EXHIBIT 10.1


 




 


 





AMENDED
AND RESTATED LOAN AND SECURITY AGREEMENT


 


 


between


 


SILICON
VALLEY BANK


 


and


 


QUICKLOGIC
CORPORATION


 


 


June 20,
2003


 




 





 

















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
  Page

  
	
  1.

  	
  ACCOUNTING AND OTHER TERMS  

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  LOAN AND TERMS OF PAYMENT  

  	
  1

  
	
   

  	
   

  	
   

  
	
  3.

  	
  CONDITIONS OF LOANS  

  	
  6

  
	
   

  	
   

  	
   

  
	
  4.

  	
  CREATION OF SECURITY INTEREST  

  	
  6

  
	
   

  	
   

  	
   

  
	
  5.

  	
  REPRESENTATIONS AND WARRANTIES  

  	
  7

  
	
   

  	
   

  	
   

  
	
  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 AND JURY TRIAL WAIVER  

  	
  17

  
	
   

  	
   

  	
   

  
	
  12.

  	
  GENERAL PROVISIONS  

  	
  17

  
	
   

  	
   

  	
   

  
	
  13.

  	
  DEFINITIONS
  

  	
  19

  



 


i

















 


This AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT dated June 20, 2003, between SILICON
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 Bank
will lend to Borrower and Borrower will repay Bank.


 


RECITALS


 


WHEREAS, Borrower and Bank have previously
entered into that certain Loan and Security Agreement, dated as of
June 28, 2002 (the “Prior Agreement”).


 


WHEREAS, Borrower and Bank desire to amend
and restate the Prior Agreement as set forth herein.


 


NOW, THEREFORE, Borrower and Bank hereby
amend and restate the Prior Agreement as follows:


 


1.                                       ACCOUNTING AND OTHER TERMS.


 


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


 


2.                                       LOAN AND TERMS OF PAYMENT


 


2.1                                 Credit Extensions.


 


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


 


2.1.1                        Formula
Revolving Advances.


 


(a)                                  Formula
and Non-Formula Advances.


 


(i)                                     Formula
Advances. If at any time, and so long as, the then outstanding Revolving
Obligations are less than or equal to the Formula Line Availability, Bank will
make advances (“Formula Advances”) not exceeding the amount calculated
as the lesser of (A) the Committed Formula Revolving Line minus the sum:
(x) FX Reserve, plus, (y) the aggregate amounts deemed outstanding under
the sublimit described in Section 2.1.5, (the “CMS Reserve”), plus
(z) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) (the “L/C Reserve”) or (B)  the Borrowing Base minus the sum
of: (x) FX Reserve, plus, (y) the CMS Reserve, plus, (z) the L/C
Reserve. Amounts borrowed under this Section may be repaid and reborrowed
during the term of this Agreement.


 


(ii)                                  Non-Formula
Advances.  If at any time, and so long
as, the then outstanding Revolving Obligations maximize the Formula Line
Availability, Bank will make


 


1

















 


Advances (“Non-Formula Advances”) not
exceeding the amount calculated as the Committed Non-Formula Revolving Line minus
the sum of any portion of the following not reserved against the Formula Line
Availability: (x) FX Reserve, plus, (y) the CMS Reserve, plus,
(z) the L/C Reserve. Amounts borrowed under this Section may be repaid and
reborrowed during the term of this Agreement.


 


(b)                                 All
Advances and reserves shall be applied first to the Committed Formula Revolving
Line and only after the Formula Line Availability has been exhausted, second to
the Committed Non-Formula Revolving Line. 
In the event that Formula Line Availability increases, Advances and
reserves under the Committed Non-Formula Revolving Line shall automatically
convert as follows until Formula Line Availability has been exhausted:  (i) first, any outstanding Non-Formula
Advances shall convert to Formula Advances until all such Non-Formula Advances
have been so converted; (ii) second, the L/C Reserve reserved against the
Non-Formula Revolving Line shall be converted to L/C Reserve reserved against
Formula Line Availability until all such reserves have been so converted; (iii)
third, the CMS Reserve reserved against the Committed Non-Formula Revolving
Line shall be converted to CMS Reserve reserved against Formula Line
Availability until all such reserves have been so converted; and (iv) fourth,
the FX Reserve reserved against the Committed Non-Formula Line shall be
converted to FX Reserve reserved against Formula Line Availability.  In the event that Formula Line Availability
decreases, Advances and sublimit reserves that exceed the Formula Line
Availability shall automatically convert as follows:  (i) first, the portion of the FX Reserve that exceeds the Formula
Line Availability shall be converted to FX Reserve reserved against the
Committed Non-Formula Revolving Line; (ii) second, the portion of the CMS
Reserve that exceeds the Formula Line Availability shall be converted to CMS
Reserve reserved against the Committed Non-Formula Revolving Line, until all of
the CMS Reserve has been so converted; (iii) third, the portion of the L/C
Reserve that exceeds the Formula Line Availability shall be converted to L/C
Reserve reserved against the Committed Non-Formula Revolving Line, until all of
the L/C Reserve has been so converted; and (iv) fourth, any outstanding Formula
Advances that exceed Formula Line Availability shall convert to Non-Formula
Advances until all such Formula Advances have been so converted.


 


(c)                                  The
Committed Non-Formula Revolving Line and the Committed Formula Revolving Line
terminate on the Revolving Maturity Date, when all outstanding Advances are
immediately payable.


 


2.1.2                        Requesting Advances.


 


To obtain an
Advance, Borrower must notify Bank by facsimile or telephone by 12:00 noon
Pacific time on the Business Day the Advance is to be made.  Borrower must promptly confirm the
notification by delivering to Bank the Payment/Advance Form attached as Exhibit
B. Bank will credit Advances to Borrower’s deposit account.  Bank may make Advances under this Agreement
based on instructions from a Responsible Officer or his or her designee or
without instructions if the Advances are necessary to meet Obligations which
have become due.  Bank may rely on any
telephone notice given by a person whom Bank believes is a Responsible Officer
or designee. Borrower will indemnify Bank for any loss Bank suffers due to such
reliance unless such loss is due to Bank’s gross negligence or willful
misconduct.


 


2

















 


2.1.3                        Letters of Credit Sublimit.


 


(a)                                  Bank
will issue Letters of Credit for Borrower’s account not exceeding the lesser
of: (i) $500,000 and (ii) Availability.


 


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


 


2.1.4                        Foreign Exchange Sublimit.


 


Subject to the
limits set forth below in this Section 2.1.4, Borrower may enter into
foreign exchange forward contracts with the Bank under which Borrower commits
to purchase from or sell to Bank a set amount of foreign currency more than one
business day after the contract date (the “FX Forward Contract”) (the
amount equal to 10% of the aggregate outstanding FX Forward Contracts is
hereinafter referred to as the “FX Reserve”).  The FX Reserve may not exceed the lesser of: (i) $500,000 and
(ii) Availability.  The total FX Forward
Contracts at any one time may not exceed the amount calculated as 10 multiplied
by the FX Reserve.  Bank may terminate
the FX Forward Contracts if an Event of Default occurs and continues.


 


2.1.5                        Cash Management Services
Sublimit.


 


Borrower may
use for Bank’s Cash Management Services up to an amount equal to the lesser of:
(i) $500,000 and (ii) Availability (Cash Management Services Sublimit”).  Such services may include merchant services,
direct deposit of payroll, business credit card, clearing house services,
control disbursement accounts and check cashing services identified in various
cash management services agreements related to such services (the “Cash
Management Services”).  The
aggregate amount of the credit limits under all such agreements with respect to
Cash Management Services shall be deemed to be the amount of the Cash
Management Services for the purposes of calculating the Cash Management
Services Sublimit.  All amounts Bank
pays for any Cash Management Services will be treated as Advances under Section 2.1.1.  Bank will advise Borrower of any amounts
that would affect the Cash Management Services Sublimit.


 


2.1.6                        Equipment Advances.


 


(a)                                  Through
December 31, 2003 (the “Equipment Availability End Date”), Bank will make
advances (“Equipment Advance” and, collectively, “Equipment Advances”) not
exceeding the Committed Equipment Line. 
The Equipment Advances may only be used to finance the acquisition of
hardware and shall exclude taxes, shipping, warranty charges, freight discounts
and installation expense (“Hardware Equipment”).  Hardware Equipment shall be limited to that purchased within 90
days of the date of the requested Equipment Advance.  Each Equipment Advance must be for a minimum of $50,000 and only
one Equipment Advance per month shall be available.


 


3

















 


(b)                                 Interest
accrues from the date of each Equipment Advance at the rate in
Section 2.3(a).  Each Equipment
Advance is payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the first day of each month following the date of the
Equipment Advance.  Equipment Advances
when repaid may not be reborrowed.


 


(c)                                  To
obtain an Equipment Advance, Borrower must notify Bank (the notice is
irrevocable) by facsimile no later than 12:00 noon Pacific time 1 Business Day
before the day on which the Equipment Advance is to be made.  The notice in the form of Exhibit B
(Payment/Advance Form) must be signed by a Responsible Officer or designee and
include a copy of the invoice for the Equipment being financed.


 


2.1.7                        Term Loan A.


 


(a)                                  Pursuant
to the terms of the Prior Agreement, Bank has made a term loan (the “Term Loan
A”) to Borrower.  As of the Closing Date
the outstanding principal balance of Term Loan A is $637,691.06 plus accrued
and unpaid interest.


 


(b)                                 Interest
accrues (starting on the date of the Term Loan A funding under the Prior
Agreement) at the rate specified in Section 2.3(a)(iv), and shall be
payable monthly on the first day of each month through the Term Loan A Maturity
Date.  The principal balance of the Term
Loan A that is outstanding on the Closing Date shall be payable in 27 equal
monthly installments of principal, plus all accrued and unpaid interest,
beginning on July 1, 2003, and continuing on the first day of each month
thereafter through the Term Loan A Maturity Date, at which time all amounts due
under this Section 2.1.7 shall be immediately due and payable.


 


2.1.8                        Term Loan B.


 


(a)                                  Pursuant
to the terms of the Prior Agreement, Bank has made a term loan (the “Term Loan
B”) to Borrower.  As of the Closing Date
the outstanding principal balance of Term Loan B is $766,441.05 plus accrued
and unpaid interest.


 


(b)                                 Interest
accrues (starting on the date of the Term Loan B funding under the Prior
Agreement) at the rate specified in Section 2.3(a)(iv), and shall be
payable monthly on the first day of each month through the Term Loan B Maturity
Date.  The principal balance of the Term
Loan B that is outstanding on the Closing Date shall be payable in 21 equal
monthly installments of principal, plus all accrued and unpaid interest,
beginning on July 1, 2003, and continuing on the first day of each month
thereafter through the Term Loan B Maturity Date, at which time all amounts due
under this Section 2.1.8 shall be immediately due and payable.


 


2.1.9                        Term Loan C.


 


(a)                                  Pursuant
to the terms of the Prior Agreement, Bank has made a term loan (the “Term Loan
C”) to Borrower.  As of the Closing Date
the outstanding principal balance of Term Loan C is $252,132.19 plus accrued
and unpaid interest.


 


(b)                                 Interest
accrues (starting on the date of the Term Loan C funding under the Prior
Agreement) at the rate specified in Section 2.3(a)(iv), and shall be
payable monthly on the first


 


4

















 


day of each month through the
Term Loan C Maturity Date.  The
principal balance of the Term Loan C that is outstanding on the Closing Date
shall be payable in 30 equal monthly installments of principal, plus all
accrued and unpaid interest, beginning on July 1, 2003, and continuing on
the first day of each month thereafter through the Term Loan C Maturity Date,
at which time all amounts due under this Section 2.1.9 shall be
immediately due and payable.


 


2.1.10                  Term Loan D.


 


(a)                                  Pursuant
to the terms of the Prior Agreement, Bank has made a term loan (the “Term Loan
D”) to Borrower.  As of the Closing Date
the outstanding principal balance of Term Loan D is $67,475.99 plus accrued and
unpaid interest.


 


(b)                                 Interest
accrues (starting on the date of the Term Loan D funding under the Prior
Agreement) at the rate specified in Section 2.3(a)(iv), and shall be
payable monthly on the first day of each month through the Term Loan D Maturity
Date.  The principal balance of the Term
Loan D that is outstanding on the Closing Date shall be payable in 24 equal monthly
installments of principal, plus all accrued and unpaid interest, beginning on
July 1, 2003, and continuing on the first day of each month thereafter
through the Term Loan D Maturity Date, at which time all amounts due under this
Section 2.1.10 shall be immediately due and payable.


 


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: (A) the lesser of: (i) the Committed Formula Revolving Line or (ii) the
Borrowing Base, plus (B) the Committed Non-Formula Revolving Line, Borrower
must immediately pay Bank the excess.


 


2.3                                 Interest Rate,
Payments.


 


(a)                                  Interest
Rate.  (i) Formula Advances accrue
interest on the outstanding principal balance at a per annum rate equal to 100
basis points (1%) above the Prime Rate; (ii) Non-Formula Advances accrue
interest on the outstanding principal balance at a per annum rate equal to 200
basis points (2%) above the Prime Rate; (iii) Equipment Advances accrue
interest on the outstanding principal balance at a per annum rate of 200 basis
points (2.00%) above the Prime Rate; and (iv) Term Loan A, Term Loan B, Term
Loan C, and Term Loan D accrue interest on the outstanding principal balance at
a per annum rate of 75 basis points (0.75%) above the Prime Rate.  After an Event of Default, Obligations
accrue interest at 5 percent above the rate effective immediately before the
Event of Default. The interest rate increases or decreases when the Prime Rate
changes.  Interest is computed on a 360
day year for the actual number of days elapsed.


 


(b)                                 Payments.  Interest due on the Committed Formula
Revolving Line and the Committed Non-Formula Revolving Line is payable on the
first day of each month.  Interest due
on the Equipment Advances is payable on the first day of each month.  Bank may debit any of Borrower’s deposit
accounts for principal and interest payments owing under this Agreement or any
amounts Borrower owes Bank.  Bank will
promptly notify Borrower when it debits Borrower’s accounts.  These debits are not a set-off.  Payments received after 12:00 noon Pacific
time are considered received at the opening of business on the next Business
Day.  When a


 


5

















 


payment is due on a day that is not a
Business Day, the payment is due the next Business Day and additional fees or
interest accrue, however solely making such payment on the next Business Day
shall not result in an Event of Default.


 


2.4                                 Fees.


 


Borrower will
pay:


 


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


 


(b)                                 Loan
Fee.  On or before the Closing Date, a
loan fee equal to $70,000 due, payable and fully earned on the Closing Date.


 


3.                                       CONDITIONS OF LOANS


 


3.1                                 Conditions
Precedent to Initial Credit Extension.


 


Bank’s
obligation to make the initial Credit Extension is subject to the condition
precedent that it receive the agreements, documents and fees it requires.


 


3.2                                 Conditions
Precedent 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 any Payment/Advance Form; and


 


(b)                                 the
representations and warranties in Section 5 must be materially true on the
date of the Payment/Advance Form and on the effective date of each Credit
Extension except for representations and warranties made as of a specified
earlier date, which must be materially true as of such earlier date and no
Event of Default may have occurred and be continuing, or result from the Credit
Extension. Each Credit Extension is Borrower’s representation and warranty on
that date that the representations and warranties of Section 5 remain true
except for representations and warranties made as of a specified earlier date,
which must be materially true as of such earlier date.


 


4.                                       CREATION OF SECURITY INTEREST


 


4.1                                 Grant of Security
Interest.


 


(a)                                  Borrower
grants Bank a continuing security interest in all presently existing and later
acquired Collateral to secure all Obligations and performance of each of
Borrower’s duties under the Loan Documents. 
Except for Permitted Liens, any security interest will be a first
priority security interest in the Collateral. 
Bank may place a “hold” on any deposit account pledged as
Collateral.  Notwithstanding the
foregoing, the security interest granted herein does not extend to and the term
“Collateral” does not include: (A) any license or contract rights to the


 


6

















 


extent (i) the granting of a security
interest in it would be contrary to applicable law, or (ii) that such rights
are nonassignable by their terms (but only to the extent such prohibition is
enforceable under applicable law) without the consent of the licensor or other
party (but only to the extent such consent has not been obtained) and (B)
pledges of more than 65% of foreign subsidiaries’ stock.  If this Agreement is terminated, Bank’s lien
and security interest in the Collateral will continue until Borrower fully
satisfies its Obligations.


 


5.                                       REPRESENTATIONS AND WARRANTIES


 


Borrower
represents and warrants as follows:


 


5.1                                 Due Organization
and Authorization.


 


Borrower and
each material Subsidiary 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, except where the failure to do so could not reasonably
be expected to cause a Material Adverse Change.


 


The execution,
delivery and performance of the Loan Documents have been duly authorized, and
do not conflict with Borrower’s formation 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 in which the default could
reasonably be expected to cause a Material Adverse Change.


 


5.2                                 Collateral.


 


Borrower has
good title to the Collateral, free of Liens except Permitted Liens.  The Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered to the
account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor.  All
Inventory, net of inventory reserves, is in all material respects of good and
marketable quality, free from material defects.  To the best of Borrower’s knowledge, Borrower is the sole owner
of the Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. To the best of Borrower’s
knowledge, each Patent is valid and enforceable and no part of the Intellectual
Property has been judged invalid or unenforceable, in whole or in part, and no
claim has been made that any part of the Intellectual Property violates the
rights of any third party, except to the extent such claim could not reasonably
be expected to cause a Material Adverse Change.


 


5.3                                 Litigation.


 


Except as
shown in the Disclosure Letter, there are no actions or proceedings pending or,
to the knowledge of Borrower’s Responsible Officers, threatened by or against
Borrower or any material Subsidiary  in
which a likely adverse decision could reasonably be expected to cause a Material
Adverse Change.


 


7

















 


5.4                                 No Material Adverse
Change in Financial Statements.


 


All
consolidated financial statements for Borrower delivered to Bank fairly present
in all material respects Borrower’s consolidated financial condition and
Borrower’s consolidated results of operations as of the date of such financial
statements.  There has not been any
material adverse change in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.


 


5.5                                 Solvency.


 


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


 


5.6                                 Regulatory
Compliance.


 


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 its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors).  Borrower has complied in
all material respects with the Federal Fair Labor Standards Act.  Borrower has not violated any laws,
ordinances or rules, the violation of which could reasonably be expected to
cause a Material Adverse Change.  None
of Borrower’s or any Subsidiary’s properties or assets has been used by
Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous
Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally. 
Borrower and each Subsidiary has timely filed all required tax returns
and paid, or made adequate provision to pay, all material taxes, except those
being contested in good faith with adequate reserves under GAAP.  Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary
to continue its business as currently conducted, except where the failure to do
so could not reasonably be expected to cause a Material Adverse Change.


 


5.7                                 Subsidiaries.


 


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


 


5.8                                 Full Disclosure.


 


No written
representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank (taken together with all such written
certificates and written statements to Bank and Borrower’s filings with the
Securities & Exchange Commission) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading.  It being recognized by Bank that the
projections and forecasts provided by Borrower in good faith and based upon
reasonable assumptions are not viewed as facts and that actual results during the


 


8

















 


period or periods covered by such projections
and forecasts may differ from the projected and forecasted results.


 


6.                                       AFFIRMATIVE COVENANTS


 


Borrower will
do all of the following:


 


6.1                                 Government
Compliance.


 


Borrower will
maintain its and all Subsidiaries’ legal existence and good standing in its
jurisdiction of formation and maintain qualification in each jurisdiction in
which the failure to so qualify would reasonably be expected to cause a material
adverse effect on Borrower’s business or operations.  Borrower will comply, and have each Subsidiary comply, with all
laws, ordinances and regulations to which it is subject, noncompliance with
which could have a material adverse effect on Borrower’s business or operations
or would reasonably be expected to cause a Material Adverse Change.


 


6.2                                 Financial
Statements, Reports, Certificates.


 


(a)                                  Borrower
will deliver to Bank:  (i) as soon as
available, but no later than 45 days after the last day of each month, a
company prepared consolidated 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 and certified by a Responsible Officer acceptable to Bank; (ii) as soon
as available, but no later than 120 days after the last day of Borrower’s
fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an opinion which is unqualified or as is
otherwise consented to by Bank on the financial statements from an independent
certified public accounting firm reasonably acceptable to Bank; (iii) within 5
days of filing, notice to Bank of the filing of all statements, reports and
notices made available to Borrower’s security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
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 case Borrower shall
not be required to deliver the same; (iv) as soon as available but in no event
after December 20 of every year, Borrower’s budget and financial
projections as approved by the Borrower’s Board of Directors; (v) such other
financial information Bank reasonably requests; and (vi) prompt notice 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 agreement between Borrower and
Bank or knowledge of an event that materially adversely affects the value of
the Intellectual Property.


 


(b)                                 Within
45 days after the last day of each month, Borrower will deliver to Bank with
the monthly financial statements a Compliance Certificate signed by a
Responsible Officer in the form of Exhibit C.


 


(c)                                  Within
30 days after the last day of each month, Borrower will deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer in the form of
Exhibit D, with aged listings of accounts receivable and accounts payable.


 


9

















 


(d)                                 Bank
has the right to audit Borrower’s Collateral at Borrower’s expense, but the audits
will be conducted no more often than every year unless an Event of Default has
occurred and is continuing.


 


6.3                                 Inventory; Returns.


 


Borrower will
keep all Inventory in good and marketable condition, free from material
defects.  Returns and allowances between
Borrower and its account debtors will follow Borrower’s customary practices as
they exist at execution of this Agreement. 
Borrower must promptly notify Bank of all returns, recoveries, disputes
older than 30 days and claims, that involve more than $200,000, excluding “ship
from stock and debit transactions” and any returns from 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 assessments and will deliver to Bank, on
demand, appropriate certificates attesting to the payment.


 


6.5                                 Insurance.


 


Borrower will
keep its business and the Collateral insured for risks and in amounts, as Bank
may reasonably request.  Insurance
policies will be in a form, with companies, and in amounts that are
satisfactory to Bank in Bank’s reasonable discretion.  All property policies will have a lender’s loss payable
endorsement showing Bank as an additional loss payee and all liability policies
will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days notice before canceling its policy.  At Bank’s request, Borrower will deliver certified
copies of policies and evidence of all premium payments.  If no Event of Default has occurred and is
continuing, proceeds payable under any casualty policy will, at Borrower’s
option, be payable to Borrower to replace the property subject to the claim,
provided that any such replacement property shall be deemed Collateral in which
Bank has been granted a first priority security interest.  If an Event of Default has occurred and is
continuing, then, at Bank’s option, proceeds payable under any policy will be
payable to Bank on account of the Obligations.


 


6.6                                 Deposit and
Investment Accounts.


 


Borrower will
maintain 85% of its cash and cash equivalents in depository, investment and
operating accounts with Bank and Bank’s affiliates which shall be held in the
form of cash and such other investments as are consistent with Borrower’s
investment policy as approved by its Board of Directors.


 


6.7                                 Financial
Covenants.


 


Borrower will
maintain as of the last day of each month:


 


(i)                                     Tangible Net Worth.  A Tangible Net Worth of at least
$33,000,000.


 


10

















 


(ii)                                  Quick Ratio (Adjusted).  A ratio of Quick Assets to Current
Liabilities minus Deferred Revenue of at least 1.40 to 1.00.


 


6.8                                 Registration of
Intellectual Property Rights.


 


(a)                                  Borrower
will promptly notify Bank upon Borrower’s filing of any application or
registration of any Intellectual Property rights with the United States Patent
and Trademark Office or the United States Copyright Office and Borrower will
execute and deliver any and all instruments and documents and do all necessary
things, as Bank may require to evidence or perfect Bank’s security interest in
such application or registration.


 


(b)                                 Borrower
will (i) protect, defend and maintain the validity and enforceability of the
Intellectual Property and promptly advise Bank in writing of material
infringements and (ii) not allow any Intellectual Property to be abandoned,
forfeited or dedicated to the public without Bank’s written consent.


 


6.9                                 Control Agreements.


 


With respect
to deposit accounts or investment accounts maintained at domestic financial
institutions other than Bank, within 10 Business Days of the opening of any
such deposit account or investment account, Borrower will execute and deliver
to Bank, control agreements in form satisfactory to Bank in order for Bank to
perfect its 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 such accounts as are reasonably deemed material by Bank on or before
July 30, 2003.


 


6.10                           Further Assurances.


 


Borrower will
execute any further instruments and take further action as Bank reasonably
requests to perfect or continue Bank’s security interest in the Collateral or
to effect the purposes of this Agreement.


 


7.                                       NEGATIVE COVENANTS


 


Borrower will
not do any of the following without Bank’s prior 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, all or any part of its business or
property, other than Transfers (i) of Inventory in the ordinary course of
business; (ii) of non-exclusive licenses and similar arrangements for the use
of the property of Borrower or its Subsidiaries in the ordinary course of
business; (iii) of worn-out or obsolete Equipment; (iv) other Transfers which
in the aggregate do not exceed $200,000 in any fiscal year; or (v) other
Transfers otherwise permitted pursuant to Section 7 hereof.


 


11

















 


7.2                                 Changes in
Business, Ownership, Management or Business Locations.


 


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


 


7.3                                 Mergers or
Acquisitions.


 


Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with
any other Person, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person, except
where (i) such transactions do not in the aggregate result in a decrease of
more than 25% of Tangible Net Worth  and
(ii) no Event of Default has occurred, is continuing or would exist after
giving effect to the transactions.  A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower.


 


7.4                                 Indebtedness.


 


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


 


7.5                                 Encumbrance.


 


Create, incur,
or allow any Lien on any of its property, or assign or convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not
to be subject to the first priority security interest granted here, subject to
Permitted Liens.


 


7.6                                 Distributions;
Investments.


 


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


 


12

















 


7.7                                 Transactions with
Affiliates.


 


Directly or
indirectly enter into or permit any material transaction with any Affiliate
except transactions that are in the ordinary course of Borrower’s business, on
terms less favorable to Borrower than would be obtained in an arm’s length
transaction with a non-affiliated Person.


 


7.8                                 Subordinated Debt.


 


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


 


7.9                                 Compliance.


 


Become an “investment
company” or a company controlled by an “investment company,” under the
Investment Company Act of 1940 or undertake as one of its important activities
extending credit to purchase or carry margin stock, or use the proceeds of any
Credit Extension for that purpose; fail to meet the minimum funding
requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, if the violation could
reasonably be expected to have a material adverse effect on Borrower’s business
or operations or would reasonably be expected to cause a Material Adverse
Change, or permit any of its Subsidiaries to do so.


 


8.                                       EVENTS OF DEFAULT


 


Any one of the
following is an Event of Default:


 


8.1                                 Payment Default.


 


If Borrower
fails to pay any of the Obligations within 3 days after their due date.  During the additional 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                                 Covenant Default.


 


If Borrower
does not perform any obligation in Section 6 or violates any covenant in
Section 7 or does not perform or 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 any default under a term,
condition or covenant that can be cured, has not cured the default within 10
business days after it occurs, or if the default cannot be cured within 10
business days or cannot be cured after Borrower’s attempts within 10 business
day period, and the default may be cured within a reasonable time, then
Borrower has an additional period (of not more than 30 days) to attempt to cure
the default.  During the additional
time, the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);


 


13

















 


8.3                                 Material Adverse
Change.


 


(i) A material
impairment in the perfection or priority of Bank’s security interest in the
Collateral or in the value of such Collateral other than normal depreciation
which is not covered by adequate insurance occurs; or (ii) Bank determines,
based upon information available to it and in its reasonable judgment, that
there is a reasonable likelihood that Borrower will fail to comply with one or
more of the financial covenants in Section 6 during the next succeeding
financial reporting period.


 


8.4                                 Attachment.


 


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


 


8.5                                 Insolvency.


 


If Borrower
becomes insolvent or if Borrower begins an Insolvency Proceeding or an
Insolvency Proceeding is begun against Borrower and not dismissed or stayed
within 45 days (but no Credit Extensions will be made before any Insolvency
Proceeding is dismissed);


 


8.6                                 Other Agreements.


 


If there is a
default in any agreement between Borrower and a third party that gives the
third party the right to accelerate any Indebtedness exceeding $250,000 or that
could reasonably be expected to cause 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 10 Business Days (but no Credit Extensions
will be made before the judgment is stayed or satisfied);


 


8.8                                 Misrepresentations.


 


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


 


14

















 


8.9                                 Guaranty.


 


Any guaranty
of any Obligations ceases for any reason to be in full force or any Guarantor
does not perform any obligation under any guaranty of the Obligations, or any
material misrepresentation or material misstatement exists now or later in any
warranty or representation in any guaranty of the Obligations or in any
certificate delivered to Bank in connection with the guaranty, or any
circumstance described in Sections 8.4, 8.5 or 8.7 occurs to any Guarantor.


 


9.                                       BANK’S RIGHTS AND REMEDIES


 


9.1                                 Rights and
Remedies.


 


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


 


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


 


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


 


(c)                                  Settle
or adjust disputes and claims directly with account debtors for amounts, on
terms and in any order that Bank considers advisable;


 


(d)                                 Make
any payments and do any acts it considers necessary and reasonable to protect
its security interest in the Collateral. 
Borrower will assemble the Collateral if Bank requires and make it
available as Bank designates.  Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of
its premises, without charge, to exercise any of Bank’s rights or remedies;


 


(e)                                  Apply
to the Obligations 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 of Borrower;


 


(f)                                    Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell the Collateral.  Bank
is granted a 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 completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank’s exercise of its rights under this Section,
Borrower’s rights under all licenses and all franchise agreements inure to
Bank’s benefit; and


 


(g)                                 Dispose
of the Collateral according to the Code.


 


15

















 


9.2                                 Power of Attorney.


 


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


 


9.3                                 Accounts
Collection.


 


When an Event
of Default occurs and continues, Bank may notify any Person owing Borrower
money of Bank’s security interest in the funds and verify the amount of the
Account. Borrower must collect all payments in trust for Bank and, if requested
by Bank, immediately deliver the payments to Bank in the form received from the
account debtor, with proper endorsements for deposit.


 


9.4                                 Bank Expenses.


 


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


 


9.5                                 Bank’s Liability
for Collateral.


 


If Bank
complies with reasonable banking practices and Section 9-207 of the Code,
it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or
damage to the Collateral; (c) any diminution in 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 the Collateral.


 


9.6                                 Remedies
Cumulative.


 


Bank’s rights
and remedies under this Agreement, the Loan Documents, and all other agreements
are cumulative.  Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s exercise of one
right or remedy is not an election, and Bank’s waiver of any


 


16

















 


Event of Default is not a continuing waiver.
Bank’s delay is not a waiver, election, or acquiescence. No waiver is effective
unless signed by Bank and then is only effective for the specific instance and
purpose for which it was given.


 


9.7                                 Demand Waiver.


 


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


 


10.                                 NOTICES


 


All notices or
demands by any party about this Agreement or any other related agreement must
be in writing and be personally delivered or sent by an overnight delivery
service, by certified mail, postage prepaid, return receipt requested, or by
telefacsimile to the addresses set forth at the beginning of this
Agreement.  A party may change its
notice address by giving the other party written notice.


 


11.                                 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER


 


California law
governs the Loan Documents without regard to principles of conflicts of
law.  Borrower and Bank each submit to
the exclusive jurisdiction of the State and Federal courts in Santa Clara
County, California.


 


BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF
DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH
PARTIES TO ENTER INTO THIS AGREEMENT. 
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.


 


12.                                 GENERAL PROVISIONS


 


12.1                           Successors and Assigns.


 


This Agreement
binds and is for the benefit of the successors and permitted assigns of each
party.  Borrower may not assign this
Agreement or any rights under it without Bank’s prior written consent which may
be granted or withheld in Bank’s discretion. 
Bank has the right, without the consent of or notice to Borrower, to
sell, transfer, negotiate, or grant participation 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 Bank and its officers, employees, and
agents against:  (a) all obligations,
demands, claims, and liabilities asserted by any other


 


17

















 


party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between 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.


 


12.3                           Time of Essence.


 


Time is of the
essence for the performance of all obligations in this Agreement.


 


12.4                           Severability of
Provision.


 


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


 


12.5                           Amendments in Writing,
Integration.


 


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


 


12.6                           Counterparts.


 


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


 


12.7                           Survival.


 


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


 


12.8                           Confidentiality.


 


In handling
any confidential information, Bank will exercise the same degree of care that
it exercises for its own proprietary information, but disclosure of information
may be made (i) to Bank’s subsidiaries or affiliates in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the loans so long as such transfer
or purchase is subject to a confidentiality agreement reasonably acceptable to
Borrower, (iii) as required by law, regulation, subpoena, or other order, (iv)
as required in connection with Bank’s examination or audit and (v) as Bank
considers appropriate in exercising remedies under this Agreement.  Confidential information does not include
information that either: (a) is in the public domain or in Bank’s possession
when disclosed to Bank, or becomes


 


18

















 


part of the public domain after disclosure to
Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that
the third party is prohibited from disclosing the information.


 


12.9                           Attorneys’ Fees, Costs
and Expenses.


 


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


 


13.                                 DEFINITIONS


 


13.1                           Definitions.


 


In this
Agreement:


 


“Accounts” are all existing and later
arising accounts, contract rights, and other obligations owed Borrower in
connection with its sale or lease of goods (including licensing software and
other technology) or provision of services,  all
credit insurance, guaranties, other security and  all merchandise returned or reclaimed by Borrower and Borrower’s
Books relating to any of the foregoing.


 


“Advance” or “Advances” is a Formula Advance or a Non-Formula Advance, as
applicable.


 


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


 


“Availability” means, as of any date of
determination, the amount that Borrower is entitled to borrow as Advances under
Section 2.1.1 (after giving effect to all then outstanding 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 or Insolvency
Proceedings).


 


“Borrower’s Books” are all Borrower’s books
and records including ledgers, records regarding Borrower’s assets or
liabilities, the Collateral, business operations or financial condition and all
computer programs or discs or any equipment containing the information.


 


“Borrowing Base” is (i) 80% of Eligible
Accounts plus (ii) 50% of Eligible Foreign Accounts (but availability from
Eligible Foreign Accounts can not be more than 1.5 times availability from
Eligible Accounts) as determined by Bank from Borrower’s most recent


 


19

















 


Borrowing Base Certificate; provided, however,
that Bank may lower the percentage of the Borrowing Base after performing an
audit of Borrower’s Collateral.


 


“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.


 


“CMS Reserve” is defined in
Section 2.1.1.


 


“Code” is the California Uniform Commercial
Code.


 


“Collateral” is the property described on Exhibit
A.


 


“Committed Equipment Line” is a Credit
Extension of up to $2,167,925.83.


 


“Committed Formula Revolving Line” is
Formula Advances outstanding at any time of up to $8,000,000.  At no time shall the sum of the following
exceed $8,000,000:  (i) Committed
Formula Revolving Line plus (ii) Committed Non-Formula Revolving Line.


 


“Committed Non-Formula Revolving Line” is
Non-Formula Advances of up to $5,000,000. 
At no time shall the sum of the following exceed $8,000,000:  (i) Committed Formula Revolving Line plus
(ii) Committed Non-Formula Revolving Line.


 


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


 


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


 


“Credit Extension” is each Advance,
Equipment Advance, Letter of Credit, Exchange Contract, Term Loan A, Term Loan
B, Term Loan C, and Term Loan D, or any other extension of credit by Bank for
Borrower’s benefit.


 


20

















 


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


 


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


 


“Disclosure Letter” means the disclosure
letter from Borrower to Bank.


 


“Eligible Accounts” are Accounts in the
ordinary course of Borrower’s business that meet all Borrower’s representations
and warranties in Section 5; but Bank may change eligibility standards by
giving Borrower notice.  Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:


 


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


 


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


 


(c)                                  Credit
balances over 90 days from invoice date;


 


(d)                                 Accounts
for an account debtor, including Affiliates, whose total obligations to
Borrower exceed 25% of all Accounts, for the amounts that exceed that
percentage, unless the Bank approves otherwise in writing;


 


(e)                                  Accounts
for which the account debtor does not have its principal place of business in
the United States;


 


(f)                                    Accounts
for which the account debtor is a federal, state or local government entity or
any department, agency, or instrumentality;


 


(g)                                 Accounts
for which Borrower owes the account debtor, but only up to the amount owed
(sometimes called “contra” accounts, accounts payable, customer deposits or
credit accounts);


 


(h)                                 Accounts
for demonstration or promotional equipment, or in which goods are consigned,
sales guaranteed, sale or return, sale on approval, bill and hold, or other
terms if account debtor’s payment may be conditional;


 


(i)                                     Accounts
for which the account debtor is Borrower’s Affiliate, officer, employee, or
agent;


 


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


 


(k)                                  Accounts
for which Bank reasonably determines  collection  to be doubtful.


 


21

















 


“Eligible Foreign Accounts” are Accounts for
which the account debtor does not have its principal place of business in the
United States but which are otherwise Eligible Accounts.  It is understood that Eligible Foreign
Accounts must meet all of the conditions set forth in the definition of
Eligible Accounts, except for the exclusion set forth in subsection (e)
therein.


 


“Equipment” is all present and future
machinery, equipment, tenant improvements, furniture, fixtures, vehicles,
tools, parts and attachments in which Borrower has any interest.


 


“Equipment Advance” is defined in
Section 2.1.6.


 


“Equipment Availability End Date” is defined
in Section 2.1.6.


 


“Equipment Advance(s)” is defined in
Section 2.1.6.


 


“ERISA” is the Employment Retirement Income
Security Act of 1974, and its regulations.


 


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


 


“Formula  Line
Availability” means, as of any date of determination, the amount that
Borrower is entitled to borrow as Advances under Section 2.1.1 (a) (after
giving effect to all then outstanding Advances and all sublimit reserves
applicable thereunder) but such amount can never exceed $8,000,000.


 


“FX Forward Contract” is defined in Section 2.1.4.


 


“FX Reserve “ is defined in
Section 2.1.4.


 


“GAAP” is generally accepted accounting
principles.


 


“Guarantor” is any present or future
guarantor of the Obligations.


 


“Hardware Equipment” is defined in
Section 2.1.6.


 


“Indebtedness” is (a) indebtedness for
borrowed money or the deferred price of property or services, such as
reimbursement and other obligations for surety bonds and letters of credit, (b)
obligations evidenced by notes, bonds, debentures or similar instruments, (c)
capital lease obligations and (d) Contingent Obligations.


 


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


 


“Intellectual  Property” is:


 


22

















 


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


 


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


 


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


 


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


 


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


 


“Inventory” is present and future inventory
in which Borrower has any interest, including merchandise, raw materials,
parts, supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or later owned by or in the custody
or possession, actual or constructive, of Borrower, including inventory
temporarily out of its custody or possession or in transit and including
returns on any accounts or other proceeds (including insurance proceeds) from
the sale or disposition of any of the foregoing and any documents of title.


 


“Investment” is any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.


 


“L/C Reserve” is defined in
Section 2.1.1.


 


“Letter of Credit” is defined in
Section 2.1.3.


 


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


 


“Loan Documents” are, collectively, this
Agreement, any note, or notes or guaranties executed by Borrower or Guarantor,
and any other present or future agreement between Borrower and/or for the
benefit of Bank in connection with this Agreement, all as amended, extended or
restated.


 


“Mask Works” are all mask works or similar
rights available for the protection of semiconductor chips, now owned or later
acquired.


 


“Material Adverse Change” is defined in
Section 8.3.


 


23

















 


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


 


“Obligations” are debts, principal,
interest, Bank Expenses and other amounts Borrower owes Bank now or later,
including cash management services, letters of credit and foreign exchange
contracts, if any and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.


 


“Patents” are patents, patent applications
and like protections, including improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.


 


“Permitted Indebtedness” is:


 


(a)                                  Borrower’s
indebtedness to Bank under this Agreement or any other Loan Document;


 


(b)                                 Indebtedness
existing on the Closing Date and shown on the Disclosure Letter;


 


(c)                                  Subordinated
Debt including, but not limited to Subordinated Debt associated with Borrower’s
future investment of up to $3,666,900 in Tower Semiconductor;


 


(d)                                 Indebtedness
to trade creditors incurred in the ordinary course of business;


 


(e)                                  Indebtedness
secured by Permitted Liens;


 


(f)                                    Indebtedness
of Borrower to any Subsidiary and Contingent Obligations of any Subsidiary with
respect to obligations of Borrower (provided that the primary obligations are not
prohibited hereby), and Indebtedness of any Subsidiary to any other Subsidiary
and Contingent Obligations of any Subsidiary with respect to obligations of any
other Subsidiary (provided that the primary obligations are not prohibited
hereby);


 


(g)                                 Other
Indebtedness not otherwise permitted by Section 7.4 not exceeding $250,000
in the aggregate outstanding at any time; and


 


(h)                                 Extensions,
refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (f) above, provided that the principal
amount thereof is not increased or the terms thereof are not modified to impose
more burdensome terms upon Borrower or its Subsidiary, as the case may be.


 


“Permitted
Investments” are:


 


(a)                                  Investments
shown on the Disclosure Letter and existing on the Closing Date; and


 


(b)                                 (i)  marketable direct obligations issued or
unconditionally guaranteed by the United States or its agency or any State
maturing within 1 year from its acquisition, (ii) commercial paper maturing no
more than 1 year after its creation and having the highest


 


24

















 


rating from either Standard & Poor’s
Corporation or Moody’s Investors Service, Inc., and (iii) Bank’s certificates
of deposit issued maturing no more than 1 year after issue.


 


(c)                                  Investments
consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;


 


(d)                                 Investments
accepted in connection with Transfers permitted by Section 7.1, 7.3 and
7.6;


 


(e)                                  Investments
by Borrower in Subsidiaries in the form of: (A) capital stock of Subsidiaries
not to exceed $500,000 in the aggregate in any fiscal year and (B) all other
advancements, so long as any such investment is made for the purpose of funding
operational requirements of the relevant Subsidiary and so long as no
Subsidiary 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 Quicklogic
Canada.  In the event that any
Subsidiary does maintain cash and cash equivalents in excess of the
aforementioned limitation, any transfer of cash by Borrower to any Subsidiary
shall not be permitted under the terms of this Agreement.


 


(f)                                    Investments
consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower’s Board of Directors;


 


(g)                                 Investments
(including debt obligations) received in connection with the bankruptcy or reorganization
of customers or suppliers and in settlement of delinquent obligations of, and
other disputes with, customers or suppliers arising in the ordinary course of
business;


 


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


 


(i)                                     Investments
made pursuant to Borrower’s Investment Policy, dated as of
                               
and attached herein as Exhibit E.


 


(j)                                     Joint
ventures or strategic alliances in the ordinary course of Borrower’s business
consisting of the non-exclusive licensing of technology, the development of
technology or the providing of technical support, provided that any cash
investments by Borrower do not exceed $250,000 in the aggregate in any fiscal
year; and


 


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


 


“Permitted
Liens” are:


 


25

















 


(a)                                  Liens
existing on the Closing Date and shown on the Disclosure Letter or arising
under this Agreement or other Loan Documents;


 


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


 


(c)                                  Purchase
money Liens (i) on Equipment or Software acquired or held by Borrower or its
Subsidiaries incurred for financing the acquisition of the Equipment, or (ii)
existing on equipment when acquired, if the Lien is confined to the
property, attachments and improvements and the proceeds of the equipment;


 


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


 


(e)                                  Leases
or subleases granted in the ordinary course of Borrower’s business, including
in connection with Borrower’s leased premises or leased property;


 


(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 to the property encumbered by the existing
Lien and the principal amount of the indebtedness may not increase;


 


(g)                                 Liens
arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 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 financial institutions arising in connection with Borrower’s
deposit accounts held at such institutions, provided that Bank has a perfected
security interest in the amounts held in such deposit accounts; and


 


(j)                                     Other
Liens not described above arising in the ordinary course of business and not
having or not reasonably likely to have a material adverse effect on Borrower
and its Subsidiaries taken as a whole.


 


“Person” is any individual, sole
proprietorship, partnership, limited liability company, joint venture, company
association, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or government agency.


 


“Prime Rate” is Bank’s most recently
announced “prime rate,” even if it is not Bank’s lowest rate but for purposes
of this Agreement the Prime Rate will never be less than 4.25%.


 


26

















 


“Quick Assets” is, on any date, the
Borrower’s consolidated, unrestricted and cash equivalents, net billed accounts
receivable and investments with maturities of fewer than 12 months 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, the
President, the Chief Financial Officer, the Controller and the in-house general
counsel of Borrower.


 


“Revolving Maturity Date” is June 28,
2004.


 


“Revolving
Obligations” is the sum of : (i) any amounts deemed
outstanding under the Cash Management Services Sublimit, plus (ii) the amount
of all outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit), plus (iii) the FX Reserve, plus (iv) outstanding Advances.


 


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


 


“Subsidiary” is for any Person, or any other
business entity of which more than 50% of the voting stock or other equity
interests is owned or controlled, directly or indirectly, 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 Subsidiaries minus, (i)
any amounts attributable to (a) goodwill, (b) intangible items such as
unamortized debt discount and expense, Patents, trade and service marks and
names, and Copyrights,  (ii) Total
Liabilities; plus realized or unrealized write downs relating to
Borrower’s investment in Tower Semiconductor that are charged on or after
January 1, 2003.


 


“Term
Loan A” is defined in Section 2.1.7.


 


“Term
Loan B” is defined in Section 2.1.8.


 


“Term
Loan C” is defined in Section 2.1.9.


 


“Term
Loan D” is defined in Section 2.1.10.


 


“Term
Loan A Maturity Date” is September 1, 2005.


 


“Term
Loan B Maturity Date” is March 1, 2005.


 


“Term
Loan C Maturity Date” is December 31, 2005.


 


“Term
Loan D Maturity Date” is June 1, 2005.


 


27

















 


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


 


“Trademarks” are trademark and service mark
rights, registered or not, applications to register and registrations and like
protections, and the entire goodwill of the business of Assignor connected with
the trademarks.


 


	
  BORROWER:

  
	
   

  
	
  QUICKLOGIC CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Carl M. Mills

  	
   

  
	
  Title:

  	
  VP FINANCE & CFO

  	
   

  
	
   

  
	
   

  
	
  BANK:

  
	
   

  
	
  SILICON VALLEY BANK

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Amy L. Drake

  	
   

  
	
  Title:

  	
  Vice President

  	
   

  
						



 


28

















 


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 hereafter acquired, including, without limitation, all
machinery, fixtures, vehicles (including motor vehicles and trailers), and any
interest in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions, and improvements to any of the
foregoing, wherever located;


 


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 including such inventory as is held for
sale or lease, or to be furnished under a contract of service or is temporarily
out of Borrower’s custody or possession or in transit and including any returns
or repossession upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and
any documents of title representing any of the above;


 


All contract
rights and general intangibles now owned or hereafter acquired, including,
without limitation, goodwill, trademarks, service marks, trade styles, trade
names, patents, patent applications, leases, license agreements, franchise agreements,
blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance, payment intangibles, and rights to payment 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 out of the sale or lease of goods, the
licensing of technology or the rendering of services by Borrower, whether or
not earned by performance, and any and all credit insurance, guaranties, and
other security therefor, as well as all merchandise 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 credit rights, money, certificates of
deposit, instruments (including promissory notes) and chattel paper (including
tangible and electronic chattel paper) now owned or hereafter acquired and
Borrower’s Books relating to the foregoing;


 


All copyright
rights, copyright applications, copyright registrations and like protections in
each work of authorship and derivative work thereof, whether published or
unpublished, now owned or hereafter acquired; all trade secret rights,
including all rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and


 


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


 


Notwithstanding
the foregoing, the collateral does not include any license or contract rights
to the extent (i) the granting of a security interest in it would be contrary
to applicable law, or (ii) that such rights are


 


29

















 


nonassignable by their terms (but only to the
extent such prohibition is enforceable under applicable law) without the
consent of the licensor or other party (but only to the extent such consent has
not been obtained).


 


30

















 


EXHIBIT B


 


LOAN PAYMENT/ADVANCE
TELEPHONE REQUEST FORM


 


DEADLINE
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:

  	
   

  
	
   

  
	
   

  



 


 


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


 


BANK USE ONLY


 


TELEPHONE REQUEST:


 


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


 


	
   

  	
   

  	
   

  
	
  Authorized Requester

  	
   

  	
  Phone #

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Received By (Bank)

  	
   

  	
  Phone #

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Authorized Signature
  (Bank)

  
					



 


31

















 


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
undersigned authorized officer of QuickLogic Corporation (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement”), (i) Borrower is in complete compliance for
the period ending                                  
with all required covenants except as noted below and (ii) all representations
and warranties in the Agreement are true and correct in all material respects
on this date, except for representations and warranties made as of a specific
earlier date, which are to be true and correct in all material respects as of
such earlier date.  Attached are the
required documents supporting the certification.  The Officer certifies that these are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) consistently applied from one
period to the next except as explained in an accompanying letter, footnotes or
year end adjustments.  The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.


 


Please
indicate compliance status by 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; $33,000,000

  	
   

  	
  Yes

  	
   

  	
  No

  
	
  Quick Ratio (Adjusted)

  	
   

  	
  1.40 to 1.00

  	
   

  	
  Yes

  	
   

  	
  No

  



 


	
  Have there been updates to Borrower’s intellectual property, if
  appropriate?

  	
   

  	
  Yes

  	
   

  	
  No

  



 


32

















 


	
  Comments Regarding Exceptions: See Attached.

  	
  BANK USE ONLY

  
	
   

  	
   

  
	
  Sincerely,

  	
  Received by:

  	
   

  	
   

  
	
   

  	
  AUTHORIZED SIGNER

  
	
  QuickLogic Corporation

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  	
   

  
	
  SIGNATURE

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
  TITLE

  	
   

  
	
   

  	
  Compliance Status:

  	
  Yes

  	
  No

  
	
   

  	
   

  	
   

  
	
  DATE

  	
   

  
													



 


33

















 


EXHIBIT D


 


BORROWING BASE CERTIFICATE


 


	
  Borrower:

  	
   

  	
  Quicklogic Corporation

  	
   

  	
  Bank:

  	
   

  	
  Silicon Valley Bank

  
	
   

  	
   

  	
  1227 Orleans Drive

  	
   

  	
   

  	
   

  	
  3003 Tasman Drive

  
	
   

  	
   

  	
  Sunnyvale, CA 94089-1138

  	
   

  	
   

  	
   

  	
  Santa Clara, CA 95054

  



 


	
  Commitment Amount:

  	
   

  	
  $8,000,000

  	
   

  



 


	
  ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Accounts Receivable Book
  Value as of
                        

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  2.

  	
  Additions (please explain
  on reverse)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  3.

  	
  TOTAL ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Amounts over 90 days from
  invoice date

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Balance of 50% over 90 day
  accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Credit balances over 90
  days

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Concentration Limits

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Foreign Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Governmental Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Contra Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Promotion or Demo Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  Intercompany/Employee
  Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Other (please explain on
  reverse)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  TOTAL ACCOUNTS RECEIVABLE
  DEDUCTIONS

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  15.

  	
  Eligible Accounts (#3
  minus #14)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  AVAILABILITY/LOAN
  VALUE OF

  DOMESTIC ACCOUNTS (80% of #15)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FOREIGN ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  Foreign Accounts
  Receivable Book Value as of                          

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  Additions (please explain
  on reverse)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  TOTAL FOREIGN ACCOUNTS
  RECEIVABLE

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FOREIGN ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
  Amounts over 90 days from
  invoice date

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
  Balance of 50% over 90 day
  accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  22.

  	
  Credit Balances over 90
  days

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
  Concentration Limits

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  24.

  	
  Governmental Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  25.

  	
  Contra Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  26.

  	
  Promotion or Demo Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  27.

  	
  Intercompany/Employee
  Accounts

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  28.

  	
  Other (please explain on
  reverse)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  29.

  	
  TOTAL FOREIGN ACCOUNTS
  RECEIVABLE

  DEDUCTIONS

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
  30.

  	
  Eligible Foreign Accounts
  (#19 minus #29)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  31.

  	
  Loan Value of Foreign
  Accounts (50% of #30)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  32.

  	
  Maximum Availability (Loan
  Value) based on Foreign Accounts

  (1.5 times #16)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  33.

  	
  AVAILABILITY/LOAN
  VALUE OF

  FOREIGN ACCOUNTS (Lesser of Line #31 or Line #32)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  



 


34

















 


	
  BALANCES under Formula Revolving Line

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  34.

  	
  Commitment Amount of
  Formula Revolving Line

  	
   

  	
  $

  	
   8,000,000

  	
   

  	
   

  	
   

  
	
  35.

  	
  Combined Availability/Loan
  Value of Eligible Domestic

  and Foreign Accounts (#16 plus #33)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  36.

  	
  Availability (Enter the
  Lesser of #34 or #35)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  37.

  	
  Present Balance Owing on
  Formula Revolving Line

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  38.

  	
  Outstanding under
  Sublimits (Cash Mgmt., FX, LCs)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  39.

  	
  Net
  Availability under Formula Revolving Line “Reserve Position”

  (#36 minus #37 and #38)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCES under Non-Formula Revolving Line

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  40.

  	
  Maximum Non-Formula
  Advance Amount Available

  [Lesser of $5,000,000 or ($8,000,000 minus #36)]

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  41.

  	
  Present Balance Owing on
  Non-Formula Revolving Line

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  42.

  	
  Net
  Availability under Non-Formula Revolving Line (#40 minus #41)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SUMMARY

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  43.

  	
  Maximum Commitment Amount

  	
   

  	
  $

  	
   8,000,000

  	
   

  	
   

  	
   

  
	
  44.

  	
  Present Balance Owing on
  Formula Revolving Line (#37)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  45.

  	
  Present Outstanding under
  Sublimits (#38)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  46.

  	
  Present Balance Owing on
  Non-Formula Line (#41)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  47.

  	
  Total Present Outstanding
  (#44 plus #45 plus #46)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  48.

  	
  Net Availability under
  Formula Revolving Line (#39)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  49.

  	
  Net Availability under
  Non-Formula Revolving Line (#42)

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
   

  
	
  50.

  	
  Total
  Funds Available (#48 plus #49) or Over-advanced (if negative)

  	
   

  	
   

  	
   

  	
  $

  	
   

  	
   

  



 


The undersigned represents and warrants that this is true, complete and
correct, and that the information in this Borrowing Base Certificate complies
with the representations and warranties in the Loan and Security Agreement
between the undersigned and Silicon Valley Bank.


 


	
  Comments

  	
  BANK USE ONLY

  
	
   

  	
   

  
	
   

  	
  Received by:

  	
   

  	
   

  
	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
  QUICKLOGIC CORPORATION

  	
   

  
	
   

  	
  Verified:

  	
   

  	
   

  
	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  AUTHORIZED SIGNER

  	
   

  
											



 


35

















 


CORPORATE
BORROWING RESOLUTION


 


	
  Borrower: 

  	
  QuickLogic Corporation

  	
  Bank:

  	
   

  	
  Silicon Valley Bank 

  
	
   

  	
  1227 Orleans Drive

  Sunnyvale, CA  94089-1138

  	
   

  	
   

  	
  3003 Tasman Drive

  Santa Clara, CA 95054-1191

  



 


I, the Secretary or Assistant Secretary of
QuickLogic Corporation (“Borrower”), CERTIFY that
Borrower is a corporation existing under the laws of the State of Delaware.


 


I certify that at a
meeting of Borrower’s Directors (or by other authorized corporate action) duly
held the following resolutions were adopted.


 


It is resolved that any one of the following officers of
Borrower, whose name, title and signature is below:


 


	
  NAMES

  	
   

  	
  POSITIONS

  	
   

  	
  ACTUAL
  SIGNATURES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  



 


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 of
Borrower’s assets.


 


Negotiate Items.  Negotiate or discount all drafts, trade
acceptances, promissory notes, or other indebtedness in which Borrower has an
interest and receive cash or otherwise use the proceeds.


 


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


 


Foreign Exchange Contracts.  Execute spot or forward foreign exchange
contracts.


 


Further Acts.  Designate other individuals to request
advances, 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.


 


36

















 


Further resolved
that all acts authorized by these Resolutions and performed before they were
adopted are ratified. These Resolutions remain in effect and Bank may rely on
them until Bank receives written notice of their revocation.


 


I certify that the
persons listed above are Borrower’s officers with the titles and signatures
shown following their names and that these resolutions have not been modified
are currently effective.


 


CERTIFIED TO AND ATTESTED BY:


 


 


	
  X

  	
   

  	
   

  
	
  *Secretary
  or Assistant Secretary

  
	
   

  
	
   

  
	
  X

  	
   

  	
   

  



*NOTE: In case the Secretary or
other certifying officer is designated by the foregoing resolutions as one of
the signing officers, this resolution should also be signed by a second Officer
or Director of Borrower.


 


37