING
ARBITRATION TO BE HELD IN SANTA CLARA COUNTY, CALIFORNIA AND IN ACCORDANCE WITH
THE THEN-CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION.  JUDGMENT UPON ANY AWARD
RESULTING FROM ARBITRATION MAY BE ENTERED INTO AND ENFORCED BY ANY STATE OR
FEDERAL COURT HAVING JURISDICTION THEREOF.


 


15.   Term and
Termination.  This Agreement shall
become effective upon the execution and delivery hereof by Borrower and Lender
and shall continue in full force and effect for one year from the date
hereof.  Upon the Termination Date, the
unpaid balance of the Obligations, including all outstanding Equipment
Advances, shall be due and payable without demand or notice.


 


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


 


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


 


	
  BORROWER:

  	
  LENDER:

  
	
   

  	
   

  
	
  AML COMMUNICATIONS, INC., a Delaware

  corporation

  	
  BRIDGE BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/ Jacob Inbar

  	
   

  	
  By

  	
  /s/ Michael J.
  Field

  	
   

  
	
  Name:

  	
  Jacob Inbar

  	
   

  	
  Name:

  	
  Michael J. Field

  	
   

  
	
  Title:

  	
  President

  	
   

  	
  Title:

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
  Address for Notices:

  	
  Address for Notices:

  
	
  1000 Avenida Acaso

  	
  2120 El Camino Real

  
	
  Camarillo, CA 93012

  	
  Santa Clara, CA 95050

  
	
  Fax: (805) 484-2191

  	
  Fax: (408) 423-8510

  
										



 


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