Document:

FY2002 10K Exhibit 10.12

EXHIBIT 10.12

Silicon Valley
Bank 

Amendment
to Loan Documents

Borrower:Sigma Designs, Inc.

Address:355 Fairview Way

Milpitas, California  95035

Date:September 7, 2001

THIS AMENDMENT
TO LOAN DOCUMENTS is entered into between SILICON VALLEY BANK
("Silicon") and the borrower named above (the "Borrower"),
with reference to the various loan and security agreements and other documents,
instruments and agreements between them, including but not limited to that
certain Amended and Restated Loan and Security Agreement dated October 26,1998
(as amended, the "Existing Loan Agreement"; the Existing Loan
Agreement and all related documents, instruments and agreements may be referred
to collectively herein as the "Existing Loan Documents").

The Parties agree to amend the Existing Loan Documents, as
follows:

1.Present Loan Balance.  Borrower
acknowledges that the present unpaid principal balance of the Borrower's
indebtedness, liabilities and obligations to Silicon under the Existing Loan
Documents, including interest accrued through September 7, 2001 is
$12,008,516.69 (the "Present Loan Balance"), and that said sum is due
and owing without any defense, offset, or counterclaim of any kind.

2.Amendment to Existing Loan Documents. 
The Existing Loan Documents are hereby amended in their entirety to read as set
forth in the Loan and Security Agreement, and related documents, being executed
concurrently (collectively, the "New Loan Documents"); provided that the
financial covenants set forth in Section 5 of the Schedule to the Loan and
Security Agreement shall be effective as of July 31, 2001, and as of July 31,
2001 shall replace the financial covenants set forth in the Existing Loan
Agreement. The Borrower acknowledges that the Present Loan Balance shall be the
opening balance of the Loans pursuant to the New Loan Documents as of the date
hereof, and shall, for all purposes, be deemed to be Loans made by Silicon to
the Borrower pursuant to the New Loan Documents.  Notwithstanding the execution
of the New Loan Documents, the following Existing Loan Documents shall continue
in full force and effect and shall continue to secure all present and future
indebtedness, liabilities, guarantees and other Obligations (as defined in the
New Loan Documents): All standard documents of Silicon entered into by the
Borrower in connection with Letters of Credit and/or Foreign Exchange Contracts;
all security agreements, collateral assignments and mortgages, including but not
limited to those relating to patents, trademarks, copyrights and other
intellectual property; all lockbox agreements and/or blocked account agreements;
and all UCC-1 financing statements and other documents filed with governmental
offices which perfect liens or security interests in favor of Silicon.  In
addition, in the event the Borrower has previously issued any stock options,
stock purchase warrants or securities to Silicon, the same and all documents and
agreements relating thereto shall also continue in full force and effect.  

3.General Provisions.  This Amendment and
the New Loan Documents set forth in full all of the representations and
agreements of the parties with respect to the subject matter hereof and
supersede all prior discussions, representations, agreements and understandings
between the parties with respect to the subject hereof.   

	Borrower:

SIGMA DESIGNS, INC.

 

By_______________________________

President or Vice President

By_______________________________

Secretary or Ass't
Secretary

	Silicon:

SILICON VALLEY BANK

 

By_______________________________

Title______________________________

 

 

 

Silicon Valley Bank 

Loan and Security Agreement

Borrower:Sigma Designs, Inc.

Address:355 Fairview Way

Milpitas, California  95035

Date:September 7, 2001

THIS LOAN AND SECURITY AGREEMENT
is entered into on the above date between SILICON VALLEY BANK, COMMERCIAL
FINANCE DIVISION ("Silicon"), whose address is 3003 Tasman Drive,
Santa Clara, California  95054 and the borrower(s) named above (jointly and
severally, the "Borrower"), whose chief executive office is located at
the above address ("Borrower's Address").  The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a
part of this Agreement, and the same is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 8
below.)

1. LOANS.

1.1  Loans.  Silicon will make loans to Borrower
(the "Loans"), in amounts determined by Silicon in its sole
discretion, up to the amounts (the "Credit Limit") shown on the
Schedule, provided no Default or Event of Default has occurred and is
continuing, and subject to deduction of any Reserves for accrued interest and
such other Reserves as Silicon deems proper from time to time.    

1.2  Interest.  All Loans and all other
monetary Obligations shall bear interest at the rate shown on the Schedule,
except where expressly set forth to the contrary in this Agreement.  Interest
shall be payable monthly, on the last day of the month.  Interest may, in
Silicon's discretion, be charged to Borrower's loan account, and the same shall
thereafter bear interest at the same rate as the other Loans.  Silicon may, in
its discretion, charge interest to Borrower's Deposit Accounts maintained with
Silicon.  Regardless of the amount of Obligations that may be outstanding from
time to time, Borrower shall pay Silicon minimum monthly interest during the
term of this Agreement in the amount set forth on the Schedule (the
"Minimum Monthly Interest").

1.3  Overadvances.  If at any time or for any
reason the total of all outstanding Loans and all other Obligations exceeds the
Credit Limit (an "Overadvance"), Borrower shall immediately pay the
amount of the excess to Silicon, without notice or demand.  Without limiting
Borrower's obligation to repay to Silicon on demand the amount of any
Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount
of any Overadvance, on demand, at a rate equal to the interest rate which would
otherwise be applicable to the Overadvance, plus an additional 2% per annum.

1.4  Fees.  Borrower shall pay Silicon the
fee(s) shown on the Schedule, which are in addition to all interest and other
sums payable to Silicon and are not refundable.

1.5  Letters of Credit.  At the request of
Borrower, Silicon may, in its sole discretion, issue or arrange for the issuance
of letters of credit for the account of Borrower, in each case in form and
substance satisfactory to Silicon in its sole discretion (collectively,
"Letters of Credit").  The aggregate face amount of all outstanding
Letters of Credit from time to time shall not exceed the amount shown on the
Schedule (the "Letter of Credit Sublimit"), and shall be reserved
against Loans which would otherwise be available hereunder.  Borrower shall pay
all bank charges (including charges of Silicon) for the issuance of Letters of
Credit, together with such additional fee as Silicon's letter of credit
department shall charge in connection with the issuance of the Letters of
Credit.  Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made.  Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date.  Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising
out of or in connection with any Letters of Credit.  Borrower agrees to be bound
by the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto.  Borrower understands
that Letters of Credit may require Silicon to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank.  Borrower hereby agrees to indemnify and hold Silicon harmless
with respect to any loss, cost, expense, or liability incurred by Silicon under
any Letter of Credit as a result of Silicon's indemnification of any such
issuing bank.  The provisions of this Loan Agreement, as it pertains to Letters
of Credit, and any other present or future documents or agreements between
Borrower and Silicon relating to Letters of Credit are cumulative.

2. SECURITY INTEREST.

2.1  Security Interest.  To secure the payment and
performance of all of the Obligations when due, Borrower hereby grants to
Silicon a security interest in all of Borrower's interest in the following,
whether now owned or hereafter acquired, and wherever located:  All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").

3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.

In order to induce Silicon to enter into this Agreement
and to make Loans, Borrower represents and warrants to Silicon as follows, and
Borrower covenants that the following representations will continue to be true,
and that Borrower will at all times comply with all of the following
covenants:

3.1  Corporate Existence and Authority.
Borrower, if a corporation, is and will continue to be, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.  Borrower is and will continue to be qualified and licensed to do
business in all jurisdictions in which any failure to do so would have a
material adverse effect on Borrower.  The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (i) have
been duly and validly authorized, (ii) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (iii) do not violate
Borrower's articles or certificate of incorporation, or Borrower's by-laws, or
any law or any  material agreement or instrument which is binding upon Borrower
or its property, and (iv) do not constitute grounds for acceleration of any
material indebtedness or obligation under any material agreement or instrument
which is binding upon Borrower or its property.

3.2  Name; Trade Names and Styles.  The name of
Borrower set forth in the heading to this Agreement is its correct name.  Listed
on the Schedule are all prior names of Borrower and all of Borrower's present
and prior trade names.  Borrower shall give Silicon 30 days' prior written
notice before changing its name or doing business under any other name.
Borrower has complied, and will in the future comply, with all laws relating to
the conduct of business under a fictitious business name.

3.3  Place of Business; Location of Collateral.
 The address set forth in the heading to this Agreement is Borrower's
chief executive office.  In addition, Borrower has places of business and
Collateral is located only at the locations set forth on the Schedule.  Borrower
will give Silicon at least 30 days prior written notice before opening any
additional place of business, changing its chief executive office, or moving any
of the Collateral to a location other than Borrower's Address or one of the
locations set forth on the Schedule.

3.4  Title to Collateral; Permitted Liens.
Borrower is now, and will at all times in the future be, the sole owner of all
the Collateral, except for items of Equipment which are leased by Borrower.  The
Collateral now is and will remain free and clear of any and all liens, charges,
security interests, encumbrances and adverse claims, except for Permitted Liens.
Silicon now has, and will continue to have, a first-priority perfected and
enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend Silicon and the
Collateral against all claims of others.  None of the Collateral now is or will
be affixed to any real property in such a manner, or with such intent, as to
become a fixture.  Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises.  Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise), Borrower shall, whenever requested by Silicon, use
its best efforts to cause such third party to execute and deliver to Silicon, in
form acceptable to Silicon, such waivers and subordinations as Silicon shall
specify, so as to ensure that Silicon's rights in the Collateral are, and will
continue to be, superior to the rights of any such third party.  Borrower will
keep in full force and effect, and will comply with all the terms of, any lease
of real property where any of the Collateral now or in the future may be
located.

3.5  Maintenance of Collateral.  Borrower will
maintain the Collateral in good working condition, and Borrower will not use the
Collateral for any unlawful purpose.  Borrower will immediately advise Silicon
in writing of any material loss or damage to the Collateral.

3.6  Books and Records.  Borrower has
maintained and will maintain at Borrower's Address complete and accurate books
and records, comprising an accounting system in accordance with generally
accepted accounting principles.

3.7  Financial Condition, Statements and
Reports.  All financial statements now or in the future delivered to
Silicon have been, and will be, prepared in conformity with generally accepted
accounting principles and now and in the future will completely and accurately
reflect the financial condition of Borrower, at the times and for the periods
therein stated.  Between the last date covered by any such statement provided to
Silicon and the date hereof, there has been no material adverse change in the
financial condition or business of Borrower.  Borrower is now and will continue
to be solvent.     

3.8  Tax Returns and Payments; Pension
Contributions.  Borrower has timely filed, and will timely file, all tax
returns and reports required by foreign, federal, state and local law, and
Borrower has timely paid, and will timely pay, all foreign, federal, state and
local taxes, assessments, deposits and contributions now or in the future owed
by Borrower.  Borrower may, however, defer payment of any contested taxes,
provided that Borrower (i) in good faith contests Borrower's obligation to pay
the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies Silicon in writing of the commencement of, and any
material development in, the proceedings, and (iii) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon any
of the Collateral.  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 and payable by Borrower.  Borrower has paid, and shall continue to
pay all amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and Borrower has
not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.  Borrower shall, at all times, utilize the services
of an outside payroll service providing for the automatic deposit of all payroll
taxes payable by Borrower.  

3.9  Compliance with Law.  Borrower has
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations relating to Borrower,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.

3.10  Litigation.  Except as disclosed in the
Schedule, there is no claim, suit, litigation, proceeding or investigation
pending or (to best of Borrower's knowledge) threatened by or against or
affecting Borrower in any court or before any governmental agency (or any basis
therefor known to Borrower) which may result, either separately or in the
aggregate, in any material adverse change in the financial condition or business
of Borrower, or in any material impairment in the ability of Borrower to carry
on its business in substantially the same manner as it is now being conducted.
Borrower will promptly inform Silicon in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving any single claim of $50,000 or more, or involving $100,000
or more in the aggregate.

3.11  Use of Proceeds.  All proceeds of all
Loans shall be used solely for lawful business purposes.  Borrower is not
purchasing or carrying any "margin stock" (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of
any Loan will be used to purchase or carry any "margin stock" or to extend
credit to others for the purpose of purchasing or carrying any "margin stock."

4.  Receivables.

4.1  Representations Relating to Receivables. 
Borrower represents and warrants to Silicon as follows:  Each Receivable
with respect to which Loans are requested by Borrower shall, on the date each
Loan is requested and made, (i) represent an undisputed bona fide existing
unconditional obligation of the Account Debtor created by the sale, delivery,
and acceptance of goods or the rendition of services in the ordinary course of
Borrower's business, and (ii) meet the Minimum Eligibility Requirements set
forth in  Section 8 below.

4.2  Representations Relating to Documents and Legal
Compliance.  Borrower represents and warrants to Silicon as follows:
All statements made and all unpaid balances appearing in all invoices,
instruments and other documents evidencing the Receivables are and shall be true
and correct and all such invoices, instruments and other documents and all of
Borrower's books and records are and shall be genuine and in all respects what
they purport to be, and all signatories and endorsers have the capacity to
contract.  All sales and other transactions underlying or giving rise to each
Receivable shall fully comply with all applicable laws and governmental rules
and regulations.  All signatures and endorsements on all documents, instruments,
and agreements relating to all Receivables are and shall be genuine, and all
such documents, instruments and agreements are and shall be legally enforceable
in accordance with their terms.

4.3  Schedules and Documents relating to Receivables.
 Borrower shall deliver to Silicon transaction reports and loan
requests, schedules and assignments of all Receivables, and schedules of
collections, all on Silicon's standard forms; provided, however, that Borrower's
failure to execute and deliver the same shall not affect or limit Silicon's
security interest and other rights in all of Borrower's Receivables, nor shall
Silicon's failure to advance or lend against a specific Receivable affect or
limit Silicon's security interest and other rights therein.  Loan requests
received after 12:00 Noon will not be considered by Silicon until the next
Business Day.  Together with each such schedule and assignment, or later if
requested by Silicon, Borrower shall furnish Silicon with copies (or, at
Silicon's request, originals) of all contracts, orders, invoices, and other
similar documents, and all original shipping instructions, delivery receipts,
bills of lading, and other evidence of delivery, for any goods the sale or
disposition of which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the foregoing.  Borrower shall also furnish to Silicon an
aged accounts receivable trial balance in such form and at such intervals as
Silicon shall  request.  In addition, Borrower shall deliver to Silicon the
originals of all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Receivables, immediately
upon receipt thereof and in the same form as received, with all necessary
indorsements, all of which shall be with recourse.  Borrower shall also provide
Silicon with copies of all credit memos within two days after the date
issued.

4.4  Collection of Receivables.  Borrower shall
have the right to collect all Receivables, unless and until a Default or an
Event of Default has occurred.  Borrower shall hold all payments on, and
proceeds of, Receivables in trust for Silicon, and Borrower shall immediately
deliver all such payments and proceeds to Silicon in their original form, duly
endorsed in blank, to be applied to the Obligations in such order as Silicon
shall determine.  Silicon may, in its discretion, require that all proceeds of
Collateral be deposited by Borrower into a lockbox account, or such other
"blocked account" as Silicon may specify, pursuant to a blocked account
agreement in such form as Silicon may specify.  Silicon or its designee may, at
any time, notify Account Debtors that the Receivables have been assigned to
Silicon.      

4.5.  Remittance of Proceeds.  All proceeds
arising from the disposition of any Collateral shall be delivered, in kind, by
Borrower to Silicon in the original form in which received by Borrower not later
than the following Business Day after receipt by Borrower, to be applied to the
Obligations in such order as Silicon shall determine; provided that, if no
Default or Event of Default has occurred, Borrower shall not be obligated to
remit to Silicon the proceeds of the sale of worn out or obsolete equipment
disposed of by Borrower in good faith in an arm's length transaction for an
aggregate purchase price of $25,000 or less (for all such transactions in any
fiscal year).  Borrower agrees that it will not commingle proceeds of Collateral
with any of Borrower's other funds or property, but will hold such proceeds
separate and apart from such other funds and property and in an express trust
for Silicon.  Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.

4.6  Disputes.  Borrower shall notify Silicon
promptly of all disputes or claims relating to Receivables.  Borrower shall not
forgive (completely or partially), compromise or settle any Receivable for less
than payment in full, or agree to do any of the foregoing, except that Borrower
may do so, provided that: (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Silicon on the regular reports provided to
Silicon; (ii) no Default or Event of Default has occurred and is continuing; and
(iii) taking into account all such discounts settlements and forgiveness, the
total outstanding Loans will not exceed the Credit Limit.  Silicon may, at any
time after the occurrence of an Event of Default, settle or adjust disputes or
claims directly with Account Debtors for amounts and upon terms which Silicon
considers advisable in its reasonable credit judgment and, in all cases, Silicon
shall credit Borrower's Loan account with only the net amounts received by
Silicon in payment of any Receivables.

4.7  Returns.  Provided no Event of Default has
occurred and is continuing, if any Account Debtor returns any Inventory to
Borrower in the ordinary course of its business, Borrower shall promptly
determine the reason for such return and promptly issue a credit memorandum to
the Account Debtor in the appropriate amount (sending a copy to Silicon).  In
the event any attempted return occurs after the occurrence of any Event of
Default, Borrower shall (i) hold the returned Inventory in trust for
Silicon, (ii) segregate all returned Inventory from all of Borrower's other
property, (iii) conspicuously label the returned Inventory as Silicon's
property, and (iv) immediately notify Silicon of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Silicon's request deliver such returned Inventory
to Silicon.  

4.8  Verification.  Silicon may, from time to
time, verify directly with the respective Account Debtors the validity, amount
and other matters relating to the Receivables, by means of mail, telephone or
otherwise, either in the name of Borrower or Silicon or such other name as
Silicon may choose. 

4.9  No Liability.  Silicon shall not under any
circumstances be responsible or liable for any shortage or discrepancy in,
damage to, or loss or destruction of, any goods, the sale or other disposition
of which gives rise to a Receivable, or for any error, act, omission, or delay
of any kind occurring in the settlement, failure to settle, collection or
failure to collect any Receivable, or for settling any Receivable in good faith
for less than the full amount thereof, nor shall Silicon be deemed to be
responsible for any of Borrower's obligations under any contract or agreement
giving rise to a Receivable.  Nothing herein shall, however, relieve Silicon
from liability for its own gross negligence or willful misconduct.

5.  ADDITIONAL DUTIES OF BORROWER.

5.1  Financial and Other Covenants.  Borrower
shall at all times comply with the financial and other covenants set forth in
the Schedule.

5.2  Insurance.  Borrower shall, at all times
insure all of the tangible personal property Collateral and carry such other
business insurance, with insurers reasonably acceptable to Silicon, in such form
and amounts as Silicon may reasonably require, and Borrower shall provide
evidence of such insurance to Silicon, so that Silicon is satisfied that such
insurance is, at all times, in full force and effect.  All such insurance
policies shall name Silicon as an additional loss payee, and shall contain a
lenders loss payee endorsement in form reasonably acceptable to Silicon.  Upon
receipt of the proceeds of any such insurance, Silicon shall apply such proceeds
in reduction of the Obligations as Silicon shall determine in its sole
discretion, except that, provided no Default or Event of Default has occurred
and is continuing, Silicon shall release to Borrower insurance proceeds with
respect to Equipment totaling less than $100,000, which shall be utilized by
Borrower for the replacement of the Equipment with respect to which the
insurance proceeds were paid.  Silicon may require reasonable assurance that the
insurance proceeds so released will be so used.  If Borrower fails to provide or
pay for any insurance, Silicon may, but is not obligated to, obtain the same at
Borrower's expense.  Borrower shall promptly deliver to Silicon copies of all
reports made to insurance companies.

5.3  Reports.  Borrower, at its expense, shall
provide Silicon with the written reports set forth in the Schedule, and such
other written reports with respect to Borrower (including budgets, sales
projections, operating plans and other financial documentation), as Silicon
shall from time to time reasonably specify.

5.4  Access to Collateral, Books and Records.
At reasonable times, and on one Business Day's notice, Silicon, or its agents,
shall have the right to inspect the Collateral, and the right to audit and copy
Borrower's books and records.  Silicon shall take reasonable steps to keep
confidential all information obtained in any such inspection or audit, but
Silicon shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process.  The foregoing inspections and audits shall be at Borrower's expense
and the charge therefor shall be $650 per person per day (or such higher amount
as shall represent Silicon's then current standard charge for the same), plus
reasonable out of pocket expenses.  Borrower will not enter into any agreement
with any accounting firm, service bureau or third party to store Borrower's
books or records at any location other than Borrower's Address, without first
obtaining Silicon's written consent, which may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give Silicon
the same rights with respect to access to books and records and related rights
as Silicon has under  this Loan Agreement.  Borrower waives the benefit of any
accountant-client privilege or other evidentiary privilege precluding or
limiting the disclosure, divulgence or delivery of any of its books and records
(except that Borrower does not waive any attorney-client privilege).  

5.5  Negative Covenants.  Except as may be
permitted in the Schedule, Borrower shall not, without Silicon's prior written
consent, do any of the following:  (i) merge or consolidate with another
corporation or entity; (ii) acquire any assets, except in the ordinary course of
business; (iii) enter into any other transaction outside the ordinary course of
business; (iv) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business; (v) store
any Inventory or other Collateral with any warehouseman or other third party;
(vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or
other contingent basis; (vii) make any loans of any money or other assets;
(viii) incur any debts, outside the ordinary course of business, which would
have a material, adverse effect on Borrower or on the prospect of repayment of
the Obligations; (ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity; (x) pay or declare any dividends on
Borrower's stock (except for dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower's stock; (xii) make any change in Borrower's capital structure which
would have a material adverse effect on Borrower or on the prospect of repayment
of the Obligations; or (xiii) pay total compensation, including salaries, fees,
bonuses, commissions, and all other payments, whether directly or indirectly, in
money or otherwise, to Borrower's executives, officers and directors (or any
relative thereof) in an amount in excess of the amount set forth on the
Schedule; or (xiv) dissolve or elect to dissolve.  Transactions permitted by the
foregoing provisions of this Section are only permitted if no Default or Event
of Default would occur as a result of such transaction.  

5.6  Litigation Cooperation.  Should any third-
party suit or proceeding be instituted by or against Silicon with respect to any
Collateral or in any manner relating to Borrower, Borrower shall, without
expense to Silicon, make available Borrower and its officers, employees and
agents and Borrower's books and records, to the extent that Silicon may deem
them reasonably necessary in order to prosecute or defend any such suit or
proceeding.

5.7  Further Assurances.  Borrower agrees, at
its expense, on request by Silicon, to execute all documents and take all
actions, as Silicon, may deem reasonably necessary or useful in order to perfect
and maintain Silicon's perfected security interest in the Collateral, and in
order to fully consummate the transactions contemplated by this Agreement.

6. TERM.

6.1  Maturity Date.  This Agreement shall continue
in effect until the maturity date set forth on the Schedule (the &quote;Maturity
Date"), subject to Section 6.3 below.

6.2  Early Termination.  This Agreement may be
terminated prior to the Maturity Date as follows:  (i) by Borrower, effective
three Business Days after written notice of termination is given to Silicon; or
(ii) by Silicon at any time after the occurrence of an Event of Default, without
notice, effective immediately.  If this Agreement is terminated by Borrower or
by Silicon under this Section 6.2, Borrower shall pay to Silicon a termination
fee in an amount equal to two percent (2.0%) of the Maximum Credit Limit,
provided that no termination fee shall be charged if the credit facility
hereunder is replaced with a new facility from another division of Silicon
Valley Bank.  The termination fee shall be due and payable on the effective date
of termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations.

6.3  Payment of Obligations.  On the Maturity
Date or on any earlier effective date of termination, Borrower shall pay and
perform in full all Obligations, whether evidenced by installment notes or
otherwise, and whether or not all or any part of such Obligations are otherwise
then due and payable.  Without limiting the generality of the foregoing, if on
the Maturity Date,  or on any earlier effective date of termination, there are
any outstanding Letters of Credit issued by Silicon or issued by another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Silicon, then on such date Borrower shall provide to Silicon cash
collateral in an amount equal to the face amount of all such Letters of Credit
plus all interest, fees and cost due or to become due in connection therewith,
to secure all of the Obligations relating to said Letters of Credit, pursuant to
Silicon's then standard form cash pledge agreement.  Notwithstanding any
termination of this Agreement, all of Silicon's security interests in all of the
Collateral and all of the terms and provisions of this Agreement shall continue
in full force and effect until all Obligations have been paid and performed in
full; provided that, without limiting the fact that Loans are subject to the
discretion of Silicon, Silicon may, in its sole discretion, refuse to make any
further Loans after termination.  No termination shall in any way affect or
impair any right or remedy of Silicon, nor shall any such termination relieve
Borrower of any Obligation to Silicon, until all of the Obligations have been
paid and performed in full.  Upon payment and performance in full of all the
Obligations and termination of this Agreement, Silicon shall promptly deliver to
Borrower termination statements, requests for reconveyances and such other
documents as may be required to fully terminate Silicon's security
interests.

7. EVENTS OF DEFAULT AND REMEDIES.

7.1  Events of Default.  The  occurrence of any of
the following events shall constitute an "Event of Default" under this
Agreement, and Borrower shall give Silicon immediate written notice thereof: (a)
Any warranty, representation, statement, report or certificate made or delivered
to Silicon by Borrower or any of Borrower's officers, employees or agents, now
or in the future, shall be untrue or misleading in a material respect; or (b)
Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation; or (c) the total Loans and other Obligations
outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall
fail to comply with any of the financial covenants set forth in the Schedule or
shall fail to perform any other non-monetary Obligation which by its nature
cannot be cured; or (e) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within 5 Business Days after the date
due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within 10 days after the occurrence of the same; or (g) any default
or event of default occurs under any obligation secured by a Permitted Lien,
which is not cured within any applicable cure period or waived in writing by the
holder of the Permitted Lien; or (h) Borrower breaches any material contract or
obligation, which has or may reasonably be expected to have a material adverse
effect on Borrower's business or financial condition; or (i) Dissolution,
termination of existence, insolvency or business failure of Borrower; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding by Borrower under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding against Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 30 days
after the date commenced; or (k) revocation or termination of, or limitation or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing, or commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (l) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or against
any such third party under any bankruptcy or insolvency law; or (m) Borrower
makes any payment on account of any indebtedness or obligation which has been
subordinated to the Obligations other than as permitted in the applicable
subordination agreement, or if any Person who has subordinated such indebtedness
or obligations terminates or in any way limits his subordination agreement; or
(n) there shall be a change in the record or beneficial ownership of an
aggregate of more than 20% of the outstanding shares of stock of Borrower, in
one or more transactions, compared to the ownership of outstanding shares of
stock of Borrower in effect on the date hereof, without the prior written
consent of Silicon; or (o) Borrower shall generally not pay its debts as they
become due, or Borrower shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a
material adverse change in Borrower's business or financial condition; or (q)
Silicon, acting in good faith and in a commercially reasonable manner, deems
itself insecure because of the occurrence of an event prior to the effective
date hereof of which Silicon had no knowledge on the effective date or because
of the occurrence of an event on or subsequent to the effective date.  Silicon
may cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred.  

7.2  Remedies.  Upon the occurrence of any
Event of Default, and at any time thereafter, Silicon, at its option, and
without notice or demand of any kind (all of which are hereby expressly waived
by Borrower), may do any one or more of the following: (a) Cease making Loans or
otherwise extending credit to Borrower under this Agreement or any other
document or agreement; (b) Accelerate and declare all or any part of the
Obligations to be immediately due, payable, and performable, notwithstanding any
deferred or installment payments allowed by any instrument evidencing or
relating to any Obligation; (c) Take possession of any or all of the Collateral
wherever it may be found, and for that purpose Borrower hereby authorizes
Silicon without judicial process to enter onto any of Borrower's premises
without interference to search for, take possession of, keep, store, or remove
any of the Collateral, and remain on the premises or cause a custodian to remain
on the premises in exclusive control thereof, without charge for so long as
Silicon deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Silicon seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to assemble
any or all of the Collateral and make it available to Silicon at places
designated by Silicon which are reasonably convenient to Silicon and Borrower,
and to remove the Collateral to such locations as Silicon may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral prior to
a disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use Borrower's premises, vehicles, hoists,
lifts, cranes, equipment and all other property without charge; (f) Sell, lease
or otherwise dispose of any of the Collateral, in its condition at the time
Silicon obtains possession of it or after further manufacturing, processing or
repair, at one or more public and/or private sales, in lots or in bulk, for
cash, exchange or other property, or on credit, and to adjourn any such sale
from time to time without notice other than oral announcement at the time
scheduled for sale.  Silicon shall have the right to conduct such disposition on
Borrower's premises without charge, for such time or times as Silicon deems
reasonable, or on Silicon's premises, or elsewhere and the Collateral need not
be located at the place of disposition.  Silicon may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition.  Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse
or sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Silicon's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face value;
(h) Offset against any sums in any of Borrower's general, special or other
Deposit Accounts with Silicon; and (i) Demand and receive possession of any of
Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto.  All reasonable
attorneys' fees, expenses, costs, liabilities and obligations incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.  Without
limiting any of Silicon's rights and remedies, from and after the occurrence of
any Event of Default, the interest rate applicable to the Obligations shall be
increased by an additional four percent per annum.

7.3  Standards for Determining Commercial
Reasonableness.  Borrower and Silicon agree that a sale or other
disposition (collectively, "sale") of any Collateral which complies
with the following standards will conclusively be deemed to be commercially
reasonable:  (i) Notice of the sale is given to Borrower at least seven days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same.  Silicon shall be
free to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.

7.4  Power of Attorney.  Upon the occurrence of
any Event of Default, without limiting Silicon's other rights and remedies,
Borrower grants to Silicon an irrevocable power of attorney coupled with an
interest, authorizing and permitting Silicon (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Silicon agrees
to exercise the following powers in a commercially reasonable manner:  (a)
Execute on behalf of Borrower any documents that Silicon may, in its sole
discretion, deem advisable in order to perfect and maintain Silicon's security
interest in the Collateral, or in order to exercise a right of Borrower or
Silicon, or in order to fully consummate all the transactions contemplated under
this Agreement, and all other present and future agreements; (b) Execute on
behalf of Borrower any document exercising, transferring or assigning any option
to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any
real or personal property which is part of Silicon's Collateral or in which
Silicon has an interest; (c) Execute on behalf of Borrower, any invoices
relating to any Receivable, any draft against any Account Debtor and any notice
to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien,
claim of mechanic's, materialman's or other lien, or assignment or satisfaction
of mechanic's, materialman's or other lien; (d) Take control in any manner of
any cash or non-cash items of payment or proceeds of Collateral; endorse the
name of Borrower upon any instruments, or documents, evidence of payment or
Collateral that may come into Silicon's possession; (e) Endorse all checks and
other forms of remittances received by Silicon; (f) Pay, contest or settle any
lien, charge, encumbrance, security interest and adverse claim in or to any of
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle Receivables and General Intangibles for less than face value
and execute all releases and other documents in connection therewith; (h) Pay
any sums required on account of Borrower's taxes or to secure the release of any
liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Silicon the same rights
of access and other rights with respect thereto as Silicon has under this
Agreement; and (k) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other present or future agreements.  Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and attorneys' fees incurred by Silicon with respect to the
foregoing shall be added to and become part of the Obligations, shall be payable
on demand, and shall bear interest at a rate equal to the highest interest rate
applicable to any of the Obligations.  In no event shall Silicon's rights under
the foregoing power of attorney or any of Silicon's other rights under this
Agreement be deemed to indicate that Silicon is in control of the business,
management or properties of Borrower.

7.5  Application of Proceeds.  All proceeds
realized as the result of any sale of the Collateral shall be applied by Silicon
first to the reasonable costs, expenses, liabilities, obligations and attorneys'
fees incurred by Silicon in the exercise of its rights under this Agreement,
second to the interest due upon any of the Obligations, and third to the
principal of the Obligations, in such order as Silicon shall determine in its
sole discretion.  Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Silicon for any deficiency.
If, Silicon, in its sole discretion, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Silicon shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Silicon of the cash therefor.

7.6  Remedies Cumulative.  In addition to the
rights and remedies set forth in this Agreement, Silicon shall have all the
other rights and remedies accorded a secured party under the California Uniform
Commercial Code and under all other applicable laws, and under any other
instrument or agreement now or in the future entered into between Silicon and
Borrower, and all of such rights and remedies are cumulative and none is
exclusive.  Exercise or partial exercise by Silicon of one or more of its rights
or remedies shall not be deemed an election, nor bar Silicon from subsequent
exercise or partial exercise of any other rights or remedies.  The failure or
delay of Silicon to exercise any rights or remedies shall not operate as a
waiver thereof, but all rights and remedies shall continue in full force and
effect until all of the Obligations have been fully paid and performed.

8. Definitions.  As used in this Agreement, the following terms
have the following meanings:

"Account Debtor" means the obligor on a
Receivable.

"Affiliate" means, with respect to any
Person, a relative, partner, shareholder, director, officer, or employee of such
Person, or any parent or subsidiary of such Person, or any Person controlling,
controlled by or under common control with such Person.

"Business Day" means a day on which Silicon is open
for business.

"Code" means the Uniform Commercial Code as
adopted and in effect in the State of California  from time to time. 

"Collateral" has the meaning set forth in
Section 2.1 above.

"Default" means any event which with notice
or passage of time or both, would constitute an Event of Default.

"Deposit Account" has the meaning set forth in Section
9102 of the Code.

 "Eligible Receivables" means Receivables
arising in the ordinary course of Borrower's business from the sale of goods or
rendition of services, which Silicon, in its sole judgment, shall deem eligible
for borrowing, based on such considerations as Silicon may from time to time
deem appropriate.  Without limiting the fact that the determination of which
Receivables are eligible for borrowing is a matter of Silicon's discretion, the
following (the "Minimum Eligibility Requirements") are the
minimum requirements for a Receivable to be  an Eligible Receivable:  (i) the
Receivable must not be outstanding for more than 90 days from its invoice date,
(ii) the Receivable must not represent progress billings, or be due under a
fulfillment or requirements contract with the Account Debtor, (iii) the
Receivable must not be subject to any contingencies (including Receivables
arising from sales on consignment, guaranteed sale or other terms pursuant to
which payment by the Account Debtor may be conditional), (iv) the Receivable
must not be owing from an Account Debtor with whom Borrower has any dispute
(whether or not relating to the particular Receivable), (v) the Receivable must
not be owing from an Affiliate of Borrower, (vi) the Receivable must not be
owing from an Account Debtor which is subject to any insolvency or bankruptcy
proceeding, or whose financial condition is not acceptable to Silicon, or which,
fails or goes out of a material portion of its business, (vii) the Receivable
must not be owing from the United States or any department, agency or
instrumentality thereof (unless there has been compliance, to Silicon's
satisfaction, with the United States Assignment of Claims Act), (viii) the
Receivable must not be owing from an Account Debtor located outside the United
States or Canada (unless pre-approved by Silicon in its discretion in writing,
or backed by a letter of credit satisfactory to Silicon, or FCIA insured
satisfactory to Silicon),  (ix) the Receivable must not be owing from an Account
Debtor to whom Borrower is or may be liable for goods purchased from such
Account Debtor or otherwise. Receivables owing from one Account Debtor will not
be deemed Eligible Receivables to the extent they exceed 25% of the total
Receivables outstanding.  In addition, if more than 50% of the Receivables owing
from an Account Debtor are outstanding more than 90 days from their
invoice date (without regard to unapplied credits) or are otherwise not eligible
Receivables, then all Receivables owing from that Account Debtor will be deemed
ineligible for borrowing.  Silicon may, from time to time, in its discretion,
revise the Minimum Eligibility Requirements, upon written notice to
Borrower.

"Equipment" means all of Borrower's present and
hereafter acquired machinery, molds, machine tools, motors, furniture,
equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts,
dyes, jigs, goods and other tangible personal property (other than Inventory) of
every kind and description used in Borrower's operations or owned by Borrower
and any interest in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to any of the
foregoing, wherever located.

"Event of Default" means any of the events set forth
in Section 7.1 of this Agreement.

"General Intangibles" means all general intangibles of
Borrower, whether now owned or hereafter created or acquired by Borrower,
including, without limitation, all choses in action, causes of action, corporate
or other business records, Deposit Accounts, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security  and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Silicon, rights
to purchase or sell real or personal property, rights as a licensor or licensee
of any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than
Receivables).

"Inventory" means all of Borrower's now owned and
hereafter acquired goods, merchandise or other personal property, wherever
located, to be furnished under any contract of service or held for sale or lease
(including without limitation all raw materials, work in process, finished goods
and goods in transit), and all materials and supplies of every kind, nature and
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
warehouse receipts, documents of title and other documents representing any of
the foregoing.

"Obligations" means all present and future Loans,
advances, debts, liabilities, obligations, guaranties, covenants, duties and
indebtedness at any time owing by Borrower to Silicon, whether evidenced by this
Agreement or any note or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, banker's acceptance, loan,
guaranty, indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by
Silicon in Borrower's debts owing to others), absolute or contingent, due or to
become due, including, without limitation, all interest, charges, expenses,
fees, attorney's fees, expert witness fees, audit fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, termination fees,
minimum interest charges and any other sums chargeable to Borrower under this
Agreement or under any other present or future instrument or agreement between
Borrower and Silicon.

"Permitted Liens" means the following:  (i) purchase
money security interests in specific items of Equipment; (ii) leases of specific
items of Equipment; (iii) liens for taxes not yet payable; (iv) additional
security interests and liens consented to in writing by Silicon, which consent
shall not be unreasonably withheld; (v) security interests being terminated
substantially concurrently with this Agreement; (vi) liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the
ordinary course of business and securing obligations which are not delinquent;
(vii) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (i) or (ii) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; (viii) Liens in favor of customs and revenue authorities which
secure payment of customs duties in connection with the importation of goods.
Silicon will have the right to require, as a condition to its consent under
subparagraph (iv) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Silicon's then standard form,
acknowledge that the security interest is subordinate to the security interest
in favor of Silicon, and agree not to take any action to enforce its subordinate
security interest so long as any Obligations remain outstanding, and that
Borrower agree that any uncured default in any obligation secured by the
subordinate security interest shall also constitute an Event of Default under
this Agreement.  

"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, government, or any agency or political division thereof, or any
other entity.

"Receivables" means all of Borrower's now owned and
hereafter acquired accounts (whether or not earned by performance), letters of
credit, contract rights, chattel paper, instruments, securities, securities
accounts, investment property, documents and all other forms of obligations at
any time owing to Borrower, all guaranties and other security therefor, all
merchandise returned to or repossessed by Borrower, and all rights of stoppage
in transit and all other rights or remedies of an unpaid vendor, lienor or
secured party.

"Reserves" means, as of any date of determination,
such amounts as Silicon may from time to time establish and revise in good faith
reducing the amount of Loans, Letters of Credit and other financial
accommodations which would otherwise be available to Borrower under the lending
formula(s) provided in the Schedule:  (a) to reflect events, conditions,
contingencies or risks which, as determined by Silicon in good faith, do or may
affect (i) the Collateral or any other property which is security for the
Obligations or its value (including without limitation any increase in
delinquencies of Receivables), (ii) the assets, business or prospects of
Borrower or any Guarantor, or (iii) the security interests and other rights of
Silicon in the Collateral (including the enforceability, perfection and priority
thereof); or (b) to reflect Silicon's good faith belief that any collateral
report or financial information furnished by or on behalf of Borrower or any
Guarantor to Silicon is or may have been incomplete, inaccurate or misleading in
any material respect; or (c) in respect of any state of facts which Silicon
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default.

Other Terms.  All accounting terms used in this
Agreement, unless otherwise indicated, shall have the meanings given to such
terms in accordance with generally accepted accounting principles, consistently
applied.  All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein. 

9. GENERAL PROVISIONS.

9.1  Interest Computation.  In computing interest
on the Obligations, all checks, wire transfers and other items of payment
received by Silicon (including proceeds of Receivables and payment of the
Obligations in full) shall be deemed applied by Silicon on account of the
Obligations three Business Days after receipt by Silicon of immediately
available funds, and, for purposes of the foregoing, any such funds received
after 12:00 Noon on any day shall be deemed received on the next Business Day.
Silicon shall not, however, be required to credit Borrower's account for the
amount of any item of payment which is unsatisfactory to Silicon in its sole
discretion, and Silicon may charge Borrower's loan account for the amount of any
item of payment which is returned to Silicon unpaid.  

9.2  Application of Payments.  All payments
with respect to the Obligations may be applied, and in Silicon's sole discretion
reversed and re-applied, to the Obligations, in such order and manner as Silicon
shall determine in its sole discretion.

9.3  Charges to Accounts.  Silicon may, in its
discretion, require that Borrower pay monetary Obligations in cash to Silicon,
or charge them to Borrower's Loan account, in which event they will bear
interest at the same rate applicable to the Loans.  Silicon may also, in its
discretion, charge any monetary Obligations to Borrower's Deposit Accounts
maintained with Silicon.

9.4  Monthly Accountings.  Silicon shall
provide Borrower monthly with an account of advances, charges, expenses and
payments made pursuant to this Agreement.  Such account shall be deemed correct,
accurate and binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by
Silicon), unless Borrower notifies Silicon in writing to the contrary within
thirty days after each account is rendered, describing the nature of any alleged
errors or admissions.

9.5  Notices.  All notices to be given under
this Agreement shall be in writing and shall be given either personally or by
reputable private delivery service or by regular first-class mail, or certified
mail return receipt requested, addressed to Silicon or Borrower at the addresses
shown in the heading to this Agreement, or at any other address designated in
writing by one party to the other party.  Notices to Silicon shall be directed
to the Commercial Finance Division, to the attention of the Division Manager or
the Division Credit Manager.  All notices shall be deemed to have been given
upon delivery in the case of notices personally delivered, or at the expiration
of one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.  

9.6  Severability.  Should any provision of
this Agreement be held by any court of competent jurisdiction to be void or
unenforceable, such defect shall not affect the remainder of this Agreement,
which shall continue in full force and effect.

9.7  Integration.  This Agreement and such
other written agreements, documents and instruments as may be executed in
connection herewith are the final, entire and complete agreement between
Borrower and Silicon and supersede all prior and contemporaneous negotiations
and oral representations and agreements, all of which are merged and integrated
in this Agreement.  There are no oral understandings, representations or
agreements between the parties which are not set forth in this Agreement or in
other written agreements signed by the parties in connection herewith.

9.8  Waivers.  The failure of Silicon at
any time or times to require Borrower to strictly comply with any of the
provisions of this Agreement or any other present or future agreement between
Borrower and Silicon shall not waive or diminish any right of Silicon later to
demand and receive strict compliance therewith.  Any waiver of any default shall
not waive or affect any other default, whether prior or subsequent, and whether
or not similar.  None of the provisions of this Agreement or any other agreement
now or in the future executed by Borrower and delivered to Silicon shall be
deemed to have been waived by any act or knowledge of Silicon or its agents or
employees, but only by a specific written waiver signed by an authorized officer
of Silicon and delivered to Borrower.  Borrower waives demand, protest, notice
of protest and notice of default or dishonor, notice of payment and nonpayment,
release, compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.  

9.9  No Liability for Ordinary Negligence.
Neither Silicon, nor any of its directors, officers, employees, agents,
attorneys or any other Person affiliated with or representing Silicon shall be
liable for any claims, demands, losses or damages, of any kind whatsoever, made,
claimed, incurred or suffered by Borrower or any other party through the
ordinary negligence of Silicon, or any of its directors, officers, employees,
agents, attorneys or any other Person affiliated with or representing Silicon,
but nothing herein shall relieve Silicon from liability for its own gross
negligence or willful misconduct.

9.10  Amendment.  The terms and provisions of
this Agreement may not be waived or amended, except in a writing executed by
Borrower and a duly authorized officer of Silicon.

9.11  Time of Essence.  Time is of the essence
in the performance by Borrower of each and every obligation under this
Agreement.

9.12  Attorneys Fees and Costs.  Borrower shall
reimburse Silicon for all reasonable attorneys' fees and all filing, recording,
search, title insurance, appraisal, audit, and other reasonable costs incurred
by Silicon, pursuant to, or in connection with, or relating to this Agreement
(whether or not a lawsuit is filed), including, but not limited to, any
reasonable attorneys' fees and costs Silicon incurs in order to do the
following: prepare and negotiate this Agreement and the documents relating to
this Agreement; obtain legal advice in connection with this Agreement or
Borrower; enforce, or seek to enforce, any of its rights; prosecute actions
against, or defend actions by, Account Debtors; commence, intervene in, or
defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect any
of the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Silicon's security
interest in, the Collateral; and otherwise represent Silicon in any litigation
relating to Borrower.  In satisfying Borrower's obligation hereunder to
reimburse Silicon for attorneys fees, Borrower may, for convenience, issue
checks directly to Silicon's attorneys, Levy, Small & Lallas, but Borrower
acknowledges and agrees that Levy, Small & Lallas is representing only
Silicon and not Borrower in connection with this Agreement.  If either
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment.  All attorneys' fees
and costs to which Silicon may be entitled pursuant to this Paragraph shall
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.

9.13  Benefit of Agreement.  The provisions of
this Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, heirs, beneficiaries and representatives of Borrower and
Silicon; provided, however, that Borrower may not assign or transfer any of its
rights under this Agreement without the prior written consent of Silicon, and
any prohibited assignment shall be void.  No consent by Silicon to any
assignment shall release Borrower from its liability for the Obligations.

9.14  Joint and Several Liability.  If Borrower
consists of more than one Person, their liability shall be joint and several,
and the compromise of any claim with, or the release of, any Borrower shall not
constitute a compromise with, or a release of, any other Borrower.

9.15  Limitation of Actions.  Any claim or
cause of action by Borrower against Silicon, its directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Loan Agreement, or any other present or future document or agreement, or any
other transaction contemplated hereby or thereby or relating hereto or thereto,
or any other matter, cause or thing whatsoever, occurred, done, omitted or
suffered to be done by Silicon, its directors, officers, employees, agents,
accountants or attorneys, shall be barred unless asserted by Borrower by the
commencement of an action or proceeding in a court of competent jurisdiction by
the filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof, is
based, and the service of a summons and complaint on an officer of Silicon, or
on any other person authorized to accept service on behalf of Silicon, within
thirty (30) days thereafter.  Borrower agrees that such one-year period is a
reasonable and sufficient time for Borrower to investigate and act upon any such
claim or cause of action.  The one-year period provided herein shall not be
waived, tolled, or extended except by the written consent of Silicon in its sole
discretion.  This provision shall survive any termination of this Loan Agreement
or any other present or future agreement.

9.16  Paragraph Headings; Construction.
Paragraph headings are only used in this Agreement for convenience.  Borrower
and Silicon acknowledge that the headings may not describe completely the
subject matter of the applicable paragraph, and the headings shall not be used
in any manner to construe, limit, define or interpret any term or provision of
this Agreement.  The term "including", whenever used in this
Agreement, shall mean "including (but not limited to)".  This
Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Silicon or Borrower under any rule of construction or
otherwise.

9.17  Governing Law; Jurisdiction; Venue.  This
Agreement and all acts and transactions hereunder and all rights and obligations
of Silicon and Borrower shall be governed by the laws of the State of
California.  As a material part of the consideration to Silicon to enter into
this Agreement, Borrower (i) agrees that all actions and proceedings relating
directly or indirectly to this Agreement shall, at Silicon's option, be
litigated in courts located within California, and that the exclusive venue
therefor shall be Santa Clara County; (ii) consents to the jurisdiction and
venue of any such court and consents to service of process in any such action or
proceeding by personal delivery or any other method permitted by law; and (iii)
waives any and all rights Borrower may have to object to the jurisdiction of any
such court, or to transfer or change the venue of any such action or
proceeding.

9.18  Mutual Waiver of Jury Trial.  Borrower and
Silicon each hereby waive the right to trial by jury in any action or proceeding
based upon, arising out of, or in any way relating to, this Agreement or any
other present or future instrument or agreement between Silicon and Borrower, or
any conduct, acts or omissions of Silicon or Borrower or any of their directors,
officers, employees, agents, attorneys or any other persons affiliated with
Silicon or Borrower, in all of the foregoing cases, whether sounding in contract
or tort or otherwise.

Borrower:
Sigma Designs, Inc.

 

By _________________________

President or Vice President

By _________________________

Secretary or Ass't Secretary

Silicon:

SILICON VALLEY BANK

 

By _________________________

Title _______________________

Form 3/24/99

Version -1

 

 

 

Silicon Valley Bank 

Schedule to 

Loan and Security Agreement

Borrower:Sigma Designs, Inc.

Address:355 Fairview Way

Milpitas, California  95035

Date:September 7, 2001

This Schedule forms an integral part of the Loan and
Security Agreement between Silicon Valley Bank and the above-borrower of even
date.  

 

	
1. 

	
CREDIT LIMIT 

(Section 1.1):

	
An amount not to exceed the lesser of:
$18,000,000 at any one time outstanding (the "Maximum Credit
Limit"); or the sum of (a) and (b) below:

(a)Receivable Line.  Loans (the "Receivable Loans") in
an amount not to exceed the lesser of (i) $6,000,000, or (ii) 80%
(the "Advance Rate") of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above), provided that the Advance Rate with
respect to Eligible Receivables owing from Ingram Micro shall be 25%; plus

(b)Securities Secured Line.  Loans (the "Securities Secured
Loans") in an amount not to exceed the lesser of (i) $12,000,000, or
(ii) 100% of the purchase price of the following (the "Credit
Support Securities"): (A) three-month United States Treasury Bills
purchased through and maintained with Silicon's Treasury Department or (B) 90-
day commercial paper acceptable to Silicon in its good faith business judgment
and purchased through and maintained with Silicon's Treasury Department.
Borrower may elect whether to provide Credit Support Securities under clause (A)
or (B) above, but only one or the other may be utilized at any one time.

All Loans will be made first under the Securities Secured Line until the
total of the Securities Secured Loans outstanding is $12,000,000, and
thereafter, to the extent available, Loans will be made under the Receivable
Line.  All payments and principal reductions in Loans shall be applied first to
the outstanding balance of the Receivable Loans until they have been paid in
full, and then to the outstanding balance of the Securities Secured Loans,
provided that, after the occurrence of an Event of Default payments and
principal reductions may be applied in such manner as Silicon shall determine in
its discretion.

	
	
Letter of Credit Sublimit

(Section 1.5):

	$1,000,000 

		
Cash Management 

Services and Reserves: 

	
Borrower may use up to $75,000 of Loans
available hereunder for Silicon's Cash Management Services (as defined below),
including, merchant services, business credit card, ACH and other services
identified in the cash management services agreement related to such service
(the "Cash Management Services").  Silicon may, in its sole
discretion, reserve against Loans which would otherwise be available hereunder
such sums as Silicon shall determine in connection with the Cash Management
Services, and Silicon may charge to Borrower's Loan account, any amounts that
may become due or owing to Silicon in connection with the Cash Management
Services.  Borrower agrees to execute and deliver to Silicon all standard form
applications and agreements of Silicon in connection with the Cash Management
Services, and, without limiting any of the terms of such applications and
agreements, Borrower will pay all standard fees and charges of Silicon in
connection with the Cash Management Services.  The Cash Management Services
shall terminate on the Maturity Date.

	
2.
	
INTEREST.

Interest Rate

(Section 1.2):

	

The Receivable Loans and all other monetary Obligations (other than the
Securities Secured Loans) shall bear interest at a rate equal to the "Prime
Rate" in effect from time to time, plus 2% per annum. 

The Securities Secured Loans shall bear interest at a rate equal to the
interest rate on the applicable Credit Support Securities plus 0.85% per
annum.

Interest shall be calculated on the basis of a 360-day year for the
actual number of days elapsed.  

"Prime Rate" means the rate announced from time to time by Silicon as its
"prime rate;" it is a base rate upon which other rates charged by
Silicon are based, and it is not necessarily the best rate available at Silicon.
The interest rate based on the Prime Rate shall change on each date there is a
change in the Prime Rate.

	
	
Minimum Monthly Interest 

(Section 1.2):

	
None.

	 

	
3.
	
FEES (Section 1.4): 

loan Fee:

	

$30,000, payable concurrently herewith, plus (i) an
additional loan fee of $10,000 if the Borrower does not have net income
(determined in accordance with generally accepted accounting principles) for the
fiscal quarter ending October 31, 2001, which fee shall be payable on or before
November 30, 2001, plus (ii) an additional loan fee of $15,000 if the Borrower
does not have net income (determined in accordance with generally accepted
accounting principles) for the fiscal quarter ending January 31, 2002, which fee
shall be payable on or before February 28, 2002.   

	
	
Collateral Monitoring Fee:

	

$1,000 per month, per month, payable in arrears (prorated for any
partial month at the beginning and at termination of this Agreement).

	 

	
4.
	
MATURITY DATE 

(Section 6.1):
	
October 31, 2002.
	 

	
5.
	
FINANCIAL COVENANTS 

(Section 5.1):
	
Borrower shall comply with each of the following
covenant(s).  Compliance shall be determined as of the end of each month, except
as otherwise specifically provided below: 

	
	
Minimum Tangible 

Net Worth:

	

Borrower shall maintain a Tangible Net Worth of not
less than 

(i)$13,000,000 commencing July 31, 2001 and continuing as of the end of each
succeeding month to and including December 31, 2001; and

(ii)$15,000,000 commencing January 31, 2002 and continuing as of the end of each
succeeding month thereafter.

The foregoing Tangible Net Worth amounts set forth in clauses (i) and (ii)
above shall be increased by an amount equal to 50% of the total consideration
received by Borrower after July 31, 2001, in consideration for the issuance by
the Borrower of its equity securities and subordinated debt securities,
effective on the date such consideration is received.

		
Definitions.

	

For purposes of the foregoing financial covenants,
the following term shall have the following meaning: "Tangible Net
Worth" shall mean the excess of total assets over total liabilities,
determined in accordance with generally accepted accounting principles, 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 generally accepted accounting principles, including without limitation
goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized
software and organizational costs, licenses and franchises

(B) there shall be excluded from liabilities:  all indebtedness which
is subordinated to the Obligations under a subordination agreement in form
specified by Silicon or by language in the instrument evidencing the
indebtedness which is acceptable to Silicon in its discretion.

	 

	
6.
	
REPORTING. 

(Section 5.3):

	

Borrower shall provide Silicon with the following:

	
Monthly Receivable agings, aged by invoice date, within fifteen days
after the end of each month.

	
Monthly accounts payable agings, aged by invoice date, and outstanding
or held check registers, if any, within fifteen days after the end of each
month. 

	
Monthly reconciliations of Receivable agings (aged by invoice date),
transaction reports, and general ledger, within fifteen days after the end of
each month. 

	
Monthly perpetual inventory reports for the Inventory valued on a
first-in, first-out basis at the lower of cost or market (in accordance with
generally accepted accounting principles) or such other inventory reports as are
reasonably requested by Silicon, all within fifteen days after the end of each
month. 

	
Monthly unaudited financial statements, as soon as available, and in
any event within thirty days after the end of each month. 

	
Monthly Compliance Certificates, within thirty days after the end of
each month, in such form as Silicon shall reasonably specify, signed by the
Chief Financial Officer of Borrower, 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 Silicon
shall reasonably request, including, without limitation, a statement that at the
end of such month there were no held checks.

	
Quarterly unaudited financial statements, as soon as available, and in
any event within forty-five days after the end of each fiscal quarter of
Borrower.

	
Annual operating budgets (including income statements, balance sheets
and cash flow statements, by month) for the upcoming fiscal year of Borrower
within thirty days prior to the end of each fiscal year of Borrower.  

	
Annual financial statements, as soon as available, and in any event
within 120 days following the end of Borrower's fiscal year, certified by
independent certified public accountants acceptable to Silicon.

	 

	
7.
	

COMPENSATION

(Section 5.5):

	
 

Without Silicon's prior written consent, Borrower shall
not pay total compensation, including salaries, withdrawals, fees, bonuses,
commissions, drawing accounts and other payments, whether directly or
indirectly, in money or otherwise, during any fiscal year to all of Borrower's
executives, officers and directors (or any relative thereof) as a group in
excess of 115% of the total amount thereof in the prior fiscal year. 

	 

	
8.
	

BORROWER INFORMATION:

Prior Names of 

Borrower 

(Section 3.2):

	None

	
	
Prior Trade 

Names of Borrower  

(Section 3.2):

	None

		
Existing Trade 

Names of Borrower  

(Section 3.2):

	None

		
Other Locations and 

Addresses (Section 3.3):

	 
See Exhibit A hereto 

		
Material Adverse 

Litigation (Section 3.10):

	
None

	 

	
9.
	
OTHER COVENANTS

(Section 5.1):
	
 Borrower shall at all times comply with all of the
following additional covenants:

(1)Banking Relationship.  Borrower shall at all times maintain its
primary banking relationship with Silicon.  Without limiting the generality of
the foregoing, Borrower shall, at all times, maintain not less than 70% of its
total cash and investments on deposit with Silicon. As to any Deposit Accounts
and investment accounts maintained with another institution, Borrower shall
cause such institution, within 10 days after the date of this Loan Agreement, to
enter into a control agreement in form acceptable to Silicon in its good faith
business judgment in order to perfect Silicon's security interest in said
Deposit Accounts and investment accounts.

 (2) Subordination of Inside Debt.  All present and future
indebtedness of Borrower to its officers, directors and shareholders
("Inside Debt") shall, at all times, be subordinated to the
Obligations pursuant to a subordination agreement on Silicon's standard form.
Borrower represents and warrants that there is no Inside Debt presently
outstanding.  Prior to incurring any Inside Debt in the future, Borrower shall
cause the person to whom such Inside Debt will be owed to execute and deliver to
Silicon a subordination agreement on Silicon's standard form.

 

	
Borrower:

Sigma Designs, Inc.

 

By_______________________________

President or Vice President

By_______________________________

Secretary or Ass's Secretary
	
Silicon:

SILICON VALLEY BANK

 

By_______________________________

Title_____________________________

 

 

 

 

 

 

 

Silicon Valley
Bank 

Amendment
to Loan Documents

Borrower:Sigma Designs, Inc.

Address:355 Fairview Way

Milpitas, California  95035

Date:September 13, 2001

THIS AMENDMENT
TO LOAN DOCUMENTS is entered into between Silicon Valley Bank
("Silicon") and the borrower named above ("Borrower").

The Parties agree to amend the Loan and Security Agreement
between them, dated September 7, 2001 (the "Loan Agreement"), as
follows, effective as of the date hereof.  (Capitalized terms used but not
defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.)

1.Collections.  The portion of Section 1 of the
Schedule, which presently reads as follows:
"All payments and principal reductions in Loans shall be
applied first to the outstanding balance of the Receivable Loans until they have
been paid in full, and then to the outstanding balance of the Securities Secured
Loans, provided that, after the occurrence of an Event of Default payments and
principal reductions may be applied in such manner as Silicon shall determine in
its discretion."

 is hereby amended in its entirety to read as
follows:
"All payments and principal reductions in Loans shall be
applied first to the outstanding balance of the Receivable Loans until they have
been paid in full, and then to the outstanding balance of the Securities Secured
Loans, provided that: (i) payments on, and proceeds of, Receivables remitted by
Borrower to Silicon pursuant to Section 4.4 of this Loan Agreement shall be
applied first to the outstanding balance of the Receivable Loans until they have
been paid in full, and thereafter shall be released to the Borrower, provided at
the time of such release no Event of Default and no event which, with notice or
time or both, would constitute an Event of Default has occurred and is
continuing; and (ii) after the occurrence of an Event of Default or an event
which, with notice or time or both, would constitute an Event of Default,
payments and principal reductions may be applied in such manner as Silicon shall
determine in its discretion."

2.Representations True.  Borrower represents and
warrants to Silicon that all representations and warranties set forth in the
Loan Agreement, as amended hereby, are true and correct.  

3.General Provisions.  This Amendment, the
Loan Agreement, any prior written amendments to the Loan Agreement signed by
Silicon and Borrower, and the other written documents and agreements between
Silicon and Borrower set forth in full all of the representations and agreements
of the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof.  Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Silicon and Borrower shall continue in full force and effect
and the same are hereby ratified and confirmed.  

	Borrower:

SIGMA DESIGNS, INC.

 

By____________________________

President or Vice President

By____________________________

Secretary or Ass't Secretary

	Silicon:

SILICON VALLEY BANK

 

By____________________________

Title__________________________

 

 

 

Silicon Valley Bank 

Amendment to Loan Documents

Borrower:Sigma Designs, Inc.

Address:355 Fairview Way

Milpitas, California  95035

Date:January 22, 2002

THIS AMENDMENT TO LOAN DOCUMENTS is entered into
between Silicon Valley Bank ("Silicon") and the borrower named above
("Borrower").

The Parties agree to amend the Loan and Security Agreement
between them, dated September 7, 2001 (the "Loan Agreement"), as
follows, effective as of the date hereof.  (Capitalized terms used but not
defined in this Amendment, shall have the meanings set forth in the Loan
Agreement.)

1.Receivable Line.  Subsection (a) -
"Receivable Line" - of Section 1 - "Credit Limit" of the
Schedule to the Loan Agreement is hereby amended in its entirety to read as
follows: 
(a)  Receivable Line.  Loans (the "Receivable
Loans") in an amount not to exceed the lesser of (i) $6,000,000, or
(ii) 70% (the "Advance Rate") of the amount of Borrower's
Eligible Receivables (as defined in Section 8 above); plus

2.Eligible Ingram Micro Receivables.  The
definition of "Eligible Receivables" contained in Section 8 of the
Loan Agreement is hereby amended to add a clause "x" to the end of the
second sentence of said definition, which clause shall read as follows:
. . ., (x)  Receivables
owing from Ingram Micro will not be deemed Eligible Receivables to the extent
they exceed the lesser of $1,000,000 or 35% of the total amount of Borrower's
Eligible Receivables.

3.Minimum Tangible Net Worth.  The
"Minimum Tangible Net Worth" portion of Section 5 of the Schedule to
the Loan Agreement is hereby amended in its entirety to read as
follows:
Borrower shall maintain a Tangible Net Worth of not less than 

(i)$11,500,000 as of January 31, 2002; and

(ii)$10,500,000 commencing February 28, 2002 and continuing as of the end
of each succeeding month to and including April 30, 2002; and 

(iii)$9,500,000 commencing May 31, 2002 and continuing as of the end of
each succeeding month to and including July 31, 2002; and

(iv)$8,500,000 commencing August 31, 2002 and continuing as of the end of
each succeeding month thereafter.

4.Additional Reporting Requirement.  Section 6 -
Reporting - of the Schedule to the Loan Agreement is hereby amended to add an
additional item 10 thereto, which shall read as follows:
Within 30 days following
the end of each month, Borrower shall cause Ingram Micro and such other Account
Debtors as Silicon shall from time to time request, to provide Silicon with a
Sell-Through Report, in form satisfactory to Silicon. 

5.Fee.  In consideration for Silicon
entering into this Amendment, Borrower shall concurrently pay Silicon a fee in
the amount of $3,000, which shall be non-refundable and in addition to all
interest and other fees payable to Silicon under the Loan Agreement and any
other agreements executed in connection therewith.  Silicon is authorized to
charge said fee to Borrower's loan account.

6.Representations True.  Borrower represents and
warrants to Silicon that all representations and warranties set forth in the
Loan Agreement, as amended hereby, are true and correct.  

7.General Provisions.  This Amendment, the
Loan Agreement, any prior written amendments to the Loan Agreement signed by
Silicon and Borrower, and the other written documents and agreements between
Silicon and Borrower set forth in full all of the representations and agreements
of the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof.  Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Silicon and Borrower shall continue in full force and effect
and the same are hereby ratified and confirmed.  

	Borrower:

SIGMA DESIGNS, INC.

 

By____________________________

President or Vice President

By____________________________

Secretary or Ass't Secretary

	Silicon:

SILICON VALLEY BANK

 

By____________________________

Title__________________________

 

 

 

Silicon Valley Bank 

Amendment to Loan Documents

Borrower:Sigma Designs, Inc.

Address:355 Fairview Way

Milpitas, California  95035

Date:April 17, 2002

THIS AMENDMENT TO LOAN DOCUMENTS is entered into
between Silicon Valley Bank ("Silicon") and the borrower named above
("Borrower").

The Parties agree to amend the Loan and Security Agreement
between them, dated September 7, 2001 (as previously amended from time to time,
the "Loan Agreement"), as follows, effective as of the date hereof
(unless an amendment set forth below is expressly made effective as of another
date).  (Capitalized terms used but not defined in this Amendment, shall have
the meanings set forth in the Loan Agreement.)

1.Amendment to Credit Limit.  Section 1 -
"Credit Limit" of the Schedule to the Loan Agreement is hereby amended
in its entirety to read as follows:  
An amount not to exceed the lesser of: $18,000,000 at any one time
outstanding (the "Maximum Credit Limit"); or the sum of (a) and (b)
below:
(a)Receivable Line.  Loans (the "Receivable Loans") in
an amount not to exceed the lesser of (i) $6,000,000, or (ii) 70%
(the "Advance Rate") of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above); plus

(b)Securities Secured Line.  Loans (the "Securities Secured
Loans") in an amount not to exceed the lesser of (i) $12,000,000, or
(ii) 100% of the principal amount of certificates of deposit
(the "Credit Support Securities") from Silicon which are maintained
with Silicon and in which Silicon has a first priority security interest
perfected in a manner acceptable to Silicon.

 

2.Minimum Tangible Net Worth.  Effective as of
January 31, 2002, the "Minimum Tangible Net Worth" portion of Section
5 of the Schedule to the Loan Agreement is hereby amended in its entirety to
read as follows:
Borrower shall maintain a Tangible Net Worth of not less than 
(i)$10,500,000 as of January 31, 2002 and as of February 28, 2002;
and

(ii)$8,000,000 as of March 31, 2002; and 

(iii)$9,000,000 as of April 30, 2002; and

(iv)$6,000,000 as of May 31, 2002 and as of June 30, 2002; and

(v)$6,500,000 as of July 31, 2002; and 

(vi)$5,250,000 as of August 31, 2002 and as of September 30, 2002; and

(vii)$6,000,000 commencing October 31, 2002 and continuing as of the end
of each succeeding month thereafter.

The foregoing Tangible Net Worth amounts set forth in clauses (i) through
(vii) above shall be increased by an amount equal to 50% of the total
consideration received by Borrower after March 31, 2002, in consideration for
the issuance by the Borrower of its equity securities and/or subordinated debt
securities, effective on the date such consideration is received.

Notwithstanding the fact the foregoing change to the Minimum
Tangible Net Worth covenant was made effective prior to the date of this
Amendment, Borrower acknowledges that Silicon requires the Borrower's strict
compliance with such covenant in the future.  

3.Amendment to Audit Fee.  The third sentence of
Section 5.4 of the Loan Agreement reads:  "The foregoing inspections and
audits shall be at Borrower's expense and the charge therefor shall be $650 per
person per day (or such higher amount as shall represent Silicon's then current
standard charge for the same), plus reasonable out of pocket expenses."
The reference to "$650" set forth therein is hereby amended to read
"$700."

4.Fee.  In consideration for Silicon entering into
this Amendment, Borrower shall concurrently pay Silicon a fee in the amount of
$3,000, which shall be non-refundable and in addition to all interest and other
fees payable to Silicon under the Loan Agreement and any other agreements
executed in connection therewith.  Silicon is authorized to charge said fee to
Borrower's loan account.

5.Representations True.  Borrower represents and
warrants to Silicon that all representations and warranties set forth in the
Loan Agreement, as amended hereby, are true and correct.  

6.General Provisions.  This Amendment, the
Loan Agreement, any prior written amendments to the Loan Agreement signed by
Silicon and Borrower, and the other written documents and agreements between
Silicon and Borrower set forth in full all of the representations and agreements
of the parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof.  Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Silicon and Borrower shall continue in full force and effect
and the same are hereby ratified and confirmed.  

	Borrower:

SIGMA DESIGNS, INC.

 

By____________________________

President or Vice President

By____________________________

Secretary or Ass't Secretary

	Silicon:

SILICON VALLEY BANK

 

By____________________________

Title__________________________EMPLOYMENT AGREEMENT

                  EMPLOYMENT AGREEMENT (the "Agreement"), dated as of February
1, 2002, by and between Candie's, Inc., a Delaware corporation (the "Company"),
and Neil Cole (the "Executive").

                              W I T N E S S E T H:

                  WHEREAS, the Executive possesses unique personal knowledge,
experience and expertise concerning the business and operations conducted by the
Company; and

                  WHEREAS, the Company desires to continue to employ the
Executive beyond the term of the current employment agreement between the
Executive and the Company, and the Executive desires to continue to be employed
by the Company, upon the terms and subject to the conditions set forth this
Agreement.

                  NOW, THEREFORE, in consideration of the covenants and
agreements hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

1.       EMPLOYMENT AND DUTIES

1.1. Term of Employment. The Executive's employment under this Agreement shall
commence on February 1, 2002 (the "Start Date") and shall continue until the
third anniversary of the Start Date, unless earlier terminated or canceled as
provided in this Agreement (the "Term").

1.2.     General.
         -------

1.2.1. During the Term, the Executive shall have the title of the President and
Chief Executive Officer of the Company and shall have such duties as may be
from time to time delegated to him by the Board of Directors of the Company
(the "Board"). The Executive shall faithfully and diligently discharge his
duties hereunder and use his best efforts to implement the policies established
by the Board. No other officer will be appointed with authority over the
executive or business affairs of the Company and the Executive's
responsibilities shall include, among other things, the power to enter into
banking relationships; to hire and fire employees; to order merchandise; to
engage in advertising and promotion; and to employ outside consultants and
professionals.

1.2.2. The Executive shall devote all of his business time, attention, knowledge
and skills faithfully, diligently and to the best of his ability, in furtherance
of the business and activities of the Company; provided, however, that nothing
in this Agreement shall preclude the Executive from devoting reasonable periods
of time required for:

(i)      serving as a director or member of a committee of any organization or
         corporation involving no conflict of interest with the interests of the
         Company and with the written consent of the Company, which consent
         shall not be unreasonably withheld;

(ii)     delivering lectures, fulfilling speaking engagements, and any writing
         of publication relating to his area of expertise;

(iii)    engaging in professional organization and program activities; and

(iv)     managing his personal investments;

provided that such activities do not materially interfere with the due
performance of his duties and responsibilities under this Agreement as
determined by the Board.

1.2.3. During the Term, the Board shall vote to recommend the election of the
Executive by the Company's stockholders as a director, and the Executive shall
act as Chairman of the Board at all meetings thereof.

1.3. Reimbursement of Expenses. The Company shall pay to the Executive the
reasonable expenses incurred by him in the performance of his duties hereunder,
including, without limitation, those incurred in connection with the use of an
automobile, business related travel or entertainment, or, if such expenses are
paid directly by the Executive, the Company shall promptly reimburse him for
such payments, provided that the Executive properly accounts for such expenses
in accordance with the Company's policy.

2.       COMPENSATION

2.1. Base Salary. During the Term, the Executive shall be entitled to receive a
base salary ("Base Salary") at a rate of five hundred thousand dollars
($500,000.00) per annum, payable in arrears in equal installments not less
frequently than on a bi-monthly basis in accordance with the payroll practices
of the Company, with such increases as may be determined by the Board from time
to time.

2.2.     Bonus.
         -----

2.2.1. In additional to the Base Salary, the Executive shall receive in each
fiscal year of the Company during the Term that the Company meets at least
662/3% of its net income target for such fiscal year as determined by the Board
(subject to subsection 2.2.2 below) (the "Target"), as incentive compensation,
an amount equal to the product of (x) the Base Salary and (y) a fraction, the
numerator of which is the Company's actual net income for such fiscal year (as
set forth in the Company's audited financial statements), and the denominator of
which is the Target for such fiscal year (the "Bonus"); provided that the
Executive is employed by the Company during the entire fiscal year. The Bonus,
if applicable, shall be due and payable by the Company to the Executive within
thirty (30) days after the filing by the Company of its Annual Report on Form
10-K with the Securities and Exchange Commission with respect to such fiscal
year. Anything contained in this Section 2.2 to the contrary notwithstanding, in
the event that the Executive's employment hereunder is terminated by the Company
without Cause or by the Executive for Good Reason (as such terms are defined in
Section 5.1 hereof) prior to the end of a fiscal year and the Executive would
have been entitled to a Bonus under this Section 2.2 for such fiscal year but
for such termination, the Executive shall be entitled to a pro rata portion of
the Bonus that would have been payable but for such termination through the Date
of Termination (as defined in Section 5.3 hereof).

2.2.2. The Target for the Company's fiscal year ending January 31, 2003 shall be
$9,200,000. The Target for each fiscal year of the Company thereafter shall be
determined by the Board and provided in writing to the Executive at least ten
days prior to the commencement of each such fiscal year of the Company.

2.3. Stock Options. In addition to the Base Salary and the Bonus, the Executive
shall receive, as incentive compensation, options ("Options") to purchase up to
an aggregate of 600,000 shares (the "Shares") of common stock of the Company,
pursuant to and upon the terms and conditions set forth in the Company's 2000
Stock Option Plan ("Plan"). The Options shall vest and become exercisable at any
time during the ten year period commencing upon the date of grant, subject to
earlier termination as provided in the Plan and the option agreement between the
Company and the Executive, with respect to (i) one third of the number of Shares
covered thereby on the first anniversary of the Start Date and (ii) one third of
the number of Shares covered thereby on each of the second and third
anniversaries of the Start Date, at an exercise price per share equal to the
last sales price for the Company's common stock on the date hereof.

2.4. Additional Compensation. In addition to the Base Salary, the Bonus and the
Options, the Executive shall be entitled to receive such other cash bonuses and
such other compensation in the form of stock, stock options or other property or
rights as may from time to time be awarded him by the Board during or in respect
of his employment hereunder.

2.5. Payment Upon Sale of the Company. In the event of the sale of all or
substantially all of the assets or capital stock of the Company (as the case may
be, a "Sale") for an aggregate sale price ("Sale Price") of at least $5 per
share (subject to appropriate adjustment by the Board in the event of any stock
split, dividend or similar division of shares of the Company's common stock or
reverse split or similar combination of such common stock) of the Company's
common stock on a fully diluted basis at the time of the closing of the Sale,
the Company shall pay to the Executive an amount equal to 5% of the Sale Price
(the "Payout"). In the event that the Sale involves a sale of the Company's
assets, the Sale Price shall be determined by dividing the aggregate
consideration received by the Company in the Sale by the total number of
outstanding shares of the Company's common stock, on a fully-diluted basis, at
the time of the closing of the Sale.

                  For purposes of the foregoing, the following shall be
considered to be part of the Sale Price: contingent future payments (based upon
future profits or otherwise) paid to the Company or to all of its stockholders;
payments for noncompete covenants paid to the Company or to all of its
stockholders; and the value of all assumed liabilities (including, without
limitation, indebtedness for borrowed money, pension liabilities and
guarantees). In the event that the Sale Price is paid in whole or in part in the
form of securities, the value of such securities, for purposes of calculating
the Payout, shall be deemed to be the fair market value thereof on the day prior
to the consummation of the Sale as determined by the Board; provided, however,
that if such securities consist of securities for which there is an existing
public trading market (whether or not such securities would be deemed to be
"restricted stock" within the meaning of Rule 144(a)(3) of the General Rules and
Regulations promulgated under the Securities Act of 1933, as amended), the fair
market value thereof shall be deemed to be the average of the last sales prices
for such securities on the five (5) trading days ending five (5) days prior to
the consummation of the Sale.

                  The Payout shall be paid by the Company to the Executive, in
full, within fifteen (15) days after the consummation of the Sale, and shall be
payable, at the option of the Company, in cash or in kind (in the event that the
Sale Price includes consideration other than cash). If the Sale Price is
increased by contingent payments, or if a portion of the Sale Price is paid into
escrow, the portion of the Payout relating thereto shall be calculated and paid
when and as such contingent payments are made, or when such portion of the
proceeds is released from escrow, as the case may be. The determination of the
amount of the Payout shall be made by the Board or its designee whose decision
shall be final.

3. PLACE OF PERFORMANCE. In connection with his employment by the Company, the
Executive shall be based at the Company's principal executive offices in
Valhalla, New York, or at the Company's offices in New York, New York, subject
to the mutual agreement of the Executive and the Company to relocate him to
another office of the Company. Subject to the foregoing, in connection with any
relocation or transfer of the Executive outside of the greater New York
metropolitan area, the Company will promptly pay (or reimburse the Executive
for) all reasonable moving and moving-related expenses (including any losses
incurred as a result of the sale of the Executive's personal residence) incurred
by the Executive as a consequence of a change of his principal residence in
connection with any such relocation or transfer.

4.       EMPLOYEE BENEFITS

4.1. Benefit Plans. The Executive shall, during the Term, be included to the
extent eligible thereunder in all employee benefit plans, programs or
arrangements of general application (including, without limitation, any plans,
programs or arrangements providing for retirement benefits, options and other
equity-based incentive compensation, profit sharing, bonuses, disability
benefits, health and life insurance, or vacation and paid holidays) which shall
be established by the Company or any affiliate of the Company, for, or made
available to, their respective senior executives. During the Term, the benefits
described in this paragraph 4 may only be reduced as a result of a general
reduction for senior executives.

4.2.     Vacation.  The  Executive  shall be  entitled  to not less than four
(4) weeks  vacation  at full pay for each year during the Term.  Such  vacation
may be  taken  in the  Executive's  discretion,  and at such  time or  times
as are not  inconsistent  with the reasonable business needs of the Company.

4.3. Life Insurance Coverage. The Company shall use its best efforts to obtain
and maintain in full force and effect during the Term life insurance covering
the life of the Executive for the benefit of his designee in the amount of
$3,000,000, $4,000,000 and $5,000,000, respectively, for the Company's fiscal
years ending on January 31, 2003, 2004 and 2005, respectively.

5.       TERMINATION OF EMPLOYMENT

5.1.     General.  The Executive's employment under this Agreement may be
terminated without any breach of this Agreement only on the following
circumstances:

5.1.1. Death.  The Executive's  employment  under this Agreement shall terminate
     upon his death.

5.1.2. Disability. If, as a result of the Executive's Disability (as defined
below), the Executive shall have been absent from his duties under this
Agreement for sixty (60) consecutive days, the Company may terminate the
Executive's upon thirty (30) days prior written notice; provided that the
Executive has not returned to full time performance of his duties during such
thirty (30) day period. For purposes hereof, "Disability" shall mean that the
Executive is unable to perform his normal and customary duties hereunder as a
result of physical or mental illness.

5.1.3.   Good Reason.  The Executive may terminate his employment for Good
Reason at any time.  For purposes of this Agreement, "Good Reason" shall mean:

(i)  the  failure by the  Company to comply with its  material  obligations  and
     agreements contained in this Agreement;

(ii) a material  diminution  of the  responsibilities  or title of the Executive
     with the Company without the express written consent of the Executive;

(iii)a  reduction  by the  Company  in the Base  Salary as in effect on the date
     hereof,  or as the same may be  increased  from  time to time  without  the
     express written consent of the Executive; or

(iv) the  re-location  of the Executive to an office  outside of the greater New
     York metropolitan area, unless mutually agreed to;

provided, however, that the Executive shall have provided the Company with
written notice that such actions are occurring and the Company has been afforded
a reasonable opportunity of at least thirty (30) days to cure same.

5.1.4.   Cause.  The Company may terminate the Executive's employment under this
 Agreement for Cause.  Termination for "Cause" shall mean termination of the
Executive's employment because of the occurrence of any of the following as
determined by the Board:

(i)  the willful and continued failure by the Executive to substantially perform
     his obligations under this Agreement (other than any such failure resulting
     from  the  Executive's  incapacity  due to  physical  or  mental  illness);
     provided,  however, that the Company shall have provided the Executive with
     written  notice that such actions are  occurring and the Executive has been
     afforded a  reasonable  opportunity  of at least  thirty  (30) days to cure
     same, or

(ii) the indictment of the Executive for a felony or other crime involving moral
     turpitude or dishonesty; or

(iii)the willful engaging in misconduct  (including theft, fraud,  embezzlement,
     and  securities  law  violations)   which  is  injurious  to  the  Company,
     monetarily,  or otherwise. For purposes of this Section 5.1.4(iii), no act,
     or  failure  to act,  on the  part of the  Executive  shall  be  considered
     "willful"  unless  done,  or  omitted  to be done,  by him in bad faith and
     without  reasonable  belief  that his  action or  omission  was in the best
     interest of the Company.

5.2. Notice of Termination. Any termination of the Executive's employment by the
Company or by the Executive (other than termination by reason of the Executive's
death) shall be communicated by written Notice of Termination to the other party
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated.

5.3. Date of Termination. The "Date of Termination" shall mean (a) if the
Executive's employment is terminated by his death, the date of his death, (b) if
the Executive's employment is terminated pursuant to subsection 5.1.2 above,
thirty (30) days after Notice of Termination is given (provided that the
Executive shall not have returned to the performance of his duties on a
full-time basis during such thirty (30) day period), (c) if the Executive's
employment is terminated pursuant to subsections 5.1.3 or 5.1.4 above, the date
specified in the Notice of Termination after the expiration of any applicable
cure periods, and (d) if the Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given; provided that if
within thirty (30) days after any Notice of Termination is given the party or
parties receiving such Notice of Termination notifies the other party or parties
that a dispute exists concerning such termination, the Date of Termination shall
be the date on which the dispute is finally determined by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected).

5.4.     Compensation Upon Termination.
         -----------------------------

5.4.1. Termination for Cause. If the Executive's employment shall be terminated
for Cause, the Company shall pay the Executive his Base Salary through the Date
of Termination, at the rate in effect at the time Notice of Termination is
given, and all expenses and accrued benefits arising prior to such termination
which are payable to the Executive pursuant to this Agreement through the Date
of Termination and the Company shall have no further obligation with respect to
this Agreement.

5.4.2. Termination without Cause or For Good Reason. Subject to the provisions
of subsection 5.4.3 hereof, if, prior to the expiration of the Term, the
Executive's employment hereunder is terminated by the Executive for Good Reason
or by the Company without Cause (other than a termination by reason of
Disability), the Company shall pay to the Executive all expenses and accrued
benefits arising prior to such termination which are payable to the Executive
pursuant to this Agreement through the Date of Termination and the Company shall
continue to pay the Executive his Base Salary as then in effect for the greater
of (i) the remainder of the original Term or (ii) a period of one year (1) year
from the Date of Termination (such period being referred to hereinafter as the
"Severance Period"), payable in monthly installments. In addition, during the
Severance Period, the Executive shall be entitled to continue to participate in
all employee benefit plans that the Company provides (and continues to provide)
generally to its senior executives. The Company shall also pay all indemnity
payments and all legal fees and expenses incurred by the Executive as a result
of such termination (including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement.

5.4.3. Death During Severance Period. In the event of the Executive's death
during the Severance Period, payments of Base Salary under this Section 5.4 and
payments under the Company's employee benefit plan(s) shall continue to be made
in accordance with their terms during the remainder of the Severance Period to
the beneficiary designated in writing for such purpose by the Executive or, if
no such beneficiary is specifically designated, to the Executive's estate.

5.4.4.   Termination Following Change in Control.
         ---------------------------------------

     (i) Anything contained herein to the contrary notwithstanding, in the event
the  Executive's  employment  hereunder is terminated  within twelve (12) months
following a Change in Control (as defined  below) by the Company  without Cause,
or any joint venturer or partner of the Company  existing as of the date hereof,
or by the  Executive  with  Good  Reason,  then  the  Company  shall  pay to the
Executive in complete  satisfaction of its obligations under this Agreement,  as
severance pay and as liquidated damages (because actual damages are difficult to
ascertain),  in a lump sum, in cash,  within fifteen (15) days after the Date of
Termination,  an  amount  equal to $100 less than  three  times the  Executive's
"annualized includable  compensation for the base period" (as defined in Section
280G of the Internal Revenue Code of 1986); provided, however, that if such lump
sum severance payment, either alone or together with other payments or benefits,
either cash or non-cash,  that the  Executive  has the right to receive from the
Company,  including,  but not limited to, accelerated  vesting or payment of any
deferred  compensation,  options,  stock  appreciation  rights  or any  benefits
payable to the  Executive  under any plan for the  benefit of  employees,  which
would  constitute an "excess  parachute  payment" (as defined in Section 280G of
the Internal  Revenue  Code of 1986),  then such lump sum  severance  payment or
other  benefit  shall be reduced to the  largest  amount that will not result in
receipt by the Executive of a parachute payment. The determination of the amount
of the  payment  described  in this  subsection  shall be made by the  Company's
independent  auditors  at the sole  expense  of the  Company.  For  purposes  of
clarification the value of any options described above will be determined by the
Company's independent auditors using a Black-Scholes valuation methodology.

     For purposes of this  Agreement,  a "Change in Control"  shall be deemed to
occur (i) when any  "person"  as defined in  Section  3(a)(9) of the  Securities
Exchange Act of 1934, as amended (the  "Exchange  Act"),  and as used in Section
13(d) and 14(d) thereof,  including a "group" as defined in Section 13(d) of the
Exchange Act, but excluding the Executive,  the Company or any subsidiary or any
affiliate of the Company or any employee benefit plan sponsored or maintained by
the Company or any subsidiary of the Company (including any trustee of such plan
acting as trustee),  becomes the "beneficial owner" (as defined in Rule 13(d)(3)
under the Exchange Act) of securities of the Company representing 15% or more of
the combined voting power of the Company's then outstanding securities;  or (ii)
when, during any period of twenty-four (24) consecutive  months, the individuals
who, at the  beginning of such period,  constitute  the Board of Directors  (the
"Incumbent  Directors")  cease for any reason other than death to  constitute at
least a majority  thereof;  provided,  however,  that a  director  who was not a
director at the beginning of such  twenty-four (24) month period shall be deemed
to have satisfied such twenty-four  (24) month  requirement (and be an Incumbent
Director) if such director was elected by, or on the  recommendation  of or with
the approval of, at least  two-thirds  (2/3) of the directors who then qualified
as Incumbent  Directors  either  actually  (because  they were  directors at the
beginning of such  twenty-four  (24) month  period) or through the  operation of
this proviso;  or (iii) the  occurrence of a transaction  requiring  stockholder
approval for the  acquisition of the Company by an entity other than the Company
or a subsidiary  or an  affiliated  company of the Company  through  purchase of
assets, or by merger, or otherwise.

(ii) If within twelve (12) months after the occurrence of a Change in Control,
the Company shall terminate the Executive's employment without Cause or the
Executive terminates his employment for Good Reason, then notwithstanding the
vesting and exercisability schedule in any stock option agreement between the
Company and the Executive, all unvested stock options granted by the Company to
the Executive pursuant to such agreement shall immediately vest and become
exercisable and shall remain exercisable for not less than 180 days thereafter.

5.4.5. Termination upon Death or Retirement. In the event of the termination of
the Executive's employment by reason of death or retirement, the Company shall
pay the Executive his Base Salary through the Date of Termination, at the rate
then in effect, and all expenses or accrued benefits arising prior to such
termination which are payable to the Executive pursuant to this Agreement
through the Date of Termination. In addition, the Executive and/or his
beneficiaries shall be entitled to such other benefits as shall be determined in
accordance with the benefit plans maintained by the Company, including, without
limitation, any benefits to which they are entitled under the life insurance
policy provided for in Section 4.3 hereof.

5.4.6. Termination upon Disability. In the event of the termination of the
Executive's employment by reason of Disability in accordance with the provisions
of Section 5.1.2 hereof, the Company shall pay to the Executive a lump sum cash
payment in an amount equal to the present value of the Base Salary that would
have been payable to the Executive during the remainder of the original Term had
the Agreement not been so terminated, together with all expenses and accrued
benefits arising prior to such termination which are payable to the Executive
pursuant to this Agreement through the Date of Termination. In addition, the
Executive and/or his beneficiaries shall be entitled to such other benefits as
shall be determined in accordance with the benefit plans maintained by the
Company.

5.4.7. The Executive shall not be required to mitigate the amount of any payment
provided for in this Section 5.4 by seeking other employment or otherwise, nor
shall the amount of any payment provided for in this Section 5.4 be reduced by
any compensation earned by the Executive as the result of employment by another
employer or business or by profits earned by the Executive from any other source
at any time before and after the Date of Termination.

6.       INSURABILITY; RIGHT TO INSURE

                  During the continuance of the Executive's employment
hereunder, the Company shall have the right to maintain key man life insurance
in its own name covering the Executive's life in such amount as shall be
determined by the Company, for a term ending on the termination or expiration of
this Agreement. The Executive shall aid in the procuring of such insurance by
submitting to the required medical examinations, if any, and by filling out,
executing and delivering such applications and other instrument in writing as
may be reasonably required by an insurance company or companies to which
application or applications for insurance may be made by or for the Company.

7.       CONFIDENTIALITY; NONCOMPETITION; NONSOLICITATION; NONDISPARAGEMENT

7.1. The Company and the Executive acknowledge that the services to be performed
by the Executive under this Agreement are unique and extraordinary and, as a
result of such employment, the Executive shall be in possession of confidential
information relating to the business practices of the Company. The term
"confidential information" shall mean any and all information (oral and written)
relating to the Company or any of its affiliates, or any of their respective
activities, other than such information which (i) can be shown by the Executive
to be in the public domain (such information not being deemed to be in the
public domain merely because it is embraced by more general information which is
in the public domain) other than as the result of breach of the provisions of
this paragraph 7 or (ii) the Executive is required to disclose under any
applicable laws, regulations or directives of any government agency, tribunal or
authority having jurisdiction in the matter or under subpoena or other process
of law. The Executive shall not, during the Term and for a period of two (2)
years thereafter, except as may be required in the course of the performance of
his duties hereunder, directly or indirectly, use, communicate, disclose or
disseminate to any person, firm or corporation any confidential information
regarding the clients, customers or business practices of the Company acquired
by the Executive, without the prior written consent of the Company; provided,
however, that the Executive understands that Executive shall be prohibited from
misappropriating any trade secret at any time during or after the Term.

7.2. Upon the termination of the Executive's employment for any reason
whatsoever, all documents, records, notebooks, equipment, price lists,
specifications, programs, customer and prospective customer lists and other
materials which refer or relate to any aspect of the business of the Company
which are in the possession of the Executive, including all copies thereof,
shall be promptly returned to the Company.

7.3. The Executive hereby agrees that he shall not, during the Term, and, in the
event that the Executive's employment hereunder is terminated by the Company for
Cause or by the Executive without Good Reason, for a period of two years after
the date of such termination, directly or indirectly, within any county (or
adjacent county) in any State within a fifty (50) mile radius of the location of
any of the Company's offices, engage, have an interest in or render any services
to any business (whether as owner, manager, operator, licensor, licensee,
lender, partner, stockholder, joint venturer, employee, consultant or otherwise)
competitive with the business activities conducted by the Company, its
subsidiaries, or affiliates during the Term. Notwithstanding the foregoing,
nothing herein shall prevent the Executive from owning stock in a publicly
traded corporation whose activities compete with those of the Company's,
provided that such stock holdings are not greater than five percent (5%) of such
corporation.

7.4. The Executive shall not, during the Term, and, in the event that the
Executive's employment hereunder is terminated by the Company for Cause or by
the Executive without Good Reason, for a period of two years after the date of
such termination, directly or indirectly, take any action which constitutes an
interference with or a disruption of any of the Company's business activities
including, without limitation, the solicitations of the Company's customers, or
persons listed on the personnel lists of the Company.

7.5. For purposes of clarification, but not of limitation, the Executive hereby
acknowledges and agrees that the provisions of Sections 7.3 and 7.4 above shall
serve as a prohibition against him from, during the period referred to therein,
directly or indirectly, hiring, offering to hire, enticing, soliciting or in any
other manner persuading or attempting to persuade any officer, employee, agent,
lessor, lessee, licensor, licensee or customer of the Company (but only those
suppliers existing during the time of the Executive's employment by the Company,
or at the termination of his employment), to discontinue or alter his, her or
its relationship with the Company.

7.6. At no time during or after the Term shall either party hereto, directly or
indirectly, disparage the commercial, business, professional or financial, as
the case may be, reputation of the other party.

7.7. Without intending to limit the remedies available to the Company, the
Executive acknowledges that a breach of any of the covenants contained in this
paragraph 7 may result in material and irreparable injury to the Company, or its
affiliates or subsidiaries, for which there is no adequate remedy at law, that
it will not be possible to measure damages for such injuries precisely and that,
in the event of such a breach or threat the Company shall be entitled to seek a
temporary restraining order and/or a preliminary or permanent injunction
restraining the Executive from engaging in activities prohibited by this
paragraph 7 or such other relief as may be required specifically to enforce any
of the covenants in this paragraph 7. If for any reason it is held that the
restrictions under this paragraph 7 are not reasonable or that consideration
therefor is inadequate, such restrictions shall be interpreted or modified to
include as much of the duration and scope identified in this paragraph as will
render such restrictions valid and enforceable.

8.       RIGHTS OF INDEMNIFICATION

8.1. The Company shall indemnify the Executive to the fullest extent permitted
by the General Corporation Law of the State of Delaware, as amended from time to
time, for all amounts (including without limitation, judgments, fines,
settlement payments, expenses and attorney's fees) incurred or paid by the
Executive in connection with any action, suit, investigation or proceeding
arising out of or relating to the performance by the Executive of services for,
or the acting by the Executive as a director, officer or employee of the
Company, or any other person or enterprise at the Company's request.

8.2. The Company shall use its best efforts to obtain and maintain in full force
and effect during the Term, directors' and officers' liability insurance
policies providing full and adequate protection to the Executive for his
capacities, provided that the Board shall have no obligation to purchase such
insurance if, in its opinion, coverage is available only on unreasonable terms.

9.       MISCELLANEOUS

9.1.     Notices.  All notices or communications hereunder shall be in writing,
addressed as follows:

                  To the Company:           Candie's, Inc.
                                            400 Columbus Avenue
                                            Valhalla, NY  10595
                           Attn: Deborah Sorell Stehr
                                 Senior Vice President and General Counsel

                                                     with a copy to:

                                             Blank Rome Tenzer Greenblatt LLP
                                             405 Lexington Avenue
                                             New York, NY  10174
                                             Attn:  Robert J. Mittman, Esq.

                  To the Executive:          Neil Cole
                                             525 East 72nd Street
                                             Apt 15E
                                             New York, NY 10021

                  All such notices shall be conclusively deemed to be received
and shall be effective (i) if sent by hand delivery, upon receipt, (ii) if sent
by telecopy or facsimile transmission, upon confirmation of receipt by the
sender of such transmission, (iii) if sent by overnight courier, one business
day after being sent by overnight courier, or (iv) if sent by registered or
certified mail, postage prepaid, return receipt requested, on the fifth day
after the day on which such notice is mailed.

9.2. Severability. Each provision of this Agreement shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.

9.3.     Binding Effect; Benefits.  Executive may not delegate his duties or
assign his rights hereunder.  This Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.

9.4. Entire Agreement. This Agreement represents the entire agreement of the
parties and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Executive, including, without
limitation, that certain Employment Agreement dated February 23, 1993, as
amended, between the Company and the Executive. This Agreement may be amended at
any time by mutual written agreement of the parties hereto. In the case of any
conflict between any express term of this Agreement and any statement contained
in any employment manual, memo or rule of general applicability of the Company,
this Agreement shall control.

9.5.     Withholding.  The payment of any amount pursuant to this Agreement
shall subject to applicable withholding and payroll taxes, and such other
deductions as may be required under the Company's employee benefit plans,if any.

9.6. Governing Law. This Agreement and the performance of the parties hereunder
shall be governed by the internal laws (and not the law of conflicts) of the
State of New York. Any claim or controversy arising out of or in connection with
this Agreement, or the breach thereof, shall be adjudicated exclusively by the
Supreme Court, New York County, State of New York, or by a federal court sitting
in Manhattan in New York City, State of New York. The parties hereto agree to
the personal jurisdiction of such courts and agree to accept process by regular
mail in connection with any such dispute.

9.7. Legal Fees and Court Costs. In the event that any action, suit or other
proceeding in law or in equity is brought to enforce the provisions of this
Agreement, and such action results in the award of a judgment for money damages
or in the granting of any injunction in favor of the Company, all expenses
(including reasonable attorneys' fees) of the Company in such action, suit or
other proceeding shall be paid by the Executive. In the event that any action,
suit or other proceeding in law or in equity is brought to enforce the
provisions of this Agreement, and such action results in the award of a judgment
for money damages or in the granting of any injunction in favor of the
Executive, all expenses (including reasonable attorneys' fees and travel
expenses) of the Executive in such action, suit or other proceeding shall be
paid by the Company.

                  IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed and the Executive has hereunto set his hand, as of the day and
year first above written,

                                                     THE COMPANY:

                                                     CANDIE'S, INC.

                                                     By:
                                                         -----------------------

                                                     EXECUTIVE

                                                     Neil Cole

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