Document:

exv10w1

 

Exhibit 10.1

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

LOAN AND SECURITY AGREEMENT DATED JUNE 21, 2004 BETWEEN

SILICON VALLEY BANK AND GIGA-TRONICS INCORPORATED

Silicon Valley Bank

Loan and Security Agreement

	 	 	 
	Borrower:

	 	GIGA-TRONICS INCORPORATED, a California corporation
(“GIGA-TRONICS”); ASCOR, INC., a California corporation
(“ASCOR”); and MICROSOURCE, INC., a California corporation
(“MICROSOURCE”)
	 
	 	 
	Address:

	 	4650 Norris Canyon Road

San Ramon, CA 94583
	 
	 	 
	Date:

	 	June 21, 2004

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) is entered into on the
above date between SILICON VALLEY BANK (“Silicon”), whose address is 3003
Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above
(individually and collectively, and 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. Subject to the terms and conditions of this Agreement,
Silicon will make loans to Borrower (the “Loans”) up to the amounts (the
“Credit Limit”) shown in Section 1 of the Schedule, provided no Default or
Event of Default has occurred and is continuing, and subject to deduction of
Reserves for accrued interest and such other Reserves as Silicon deems proper
from time to time in its good faith business judgment.

     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 monetary 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 the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at
the Default Rate.

     * promptly (and subject to the cure period (if applicable) set forth in
Section 7.1(c) hereof)

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

     1.5 Loan Requests. To obtain a Loan, Borrower shall make a request to
Silicon by facsimile or telephone. Loan requests received after 12:00 Noon
(California time) will not be considered by Silicon until the next Business
Day. Silicon may rely on

 

 

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

any telephone request for a Loan given by a person whom Silicon * believes is
an authorized representative of Borrower, and Borrower will indemnify Silicon
for any loss Silicon suffers as a result of that reliance **.

* in its good faith business judgment

** (except if and to the extent such loss is the proximate result of the
gross negligence or willful misconduct of Silicon)

     1.6 Letters of Credit. [Not Applicable]

2. SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon continuing security
interests in all of the following (collectively, the “Collateral”): all right,
title and interest of Borrower in and to all of the following, whether now
owned or hereafter arising or acquired and wherever located: all Accounts; all
Inventory; all Equipment; all Deposit Accounts; all General Intangibles
(including without limitation all Intellectual Property); all Investment
Property; all Other Property; and any and all claims, rights and interests in
any of the above, and all guaranties and security for any of the above, and all
substitutions and replacements for, additions, accessions, attachments,
accessories, and improvements to, and proceeds (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties) of,
any and all of the above, and all Borrower’s books relating to any and all of
the above.

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, throughout the
term of this Agreement and until all Obligations * have been paid and performed
in full:

     * , other than contingent indemnification Obligations under Section 9.8
hereof or any comparable provision of this Agreement or any other Loan Document
(collectively, “Contingent Indemnification Obligations”) not yet due,

     3.1 Corporate Existence and Authority. Borrower 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 could reasonably be expected to result in a Material Adverse Change.
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 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 in the Representations
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, in all material respects, with all
laws relating to the conduct of business under a fictitious business name,
except where the failure to so comply could not reasonably be expected to
result in a Material Adverse Change.

     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 in the Representations. 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
in the Representations, except that Borrower may maintain sales offices in the
ordinary course of business at which not more than a total of $10,000 fair
market value of Equipment is located.

     3.4 Title to Collateral; Perfection; Permitted Liens.

          (a) 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 to
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
in lien priority only to those Permitted Liens that are expressly entitled to
such priority over the security interests of Silicon by operation of law or by
written

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

subordination agreement duly executed and delivered by Silicon in favor of the
holders of such Permitted Liens, and Borrower will at all times defend Silicon
and the Collateral against all claims of others.

          (b) Borrower has set forth in the Representations all of Borrower’s
Deposit Accounts, and Borrower will give Silicon five Business Days advance
written notice before establishing any new Deposit Accounts and, in accordance
with Section 8(1) of the Schedule, will cause the institution where any such
new Deposit Account is maintained to execute and deliver to Silicon a control
agreement in form sufficient to perfect Silicon’s security interest in the
Deposit Account and otherwise satisfactory to Silicon in its good faith
business judgment. Nothing herein limits any requirements which may be set
forth in the Schedule as to where Deposit Accounts will be maintained.

          (c) In the event that Borrower shall at any time after the date hereof
have any commercial tort claims against others, which it is asserting or
intends to assert, and in which the potential recovery exceeds $100,000,
Borrower shall promptly notify Silicon thereof in writing and provide Silicon
with such information regarding the same as Silicon * shall request (unless
providing such information would waive the Borrower’s attorney-client
privilege). Such notification to Silicon shall constitute a grant of a
security interest in the commercial tort claim and all proceeds thereof to
Silicon, and Borrower shall execute and deliver all such documents and take all
such actions as Silicon * shall request in connection therewith.

          * in its good faith business judgment may

          (d) 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,
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 in its good
faith business judgment. Borrower will keep in full force and effect, and will
comply with all material terms of, any lease of real property where any of the
Collateral now or in the future may be located.

          * commercially reasonable

     3.5 Maintenance of Collateral. Borrower will maintain the Collateral in
good working condition (ordinary wear and tear excepted), 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 GAAP.

     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 GAAP *** and now and in the future will fairly
present **** the * results of operations and * financial condition of Borrower,
in accordance with GAAP, 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.

     * consolidated

     ** of Borrower

     *** (except that interim financial statements may be subject to normal
year-end audit adjustments and need not contain footnote disclosures required
by GAAP)

     **** in all material respects

     3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all required tax returns and reports, 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

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

reasonably be expected to result in any liability * of Borrower, including
any liability to the Pension Benefit Guaranty Corporation or its successors or
any other governmental agency.

     * (other than such liabilities that, individually or in the aggregate, are
immaterial)

     3.9 Compliance with Law. Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable 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. There is no claim, suit, litigation, proceeding or
investigation pending or (to best of Borrower’s knowledge) threatened against
or affecting Borrower in any court or before any governmental agency (or any
basis therefor known to Borrower) which could reasonably be expected to result,
either separately or in the aggregate, in any Material Adverse Change.
Borrower will promptly inform Silicon in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted 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. Accounts.

     4.1 Representations Relating to Accounts. Borrower represents and
warrants to Silicon as follows: Each Account 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, or the non-exclusive licensing of Intellectual Property,
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 Accounts 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.
All sales and other transactions underlying or giving rise to each Account
shall comply in all material respects with all applicable laws and governmental
rules and regulations. To the best of Borrower’s knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts 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 Accounts. Borrower shall deliver
to Silicon transaction reports and schedules of collections, as provided in the
Schedule, 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 Accounts, nor shall
Silicon’s failure to advance or lend against a specific Account affect or limit
Silicon’s security interest and other rights therein. 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 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 Accounts, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to Silicon an aged accounts receivable
trial balance as provided in the Schedule. In addition, Borrower shall deliver
to Silicon, on its request, the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Accounts, in the same form as received, with all necessary
indorsements, and copies of all credit memos.

     * in its good faith business judgment

     4.4 Collection of Accounts. Borrower shall have the right to collect all
Accounts, unless and until a Default or an Event of Default has occurred and is
continuing. Whether or not an Event of Default has occurred and is continuing,
Borrower shall hold all payments on, and proceeds of, Accounts in trust for
Silicon, and * Borrower shall immediately deliver all such payments and
proceeds to Silicon in their original form, duly endorsed, to be applied to the
Obligations in such order as Silicon shall determine. ** Silicon may, in its
good faith business judgment, 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 in its good faith business judgment.

     * , subject to the Streamline Provisions,

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

     ** As soon as practicable (and in any event no later than 60 days
following the date of this Agreement), Borrower shall establish a lockbox
account, or such other “blocked account” as Silicon may specify, pursuant to a
lockbox agreement or blocked account agreement (as the case may be) in such
form as Silicon may specify in its good faith business judgment, and, subject
to the Streamline Provisions, at all times thereafter all proceeds of
Collateral shall be deposited by Borrower into such lockbox account or other
blocked account (as the case may be).

     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 and is continuing, 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 Accounts. Borrower shall not forgive (completely or
partially), compromise or settle any Account 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.

     * , in excess of $25,000 individually or in the aggregate at any one time,

     4.7 Returns. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower, Borrower
shall promptly determine the reason for such return and promptly issue a credit
memorandum to the Account Debtor in the appropriate amount. In the event any
attempted return occurs after the occurrence and during the continuance of any
Event of Default, Borrower shall hold the returned Inventory in trust for
Silicon, and immediately notify Silicon of the return of the Inventory.

     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 Accounts, 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 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 an Account, or for any
error, act, omission, or delay of any kind occurring in the settlement, failure
to settle, collection or failure to collect any Account, or for settling any
Account 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 an Account. 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 that are customary and in accordance with standard
practices for Borrower’s industry and locations, and Borrower shall provide
evidence of such insurance to Silicon. All such insurance policies shall name
Silicon as an additional insured and loss payee, and shall contain a lenders
(or mortgagee) 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 good
faith business judgment, 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 material reports made to insurance companies.

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

     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 specify in
its good faith business judgment.

     5.4 Access to Collateral, Books and Records. At reasonable times, and on
at least 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 $750 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. In the event Borrower and Silicon schedule
an audit more than 10 days in advance, and Borrower seeks to reschedules the
audit with less than 10 days written notice to Silicon, then (without limiting
any of Silicon’s rights or remedies), Borrower shall pay Silicon a cancellation
fee of $1,000 plus any out-of-pocket expenses incurred by Silicon, to
compensate Silicon for the anticipated costs and expenses of the cancellation.

     * ; provided, however, that the number of separate inspections and audits
(it being understood that inspections and audits taking place at one or more
locations of Borrower during substantially the same overall examination period
shall constitute but a single inspection and audit for purposes of the
foregoing proviso) conducted by Silicon, in the absence of any Event of
Default, shall not exceed 4 in any 12-month period commencing from and after
the date of this Agreement

     5.5 Negative Covenants. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon’s prior written consent (which shall be a
matter of its good faith business judgment), 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 could reasonably be expected to result
in a Material Adverse Change; (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 or other equity securities ***; (xii) make
any change in Borrower’s capital structure which could reasonably be expected
to result in a Material Adverse Change; or (xiii) engage, directly or
indirectly, in any business other than the businesses currently engaged in by
Borrower or reasonably related thereto; or (xiv) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section 5.5 are
only permitted if no Default or Event of Default would occur as a result of
such transaction.

     † (other than assets that are immaterial, individually or in the
aggregate)

     * (except, with respect to each Borrower, a guaranty by such Borrower in
favor of Silicon relative to each other Borrower)

     ** : (a) dividends paid to any Borrower by any subsidiary of such
Borrower; and (b)

     *** , except for the repurchases of stock from former employees, officers,
directors, and contractors, of Borrower under the terms of applicable
repurchase or similar agreements between Borrower and such employees, officers,
directors, and contractors, all in an aggregate amount not to exceed $250,000
in any 12-month period

     5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or 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, in its
good faith business judgment, deem necessary or useful in order to perfect, and
maintain the first-lien-priority of, Silicon’s security interests in the
Collateral (subject in lien priority only to those Permitted Liens that are
expressly entitled to such priority over the security interests of Silicon by
operation of law or by written subordination agreement duly executed and
delivered by Silicon in favor of the holders of such Permitted Liens), and in
order to fully consummate the transactions contemplated by this Agreement.

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

6. TERM.

     6.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth in Section 4 of the Schedule (the “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 and during the continuance 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.

     * one percent (1.0%)

     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 105% of the face amount of all such Letters of Credit plus all
interest, fees and cost due or to become due in connection therewith (as
estimated by Silicon in its good faith business judgment), 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 Silicon may, in its sole discretion, refuse to make any further Loans and
other extensions of credit 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 terminate its financing statements with respect to the Borrower and
deliver to Borrower such other documents as may be required to fully terminate
Silicon’s security interests.

     * (other than Contingent Indemnification Obligations not yet due)

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 when made or deemed
to be made; 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 (i) shall fail to comply with any of the financial covenants set forth
in the Schedule, or (ii) shall fail to perform any other non-monetary
Obligation which by its nature cannot be cured, or (iii) shall fail to permit
Silicon to conduct an inspection or audit as specified in Section 5.4 hereof;
or (e) Borrower shall fail to perform any other non-monetary Obligation, which
failure is not cured within five 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 resulted or could reasonably be expected to result in a
Material Adverse Change; or (i) Dissolution, termination of existence,
insolvency or business failure of Borrower or any guarantor of the Obligations;
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 or any guarantor 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; 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
(l) revocation or termination of, or limitation or denial of liability upon,
any pledge

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     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) a Material
Adverse Change shall occur; or (q) an event of default has occurred and is
continuing under any other Loan Document (after giving effect (without
duplication hereof) of all applicable cure periods, if any). Silicon may
cease making any Loans and other extensions of credit hereunder during any
of the above cure periods, and thereafter if an Event of Default has
occurred and is continuing.

     * an Overadvance exists and Borrower shall fail to repay the same to
Silicon in accordance with Section 1.3 hereof; provided, however, if an
Overadvance results directly from a change by Silicon of the amount of
Reserves, the Advance Rate, or what constitutes the Minimum Eligibility
Requirements, or directly from an adverse change by Silicon in the
determination of eligibility of Accounts that meet the Minimum Eligibility
Requirements, then if Borrower fails to repay such Overadvance within 3
Business Days of such Overadvance occurring

     † 45 days

     ** without the prior written consent of Silicon, (1) a “person” or “group”
(within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934, as amended) becomes, after the date of this Agreement, the
“beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended), directly or indirectly, of more than 20% of the total
voting power of all classes of capital stock then outstanding of GIGA-TRONICS,
or (2) a majority of the members of the Board of Directors of GIGA-TRONICS
shall not constitute Continuing Directors, or (3) GIGA-TRONICS shall cease to
own and control, beneficially and of record, 100% of the issued and outstanding
capital stock of each other Borrower

     7.2 Remedies. Upon the occurrence and during the continuance 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
Loan Document; (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 necessary, in its good faith business judgment, in order to complete
the enforcement of its rights under this Agreement or any other Loan Document;
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, and other 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 Accounts and General Intangibles
comprising Collateral and, in connec-

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tion 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 good faith business judgment, to grant extensions of time to
pay, compromise claims and settle Accounts and the like for less than face
value; (h) Effect an administrative “hold” or offset against any sums in any of
Borrower’s general, special or other Deposit Accounts with Silicon against any
or all of the Obligations; 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
and during the continuance of any Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional four percent
per annum (the “Default Rate”).

     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 ten days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least ten 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 and during the continuance 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 that if it exercises any right hereunder, it will do so in good faith
and in a commercially reasonable manner: (a) Execute on behalf of Borrower any
documents that Silicon may, in its good faith business judgment, 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 Loan Documents; (b) Execute on behalf of Borrower, any invoices relating
to any Account, 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; (c) 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; (d) Endorse all checks and
other forms of remittances received by Silicon; (e) 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; (f) Grant extensions of time to pay,
compromise claims and settle Accounts and General Intangibles for less than
face value and execute all releases and other documents in connection
therewith; (g) Pay any sums required on account of Borrower’s taxes or to
secure the release of any liens therefor, or both; (h) Settle and adjust, and
give releases of, any insurance claim that relates to any of the Collateral and
obtain payment therefor; (i) 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 (j) Take any action or pay any sum required of
Borrower pursuant to this Agreement and any other Loan Documents. 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.

     * reasonable

     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 good faith

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business judgment, 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 good faith business
judgment, 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.

* reasonable

** good faith business judgment

     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 in cash and otherwise performed and this
Agreement has been terminated.

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

     “Account Debtor” means the obligor on an Account.

     “Accounts” means all present and future “accounts” as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without
limitation all accounts receivable and other sums owing to Borrower.

     “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.

     “Bankruptcy Code” means the United States Bankruptcy Code (11 U.S.C.
Sections 101 et seq.), as amended, and any successor statute.

     “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 above.

     “continuing” and “during the continuance of” when used with reference to a
Default or Event of Default means that the Default or Event of Default has
occurred and has not been either waived in writing by Silicon or cured within
any applicable cure period.

     "Continuing Director” means (a) any member of the Board of Directors who
was a director (or comparable manager) of Borrower on the date of this
Agreement, and (b) any individual who becomes a member of the Board of
Directors after the date of this Agreement if such individual was appointed or
nominated for election to the Board of Directors by a majority of the
Continuing Directors, but excluding any such individual originally proposed for
election in opposition to the Board of Directors in office at the date of this
Agreement in an actual or threatened election contest relating to the election
of the directors (or comparable managers) of Borrower (as such terms are used
in Rule 14a-11 under the Securities Exchange Act of 1934, as amended) and whose
initial assumption of office resulted from such contest or the settlement
thereof.

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

     “Deposit Accounts” means all present and future “deposit accounts” as
defined in the California Uniform Commercial Code in effect on the date hereof
with such additions to such term as may hereafter be made, and includes without
limitation all general and special bank accounts, demand accounts, checking
accounts, savings accounts and certificates of deposit.

     “Eligible Accounts” means Accounts arising in the ordinary course of
Borrower’s business from the sale of goods or the rendition of services, or the
non-exclusive licensing of Intellectual Property, which Silicon, in its good
faith business judgment, shall deem eligible for borrowing. Without limiting
the fact that the determination of which Accounts are eligible for borrowing is
a matter of Silicon’s good faith business judgment, the requirements in the
remainder of this definition (the “Minimum Eligibility Requirements”) are the
minimum requirements for an Account to be an Eligible Account: (i) the Account
must not be outstanding for more than 90 days from its invoice date (the
“Eligibility Period”); (ii) the Account must not represent progress billings,
or be due under a fulfillment or requirements contract with the Account Debtor;
(iii) the

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	 	 	Account must not be subject to any contingencies (including Accounts
arising from sales on consignment, guaranteed sale or other terms pursuant to
which payment by the Account Debtor may be conditional); (iv) the Account must
not be owing from an Account Debtor with whom Borrower has any dispute (whether
or not relating to the particular Account); (v) the Account must not be owing
from an Affiliate of Borrower; (vi) the Account 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 Account 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 Account must not be
owing from an Account Debtor located outside the United States or those
provinces or territories of Canada that have adopted the Personal Property
Security Act (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 Account must not be owing from an Account
Debtor to whom Borrower is or may be liable for goods or services purchased by
Borrower, or third-party intellectual property licensed by Borrower (as
licensee), from such Account Debtor or otherwise (but, in such case, the
Account will be deemed not eligible only to the extent of any amounts owed by
Borrower to such Account Debtor) *. Accounts owing from one Account Debtor will
not be deemed Eligible Accounts to the extent they exceed 25% of the total
Accounts outstanding. In addition, if more than 50% of the Accounts owing from
an Account Debtor are outstanding for a period longer than their Eligibility
Period (without regard to unapplied credits) or are otherwise not eligible
Accounts, then all Accounts owing from that Account Debtor will be deemed
ineligible for borrowing. Silicon may, from time to time, in its good faith
business judgment, revise the Minimum Eligibility Requirements, upon ** written
notice to Borrower.

     † in its good faith business judgment

     * ; (x) the Account must not be owing by an Account Debtor as to whom
Borrower has recognized or can recognize deferred revenue, unless and in which
case the portion of such Account that is equal to such deferred revenue amount
shall be ineligible under this clause (x); (xi) the Account must not arise from
the sale, lease, licensing, assignment, or other disposition of any Registered
Copyright of Borrower, unless Borrower is in full compliance with Section 8(3)
of the Schedule with respect to such Account and the underlying Registered
Copyright; and (xii) the Account must have been billed to the Account Debtor.

     ** at least 3 Business Days prior

     “Eligible Inventory” means Inventory that Silicon, in its good faith
business judgment, deems eligible for borrowing. Without limiting the fact
that the determination of which Inventory is eligible for borrowing is a matter
of Silicon’s good faith business judgment, the requirements in the remainder of
this definition (the “Minimum Inventory Eligibility Requirements”) are the
minimum requirements for Inventory to be Eligible Inventory: the Inventory
must (i) consist of * finished goods, in good, new and salable condition, not
be perishable, not be obsolete or unmerchantable, and not be comprised of raw
materials, work in process, packaging materials or supplies; (ii) meet all
applicable governmental standards; (iii) have been manufactured in compliance
with the Fair Labor Standards Act; (iv) conform in all respects to the
warranties and representations set forth in this Agreement and the other Loan
Documents; (v) be at all times subject to Silicon’s duly perfected, first
priority security interest; (vi) be situated at Borrower’s Address or at one of
the locations within the United States that are set forth in the
Representations; and (vii) are not the subject of any lien or other interest of
any landlord or bailee that has priority over the security interests of
Silicon, unless such landlord or bailee (as the case may be) has executed and
delivered in favor of Silicon a landlord agreement or bailee agreement (as the
case may be), in form and substance acceptable to Silicon in its good faith
business judgment and in full force and effect **. Silicon may, from time to
time, in its good faith business judgment, revise the Minimum Inventory
Eligibility Requirements, upon *** written notice to Borrower.

     * raw materials or

     ** , or unless satisfactory Reserves, in respect of such liens or other
interests of such landlord or bailee, are established and maintained by Silicon
in its good faith business judgment

     *** at least 3 Business Days prior

     “Equipment” means all present and future “equipment” as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without
limitation all machinery, fixtures, goods, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing.

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

     “GAAP” means generally accepted accounting principles consistently
applied.

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“General Intangibles” means all present and future “general intangibles” as
defined in the California Uniform Commercial Code in effect on the date hereof
with such additions to such term as may hereafter be made, and includes without
limitation all Intellectual Property, payment intangibles, royalties, contract
rights, goodwill, franchise agreements, purchase orders, customer lists, route
lists, telephone numbers, domain names, claims, income tax refunds, security
and other deposits, options to purchase or sell real or personal property,
rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man,
property damage, and business interruption insurance), payments of insurance
and rights to payment of any kind.

     “good faith business judgment” means honesty in fact and good faith (as
defined in Section 1201 of the Code) in the exercise of Silicon’s business
judgment.

     “including” means including (but not limited to).

     “Intellectual Property” means all present and future (a) copyrights,
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, (b) trade secret rights, including all rights to
unpatented inventions and know-how, and confidential information; (c) mask work
or similar rights available for the protection of semiconductor chips; (d)
patents, patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
applications to register and registrations of the same and like protections,
and the entire goodwill of the business of Borrower connected with and
symbolized by any such trademarks; (f) computer software and computer software
products; (g) designs and design rights; (h) technology; (i) all claims for
damages by way of past, present and future infringement of any of the rights
included above; (j) all licenses or other rights to use any property or rights
of a type described above.

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

     “Investment Property” means all present and future investment property,
securities, stocks, bonds, debentures, debt securities, partnership interests,
limited liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets
held in any securities account or otherwise, and all options and warrants to
purchase any of the foregoing, wherever located, and all other securities of
every kind, whether certificated or uncertificated.

     “Loan Documents” means, collectively, this Agreement, the Representations,
and all other present and future documents, instruments and agreements between
Silicon and Borrower (or any guarantor of the Obligations), including, but not
limited to those relating to this Agreement, and all amendments and
modifications thereto and replacements therefor.

     “Material Adverse Change” means any of the following: (i) a material
adverse change in the business, operations, or financial or other condition of
the Borrower *, or (ii) a material impairment of the prospect of repayment of
any portion of the Obligations; or (iii) a material impairment of the value or
priority of Silicon’s security interests in the Collateral.

     * taken as a whole

     “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, or otherwise, 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 Loan Documents (including any interest and
other amounts that, but for the provisions of the Bankruptcy Code, would have
accrued).

     * reasonable

     “Other Property” means the following as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and all rights relating thereto: all present and
future “commercial tort claims” (including without limitation any commercial
tort claims identified in the Representations), “documents”, “instruments”,
“promissory notes”, “chattel paper”, “letters of credit”, “letter-of-credit
rights”, “fixtures”, “farm products” and

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“money”; and all other goods and personal property of every kind, tangible and
intangible, whether or not governed by the California Uniform Commercial
Code.

     “Payment” means all checks, wire transfers and other items of payment
received by Silicon (including proceeds of Accounts and payment of the
Obligations in full) for credit to Borrower’s outstanding Loans or, if the
balance of the Loans have been reduced to zero, for credit to its Deposit
Accounts.

     “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 may be
withheld in its good faith business judgment; (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.

     * (A) inchoate liens for taxes not yet payable; and (B) liens for taxes
(other than payroll taxes or taxes that are the subject of a United States
federal tax lien) being diligently contested by Borrower in good faith,
provided that (1) a reserve with respect to such obligation is established on
the books of Borrower in accordance with GAAP (or, if higher, in an amount that
Silicon in its good faith business judgment believes to be appropriate under
the circumstances), and (2) Silicon is satisfied that, while any such protest
is pending, there will be no impairment of the enforceability, validity, or
priority of any of the security interests of Silicon in and to the Collateral

     ** (A) owing to such lienholders that: (A) are not yet delinquent; or (B)
are being diligently contested by Borrower in good faith, provided that (1) a
reserve with respect to such obligation is established on the books of Borrower
in accordance with GAAP (or, if higher, in an amount that Silicon in its good
faith business judgment believes to be appropriate under the circumstances),
and (2) Silicon is satisfied that, while any such protest is pending, there
will be no impairment of the enforceability, validity, or priority of any of
the security interests of Silicon in and to the Collateral

     “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.

     "Registered Copyright” means any software, maskwork, work of authoriship,
or other copyright that is registered (or is the subject of an application for
registration) with the United States Copyright Office (a “Registered
Copyright”).

     “Representations” means the written Representations and Warranties
provided by Borrower to Silicon referred to in the Schedule.

     “Reserves” means, as of any date of determination, such amounts as Silicon
may from time to time establish and revise in its good faith business judgment,
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 its good faith
business judgment, do or may adversely 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 Accounts), (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.

     "Streamline Provisions” means the set of provisions set forth in Section 9
of the Schedule.

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	 	Loan and Security Agreement
	 	 	

     Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP, 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; Float Charge. In computing interest on the
Obligations, all Payments received after 12:00 Noon on any day shall be deemed
received on the next Business Day. In addition, Silicon shall be entitled to
charge Borrower a “float” charge in an amount equal to three Business Days
interest, at the interest rate applicable to the Loans, on all Payments *
received by Silicon. Said float charge is not included in interest for
purposes of computing Minimum Monthly Interest (if any) under this Agreement.
The float charge for each month shall be payable on the last day of the month.
Bank shall not be required to credit Borrower’s account for the amount of any
item of payment which is unsatisfactory to Bank in its good faith business
judgment, and Bank may charge Borrower’s loan account for the amount of any
item of payment which is returned to Bank unpaid.

     * (other than wire transfers, which shall be credited as a Payment as of
the date of receipt or deemed receipt)

     9.2 Application of Payments. All payments with respect to the
Obligations may be applied, and in Silicon’s good faith business judgment
reversed and re-applied, to the Obligations, in such order and manner as
Silicon shall determine in its good faith business judgment.

     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 any one or more of 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 60 days after such account
is rendered, describing the nature of any alleged errors or omissions.

     * In the absence of manifest error, such

     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 as follows: (a) if to Borrower, * at the address for
Borrower shown in the heading to this Agreement; or (b) if to Silicon, at the
address for Silicon shown in the introductory paragraph of this Agreement; or
(c) at any other address designated in writing by one party to the other party
in accordance with this Section 9.5. 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.

     * (in care of GIGA-TRONICS with respect to any and all Borrowers)

     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; Indemnity. 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 Loan Document 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 Loan Document 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 the benefit of all statutes of limitations
relating to any of the Obligations or this Agreement or any other Loan
Document, and Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,

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	 	Loan and Security Agreement
	 	 	

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 or any other Loan
Document. Borrower hereby agrees to indemnify Silicon and its affiliates,
subsidiaries, parent, directors, officers, employees, agents, and attorneys,
and to hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties, costs
and expenses (including reasonable attorneys’ fees), of every kind, which they
may sustain or incur based upon or arising out of any of the Obligations, or
any relationship or agreement between Silicon and Borrower, or any other
matter, relating to Borrower or the Obligations; provided that, with respect to
any indemnitee, this indemnity shall not extend to damages proximately caused
by such indemnitee’s own gross negligence or willful misconduct.
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement and shall for all purposes continue in full force and effect.

     * To the maximum extent permitted by applicable law,

     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 all present and future 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 Section 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 Loan Document, 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

15

 

					
	 
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	 	Loan and Security Agreement
	 	 	

     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 Loan Document.

     * two years

     ** two-year

     9.16 Section Headings; Construction. Section 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
section, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. 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 (except to
the extent expressly provided to the contrary) the other Loan Documents and all
acts and transactions hereunder and (except to the extent expressly provided to
the contrary) thereunder 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 and the other Loan
Documents, Borrower (i) agrees that all actions and proceedings relating
directly or indirectly to this Agreement and the other Loan Documents 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.

     [remainder of page intentionally left blank; signature page follows]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.

	 	 	 	 	 	 	 	 	 	 	 	 
	Borrower:	 	Borrower:
	

	 	 	 	 	 	 	 	 	 	 
	

	 	GIGA-TRONICS INCORPORATED	 	 	 	ASCOR, INC.
	

	 	 	 	 	 	 	 	 	 	 
	

	 	By
	 	/s/ Mark H. Cosmez II
	 	 	 	By
	 	/s/ Mark H. Cosmez II
	

	 	 	 	
 
	 	 	 	 	 	
 
	

	 	 	 	President or Vice President
	 	 	 	 	 	President or Vice President
	

	 	 	 	 	 	 	 	 	 	 
	

	 	By
	 	/s/ G.H. Bruns, Jr.
	 	 	 	By
	 	/s/ G.H. Bruns, Jr.
	

	 	 	 	
 
	 	 	 	 	 	
 
	

	 	 	 	Secretary or Assistant Secretary
	 	 	 	 	 	Secretary or Assistant Secretary
	

	 	 	 	 	 	 	 	 	 	 
	Borrower:	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	

	 	MICROSOURCE, INC.	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	

	 	By
	 	/s/ Mark H. Cosmez II	 	 	 	 	 	 
	

	 	 	 	
 	 	 	 	 	 	 
	

	 	 	 	President or Vice President	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	

	 	By
	 	/s/ G.H. Bruns, Jr.	 	 	 	 	 	 
	

	 	 	 	
 	 	 	 	 	 	 
	

	 	 	 	Secretary or Assistant Secretary	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	Silicon:	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	SILICON VALLEY BANK	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	By

	 	/s/ Tim Walsh	 	 	 	 	 	 
	

	 	 	 	
 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	Title

	 	Senior V. P.	 	 	 	 	 	 
	

	 	 	 	
 	 	 	 	 	 	 

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

Silicon Valley Bank

Schedule to

Loan and Security Agreement

	 	 	 
	Borrower:

	 	GIGA-TRONICS INCORPORATED, a California corporation
(“GIGA-TRONICS”); ASCOR, INC., a California corporation
(“ASCOR”); and MICROSOURCE, INC., a California corporation
(“MICROSOURCE”)
	 
	 	 
	Address:

	 	4650 Norris Canyon Road

San Ramon, CA 94583
	 
	 	 
	Date:

	 	June 21, 2004

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):	 	
Subject to the terms and conditions of the Agreement and this
Schedule, and during the period commencing on the date of this
Agreement and ending on the Business Day immediately preceding the
Maturity Date, Silicon will make revolving advances in an aggregate
outstanding amount not to exceed the lesser of the Maximum Credit Limit
(as defined below) and the Borrowing Base (as defined below).

As used herein, the term “Maximum Credit Limit”
means $2,500,000.
	 	 	 	 	As used herein, the term “Borrowing Base” means, as
of any date of determination, the result of:
	

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(1) 80%(the “Accounts Advance Rate” and also an
“Advance Rate”) of the amount of Borrower’s
Eligible Accounts (as defined in Section 8
above), plus
	

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(2) an amount not to exceed the lowest of:
	

	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(a) 25% (the “Inventory Advance Rate” and
also an “Advance Rate”) of the value of
Borrower’s Eligible Inventory (as defined in
Section 8 above), calculated at the lower of
cost or market value and determined on a
first-in, first-out basis, or

 

 

					
	 
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	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(b) $500,000, or.
	

	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	(c) 50% (the “Inventory/Accounts
Availability Ratio” and also an
“Advance Rate”) of the amount of
credit availability created by
clause (1) above of this
definition of “Borrowing Base”.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	Silicon may, from time to time, modify the Advance
Rates, in its good faith business judgment, upon at
least 3 Business Days prior written notice to the
Borrower, based on changes in collection experience
with respect to Accounts, its evaluation of the
Inventory, or other issues or factors relating to the
Accounts, Inventory or other Collateral.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	Loans and other extensions of credit will be made to each
Borrower based on the Eligible Accounts and Eligible
Inventory of such Borrower, subject to the Maximum Credit
Limit for all Loans and other extensions of credit to all
Borrowers combined.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	FX Sublimit: $100,000; provided, however, that the sum
of the FX Reserve, plus the aggregate amount of
Obligations in respect of Cash Management Services,
shall not at any time exceed $100,000.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	Borrower may enter into foreign exchange forward
contracts with Silicon, on its standard forms, under
which Borrower commits to purchase from or sell to
Silicon a set amount of foreign currency more than one
Business Day after the contract date (the “FX Forward
Contracts”); provided that (1) at the time the FX
Forward Contract is entered into, Borrower has credit
availability under this Agreement in an amount at least
equal to 10% of the amount of the FX Forward Contract;
(2) the total FX Forward Contracts at any one time
outstanding may not exceed 10 times the amount of the FX
Sublimit set forth above. Silicon shall have the right
to withhold, from the Loans or other extensions of
credit otherwise available to Borrower under this
Agreement, a reserve (which shall be in addition to all
other reserves) in an amount equal to 10% of the total
FX Forward Contracts from time to time outstanding (the
“FX Reserve”), and in the event at any time there are
insufficient Loans and other extensions of credit
available to Borrower for such reserve, Borrower shall
deposit and maintain with Silicon cash collateral in an
amount at all times equal to such deficiency, which
shall be held as Collateral for all purposes of this
Agreement. Silicon may, in its discretion, terminate the
FX Forward Contracts at any time that an Event of
Default occurs and is continuing. The FX Forward
Contracts shall terminate upon the earlier of (a) the
Maturity Date, or (b) any earlier effective date of
termination of this Agreement (or such later date
requested by Borrower as Silicon may agree in writing in
its sole discretion if and to the extent Borrower’s
Obligations in respect of the FX Forward Contracts are
secured by cash in amounts and on terms and conditions

2

 

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 
	 	 	 	 	acceptable to Silicon in its good faith business
judgment). Borrower shall execute all standard
form applications and agreements of Silicon in
connection with the FX Forward Contracts, and
without limiting any of the terms of such
applications and agreements, Borrower shall pay
all standard fees and charges of Silicon in
connection with the FX Forward Contracts. All
amounts that Silicon pays or expends in respect of
any FX Forward Contracts shall constitute
Obligations hereunder.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	Cash Management Services and Reserves: Borrower
may use up to $100,000 of Loans available
hereunder for Silicon’s Cash Management Services
(as defined below) identified in the cash
management services agreement related to such
services (the “Cash Management Services”);
provided, however, that the sum of the FX Reserve,
plus the aggregate amount of Obligations in
respect of Cash Management Services, shall not at
any time exceed $100,000. Silicon will reserve
against Loans and other extensions of credit which
would otherwise be available hereunder such sums
as Silicon shall determine in its good faith
business judgment 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 upon the
earlier of (a) the Maturity Date, or (b) any
earlier effective date of termination of this
Agreement (or such later date requested by
Borrower as Silicon may agree in writing in its
sole discretion if and to the extent Borrower’s
Obligations in respect of the Cash Management
Services are secured by cash in amounts and on
terms and conditions acceptable to Silicon in its
sole discretion). Upon the occurrence and during
the continuation of an Event of Default, Silicon
shall have the right to require the Obligations in
respect of the Cash Management Services to be
secured by cash in amounts and on terms and
conditions acceptable to Silicon in its good faith
business judgment.

3

 

					
	 
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	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	

	2.

	 	INTEREST.	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 
	 	 	Interest Rate
(Section 1.2):	 	
An annual rate equal to the sum of the “Prime Rate”
in effect from time to time, plus 1.50% per annum.
Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed.
As used in this Agreement, “Prime Rate” means the
interest rate announced from time to time by Silicon
as its “prime rate” (which 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 applicable to the Obligations
shall change on each date there is a change in the
Prime Rate.
	

	 	 	 	 	 	 	 	 
	 	 	Minimum
Monthly
Interest
(Section 1.2):	 	
n/a per month.
	

	 	 	 	 	 	 	 	 
	

	3.

	 	FEES
(Section 1.4):	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 
	 	 	Loan Fee:	 	$25,000, payable concurrently herewith.
	

	 	 	 	 	 	 	 	 
	 	 	Collateral

Monitoring

Fee:	 	

n/a
	

	 	 	 	 	 	 	 	 
	 	 	Unused Line

Fee:	 	
Borrower shall pay to Bank, monthly in arrears, an
unused line fee equal to the product of 0.50% per annum multiplied
by the amount by which the Maximum Credit Limit exceeds the average
daily principal balance of the outstanding Loans during the
immediately preceding month (or part thereof), during the period
commencing on the date of this Agreement and ending on the Maturity
Date, and for so long thereafter as any of the Obligations relative
to Loans are outstanding, which fee shall be payable on the 1st day
following the end of each month.
	

	 	 	 	 	 	 	 	 
	

	4.	 	MATURITY DATE
(Section 6.1)	 	
364 days following the date of this Agreement.
	

	 	 	 	 	 	 	 	 
	

	5.	 	FINANCIAL
COVENANTS
(Section 5.1):	 	

Borrower shall comply with each of the following covenants.
Compliance shall be determined as of the end of each month, except as
otherwise specifically provided below:

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 
	 	 	Minimum

Liquidity:	 	
At all times, Borrower shall maintain Liquidity of not less than $800,000.
	

	 	 	 	 	 	 	 	 
	 	 	Minimum
Tangible

Net Worth:	 	
Borrower shall maintain, on a consolidated basis, a Tangible Net Worth of not less than the sum of
clauses (i) and (ii) below (the “Required TNW Amount”): (i) the TNW Base Amount (as defined below); plus
(ii) 75% of all consideration (net of reasonable, customary expenses of such sale and issuance) received
by or for the account of Borrower after the date hereof for the issuance and sale of equity securities of
GIGA-TRONICS and subordinated debt of Borrower (other than such consideration received upon the exercise
of stock options by employees, consultants, and advisors of Borrower not in excess of $100,000 in the
aggregate).
	

	 	 	 	 	 	 	 	 
	 	 	 	 	As used herein, the term “TNW Base Amount” means, as of any date of determination: (a) $7,500,000 during
the period prior to October 1, 2004; (b) $7,000,000 during the period commencing on October 1, 2004 and
ending on December 31, 2004; and (c) $6,500,000 at all times from and after January 1, 2005.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	Increases in the Required TNW Amount based on such consideration received for the issuance and sale of
such equity securities and subordinated debt shall be effective as of the end of the month in which such
consideration is received, and shall continue effective thereafter. In no event shall the Required TNW
Amount be decreased (except as a result of step-downs in the TNW Base Amount as set forth in the
definition thereof).
	

	 	 	 	 	 	 	 	 
	 	 	Definitions.	 	For purposes of the foregoing financial covenants, the following term shall have the following meaning:
	

	 	 	 	 	 	 	 	 
	 	 	 	 	“Liabilities” shall have the meaning ascribed thereto by GAAP.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	“Liquidity” means, as of any date of determination, the sum of (i) the aggregate amount of Borrower’s
unrestricted cash maintained on deposit with Silicon, plus (ii) the amount of Loans and other extensions
of credit then available to Borrower under Section 1 of this Schedule (after giving effect to all such
Loans and other extensions of credit outstanding and, without duplication, all applicable reserves).
	

	 	 	 	 	 	 	 	 
	 	 	 	 	“Tangible Net Worth” shall mean the excess of total assets less total liabilities, determined in
accordance with GAAP, with the following adjustments:

5

 

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	

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

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(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
Silicon agrees in writing is acceptable to
Silicon in its good faith business judgment.
	

	 	 	 	 	 	 	 	 
	6.

	 	REPORTING.
(Section 5.3):	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 
	 	 	 	 	Borrower shall provide Silicon with the following:
	

	 	 	 	 	 	 	 	 
	 	 	 	 	1.	 	Subject to the
Streamline Provisions, transaction reports and
schedules of collections, each week and at the
time of each Loan request, on Silicon’s
standard form
	

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

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

	 	 	 	 	 	 	 	 
	 	 	 	 	4.	 	Subject to the
Streamline Provisions, monthly reconciliations
of accounts receivable agings (aged by invoice
date), deferred revenue report, transaction
reports, outstanding or held check registers
(if any), and general ledger, within fifteen
days after the end of each month.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	5.	 	Subject to the
Streamline Provisions, 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 GAAP) or such
other inventory reports as are requested by
Silicon in its good faith business judgment,
all within fifteen days after the end of each
month.
	

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

	 	 	 	 	 	 	 	 
	 	 	 	 	7.	 	Monthly Compliance
Certificates, within thirty days after the end
of each month, in such form as Silicon shall
reasonably specify,

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	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.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	8.	 	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.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	9.	 	Annual financial statements, as soon as
available, and in any event within 120 days following the
end of Borrower’s fiscal year, certified by, and with an
unqualified opinion of, independent certified public
accountants reasonably acceptable to Silicon.
	

	 	 	 	 	 	 	 	 
	With respect to the financial statements referred to above, Borrower agrees to
deliver financial statements prepared on both a consolidated and consolidating basis and agrees that no
subsidiary of Borrower will have a fiscal year different from that of Borrower.
	

	 	 	 	 	 	 	 	 
	

	7.	 	BORROWER

INFORMATION:
	

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Borrower represents and warrants that the information set
forth in the Representations and Warranties of the Borrower
dated June 4, 2004 previously submitted to Silicon (the
“Representations”) is true and correct as of the date
hereof.
	

	8.	 	ADDITIONAL

PROVISIONS
	

	 	 	 	 	 	 	 	 
	 	 	 	 	(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 85% 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 30 days after the date of this Agreement, to enter
into a control agreement in form acceptable to Silicon in its
good faith business judgment in order to perfect Silicon’s
first-priority security interest in said Deposit Accounts and
investment accounts. Thereafter, Borrower shall not maintain
any Deposit Accounts or investment accounts with any

7

 

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	bank, securities intermediary, or other
institution unless Silicon has received such a
control agreement duly executed by such party in
favor of Silicon covering such Deposit Account
or investment account, as the case may be.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	(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,
except for the following: NONE. 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.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	(3)	 	Copyrights, Patents,
and Trademarks
	

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(a) Concurrently
herewith, Borrower shall execute and
deliver to Silicon a security agreement
relative to Borrower’s Intellectual
Property, in form and substance
satisfactory to Silicon (the “IP Security
Agreement”). Exhibit A attached to the IP
Security Agreement identifies, as of the
date of this Agreement, any and all
Registered Copyrights of Borrower
(collectively, the “Existing Registered
Copyrights”). Except for the Existing
Copyright Registrations, Borrower will NOT
register with the United States Copyright
Office (or apply for such registration of)
any of Borrower’s maskworks, computer
software, or other copyrights, unless
Borrower has provided Silicon not less than
30 days prior written notice of the
commencement of such
registration/application and Borrower has
executed and delivered to Silicon such
security agreement(s) and other
documentation (in form and substance
reasonably satisfactory to Silicon) which
Silicon in its good faith business judgment
may require for filing with the United
States Copyright Office with respect to
such registration or application.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(b) Borrower
will identify to Silicon in writing any and
all patents and trademarks of Borrower that
are registered (or the subject of any
application for registration) with the
United States Patent and Trademark Office
and, upon Silicon’s request therefor,
promptly execute and deliver to Silicon
such security agreement(s) and other
documentation (in form and substance
reasonably satisfactory to Silicon) which
Silicon in its good faith business judgment
may require for filing with the United
States Patent and Trademark Office with
respect to such registration or
application.

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	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(c) Borrower
will: (i) protect, defend and maintain the
validity and enforceability of Borrower’s
respective copyrights, patents, and
trademarks; (ii) promptly advise Silicon in
writing of material infringements of
Borrower’s copyrights, patents, or
trademarks of which Borrower is or becomes
aware; and (iii) not allow any material
item of Borrower’s copyrights, patents, or
trademarks to be abandoned, forfeited or
dedicated to the public without Silicon’s
written consent.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	(4)	 	Landlord Agreement.
With respect to any leased premises of
Borrower, Borrower shall, promptly upon
Silicon’s request therefor, use commercially
reasonable efforts to deliver to Silicon a
landlord agreement (in form and substance
satisfactory to Silicon) duly executed by the
lessor of such leased premises. In the event
that Silicon requests such a landlord agreement
and Borrower uses such efforts but does not
succeed in delivering such a landlord
agreement, Silicon may (in its good faith
business judgment) maintain a Reserve with
respect to such leased premises.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	(5)	 	Bailee Agreement.
Borrower hereby represents and warrants that,
as of the date of execution and deliver of this
Agreement, no goods of Borrower are in the
possession of any warehouseman or other bailee
(other than as expressly identified in Section
3(f) of the Representations), and hereby
covenants that Borrower promptly shall deliver
written notice to Silicon of any goods of
Borrower being in the possession of any other
warehouseman or other bailee. With respect to
any goods or other Collateral of Borrower in
the possession of any warehouseman or other
bailee, Borrower shall, promptly upon Silicon’s
request therefor, use commercially reasonable
efforts to deliver to Silicon a bailee
agreement (in form and substance satisfactory
to Silicon) duly executed by such warehouseman
or other bailee. In the event that Silicon
requests such a bailee agreement and Borrower
uses such efforts but does not succeed in
delivering such a bailee agreement, Silicon may
(in its good faith business judgment) maintain
a Reserve with respect to such warehouse or
other bailee location.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	(6)	 	Ultracision & Viking
Subsidiaries. Borrower hereby represents and
warrants that: (y) each of ULTRACISION, INC., a
California corporation (“Ultracision”); and
VIKING SEMICONDUCTOR EQUIPMENT, INC., a
California corporation (“Viking”), is a
wholly-owned Subsidiary of GIGA-TRONICS; and (z)
each of Ultracision and Viking does not conduct
any material business activity and does not own
any material assets. Borrower hereby covenants
and agrees that: (a)

9

 

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Borrower shall not transfer any funds or
assets (including Collateral) to any one or more
of Ultracision and Viking; (b) GIGA-TRONICS
shall not cause, suffer, or permit any one or
more of Ultracision and Viking conduct any
material business activity or own any material
assets; and (c) on or before the date 120 days
following the date of this Agreement, Borrower
shall either (i) deliver to Silicon evidence
(satisfactory to Silicon in its good faith
business judgment) that each of Ultracision and
Viking has wound up and dissolved in accordance
with applicable law, or (ii) cause Ultracision
and Viking, if and to the extent not timely
wound up and dissolved pursuant to the foregoing
clause (i), to execute and deliver such
joinders, supplements, or other Loan Documents
(in each case, in form and substance
satisfactory to Silicon in its good faith
business judgment) as Silicon requires in order
that Ultracision and Viking become additional
Borrowers under this Agreement and additional
obligors under the other Loan Documents in the
same capacity as the respective Borrowers’
capacities hereunder and thereunder. Without
limiting the generality of the foregoing clause
(i), a date-stamped copy of the Certificate of
Dissolution as-filed with the applicable
Secretary of State shall constitute satisfactory
evidence of the winding up and dissolution of
the applicable entity for purposes of the
foregoing clause (i).
	

	 	 	 	 	 	 	 	 
	

	9.	 	STREAMLINE
PROVISIONS
	

	 	 	 	 	 	 	 	 
	 	 	 	 	So long as no Default or Event of Default has occurred
and is continuing and the Zero Loan Balance Condition
(as defined below) is satisfied, the following
provisions in this Section 9 of this Schedule
(collectively, the “Streamline Provisions”) shall be in
effect notwithstanding anything herein to the contrary:
	

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(1) (a) Delivery of the items set forth in Item
#1 of Section 6 of this Schedule will not be
required more frequently than on a monthly basis;
and (b) delivery of the items set forth in Items
#4 and #5 of Section 6 of this Schedule will not
be required with respect to any month during
which at all times the Streamline Provisions are
in effect.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(2) Silicon will not request, pursuant to Section
4.3 of this Agreement, copies of credit memos (if
at all) more frequently than on a monthly basis.

10

 

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(3) Borrower shall not be required to deliver
payments on, and proceeds of, Accounts to Silicon
upon receipt as required by Section 4.4 of this
Agreement.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(4) So long as the Zero Loan Balance Condition is
satisfied, Borrower shall provide Silicon with at
least 30 days’ prior written notice of Borrower’s
desire to have Silicon make any future Loan or
other extension of credit to Borrower. Prior to
Silicon making such Loans or other extensions of
credit, if any, Silicon shall have received the
results, satisfactory to Silicon in its good
faith business judgment, of an audit as provided
for in Section 5.4 of this Agreement.
	

	 	 	 	 	 	 	 	 
	 	 	 	 	Upon (y) the Zero Loan Balance Condition not being
satisfied, or (z) the occurrence and during the
continuation of a Default or Event of Default under the
Loan Documents, all of the terms and conditions of this
Agreement that have been modified by this Section 9 of
this Schedule will immediately revert to the standard
terms and conditions as provided for in this Agreement
(without giving effect to this Section 9 of this
Schedule — but, if applicable, subject to paragraph (4)
of this Section 9 of this Schedule with respect to the
Zero Loan Balance Condition) without any further action
on the part of Silicon or Borrower.
	 
	 	 	 	 	As used herein, the term “Zero Loan Balance Condition”
means, as of any date of determination, that no Loans
or other extensions of credit have been outstanding,
and no requests for Loans or other extensions of credit
have been made by Borrower, during the consecutive
30-day period ending on such date of determination.
	

	 	 	 	 	 	 	 	 
	

	10.	 	CONDITIONS     PRECEDENT	 	 
	

	 	 	 	 	 	 	 	 
	 	 	 	 	In addition to the other conditions precedent set forth
in this Agreement, the making of the initial Loan(s) or
other extension(s) of credit hereunder is subject to
the following additional conditions:
	

	 	 	 	 	 	 	 	 
	 	 	 	 	(A) Silicon shall have received lien searches listing
all effective financing statements which name Borrower
(or any predecessor corporation, prior name, or
tradename thereof or any seller of assets acquired by
any Borrower outside of the ordinary course of
business) as debtor that are filed in the applicable
filing offices with respect to Borrower, none of which
financing statements shall cover any of the Collateral
of Borrower, except (1) financing statements perfecting
Permitted Liens, (2) financing statements as to which
Silicon has received duly executed authorization by the
applicable secured party to file executed termination
statements or partial release statements in form and
substance satisfactory to Silicon in

11

 

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

	 	 	 	 	 	 	 	 	 
	 	 	 	 	its good faith business judgment, or (3) as otherwise
agreed in writing by Silicon.

12

 

					
	 
	 	Silicon Valley Bank
	 	Loan and Security Agreement
	 	 	

     IN WITNESS WHEREOF, the parties hereto have caused this Schedule to be
executed and delivered as of the date first above written.

	 	 	 	 	 	 	 	 	 	 	 	 
	Borrower:	 	Borrower:
	

	 	 	 	 	 	 	 	 	 	 
	 	 	GIGA-TRONICS INCORPORATED	 	 	 	ASCOR, INC.
	

	 	 	 	 	 	 	 	 	 	 
	

	 	By
	 	/s/ Mark H. Cosmez II
	 	 	 	By
	 	/s/ Mark H. Cosmez II
	

	 	 	 	
 
	 	 	 	 	 	
 
	

	 	 	 	President or Vice President
	 	 	 	 	 	President or Vice President
	

	 	 	 	 	 	 	 	 	 	 
	

	 	By
	 	/s/ G.H. Bruns, Jr.
	 	 	 	By
	 	/s/ G.H. Bruns, Jr.
	

	 	 	 	
 
	 	 	 	 	 	
 
	

	 	 	 	Secretary or Assistant Secretary
	 	 	 	 	 	Secretary or Assistant Secretary
	

	 	 	 	 	 	 	 	 	 	 
	Borrower:	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	 	 	MICROSOURCE, INC.	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	

	 	By
	 	/s/ Mark H. Cosmez II	 	 	 	 	 	 
	

	 	 	 	
 	 	 	 	 	 	 
	

	 	 	 	President or Vice President	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	

	 	By
	 	/s/ G.H. Bruns, Jr.	 	 	 	 	 	 
	

	 	 	 	
 	 	 	 	 	 	 
	

	 	 	 	Secretary or Assistant Secretary	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	Silicon:	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	SILICON VALLEY BANK	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	By

	 	 	 	/s/ Tim Walsh	 	 	 	 	 	 
	

	 	 	 	
 	 	 	 	 	 	 
	

	 	 	 	 	 	 	 	 	 	 
	Title

	 	 	 	Senior V. P.<PAGE>

                                  EXHIBIT 10.1

                    AMENDED AND RESTATED MANAGEMENT AGREEMENT

      THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT is entered into as of July
1, 2004 (the "Effective Date"), by and between THORNBURG MORTGAGE, INC., a
Maryland corporation (the "Company"), and THORNBURG MORTGAGE ADVISORY
CORPORATION, a Delaware corporation (the "Manager"), with respect to the
following:

      WHEREAS, the Company is engaged in the business of originating, acquiring,
securitizing, servicing and retaining investments in mortgage securities
("Mortgage Securities") and mortgage loans ("Mortgage Loans") (collectively,
"Mortgage Assets") and has qualified for the tax benefits accorded to a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code");

      WHEREAS, the Company desires to continue to retain the Manager to manage
the assets and operations of the Company and to perform administrative services
for the Company in the manner and on the terms set forth herein;

      WHEREAS, the Company and the Manager entered into that certain Management
Agreement dated as of July 15, 1999, as amended as of October 17, 2000 (the
"Original Management Agreement"), which the Company and the Manager now desire
to amend and restate in its entirety in the form below, and wish the Management
Agreement, as amended and restated herein (this "Agreement"), to continue until
the next regularly scheduled meeting of the board of directors of Thornburg
Mortgage, Inc. (the "Board of Directors") following the tenth anniversary of the
Effective Date, and as evidenced by their signatures hereto, the Original
Management Agreement is hereby amended, restated and replaced in its entirety by
this Agreement as of the Effective Date;

      WHEREAS, the Manager shall not engage in any activity which would cause it
to be required to register as an investment advisor under the Investment
Advisers Act of 1940; and

      WHEREAS, the Manager shall comply with all laws applicable to it and
arising in connection with this Agreement.

      NOW THEREFORE, in consideration of the mutual agreements herein set forth,
the parties hereto agree as follows:

      SECTION 1. Definitions. The following terms shall have the meanings
assigned to them below, unless superseded by definitions of the same terms
contained in any filing made by the Company with the Securities and Exchange
Commission after the Effective Date, in which case the definition contained in
the most recent of such filings shall be operative. In addition, all references
to the Company in this Agreement shall mean Thornburg Mortgage, Inc. and its
subsidiaries, unless the context otherwise requires:

      (a)   "Affiliate" means Affiliate as defined in the Company's Bylaws.

<PAGE>

      (b)   "Average Historical Equity" means for any period the difference
between total assets and total liabilities of the Company calculated on a
consolidated basis in accordance with GAAP, excluding (1) Other Comprehensive
Income or Loss, (2) goodwill and (3) other intangibles, computed by taking the
average of such values at the end of each month during such period, adjusted for
equity sold during the period on a pro rata basis.

      (c)   "Average Net Worth" means for any period the average of the sum of
the gross proceeds from any offering of its equity securities by the Company,
before deducting any underwriting discounts and commissions and other expenses
and costs relating to the offering, plus the Company's retained earnings
(without taking into account any losses incurred in prior periods) computed by
taking the average of such values at the end of each month during such period,
and shall be reduced by any amount that the Company pays for the repurchases of
its common stock.

      (d)   "GAAP" mean generally accepted accounting principles set forth in
the statements, opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession of the
United States, which are in effect as of the Effective Date.

      (e)   "Governing Instruments" means the articles or certificate of
incorporation and bylaws in the case of a REIT or a corporation.

      (f)   "Independent Director" means Independent Director as defined in the
Company's Bylaws.

      (g)   "Net Income" means the net income available to shareholders of the
Company's common stock, calculated on a consolidated basis in accordance with
GAAP.

      (h)   "Other Comprehensive Income or Loss" means the accumulated other
comprehensive income or loss of the Company calculated on a consolidated basis
in accordance with GAAP.

      (i)   "Return on Equity" means for any quarter the quotient obtained by
dividing the Company's annualized Net Income for the quarter by the Company's
Average Net Worth for the quarter.

      SECTION 2. General Duties of the Manager. Subject to the supervision of
the Board of Directors, the Manager shall provide services to the Company and,
to the extent directed by the Board of Directors, shall provide similar services
to any subsidiary of the Company as follows:

      (a)   serve as the Company's consultant with respect to the formulation
and updating of investment criteria and policy guidelines for consideration by
the Board of Directors ("Guidelines");

      (b)   prepare strategic plans and annual budgets for review by the Board
of Directors, and report changes to such plans and budgets to the Board of
Directors on a quarterly basis;

                                       2
<PAGE>

      (c)   represent the Company in connection with its origination,
acquisition, retention and servicing of investments in Mortgage Assets
(including the accumulation of Mortgage Loans for securitization), and all
related financing activities;

      (d)   furnish reports and statistical and economic research to the Company
regarding the Company's investments and activities and the services performed
for the Company by the Manager;

      (e)   monitor and provide to the Board of Directors on an on-going basis
price information and other data obtained from appropriate pricing services and
nationally recognized dealers that maintain markets in Mortgage Assets
identified by the Board of Directors from time to time, and provide data and
advice to the Board of Directors in connection with the identification of such
pricing services and dealers;

      (f)   administer the day-to-day operations of the Company and perform or
supervise the performance of such other administrative functions necessary or
advisable for the management of the Company as may be agreed upon by the Manager
and the Board of Directors including, without limitation, collection of the
Company's revenues and payment of the Company's expenses, debts and obligations
and maintenance of appropriate computer services to provide such administrative
functions;

      (g)   communicate on behalf of the Company with the holders of the
Company's securities as required to satisfy the continuous reporting and other
requirements of any governmental bodies or agencies to holders of such
securities and third parties and to maintain effective relations with such
holders of the Company's securities;

      (h)   designate a servicer for those Mortgage Loans sold to the Company by
originators or sellers that have elected not to service such loans and for those
Mortgage Loans originated by the Company, and arrange for the monitoring and
administering of any such servicer;

      (i)   monitor, supervise and report on delinquent loan activity affecting
the Company, including making decisions as to troubled debt restructuring, loan
work-out agreements and ultimate disposition of real estate acquired as a result
of foreclosures;

      (j)   counsel the Company in connection with policy and strategic
decisions to be made by the Board of Directors;

      (k)   upon request by and in accordance with the directions of the Board
of Directors, invest or reinvest any funds of the Company;

      (l)   represent the Company in connection with its hedging activities
consistent with the Company's Guidelines, including those policies regarding
management of interest rate risk, and the Company's qualification as a REIT;

      (m)   represent the Company in connection with its securitizations for the
issuance of Mortgage Securities from pools of Mortgage Loans acquired by the
Company, and provide to the Company itself or through another appropriate party
all services in connection with the creation of Mortgage Securities, including:

                                       3
<PAGE>

            (1)   serving as consultant with respect to the structuring of each
class or series of Mortgage Securities;

            (2)   negotiating the rating requirements with rating agencies with
respect to the rating of each class or series of Mortgage Securities;

            (3)   accumulating and reviewing all Mortgage Loans which may secure
or constitute the mortgage pool for each class or series of Mortgage Securities;

            (4)   negotiating all agreements and credit enhancements with
respect to each class or series of Mortgage Securities;

            (5)   issuing commitments on behalf of the Company to originate or
purchase Mortgage Loans to be used to secure or constitute the mortgage pool for
each class or series of Mortgage Securities;

            (6)   organizing and administering all activities in connection with
the closing of each class or series of Mortgage Securities, including all
negotiations and agreements with underwriters, trustees, servicers, master
servicers and other parties; and

            (7)   performing such other services as may be required from time to
time for completing the creation of each class or series of Mortgage Securities.

      (n)   provide to the Company itself or through another appropriate party
all services in connection with the administration of each class or series of
Mortgage Securities created by the Company;

      (o)   provide to the Company documentation and certifications in the form
requested by the Company with respect to functions performed by the Manager
relating to financial reporting and disclosure controls and procedures, upon
which the Company can rely in the preparation, certification and/or filing of
any reports as required by law or regulation, including federal securities laws
and regulations,

      (p)   provide the executive and administrative personnel, office space,
equipment and services required in rendering the foregoing services to the
Company;

      (q)   perform such other services as may be required from time to time for
management and other activities relating to the assets or operations of the
Company as the Manager shall deem necessary, advisable or appropriate under the
particular circumstances;

      (r)   cause the Company to qualify to do business in all applicable
jurisdictions as may be required from time to time under applicable state and
federal laws; and

      (s)   comply with all laws and regulations applicable to the Manager and
use its best efforts to cause the Company to comply with all laws and
regulations applicable to the Company.

      SECTION 3. Additional Activities of Manager.

                                       4
<PAGE>

      (a)   Nothing herein shall prevent the Manager or any of its Affiliates
from engaging in other businesses or from rendering services of any kind to any
other person or entity, including investment in, or advisory service to others
investing in, any type of real estate investment, including investments which
meet the principal investment objectives of the Company. Notwithstanding
anything elsewhere in this Agreement to the contrary, the Manager shall not
engage in any activity which would cause it to be required to register as an
investment advisor under the Investment Advisers Act of 1940. In furtherance
thereof, during any twelve (12) month period, the Manager shall not (i) render
investment advice to more than fifteen (15) clients, (ii) hold itself out
generally to the public as an investment advisor, or (iii) act as an investment
advisor to any investment company that is registered under the Investment
Company Act of 1940.

      (b)   Directors, officers, employees and agents of the Manager or
Affiliates of the Manager may serve as directors, officers, employees, agents,
nominees or signatories of the Company, to the extent permitted by their
Governing Instruments, as from time to time amended, or by any resolutions duly
adopted by the Board of Directors pursuant to the Company's Governing
Instruments. When executing documents or otherwise acting in such capacities for
the Company, such persons shall use their respective title in the Company.

      SECTION 4. Bank Accounts. At the direction of the Board of Directors, the
Manager may establish and maintain one or more bank accounts in the name of the
Company, and may collect and deposit funds into, and disburse funds from, any
such account or accounts, under such terms and conditions as the Board of
Directors may approve; and the Manager shall from time to time render
appropriate accountings of such collections and payments to the Board of
Directors and, upon request by the Company, to the auditors of the Company.

      SECTION 5. Records; Confidentiality. The Manager shall maintain
appropriate books of account and records relating to services performed
hereunder, and such books of account and records shall be accessible for
inspection by duly authorized representatives of the Company at any time during
normal business hours. The Manager shall keep confidential any and all
information it obtains from time to time in connection with the services it
renders under this Agreement and shall not disclose any portion thereof to
non-affiliated third parties except with the prior written consent of the
Company, or except as may be required by applicable law or judicial process.

      SECTION 6. Obligations of Manager.

      (a)   The Manager shall require each seller or transferor of Mortgage
Assets to the Company to make such representations and warranties regarding such
Mortgage Assets as may be, in the judgment of the Manager, necessary, advisable
and appropriate. In addition, the Manager shall take such other action as it
deems necessary, advisable or appropriate with regard to the protection of the
Company's investments.

      (b)   The Manager shall refrain from any action which would adversely
affect the status of the Company or, if applicable, any subsidiary of the
Company, as a REIT or which would violate any law, rule or regulation of any
governmental body or agency having jurisdiction over the Company or any such
subsidiary or which would otherwise not be permitted

                                       5
<PAGE>

by the Company's or such subsidiary's Governing Instruments. If the Manager is
ordered to take any such action by the Board of Directors, the Manager shall
promptly notify the Board of Directors of the Manager's judgment that such
action would adversely affect such status or violate any such law, rule or
regulation or the Governing Instruments. The Manager, its directors, officers,
shareholders and employees shall not be liable to the Company, the Independent
Directors or the Company's shareholders, for any act or omission by the Manager,
its directors, officers, shareholders or employees, except as provided in
Section 11 of this Agreement.

      SECTION 7. Compensation.

      (a)   Annual Base Management Fee. For services rendered under this
Agreement, the Company shall pay to the Manager, commencing with the month in
which the Effective Date occurs, an annual base management fee based on the
Average Historical Equity of the Company for each year, payable monthly in
arrears, as follows:

                  (i) 1.23% of the first $300 million of Average Historical
                  Equity, plus

                  (ii) 0.90% of that amount of Average Historical Equity greater
                  than $300 million and less than or equal to $1.5 billion, plus

                  (iii) 0.80% of that amount of Average Historical Equity
                  greater than $1.5 billion and less than or equal to $2
                  billion, plus

                  (iv) 0.75% of that amount of Average Historical Equity greater
                  than $2 billion and less than or equal to $2.5 billion, plus

                  (v) 0.70% of that amount of Average Historical Equity greater
                  than $2.5 billion and less than or equal to $3 billion, plus

                  (vi) 0.65% of that amount of Average Historical Equity greater
                  than $3 billion,

                  with the percentage factors for all of the above subject to
                  increase (but not decrease) as of July of each year,
                  commencing with July 2004, by any published annual increase
                  for such year over the same month in the previous year in the
                  consumer price index for all urban consumers, U.S. city
                  average, as released by the Bureau of Labor Statistics of the
                  U.S. Department of Labor.

      The annual base management fee shall be calculated by the Manager within
fifteen (15) days after the end of each month, and such calculation shall be
promptly delivered to the Company. The Company shall pay to the Manager the
applicable portion of the annual base

                                       6
<PAGE>

management fee payable pursuant to this Section 7(a) for each month within
thirty (30) days after the end of each such month. Payments of the applicable
portion of the annual base management fee shall be pro-rated based on the number
of days elapsed during any partial month.

      (b)   Incentive Compensation. In addition to the annual base management
fee, the Manager shall receive as incentive compensation ("Incentive
Compensation") for each fiscal quarter an amount equal to twenty percent (20%)
(the "Incentive Percentage") of the Net Income of the Company, before Incentive
Compensation, in excess of the amount that would produce an annualized Return on
Equity equal to the Ten Year U.S. Treasury Rate (average of weekly average yield
to maturity for U.S. Treasury securities (adjusted to a constant maturity of ten
(10) years) as published weekly by the Federal Reserve Board in publication H.15
during a quarter) plus one percent (1%).

      The Incentive Percentage used to calculate any portion of the Incentive
Compensation that is greater than an amount of $30 million as calculated
according to the formula above shall be reduced by one percent (1%) as follows:

      Amount greater than $30 million and less than or equal to $35 million 19%

      Amount greater than $35 million and less than or equal to $40 million 18%

      Amount greater than $40 million and less than or equal to $45 million 17%

      Amount greater than $45 million and less than or equal to $50 million 16%

      Amount greater than $50 million 15%

      The Incentive Compensation calculation and payment shall be made quarterly
in arrears. The Manager shall compute the Incentive Compensation payable under
this Section 7(b) within forty-five (45) days after the end of each fiscal
quarter. The Company shall pay the Incentive Compensation with respect to each
fiscal quarter within fifteen (15) days following the delivery to the Company of
the Manager's written statement setting forth the computation of the Incentive
Compensation for such quarter.

      (c)   If loans are made to the Company by an Affiliate of the Manager, the
maximum amount of interest that may be charged by such Affiliate shall be the
prime rate publicly announced by Citibank, N. A. from time to time plus one
percent (1%) per year.

      (d)   The proceeds from any issue of preferred stock which may from time
to time be created and authorized for issuance by the Board of Directors (the
"Preferred Stock") shall be included in Average Historical Equity in calculating
the Manager's annual base management fee under Section 7(a). For purposes of
calculating the Manager's Incentive Compensation under Section 7(b), Preferred
Stock shall be excluded from Average Net Worth and the minimum or fixed rate
portion of any Preferred Stock dividend shall be deducted from taxable income
before Incentive Compensation.

                                       7
<PAGE>

      SECTION 8. Expenses of the Company. The Company shall pay its Operating
Expenses as set forth in Section I of Annex A attached hereto, and shall
reimburse the Manager for those documented Operating Expenses that the Manager
reasonably incurred on its behalf in furtherance of the Manager's
responsibilities under this Agreement. The reimbursable expenses of the Manager
shall include, without limitation, the amount of any New Mexico Gross Receipts
Tax (the "Gross Receipts Tax") which the Manager becomes obligated to pay based
on the annual base management fees, Incentive Compensation and any other
receipts which the Manager derives in connection with its service to the
Company. The Manager shall be responsible for its own costs and expenses of
operation as set forth in Section II of Annex A attached hereto.

      SECTION 9. Annual Operating Expenses Limitation Requiring Reimbursement by
the Manager.

      (a)   Subject to the adjustment as provided in paragraph (b), Operating
Expenses reasonably incurred by the Manager on behalf of the Company shall be
reimbursed monthly to the Manager within thirty (30) days after the end of each
month. The Manager shall prepare a statement documenting the Operating Expenses
of the Company and those incurred by the Manager on behalf of the Company during
each month, and shall deliver such statement to the Company within fifteen (15)
days after the end of each month.

      (b)   Within one hundred twenty (120) days after the end of each of the
Company's fiscal years, the Manager shall reimburse the Company for any expense
reimbursement received by the Manager from the Company hereunder with respect to
such fiscal year to the extent that the Operating Expenses of the Company for
such fiscal year exceed the greater of two percent (2%) of its Average
Historical Equity or twenty five percent (25%) of its Net Income for such fiscal
year; unless a majority of the Independent Directors determines that, based upon
such unusual or nonrecurring factors which they deem sufficient, a higher level
of expenses is justified for such fiscal year, in which case, the excess
expenses attributable to that one fiscal year shall be payable to the Manager in
succeeding fiscal years to the extent that the expenses of the Company in any
succeeding fiscal year are less than the greater of two percent (2%) of its
Average Historical Equity or twenty five percent (25%) of its Net Income for
such fiscal year. Any such finding of the Independent Directors regarding the
justification of a higher level of expenses for any fiscal year shall be
recorded in the minutes of the Board of Directors. The determination of Net
Income for purposes of calculating the Operating Expenses limitation will
include any Incentive Compensation payable for such period. The amount of any
Gross Receipts Tax reimbursed by the Company to the Manager pursuant to Section
8 above is not subject to the Operating Expenses limitation set forth above.

      SECTION 10. Monitoring Servicing. The Manager will monitor and administer
the servicing of the Company's Mortgage Loans. Such monitoring and
administrative services will include, but not be limited to, the following
activities: serving as the Company's consultant with respect to the servicing of
Mortgage Loans; collection of information and submission of reports pertaining
to the Mortgage Loans and to moneys remitted to the Manager or the Company by
servicers; periodic review and evaluation of the performance of each servicer to
determine its compliance with the terms and conditions of the applicable
servicing agreement and, if deemed appropriate, recommending to the Company the
termination of such servicing agreement; acting

                                       8
<PAGE>

as a liaison between servicers and the Company and working with servicers to the
extent necessary to improve their servicing performance; review of and
recommendations as to fire losses, easement problems, condemnation, delinquency,
foreclosing and other reports on Mortgage Loans; supervising claims filed under
any mortgage insurance policies; and enforcing the obligation of any servicer to
repurchase Mortgage Loans from the Company. The Manager may enter into
subcontracts with other parties, including its Affiliates, to provide any such
services for the Manager; provided however, all such subcontractors shall then
be subject to the terms of this Agreement and the Manager shall provide written
notice of such subcontracts to the Company; and, provided further, in no event
shall any such subcontracts or subcontractors contravene the Manager's
obligations and limitations set forth in Section 3(a) of this Agreement. For
purposes of clarification, expenses incurred by the Manager to perform the
functions described above are to be considered Operating Expenses, as set forth
in Section I of Annex A attached hereto.

      SECTION 11. Limits of Manager Responsibility.

      (a)   The Manager assumes no responsibility under this Agreement other
than to render the services called for hereunder in good faith and shall not be
responsible for any action of the Board of Directors in following or declining
to follow any advice or recommendations of the Manager. The Manager, its
directors, officers, shareholders and employees will not be liable to the
Company, the Independent Directors or the Company's shareholders for any acts or
omissions by the Manager, its directors, officers, shareholders or employees
under or in connection with this Agreement, except by reason of acts
constituting bad faith, willful misconduct, gross negligence or reckless
disregard of their duties. The Company shall reimburse, indemnify and hold
harmless the Manager, its directors, officers, shareholders and employees of and
from any and all expenses, losses, damages, liabilities, demands, charges and
claims of any nature whatsoever (including, without limitation, attorneys' fees)
in respect of or arising from any acts or omissions of the Manager, its
directors, officers, shareholders and employees made in good faith in the
performance of the Manager's duties under this Agreement and not constituting
bad faith, willful misconduct, gross negligence or reckless disregard of its
duties.

      (b)   The Manager shall reimburse, indemnify and hold harmless the Company
or any of its directors, officers, shareholders and employees from any and all
expenses, losses, damages, liabilities, demands, charges and claims of any
nature whatsoever (including, without limitation, attorneys' fees) arising out
of any intentional misstatements of fact made by the Manager in connection with
the issuance of commitments to purchase Mortgage Assets on behalf of the Company
and the purchase of Mortgage Assets by the Company resulting from such
commitments, or any act constituting bad faith, willful misconduct, gross
negligence or reckless disregard of the Manager's duties under this Agreement.

      SECTION 12. No Joint Venture. The Company and the Manager are not partners
or joint venturers with each other and nothing herein shall be construed to make
them such partners or joint venturers or impose any liability as such on either
of them.

      SECTION 13. Term; Termination Without Cause; Name Change Upon Termination
of Management Agreement; Evaluation of Manager.

                                       9
<PAGE>

      (a)   Term. This Agreement shall commence on the Effective Date and shall
continue in force until the next regularly scheduled Board of Directors meeting
of the Company following the tenth anniversary of the Effective Date, and
thereafter, it may be extended only with the consent of the Manager and by the
affirmative vote of a majority of the Board of Directors, including a majority
of the Independent Directors. Each extension shall be executed in writing by the
parties hereto before the expiration of this Agreement or any extension thereof.
Each such extension shall not exceed a term of ten (10) years.

      (b)   Termination Without Cause. Notwithstanding any other provision to
the contrary, this Agreement, or any extension hereof, may be terminated without
cause by the Company, by majority vote of the Independent Directors or by
majority vote of the Company's shareholders, upon sixty (60) days written
notice. If this Agreement is terminated pursuant to this Section 13(b), such
termination shall be subject to the provisions of Section 16 of this Agreement.

      (c)   Name Change Upon Termination of Management Agreement. The Company
agrees that if at any time the Manager or any Affiliate of the Manager shall
cease to serve generally as Manager of the Company, upon receipt of a written
request of the Manager, the Company shall cause its Governing Instruments to be
amended so as to change the name of the Company to a name that does not include
"Thornburg" or any approximation thereof.

      (d)   Evaluation of Manager. The Independent Directors, at least annually,
shall determine that the compensation paid to the Manager is reasonable in
relation to the nature and quality of services performed and shall review and
evaluate the performance of the Manager to determine that the provisions of this
Agreement are being carried out. The Independent Directors shall also determine
at least annually that the total Operating Expenses of the Company are
reasonable in light of all relevant factors. Each such determination shall be
based upon the following factors and all other factors the Independent Directors
may deem relevant and the findings of the Independent Directors on each of such
factors shall be recorded in the minutes of the Board of Directors:

            (1)   the size of the management fee in relation to the size,
composition and profitability of the investment portfolio of the Company;

            (2)   the success of the Manager in generating opportunities that
meet the investment objectives of the Company;

            (3)   if available, the fees charged by advisors performing similar
services to other REITs and investors which are externally managed, and the
profitability, dividend yield and operating expense ratios of the Company in
comparison to those of other REITs and entities performing similar functions
which are internally managed;

            (4)   additional revenues realized by the Manager and its Affiliates
through their relationship with the Company, if any, whether paid by the Company
or by others with whom the Company does business;

            (5)   the quality and extent of service and advice furnished to the
Company;

                                       10
<PAGE>

            (6)   the performance of the investment portfolio of the Company,
including income, conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations; and

            (7)   the quality of the investment portfolio of the Company.

      SECTION 14. Assignments.

      (a)   This Agreement shall terminate automatically in the event of its
assignment, in whole or in part, by the Manager, unless the Company (with the
approval of a majority of the Independent Directors) consents in writing to such
assignment in advance. Any such assignment shall bind the assignee hereunder in
the same manner as the Manager is bound. In addition, the assignee shall execute
and deliver to the Company a counterpart of this Agreement naming such assignee
as Manager. This Agreement shall not be assigned by the Company without the
prior written consent of the Manager, except in the case of assignment by the
Company to a REIT or other entity which is a successor (by merger, consolidation
or purchase of assets) to the Company, in which case such successor entity shall
be bound hereunder and by the terms of such assignment in the same manner as the
Company is bound hereunder.

      (b)   Notwithstanding any provision of this Agreement to the contrary,
subject to Section 3(a), the Manager may subcontract and assign any or all of
its responsibilities under Sections 2(k), 2(1) and 10 of this Agreement to any
of its Affiliates, and the Company hereby consents to any such assignment and
subcontracting.

      SECTION 15. Termination by Company or Independent Directors for Cause.

      (a)   This Agreement shall terminate upon sixty (60) days written notice
of termination from the Company or a majority of the Independent Directors to
the Manager if any of the following events shall occur:

            (1)   if the Manager shall violate any provision of this Agreement
and, after notice of such violation, shall not cure such violation within thirty
(30) days of the receipt of such notice; or

            (2)   there is entered an order for relief or similar decree or
order with respect to the Manager by a court having competent jurisdiction in an
involuntary case under the federal bankruptcy laws as now or hereafter
constituted or under any applicable federal or state bankruptcy, insolvency or
similar laws; or the Manager (i) ceases, or admits in writing its inability to
pay its debts as they become due and payable, or makes a general assignment for
the benefit of, or enters into any composition or arrangement with, creditors;
(ii) applies for, or consents (by admission of material allegations of a
petition or otherwise) to the appointment of a receiver, trustee, assignee,
custodian, liquidator or sequestrator (or other similar official) of the Manager
or of any substantial part of its properties or assets, or authorizes such an
application or consent, or proceedings seeking such appointment are commenced
without such authorization, consent or application against the Manager and
continue undismissed for thirty (30) days; (iii) authorizes or files a voluntary
petition in bankruptcy, or applies for or consents (by admission of material
allegations of a petition or otherwise) to the application of any bankruptcy,
reorganization, arrangement, readjustment of debt, insolvency, dissolution,
liquidation or other

                                       11
<PAGE>

similar law of any jurisdiction, or authorizes such application or consent, or
proceedings to such end are instituted against the Manager without such
authorization, application or consent and are approved as properly instituted
and remain undismissed for thirty (30) days or result in adjudication of
bankruptcy or insolvency; or (iv) permits or suffers all or any substantial part
of its properties or assets to be sequestered or attached by court order and the
order remains undismissed for thirty (30) days.

      (b)   If any of the events specified in Section 15(a) of this Agreement
shall occur, the Manager shall give prompt written notice thereof to the Board
of Directors upon the occurrence of such event.

      SECTION 16. Action Upon Termination.

      (a)   From and after the effective date of termination of this Agreement,
pursuant to Sections 13(b), 14 or 15 of this Agreement, the Manager shall not be
entitled to compensation for further services hereunder, except pursuant to any
separate written management termination agreement that may hereafter be
negotiated by the parties, but shall be paid all compensation accruing to the
date of termination, including deferred Incentive Compensation which is
recoverable in accordance with Section 7(b) of this Agreement. Upon such
termination, the Manager shall forthwith:

            (1)   after deducting any accrued compensation and reimbursement for
the Operating Expenses to which it is then entitled, pay over to the Company all
money collected and held for the account of the Company pursuant to this
Agreement;

            (2)   deliver to the Board of Directors a full accounting, including
a statement showing all payments collected by it, all money held by it and all
Operating Expenses incurred by it on behalf of the Company, covering the period
following the date of the last accounting furnished to the Board of Directors
with respect to the Company to the effective date of termination of this
Agreement;

            (3)   pay to the Company all sums set forth on the accounting
referenced in Section 16(a)(2) above; and

            (4)   deliver to the Board of Directors all property and documents
of the Company then in the custody of the Manager.

      (b)   Upon the occurrence of (i) an "Acquisition Event" or (ii) the
termination of this Agreement by the Company, by majority vote of the
Independent Directors or by majority vote of the Company's shareholders in
accordance with Section 13(b) of this Agreement, the Company agrees to, and
shall be obligated to, acquire and pay for substantially all of the assets of
the Manager in a transaction intended to qualify, in the opinion of counsel
reasonably acceptable to the Manager, as a tax-free reorganization pursuant to
Section 368(a)(1)(A) or 368(a)(1)(C) of the Internal Revenue Code, as amended
(the "Reorganization"). In consideration for the acquisition of the Manager's
assets (the "Acquisition"), the Company shall issue to the Manager an amount of
publicly registered shares of the Company's common stock, calculated as follows:

                                       12
<PAGE>

            (1)   The Manager shall retain an independent certified public
accountant mutually acceptable to the Company and the Manager to prepare in
accordance with GAAP, using the cash receipts and disbursements method of
accounting, audited financial statements for the three twelve-month periods (the
"Statements") over the thirty-six month period ending with the most recently
completed calendar quarter (the "Measuring Period"). The Statements shall show
gross revenues received by the Manager less all expenses (excluding bonus
payments to the Manager's employees and Affiliates) paid by the Manager during
the Measuring Period.

            (2)   The Company shall issue to the Manager as payment for the
Acquisition that number of shares of the Company's common stock equal to one
hundred twenty percent (120%) of the quotient of the Manager's net profit
(excluding bonus payments to the Manager's employees and Affiliates) on the
Statement for the twelve-month period showing the highest net profit during the
Measuring Period, divided by the dividend per share of common stock declared by
the Company during the most recent fiscal quarter in which a dividend was
declared, on an annualized basis; provided, however, that such Acquisition
payment shall not be less than the sum of $5 million for each $100 million of
equity capital attributable to the Company's common stock and preferred stock,
if any.

            (3)   "Acquisition Event" means (A) the acquisition by any person or
entity who or which, together with all Affiliates and associates of such person
or entity, shall become the beneficial owner of twenty percent (20%) or more of
the Company's common stock then outstanding, but shall not include the Company
or any employee benefit plan thereof (collectively, "Excluded Entities"),
through an unsolicited tender offer or exchange offer or other acquisition of
such number of shares by such person, or (B) a change in the majority of the
Board of Directors, whether by resignation or removal, which change occurs as a
result of the acquisition of a controlling interest in the outstanding voting
stock of the Company by any person or entity, other than Excluded Entities, or
(C) a merger, consolidation, or reorganization between the Company and another
entity with the Company being either the surviving entity or the acquired
entity, or the transfer of assets into the Company for twenty percent (20%) or
more of the Company's equity securities or securities exercisable or convertible
into the Company's equity securities by any person or entity, other than
Excluded Entities.

            (4)   The Company shall at all times keep and maintain an adequate
reserve of authorized but unissued shares of its common stock available to
fulfill the obligation to issue shares pursuant to any Acquisition.

            (5)   Upon the occurrence of an Acquisition Event or termination
pursuant to Section 13(b), the Company shall promptly file a registration
statement and use its best efforts to cause such registration statement to
become effective under the Securities Act of 1933, as amended, with respect to
the public offering and distribution of such shares reserved for issuance
pursuant to the Acquisition.

            (6)   The Company and the Manager will, as soon as possible after
the occurrence of an Acquisition Event or termination pursuant to Section 13(b),
but in no event later than sixty (60) days after such event, take all necessary
corporate action to consummate and close the Reorganization and the Acquisition,
including the Company's issuance of the shares of common stock to the Manager as
determined in paragraph (2) above.

                                       13
<PAGE>

      SECTION 17. Release of Money or Other Property Upon Written Request. The
Manager agrees that any money or other property of the Company held by the
Manager under this Agreement shall be held by the Manager as custodian for the
Company, and the Manager's records shall be appropriately marked clearly to
reflect the ownership of such money or other property by the Company. Upon the
receipt by the Manager of a written request signed by a duly authorized officer
of the Company requesting the Manager to release to the Company any money or
other property then held by the Manager for the account of the Company under
this Agreement, the Manager shall release such money or other property to the
Company within a reasonable period of time, but in no event later than thirty
(30) days following such request. The Manager shall not be liable to the
Company, the Independent Directors or the Company's shareholders for any acts
performed or omissions to act by the Company in connection with the money or
other property released to the Company in accordance with this Section. Subject
to the foregoing, the Company shall indemnify the Manager, its directors,
officers, shareholders and employees against any and all expenses, losses,
damages, liabilities, demands, charges and claims of any nature whatsoever,
which arise in connection with the Manager's release of such money or other
property to the Company in accordance with the terms of this Section 17.
Indemnification pursuant to this provision shall be in addition to any right of
the Manager to indemnification under Section 11 of this Agreement.

      SECTION 18. Representations and Warranties.

      (a)   The Company hereby represents and warrants to the Manager as
follows:

            (1)   The Company is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power to own, hold, lease and operate its assets and/or properties and
to transact the business in which it is now engaged and is duly qualified as a
foreign corporation and in good standing under the laws of each jurisdiction
where its ownership or lease of assets and/or properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified and in good standing would not in the aggregate have a material
adverse effect on the business, operations, assets or financial condition of the
Company and its subsidiaries, taken as a whole. The Company does not do business
under any fictitious business name.

            (2)   The Company has the corporate power and authority to execute,
deliver and perform this Agreement and all obligations required hereunder and
has taken all necessary corporate action to authorize this Agreement on the
terms and conditions hereof and the execution, delivery and performance of this
Agreement and all obligations required hereunder. No consent of any other person
including, without limitation, shareholders and creditors of the Company, and no
license, permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental authority is
required by the Company in connection with this Agreement or the execution,
delivery, performance, validity or enforceability of this Agreement and all
obligations required hereunder. This Agreement has been, and each instrument or
document required hereunder will be, executed and delivered by a duly authorized
officer of the Company, and this Agreement constitutes, and each instrument or
document required hereunder when executed and delivered hereunder will
constitute, the legally valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.

                                       14
<PAGE>

            (3)   The execution, delivery and performance of this Agreement and
the documents or instruments required hereunder, will not violate any provision
of any existing law or regulation binding on the Company, or any order,
judgment, award or decree of any court, arbitrator or governmental authority
binding on the Company, or the Governing Instruments of, or any securities
issued by, the Company or of any mortgage, indenture, lease, contract or other
agreement, instrument or undertaking to which the Company is a party or by which
the Company or any of its assets may be bound, the violation of which would have
a material adverse effect on the business, operations, assets or financial
condition of the Company and its subsidiaries, taken as a whole, and will not
result in, or require, the creation or imposition of any lien on any of its
properties, assets or revenues pursuant to the provisions of any such mortgage,
indenture, lease, contract or other agreement, instrument or undertaking.

            (4)   Nothing in this Agreement shall or is intended to contravene
any fact or representation set forth in any prospectus, registration statement,
annual report or quarterly report as filed by the Company with the Securities
and Exchange Commission.

      (b)   The Manager hereby represents and warrants to the Company as
follows:

            (1)   The Manager is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has the
corporate power to own, hold, lease and operate its assets and/or properties and
to transact the business in which it is now engaged and is duly qualified to do
business and is in good standing under the laws of each jurisdiction where its
ownership or lease of assets and/or properties or the conduct of its business
require such qualification, except where the failure to be so qualified and in
good standing would not in the aggregate have a material adverse effect on the
business, operations, assets or financial condition of the Manager. The Manager
does not do business under any fictitious business name and it has no
subsidiaries.

            (2)   The Manager has the corporate power and authority to execute,
deliver and perform this Agreement and all obligations required hereunder and
has taken all necessary corporate action to authorize this Agreement on the
terms and conditions hereof and the execution, delivery and performance of this
Agreement and all obligations required hereunder. No consent of any other person
including, without limitation, shareholders and creditors of the Manager, and no
license, permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental authority is
required by the Manager in connection with this Agreement or the execution,
delivery, performance, validity or enforceability of this Agreement and all
obligations required hereunder. This Agreement has been, and each instrument or
document required hereunder will be, executed and delivered by a duly authorized
agent of the Manager, and this Agreement constitutes, and each instrument or
document required hereunder when executed and delivered hereunder will
constitute, the legally valid and binding obligation of the Manager enforceable
against the Manager in accordance with its terms.

            (3)   The execution, delivery and performance of this Agreement and
the documents or instruments required hereunder, will not violate any provision
of any existing law or regulation binding on the Manager, or any order,
judgment, award or decree of any court, arbitrator or governmental authority
binding on the Manager, or any securities issued by the

                                       15
<PAGE>

Manager or of any mortgage, indenture, lease, contract or other agreement,
instrument or undertaking to which the Manager is a party or by which the
Manager or any of its assets may be bound, the violation of which would have a
material adverse effect on the business, operations, assets or financial
condition of the Manager, and will not result in, or require, the creation or
imposition of any lien on any of its properties, assets or revenues pursuant to
the provisions of any such mortgage, indenture, lease, contract or other
agreement, instrument or undertaking.

      SECTION 19. Notice. Unless expressly provided otherwise herein, all
notices, requests, demands and other communications required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given,
made and received when delivered against receipt or upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested. The
parties may deliver to each other notice by electronically transmitted facsimile
copies ("Fax") provided that such Fax notice is followed within twenty-four (24)
hours by any type of notice otherwise provided for in this paragraph. Any notice
shall be duly addressed to the parties as follows:

                   If to the Company:  150 Washington Avenue, Suite 302
                                       Santa Fe, NM 87501
                                       Attention: Larry A. Goldstone

                   Copy to:            Michael B. Jeffers, Esq.
                                       Dechert LLP
                                       4675 MacArthur Court, Suite 1400
                                       Newport Beach, CA 92660

                   If to the Manager:  150 Washington Avenue, Suite 302
                                       Santa Fe, NM  87501
                                       Attention: Garrett Thornburg

      Either party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this Section 19 for the giving of notice.

      SECTION 20. Binding Nature of Agreement; Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and assigns as
provided herein.

      SECTION 21. Entire Agreement; Amendment. This Agreement contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof, and supersedes all prior and contemporaneous
agreements, understandings, inducements and conditions, express or implied, oral
or written, of any nature whatsoever with respect to the subject matter hereof.
The express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement may
not be modified or amended other than by an agreement in writing approved by the
Company (including a majority of the Independent Directors) and the Manager.

                                       16
<PAGE>

      SECTION 22. Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement shall be governed by
and construed, interpreted and enforced in accordance with the laws of the State
of New Mexico, notwithstanding any New Mexico or other conflict of law
provisions to the contrary.

      SECTION 23. Annexes. All Annexes referred to herein or attached hereto are
hereby incorporated by reference into, and made an integral part of, this
Agreement.

      SECTION 24. Indulgences, Not Waivers. Neither the failure nor any delay on
the part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power or privilege with respect to any occurrence be construed as
a waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party asserted to have granted such waiver.

      SECTION 25. Titles Not to Affect Interpretation. The titles of paragraphs
and subparagraphs contained in this Agreement are for convenience only, and they
neither form a part of this Agreement nor are they to be used in the
construction or interpretation hereof.

      SECTION 26. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, including electronically transmitted counterparts,
each of which shall be deemed to be an original as against any party whose
signature appears thereon, and all of which shall together constitute one and
the same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as the signatories.

      SECTION 27. Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.

      SECTION 28. Gender. Words used herein regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.

      SECTION 29. Computation of Interest. Interest will be computed on the
basis of a 360-day year consisting of twelve (12) months of thirty (30) days
each.

                            [SIGNATURE PAGE FOLLOWS]

                                       17
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Management Agreement as of the date first written above.

                 "Company"

                 THORNBURG MORTGAGE, INC.
                 a Maryland corporation

                 By: /s/ Larry A. Goldstone
                     ------------------------
                     Larry A. Goldstone, President and Chief Operating Officer

                 "Manager"

                 THORNBURG MORTGAGE ADVISORY CORPORATION,
                 a Delaware corporation

                 By: /s/ Garrett Thornburg
                     ------------------------
                     Garrett Thornburg, Chairman

                                       18
<PAGE>

                                     ANNEX A

                       Definition of "Operating Expenses"

      I.    The term "Operating Expenses" means all of the ordinary and
necessary operating expenses of the Company of every type including, but not
limited to, costs of originating loans directly, acquiring loans through
correspondent, bulk or other loan acquisition channels, securitizing, selling,
hedging, owning, carrying, servicing and monitoring the servicing or
subservicing of, and disposing of the Company's portfolio of Mortgage Loans,
Mortgage Securities and other assets, including the costs of software and costs
of equipment related thereto, and costs of organizing any subsidiary of the
Company, costs of issuing, servicing, paying dividends or interest on, selling
or reacquiring any instrument or security or mortgage asset (whether or not a
security), costs preparatory to entering into a business or activity, costs of
winding up or disposing of a business or activity, interest, points, fees,
finance costs, costs of maintaining compliance with governmental requirements of
any type, taxes, losses, bad debts of any type, in each case incurred by or on
behalf of the Company regardless whether such expenses and costs would be
treated as current costs or expenses for tax purposes or under generally
accepted accounting principles. Such costs and expenses shall include all
compensation costs, equipment and a pro rata portion of overhead expenses of the
personnel employed by the Manager or the Company to perform the foregoing
services for the Company, other than as set forth in Section II below.

      II.   The term "Operating Expenses" of the Company shall not include the
following:

      (A)   employment expenses of the Manager's personnel who are performing
management services for the Manager (including directors, officers, and
employees of the Company who are directors, officers, or employees of the
Manager or its Affiliates), other than the expenses of those employee services
listed in Section I above; and

      (B)   rent, telephone, utilities, and office equipment, furnishings and
other office and overhead-related expenses of the Manager in connection with
those employees providing management services for the Manager, other than the
expenses of those employee services listed in Section I above.

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