EXHIBIT 10.1

                                     [LOGO]
                               SILICON VALLEY BANK
                           SPECIALTY FINANCE DIVISION

                     ACCOUNTS RECEIVABLE FINANCING AGREEMENT

      This ACCOUNTS RECEIVABLE  FINANCING AGREEMENT (the "Agreement"),  dated as
of the Effective Date, is among Silicon Valley Bank,  Specialty Finance Division
("Bank") on the one hand, and Tegal  Corporation,  a Delaware  corporation,  and
Tegal  Japan,   Inc.,  a   corporation   organized   under  the  laws  of  Japan
(collectively,  joint and severally "Borrower") on the other hand, whose address
is 2201 S. McDowell Blvd, Petaluma,  CA 94954 and with a FAX number of (707) 765
- 9311.

1. DEFINITIONS. In this Agreement:

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

      "ACCOUNT DEBTOR" is defined in the California  Uniform Commercial Code and
shall  include any person  liable on any Financed  Receivable  or Exim  Financed
Receivable,  such as a guarantor of the  Financed  Receivable  or Exim  Financed
Receivable and any issuer of a letter of credit or banker's acceptance.

      "ADJUSTMENTS"   are  all   discounts,   allowances,   returns,   disputes,
counterclaims,  offsets,  defenses,  rights of  recoupment,  rights  of  return,
warranty  claims,  or short  payments,  asserted  by or on behalf of any Account
Debtor for any Financed Receivable or Exim Financed Receivable.

      "ADVANCE" is defined in Section 2.2.

      "ADVANCE RATE" is 80%, net of deferred revenue and offsets related to each
specific Account Debtor, or another percentage as Bank establishes under Section
2.2.

      "APPLICABLE  RATE" is a rate per annum equal to the "Prime Rate" plus 1.00
percentage point.

      "BORROWER  AGREEMENT"  is the  Export-Import  Bank  of the  United  States
Working Capital Guarantee Program Borrower Agreement between Borrower and Bank.

      "BORROWING BASE" has the meaning set forth in the Borrower Agreement.

      "BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records  regarding  Borrower's assets or liabilities,  the Collateral,  business
operations  or financial  condition  and all  computer  programs or discs or any
equipment containing the information.

      "CODE" is the California Uniform Commercial Code as in effect from time to
time.

      "COLLATERAL" is attached as Exhibit "A".

      "COLLATERAL HANDLING FEE" is defined in Section 4.5.


                                       30
<PAGE>

      "COLLECTIONS"  are all  funds  received  by Bank  from or on  behalf of an
Account Debtor for Financed Receivables or Exim Financed Receivables.

      "COMPLIANCE CERTIFICATE" is attached as Exhibit "B".

      "EARLY TERMINATION FEE" is defined in Section 4.6.

      "EFFECTIVE DATE" is the date in which Bank executes this Agreement.

      "EVENT OF DEFAULT" is defined in Section 10.

      "EXIM ADVANCE" is defined in Section 3.1.

      "EXIM ADVANCE RATE" is 90%, net of deferred revenue and offsets related to
each specific Account Debtor,  or another  percentage as Bank establishes  under
Section 3.1.

      "EXIM BANK" is the Export-Import Bank of the United States.

      "EXIM BANK EXPENSES" are all audit fees and expenses,  reasonable costs or
expenses  (including  reasonable  attorneys'  fees and expenses) for  preparing,
negotiating,  administering,  defending and  enforcing  the Exim Loan  Documents
(including appeals or Insolvency Proceedings) and the fees that the Bank pays to
the Exim Bank in consideration of the issuance of the Exim Guarantee.

      "EXIM  ELIGIBLE  FOREIGN  ACCOUNTS" are Accounts  payable in United States
Dollars that arise in the ordinary course of Borrower's business from Borrower's
sale of Exim Eligible  Foreign  Inventory  (i) that the Account  Debtor does not
have its  principal  place of business  in the United  States and (ii) that have
been assigned and comply with all of Borrower's  representations  and warranties
in this  Agreement;  but Bank, in its good faith business  judgment,  may change
eligibility standards by giving Borrower notice. Unless Bank agrees otherwise in
writing, Exim Eligible Foreign Accounts will not include:

            (a) Accounts with terms of sales greater than 90 days;

            (b) Accounts  which are more than 60 calendar days past the original
      due date,  unless it is insured through Exim Bank export credit  insurance
      for  comprehensive  commercial  and  political  risk, or through Exim Bank
      approved  private  insurers  for a comparable  coverage,  in which case 90
      calendar days shall apply;

            (c)  Credit  balances  over 60 days  from due  date of the  relevant
      invoice;

            (d)  Accounts  evidenced  by a letter  of  credit  until the date of
      shipment of the items covered by the subject letter of credit;

            (e) Accounts  for which the Account  Debtor is a military or defense
      entity;

            (f) Accounts for which Borrower owes the Account Debtor, but only up
      to the amount owed (sometimes called "contra" accounts,  accounts payable,
      customer deposits or credit accounts);

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

            (h) Accounts for which the Account  Debtor is Borrower's  Affiliate,
      officer, employee, or agent;

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

            (j)  Accounts  generated  by the  sale  of  products  purchased  for
      military purposes;

            (k) Accounts  generated by the sales of Inventory  which  constitute
      defense articles or defense services;

                                       31
<PAGE>


            (l) Accounts  excluded  from the  Borrowing  Base under the Borrower
      Agreement;

            (m) Accounts  that arise from the sales of items not in the ordinary
      course of Borrower's business;

            (n) Accounts not owned by Borrower or that are subject to any right,
      claim or interest of another person other than the lien in favor of Bank;

            (o) Accounts with respect to which an invoice has not been sent;

            (p) Accounts  billed and payable  outside the United  Stated  unless
      approved  in writing by Exim Bank;  and such  Accounts  are subject to the
      following:

                  1.  Each  subsidiary  or  affiliate  is a  party  to the  Loan
            Agreement;

                  2. All proceeds are remitted to the United States on a monthly
            basis  (excluding  the  retention  of  proceeds  for the  purpose of
            funding local expenses);

                  3. Accounts are derived from eligible exports originating from
            the United States;

                  4. Bank obtains a valid first priority  security  interest (or
            equivalent) in the jurisdiction where the Accounts are located; and

                  5. Bank obtains a legal opinion from local counsel with regard
            to the enforceability of such security interest.

            (s) Accounts billed in currencies  other than U.S.  Dollars,  unless
      approved in writing by Exim Bank;

            (t)  Accounts  from foreign  buyers in countries  where Exim Bank is
      legally  prohibited  from doing business or in which Exim Bank coverage is
      not available (as designated in the Country Limitation Schedule);

            (u) Accounts backed by letters of credit unacceptable to Bank in its
      reasonable and good faith credit judgment;

            (v) Accounts for which Bank or Exim Bank determines collection to be
      doubtful, with Bank's determination of same to be reasonable;

            (w)  Accounts  for which the items  giving rise to such Account have
      not  been  shipped  and  delivered  to and  accepted  by the  Buyer or the
      services  giving rise to such Account have not been  performed by Borrower
      and accepted by the Buyer or the Account does not represent a final sale;

            (x) Accounts  for which  Borrower  has made any  agreement  with the
      Buyer for any deduction therefrom, except for discounts or allowances made
      in the  ordinary  course of  business  for  prompt  payment,  all of which
      discounts or allowances are reflected in the calculation of the face value
      of each respective invoice related thereto; and

            (y)  Accounts for which any of the items giving rise to such Account
      have been returned, rejected or repossessed.

      "EXIM FINANCED RECEIVABLES" are all those accounts,  receivables,  chattel
paper, instruments,  contract rights, documents, general intangibles, letters of
credit,  drafts,  bankers acceptances,  and rights to payment, and all proceeds,
including their proceeds (collectively  "receivables"),  which Bank finances and
makes an Exim Advance.  An Exim Financed Receivable stops being an Exim Financed
Receivable  (but  remains  Collateral)  when the Exim  Advance made for the Exim
Financed Receivable has been finally paid.

      "EXIM  GUARANTEE"  is that  certain  Master  Guarantee  Agreement or other
agreement,  as amended  from time to time,  the terms of which are  incorporated
into this Agreement.

      "EXIM LOAN DOCUMENTS" means this Agreement,  any note or notes executed by
Borrower or any other agreement  entered into in connection with this Agreement,
pursuant  to which  Exim  Bank  guarantees  Borrower's  obligations  under  this
Agreement.


                                       32
<PAGE>


      "EXISTING FACILITY" means that certain LOAN AND SECURITY AGREEMENT BETWEEN
BANK AND TEGAL  CORPORATION AND  _________________________  DATED AS OF JUNE 26,
2002 AND ANY NOTE OR NOTES EXECUTED BY TEGAL  CORPORATION OR ANY OTHER AGREEMENT
ENTERED INTO IN CONNECTION WITH SUCH LOAN AND SECURITY AGREEMENT.

      "EXPORT  ORDER" is a written  export order or contract for the purchase by
the buyer from the Borrower of any finished goods or services which are intended
for export.

      "FACILITY"  is an  extension  of  credit by Bank to  Borrower  in order to
finance receivables with an aggregate Account Balance not exceeding the Facility
Amount.

      "FACILITY AMOUNT" is $3,500,000 gross.

      "FACILITY  PERIOD" is the  period  beginning  on this date and  continuing
until January 16,2005 unless the period is terminated sooner by Bank with notice
to Borrower or by Borrower under Section 4.6.

      "FINANCE CHARGES" is defined in Section 4.2.

      "FINANCED RECEIVABLES" are all those accounts, receivables, chattel paper,
instruments, contract rights, documents, general intangibles, letters of credit,
drafts, bankers acceptances,  and rights to payment, and all proceeds, including
their  proceeds  (collectively  "receivables"),  which Bank finances and make an
Advance.  A Financed  Receivable stops being a Financed  Receivable (but remains
Collateral)  when the Advance made for the Financed  Receivable has been finally
paid.

      "FINANCED  RECEIVABLE  BALANCE" is the total  outstanding  amount,  at any
time, of all Financed Receivables and Exim Financed Receivables.

      "GAAP" means United States generally accepted accounting principals.

      "GOOD FAITH DEPOSIT" is defined in Section 4.9.

      "GUARANTOR" means any guarantor of the Obligations.

      "INELIGIBLE RECEIVABLE" is any accounts receivable:

      (A)   that is unpaid (90) calendar days after the invoice date; or

      (B)   that is owed by an Account  Debtor that has filed,  or has had filed
            against  it, any  bankruptcy  case,  assignment  for the  benefit of
            creditors,  receivership, or Insolvency Proceeding or who has become
            insolvent (as defined in the United States  Bankruptcy  Code) or who
            is generally not paying its debts as they become due; or

      (C)   for which there has been any breach of warranty or representation in
            Section 7 or any breach of any  covenant in this  Agreement;  or

      (D)   for  which the  Account  Debtor  asserts  any  discount,  allowance,
            return, dispute, counterclaim, offset, defense, right of recoupment,
            right of return, warranty claim, or short payment; or

      (E)   is not an Exim Eligible Foreign Account.

      "INSOLVENCY PROCEEDING" are proceedings by or against any person under the
United  States  Bankruptcy  Code, or any other  bankruptcy  or  insolvency  law,
including  assignments  for the benefit of creditors,  compositions,  extensions
generally  with  its   creditors,   or   proceedings   seeking   reorganization,
arrangement, or other relief.

      "INVOICE  TRANSMITTAL"  shows accounts  receivable  which Bank may finance
and, for each receivable,  includes the Account Debtor's, name, address, invoice
amount,  invoice date and invoice number and is signed by Borrower's  authorized
representative.

      "LOCKBOX" is described in Section 7.2.

      "OBLIGATIONS" are all advances,  liabilities,  obligations,  covenants and
duties  owing,  arising,  due or payable by  Borrower to Bank now or later under
this  Agreement  or  any  other  document,   instrument  or  agreement,  account
(including  those  acquired by  assignment)  primary or  secondary,  such as all
Advances,  Exim Advances,  Finance Charges,  Collateral Handling Fees, interest,
fees, expenses, professional fees and attorneys' fees or other.


                                       33
<PAGE>


      "PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's  lowest rate.  Notwithstanding  the  foregoing,  for purposes of this
Agreement, the Prime Rate shall not be less than 4.25%.

      "RECONCILIATION DAY" is the last calendar day of each month.

      "RECONCILIATION PERIOD" is each calendar month.

      "TANGIBLE  NET WORTH"  shall mean the  excess of total  assets  over total
liabilities, determined in accordance with GAAP, with the following adjustments:

      (A)   there shall be excluded from assets: (i) notes,  accounts receivable
            and other  obligations  owing to Borrower from its officers or other
            Affiliates,  and (ii)  all  assets  which  would  be  classified  as
            intangible assets under GAAP, including without limitation goodwill,
            licenses, patents, trademarks, trade names, copyrights,  capitalized
            software and organizational costs, licenses and franchises; and

      (B)   there  shall  be   excluded   from   liabilities   all  50%  of  all
            consideration  received  after the effective  date of this Agreement
            for equity securities and indebtedness  which is subordinated to the
            Obligations  under a  subordination  agreement in form  specified by
            Bank or by language in the instrument  evidencing  the  indebtedness
            which Bank agrees in writing is acceptable to Bank in its good faith
            business judgment.

      2.    FINANCING OF ACCOUNTS RECEIVABLE.

            2.1. REQUEST FOR ADVANCES.  During the Facility Period, Borrower may
            offer  accounts  receivable  to Bank if  there  is not an  Event  of
            Default.  Borrower will deliver an Invoice  Transmittal (in the form
            of Exhibit C) for each accounts  receivable it offers. Bank may rely
            on  information in or with the Invoice  Transmittal.  The Bank shall
            not make any Advances prior to Borrower transferring all of its cash
            in its primary  operating account at California Bank & Trust ("CBT")
            from CBT to Bank.

            2.2.  ACCEPTANCE  OF ACCOUNTS  RECEIVABLE.  Bank is not obligated to
            finance  any  accounts  receivable.  Bank may  approve  any  Account
            Debtor's credit before financing any receivable. When Bank accepts a
            receivable,  it will pay  Borrower  the Advance  Rate times the face
            amount  of  the  receivable  (the  "Advance").   Bank  may,  in  its
            discretion,  change the  percentage of the Advance  Rate.  When Bank
            makes an Advance,  the receivable  becomes a "Financed  Receivable."
            All  representations  and warranties in Section 7 must be true as of
            the date of the Invoice  Transmittal and of the Advance and no Event
            of Default  exists  would  occur as a result of the  Advance.  There
            shall  be  Advances  for no more  than 12  invoices  at any one time
            outstanding.  At no time shall the sum of all  outstanding  Advances
            plus Exim Advances exceed the Facility Amount.

      3.    EXIM ADVANCES; OVERADVANCES.

            3.1 EXIM ADVANCES SUBLIMIT.

                  (a)  During  the  Facility  Period,  Borrower  may offer  Exim
            Eligible  Foreign  Accounts  to Bank if  there  is not an  Event  of
            Default.  Borrower will deliver an Invoice Transmittal for each Exim
            Eligible Foreign Account it offers.  Bank may rely on information in
            or with the  Invoice  Transmittal.  The Bank shall not make any Exim
            Advances  prior  to  Borrower  transferring  all of its  cash in its
            primary operating account at CBT from CBT to Bank.

                  (b) Bank is not obligated to finance any Exim Eligible Foreign
            Accounts.  Bank may  approve  any  Account  Debtor's  credit  before
            financing  any  receivable.   When  Bank  accepts  a  receivable  in
            connection with an Exim Advance, the Bank will pay Borrower the Exim
            Advance  Rate  times the face  amount of the  receivable  (the "Exim
            Advance"). Bank may, in its discretion, change the percentage of the
            Exim Advance Rate.  When Bank makes an Exim Advance,  the receivable
            becomes  a  "Exim  Financed  Receivable."  All  representations  and
            warranties  in Section 7 must be true as of the date of the  Invoice
            Transmittal  and of the Advance and no Event of Default exists would
            occur as a result of the Advance.  There shall be Exim  Advances for
            no more  than 12  invoices  at any one time  outstanding.  The total
            amount of Exim Advances  outstanding  at any one time may not exceed
            $2,800,000.  The aggregate amount of outstanding Exim Advances shall
            reduce the  amount  otherwise  available  to be  borrowed  under the
            Facility Amount.


                                       34
<PAGE>

                  (c) To obtain  an Exim  Advance,  Borrower  must  notify  Bank
            (which notice is  irrevocable)  by facsimile no later than 3:00 p.m.
            Pacific time 1 Business Day before the day on which the Exim Advance
            is to be made. The notice must be in the form of Exhibit C and shall
            be accompanied by any Export Orders.  The notice must be signed by a
            Responsible  Officer or designee.  In addition,  the Exim  Guarantee
            must be in full force and effect.

      3.2   OVERADVANCES.

                  If Borrower's Obligations under Section 2.1 and 3.1 exceed the
            Facility Amount, Borrower must immediately pay Bank the excess.

4. COLLECTIONS,  FINANCE CHARGES, REMITTANCES AND FEES. The Obligations shall be
subject to the following fees and Finance Charges. Fees and Finance Charges may,
in Bank's  discretion,  be  charged as an  Advance  or Exim  Advance,  and shall
thereafter  accrue fees and Finance Charges as described below. Bank may, in its
discretion,  charge  fee and  Finance  Charges  to  Borrower's  deposit  account
maintained with Bank.

      4.1. COLLECTIONS. Collections will be credited to the Financed Receivables
      Balance,  but if there is an Event of Default,  Bank may apply Collections
      to the Obligations in any order it chooses. If Bank receives a payment for
      both  a  Financed   Receivable  or  an  Exim  Financed  Receivable  and  a
      non-Financed receivable or a non-Exim Financed Receivable,  the funds will
      first  be  applied  to  the  Financed  Receivable  or  the  Exim  Financed
      Receivable,  as the case may be, and if there is not an Event of  Default,
      the excess  will be  remitted to the  Borrower,  subject to Section  4.10.
      Bank, in its sole and exclusive discretion,  may apply Collections towards
      the repayment of a Financed  Receivable or an Exim Financed  Receivable in
      any order and in any manner as it sees fit.

      4.2.  FINANCE  CHARGES.  In computing  Finance Charges on the Advances and
      Exim Advances, all Collections received by Bank shall be deemed applied by
      Bank on account of the  Advances and Exim  Advances 3 Business  Days after
      receipt  of the  Collections.  Borrower  will pay a  finance  charge  (the
      "Finance Charge"),  which is equal to the Applicable Rate times the number
      of days in the Reconciliation  Period times the outstanding  average daily
      Financed Receivable Balance for that Reconciliation Period. After an Event
      of Default,  Advances and Exim Advances accrue interest at 5 percent above
      the Applicable Rate effective immediately before the Event of Default.

      4.3. [THIS SECTION INTENTIONALLY LEFT BLANK.]

      4.4. [THIS SECTION INTENTIONALLY LEFT BLANK.]

      4.5.  COLLATERAL  HANDLING FEE. On each  Reconciliation Day, Borrower will
      pay to Bank a  collateral  handling  fee,  equal to 0.50% per month of the
      average  daily  Financed   Receivable   Balance   outstanding  during  the
      applicable   Reconciliation   Period.  After  an  Event  of  Default,  the
      Collateral  Handling  Fee will  increase  an  additional  0.50%  effective
      immediately before the Event of Default.

      4.6.  EARLY  TERMINATION  FEE.  A  fully  earned,   non-refundable   early
      termination  fee  equal to one  percent  (1%) of the  Financed  Receivable
      Balance (such amount to be  calculated on the date such early  termination
      fee  is  earned)  on the  date  such  early  termination  fee is due  upon
      voluntary or involuntary  full payment of the  Obligations and termination
      of this  Facility  prior  to  twelve  (12)  months  from  the date of this
      Agreement, unless the Obligations are paid in full from an initial advance
      from a loan agreement with Bank.

      4.7.  ACCOUNTING.  After each Reconciliation  Period, Bank will provide an
      accounting of the transactions for that Reconciliation  Period,  including
      the amount of all Financed  Receivables,  Exim Financed  Receivables,  all
      Collections, Adjustments, Finance Charges and the Collateral Handling Fee.
      If Borrower does not object to the accounting in writing within 30 days it
      is considered  correct.  All Finance  Charges and other  interest and fees
      calculated on the basis of a 360-day year and actual days elapsed.

      4.8.  DEDUCTIONS.  Bank may deduct fees, finance charges and other amounts
      due from any Advances made or Collections received by Bank.


                                       35
<PAGE>

      4.9. GOOD FAITH DEPOSIT. Borrower has paid to Bank a Good Faith Deposit of
      $20,000 to initiate Bank's due diligence review process.

      4.10. ACCOUNT COLLECTION  SERVICES.  All Borrowers'  receivables are to be
      paid to the same address/or party and Borrower and Bank must agree on such
      address.  If Bank  collects all  receivables  and there is not an Event of
      Default or an event that with  notice or lapse of time will be an Event of
      Default,  within FIVE (5) days of receipt of those collections,  Bank will
      give Borrower,  the  receivables  collections it receives for  receivables
      other than Financed Receivables or Exim Financed Receivables and/or amount
      in excess of the  amount  for which  Bank has made an  Advance  or an Exim
      Advance to  Borrower,  less any amount  due to Bank,  such as the  Finance
      Charge,  Collateral  Handling Fee and expenses or otherwise.  This section
      does not impose any  affirmative  duty on Bank to do any act other than to
      turn over amounts.  All  receivables and collections are Collateral and if
      an Event of Default occurs,  Bank need not remit collections of Collateral
      and may apply them to the Obligations.

      4.11 EXIM  BANK  EXPENSES.  On the date this  Agreement  is  executed  and
      delivered,  Borrower will pay all Exim Bank Expenses  incurred through the
      date hereof.

5.    REPAYMENT OF CERTAIN OBLIGATIONS.

      5.1.  REPAYMENT  ON  MATURITY.  Borrower  will repay each Advance and Exim
      Advance on the earliest of: (a) payment of the Financed Receivable or Exim
      Financed Receivable in respect which the Advance or Exim Advance was made,
      (b)  the  Financed  Receivable  or Exim  Financed  Receivable  becomes  an
      Ineligible  Receivable,  (c) when any  Adjustment  is made to the Financed
      Receivable  or Exim  Financed  Receivable  (but only to the  extent of the
      Adjustment if the Financed  Receivable or Exim Financed  Receivable is not
      otherwise an  Ineligible  Receivable,  or (d) the last day of the Facility
      Period (including any early  termination).  Each payment will also include
      all accrued  Finance  Charges on the Advance or Exim Advance and all other
      amounts due hereunder.

      5.2.  REPAYMENT  ON EVENT OF  DEFAULT.  When there is an Event of Default,
      Borrower  will,  if Bank demands (or, in an Event of Default under Section
      10(B),  immediately  without  notice or demand from Bank) repay all of the
      Obligations. The demand may, at Bank's option, include the Advance or Exim
      Advance, as the case may be, for each Financed Receivable or Exim Financed
      Receivable then  outstanding and all accrued Finance  Charges,  Collateral
      Handling Fees,  attorneys and professional fees, court costs and expenses,
      and any other Obligations.

6. POWER OF ATTORNEY.  Borrower irrevocably appoints Bank and its successors and
assigns it attorney-in-fact and authorizes Bank, regardless of whether there has
been an Event of Default, to:

      (A)   sell, assign, transfer,  pledge, compromise, or discharge all or any
            part of the Financed Receivables or Exim Financed Receivables:

      (B)   demand,  collect,  sue, and give releases to any Account  Debtor for
            monies due and compromise,  prosecute,  or defend any action, claim,
            case or proceeding  about the Financed  Receivables or Exim Financed
            Receivables,  including  filing  a claim  or  voting  a claim in any
            bankruptcy case in Bank's or Borrower's name, as Bank chooses;

      (C)   prepare,  file  and  sign  Borrower's  name  on any  notice,  claim,
            assignment,  demand,  draft, or notice of or satisfaction of lien or
            mechanics' lien or similar document;

      (D)   notify all Account Debtors to pay Bank directly;

      (E)   receive, open, and dispose of mail addressed to Borrower;

      (F)   endorse Borrower's name on check or other instruments;

      (G)   execute on Borrower's behalf any instruments,  documents,  financing
            statements to perfect Bank's  interests in the Financed  Receivables
            and Collateral; and

      (H)   do all acts and things necessary or expedient.


                                       36
<PAGE>

7.    REPRESENTATIONS, WARRANTIES AND COVENANTS.

      7.1. REPRESENTATIONS AND WARRANTIES.  Borrower represents and warrants for
each Financed Receivable and each Exim Financed Receivable:

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

      (B)   The  correct  amount  is on  the  Invoice  Transmittal  and  is  not
            disputed;

      (C)   Payment is not  contingent on any  obligation or contract and it has
            fulfilled all its obligations as of the Invoice Transmittal date;

      (D)   It is based on an actual sale and delivery of goods and/or  services
            rendered, due to Borrower, it is not past due or in default, has not
            been previously sold, assigned,  transferred, or pledged and is free
            of any liens, security interests and encumbrances;

      (E)   There are no defenses,  offsets,  counterclaims  or  agreements  for
            which the Account Debtor may claim any deduction or discount;

      (F)   It reasonably  believes no Account Debtor is insolvent or subject to
            any Insolvency Proceedings;

      (G)   It has not filed or had filed against it Insolvency  Proceedings and
            does not anticipate any filing;

      (H)   Bank has the right to endorse  and/ or require  Borrower  to endorse
            all  payments  received on Financed  Receivables  and Exim  Financed
            Receivables and all proceeds of Collateral; and

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

      7.1.1 ADDITIONAL  REPRESENTATIONS AND WARRANTIES.  Borrower represents and
            warrants as follows:

      (A)   Borrower  is duly  existing  and in good  standing  in its  state of
            formation  and qualified and licensed to do business in, and in good
            standing  in, any state in which the conduct of its  business or its
            ownership of property requires that it be qualified.  The execution,
            delivery and performance of this Agreement has been duly authorized,
            and does not conflict with Borrower's  organizational documents, nor
            constitute an Event of Default under any material agreement by which
            Borrower is bound. Borrower is not in default under any agreement to
            which or by which it is bound.

      (B)   Borrower  has good  title to the  Collateral,  free and clear of all
            liens.  The Accounts in any report submitted to Bank, are bona fide,
            existing  obligations and the service or property has been performed
            or delivered  to the Account  Debtor or its agent  (subject  only to
            installation and warranty obligations arising in the ordinary course
            of Borrower's business), for immediate shipment to and unconditional
            acceptance  by the  Account  Debtor.  Borrower  has no notice of any
            actual or imminent Insolvency Proceeding of any Account Debtor.

      (C)   All  inventory  is in all material  respects of good and  marketable
            quality and free from material defects.

      (D)   Borrower is not an "investment company" or a company "controlled" by
            an "investment  company" under the Investment  Company Act. Borrower
            is not  engaged  as one of its  important  activities  in  extending
            credit for margin stock (under Regulations G, T and U of the Federal
            Reserve Board of Governors).  Borrower has complied with the Federal
            Fair  Labor  Standards  Act.  Borrower  has not  violated  any laws,
            ordinances  or rules.  None of  Borrower's  properties or assets has
            been  used by  Borrower,  to the best of  Borrower's  knowledge,  by
            previous persons, in disposing,  producing,  storing,  treating,  or
            transporting  any hazardous  substance other than legally.  Borrower
            has timely filed all required tax returns and paid, or made adequate
            provision  to pay, all taxes.  Borrower  has obtained all  consents,
            approvals and  authorizations  of, made all  declarations or filings
            with, and given all notices to, all government  authorities that are
            necessary to continue its business as currently conducted.


                                       37
<PAGE>

      (E)   Borrower  will use the  proceeds of the Exim  Advances  only for the
            purposes specified in the Borrower Agreement.  Borrower will not use
            the proceeds of the Exim Advances for any purpose  prohibited by the
            Borrower Agreement.

      7.2.  AFFIRMATIVE COVENANTS. Borrower will do all of the following:

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

      (B)   Give Bank at least 10 days  prior  written  notice of changes to its
            name, organization, chief executive office or location of records.

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

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

      (E)   Give Bank  copies of all Forms 10-K,  10-Q and 8-K (or  equivalents)
            within 5 days of filing with the Securities and Exchange Commission,
            while  any  Financed  Receivable  or  Exim  Financed  Receivable  is
            outstanding.

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

      (G)   Provide  Bank with a  Compliance  Certificate  no later than 30 days
            following  each  month  end  when  there  is  a  positive   Financed
            Receivable Balance or as requested by Bank.

      (H)   When there is a positive Financed Receivable  Balance,  provide Bank
            with, as soon as available, but no later than 30 days following each
            Reconciliation  Period,  a company prepared balance sheet and income
            statement,  prepared  under  GAAP,  consistently  applied,  covering
            Borrower's  operations  during  the  period  together  with  an aged
            listing of accounts  receivable  and accounts  payable  along with a
            deferred  revenue  report;  provided,  however,  that such  deferred
            revenue  report  shall be provided to Bank upon each Advance or Exim
            Advance if such Advances or Exim  Advances  occur more than once per
            month or if more than one Advance or Exim Advance is made per month.

      (I)   Immediately  notify,  transfer  and deliver to Bank all  collections
            Borrower   receives  for  Financed   Receivables  or  Exim  Financed
            Receivables.

      (J)   Borrower  will remit all  payment's  for Accounts to the Bank by the
            close of business on each Friday along with a detailed cash receipts
            journal  and  shall  immediately   notify  and  direct  all  of  the
            Borrower's  Account  Debtor's to make all payment's  for  Borrower's
            Accounts  to a  lockbox  account  established  with  a  third  party
            acceptable to Bank  ("Lockbox")  or to wire  transfer  payments to a
            cash collateral account that Bank controls. It will be considered an
            immediate  Event  of  Default  if  the  Lockbox  is not  set-up  and
            operational within 45 days from the date of this Agreement.

      (K)   Borrower will allow Bank to audit Borrower's  Collateral,  including
            but not limited to Borrower's  Accounts,  at Borrowers  expense,  no
            later than 90 days of the execution of this  Agreement and every six
            months  thereafter.  Provided,  however,  if an Event of Default has
            occurred,  Bank may audit Borrower's  Collateral,  including but not
            limited to Borrower's Accounts at Bank's sole discretion and without
            notification and authorization from Borrower.

      (L)   Provide Bank with, as soon as available,  but no later than 120 days
            after the last day of  Borrower's  fiscal  year,  either (i) audited
            consolidated financial statements prepared under GAAP,  consistently
            applied,  together  with an  unqualified  opinion  on the  financial
            statements  from an independent  certified  public  accounting  firm
            reasonably  acceptable to Bank or (ii) a copy of the Borrower's most
            recently filed United States income tax return.

      (M)   Provide Bank with inventory  reports  reasonably  requested by Bank.
            Each Exim Advance  shall be supported by Export Orders in connection
            with such advance.


                                       38
<PAGE>

      (N)   Borrower shall deliver all reports, certificates and other documents
            to Bank as provided in the Borrower  Agreement,  including,  without
            limitation,  copies of Export Orders and any other  information that
            Bank and Exim Bank may reasonably request.

      (O)   Borrower will keep all inventory in good and  marketable  condition,
            free from material  defects  except for inventory for which adequate
            reserves have been made in accordance with GAAP, which reserves have
            been,  and at all  times  will be  with  respect  to  Exim  Eligible
            Inventory.  Returns and allowances  between Borrower and its Account
            Debtors will follow Borrower's  customary practices as they exist at
            execution of this  Agreement.  Borrower must promptly notify Bank of
            all returns, recoveries, disputes and claims, that involve more than
            $100,000.00.

      (P)   If required by Bank,  Borrower will obtain, with respect to Accounts
            that are  otherwise  ineligible  under Exim  borrowing  criteria and
            where  Borrower has  requested or obtained an Advance,  and pay when
            due all premiums with respect to, and maintain uninterrupted foreign
            credit  insurance.  In addition,  Borrower  will execute in favor of
            Bank an assignment of proceeds of any insurance  policy  obtained by
            Borrower  and  issued by Exim Bank  insuring  against  comprehensive
            commercial  and  political  risk  (the  "EXIM  Bank  Policy").   The
            insurance  proceeds  from the EXIM Bank  Policy  assigned or paid to
            Bank  will  be  applied  to  the  balance   outstanding  under  this
            Agreement.  Borrower will  immediately  notify Bank and Exim Bank in
            writing  upon  submission  of any claim under the Exim Bank  Policy.
            Then  Bank  will  not  be  obligated  to  make  any  further  Credit
            Extensions  to  Borrower  based on Exim  Eligible  Foreign  Accounts
            without prior approval from Exim Bank.

      (Q)   Borrower  will comply with all terms of the Borrower  Agreement.  If
            any provision of the Borrower Agreement conflicts with any provision
            contained in this Agreement, the more strict provision, with respect
            to the Borrower,  will  control;  provided,  however,  any action or
            event that is  permitted  hereunder  shall be deemed to satisfy  any
            requirement for consent of Bank under the Borrower Agreement.

      (R)   Borrower will, if required by Exim Bank or Bank,  cause all sales of
            products  on which the Exim  Advances  are based to satisfy at least
            one of the  following:  (i) be supported by one or more  irrevocable
            letters of credit in an amount and of matter,  naming a  beneficiary
            and  issued  by a  financial  institution  acceptable  to  Bank  and
            negotiated by Bank,  (ii) be for any Account which  satisfies all of
            the requirements to constitute an Exim Eligible Foreign Account,  or
            (iii) where the Accounts from the Buyer exceed  twenty-five  percent
            (25%) of all Exim Eligible  Foreign  Accounts,  to be preapproved in
            writing, by Bank or Exim Bank.

      (S)   Borrower shall maintain a minimum Tangible Net Worth as follows:

            (i)   During the period  commencing on April 1, 2003 and  continuing
                  through June 30, 2003, $8,800,000;

            (ii)  During the period  commencing  on July 1, 2003 and  continuing
                  through September 31, 2003, $8,000,000;

            (iii) During the period commencing on October 1, 2003 and continuing
                  through December 31, 2003, $7,000,000; and

            (iv)  Commencing  on  January  1, 2004 and at all times  thereafter,
                  $6,500,000.

            Increases  in this  minimum  Tangible  Net Worth  covenant  based on
            consideration  received for equity  securities and subordinated debt
            of the  Borrower  shall be  effective  as of the end of the month in
            which such  consideration is received,  and shall continue effective
            thereafter.  Increases in this minimum  Tangible Net Worth  Covenant
            based on net income shall be effective on the last day of the fiscal
            quarter  in which said net income is  realized,  and shall  continue
            effective  thereafter.  In no event shall this minimum  Tangible Net
            Worth covenant be decreased.

7.3.  NEGATIVE  COVENANTS.  Borrower  will not do any of the  following  without
      Bank's prior written consent:

      (A)   Assign,  transfer,  sell or grant,  or permit  any lien or  security
            interest in the Collateral  except to Orin  Hirschman  ("Hirschman")
            with respect to Borrower's intellectual property.

      (B)   Convey,   sell,   lease,   transfer  or  otherwise  dispose  of  the
            Collateral.


                                       39
<PAGE>

      (C)   Create, incur, assume, or be liable for any indebtedness.

      (D)   Become  an  "investment  company"  or a  company  controlled  by  an
            "investment  company,"  under the Investment  Company Act of 1940 or
            undertake as one of its  important  activities  extending  credit to
            purchase or carry margin  stock,  or use the proceeds of any Advance
            for that purpose;  fail to meet the minimum funding  requirements of
            ERISA,  permit a  Reportable  Event or  Prohibited  Transaction,  as
            defined in ERISA,  to occur;  fail to comply with the  Federal  Fair
            Labor  Standards  Act or  violate  any other law or  regulation,  or
            permit any of its subsidiaries to do so.

      (E)   Violate  or  fail to  comply  with  any  provision  of the  Borrower
            Agreement or take an action,  or permit any action to be taken, that
            causes,  or could be expected to cause, the Exim Guarantee to not be
            in full force and effect.  Notwithstanding the introductory sentence
            to this  Section 7, at no time will Bank give or be required to give
            its consent to the actions set forth in this Section 7.3.

8.  ADJUSTMENTS.  If any Account Debtor asserts a discount,  allowance,  return,
offset,  defense,  warranty claim, or the like (an  "Adjustment") or if Borrower
breaches  any of the  representations,  warranties  or  covenants  set  forth in
Section  7,  Borrower  will  promptly  advise  Bank.  Borrower  will  resell any
rejected,  returned,  returned,  or recovered  personal  property  for Bank,  at
Borrower's expense,  and pay proceeds to Bank. While Borrower has returned goods
that are Borrower  property,  Borrower will segregate and mark them "property of
Silicon  Valley  Bank." Bank owns the  Financed  Receivables  and Exim  Financed
Receivables  and until receipt of payment,  has the right to take  possession of
any rejected, returned, or recovered personal property.

9. SECURITY INTEREST.  Borrower grants to Bank a continuing security interest in
all presently and later acquired  Collateral to secure all  Obligations  and the
performance of each of Borrower's duties  hereunder.  Any security interest will
be a first priority security interest in the Collateral;  provided, however that
Bank's security interest in Borrower's  intellectual  property shall be a second
priority  security  interest  solely  behind  Hirschman.   Notwithstanding   the
foregoing,  when the debt owed by Borrower to  Hirschman is converted to equity,
Bank's interest in Borrower's intellectual property will become a first priority
security interest.

10.   EVENTS  OF  DEFAULT.  Any one or  more of the  following  is an  Event  of
      Default.

      (A)   Borrower fails to pay any amount owed to Bank when due;

      (B)   Borrower files or has filed against it any Insolvency Proceedings or
            any  assignment  for the benefit of creditors,  or  appointment of a
            receiver or custodian for any of its assets;

      (C)   Borrower  becomes  insolvent or is generally not paying its debts as
            they become due or is left with unreasonably small capital;

      (D)   Any  involuntary  lien,  garnishment,  attachment  attaches  to  the
            Financed Receivables, Exim Financed Receivables or any Collateral;

      (E)   Borrower   breaches   any   covenant,   agreement,    warranty,   or
            representation is an immediate Event of Default;

      (F)   Borrower is in default under any  document,  instrument or agreement
            evidencing  any debt,  obligation  or liability in favor of Bank its
            affiliates or vendors regardless of whether the debt,  obligation or
            liability is direct or indirect,  primary or secondary,  or fixed or
            contingent;

      (G)   An event of default occurs under any guaranty of the  Obligations or
            any material  provision of any Guaranty is not valid or  enforceable
            or a guaranty is repudiated or terminated;

      (H)   A material  default or Event of Default  occurs under any  agreement
            between  Borrower  and  any  creditor  of  Borrower  that  signed  a
            subordination agreement with Bank;

      (I)   Any creditor  that has signed a  subordination  agreement  with Bank
            breaches any terms of the subordination agreement; or


                                       40
<PAGE>

      (J)   (i) A material  impairment  in the  perfection  or  priority  of the
            Bank's security interest in the Collateral;  (ii) a material adverse
            change in the  business,  operations,  or  conditions  (financial or
            otherwise) of the Borrower occurs; or (iii) a material impairment of
            the prospect of repayment of any portion of the Advances occurs; or

      (K)   If the Exim Guarantee  ceases for any reason to be in full force and
            effect,  or if the Exim Bank  declares  the Exim  Guarantee  void or
            revokes any obligations under the Exim Guarantee.

11.   REMEDIES.

      11.1. REMEDIES UPON DEFAULT. When an Event of Default occurs, (1) Bank may
      stop financing receivables or extending credit to Borrower;  (2) at Bank's
      option and on demand,  all or a portion of the  Obligations  or, for to an
      Event of Default  described in Section  10(B),  automatically  and without
      demand,  are due and payable in full; (3) apply to the Obligations any (i)
      balances  and  deposits of  Borrower it holds,  or (ii) any amount held by
      Bank owing to or for the credit or the account of  Borrower;  and (4) Bank
      may  exercise all rights and remedies  under this  Agreement  and the law,
      including  those of a secured  party  under the  Code,  power of  attorney
      rights in Section 6 for the Collateral,  and the right to collect, dispose
      of, sell,  lease,  use, and realize  upon all Financed  Receivables,  Exim
      Financed  Receivables  and Collateral in any commercial  manner.  Borrower
      agrees that any notice of sale  required to be given to Borrower is deemed
      given if at least five days before the sale may be held.

      11.2.  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 guaranties
      held by Bank on which Borrower is liable.

      11.3.  DEFAULT  RATE. If any amount is not paid when due, the amount bears
      interest at the Applicable Rate plus five percent until the earlier of (a)
      payment in good funds or (b) entry of a final  judgment when the principal
      amount of any money  judgment  will accrue  interest  at the highest  rate
      allowed by law.

      11.4 EXIM  DIRECTION;  NOTIFICATION.  Upon the  occurrence  and during the
      continuance  of an Event of  Default,  Exim Bank  shall  have right to (i)
      direct Bank to exercise  the  remedies  specified  in Section 9.1 and (ii)
      request that Bank  accelerate the maturity of any other loans to Borrower.
      Bank has the right to  immediately  notify  Exim Bank in writing if it has
      knowledge  of any of the  following  events:  (1) any  failure  to pay any
      amount due under this  Agreement;  (2) the Borrowing Base is less than the
      sum of the outstanding Credit Extensions;  (3) any failure to pay when due
      any amount  payable to Bank under any loan owing by Borrower to Bank;  (4)
      the filing of an action for  debtor's  relief by,  against or on behalf of
      Borrower;  (5) any  threatened  or  pending  material  litigation  against
      Borrower,  or any dispute  involving  Borrower.  If Bank sends a notice to
      Exim  Bank,  Bank has the right to send Exim Bank a written  report on the
      status of events covered by the notice every 30 days after the date of the
      original  notification,  until  Bank  files a claim  with Exim Bank or the
      defaults have been cured (but no Advances may be required  during the cure
      period unless Exim Bank gives its written  approval).  If directed by Exim
      Bank,  Bank will have the right to exercise any rights it may have against
      the Borrower to demand the immediate  repayment of all amount outstandings
      under the Exim Loan Documents.

12. FEES,  COSTS AND EXPENSES.  The Borrower will pay on demand all fees,  costs
and  expenses  (including  attorneys'  and  professionals  fees  with  costs and
expenses) that Bank incurs from: (a) preparing, negotiating,  administering, and
enforcing this Agreement or related agreement, including any amendments, waivers
or consents, (b) any litigation or dispute relating to the Financed Receivables,
the Exim  Financed  Receivables,  the  Collateral,  this  Agreement or any other
agreement,  (c) enforcing any rights against  Borrower or any guarantor,  or any
Account  Debtor,  (d)  protecting  or  enforcing  its  interest in the  Financed
Receivables,  Exim Financed Receivables or other Collateral,  (e) collecting the
Financed Receivables, Exim Financed Receivables and the Obligations, and (f) any
bankruptcy  case or  insolvency  proceeding  involving  Borrower,  any  Financed
Receivable, any Exim Financed Receivable, the Collateral, any Account Debtor, or
any Guarantor.

13.  CHOICE OF LAW,  VENUE AND JURY TRIAL  WAIVER.  California  law governs this
Agreement.  Borrower and Bank each submit to the exclusive  jurisdiction  of the
State and Federal courts in Santa Clara County, California.


                                       41
<PAGE>

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  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.

14. NOTICES.  Notices or demands by either party about this Agreement must be in
writing and personally  delivered or sent by an overnight  delivery service,  by
certified  mail  postage  prepaid  return  receipt  requested,  or by FAX to the
addresses  listed at the beginning of this Agreement.  A party may change notice
address by written notice to the other party.

15.   GENERAL PROVISIONS.

      15.1.  SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit
      of successors and permitted assigns of each party. Borrower may not assign
      this Agreement or any rights under it without Bank's prior written consent
      which may be granted or withheld in Bank's  discretion.  Bank may, without
      the  consent  of  or  notice  to  Borrower,   sell,  transfer,   or  grant
      participation in any part of Bank's obligations,  rights or benefits under
      this Agreement.

      15.2.  INDEMNIFICATION.  Borrower will indemnify, defend and hold harmless
      Bank and its officers,  employees,  and agents against:  (a)  obligations,
      demands, claims, and liabilities asserted by any other party in connection
      with the  transactions  contemplated by this Agreement;  and (b) losses or
      expenses  incurred,  or paid by Bank from or consequential to transactions
      between  Bank  and  Borrower  (including  reasonable  attorneys  fees  and
      expenses),  except for losses caused by Bank's gross negligence or willful
      misconduct.

      15.3.  TIME OF  ESSENCE.  Time is of the essence  for  performance  of all
      obligations in this Agreement.

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

      15.5. AMENDMENTS IN WRITING, INTEGRATION. All amendments to this Agreement
      must be in writing.  This  Agreement  is the entire  agreement  about this
      subject matter and supersedes prior negotiations or agreements.

      15.6.  COUNTERPARTS.  This  Agreement  may be  executed  in any  number of
      counterparts  and by different  parties on separate  counterparts and when
      executed and delivered are one Agreement.

      15.7. SURVIVAL. All covenants, representations and warranties made in this
      Agreement  continue in force while any Financed  Receivable amount remains
      outstanding.  Borrower's  indemnification  obligations  survive  until all
      statutes of limitations  for actions that may be brought against Bank have
      run.

      15.8.  CONFIDENTIALITY.  Bank will use the same  degree  of care  handling
      Borrower's confidential  information that it uses for its own confidential
      information,  but may disclose  information;  (i) to its  subsidiaries  or
      affiliates  in  connection  with their  business  with  Borrower,  (ii) to
      prospective  transferees  or purchasers of any interest in the  Agreement,
      (iii) as required by law,  regulation,  subpoena,  or other order, (iv) as
      required  in  connection  with  an  examination  or  audit  and  (v) as it
      considers  appropriate  exercising  the  remedies  under  this  Agreement.
      Confidential  information does not include information that is either: (a)
      in the public domain or in Bank's  possession when  disclosed,  or becomes
      part of the public  domain after  disclosure  to Bank; or (b) disclosed to
      Bank by a third  party,  if Bank  does not know  that the  third  party is
      prohibited from disclosing the information.

      15.9.  OTHER  AGREEMENTS.  This  Agreement may not adversely  affect Banks
      rights  under any other  document  or  agreement.  If there is a  conflict
      between this Agreement and any agreement  between  Borrower and Bank, Bank
      may determine in its sole  discretion  which provision  applies.  Borrower
      acknowledges that any security agreements, liens and/or security interests
      securing  payment  of  Borrower's   Obligations  also  secure   Borrower's
      Obligations  under this  Agreement and are not adversely  affected by this
      Agreement.  Additionally,  (a) any  Collateral  under other  agreements or
      documents  between Borrower and Bank secures  Borrowers  Obligations under
      this  Agreement  and (b) a default by Borrower  under this  Agreement is a
      default under agreements between Borrower and Bank.


                                       42
<PAGE>

      15.10. EXISTING CREDIT LINE. The Borrower agrees that it shall not be able
      to borrow any  amounts  under its  Existing  Facility  with Bank as of the
      Effective  Date  of  this   Agreement.   Borrower  also  agrees  that  all
      outstanding  obligations under the Existing Facility shall be paid in full
      in cash on or prior to the date this Agreement becomes effective.


BORROWER:   TEGAL CORPORATION


By     /s/ Thomas R. Mika
       ----------------------------------
Title  Executive Vice President & CFO


BORROWER:   TEGAL JAPAN, INC.


By     /s/ James McKibben
       ----------------------------------
Title  President - Tegal Japan Inc.


BANK: SILICON VALLEY BANK


By     /s/ R. Michael White
       ----------------------------------
Title  Market Manager

Effective Date:     January 16, 2003



                                       43

<PAGE>

                                   SIGNATURES

      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                         TEGAL CORPORATION
                                             (Registrant)

                                         /s/ THOMAS R. MIKA
                                         ------------------
                                         Thomas R. Mika
                                         Chief Financial Officer


Dated: February 12, 2004


                                       44