**Exhibit 10.26**

**LOAN AND SECURITY AGREEMENT**

**THIS LOAN AND SECURITY AGREEMENT** (this“**Agreement**”) dated as of December 21, 2010 (the “**Effective Date**”) between **SILICON VALLEY BANK**, a California corporation (“**Bank**”), and Pixelworks, Inc., an Oregon corporation(“**Borrower**”) which does business in California as Oregon Pixelworks, Inc., provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows: 

**1 ACCOUNTING AND OTHER TERMS**

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreementshall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein. 

**2 LOAN AND TERMS OF PAYMENT**

**2.1 Promise to Pay**. Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due inaccordance with this Agreement. 

**2.1.1 Revolving Advances.**

(a) Availability. Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the AvailabilityAmount. Amounts borrowed hereunder may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein. 

Notwithstanding anything to the contrary contained in this Section 2.1.1(a), Advances may be made in excess of the Availability Amount (but not in excess of the Revolving Line then in effect) (suchAdvances referred to herein as “**Nonformula Advances**”) subject to the following terms and conditions: (i) such Nonformula Advances may be made solely during the last five (5) Business Days of any fiscal month or quarter, asthe case may be, commencing with the month ending December 31, 2010; (ii) prior to any Nonformula Advance, the Borrower must provide (A) evidence satisfactory to Bank that it is in pro forma compliance in all respects with thefinancial covenants set forth in Section 6.7(a) of this Agreement and (B) a duly completed and executed Payment/Advance Form which requests such Nonformula Advance and directs the repayment of such Nonformula Advance within the time frameprovided in clause (iv) herein, (iii) on the day of such Nonformula Advance, but no later than five (5) Business Days thereafter, the Borrower must provide a duly completed Borrowing Base Report, Deferred Revenue Report and a dulycompleted and executed Borrowing Base Certificate; *provided*, *however*, that the Borrower shall not be required to deliver the documentation required pursuant to this clause (iii) if the Borrower has repaid such Nonformula Advancewithin the time frame provided in clause (iv) herein; and (iv) the Borrower shall repay any and all Nonformula Advances on or before the fifth (5th) Business Day after the applicable fiscal month or quarter end. In the event that theBorrower shall fail to repay the principal amount of any Nonformula Advance as provided in this Section 2.1.1(a)(iii), such Advance shall be deemed an Advance that is not a Nonformula Advance and shall be subject to the terms and conditions ofthis Agreement, including, without limitation, the Availability Amount and the provisions set forth in Section 2.2. 

(b)Termination; Repayment. The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediatelydue and payable. Borrower shall have the right to terminate the Revolving Line at any time by delivering written notice to Bank at least 10 days prior to the effective date of termination specified in such notice (the “**Early TerminationDate**” ), provided that on such Early Termination Date, the principal amount of all outstanding Advances, all unpaid interest thereon, and all other Obligations relating to the Revolving Line (including, without limitation, Bank Expenses andthe prorated portion of any Unused Revolving Line Facility Fee for the quarter in which termination occurs) shall be immediately due and payable. 

**2.1.2 Letters of Credit Sublimit.**

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit denominated in Dollars or a Foreign Currency forBorrower’s account. The aggregate Dollar Equivalent amount utilized for the issuance of Letters of Credit shall at all times reduce the amount otherwise available for Advances under the Revolving Line. The aggregate Dollar Equivalent amountavailable to be used for the issuance of Letters of Credit may not exceed (i) the lesser of (A) the Revolving Line or (B) the Borrowing Base, minus (ii) the sum of all outstanding principal amounts of any Advances (including anyamounts used for Cash Management Services and the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) and minus (iii) the FX ReductionAmount. 

(b) If, on the Revolving Line Maturity Date (or the effective date of any termination of this Agreement), there areany outstanding Letters of Credit, then on such date Borrower shall provide to Bank cash collateral in an amount equal to 105% of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or tobecome due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank in its solediscretion and shall be subject to the terms and conditions of Bank’s standard Application and Letter of Credit Agreement (the “**Letter of Credit Application**”). Borrower agrees to execute any further documentation in connectionwith the Letters of Credit as Bank may reasonably request. Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Bank and opened for Borrower’s account or by Bank’sinterpretations of any Letter of Credit issued by Bank for Borrower’s account, and Borrower understands and agrees that Bank shall not be liable for any error, negligence, or mistake, whether of omission or commission, in followingBorrower’s instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto. 

(c) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance withthe terms of this Agreement, such Letters of Credit, and the Letter of Credit Application. 

(d) Borrower may request that Bankissue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an Advance to Borrower of the Dollar Equivalent of the amount thereof (plus fees and charges inconnection therewith such as wire, cable, SWIFT or similar charges). 

(e) To guard against fluctuations in currency exchangerates, upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the “**Letter of Credit Reserve**”) under the Revolving Line in an amount equal to ten percent (10%) of the face amount ofsuch Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Revolving Line shall be reduced by the amount of suchLetter of Credit Reserve for as long as such Letter of Credit remains outstanding. 

**2.1.3 Foreign Exchange Sublimit**. Aspart of the Revolving Line, Borrower may enter into foreign exchange contracts with Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency (each, a “**FX Forward Contract**”) on aspecified date (the “**Settlement Date**”). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to a reserve of ten percent (10%) of eachoutstanding FX Forward Contract (the “**FX Reserve**”). The aggregate amount of FX Forward Contracts at any one time may not exceed ten (10) times the lesser of the Revolving Line or the Borrowing Base, minus (i) the sum ofall outstanding principal amounts of any Advances (including any amounts used for Cash Management Services), and minus (ii) the Dollar Equivalent of the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Lettersof Credit and any Letter of Credit Reserve). The amount otherwise available for Credit Extensions under the Revolving Line shall be reduced by an amount equal to ten percent (10%) of each outstanding FX Forward Contract (the “**FXReduction Amount**”). Any amounts needed to fully reimburse Bank for any amounts not paid by Borrower in connection with FX Forward Contracts will be treated as Advances under the Revolving Line and will accrue interest at the interest rateapplicable to Advances. 

**2.1.4 Cash Management Services Sublimit**. Borrower may use the Revolving Line for Bank’scash management services, which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in Bank’s various cash management services agreements (collectively, the “**CashManagement Services**”), in an aggregate amount not to exceed the lesser of the Revolving Line or the Borrowing Base, minus (i) the sum of all outstanding principal amounts of any Advances, minus (ii) the Dollar Equivalent of theface amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve), and minus (iii) the FX Reduction Amount. Any amounts Bank pays on behalf of Borrower for any Cash ManagementServices will be treated as Advances under the Revolving Line and will accrue interest at the interest rate applicable to Advances. 

 
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**2.2 Overadvances**. If, at any time, the sum of (a) the outstanding principalamount of any Advances (including any amounts used for Cash Management Services, but excluding Nonformula Advances), plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and anyLetter of Credit Reserve), plus (c) the FX Reduction Amount exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash such excess. 

**2.3 Payment of Interest on the Credit Extensions.**

(a) Interest Rate on Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to one-quarter ofone percentage point (0.25%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below. 

(b) Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points(5.00%) above the rate that is otherwise applicable thereto (the “**Default Rate**”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase. Fees and expenses which are required to bepaid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of theincreased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank. 

(c) Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall beeffective on the effective date of any change to the Prime Rate and to the extent of any such change. 

(d) Computation;360-Day Year. In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; *provided, however,* that if any Credit Extension is repaid on the same day on which it ismade, such day shall be included in computing interest on such Credit Extension. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed. 

(e) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts, including the Designated Deposit Account, forprincipal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off. 

(f) Interest Payment Date. Unless otherwise provided, interest is payable monthly on the last calendar day of each month.

**2.4 Fees**. Borrower shall pay to Bank: 

(a) Commitment Fee. A fully earned, non-refundable commitment fee of $25,000.00, on the Effective Date; 

(b) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or renewal of Letters of Credit, including, without limitation, a letter of credit fee of one and one-quarterpercent (1.25%) per annum of the Dollar Equivalent of the face amount of each Letter of Credit issued, upon the issuance of such Letter of Credit, each anniversary of the issuance during the term of such Letter of Credit, and upon the renewalof such Letter of Credit by Bank; and 

(c) Unused Revolving Line Facility Fee. A fee (the “**Unused RevolvingLine Facility Fee**”), payable monthly, in arrears, on a calendar year basis, in an amount equal to one-quarter of one percent (0.25%) per annum of the average unused portion of the Revolving Line. The unused portion of the Revolving Line,for purposes of this calculation, shall equal the difference between (x) $10,000,000.00 and (y) the average for the period of the daily closing balance of the Revolving Line outstanding plus the sum of the aggregate amount of outstandingLetters of Credit (including drawn but unreimbursed Letters of Credit). Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving Line Facility Fee previously earned by Bank pursuant to this Section notwithstandingany termination of the Agreement or the suspension or termination of Bank’s obligation to make loans and advances hereunder; and 

 
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(d) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees andexpenses for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due. 

**2.5Payments; Application of Payments.**

(a) All payments (including prepayments) to be made by Borrower under any Loan Documentshall be made in immediately available funds in U.S. Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered receivedat the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

(b) Bank shall apply the whole or any part of collected funds against the Revolving Line or credit such collected funds to adepository account of Borrower with Bank (or an account maintained by an Affiliate of Bank), the order and method of such application to be in the sole discretion of Bank. Borrower shall have no right to specify the order or the accounts to whichBank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement. 

**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 Bank shall have received, in form andsubstance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation: 

(a) duly executed original signatures to the Loan Documents; 

(b) duly executedoriginal signatures to the Control Agreements of (i) Wells Fargo Bank, National Association and (ii) SVB Asset Management; 

(c) (i) Borrower’s Operating Documents, (ii) a good standing certificate of Borrower certified by the Secretary of State of the State of Oregon and (iii) a good standing certificate of theBorrower in any applicable jurisdiction of the United States in which it is qualified to transact business, in each case, as of a date no earlier than thirty (30) days prior to the Effective Date; 

(d) duly executed original signatures to the completed Borrowing Resolutions for Borrower; 

(e) certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence(including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released; 

(f) the Perfection Certificate of Borrower, together with the duly executed original signature thereto; 

(g) evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, togetherwith appropriate evidence showing lender loss payable and/or additional insured clauses and cancellation notice to Bank (or endorsements reflecting the same) in favor of Bank; and 

(h) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof. 

 
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**3.2 Conditions Precedent to all Credit Extensions**. Bank’s obligations to makeeach Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent: 

(a) exceptas otherwise provided in Section 3.5(a) and, with respect to Nonformula Advances, Section 2.1.1(a), timely receipt of an executed Payment/Advance Form; 

(b) the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each CreditExtension; *provided*, *however*, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and *provided*, *further*that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from theCredit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; *provided*,*however*, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and *provided*, *further*that those representationsand warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and 

(c) as determined in Bank’s reasonable discretion, there shall not have occurred a Material Adverse Change. 

**3.3 Post-Closing Condition**. Unless otherwise provided in writing, not later than January 4, 2011 Bank shall have received, in form and substance satisfactory to Bank, the duly executedoriginal signatures to the Control Agreement of RBC Wealth Management. 

**3.4 Covenant to Deliver**. Borrower agrees todeliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall notconstitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion. 

**3.5 Procedures for Borrowing.**

(a) Advances. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement (including, without limitation, the conditions to themaking of a Nonformula Advance set forth in Section 2.1.1(a)), to obtain an Advance (other than Advances under Sections 2.1.2 or 2.1.4), Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephoneby 12:00 p.m. Pacific time on the Funding Date of the Advance. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a ResponsibleOfficer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under thisAgreement 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. 

**4 CREATION OF SECURITY INTEREST**

**4.1 Grant of Security Interest**. Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, theCollateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. 

**4.2 Priority of Security Interest**. Borrower represents, warrants, and covenants that the security interest granted herein is andshall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tortclaim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with suchwriting to be in form and substance reasonably satisfactory to Bank. 

If this Agreement is terminated, Bank’s Lien in theCollateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations and at such time as Bank’s obligation to make Credit Extensions hasterminated, Bank shall, at Borrower’s sole cost and expense, release its Liens in the Collateral and all rights therein shall revert to Borrower. 

 
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**4.3 Authorization to File Financing Statements**. Borrower hereby authorizes Bank tofile financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any otherPerson, shall be deemed to violate the rights of Bank under the Code. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greaterdetail, all in Bank’s discretion. 

**5 REPRESENTATIONS AND WARRANTIES**

Borrower represents and warrants as follows: 

**5.1 Due Organization, Authorization; Power and Authority**. Borrower is duly existing and in good standing in its jurisdiction of formation and is qualified and licensed to do business and is in goodstanding in any jurisdiction 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 have a material adverse effect on Borrower’sbusiness. In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to Bank that (a) Borrower’s exact legalname is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificateaccurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chiefexecutive office as well as Borrower’s mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation,organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (itbeing understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). 

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not(i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order,writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration,or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect or except for filings necessary for the perfection of the Liensgranted pursuant to this Agreement) or (v) constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which thedefault could reasonably be expected to have a material adverse effect on Borrower’s business. 

**5.2 Collateral**.Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Except as permitted bySection 6.6(b), Borrower has no domestic deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has givenBank notice and taken such actions as are necessary to give Bank a perfected security interest therein. The Accounts are bona fide, existing obligations of the Account Debtors. 

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the PerfectionCertificate or except as permitted by Section 7.2. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2. 

All Inventory is in all material respects of good and marketable quality, free from material defects, except for any Inventory for whichreserves have been established in the ordinary course of business in accordance with GAAP. 

 
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Borrower is the sole owner of the Intellectual Property which it owns or purports to ownexcept for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrowerand noted on the Perfection Certificate. Each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own andwhich is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part. To the best of Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any thirdparty except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business. 

**5.3 Accounts Receivable**. For any Eligible Account in any Borrowing Base Certificate, all statements made and all unpaid balances appearing in all invoices, instruments and other documentsevidencing such Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower’s Books are genuine and in all respects what they purport to be. Borrower has no knowledge of anyactual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures and endorsements on all documents, instruments, andagreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms.****

**5.4 Litigation**. There are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving morethan, individually or in the aggregate, Seven Hundred Fifty Thousand Dollars ($750,000). 

**5.5 Financial Statements;Financial Condition**. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidatedresults of operations. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank. 

**5.6 Solvency**. The fair salable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair valueof its liabilities; 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. 

**5.7 Regulatory Compliance**. Borrower is not an “investment company” or a company “controlled” by an“investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board ofGovernors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a“subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably beexpected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ 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 of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, andgiven all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted. 

**5.8 Subsidiaries; Investments**. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments. Borrower’s membership interests in its currentSubsidiaries are not represented by any certificate and are “general intangibles” as defined by the Uniform Commercial Code (the “**UCC**”). 

**5.9 Tax Returns and Payments; Pension Contributions**. Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal and state income and payrolltaxes and any other material assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriateproceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent thegovernmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other 

 
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than a “Permitted Lien”. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due andpayable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permittedpartial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit GuarantyCorporation or its successors or any other governmental agency. 

**5.10 Use of Proceeds**. Borrower shall use the proceedsof the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes. 

**5.11 Designation of Indebtedness under this Agreement as Senior Indebtedness**. All principal of, interest (including all interest accruing after the commencement of any bankruptcy or similarproceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding), and all fees, costs, expenses and other amounts accrued or due under this Agreement shall constitute “Designated SeniorIndebtedness” under the terms of the Indenture. 

**5.12 Full Disclosure**. No written representation, warranty orother statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank,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 providedby Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results). 

**5.13 Definition of “Knowledge**.**”** For purposes of the Loan Documents, whenever a representation or warranty is madeto Borrower’s knowledge or awareness, to the “best of” Borrower’s knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of the Responsible Officers.

**6 AFFIRMATIVE COVENANTS**

Borrower shall do all of the following: 

**6.1 Government Compliance**.Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have amaterial adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverseeffect on Borrower’s business. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. 

**6.2 Financial Statements, Reports, Certificates**. Deliver to Bank: 

(a) Advances other than Nonformula Advances. Written notice of the Borrower’s intention to request (the “**InitialRegular Advance Request**”) an initial Advance that is not a Nonformula Advance (the “**Initial Regular Advance**”) no later than thirty (30) days prior to such request; 

(b) Borrowing Base Reports. To the extent Borrower has received an Initial Regular Advance pursuant to the terms of thisAgreement, within thirty (30) days after the last day of each month, aged listings of accounts receivable and accounts payable (by invoice date) (the “**Borrowing Base Reports**”); 

(c) Deferred Revenue Reports. To the extent Borrower has received an Initial Regular Advance pursuant to the terms of thisAgreement, within thirty (30) days after the last day of each month and together with the Borrowing Base Reports, a duly completed deferred revenue report (the “**Deferred Revenue Report**”); 

 
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(d) Borrowing Base Certificate. To the extent Borrower has received an InitialRegular Advance pursuant to the terms of this Agreement, within thirty (30) days after the last day of each month and together with the Borrowing Base Reports, a duly completed Borrowing Base Certificate signed by a Responsible Officer;

(e) Monthly Financial Statements. As soon as available, but no later than thirty (30) days after the last day ofeach month, company prepared consolidated and consolidating balance sheets and income statements covering Borrower’s consolidated and Borrower’s and each of its Subsidiary’s operations for such month certified by a Responsible Officerand in a form acceptable to Bank (the “**Monthly Financial Statements**”); 

(f) Monthly ComplianceCertificate. Within thirty (30) days after the last day of each month and together with the Monthly Financial Statements, a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month,Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonablyrequest; 

(g) Annual Audited Financial Statements. As soon as available, but no later than ninety (90) days afterthe last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firmacceptable to Bank in its reasonable discretion; 

(h) Budgets and Projections. As soon as available, but no later thanforty-five (45) days after the last day of Borrower’s fiscal year, annual operating budgets (including quarterly income statements, balance sheets and cash flow statements) for the upcoming fiscal year of Borrower; 

(i) Other Statements. Within five (5) days of delivery, copies of all statements, reports and notices made available toBorrower’s security holders or to any holders of Subordinated Debt; 

(j) SEC Filings. In the event that Borrowerbecomes subject to the reporting requirements under the Exchange Act within five (5) days of filing (and, in no event, later than (i) fifty (50) days of the end of each fiscal quarter with respect to each Form 10Q filed by theBorrower and (ii) ninety (90) days of the end of each fiscal year with respect to each Form 10K filed by the Borrower), copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, anyGovernmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to theextent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a linkthereto, on Borrower’s website on the Internet at Borrower’s website address; 

(k) Legal Action Notice. Aprompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Seven Hundred FiftyThousand Dollars ($750,000) or more; 

(l) Intellectual Property Notice. Together with delivery of the ComplianceCertificate delivered at the end of each fiscal quarter, written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any copyright, patent or trademark, including any subsequentownership right of Borrower in or to any copyright, patent or trademark not previously disclosed in writing to Bank, and (iii) Borrower’s knowledge of an event that could reasonably be expected to materially and adversely affect the valueof the Intellectual Property; and 

(m) Other Financial Information. Budgets, sales projections, operating plans andother financial information reasonably requested by Bank. 

**6.3 Inventory; Returns**. Keep all Inventory in good andmarketable condition, free from material defects, except for any Inventory for which reserves have been established in the ordinary course of business in accordance with GAAP. Returns and allowances between Borrower and its Account Debtors shallfollow Borrower’s customary practices as they exist at the Effective Date. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than Five Hundred Thousand Dollars ($500,000). 

 
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**6.4 Taxes; Pensions**. Timely file, and require each of its Subsidiaries to timelyfile, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal and state income and payroll taxes and any other material assessments, deposits and contributions owed by Borrowerand each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and except for any failure to file or pay that does not result in any Lien attaching to the Collateral, and shalldeliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms. 

**6.5 Insurance**. Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’sindustry and location and as Bank may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All property policies shall have a lender’s loss payable endorsement showing Bank asa lender loss payee and waive subrogation against Bank. All liability policies shall show, or have endorsements showing, Bank as an additional insured. All policies (or their respective endorsements) shall provide that the insurer shall give Bank atleast twenty (20) days notice before canceling, amending, or declining to renew its policy. At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policyshall, at Bank’s option, be payable to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of anycasualty policy up to Fifty Thousand Dollars ($50,000) with respect to any loss, but not exceeding One Hundred Thousand Dollars ($100,000) in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repairof destroyed or damaged property; *provided*that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted afirst priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations. IfBorrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies requiredin this Section 6.5, and take any action under the policies Bank deems prudent. 

**6.6 Operating Accounts.**

(a) With ninety (90) days of the Effective Date, maintain its primary domestic operating and other deposit accountswith Bank and Bank’s Affiliates. 

(b) Provide Bank five (5) days prior written notice before establishing anyCollateral Account at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other thanBank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance withthe terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employeewage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such or to deposit accounts located outside of the United States. 

**6.7 Financial Covenants**. Maintain as of the last day of each month, unless otherwise noted, on a consolidated basis with respectto Borrower and its Subsidiaries: 

(a) Liquidity Coverage. A ratio of unrestricted cash and Cash Equivalents held atBank and its Affiliates plus net Accounts *to* all Obligations of Borrower to Bank plus the principal amount of the Borrower Debenture of not less than (i) for each month ending on or prior to April 30, 2011, 1.25:1.00,and (ii) for each month ending on May 31, 2011 and thereafter, 1.50:1.00. 

**6.8 Protection of IntellectualProperty Rights**. (a) Protect, defend and maintain the validity and enforceability of its Intellectual Property; (b) promptly advise Bank in writing of material infringements of its Intellectual Property; and (c) not allow anyIntellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent. 

**6.9 Litigation Cooperation**. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees andagents and Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

 
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**6.10**[reserved.] 

**6.11 Designated Senior Indebtedness**. Borrower shall designate all principal of, interest (including all interest accruing afterthe commencement of any bankruptcy or similar proceeding, whether or not a claim for post-petition interest is allowable as a claim in any such proceeding), and all fees, costs, expenses and other amounts accrued or due under this Agreement as“Designated Senior Indebtedness”, or such similar term, in any future Subordinated Debt incurred by Borrower after the date hereof, if such Subordinated Debt contains such term or similar term and if the effect of such designation is togrant to Bank the same or similar rights as granted to Bank as a holder of “Designated Senior Indebtedness” under the Indenture.****

**6.12 Access to Collateral; Books and Records**. Allow Bank, or its agents, at reasonable times, on five (5) Business Days’ notice (provided no notice is required if an Event of Default hasoccurred and is continuing), to inspect the Collateral and audit and copy Borrower’s Books. Such inspections or audits outlined in this Section 6.12 shall be conducted at the expense of the Borrower no more often than once every twelve(12) months unless an Event of Default has occurred and is continuing. The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall representBank’s then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with lessthan ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs andexpenses of the cancellation or rescheduling. Whether or not an Event of Default has occurred and is continuing, Bank may contact any Account Debtor owing Borrower money to verify the amount of such Eligible Account and, if an Event of Default hasoccurred and is continuing, notify such Account Debtor of Bank’s security interest in such funds. In the event that Borrower submits an Initial Regular Advance Request to Bank, Borrower hereby acknowledges that Bank shall conduct an audit ofthe Borrower’s Eligible Accounts pursuant to the terms of this Section 6.12 prior to the Borrower’s receipt of the Initial Regular Advance and the results of such audit shall be in form and substance satisfactory to Bank in itsdiscretion. Borrower hereby acknowledges and agrees that, once Borrower requests the Initial Regular Advance, Bank shall conduct an annual audit of the Borrower’s Eligible Accounts for purposes of all future Advances that are not NonformulaAdvances. 

**6.13 Formation or Acquisition of Subsidiaries**. At the time that Borrower forms any direct or indirectSubsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower shall provide to Bank appropriate certificates and powers and financing statements, pledging (i) all of the direct or beneficial ownership interest insuch new Subsidiary if such Subsidiary is a Domestic Subsidiary and (ii) not greater than 65% of all voting equity interests and all nonvoting equity interests in such new Subsidiary if such Subsidiary is a Foreign Subsidiary, in each case inform and substance reasonably satisfactory to Bank. Upon the reasonable request of Bank, Borrower shall cause such new Subsidiary to provide to Bank a joinder to the Loan Agreement to cause such Subsidiary to become a co-borrower hereunder orexecute a guaranty, together with such appropriate financing statements and/or Control Agreements, all in form and substance satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and tothe assets of such newly formed or acquired Subsidiary). Borrower shall provide to Bank all other documentation in form and substance satisfactory to Bank, including one or more opinions of counsel satisfactory to Bank, which in its opinion isappropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.13 shall be a Loan Document. 

**6.14 Further Assurances**. Execute any further instruments and take further action as Bank reasonably requests to perfect orcontinue Bank’s Lien in the Collateral or to effect the purposes of this Agreement. Deliver to Bank, within five (5) days after the same are sent or received, copies of all correspondence, reports, documents and other filings with anyGovernmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations ofBorrower or any of its Subsidiaries. 

 
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**7 NEGATIVE COVENANTS**

Borrower shall not do any of the following without Bank’s prior written consent: 

**7.1 Dispositions**. Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “**Transfer**”), orpermit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; (c) in connection with PermittedLiens and Permitted Investments; (d) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensedproperty but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States; (e) by the Borrower of all of its Investments in SMIC, providedthat such Transfer is completed on or before December 31, 2011 and (f) by the Borrower and its Subsidiary, Equator Technologies, Inc., of the Saleable Patents to [***]. 

**7.2 Changes in Business, Ownership, or Business Locations**. (a) Engage in or permit any of its Subsidiaries to engage in anybusiness other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) except for the dissolution of its Subsidiary, Jaldi Semiconductor, liquidate or dissolve; or(c) enter into any transaction or series of related transactions in which the stockholders of Borrower who were not stockholders immediately prior to the first such transaction own more than 40% of the voting stock of Borrower immediately aftergiving effect to such transaction or related series of such transactions (other than by the sale of Borrower’s equity securities in a public offering or to venture capital investors so long as Borrower identifies to Bank the venture capitalinvestors prior to the closing of the transaction and provides to Bank a description of the material terms of the transaction). 

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or businesslocations, including warehouses (unless such new offices or business locations contain less than One Hundred Thousand Dollars ($100,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in theaggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change itsorganizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individuallyor in the aggregate, in excess of One Hundred Thousand Dollars ($100,000) to a bailee, and Bank and such bailee is not already party to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver theCollateral, then Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion. 

**7.3 Mergers or Acquisitions**. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any otherPerson, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower. 

**7.4 Subsidiaries**. Permit its membership interests in any Subsidiary, without the prior written consent of Bank, (i) to berepresented by any certificate, or (ii) cease to be “general intangibles” as defined by the UCC.****

**7.5Indebtedness**. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. 

**7.6 Encumbrance**. Create, incur, allow, or suffer 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 itsSubsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor ofBank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or anySubsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein. 

**7.7 Maintenance of Collateral Accounts**. Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof. 

 
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**7.8 Distributions; Investments**. (a) Pay any dividends or make any distributionor payment or redeem, retire or purchase any capital stock provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof,(ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time ofsuch repurchase and would not exist after giving effect to such repurchase, provided such repurchase does not exceed in the aggregate of Five Hundred Thousand Dollars ($500,000) per fiscal year; or (b) directly or indirectly make any Investmentother than Permitted Investments, or permit any of its Subsidiaries to do so. 

**7.9 Transactions with Affiliates**.Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no lessfavorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person, other than the transfer of certain of the Saleable Patents to its Subsidiary, Equator Technologies, Inc., pursuant to the subsequent saleof the Saleable Patents to [***]. 

**7.10 Subordinated Debt**. (a) Make or permit any payment on any SubordinatedDebt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase theamount thereof or adversely affect the subordination thereof to Obligations owed to Bank. 

**7.11 Compliance**. Become an“investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (asdefined in Regulation U of the Board of Governors of the Federal Reserve System), 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 ProhibitedTransaction, 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 permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profitsharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. 

**8 EVENTS OF DEFAULT**

Any one of the following shall constitute an event of default (an “**Event of Default**”) under this Agreement: 

**8.1 Payment Default**. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three(3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to make or pay any paymentspecified under clause (a) or (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period); 

**8.2 Covenant Default.**

(a) Borrower fails or neglects to perform anyobligation in Sections 3.3, 6.2, 6.4, 6.5, 6.6, 6.7, 6.12 or violates any covenant in Section 7; or 

(b) Borrower failsor neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term,provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after a Responsible Officer knew or should have known, in the exercise of reasonable diligence required by applicable law, of theoccurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely tobe cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shallnot be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause(a) above; 

 
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**8.3 Material Adverse Change**. A Material Adverse Change occurs; 

**8.4 Attachment; Levy; Restraint on Business.**

(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) on deposit or otherwisemaintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) daysafter the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or 

(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee orreceiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any material part of its business; 

**8.5 Insolvency.** (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or(c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until anyInsolvency Proceeding is dismissed); 

**8.6 Other Agreements**. There is, under any agreement to which Borrower is a partywith a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Two HundredThousand Dollars ($200,000); or (b) any default by Borrower, the result of which could be reasonably expected to have a material adverse effect on Borrower’s business; *provided*, *however*, that the Event of Default under thisSection 8.6 caused by the occurrence of a default under such other agreement shall be cured or waived for purposes of this Agreement upon Bank receiving written notice from the party asserting such default of such cure or waiver of the defaultunder such other agreement, if at the time of such cure or waiver under such other agreement (x) Bank has not declared an Event of Default under this Agreement and/or exercised any rights with respect thereto; (y) any such cure or waiverdoes not result in an Event of Default under any other provision of this Agreement or any Loan Document; and (z) in connection with any such cure or waiver under such other agreement, the terms of any agreement with such third party are notmodified or amended in any manner which could adversely affect Bank; 

**8.7 Judgments**. One or more final judgments,orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) (not covered by independent third-party insurance as to which liability has been accepted by suchinsurance carrier) shall be rendered against Borrower and the same are not, within ten (10) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to theexpiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree); and 

**8.8 Misrepresentations**. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writingdelivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made. 

**9 BANK’S RIGHTS AND REMEDIES**

**9.1 Rights and Remedies**. While 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 Obligationsare immediately due and payable without any action by Bank); 

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

 
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(c) demand that Borrower (i) deposit cash with Bank in an amount equal to 105% of theDollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all ofthe Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter ofcredit fees scheduled to be paid or payable over the remaining term of any Letters of Credit; 

(d) terminate any FX ForwardContracts; 

(e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order thatBank considers advisable, notify any Person owing Borrower money of Bank’s security interest in such funds, and verify the amount of such account; 

(f) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requestsand 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 superiorto 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; 

(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to orfor the credit or the account of Borrower; 

(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,advertise for sale, and sell the Collateral. Bank is hereby 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, tradenames, Trademarks, 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 thisSection, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit; 

(i) place a“hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of anyCollateral; 

(j) demand and receive possession of Borrower’s Books; and 

(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies providedunder the Code (including disposal of the Collateral pursuant to the terms thereof). 

**9.2 Power of Attorney**. Borrowerhereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security;(b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bankdetermines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or anyjudgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact tosign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in fulland Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until allObligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates. 

 
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**9.3 Protective Payments**. If Borrower fails to obtain the insurance called for bySection 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid byBank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining suchinsurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default. 

**9.4 Application of Payments and Proceeds Upon Default**. If an Event of Default has occurred and is continuing, Bank may apply anyfunds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determinein its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, in its good faith business judgment, directly or indirectly enters into adeferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring thereduction of the Obligations until the actual receipt by Bank of cash therefor. 

**9.5 Bank’s Liability forCollateral**. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of theCollateral; (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 ordestruction of the Collateral. 

**9.6 No Waiver; Remedies Cumulative**. Bank’s failure, at any time or times, torequire strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiverhereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies under this Agreement and the other Loan Documents arecumulative. 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 shall not preclude Bank from exercising any other remedy under this Agreement or otherremedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence. 

**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, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served,given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upontransmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all ofwhich shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other partywritten notice thereof in accordance with the terms of this Section 10. 

 
If to Borrower:  Pixelworks, Inc.  224 Airport Parkway, Suite 400  San Jose, California 95110  Attn: Steven Moore, CFO  Fax: 408 200 9299  Email: smoore@pixelworks.com
 
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If to Bank:  Silicon Valley Bank  2400 Hanover St.  Palo Alto, California 94304  Attn: Justin Mauch, Relationship Manager  Fax: 650 320 0016  Email: jmauch@svb.com
**11 CHOICE OFLAW, VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE**

California law governs the Loan Documents without regard toprinciples of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to precludeBank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits andconsents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and herebyconsents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of suchsummons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so madeshall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid. 

**TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOANDOCUMENTS 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**.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if theabove waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selectedby the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federallaw if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall beconducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including withoutlimitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanentlysealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, CaliforniaSuperior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discoverywhich shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable tojudicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report astatement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisionalremedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph. 

 
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**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 or obligations 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, tosell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents. 

**12.2 Indemnification**. Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents,attorneys, or any other Person affiliated with or representing Bank (each, an “Indemnified Person”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “Claims”) claimed or asserted by anyother party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from,consequential to, or arising from transactions between Bank and Borrower contemplated by the Loan Documents (including reasonable attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’sgross negligence or willful misconduct. 

**12.3 Time of Essence**. Time is of the essence for the performance of allObligations in this Agreement. 

**12.4 Severability of Provisions**. Each provision of this Agreement is severable fromevery other provision in determining the enforceability of any provision. 

**12.5 Correction of Loan Documents**. Bank maycorrect patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties. 

**12.6Amendments in Writing; Waiver; Integration**. No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to theextent, expressly set forth in a writing signed by the party against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to requireperformance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shallnot apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter andsupersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents. 

**12.7 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, is an original, and all taken together, constitute one Agreement. 

**12.8Survival**. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any otherobligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied. The obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respectto such claim or cause of action shall have run. 

**12.9 Confidentiality**. In handling any confidential information, Bankshall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank,collectively, “Bank Entities”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions; (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or asotherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providershave executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession whendisclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information. 

 
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Bank Entities may use the confidential information for reporting purposes and thedevelopment and distribution of databases and market analyses so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly prohibited by Borrower. The provisions of the immediately precedingsentence shall survive the termination of this Agreement. 

**12.10 Attorneys’ Fees, Costs and Expenses**. In anyaction or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys’ fees and other costs and expenses incurred, in addition to any otherrelief to which it may be entitled. 

**12.11 Electronic Execution of Documents**. The words “execution,”“signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity andenforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the UniformElectronic Transactions Act. 

**12.12 Captions**. The headings used in this Agreement are for convenience only and shallnot affect the interpretation of this Agreement. 

**12.13 Construction of Agreement**. The parties mutually acknowledgethat they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist. 

**12.14 Relationship**. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement.The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract. 

**12.15 Third Parties**. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rightsor remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express partyto this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement. 

**13 DEFINITIONS**

**13.1 Definitions**. As used in the LoanDocuments, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, andnumbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings: 

“**Account**” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and othersums owing to Borrower. 

****“**Account Debtor**” is any “account debtor” as defined in the Codewith such additions to such term as may hereafter be made.****

“**Advance**” or “**Advances**”means an advance (or advances) under the Revolving Line, including, without limitation, the Initial Regular Advance and any Nonformula Advance. 

“**Affiliate**” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under commoncontrol 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. 

“**Agreement**” is defined in the preamble hereof. 

“**Availability Amount**” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the Dollar Equivalent amount of alloutstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserve, minus (c) the FX Reduction Amount, minus (d) any amounts used for Cash Management Services, and minus(e) the outstanding principal balance of any Advances. 

 
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“**Bank**” is defined in the preamble hereof. 

“**Bank Expenses**” are all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees andexpenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect toBorrower. 

“**Borrower**” is defined in the preamble hereof. 

**“Borrower Debenture”** means that certain 1.75% Convertible Subordinated Debenture due 2024 in an aggregate principalamount of $125,000,000, dated as of May 18, 2004, as increased to an aggregate principal amount of $150,000,000, executed by the Borrower, as issuer, and authenticated by Wells Fargo Bank, National Association, as trustee. 

“**Borrower’s Books**” are all Borrower’s books and records including ledgers, federal and state tax returns,records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information. 

“**Borrowing Base**” is 80% of Eligible Accounts, as determined by Bank from Borrower’s most recent Borrowing BaseCertificate; *provided*, *however*, that Bank may decrease the foregoing percentages in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral.

“**Borrowing Base Certificate**” is that certain certificate in the form attached hereto as Exhibit C.

“**Borrowing Base Report**” is defined in Section 6.2(a). 

****“**Borrowing Resolutions**” are, with respect to any Person, those resolutions substantially in the form attachedhereto as Exhibit F.****

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

**“Cash Equivalents”**means (a) marketable direct obligations issued orunconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after itscreation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue; and(d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition. 

**“Cash Management Services”** is defined in Section 2.1.4. 

“**Code**” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State ofCalifornia; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Articleor Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed bythe Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “**Code**” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of theprovisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions. 

“**Collateral**” is any and all properties, rights and assets of Borrower described on Exhibit A. 

“**Collateral Account**” is any domestic Deposit Account, Securities Account, or Commodity Account. 

 
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“**Commodity Account**” is any “commodity account” as defined in theCode with such additions to such term as may hereafter be made. 

“**Compliance Certificate**” is that certaincertificate in the form attached hereto as Exhibit D. 

“**Contingent Obligation**” is, for any Person, anydirect or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, 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; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from anyinterest 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, ifnot 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 any guarantee or other support arrangement. 

“**Control Agreement**” is any control agreement entered into among the depository institution at which Borrower maintains aDeposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over suchDeposit Account, Securities Account, or Commodity Account. 

“**Copyrights**” are any and all copyright rights,copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret. 

“**Credit Extension**” is any Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash Management Services,or any other extension of credit by Bank for Borrower’s benefit. 

“**Default Rate**” is defined inSection 2.3(b). 

“**Deferred Revenue**” is all amounts received or invoiced in advance of performance undercontracts and not yet recognized as revenue. 

“**Deferred Revenue Report**” is defined in Section 6.2(c).

“**Deposit Account**” is any “deposit account” as defined in the Code with such additions to such termas may hereafter be made. 

“**Designated Deposit Account**” is Borrower’s deposit account, account number3300717221, maintained with Bank. 

****“**Dollars***,*****” “**dollars**” or use of thesign “**$**” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the UnitedStates.****

“**Dollar Equivalent**” is, at any time, (a) with respect to any amount denominated inDollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco,California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency. 

“**DomesticSubsidiary**” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia. 

**“Early Termination Date”** is defined in Section 2.1.1(b). 

“**Effective Date**” is defined in the preamble hereof. 

 
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“**Eligible Accounts**” means Accounts which arise in the ordinary course ofBorrower’s business that meet all Borrower’s representations and warranties in Section 5.3. Bank reserves the right at any time after the Effective Date to adjust any of the criteria set forth below and to establish new criteria inits sole discretion. Unless Bank otherwise agrees in writing, Eligible Accounts shall not include: 

(a) Accounts for which theAccount Debtor is Borrower’s Affiliate, officer, employee, or agent; 

(b) Accounts that the Account Debtor has not paidwithin ninety (90) days of invoice date regardless of invoice payment period terms; 

(c) Accounts with credit balancesover ninety (90) days from invoice date; 

(d) Accounts owing from an Account Debtor, in which thirty-five percent(35%) or more of the Accounts have not been paid within ninety (90) days of invoice date; 

(e) Accounts owing froman Account Debtor which does not have its principal place of business in the United States (except for Tokyo Electron Device Ltd., Epson Precision (H.K.) Ltd., AECO Technology Co., Ltd. and Qisda Optronics (Suzhou) Corporation) unless such Accountsare otherwise Eligible Accounts and (i) covered in full by credit insurance satisfactory to Bank, less any deductible, (ii) supported by letter(s) of credit acceptable to Bank, (iii) supported by a guaranty from the Export-Import Bankof the United States, or (iv) that Bank otherwise approves of in writing; 

(f) Accounts billed and/or payable outside ofthe United States (sometimes called foreign invoiced accounts); 

(g) Accounts owing from an Account Debtor to the extent thatBorrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts); 

(h) Accounts owing from an Account Debtor, whose total obligations to Borrower exceed twenty-five percent (25%) of all Accounts,except for Tokyo Electron Device Ltd, for which such percentage is forty-five percent (45%) for the amounts that exceed that percentage, unless Bank approves in writing; 

(i) Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Bank and theassignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended; 

(j) Accounts fordemonstration or promotional equipment, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or return”, “sale on approval”, or other terms if Account Debtor’s payment may be conditional;

(k) Accounts owing from an Account Debtor that has not been invoiced or where goods or services have not yet been rendered tothe Account Debtor (sometimes called memo billings or pre-billings); 

(l) Accounts subject to contractual arrangements betweenBorrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower’s failure to perform inaccordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts); 

(m) Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor’s satisfaction of Borrower’s complete performance (but only to the extentof the amount withheld; sometimes called retainage billings); 

(n) Accounts subject to trust provisions, subrogation rights ofa bonding company, or a statutory trust; 

(o) Accounts owing from an Account Debtor that has been invoiced for goods that havenot been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership ofthe goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called “bill and hold” accounts); 

 
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(p) Accounts for which the Account Debtor has not been invoiced; 

(q) Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower’sbusiness; 

(r) Accounts for which Borrower has permitted Account Debtor’s payment to extend beyond 90 days; 

(s) Accounts arising from chargebacks, debit memos or others payment deductions taken by an Account Debtor (but only to the extent thechargeback is determined invalid and subsequently collected by Borrower); 

(t) Accounts arising from product returns and/orexchanges (sometimes called “warranty” or “RMA” accounts); 

(u) Accounts owing from an Account Debtor withrespect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue); 

(v) Accounts inwhich the Account Debtor disputes liability or makes any claim (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 

(w) Accounts for which Bank in its good faith business judgment determines collection to be doubtful, including, without limitation,accounts represented by “refreshed” or “recycled” invoices. 

“**Equipment**” is all“equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of theforegoing. 

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

“**Event of Default**” is defined in Section 8. 

“**Exchange Act**” is the Securities Exchange Act of 1934, as amended. 

“**Foreign Currency**” means lawful money of a country other than the United States. 

“**Foreign Subsidiary**” means any Subsidiary which is not a Domestic Subsidiary. 

****“**Funding Date**” is any date on which a Credit Extension is made to or for the account of Borrower which shall be aBusiness Day.****

****“**FX Business Day**” is any day when (a) Bank’s Foreign ExchangeDepartment is conducting its normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to Bank from the entity from which Bank shall buy or sell such Foreign Currency.****

“**FX Forward Contract**” is defined in Section 2.1.3. 

“**FX Reduction Amount**” is defined in Section 2.1.3. 

“**FX Reserve**” is defined in Section 2.1.3. 

“**GAAP**” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified PublicAccountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to thecircumstances as of the date of determination. 

 
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“**General Intangibles**” is all “general intangibles” as defined inthe Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles,contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, andbusiness interruption insurance), payments of insurance and rights to payment of any kind. 

“**GovernmentalApproval**” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

“**Governmental Authority**” is any nation or government, any state or other political subdivision thereof, anyagency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and anyself-regulatory organization. 

“**Indebtedness**” is (a) indebtedness for borrowed money or the deferredprice 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. 

“**Indenture**” is that certain Indenture dated as of May 18, 2004,executed by and between Borrower, as issuer, and Wells Fargo Bank, National Association, as trustee, relating to 1.75% Convertible Subordinated Debentures due 2024, as supplemented from time to time. 

“**Indemnified Person**” is defined in Section 12.2. 

“**Initial Regular Advance**” is defined in Section 6.2(a). 

“**Initial Regular Advance Request**” is defined in Section 6.2(a). 

“**Insolvency Proceeding**” is any proceeding by or against any Person under the United States Bankruptcy Code, or any otherbankruptcy 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**” means all of Borrower’s right, title, and interest in and to the following: 

(a) its Copyrights, Trademarks and Patents; 

(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals; 

(c) any and all source code; 

(d) any and all design rights which may be available to a Borrower; 

(e) any andall claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identifiedabove; and 

(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents. 

“**Inventory**” is all “inventory” as defined in the Code in effect on the date hereof with such additions to suchterm as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily outof Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above. 

 
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“**Investment**” is any beneficial ownership interest in any Person (includingstock, partnership interest or other securities), and any loan, advance or capital contribution to any Person. 

“**Letter of Credit”** means a standby letter of credit issued by Bank or another institution based upon an application,guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2. 

“**Letter of CreditApplication**” is defined in Section 2.1.2(b). 

“**Letter of Credit Reserve**” has the meaning setforth in Section 2.1.2(e). 

“**Lien**” is a claim, mortgage, deed of trust, levy, charge, pledge, securityinterest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property. 

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

“**Material Adverse Change**” is (a) a material impairment in the perfection or priority of Bank’s Lien in theCollateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of theObligations or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a reasonable likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 6during the next succeeding financial reporting period. 

“**Monthly Financial Statements**” is defined inSection 6.2(e). 

**“Nonformula Advances”** is defined in Section 2.1.1(a). 

“**Obligations**” are Borrower’s obligations to pay when due any debts, principal, interest, Bank Expenses and otheramounts Borrower owes Bank now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn lettersof credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and to perform Borrower’sduties under the Loan Documents. 

**“Operating Documents”** are, for any Person, such Person’s formationdocuments, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form,(b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with allcurrent amendments or modifications thereto. 

“**Patents**” means all patents, patent applications and likeprotections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same. 

“**Payment/Advance Form**” is that certain form attached hereto as Exhibit B. 

“**Perfection Certificate**” is defined in Section 5.1. 

“**Permitted Indebtedness**” is: 

(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents; 

(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate; 

 
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(c) Subordinated Debt; 

(d) unsecured Indebtedness to trade creditors incurred in the ordinary course of business, including without limitation Indebtednessbetween or among the Borrower and its Subsidiaries consisting of payables for goods or services extended in the ordinary course of business consistent with past practice; 

(e) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business; 

(f) Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder; 

(g) other Indebtedness not otherwise permitted by Section 7.5 not exceeding $50,000.00 in the aggregate outstanding at any time; and

(h) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness(a) through (g) 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 (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate; 

(b) Investments consisting of Cash Equivalents; 

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

(d) Investments consisting of deposit accounts in which Bank has a perfected security interest; 

(e) Investments accepted in connection with Transfers permitted by Section 7.1; 

(f) Investments (i) by Borrower in Subsidiaries not to exceed Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate inany fiscal year, (ii) by Subsidiaries in other Subsidiaries not to exceed Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate in any fiscal year or in Borrower and (iii) Investments between or among the Borrower and itsSubsidiaries consisting of payables for goods or services extended in the ordinary course of business consistent with past practice; 

(g) 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 ordirectors 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; 

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

(i) 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; 

(j) joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing oftechnology, the development of technology or the providing of technical support, provided that any cash investments by Borrower do not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year; and 

(k) other Investments not otherwise permitted by Section 7.8 not exceeding Two Hundred Thousand Dollars ($200,000) in the aggregateoutstanding at any time. 

 
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“**Permitted Liens**” are: 

(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other LoanDocuments, including, so long as such lien is terminated in its entirety by March 31, 2011, the lien in favor of NetApp, Inc. dba NetApp Financial Solutions; 

(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequatereserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder; 

(c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipmentsecuring no more than Seven Hundred Fifty Thousand Dollars ($750,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of theEquipment; 

(d) Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in theordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000) and which are not delinquent or remain payable without penalty or whichare being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; 

(e) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liensimposed by ERISA); 

(f) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens describedin (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) leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person,in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referringto another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein; 

(h) non-exclusive license of Intellectual Property granted to third parties in the ordinary course of business; 

(i) Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections8.4 and 8.7; 

(j) Liens in favor of other financial institutions arising in connection with Borrower’s securitiesaccounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts; 

(k) deposits to secure the performance of bids, trade contracts and leases, statutory obligations, surety bonds (other than bonds related to judgments or litigation), performance bonds and otherobligations of a like nature incurred in the ordinary course of business; and 

(l) Liens in favor of customs and revenueauthorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods. 

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

 
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“**Prime Rate**” is, as of any date of determination, equal to the rate as ofsuch date published in the “Money Rates” section of The Wall Street Journal as being the “Prime Rate” (or, if more than one rate is published as the Prime Rate, then the highest of such rates). The Prime Rate will change as ofthe date of publication in The Wall Street Journal of a Prime Rate that is different from that published on the preceding Business Day. In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the Prime Rate, theBank shall choose a reasonably comparable index or source to use as the basis for the Prime Rate. 

“**Requirement ofLaw**” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each caseapplicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. 

****“**Responsible Officer**” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller ofBorrower. ****

“**Restricted License**” is any material license or other agreement with respect to whichBorrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or terminationof could interfere with the Bank’s right to sell any Collateral. 

“**Revolving Line**” is an Advance orAdvances in an amount equal to Ten Million Dollars ($10,000,000.00). 

**“Revolving Line Maturity Date”**isDecember 21, 2012. 

“**Saleable Patents**” are those patents and related materials to be sold byBorrower’s Subsidiary, Equator Technologies, Inc., to [***] within ninety (90) days of the Effective Date and that are listed in Exhibit G. 

“**SEC**” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority. 

“**Securities Account**” is any “securities account” as defined in the Code with such additions to such term asmay hereafter be made. 

**“SMIC”** means Semiconductor Manufacturing International Corporation, a Cayman Islandscorporation. 

“**Settlement Date**” is defined in Section 2.1.3. 

“**Subordinated Debt**” is (a) indebtedness incurred by Borrower subordinated to all of Borrower’s now orhereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank, and (b) allIndebtedness under the Indenture and the Borrower Debenture. 

“**Subsidiary**” is, as to any Person, acorporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of thehappening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly throughone or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower. 

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

“**Trademarks**” means any trademark and servicemark rights, whether registered or not, applications to register andregistrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks. 

 
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“**Transfer**” is defined in Section 7.1. 

“**Unused Revolving Line Facility Fee**” is defined in Section 2.4(c). 

**“[***]”**means the entity formed by [***], pursuant to the transfer of the Saleable Patents, as noted on the PatentPurchase Agreement to be entered into by Borrower and the other parties thereto. 

**[**Signature page follows.**]**

 
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**IN WITNESS WHEREOF**, the parties hereto have caused this Agreement to be executed asof the Effective Date. 

 
BORROWER:PIXELWORKS, INC., an Oregon corporationBy: /s/ Steven L. MooreName: Steven L. MooreTitle: VP & CFOBANK:SILICON VALLEY BANKBy: /s/ Tom SmithName: Tom SmithTitle: Managing Director