Document:

exv10w18

 

EXHIBIT 10.18

SECOND AMENDED AND RESTATED

REAL PROPERTY SUBLEASE AGREEMENT

BY AND BETWEEN

THREE-FIVE SYSTEMS, INC.

AND

BRILLIAN CORPORATION

EFFECTIVE AS OF

December 22, 2004

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page
	1. AMENDED SUBLEASE; SUBLET PREMISES; USE; CONTINGENT PAYMENT 
	 	 	2	 
	 
	 	 	 	 
	2. TERM 
	 	 	2	 
	 
	 	 	 	 
	3. RENT 
	 	 	3	 
	 
	 	 	 	 
	4. FIXTURES AND EQUIPMENT 
	 	 	3	 
	 
	 	 	 	 
	5. CONSTRUCTION; ACCEPTANCE 
	 	 	4	 
	 
	 	 	 	 
	6. REPRESENTATIONS AND SECURITY 
	 	 	4	 
	 
	 	 	 	 
	7. MASTER LEASE 
	 	 	4	 
	 
	 	 	 	 
	8. EVENTS OF DEFAULT 
	 	 	5	 
	 
	 	 	 	 
	9. REMEDIES OF TFS 
	 	 	6	 
	 
	 	 	 	 
	10. ACCESS TO SUBLET PREMISES 
	 	 	6	 
	 
	 	 	 	 
	11. WAIVERS BY BRILLIAN; HOLDOVER 
	 	 	6	 
	 
	 	 	 	 
	12. LATE PAYMENT 
	 	 	6	 
	 
	 	 	 	 
	13. INDEMNITY 
	 	 	6	 
	 
	 	 	 	 
	14. MASTER LEASE DEFAULTS 
	 	 	7	 
	 
	 	 	 	 
	15. RESTORATION 
	 	 	7	 
	 
	 	 	 	 
	16. NOTICES 
	 	 	7	 
	 
	 	 	 	 
	17. BRILLIAN’S INSURANCE 
	 	 	7	 
	 
	 	 	 	 
	18. ALTERATIONS 
	 	 	8	 
	 
	 	 	 	 
	19. CONDEMNATION 
	 	 	9	 
	 
	 	 	 	 
	20. ASSIGNMENT 
	 	 	9	 
	 
	 	 	 	 
	21. NO BROKER 
	 	 	10	 
	 
	 	 	 	 
	22. LIABILITY OF TFS
	 	 	10	 
	 
	 	 	 	 
	23. EFFECT 
	 	 	10	 
	 
	 	 	 	 
	24. DAMAGE OR DESTRUCTION 
	 	 	10	 
	 
	 	 	 	 
	25. NOTICE 
	 	 	10	 
	 
	 	 	 	 
	26. RELATIONSHIP 
	 	 	11	 
	 
	 	 	 	 
	27. WAIVERS 
	 	 	11	 
	 
	 	 	 	 
	28. FORUM 
	 	 	11	 
	 
	 	 	 	 
	29. JOINT AND SEVERAL LIABILITY; AUTHORITY 
	 	 	11	 
	 
	 	 	 	 
	30. NO OPTION; CONSENT OF MASTER LANDLORD 
	 	 	11	 
	 
	 	 	 	 
	31. FORCE MAJEURE 
	 	 	11	 

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TABLE OF
CONTENTS
(continued)

	 	 	 	 	 
	 	 	Page
	32. WAIVER OF TRIAL BY JURY 
	 	 	11	 
	 
	 	 	 	 
	33. GROUND SUBLEASE 
	 	 	11	 

ii

 

EXHIBIT INDEX

	 	 	 	 	 
	Exhibit A – Legal Description of Land 
	 	 	A-1	 
	 
	 	 	 	 
	Exhibit B – Copy of Ground Lease 
	 	 	B-1	 
	 
	 	 	 	 
	Exhibit C – Copy of Master Lease 
	 	 	C-1	 
	 
	 	 	 	 
	Exhibit D – Depiction of Sublet Premises and Common Areas 
	 	 	D-1	 
	 
	 	 	 	 
	Exhibit E – Form of Master Landlord’s Consent 
	 	 	E-1	 
	 
	 	 	 	 
	Exhibit F – Building Services 
	 	 	F-1	 
	 
	 	 	 	 
	Exhibit G – Variable Services Rent 
	 	 	G-1	 
	 
	 	 	 	 
	Exhibit H – Clean Room Equipment
	 	 	 	 
	 
	 	 	 	 
	Exhibit I –  Form of Security Agreement 
	 	 	H-1	 
	 
	 	 	 	 
	Exhibit J – Form of Ground Sublessor’s Consent 
	 	 	I-1	 

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SECOND AMENDED AND RESTATED

REAL PROPERTY SUBLEASE AGREEMENT

     This Second Amended and Restated Real Property Sublease Agreement (this “Sublease”) is
entered into as of December 22, 2004 (the “Effective Date”), by and between Three-Five
Systems, Inc., a Delaware corporation, with offices at 1600 North Desert Drive, Tempe, Arizona
85281, Tempe, Arizona (“TFS”), and Brillian Corporation, a Delaware corporation having an
address at 1600 North Desert Drive, Tempe, Arizona 85281 (“Brillian”).

RECITALS

     WHEREAS, pursuant to that certain Real Property Sublease Agreement dated September 1, 2003 by
and between TFS, as sublessor, and Brillian, as sublessee, as amended by that certain First Amended
and Restated Real Property Sublease Agreement dated as of June 1, 2004 (the “Existing
Sublease”), TFS sublet to Brillian approximately 42,524 square feet of rentable floor area (the
“Premises”) in that certain building located at 1600 North Desert Drive, Tempe, Arizona
85281 (the “Building”), which Premises are located on the real estate (the “Land”)
more fully described on Exhibit A attached hereto and made a part hereof; and

     WHEREAS, TFS subleased the Land from Papago Park Center, Inc., an Arizona corporation
(“Ground Sublessor”) pursuant to that certain Papago Park Center Ground Sublease dated
April 1, 1994, between Ground Sublessor, as Landlord, and TFS, as Tenant (the “Ground
Sublease”), a true and correct copy of the Ground Sublease being attached hereto as Exhibit
B;

     WHEREAS, on July 26, 2004, TFS acquired fee simple title in and to the Building, and, pursuant
to Section 33 of the Existing Sublease, the Existing Sublease was thereby automatically deemed a
prime lease by and between TFS, as lessor, and Brillian, as lessee; and

     WHEREAS, as of the Effective Date TFS has sold fee simple title in and to the Building and its
subleasehold interest in the Land (the Building and TFS’ subleasehold interest under the Ground
Sublease collectively, the “Master Premises”) to Papago Paragon Partners, LLC (“Master
Landlord”), and leasedback the Master Premises from the Master Landlord pursuant to that
certain lease dated of even date herewith (the “Master Lease”), a true and correct copy of
which is attached hereto as Exhibit C;

     WHEREAS, effective as of the Effective Date, TFS and Brillian desire to amend and restate in
its entirety the Existing Sublease pursuant to this Sublease, for the purpose of: (i) amending the
Sublet Premises, as such term is defined in the Existing Sublease, to 55,781 rentable square feet
in the Building (the aforesaid 55,781 rentable square feet hereinafter the “Sublet
Premises”), which Sublet Premises are more fully shown on Exhibit D attached hereto and
made a part hereof; and (ii) certain other terms and conditions, all as more fully set forth
hereinbelow;

AGREEMENT

     NOW, THEREFORE, in consideration of the mutual promises, covenants, and conditions hereinafter
set forth, and intending to be legally bound hereby, it is mutually agreed as follows:

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     1. AMENDED SUBLEASE; SUBLET PREMISES; USE; CONTINGENT PAYMENT.

          (a) Effective as of execution by Master Landlord and TFS of the Master Lease, which execution
shall be evidenced by TFS’ delivery of a fully executed copy of the Master Lease to Brillian, the
Existing Sublease shall thereby be deemed amended and restated in its entirety by this Sublease.
In the event Master Landlord and TFS fails to execute the Master Lease by December 31, 2004, the
Existing Sublease shall remain in full force and effect pursuant to the terms and conditions set
forth therein.

          (b) TFS hereby subleases the Sublet Premises to Brillian and Brillian hereby subleases 55,781
the Sublet Premises from TFS, subject to the terms and conditions hereof. Brillian shall not use
the Sublet Premises for any illegal or improper purpose which shall constitute a nuisance nor do or
suffer anything to be done in or about the Sublet Premises which will violate any term of the
Master Lease, this Sublease, or any laws, rules, regulations, or ordinances or increase the rate of
fire or other insurance or jeopardize the coverage of the same. Brillian agrees to comply with all
of Master Landlord’s rules and regulations relating to the Sublet Premises or the building in which
the Sublet Premises is located.

          (c) Brillian shall also have the right to use in common with TFS (and such other subtenants as
from time to time may occupy the Building) the facilities yard, parking areas, improvements (other
than the Building) located from time to time on the Land, and the common areas described on
Exhibit D attached hereto and made a part hereof (all of the foregoing in this Paragraph
1(c), the “Common Areas”).

     2. TERM.

          (a) Subject to the terms of Paragraphs 1(b) above and this Paragraph 2 in its entirety, the
initial term of this Sublease shall, subject to the terms set forth hereinafter in this Section
2(a), be for a period of five (5) years (the “Initial Sublease Term”) and shall commence as
of the Effective Date (the “Commencement Date”) and terminate on December 16, 2009. The
Initial Sublease Term may be extended for additional one (1) year terms (each, a “Renewal
Term”) pursuant to the terms and provisions of Paragraph 2(b) below. The Initial Sublease
Term, together with any and all Renewal Terms, is hereinafter collectively referred to as the
“Sublease Term”. Notwithstanding the foregoing provisions of this Section 2(a), as set
forth in Section 21(d) of the Master Lease, the Master Landlord has the right, upon a default by
TFS under the Master Lease, to recognize this Sublease as a direct lease between Master Landlord
and Brillian or to terminate this Sublease upon six (6) months prior written notice. Brillian
hereby expressly acknowledges and agrees that it has read the terms and provisions of Section 21(d)
of the Master Lease, that it is subject to the terms and provisions of Section 21(d) of the Master
lease, and that TFS shall not be obligated to cure any defaults under the Master Lease, whether
such defaults are made by TFS or Master Landlord, liable for any act or omission of Master Landlord
or subject to any claims, offsets or defenses which Brillian might have against TFS arising as a
result of the election by Master Landlord to terminate this Sublease in accordance with the terms
and provisions of Section 21(d).

          (b) Except as set forth in Paragraph 2(a) above or (c) below, the Sublease Term shall be
automatically extended for successive Renewal Terms unless Brillian shall give to TFS written
notice of its election to terminate this Sublease at least 180 days prior to the beginning of the
first Renewal Term or any then applicable succeeding Renewal Term.

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          (c) In the event that TFS desires to terminate this Sublease as of the expiration of the
Sublease Term, or during the Sublease Term, TFS shall give to Brillian written notice of its
election to terminate this Sublease at least 180 days prior to the date of such termination.

     3. RENT.

          (a) Base Rent. During the Term, Brillian covenants and agrees to pay to TFS, without
deduction or setoff of any kind, minimum annual base rent in an amount equal to Seven Hundred
Thirty Nine Thousand Ninety Eight and 25/100ths ($739,098.00) Dollars (such minimum annual rent
hereinafter called the “Base Rent”), payable in equal monthly installments of Sixty-One
Thousand Five Hundred Ninety One and 52/100ths ($61,591.52) Dollars. The Base Rent shall be paid
in advance on the first day of each month during the term of this Sublease.

          (b) Building Services Rent. During the Term, Brillian covenants and agrees to pay to TFS,
without deduction or setoff of any kind, annual building services rent in an amount equal to
$338,964.00 (“Building Services Rent”), payable in equal monthly installments of
$28,247.00. The particular services that are provided by TFS to Brillian and that are covered under
Building Services Rent are enumerated and described in Exhibit F to this Sublease. For
purposes of this Sublease, Building Services Rent shall include all Rent other than Base Rent,
Brillian’s Share of Taxes and Variable Services Rent. Brillian shall pay to TFS the Building
Services Rent on the first day of each month during the term of this Sublease, together with the
payment of Base Rent. No later than July 31 of each year during the term of this Sublease, TFS
shall provide Brillian with a reasonably detailed statement (the “First-Half Statement”) showing
the actual costs of the building services incurred by TFS during the calendar months of January
through and including June (the “First Half”). In the event that the Building Services Rent paid
to TFS during the First Half is less than the actual costs of the building services incurred for
the same period, as shown on the First-Half Statement, Brillian shall, no later than fifteen (15)
days from its receipt of the First-Half Statement, pay the difference to TFS. If the Building
Services Rent paid during the First Half is greater than the actual costs of the building services
for the same period, Brillian shall be entitled to offset such overpayment against the next
installment of Building Services Rent due under this Sublease. No later than January 31 of each
year during the term of this Sublease, TFS shall provide Brillian with a reasonably detailed
statement (the “Second-Half Statement”) showing the actual costs of the building services incurred
by TFS during the calendar months of July through and including December (the “Second Half”). In
the event that the Building Services Rent paid to TFS during the Second Half is less than the
actual costs of the building services incurred for the same period, as shown on the Second-Half
Statement, Brillian shall, no later than fifteen (15) days from its receipt of the Second-Half
Statement, pay the difference to TFS. If the Building Services Rent paid during the Second Half is
greater than the actual costs of the building services for the same period, Brillian shall be
entitled to offset such overpayment against the next installment of Building Services Rent due
under this Sublease.

          (c) Variable Services Rent. During the term of this Sublease, Brillian covenants and agrees
to pay to TFS, without deduction or setoff of any kind, the costs actually incurred for the items
enumerated in Exhibit G to this Sublease with respect to the Sublet Premises (“Variable
Services Rent”). Brillian shall pay to TFS on demand by TFS an amount equal to the costs
actually incurred or paid by or on behalf of TFS for the
services enumerated in Exhibit G to this Sublease with respect to the Sublet Premises. All
Variable Services Rent amounts not paid to TFS within seven (7) days of TFS’s demand for such
payment shall bear interest at the annual rate of fifteen percent (15%), from the date of TFS’s
demand for such payment until paid in full.

     4. FIXTURES AND EQUIPMENT. In the event that, during the term of this Sublease, a
building fixture or piece of maintenance or operating equipment breaks or fails to work properly,
and that fixture or piece of maintenance or operating equipment is solely used by Brillian under
the terms of this

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Sublease, then (i) TFS reserves the right to not repair or replace the said
fixture or piece of maintenance or operating equipment, or (ii) in the event that TFS chooses to
repair or replace such fixture or piece of maintenance or operating equipment, Brillian shall be
solely liable for any costs associated with such action.

     5. CONSTRUCTION; ACCEPTANCE. Brillian agrees that TFS has no construction, repair, or
replacement obligations hereunder and that Brillian will accept the Sublet Premises in “as-is”
condition. Brillian’s taking possession of the Sublet Premises shall be a conclusive
acknowledgement on Brillian’s part that the Sublet Premises are in good and tenantable condition
and that Brillian has accepted the Sublet Premises in “as is” condition as of such date.

     6. REPRESENTATIONS AND SECURITY.

          (a) TFS hereby warrants and represents that (i) the Master Lease is presently in full force
and effect; (ii) that TFS has the power and authority to enter into this Sublease; (iii) the copy
of the Master Lease attached hereto as Exhibit C is true, complete, and correct; (iv) the
Master Lease has not been modified or amended and constitutes the full and complete agreement of
the parties thereto relative to the subject matter thereof; (v) (a) to the best of TFS’ knowledge,
TFS is not in default under any of the provisions of the Master Lease, and to the best of TFS’
knowledge, no event or condition exists which with notice or the passage of time or both, would
constitute a default by TFS under the Master Lease, and (b) TFS has received no notice of any such
default, event, or condition from Master Landlord which remains uncured; (vi) TFS has received no
written notice from any applicable governmental authority of, or alleging any, violation of any
applicable law or regulation, including any environmental laws, with respect to the Sublet Premises
which remains uncured; (vii) TFS has given no written notices alleging any default which remains
uncured by the Master Landlord under the Master Lease, or that any event has occurred which, with
the passage of time, or the giving of notice, or both, would constitute an uncured default by the
Master Landlord under the Master Lease, nor to the best of TFS’s knowledge, has any event occurred
which, with the passage of time, or the giving of notice, or both, would constitute an uncured
default by Master Landlord under the Master Lease. TFS makes no other representations or warranties
and hereby disclaims same.

          (b) As security for the payment of all of Brillian’s obligations under this Sublease, Brillian
hereby grants to TFS a security interest in and to all right, title and interest of Brillian in and
to the clean room equipment described generally on Exhibit H attached to this Sublease from
time to time located at the Premises (the “Clean Room Equipment”), and, in furtherance of
Brillian’s grant to TFS of the aforesaid security interest; (i) TFS and Brillian have executed that
certain Security Agreement dated of even date herewith (the “Security Agreement”, a true
and correct copy of which is attached hereto and Exhibit I; and (ii) Brillian has executed
and filed financing statements in accordance with the Uniform
Commercial Code, as the same may from time to time be in effect in the State of Arizona (the
“UCC”). Brillian hereby authorizes TFS to file and record (in such public records offices
as TFS may determine) such financing statements, continuation statements and other related filings
as TFS may reasonably determine to perfect its security interest in the Clean Room Equipment
pursuant to the Security Agreement.

     7. MASTER LEASE.

          (a) All the rights and obligations of TFS contained in the Master Lease as they relate to the
Sublet Premises are hereby conferred and imposed upon Brillian, except as expressly modified and
amended by this Sublease. The rights and obligations of TFS in Sections 11, 16, 17 and 21 of the
Master Lease are expressly not conferred upon Brillian and Brillian expressly acknowledges that it
shall not be entitled to any of the rights or incur any of the obligations of TFS in Sections 11,
16, 17 and 21 of the

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Master Lease. Brillian covenants and agrees fully and faithfully to perform
the terms and conditions of the Master Lease as they relate to the Sublet Premises and this
Sublease on its part to be performed, including, but not limited to, all maintenance and repair
obligations and all compliance with law obligations. Brillian shall not do or cause to be done or
suffer or permit any act to be done that would or might cause the Master Lease, or the rights of
TFS as tenant under the Master Lease, to be endangered, canceled, terminated, forfeited, or
surrendered, or that would or might cause TFS to be in default thereunder or liable for any damage,
claim, or penalty. Brillian agrees, as an express inducement for TFS’s executing this Sublease,
that if there is any conflict between the provisions of this Sublease and the provisions of the
Master Lease that would permit Brillian to do or cause to be done or suffer or permit any act or
thing to be done that is prohibited by the Master Lease, then the provisions of the Master Lease
shall prevail. All rights, remedies, and indemnifications given to the Master Landlord in the
Master Lease are hereby given to TFS under this Sublease.

          (b) Except as otherwise expressly provided in this subsection 7(b), TFS shall have no duty to
perform any obligations of or provide any services to be provided by the Master Landlord and shall
under no circumstances be responsible or liable to Brillian for any default, failure, or delay on
the part of the Master Landlord in the performance of any obligations under the Master Lease, nor
shall such default of the Master Landlord affect Brillian’s obligations hereunder; provided, that
in the event of any such default or failure of performance by Master Landlord, including, without
limitation, any failure on the part of Master Landlord to maintain any structural components of the
Sublet Premises, including load bearing walls or the roof, TFS agrees, upon notice from Brillian,
to make demand upon Master Landlord to perform its obligations under the Master Lease and to
otherwise cooperate reasonably with Brillian as Brillian may reasonably request, in enforcing the
remedies provided in the Master Lease. This Sublease is intended to be a so-called triple net
lease in that Brillian shall pay to TFS and TFS shall be entitled to receive from Brillian all Base
Rent, Building Services Rent and Variable Services Rent, net of costs of repair, operating costs,
taxes, insurance, and maintenance costs, other than with respect to the building services and other
services with respect to the Variable Services Rent that TFS is obligated under this Sublease to
provide.

     8. EVENTS OF DEFAULT. The occurrence of any one of the following events shall
constitute an event of default (“Event of Default”) under this Sublease:

          (a) Brillian fails to pay Base Rent, Building Services Rent, Variable Services Rent, or any
other sum of money when due under this Sublease within three (3) business days after receipt by
Brillian of written notice from TFS that such amount is due; provided, however, that TFS shall
not be required to give more than two written notices in any twelve month period;

          (b) Brillian assigns this Sublease or sublets all or a portion of the Sublet Premises, or
attempts to do the aforementioned, in violation of Paragraph 20 hereof;

          (c) Brillian fails to perform any of its other obligations under this Sublease or the Master
Lease and such failure continues for thirty (30) days (or such shorter period of time as is granted
to TFS under the Master Lease) after the receipt by Brillian of written notice of default with
respect to such failure. Notwithstanding the foregoing, Brillian shall not be in default under this
Sublease with respect to any non-monetary breach (other than those listed in subparagraph b above)
that may be cured by the performance of affirmative acts if Brillian promptly commences the
performance of said affirmative acts and diligently prosecutes the same to completion as soon as
possible, and in any event, within not more than the time period prescribed for TFS to cure such
default under the Master Lease. Notwithstanding anything to the contrary contained in the
foregoing, if Brillian fails to maintain the insurance required in Paragraph 17 hereof, TFS may, in
addition to any other remedies herein contained, immediately upon such failure (but TFS shall not
be so obligated), at Brillian’s sole cost and expense,

5

 

procure the insurance coverage required
herein, and if Brillian shall fail to reimburse TFS for the costs and expenses it incurred in
procuring such coverage, within fifteen (15) days of notice from TFS, an Event of Default shall
have occurred hereunder.

     9. REMEDIES OF TFS. Upon the occurrence of an Event of Default, TFS shall have all of
the rights and remedies available under the Master Lease and at law or in equity. All remedies
shall be cumulative and non-exclusive.

     10. ACCESS TO SUBLET PREMISES. Except in the event of an emergency in which case no
notice shall be required, TFS or Master Landlord or any of their respective agents, contractors, or
employees may enter the Sublet Premises during normal business hours upon 24 hours advance notice
(except in the event of an emergency), to inspect the Sublet Premises, or during the last six (6)
months of the term of this Sublease to show said property to persons seeking to rent or purchase
the Sublet Premises, or to make repairs or improvements to the Sublet Premises.

     11. WAIVERS BY BRILLIAN; HOLDOVER.

          (a) Except for any notice expressly provided for in this Sublease, Brillian waives to TFS the
benefit of all laws now or hereafter in force, in this state or elsewhere, requiring notice to
vacate the Sublet Premises at the end of the term or any extensions or renewals thereof. Brillian
covenants and agrees to give up quiet and peaceful possession without further notice from TFS or
its agent at the end of the term of this Sublease. Brillian also waives to TFS the benefit of all
laws now or hereafter in force, in this state or elsewhere, exempting property from liability for
rent, or for debt.

          (b) If Brillian shall not immediately surrender the Sublet Premises on the day after the
termination or expiration of the term of this Sublease, then Brillian shall, by virtue of this
Sublease, become a sublessee at the sufferance of TFS at twice the immediately preceding Base Rent
agreed by
Brillian to be paid as aforesaid, and Brillian shall be subject to all of the other conditions
and covenants of this Sublease.

     12. LATE PAYMENT. If Brillian shall fail to pay when the same is due and payable,
Base Rent, Building Services Rent, Variable Services Rent, or any other sums due under this
Sublease, interest shall be charged on all unpaid amounts at the amount of the late charge provided
for in the Master Lease.

     13. INDEMNITY. In addition to the indemnity provided for in the Master Lease,
Brillian shall indemnify and hold TFS and Master Landlord harmless from and defend TFS and Master
Landlord with counsel reasonably satisfactory to TFS and Master Landlord against any and all
claims, liabilities, losses, damages, costs, and expenses, for any injury or damage to any person
or property whatsoever, occurring in, on, or about the Sublet Premises or other portions of the
Building or when such injury or damage shall be caused in part or in whole by the neglect, fault,
or omission of Brillian, its employees, invitees, contractors, subcontractors, licensees,
subtenants, or agents.

     TFS shall indemnify and hold Brillian harmless from and defend Brillian with counsel
reasonably satisfactory to Brillian against any and all claims, liabilities, losses, damages,
costs, and expenses caused by any representation or warranty made by TFS in Paragraph 6 hereof
being false or misleading, by any default by TFS under the Master Lease.

     Notwithstanding the foregoing, in no event shall either party be liable for consequential,
indirect, or special damages to the other party.

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     14. MASTER LEASE DEFAULTS. TFS will not cause or knowingly allow to be caused any
default under the Master Lease which shall remain uncured at the expiration of the applicable cure
period set forth therein, unless such default arises out of a failure by Brillian to perform its
obligations under this Sublease. TFS will deliver to Brillian a copy of any notice of default by
TFS under the Master Lease within five (5) days after receipt thereof by TFS. In addition, in the
event TFS is in default under the Master Lease and such default continues beyond the expiration of
the applicable grace period set forth therein (a “Master Lease Continuing Default”),
Brillian shall thereafter have the right (but not the obligation) to cure such Master Lease
Continuing Default, if Brillian’s cure of such Master Lease Continuing Default is acceptable to
Master Landlord and provided that Brillian gives TFS prior written notice of such undertaking.

     15. RESTORATION. Brillian shall immediately prior to the expiration or sooner
termination of this Sublease, surrender the Sublet Premises in the condition required under the
Master Lease and otherwise in broom clean and good condition, normal wear and tear excepted. In the
event of termination of this Sublease in any manner whatsoever, Brillian shall forthwith remove
Brillian’s goods and effects and those of any other persons claiming under Brillian or subtenancies
assigned to it, and quit and deliver the Sublet Premises to TFS peaceably and quietly. Goods and
effects not removed by Brillian on or before the date of termination of this Sublease (or within
forty-eight (48) hours after a termination by reason of Brillian’s default) shall be considered
abandoned. TFS shall give Brillian notice of right to reclaim abandoned property pursuant to
applicable local law and may thereafter dispose of the same as it deems expedient, including
storage in a public warehouse or elsewhere at the cost and for the account of Brillian, but
Brillian shall promptly upon demand reimburse TFS for any expenses incurred by TFS in
connection therewith, which obligation shall survive the termination or expiration of this
Sublease.

     16. NOTICES. All notices hereunder shall be in writing and will be effective upon
receipt if delivered personally, or by nationally recognized overnight courier service to a party’s
address set forth below or to such other address as either may give to the other in writing for
such purpose:

	 	 	 	 	 
	

	 	TFS:
	 	Three-Five Systems, Inc.
	

	 	 	 	Attn: General Counsel
	

	 	 	 	1600 North Desert Drive
	

	 	 	 	Tempe, Arizona 85281
	 
	 	 	 	 
	

	 	Brillian:
	 	Brillian Corporation
	

	 	 	 	Attn: Chief Financial Officer
	

	 	 	 	1600 North Desert Drive
	

	 	 	 	Tempe, Arizona 85281

     17. BRILLIAN’S INSURANCE.

          (a) Brillian shall, at its sole cost and expense, maintain during the term hereof all
insurance coverages required to be maintained by the tenant under the Master Lease. Furthermore,
TFS has advised Brillian that in addition to all other insurance obligations of TFS, TFS is
required under the terms of the Ground Sublease to maintain a $5 million insurance policy to cover
catastrophic damage to the building that results from Brillian’s use of the leasehold premises (the
“$5 Million Policy”). The $5 Million Policy will name TFS as a beneficiary. In addition to all
other obligations of Brillian under this Sublease, upon request by TFS (but in no event more than 5
days after TFS’s request), Brillian shall reimburse TFS for sixty percent (60%) of the premiums,
charges and costs paid or to be paid by TFS to purchase and maintain the $5 Million Policy. Copies
of all policies or certificates evidencing the insurance required to be maintained by Brillian
under this Sublease shall be delivered to TFS prior to the Commencement Date and renewals thereof
shall be delivered to TFS prior to the expiration of any such

7

 

policy. If Brillian fails to adhere
to the requirements of this Paragraph 17, TFS, in addition to any other remedies it may have, may
obtain such insurance and charge the cost thereof to Brillian, which amount shall be payable by
Brillian upon demand.

          (b) All insurance required to be carried by Brillian shall be issued in the coverages and
amounts required under the Master Lease by responsible insurance companies, qualified to do
business in the locality where the Sublet Premises are located and reasonably acceptable to TFS and
Master Landlord and shall provide (i) that no change or cancellation of said policies shall be made
without thirty (30) days prior written notice to TFS and Brillian; (ii) that any coverage of TFS or
sum payable to TFS shall be unaffected by any act or omission of Brillian or any other insured
which might otherwise result in forfeiture of said insurance; and (iii) that the insurance company
issuing the same shall not have any right of subrogation against TFS or TFS’s insurer. Each policy
and renewal shall name TFS, any mortgagee and Master Landlord as an additional insured and, in the
case of casualty insurance for other than Brillian’s personal property, shall name TFS as loss
payee. Copies of all policies or certificates evidencing the existence and amounts of said
insurance shall be delivered to TFS by Brillian upon request. Each policy shall also contain
provisions required by any mortgagee of the Sublet Premises or any portion thereof.

          (c) Copies of all policies or certificates evidencing said insurance shall be delivered to TFS
prior to the Commencement Date and renewals thereof shall be delivered to TFS prior to the
expiration of any such policy. If Brillian fails to adhere to the requirements of this Paragraph
17, TFS, in addition to any other remedies it may have, may order such insurance and charge the
cost thereof to Brillian, which amount shall be payable by Brillian upon demand.

          (d) Brillian hereby waives any and all rights of recovery against TFS and its officers,
employees, agents, and representatives for loss of or damage to Brillian or its property or the
property of others under its control, arising from any cause insured or required to be insured
against by Brillian, irrespective of whether such loss or damage is caused by negligence of TFS or
any of its employees, invitees, contractors, subcontractors, licensees, subtenants, or agents.
Brillian shall obtain and furnish evidence to TFS of the waiver by Brillian’s insurance carriers of
any right of subrogation against TFS.

     18. ALTERATIONS.

          (a) Brillian shall not make any building or leasehold alterations or additions, including
remodeling or signage, without first obtaining Master Landlord’s and without first obtaining the
prior written consent of TFS, which consent of TFS shall not be unreasonably withheld, but which
consent of Master Landlord may be withheld as provided in the Master Lease. In the event that
Master Landlord shall consent to the making of any alternations or additions by Brillian, TFS shall
agree to also give its consent, so long as the obligations and liabilities of TFS under the Master
Lease are not increased and so long as Master Landlord shall not impose any additional
requirements, limitations, or restrictions on TFS as a result of giving its consent. If any such
alterations or additions are made, Brillian agrees not to permit any mechanics’ liens to be placed
on the Sublet Premises or any portion thereof and to cause any contract for work to be done at the
Sublet Premises to contain a waiver of the contractor’s right to file a mechanics’ lien. Any
alterations of any kind to the Sublet Premises or any part thereof, except Brillian’s trade
fixtures which can be removed without damage or defacement to the Sublet Premises or any other
portion of the Building, shall be surrendered with the Sublet Premises, as a part thereof, at the
end of the Sublease Term; provided, however, that TFS may require at the time TFS
and Master Landlord consent to such alteration or fixture Brillian to remove any alterations or
fixtures made by Brillian, and to repair any damage to the Sublet Premises caused by such removal,
all at Brillian’s sole expense. Any alterations installed by Brillian shall be deemed a part of the
Sublet Premises and shall be maintained and repaired by Brillian in the same manner as that
required for all other portions of the Sublet Premises.

8

 

          (b) Brillian shall have the right to place a sign or signs on the façade of the Building,
provided, however: (i) TFS (and the Master Landlord to the extent that such consent from the Master
Landlord is required under the Master Lease) shall have the right to consent to the size, style,
and location of any such signs, which consent shall not be unreasonably withheld or delayed; (ii)
any such signs shall comply with all applicable laws, rules, regulations, and covenants,
conditions, and restrictions of record; and (iii) TFS may require that Brillian remove any such
signs at the expiration of the Term and repair any damage to the Building caused by such removal,
all at Brillian’s sole expense.

     19. CONDEMNATION. All compensation awarded or paid upon a total or partial taking of
the Sublet Premises shall belong to and be the property of TFS without any participation by
Brillian; provided, however, that nothing contained herein shall be construed to
preclude Brillian from prosecuting any claim directly against the condemning authority in such
condemnation proceedings for loss of business, and/or depreciation to, damage to, and/or cost of
removal of, and/or for the value of stock and/or trade fixtures,
furniture, and other personal property belonging to Brillian; provided,
however, that no such claim shall diminish or otherwise adversely affect TFS’s and/or
Master Landlord’s award or the award(s) of any and all ground and underlying lessor(s) and
mortgagee(s).

     20. ASSIGNMENT.

          (a) Without the written consent of TFS, which consent shall not be unreasonably withheld, and
without the consent of Master Landlord, Brillian shall not by operation of law or otherwise, assign
or mortgage this Sublease, or sublet or license the whole or any part of the Sublet Premises or
permit the Sublet Premises or any part thereof to be used or occupied by others. Notwithstanding
the foregoing, Brillian may, upon fifteen (15) days prior written notice to TFS but without TFS’s
consent, assign or sublet all or any portion of the Sublet Premises to (i) any entity controlled by
or under common control with Brillian, or (ii) any successor to Brillian by merger or acquisition
of all or substantially of Brillian’s assets or the transferee of more than fifty percent (50%) of
Brillian’s capital stock, provided that in each case (i) the proposed assignee or Brillian has a
net worth greater than or equal to the greater of (a) Brillian’s net worth on the date of this
Sublease, or (b) Brillian’s net worth on the date of such assignment or sublease, and (ii) Brillian
obtains the prior written consent of the Master Landlord to such assignment or subletting.

          (b) Regardless of TFS’s consent, no subletting or assignment shall release or alter Brillian’s
primary liability to pay Base Rent, Building Services Rent, Variable Services Rent, and to perform
all other obligations to be performed by Brillian hereunder. Upon a default hereunder by any
assignee or sublessee of Brillian, TFS may proceed directly against Brillian without the necessity
of exhausting remedies against such assignee or sublessee. TFS may consent to any subsequent
assignment or subletting of this Sublease and such action shall not relieve Brillian of liability
under this Sublease.

          (c) Each permitted assignee or transferee shall assume and be deemed to have assumed this
Sublease and shall be and remain liable jointly and severally with Brillian for the payment of the
Base Rent and Building Services Rent and Variable Services Rent, and for the due performance of all
of the provisions, covenants, conditions, and agreements herein contained on Brillian’s part to be
performed for the term of this Sublease. No otherwise permitted assignment or transfer shall be
binding on TFS unless such assignee or transferee shall deliver to TFS a counterpart of such
assignment and an instrument in recordable form which contains a covenant of assumption by the
assignee or transferee, but the failure or refusal of the assignee or transferee to execute such
instrument of assumption shall not release or discharge the assignee or transferee from its
liability as set forth above.

          (d) Any consent by TFS or Master Landlord to any act of assignment or subletting shall be held
to apply only to the specific assignment or subletting thereby authorized. Such consent shall

9

 

not
be construed as a waiver of the duty of Brillian, or the legal representatives or assigns of
Brillian, to obtain from TFS or Master Landlord consent to any other or subsequent assignment or
subletting, or as modifying or limiting the rights of TFS or Master Landlord under the foregoing
covenant by Brillian not to assign or sublet without consent.

          (e) If this Sublease is assigned or transferred, or if the Sublet Premises or any part thereof
be underlet or occupied by any person other than Brillian, or if an Event of Default has occurred
hereunder, TFS may collect rent from the successor occupant and apply the net amount collected by
it to the rent herein reserved. No such collection shall be deemed a waiver of the prohibition
against assignment, sublets, and other transfers, or the acceptance of the successor occupant as
tenant, or a release of Brillian from the further performance of the covenants herein contained on
the part of Brillian.

          (f) TFS may freely assign this Sublease at any time without consent or notice to Brillian
provided that the assignee assumes all of the liabilities and obligations of TFS under this
Sublease and under the Master Lease.

     21. NO BROKER. Brillian covenants, warrants, and represents that there was no broker
involved in consummating this Sublease, and that no conversations or prior negotiations were had
with any broker concerning the renting of the Sublet Premises. Brillian and TFS agree to defend,
indemnify, and hold the other party harmless against any claims for brokerage commission arising
out of any conversations or negotiations had by the indemnifying party with any broker.

     22. LIABILITY OF TFS. TFS shall not be liable for any injury or damage to any person
or to any property at any time on the Sublet Premises from any cause whatsoever that may at any
time exist from the use or condition of said Sublet Premises or Building, or from failure of water
supply or electric current or from steam, electricity, water, gas, or rain which leak or flow from
or into any part of the Sublet Premises, or from breakage, leakage, obstruction or from
difficulties to the pipes, lines, appliances, plumbing, or lighting fixtures, awnings, or signs in
or upon the Sublet Premises, or from any other cause, during the term of this Sublease or any
renewal or extension hereof except to the extent solely caused by the gross negligence or
intentional misconduct of TFS or its agents.

     23. EFFECT. This Sublease shall be binding upon the parties hereto, their successors
and permitted assigns, and may not be altered, amended, terminated, or modified except by written
instrument executed by each of the parties hereto.

     24. DAMAGE OR DESTRUCTION. If the Sublet Premises shall be partially damaged by fire
or other cause, repairs shall be in accordance with the terms of the Master Lease which shall also
determine to what extent, if any, the rent shall be abated. If the Sublet Premises shall be totally
destroyed by fire or other cause at any time prior to the end of the term of this Sublease,
Brillian agrees to be bound by Master Landlord’s decision made in accordance with the applicable
terms of the Master Lease, if any, as to whether or not the Sublet Premises is to be restored and
whether or not the Master Lease shall remain in effect. Brillian’s obligation to pay rent under the
Sublease shall be governed by the terms of the Master Lease, if any, applicable to abatement of
TFS’s rental under the Master Lease as it relates to the Sublet Premises.

     25. NOTICE. Brillian shall notify TFS of any damage to the Sublet Premises by fire or
other casualty and also of any dangerous or defective condition within the Sublet Premises
immediately upon the occurrence of such fire or other casualty or discovery of such condition.
Except as affected by the giving or failure to give such notice, nothing herein contained shall be
deemed to limit or enlarge the respective rights and liabilities of either party arising from the
negligent acts or conduct of the other.

10

 

     26. RELATIONSHIP. It is understood, covenanted, and agreed between the parties hereto that nothing in this
Sublease shall constitute TFS an employer, employee, principal, agent, or partner of Brillian and
the relationship hereby created between the parties hereto shall be strictly and solely that of
sublessor and sublessee.

     27. WAIVERS. No waiver of any covenant or condition by TFS shall be construed as a
waiver of a subsequent breach of the same or any other covenant or condition, and the consent or
approval by TFS to or of any act by Brillian requiring TFS’s consent or approval shall not be
construed to waive or render unnecessary TFS’s consent or approval to or of any subsequent similar
act by Brillian.

     28. FORUM. This Sublease shall be governed by the laws of the state of Arizona.

     29. JOINT AND SEVERAL LIABILITY; AUTHORITY. If two or more individuals, corporations,
partnerships, or other business associations (or any combination of two or more thereof) shall sign
this Sublease as sublessor, the liability of each such individual, corporation, partnership, or
other business association to pay rent and perform all other obligations hereunder shall be deemed
to be joint and several, and all notices, payments, and agreements given or made by, with, or to
any one of such individuals, corporations, partnerships, or other business associations shall be
deemed to have been given or made by, with, or to all of them. In like manner, if sublessor shall
be a partnership or other business association, the members of which are, by virtue of statute or
federal law, subject to personal liability, the liability of each such member shall be joint and
several.

     30. NO OPTION; CONSENT OF MASTER LANDLORD. This Sublease shall become effective only
upon execution and delivery thereof by both parties and upon Ground Sublessor’s consent to the
terms of this Sublease in substantially the form of consent attached hereto as Exhibit J
and made a part hereof. TFS shall use best efforts to obtain Ground Sublessor’s consent; provided
that in no event shall TFS be obligated to commence any legal proceeding to obtain or attempt to
obtain Ground Sublessor’s consent. Master Landlord consented generally to this Sublease under
Section 21(a) of the Master Lease.

     31. FORCE MAJEURE. Neither Brillian nor TFS shall be deemed in default under this
Sublease (excluding, however, monetary defaults) to the extent that any such failure stems from a
cause beyond the reasonable control of the respective party, including, without limitation, any act
of God, war, insurrection, applicable governmental or judicial law or regulation, zoning ordinance,
labor strike, order, or decree.

     32. WAIVER OF TRIAL BY JURY. IT IS MUTUALLY AGREED BY AND BETWEEN TFS AND BRILLIAN
THAT THE RESPECTIVE PARTIES HERETO SHALL AND DO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER (EXCEPT FOR
PERSONAL INJURY OR PROPERTY DAMAGE) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THIS SUBLEASE, THE RELATIONSHIP OF TFS AND BRILLIAN, AND BRILLIAN’S USE OR
OCCUPANCY OF SAID SUBLET PREMISES.

     33. GROUND SUBLEASE.

          (a) Brillian hereby expressly acknowledges that the sublease of the Sublet Premises is subject
and subordinate to the terms and conditions of the Ground Sublease.

11

 

          (b) All the obligations of TFS contained in the Ground Sublease as they relate to the Sublet
Premises are hereby conferred and imposed upon Brillian, except as expressly modified and amended
by this Sublease. Brillian covenants and agrees fully and faithfully to perform the terms and
conditions of the Ground Sublease as they relate to the Sublet Premises and this Sublease on its
part to be performed, including, but not limited to, all maintenance and repair obligations and all
compliance with law obligations. Brillian shall not do or cause to be done or suffer or permit any
act to be done that would or might cause the Ground Sublease, or the rights of TFS as tenant under
the Ground Sublease, to be endangered, canceled, terminated, forfeited, or surrendered, or that
would or might cause TFS to be in default thereunder or liable for any damage, claim, or penalty.
Brillian agrees, as an express inducement for TFS’s executing this Sublease, that if there is any
conflict between the provisions of this Sublease and the provisions of the Ground Sublease that
would permit Brillian to do or cause to be done or suffer or permit any act or thing to be done
that is prohibited by the Ground Sublease, then the provisions of the Ground Sublease shall
prevail. All rights, remedies, and indemnifications given to the Ground Lessor in the Ground
Sublease are hereby given to TFS under this Sublease.

          (c) If any event occurs that would permit TFS to terminate the Ground Sublease as it relates
to the Sublet Premises, Brillian shall notify TFS of such occurrence and of its recommendations
immediately with regard to such termination rights. TFS shall decide in its reasonable discretion
whether or not to terminate the Ground Sublease and shall give Brillian written notice of such
decision. If TFS elects to terminate the Ground Sublease as it relates to the Sublet Premises, this
Sublease shall terminate on the earlier of the date of termination of the Ground Sublease or the
date which is (30) days after Brillian’s receipt of such written notice from TFS. In the event that
TFS elects to terminate the Ground Sublease prior to providing notice to the Ground Lessor, TFS
must provide prior written notice to Brillian of its intent to terminate this Sublease, and within
five (5) days after the receipt of such notice from TFS, Brillian may notify TFS in writing that it
intends to continue possession of the Sublet Premises under the terms and conditions of this
Sublease, in which case, TFS shall not exercise its right of termination under the Ground Sublease
as it relates to the Sublet Premises.

          (d) TFS shall have no duty to perform any obligations of or provide any services to be
provided by the Ground Lessor and shall under no circumstances be responsible or liable to Brillian
for any default, failure, or delay on the part of the Ground Lessor in the performance of any
obligations under the Ground Sublease, nor shall such default of the Ground Lessor affect
Brillian’s obligations hereunder; provided, that in the event of any such default or failure of
performance by Ground Lessor, TFS agrees, upon notice from Brillian, to make demand upon Ground
Lessor to perform its obligations under the Ground Sublease and to otherwise cooperate reasonably
with Brillian as Brillian may reasonably request, in enforcing the remedies provided in the Ground
Sublease.

          (e) TFS will not cause or knowingly allow to be caused any default under the Ground Sublease
which shall remain uncured at the expiration of the applicable cure period set forth therein,
unless such default arises out of a failure by Brillian to perform its obligations under this
Sublease. TFS will deliver to Brillian a copy of any notice of default by TFS under the Ground
Sublease
within five (5) days after receipt thereof by TFS. In addition, in the event TFS is in default
under the Ground Sublease and such default continues beyond the expiration of the applicable grace
period set forth therein (a “Ground Sublease Continuing Default”), Brillian shall
thereafter have the right (but not the obligation) to cure such Ground Sublease Continuing Default,
if Brillian’s cure of such Ground Sublease Continuing Default is acceptable to Ground Lessor and
provided that Brillian gives TFS prior written notice of such undertaking.

          (f) As provided in Section 30 hereof, TFS shall use its best efforts to obtain the consent of
the Ground Sublessor to this Sublease substantially in the form of Exhibit J attached
hereto in order that Brillian have the protections of Article 16 of the Ground Sublease as a
“Permitted Sublease” (as

12

 

such term is defined in Section 17.2 of the Ground Sublease); provided,
that in no event shall TFS be obligated to commence any legal proceeding to obtain or attempt to
obtain Ground Sublessor’s consent. Furthermore, Brillian expressly acknowledges that TFS has the
right pursuant to Section 3.3 of the Ground Sublease to purchase the Land, in which event the
Master Ground Lease (as such term is defined in the Ground Sublease) shall be amended to delete the
Land as of the closing of such purchase, as more fully set forth in Section 3.3(B)(3) of the Ground
Sublease. In the event TFS purchases the Land, which event shall be evidenced by a written notice
of such purchase from TFS to Brillian, then in such event this Sublease shall be deemed a prime
lease by and between TFS, as owner of the Land, and Brillian, as tenant of the Sublet Premises.

          (g) As required by Section 17.2.B of the Ground Sublease, in the event the Ground Sublease is
terminated, Brillian will attorn to Ground Sublessor as provided in Article 16 of the Ground
Sublease.

     34. EXHIBITS. Each of the exhibits attached hereto are made a part hereof. The
following is a list of exhibits attached to this Lease:

	 	 	 	 	 	 	 
	

	 	Exhibit A
	 	–
	 	Legal Description of Land
	

	 	Exhibit B
	 	–
	 	Copy of Ground Sublease
	

	 	Exhibit C
	 	–
	 	Copy of Master Lease
	

	 	Exhibit D
	 	–
	 	Depiction of Sublet Premises and Common Areas
	

	 	Exhibit E
	 	–
	 	Reserved
	

	 	Exhibit F
	 	–
	 	Building Services
	

	 	Exhibit G
	 	–
	 	Variable Services Rent services
	

	 	Exhibit H
	 	-
	 	Description of Clean Room Equipment
	

	 	Exhibit I
	 	–
	 	Form of Security Agreement
	

	 	Exhibit J
	 	–
	 	Form of Ground Sublessor’s Consent
	 
	 	 	 	 	 	 

[Signature Page Follows]

13

 

     IN WITNESS WHEREOF, the parties have executed this Sublease as of the day and year first above
written.

	 	 	 	 	 	 	 
	TFS:	 	Brillian:
	 
	 	 	 	 	 	 
	THREE-FIVE SYSTEMS, INC., a Delaware	 	BRILLIAN CORPORATION, a Delaware
	corporation

	 	 	 	corporation	 	 
	 
	 	 	 	 	 	 
	By:

	 	  /s/ Jeffrey D. Buchanan
	 	By:
	 	     /s/ Wayne A. Pratt
	

	 	 
	 	 	 	 
	Name:

	 	  Jeffrey D. Buchanan
	 	Name:
	 	      Wayne A. Pratt
	Title:

	 	  Executive Vice President and
Chief Financial Officer
	 	Title:
	 	      Vice President and Chief Financial
Officer

14<PAGE>
                                                                   EXHIBIT 10.13

(BANK ONE LOGO)                                                 CREDIT AGREEMENT

This agreement dated as of June 22, 2004 between Bank One, NA, with its main
office, in Chicago, IL, and its successors and assigns, (the "Bank"), whose
address is 201 N. Central Ave, 21st Floor, AZ1-1178, Phoenix, AZ 85004, and
TASER International, Inc. (the "Borrower"), whose address is 7860 East McClan
Drive #2, Scottsdale, AZ 85260-1627.

1.   CREDIT FACILITIES.

     1.1  SCOPE. This agreement governs Facility A, and, unless otherwise agreed
          to in writing by the Bank and the Borrower or prohibited by applicable
          law, governs the Credit Facilities.

     1.2  FACILITY A (LINE OF CREDIT). The Bank has approved a credit facility
          to the Borrower in the principal sum not to exceed $10,000,000.00 in
          the aggregate at any one time outstanding ("Facility A"). Credit under
          Facility A shall be repayable as set forth in a Line of Credit Note
          executed concurrently with this agreement, and any renewals,
          modifications or extensions thereof. The proceeds of Facility A shall
          be used for the following purpose: finance on going working capital
          requirements and general corporate purposes.

          NON USAGE FEE. The Borrower shall pay to the Bank a non-usage fee (the
          "Non-Usage Fee") with respect to each calendar quarter during the term
          of Facility A, based on the unused amount of Facility A. The Non-Usage
          Fee shall be an amount equal to A x (B - C) x (D/E), where A equals
          the Applicable Fee Sate; B equals the maximum amount of Facility A; C
          equals the average daily used portion (i.e., the sum of the aggregate
          principal amount of advances outstanding, the aggregate amount
          available to be drawn under all outstanding letters of credit issued
          under the letter of credit sub-limit described below, plus the
          aggregate amount drawn and unreimbursed under letters of credit issued
          under that sub-limit) of Facility A, during the calendar quarter; D
          equals the actual number of days elapsed during the calendar quarter;
          and E equals 360. Each Non-Usage Fee shall be due and payable to the
          Bank quarterly, in arrears, within fifteen (15) days after Borrower's
          receipt of an invoice for the Non-Usage Fee from the Bank.

          LETTER OF CREDIT SUB-LIMIT. At any time the Borrower is entitled to an
          advance under Facility A, the Bank agrees to issue letters of credit
          for the account of the Borrower in an amount not in excess of the
          maximum advance that the Borrower would then be entitled to obtain
          under Facility A, provided that (a) the aggregate maximum amount which
          is drawn and remains unreimbursed under all letters of credit plus the
          aggregate maximum available amount which may be drawn under all
          letters of credit which are outstanding at any time, including without
          limitation all letters of credit issued for the account of the
          Borrower which arc outstanding on the date of the Line of Credit Note,
          shall not exceed $5,000,000.00, (b) the issuance of any letter of
          credit with an expiration date beyond the maturity date of the Line of
          Credit Note shall be entirely at the discretion of the Bank, (c) any
          letter of credit shall be a standby or commercial letter of credit and
          the form of the requested letter of credit shall be satisfactory to
          the Bank, in the Bank's sole discretion, and (d) the Borrower shall
          have executed an application and reimbursement agreement for any
          letter of credit in the Bank's standard form. While any letter of
          credit is outstanding, the maximum amount of advances that may be
          outstanding under the Line of Credit Note shall be automatically
          reduced by the maximum amount available to be drawn under any and all
          such letters of credit plus the aggregate of the amounts which have
          been drawn and remain unreimbursed under all letters of Credit. The
          Borrower shall pay the Bank a fee for each standby letter of credit
          that is issued, calculated at the Applicable Fee Rate per annum of the
          original maximum amount available of such standby letter of credit,
          with such fee being calculated on the basis of a 360-day year and the
          actual number of days in the period during which the standby letter of
          credit will be outstanding; provided, however, that such fee shall not
          be less than $100.00 for each letter of credit. The Borrower shall pay
          the Bank a fee for each commercial letter of credit that is issued,
          equal to the greater of $100.00 or 1.00% per annum of the original
          maximum available amount of such commercial letter of credit. No
          credit shall be given for fees paid due to early termination of any
          letter of credit. The Borrower shall also pay the Bank's standard
          transaction fees with respect to any transactions occurring on an
          account of any letter of credit. Each fee shall be payable when the
          related letter of credit is issued, and transaction fees shall be
          payable upon completion of the transaction as to which they are
          charged. All fees may be debited by the Bank to any deposit account of
          the Borrower carried with the Bank without further authority and, in
          any event, shall be paid by the Borrower within ten (10) days
          following billing.

     1.3  BORROWING BASE. The aggregate principal amount of advances outstanding
          at any one time under Facility A, plus the aggregate amount available
          to be drawn under all outstanding letters of credit issued under the
          letter of credit sub-limit described above, plus the aggregate amount
          drawn and unreimbursed under letters of credit issued under that
          sub-limit (the "Aggregate Outstanding Amount") shall not exceed the
          Borrowing Base or the maximum principal amount then available under
          the Line of Credit Note (and any renewals, modifications or extensions
          thereof) evidencing Facility A, whichever is less (the "Maximum
          Available Amount"). If at any time the Aggregate
<PAGE>
          Outstanding Amount exceeds the Maximum Available Amount, the Borrower
          shall immediately pay the Bank an amount equal to such excess.
          "Borrowing Base" means the aggregate of:

          A.   80% of Eligible Accounts; plus

          B.   50% of Eligible Inventory, not to exceed 50% of Margined Eligible
               Accounts.

          Upon the request of the Borrower, the Borrowing Base may also include
          additional amounts with respect to deposit accounts, certificates of
          deposit or time deposit receipt accounts with the Bank and acceptable
          marketable securities, in which Borrower has granted to the Bank a
          perfected, first priority security interest securing the Credit
          Facilities. The inclusion of such additional amounts shall be on such
          terms and conditions as the Bank may determine in its sole discretion,
          including without limitation the percentages of such assets upon which
          the calculation of such additional amounts shall be based, and the
          execution and delivery of such agreements and the provision of such
          additional assurances as the Bank may reasonably require.

2.   DEFINITIONS. As used in this agreement, the following terms have the
     following respective meanings:

     2.1  "Credit Facilities" means all extensions of credit from the Bank to
          the Borrower, whether now existing or hereafter arising, including but
          not limited to those described in Section 1.

     2.2  "Liabilities" means all obligations, indebtedness and liabilities of
          the Borrower to any one or more of the Bank, BANK ONE CORPORATION, and
          any of their subsidiaries, affiliates or successors, now existing or
          later arising, including, without limitation, all loans, advances,
          interest, costs, overdraft indebtedness, credit card indebtedness,
          lease obligations, or obligations relating to any Rate Management
          Transaction, all monetary obligations incurred or accrued during the
          pendency of any bankruptcy, insolvency, receivership or other similar
          proceedings, regardless of whether allowed or allowable in such
          proceeding, and all renewals, extensions, modifications,
          consolidations or substitutions of any of the foregoing, whether the
          Borrower may be liable jointly with others or individually liable as a
          debtor, maker, co-maker, drawer, endorser, guarantor, surety or
          otherwise, and whether voluntarily or involuntarily incurred, due or
          not due, absolute or contingent, direct or indirect, liquidated or
          unliquidated. The term "Rate Management Transaction" in this agreement
          means any transaction (including an agreement with respect thereto)
          now existing or hereafter entered into among the Borrower, the Bank or
          BANK ONE CORPORATION, or any of its subsidiaries or affiliates or
          their successors, which is a rate swap, basis swap, forward rate
          transaction, commodity swap, commodity option, equity or equity index
          swap, equity or equity index option, bond option, interest rate
          option, foreign exchange transaction, cap transaction, floor
          transaction, collar transaction, forward transaction, currency swap
          transaction, cross-currency rate swap transaction, currency option or
          any other similar transaction (including any option with respect to
          any of these transactions) or any combination thereof, whether linked
          to one or more interest rates, foreign currencies, commodity prices,
          equity prices or other financial measures.

     2.3  "Notes" means the Line of Credit Note(s) described in Section 1, and
          all promissory notes, instruments and/or contracts evidencing the
          terms and conditions of the Liabilities.

     2.4  "Account" means a trade account, account receivable, other receivable,
          or other right to payment for goods sold or leased or services
          rendered owing to the Borrower (or to a third party grantor acceptable
          to the Bank).

     2.5  "Account Debtor" means the person or entity obligated upon an Account.

     2.6  "Affiliate" means any person, corporation or other entity directly or
          indirectly controlling, controlled by or under common control with the
          Borrower and any director or officer of the Borrower or any subsidiary
          of the Borrower.

     2.7  "Applicable Fee Rate" means with respect to any standby letter of
          credit fee or Non-Usage Fee, as the case may be, the rate per annum
          set forth below opposite the applicable Leverage Ratio (hereinafter
          defined in Section 5.2 (J).

<TABLE>
<CAPTION>
                                                            Applicable Fee Rate
                                                      -------------------------------
                   Leverage Ratio                     Standby LOC Fee   Non-Usage Fee
                   --------------                     ---------------   -------------
<S>                                                   <C>               <C>
Greater than 0.75 to 1.00                                  2.00%            0.20%
Less than or equal to 0.75 to 1.00 but greater than
   0.25 to 1.00                                            1.75%            0.15%
Less than or equal to 0.25 to 1.00                         1.50%            0.10%
</TABLE>

                                        2
<PAGE>
          The Applicable Fee Rate shall, in each case, be determined and
          adjusted quarterly on the first day of the month after the date of
          delivery of the quarterly and annual financial statements required by
          this agreement, provided, however, that if such financial statements
          are not delivered within two Business Days after the required date
          (each, a "Fee Determination Date"), the Applicable Fee Rate shall
          increase to the maximum percentage amount set forth in the table above
          from the date such financial statements were required to be delivered
          to the Bank until received by the Bank. The Applicable Fee Rate shall
          be effective from a Fee Determination Date until the next Fee
          Determination Date. Such determinations by the Bank shall be
          conclusive absent manifest error. The initial Applicable Fee Rate for
          the standby letter of credit fee is 1.50% and for the Non-usage Fee is
          0.10%.

     2.8  "Distributions" means all dividends and other distributions made by
          the Borrower to its shareholders, partners, owners or members, as the
          case may be, other than salary, bonuses, and other compensation for
          services expended in the current accounting period.

     2.9  "Eligible Accounts" means, at any time, all of the Borrower's Accounts
          which contain selling terms and conditions acceptable to the Bank. The
          net amount of any Eligible Account against which the Borrower may
          borrow shall exclude all returns, discounts, credits, and offsets of
          any nature. Unless otherwise agreed to by the Bank in writing,
          Eligible Accounts do not include Accounts: (1) with respect to which
          the Account Debtor is an employee or agent of the Borrower; (2) with
          respect to which the Account Debtor is affiliated with or related to
          the Borrower; (3) with respect to which goods are placed on
          consignment, guaranteed sale, or other terms by reason of which the
          payment, by the Account Debtor may be conditional; (4) with respect to
          which the Account Debtor is not a resident of the United States,
          except to the extent such Accounts are supported by insurance, bonds
          or other assurances satisfactory to the Bank; (5) with respect to
          which the Borrower is or may become liable to the Account Debtor for
          goods sold or services rendered by the Account Debtor to the Borrower;
          (6) which are subject to dispute, counterclaim, or setoff; (7) with
          respect to which the goods have not been shipped or delivered, or the
          services have not been rendered, to the Account Debtor; (8) with
          respect to which the Bank, in its sole discretion, deems the
          creditworthiness or financial condition of the Account Debtor to be
          unsatisfactory; (9) of any Account Debtor who has filed or has had
          filed against it a petition in bankruptcy or an application for relief
          under any provision of any state or federal bankruptcy, insolvency, or
          debtor-in-relief acts; or who has had appointed a trustee, custodian,
          or receiver for the assets of such Account Debtor; or who has made an
          assignment for the benefit of creditors or has become insolvent or
          fails generally to pay its debts (including its payrolls) as such
          debts become due; (10) with respect to which the Account Debtor is the
          United States government or any department or agency of the United
          States; (11) which have not been paid in full within ninety (90) days
          from the invoice date; and (12) due from any one Account Debtor to the
          extent such Accounts constitute more than 5% of all Eligible Accounts.
          In no event will the balance of any Account of any single Account
          Debtor be eligible whenever the portion of the Account which has not
          been paid within ninety (90) days from the invoice date is in excess
          of 25% of the total amount outstanding on the Account.

     2.10 "Eligible Inventory" means, at any time, all of the Borrower's
          Inventory except: (1) Inventory which is not owned by the Borrower
          free and clear of all security interests, liens, encumbrances, and
          claims of third parties, except the Bank; (2) Inventory which the
          Bank, in its sole discretion; deems to be obsolete, unsalable,
          damaged, defective, perishable, or unfit for further processing; (3)
          work in process; (4) Inventory subject to consignment or otherwise in
          the possession of a third party, unless otherwise agreed to by the
          Bank in writing; (5) Inventory in transit or located outside of the
          United States; (6) Inventory identified to be purchased under a
          contract under which the Borrower has received, or is entitled to
          receive, an advance payment; (7) Inventory determined by the Bank in
          its sole discretion to be ineligible due to licensing, intellectual
          property, or legal or regulating issues which exist making it
          difficult to resell such Inventory; and (8) Inventory which is
          comprised of samples, returns, rejected items, re-work items,
          non-standard items, odd-lots, or which is otherwise deemed ineligible
          by the Bank in its sole discretion; provided, however, that
          transportation and storage charges shall be excluded from amounts
          otherwise included in Eligible Inventory.

     2.11 "Inventory" means all of the Borrower's raw materials, work in
          process, finished goods, merchandise, parts and supplies, of every
          kind and description, and goods held for sale or lease or furnished
          under contracts of service in which the Borrower now has or hereafter
          acquires any right, whether held by the Borrower or others, and all
          documents of title, warehouse receipts, bills of lading, and all other
          documents of every type covering all or any part of the foregoing.
          Inventory includes inventory temporarily out of the Borrower's custody
          or possession and all returns on Accounts.

     2.12 "Intangible Assets" means the aggregate amount of: (1) all assets
          classified as intangible assets under generally accepted accounting
          principles, including, without limitation, goodwill, trademarks,
          patents, copyrights, organization expenses, franchises, licenses,
          trade names, brand names, mailing lists, catalogs, excess of cost over
          book value of assets acquired, and bond discount and underwriting
          expenses; and (2) loans or advances to, investments in, or receivables
          from (i) Affiliates, officers, directors, employees or shareholders of
          the Borrower or

                                        3
<PAGE>
          (ii) any person or entity if such loan, advance, investment or
          receivable is outside the Borrower's normal course of business.

     2.13 "Margined Eligible Accounts" means 80% of Eligible Accounts.

     2.14 "Tangible Net Worth" means total assets less the sum of Intangible
          Assets and total liabilities.

3.   CONDITIONS PRECEDENT.

     3.1  CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT. Before the first
          extension of credit governed by this agreement, whether by
          disbursement of a loan, issuance of a letter of credit, or otherwise,
          the Borrower shall deliver to the Bank, in form and substance
          satisfactory to the Bank:

          A. LOAN DOCUMENTS. The Notes, and as applicable, the letter of credit
          applications, the security agreements, the pledge agreements,
          financing statements, mortgages or deeds of trust, the guaranties, the
          subordination agreements, and any other loan documents which the Bank
          may reasonably require to give effect to the transactions described in
          this agreement;

          B. EVIDENCE OF DUE ORGANIZATION AND GOOD STANDING. Evidence,
          satisfactory to the Bank, of the due organization and good standing of
          the Borrower and every other business entity that is a party to this
          agreement or any other loan document required by this agreement; and

          C. EVIDENCE OF AUTHORITY TO ENTER INTO LOAN DOCUMENTS. Evidence that
          (i) each party to this agreement and any other loan document required
          by this agreement is authorized to enter into the transactions
          described in this agreement and the other loan documents, and (ii) the
          person signing on behalf of each such party is authorized to do.

     3.2  CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. Before any extension
          of credit governed by this agreement, whether by disbursement of a
          loan, issuance of a letter of credit or otherwise, the following
          conditions must be satisfied-

          A. REPRESENTATIONS. The representations of the Borrower are true on
          and as of the date of the extension of credit;

          B. NO EVENT OF DEFAULT. No default has occurred in any provision of
          this agreement, the Notes or any agreement related to the Credit
          Facilities and is continuing or would result from the extension of
          credit, and no event has occurred which would constitute the
          occurrence of any default but for the lapse of time until the end of
          any grace or cure period; and

          C. ADDITIONAL APPROVALS, OPINIONS, AND DOCUMENTS. The Bank has
          received any other approvals, opinions and documents as it may
          reasonably request.

4.   AFFIRMATIVE COVENANTS. The Borrower shall:

     4.1  INSURANCE. Maintain insurance with financially sound and reputable
          insurers covering its properties and business against those casualties
          and contingencies and in the types and amounts as are in accordance
          with sound business and industry practices.

     4.2  EXISTENCE. Maintain its existence and business operations as presently
          in effect in accordance with all applicable laws and regulations, pay
          its debts and obligations when due under normal terms, and pay on or
          before their due date, all taxes, assessments, fees and other
          governmental monetary obligations, except as they may be contested in
          good faith if they have been properly reflected on its books and, at
          the Bank's request, adequate funds or security has been pledged to
          insure payment,

     4.3  FINANCIAL RECORDS. Maintain proper books and records of account, in
          accordance with generally accepted accounting principles, and
          consistent with financial statements previously submitted to the Bank.

     4.4  INSPECTION. Permit the Bank to inspect and copy the Borrower's
          business records at such times and at such intervals as the Bank may
          reasonably require, and to discuss the Borrower's business,
          operations, and financial condition with the Borrower's officers and
          accountants.

                                        4
<PAGE>
     4.5  FINANCIAL REPORTS. Furnish to the Bank whatever information, books and
          records the Bank may from time to time reasonably request, including
          at a minimum:

          A. Via either the EDGAR System or its Home Page, within forty-five
          (45) days after the filing of its Quarterly Report on Form 10-Q for
          the fiscal quarter then ended with the Securities and Exchange
          Commission, but in no event later than forty-five (45) days after the
          end of such fiscal quarter, copies of the financial statements for
          such fiscal quarter as contained in such Quarterly Report, on Form
          10-Q, and, as soon as it shall become available, a quarterly report to
          shareholders of the Borrower for the fiscal quarter then ended.

          B. Via either the EDGAR System or its Home Page, within ninety (90)
          days after filing of its Annual Report on Form 10-K for the fiscal
          year then ended with the Securities and Exchange Commission, but in no
          event later than ninety (90) days after the end of such fiscal year,
          the financial statements for such fiscal year as contained in such
          Annual Report on Form 10-K and, as soon as it shall become
          available, the annual report to shareholders of the Borrower for the
          fiscal year then ended.

          If for any reason the EDGAR System and/or its Home Page are not
          available to the Borrower as is required for making available the
          financial statements or reports referred to above, the Borrower shall
          then furnish a copy of such financial Statements or reports to the
          Bank.

          For the purposes of this section "EDGAR System" means the Electronic
          Data Gathering Analysis and Retrieval System owned and operated by the
          United States Securities and Exchange Commission or any replacement
          system, and "Home Page" means the Borrower's corporate home page on
          the World Wide Web accessible through the Internet via the universal
          resource locator (URL) identified as www.TASER.com or such other
          universal resource locator that the borrower shall designate in
          writing to the Bank as its corporate home page on the World Wide Web.

          C. Within thirty (30) days after and as of the end of each calendar
          month in which there was an outstanding advance of principal or an
          outstanding letter of credit under Facility A on the last day of such
          calendar month, the following lists, each certified as correct by one
          of its authorized agents:

               (1)  a list of accounts receivable, aged from date of invoice,
                    and

               (2)  a list of inventory, valued at the lower of cost (determined
                    using the first-in, first-out method of inventory
                    accounting) or wholesale market value.

          D. A borrowing base certificate, in the form of Exhibit A attached
          hereto, along with such supporting documentation as the Bank may
          request, at the following times: (A) within thirty (30) days after and
          as of the end of each calendar month in which there was an outstanding
          advance of principal or an outstanding letter of credit under Facility
          A on the last day of such calendar month, and (B) if no borrowing base
          certificate has been provided or is otherwise due as of the end of the
          immediately preceding calendar month, with any request of an advance
          under the Credit Facilities or for the issuance of a letter of credit.

     4.6  NOTICES OF CLAIMS, LITIGATION, DEFAULTS, ETC. Promptly inform the Bank
          in writing of (1) all existing and all threatened litigation, claims,
          investigations, administrative proceedings and similar actions
          affecting the Borrower which could materially affect the financial
          condition of the Borrower; (2) the occurrence of any event which gives
          rise to the Bank's option to terminate the Credit Facilities; (3) the
          institution of steps by the Borrower to withdraw from, or the
          institution of any steps to terminate, any employee benefit plan as to
          which the Borrower may have liability; (4) any additions to or changes
          in the locations of the Borrower's businesses; and (5) any alleged
          breach of any provision of this agreement or of any other agreement
          related to the Credit Facilities by the Bank.

     4.7  ADDITIONAL INFORMATION. Furnish such additional information and
          statements, as the Bank may request, from time to time.

     4.8  INSURANCE REPORTS. Furnish to the Bank, upon request of the Bank,
          reports on each existing, insurance policy showing such information as
          the Bank may reasonably request.

     4.9  OTHER AGREEMENTS. Comply with all terms and conditions of all other
          agreements, whether now or hereafter existing, between the Borrower
          and any other party.

     4.10 TITLE TO ASSETS AND PROPERTY. Maintain good and marketable title to
          all of the Borrower's assets and properties.

                                        5
<PAGE>
     4.11 ADDITIONAL ASSURANCES. Make, execute and deliver to the Bank such
          other agreements as the Bank may reasonably request to evidence the
          Credit Facilities and to perfect any security interests.

     4.12 EMPLOYEE BENEFIT PLANS. Maintain each employee benefit plan as to
          which the Borrower may have any liability, in compliance with all
          applicable requirements of law and regulations.

     4.13 DEPOSITORY RELATIONSHIP. Maintain its primary banking depository
          relationship with the Bank and establish such accounts and maintain
          balances therein with the Bank sufficient to cover the cost of all the
          Bank's services provided; provided, however, that nothing herein shall
          require the Borrower to keep and maintain a specific minimum balance
          in such accounts.

5.   NEGATIVE COVENANTS.

     5.1  Unless otherwise noted, the financial requirements set forth in this
          section will be computed in accordance with generally accepted
          accounting principles applied on a basis consistent with, financial
          statements previously Submitted by the Borrower to the Bank.

     5.2  Without the written consent of the Bank, the Borrower will not:

          A. DIVIDENDS. Acquire or retire any of its shares of capital stock; or
          declare or pay dividends or make any other distributions upon any of
          its shares of capital stock, except in the absence of the occurrence
          of any default, dividends in its capital stock.

          B. SALE OF SHARES. Issue, sell or otherwise dispose of any shares of
          its capital stock or other securities, or rights, warrants or options
          to purchase or acquire those shares or securities, except that
          Borrower can issue and permit the exercise of employee, director, and
          consultant stock options in the ordinary course of business

          C. DEBT. Incur, contract for, assume, or permit to remain outstanding,
          indebtedness for borrowed money, installment obligations, or
          obligations under capital leases or operating leases, other than (1)
          unsecured trade debt incurred in the ordinary course of business, (2)
          indebtedness owing to the Bank, (3) indebtedness reflected in the
          latest financial statement of the Borrower furnished to the Bank prior
          to execution of this agreement and that is not to be paid with
          proceeds of borrowings under the Credit Facilities, and (4)
          indebtedness, outstanding as of the date hereof that has been
          disclosed to the Bank in writing and that is not to be paid with
          proceeds of borrowings under the Credit Facilities.

          D. GUARANTIES. Guarantee or otherwise become or remain secondarily
          liable on the undertaking of another, except for endorsement of drafts
          for deposit and collection in the ordinary course of business.

          E. LIENS. Create or permit to exist any lien on any of its property,
          real or personal, except: existing liens known to the Bank; liens to
          the Bank; liens incurred in the ordinary course of business securing
          current non-delinquent liabilities for taxes, worker's compensation,
          unemployment insurance, social security and pension liabilities.

          F. USE OF PROCEEDS. Use, or permit any proceeds of the Credit
          Facilities to be used, directly or indirectly, for the purpose of
          "purchasing or carrying any margin stock" within the meaning of
          Federal Reserve Board Regulation U. At the Bank's request, the
          Borrower will furnish a completed Federal Reserve Board Form U-l.

          G. CONTINUITY OF OPERATIONS. (1) Engage in any business activities
          substantially different from those in which the Borrower is presently
          engaged; (2) cease operations, liquidate, merge, transfer, acquire or
          consolidate with any other entity, change its name, dissolve, or sell
          any assets out of the ordinary course of business; or (3) enter into
          any arrangement with any person providing for the leasing by the
          Borrower or any subsidiary of real or personal property which has been
          sold or transferred by the Borrower or subsidiary to such person.

          H. LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into any agreement
          with any person other than the Bank which prohibits or limits the
          ability of the Borrower or any of its subsidiaries to create or permit
          to exist any lien on any of its property, assets or revenues, whether
          now owned or hereafter acquired.

          I. CONFLICTING AGREEMENTS. Enter into any agreement containing any
          provision which would be violated or breached by the performance of
          the Borrower's obligations under this agreement.

          J. LEVERAGE RATIO. Permit as of each fiscal quarter end, its ratio of
          total liabilities to Tangible Net Worth to be greater than 1.00 to
          1.00.

                                        6
<PAGE>
          K. FIXED CHARGE COVERAGE RATIO. Permit as of each fiscal quarter end,
          its ratio of net income before taxes, plus amortization, depreciation,
          interest expense, rent and operating lease payments minus any
          Distributions, for the twelve month period then ending to prior period
          current maturities of long term debt and capital leases, interest
          expense, taxes, rent and operating lease payments for the same such,
          period to be less than 1.25 to 1.00.

          L. GOVERNMENT REGULATION. (1) Be or become Subject at any time to any
          law, regulation, or list of any government agency (including, without
          limitation, the U.S. Office of Foreign Asset Control list) that
          prohibits or limits Bank from making any advance or extension of
          credit to Borrower or from otherwise conducting business with
          Borrower, or (2) fail to provide documentary and other evidence of
          Borrower's identity as may be requested by Bank at any time to enable
          Bank to verify Borrower's identity or to comply with any applicable
          law or regulation, including, without limitation, Section 326 of the
          USA Patriot Act of 2001, 31 U.S.C. Section 5318.

6.   REPRESENTATIONS.

     6.1  REPRESENTATIONS BY THE BORROWER. Each Borrower represents that: (a)
          the execution and delivery of this agreement and the Notes, and the
          performance of the obligations they impose, do not violate any law,
          conflict with any agreement by which it is bound, or require the
          consent or approval of any governmental authority or other third
          party, (b) this agreement and the Notes are valid and binding
          agreements, enforceable according to their terms, (c) all balance
          sheets, profit and loss statements, and other financial statements and
          other information furnished to the Bank in connection with the
          Liabilities are accurate and fairly reflect the financial condition of
          the organizations and persons to which they apply on their effective
          dates, including contingent liabilities of every type, which financial
          condition has not changed materially and adversely since those dates,
          (d) no litigation, claim, investigation, administrative proceeding or
          similar action (including those for unpaid taxes) against the Borrower
          is pending or threatened, and no other event has occurred which may in
          any one case or in the aggregate materially adversely affect the
          Borrower's financial condition and properties, other than litigation,
          claims, or other events, if any, that have been disclosed to and
          acknowledged by the Bank in writing, (e) all of the Borrower's tax
          returns and reports that are or were required to be filed, have been
          filed, and all taxes, assessments and other governmental charges have
          been paid in full, except those presently being contested by the
          Borrower in good faith and for which adequate reserves have been
          provided, (f) the Borrower is not an "investment company" or a company
          "controlled" by an "investment company", within the meaning of the
          Investment Company Act of 1940, as amended, (g) the Borrower is not a
          "holding company", or a "subsidiary company" of a "holding company" or
          an "affiliate" of a "holding company" or of a "subsidiary company" of
          a "holding company" within the meaning of the Public Utility Holding
          Company Act of 1935, as amended, (h) there are no defenses or
          counterclaims, offsets or adverse claims, demands or actions of any
          kind, personal or otherwise, that the Borrower could assert with
          respect to this agreement or the Credit Facilities, (i) the Borrower
          owns, or is licensed to use, all trademarks, trade names, copyrights,
          technology, know-how and processes necessary for the conduct of its
          business as currently conducted, and (j) no part of the proceeds of
          the Credit Facilities will be used for "purchasing" or "carrying" any
          "margin stock" within the respective meanings of each of the quoted
          terms under Regulation U of the Board of Governors of the Federal
          Reserve System of the United States (the "Board") as now and from time
          to time hereafter in effect or for any purpose which violates the
          provisions of any regulations of the Board. Each Borrower, other than
          a natural person, further represents that: (a) it is duly organized,
          existing and in good standing pursuant to the laws under which it is
          organized, and (b) the execution and delivery of this agreement and
          the Notes and the performance of the obligations they impose (i) are
          within its powers, (ii) have been duly authorized by all necessary
          action of its governing body, and (iii) do not contravene the terms of
          its articles of incorporation or organization, its by-laws, or any
          partnership, operating or other agreement governing its affairs.

                 [THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]

                                        7
<PAGE>
     6.2  REPRESENTATIONS REGARDING ASSETS. With respect to any asset of the
          Borrower utilized in the calculation of the Borrowing Base set forth
          in this agreement, the Borrower represents and warrants to the Bank:
          (1) each asset represented by the Borrower to be eligible for
          Borrowing Base purposes of this agreement conforms to the eligibility
          definitions set forth in this agreement (2) all asset values delivered
          to the Bank will be true and correct, subject to immaterial variance;
          and be determined on a consistent accounting basis; (3) except as
          agreed to the contrary by the Bank in writing, each asset is now and
          at all times hereafter will be in the Borrower's physical possession
          and shall not be held by others on consignment, sale or approval, or
          sale or return; (4) except as reflected in schedules delivered to (the
          Bank, each asset is now and at all times hereafter will be of good and
          merchantable quality, free from defects; (5) each asset is not now and
          will not at any time hereafter be stored with a bailee, warehouseman,
          or similar party without the Bank's prior written consent, and in
          such event, the Borrower will concurrently at the time of bailment
          cause any such bailee, warehouseman, or similar party to issue and
          deliver to the Bank, warehouseman receipts in the Bank's name
          evidencing the storage of the assets; and (6) the Bank, its assigns,
          or agents shall have the right at any time and at the Borrower's
          expense to inspect, examine and audit the Borrower's records, and if
          Accounts are included in the calculation of Borrowing Base, confirm
          with Account Debtors the accuracy of such Accounts, and inspect and
          examine the assets and to check and test the same as to quality,
          quantity, value, and condition.

7.   DEFAULT/REMEDIES. If any of the Credit Facilities are not paid at maturity,
     whether by acceleration or otherwise, or if a default by anyone occurs
     under the terms of this agreement, the Notes or any agreement related to
     the Credit Facilities, then the Bank shall have all of the rights and
     remedies provided by any law or agreement.

8.   MISCELLANEOUS.

     8.1  NOTICE. Any notices and demands under or related to this document
          shall be in writing and delivered to the intended party at its address
          stated herein, and if to the Bank, at its main office if no other
          address of the Bank is specified herein, by one of the following
          means: (a) by hand, (b) by a nationally recognized overnight courier
          service, or (c) by certified mail, postage prepaid, with return
          receipt requested. Notice shall be deemed given: (a) upon receipt if
          delivered by hand, (b) on the Delivery Day after the day of deposit
          with a nationally recognized courier service, or (c) on the third
          Delivery Day after the notice is deposited in the mail. "Delivery Day"
          means a day other than a Saturday, a Sunday or any other day on which
          national banking associations are authorized to be closed. Any party
          may change its address for purposes of the receipt of notices and
          demands by giving notice of such change in the manner provided in this
          provision.

     8.2  NO WAIVER. No delay on the part of the Bank in the exercise of any
          right or remedy waives that right or remedy. No single or partial
          exercise by the Bank of any right or remedy precludes any other future
          exercise of it or the exercise of any other right or remedy. No waiver
          or indulgence by the Bank of any default is effective unless it is in
          writing and signed by the Bank, nor shall a waiver on one occasion bar
          or waive that right on any future occasion.

     8.3  INTEGRATION. This agreement, the Notes, and any agreement related to
          the Credit Facilities embody the entire agreement and understanding
          between the Borrower and the Bank and supersede all prior agreements
          and understandings relating to their subject matter. If any one or
          more of the obligations of the Borrower under this agreement or the
          Notes is invalid, illegal or unenforceable in any jurisdiction, the
          validity, legality and enforceability of the remaining obligations of
          the Borrower shall not in any way be affected or impaired, and the
          invalidity, illegality or uncnforceability in one jurisdiction shall
          not affect the validity, legality or enforceability of the obligations
          of the Borrower under this agreement or the Notes in any other
          jurisdiction.

     8.4  JOINT AND SEVERAL LIABILITY. Each Borrower, if more than one, is
          jointly and severally liable.

     8.5  GOVERNING LAW AND VENUE. This agreement is delivered in the State of
          Arizona and governed by Arizona law (without giving effect to its laws
          of conflicts). The Borrower agrees that any legal action or proceeding
          with respect to any of its obligations under this agreement may be
          brought by the Bank in any state or federal court located in the State
          of Arizona, as the Bank in its sole discretion may elect. By the
          execution and delivery of this agreement, the Borrower submits to and
          accepts, for itself and in respect of its property, generally and
          unconditionally, the non exclusive jurisdiction of those courts. The
          Borrower waives any claim that the State of Arizona is not a
          convenient forum or the proper venue for any such suit, action or
          proceeding.

                                        8
<PAGE>
     8.6  CAPTIONS. Section headings are for convenience of reference only and
          do not affect the interpretation of this agreement.

     8.7  SUBSIDIARIES AND AFFILIATES OF THE BORROWER. To the extent the context
          of any provisions of this agreement makes it appropriate, including
          without limitation any representation, warranty or covenant, the word
          "Borrower" as used in this agreement shall include all of the
          Borrower's subsidiaries and affiliates. Notwithstanding the foregoing,
          however, under no circumstances shall this agreement be construed to
          require the Bank to make any loan or other financial accommodation to
          any of the Borrower's subsidiaries or affiliates.

     8.8  SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Borrower understands
          and agrees that in extending the Credit Facilities, the Bank is
          relying on all representations, warranties, and covenants made by the
          Borrower in this agreement or in any certificate or other instrument
          delivered by the Borrower to the Bank under this agreement. The
          Borrower further agrees that regardless of any investigation made by
          the Bank, all such representations, warranties and covenants will
          survive the making of the Credit Facilities and delivery to the Bank
          of this agreement, shall be continuing in nature, and shall remain in
          full force and effect until such time as the Borrower's indebtedness
          to the Bank shall be paid in full.

     8.9  NON-LIABILITY OF THE BANK. The relationship between the Borrower and
          the Bank created by this agreement is strictly a debtor and creditor
          relationship and not fiduciary in nature, nor is the relationship to
          be construed as creating any partnership or joint venture between the
          Bank and the Borrower. The Borrower is exercising the Borrower's own
          judgement with respect to the Borrower's business. All information
          supplied to the Bank is for the Bank's protection only and no other
          party is entitled to rely on such information. There is no duty for
          Bank to review, inspect, supervise or inform the Borrower of any
          matter with respect to the Borrower's business. The Bank and the
          Borrower intend that the Bank may reasonably rely on all information
          supplied by the Borrower to the Bank, together with all
          representations and warranties given by the Borrower to the Bank,
          without investigation or confirmation by the Bank and that any
          investigation or failure to investigate will not diminish the Bank's
          right to so rely.

     8.10 INDEMNIFICATION OF THE BANK. The Borrower agrees to indemnify, defend
          and hold the Bank and BANK ONE CORPORATION, or any of its subsidiaries
          or affiliates or their successors, and each of their respective
          shareholders, directors, officers, employees and agents (collectively,
          the "Indemnified Persons") harmless from any and all obligations,
          claims, liabilities, losses, damages, penalties, fines, forfeitures,
          actions, judgments, suits, costs, expenses and disbursements of any
          kind or nature (including, without limitation, any Indemnified
          Person's, attorneys' reasonable fees) (collectively, the "Claims")
          which may be imposed upon, incurred by or assessed against any
          Indemnified Person arising out of or relating to this agreement; the
          exercise of the rights and remedies granted under this agreement
          (including, without limitation, the enforcement of this agreement and
          the defense of any Indemnified Person's action or inaction in
          connection with this agreement); and in connection with the Borrower's
          failure to perform all of the Borrower's obligations under this
          agreement, except to the limited extent that the Claims against any
          such Indemnified Person are proximately caused by such Indemnified
          Person's gross negligence or willful misconduct. The indemnification
          provided for in this section shall survive the termination of this
          agreement and shall extend to and continue to benefit each individual
          or entity who is or has at any time been an Indemnified Person.

          The Borrower's indemnity obligations under this section shall not in
          any way be affected by the presence or absence of covering insurance,
          or by the amount of such insurance or by the failure or refusal of any
          insurance carrier to perform any obligation on its part under any
          insurance policy or policies affecting the Borrower's assets or the .
          Borrower's business activities. Should any Claim be made or brought
          against any Indemnified Person by reason of any event as to which the
          Borrower's indemnification obligations apply, then, upon any
          Indemnified Person's demand, the Borrower, at its sole cost and
          expense, shall defend such Claim in the Borrower's name, if necessary,
          by the attorneys for the Borrower's insurance carrier (if such Claim
          is covered by insurance), or otherwise by such attorneys as any
          Indemnified Person shall approve. Any Indemnified Person may also
          engage its own attorneys at its reasonable discretion to defend the
          Indemnified Person and to assist in its defense and the Borrower
          agrees to pay the reasonable fees and disbursements of such attorneys.

     8.11 COUNTERPARTS. This agreement may be executed in multiple counterparts,
          each of which, when so executed, shall be deemed an original, but all
          such counterparts, taken together, shall constitute one and the same
          agreement.

     8.12 SOLE DISCRETION OF THE BANK. Whenever the Bank's consent or approval
          is required under this agreement, the decision as to whether or not
          to consent or approve shall be in the sole and exclusive discretion of
          the Bank and the Bank's decision shall be final and conclusive.

                                        9
<PAGE>
     8.13 ADVICE OF COUNSEL. The Borrower acknowledges that it has been advised
          by counsel, or had the opportunity to be advised by counsel, in the
          negotiation, execution and delivery of this agreement and
          any documents executed and delivered in connection with the Credit
          facilities.

     8.14 RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in
          any law, rule, regulation, or guideline, or the interpretation or
          application of any thereof by any court or administrative or
          governmental authority (including any request or policy not having the
          force of law) shall impose, modify, or make applicable any taxes
          (except federal, state, or local income or franchise taxes imposed on
          the Bank), reserve requirements, capital adequacy requirements, or
          other obligations which would (A) increase the cost to the Bank for
          extending or maintaining the Credit Facilities, (B) reduce the amounts
          payable to the Bank under the Credit Facilities, or (C) reduce the
          rate of return on the Bank's capital as a consequence of the Bank's
          obligations with respect to the Credit Facilities, then the Borrower
          agrees to pay the Bank such additional amounts as will compensate the
          Bank therefor, within five (5) days after the Bank's written demand
          for such payment. The Bank's demand shall be accompanied by an
          explanation of such imposition or charge and a calculation in
          reasonable detail of the additional amounts payable by the Borrower,
          which explanation and calculations shall be conclusive in the absence
          of manifest error.

     8.15 CONFLICTING TERMS. If this agreement is inconsistent with any
          provision in any agreement related to the Credit Facilities, the Bank
          shall determine, in the Bank's sole and absolute discretion, which of
          the provisions shall control any such inconsistency.

     8.16 EXPENSES. The Borrower agrees to pay or reimburse the Bank for all its
          out-of-pocket costs and expenses and reasonable attorneys' fees
          (including the fees of in-house counsel) incurred in connection with
          the development, preparation and execution of, and in connection with
          the enforcement or preservation of any rights under, this agreement,
          any amendment, supplement, or modification thereto, and any other
          documents prepared in connection herewith or therewith. These costs
          and expenses include without limitation any costs or expenses incurred
          by the Bank in any bankruptcy, reorganization, insolvency or other
          similar proceeding.

9.   USA PATRIOT ACT NOTIFICATION. The following notification is provided to
     Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
     Section 5318:

     IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help
     the government fight the funding of terrorism and money laundering
     activities, Federal law requires all financial institutions to obtain,
     verify, and record information that identifies each person or entity that
     opens an account, including any deposit account, treasury management
     account, loan, other extension of credit, or other financial services
     product. What this means for Borrower: When Borrower opens an account, if
     Borrower is an individual Bank will ask for Borrower's name, taxpayer
     identification number, residential address, date of birth, and other
     information that will allow Bank to identify Borrower, and if Borrower is
     not an individual Bank will ask for Borrower's name, taxpayer
     identification number, business address, and other information that will
     allow Bank to identify Borrower. Bank may also ask, if Borrower is an
     individual to see Borrower's driver's license or other identifying
     documents, and if Borrower is not an individual to see Borrower's legal
     organizational documents or other identifying documents.

                 [THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]

                                       10
<PAGE>
10.  WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT
     PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER
     FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY,
     PUNITIVE OR CONSEQUENTIAL DAMAGES.

11.  JURY WAIVER. THE BORROWER AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY,
     IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE
     IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE)
     BETWEEN THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO
     THIS DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO
     PROVIDE THE FINANCING DESCRIBED HEREIN.

ADDRESS(ES) FOR NOTICES:                BORROWER:

7860 East McClan Drive #2               TASER International Inc.
Scottsdale, AZ 85260-1627

Attn: DAN BEHRENDT
                                        By: /s/ Daniel M Behrendt
                                            ------------------------------------
                                            DANIEL M BEHRENDT
                                            Printed Name                   Title

                                        Date Signed: July 12, 2004

ADDRESS FOR NOTICES:                    BANK:

201N. Central Ave, 21st Floor,          Bank One, NA, with main office in
AZ1-1178 Phoenix, AZ 85004              Chicago, IL

Attn:                                   By: /s/ Steven J. Krakoski
      -------------------------------       ------------------------------------
                                            STEVEN J. KRAKOSKI, FVP
                                            Printed Name                   Title

                                        Date Signed: July 13, 2004

                                       11
<PAGE>
(BANK ONE LOGO)                                              LINE OF CREDIT NOTE

                                                                  $10,000,000.00
DUE: JUNE 30,2006                                            DATE: JUNE 22, 2004

PROMISE TO PAY. On or before June 30, 2006, for value received, TASER
International, Inc. (the "Borrower") promises to pay to Bank One, NA, with its
main office in Chicago, IL, whose address is 201 N. Central Ave, 21st Floor,
AZ1-1178, Phoenix, AZ 85004 (the "Bank") or order, in lawful money of the United
States of America, the sum of Ten Million and 00/100 Dollars ($10,000,000.00) or
such lesser sum as is indicated on Bank records, plus interest as provided
below.

DEFINITIONS. As used in this Note, the following terms have the following
respective meanings:

"ADVANCE" means a Eurodollar Advance or a Prime Rate Advance and "ADVANCES"
means all Eurodollar Advances and all Prime Rate Advances under this Note.

"APPLICABLE MARGIN" means with respect to any Prime Rate Advance or Eurodollar
Advance, as the case may be, the rate per annum set forth below opposite the
applicable Leverage Ratio. Leverage Ratio is defined in the Credit Agreement.

<TABLE>
<CAPTION>
                                                Applicable Margin
                                     ---------------------------------------
          Leverage Ratio             Prime Rate Advance   Eurodollar Advance
          --------------             ------------------   ------------------
<S>                                  <C>                  <C>
Greater than 0.75 to 1.00                   0.50%                2.00%
Less than or equal to 0.75 to 1.00
   but greater than 025 to 1.00             0.75%                1.75%
Less than or equal to 0.25 to 1.00          1.00%                1.50%
</TABLE>

The Applicable Margin shall, in each case, be determined and adjusted quarterly
on the first day of the month after the date of delivery of the quarterly and
annual financial statements required by the Credit Agreement, provided, however,
that if such financial statements are not delivered within two Business Days
after the required date (each, an "Interest Determination Date"), the Applicable
Margin shall increase to the maximum percentage amount set forth in the table
above from the date such financial statements were required to be delivered to
the Bank until received by the Bank. The Applicable Margin shall be effective
from an Interest Determination Date until the next Interest Determination Date.
Such determinations by the Bank shall be conclusive absent manifest error. The
initial Applicable Margin for Prime Rate Advances is 1.00% and for Eurodollar
Advances is 1.50%.

"CREDIT AGREEMENT" means a certain Credit Agreement, dated June 22,2004, between
the Borrower and the Bank.

"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Arizona and/or New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day other than a Saturday, Sunday or any other day on
which national banking associations are authorized to be closed.

"EURODOLLAR BASE RATE" means, with respect to the relevant Interest Period, the
applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars
as reported by any generally recognized financial information service as of
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period, provided
that, if no such British Bankers' Association LIBOR rate is available to the
Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall
instead be the rate determined by the Bank to be the rate at which BANK ONE
CORPORATION or one of its affiliate banks offers to place deposits in U.S.
dollars with first-class banks in the London interbank market at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, in the approximate amount of the principal amount outstanding
on such date and having a maturity equal to such Interest Period.

"EURODOLLAR ADVANCE" means any borrowing under this Note when and to the extent
that its interest rate is determined by reference to the Eurodollar Rate.

"EURODOLLAR RATE" means, with respect to a Eurodollar Advance for the relevant
Interest Period, the sum of (i) the Applicable Margin plus (ii) the quotient of
(a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b)
one minus the Reserve Requirement (expressed as a decimal) applicable to such
Interest Period.
<PAGE>
"INTEREST PERIOD" means, with respect to a Eurodollar Advance, a period of one
(1), two (2), three (3), six (6), nine (9) or twelve (12) month(s) commencing on
a Business Day selected by the Borrower pursuant to this Note. Such Interest
Period shall end on the day which corresponds numerically to such date one (l),
two (2), three (3), six (6), nine (9) or twelve (12) month(s) thereafter, as
applicable, provided, however, that if there is no such numerically
corresponding day in such first, second, third, sixth or twelfth succeeding
month(s), as applicable, such Interest Period shall end on the last Business Day
of such first, second, third, sixth or twelfth succeeding month(s), as
applicable. If an Interest Period would otherwise end on a day which is not a
Business Day, such Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day falls in a new
calendar month, such Interest Period shall end on the immediately preceding
Business Day.

"PRIME RATE" means a rate per annum equal to the prime rate of interest
announced from time to time by the Bank or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.

"PRIME RATE ADVANCE" means any Advance under this Note when and to the extent
that its interest rate is determined by reference to the Prime Rate.

"PRINCIPAL PAYMENT DATE" is defined in the paragraph entitled "Principal
Payments" below.

"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.

"RESERVE REQUIREMENT" means, with respect to an Interest Period, the maximum
aggregate reserve requirement (including all basic, supplemental, marginal and
other reserves) which is imposed under Regulation D.

INTEREST RATES. The Advance(s) evidenced by this Note may be drawn down and
remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate
Advance. The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of each Prime Rate Advance at the Prime Rate minus the
Applicable Margin and each Eurodollar Advance at the Eurodollar Rate. Interest
shall be calculated on the basis of the actual number of days elapsed in a year
of 360 days. In no event shall the interest rate applicable to any Advance
exceed the maximum rate allowed by law. Any interest payment which would for any
reason be deemed unlawful under applicable law shall be applied to principal.

Borrower hereby agrees to pay an effective rate of interest that is the sum of
the interest rate provided for in this Note together with any additional rate of
interest resulting from any other charges of interest or in the nature paid or
to be paid in connection with this Note or the Related Documents.

BANK RECORDS. The Bank shall, in the ordinary course of business, make notations
in its records of the date, amount, interest rate and Interest Period of each
Advance hereunder, the amount of each payment on the Advances, and other
information. Such records shall, in the absence of manifest error, be conclusive
as to the outstanding principal balance of and interest rate or rates applicable
to this Note.

NOTICE AND MANNER OF ELECTING INTEREST RATES ON ADVANCES. The Borrower shall
give the Bank written notice (effective upon receipt) of the Borrower's intent
to draw down an Advance under this Note no later than 11:00 a.m. Mountain time,
one (1) Business Day before disbursement, if the full amount of the drawn
Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days
before disbursement, if any part of such Advance is to be disbursed as a
Eurodollar Advance. The Borrower's notice must specify; (a) the disbursement
date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate
Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the
duration of the applicable Interest Period; provided, however, that the Borrower
may not elect an Interest Period ending after the maturity date of this Note.
Each Eurodollar Advance shall be in a minimum amount of Five Hundred Thousand
and 00/100 Dollars ($500,000.00). All notices under this paragraph are
irrevocable. By the Bank's close of business on the disbursement date and upon
fulfillment of the conditions set forth herein and in any other of the Related
Documents, the Bank shall disburse the requested Advances in immediately
available funds by crediting the amount of such Advances to the Borrower's
account with the Bank.

CONVERSION AND RENEWALS. The Borrower may elect from time to time to convert one
type of Advance into another or to renew any Advance by giving the Bank written
notice no later than 11:00 a.m. Mountain time, one (1) Business Day before
conversion into a Prime Rate Advance and three (3) Business Days before
conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal
or conversion date, (b) the amount of the Advance to be converted or renewed,
(c) in the case of conversion, the type of Advance to be converted into (Prime
Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or
conversion into a Eurodollar Advance, the applicable Interest Period, provided
that (i) the minimum principal amount of each Eurodollar Advance outstanding
after a renewal or conversion shall be Five Hundred Thousand and 00/100 Dollars
($500,000.00); (ii) a Eurodollar Advance can only be converted on the last day
of the Interest Period for the Advance; and (iii) the Borrower may not elect an
Interest Period ending after the maturity data of this Note. All notices given
under this paragraph are irrevocable. If the Borrower fails to give

                                        2
<PAGE>
the Bank the notice specified above for the renewal or conversion of a
Eurodollar Advance by 11:00 a.m. Mountain time three (3) Business Days before
the end of the Interest Period for that Advance, the Advance shall automatically
be converted to a Prime Rate Advance on the last day of the Interest Period for
the Advance.

INTEREST PAYMENTS. Interest on the Advances shall be paid as follows:

A. For each Prime Rate Advance, on the last day of each month beginning with the
first month following disbursement of the Advance or following conversion of an
Advance into a Prime Rate Advance, and at the maturity or conversion of the
Advance into a Eurodollar Advance;

B. For each Eurodollar Advance, on the last day of the Interest Period for the
Advance and, if the Interest Period is longer than three months, at three-month
intervals beginning with the day three months from the date the Advance is
disbursed.

PRINCIPAL PAYMENTS. All outstanding principal and interest is due and payable in
full on June 30, 2006, which is defined herein as the "Principal Payment Date".

DEFAULT RATE OF INTEREST. After a default has occurred under this Note, whether
or not the Bank elects to accelerate the maturity of this Note because of such
default, all Advances outstanding under this Note, including all Eurodollar
Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus
the Applicable Margin for a Prime Rate Advance, plus three percent (3.00%) from
the date the Bank elects to impose such rate. Imposition of this rate shall not
affect any limitations contained in this Note on the Borrower's right to repay
principal on any Eurodollar Advance before the expiration of the Interest Period
for that Advance.

PREPAYMENT. The Borrower may prepay all or any part of any Prime Rate Advance at
any time without premium or penalty. The Borrower may prepay any Eurodollar
Advance only at the end of an Interest Period.

FUNDING LOSS INDEMNIFICATION. Upon the Bank's request, the Borrower shall pay
the Bank amounts sufficient (in the Bank's reasonable opinion) to compensate it
for any loss, cost, or expense incurred as a result of:

A. Any payment of a Eurodollar Advance on a date other than the last day of the
Interest Period for the Advance, including, without limitation, acceleration of
the Advances by the Bank pursuant to this Note or the Related Documents; or

B. Any failure by the Borrower to borrow or renew a Eurodollar Advance on the
date specified in the relevant notice from the Borrower to the Bank.

ADDITIONAL COSTS. If any applicable domestic or foreign law, treaty, government
rule or regulation now or later in effect (whether or not it now applies to the
Bank) or the interpretation or administration thereof by a governmental
authority charged with such interpretation or administration, or compliance by
the Bank with any guideline, request or directive of such an authority (whether
or not having the force of law), shall (a) affect the basis of taxation of
payments to the Bank of any amounts payable by the Borrower under this Note or
the Related Documents (other than taxes imposed on the overall net income of the
Bank by the jurisdiction or by any political subdivision or taxing authority of
the jurisdiction in which the Bank has its principal office), or (b) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
the Bank, or (c) impose any other condition with respect to this Note or the
Related Documents and the result of any of the foregoing is to increase the cost
to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any
sum receivable by the Bank on such an Advance, or (d) affect the amount of
capital required or expected to be maintained by the Bank (or any corporation
controlling the Bank) and the Bank determines that the amount of such capital is
increased by or based upon the existence of the Bank's obligations under this
Note or the Related Documents and the increase has the effect of reducing the
rate of return on the Bank's (or its controlling corporation's) capital as a
consequence of the obligations under this Note or the Related Documents to a
level below that which the Bank (or its controlling corporation) could have
achieved but for such circumstances (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then the Borrower shall pay to the Bank, from time to time, upon request by the
Bank, additional amounts sufficient to compensate the Bank for the increased
cost or reduced sum receivable. Whenever the Bank shall learn of circumstances
described in this section which are likely to result in additional costs to the
Borrower, the Bank shall give prompt written notice to the Borrower of the basis
for and the estimated amount of any such anticipated additional costs. A
statement as to the amount of the increased cost or reduced sum receivable,
prepared in good faith and in reasonable detail by the Bank and submitted by the
Bank to the Borrower, shall be conclusive and binding for all purposes absent
manifest error in computation.

ILLEGALITY. If any applicable domestic or foreign law, treaty, rule or
regulation now or later in effect (whether or not it now applies to the Bank) or
the interpretation or administration thereof by a governmental authority charged
with such interpretation or administration, or compliance by the Bank with any
guideline, request or directive of such an authority (whether or not having the
force of law), shall make it unlawful or impossible for the Bank to maintain or
fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the
outstanding principal amount of the Eurodollar Advances, together with accrued
interest and any other

                                        3
<PAGE>
amounts payable to the Bank under this Note or the Related Documents on account
of the Eurodollar Advances shall be repaid (a) immediately upon the Bank's
demand if such change or compliance with such requests, in the Bank's judgment,
requires immediate repayment, or (b) at the expiration of the last Interest
Period to expire before the effective date of any such change or request
provided, however, that subject to the terms and conditions of this Note and the
Related Documents the Borrower shall be entitled to simultaneously replace the
entire outstanding balance of any Eurodollar Advance repaid in accordance with
this section with a Prime Rate Advance in the same amount.

INABILITY TO DETERMINE INTEREST RATE. If the Bank determines that (a) quotations
of interest rates for the relevant deposits referred to in the definition of
Eurodollar Rate are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the interest rate on a
Eurodollar Advance as provided in this Note, or (b) the relevant interest rates
referred to in the definition of Eurodollar Rate do not accurately cover the
cost to the Bank of making or maintaining Eurodollar Advances, then the Bank
shall forthwith give notice of such circumstances to the Borrower, whereupon (i)
the obligation of the Bank to make Eurodollar Advances shall be suspended until
the Bank notifies the Borrower that the circumstances giving rise to the
suspension no longer exists, and (ii) the Borrower shall repay in full the then
outstanding principal amount of each Eurodollar Advance, together with accrued
interest, on the last day of the then current Interest Period applicable to the
Advance, provided, however, that, subject to the terms and conditions of this
Note and the Related Documents, the Borrower shall be entitled to simultaneously
replace the entire outstanding balance of any Eurodollar Advance repaid in
accordance with this section with a Prime Rate Advance in the same amount.

OBLIGATIONS DUE ON NON-BUSINESS DAY. Whenever any payment under this Note
becomes due and payable on a day that is not a Business Day, if no default then
exists under this Note, the maturity of the payment shall be extended to the
next succeeding Business Day, except, in the case of a Eurodollar Advance, if
the result of the extension would be to extend the payment into another calendar
month, the payment must be made on the immediately preceding Business Day.

MATTERS REGARDING PAYMENT. The Borrower will pay the Bank at the Bank's address
shown above or at such other place as the Bank may designate. Payments shall be
allocated among principal, interest and fees at the discretion of the Bank
unless otherwise agreed or required by applicable law. Acceptance by the Bank of
any payment which is less than the payment due at the time shall not constitute
a waiver of the Bank's right to receive payment in full at that time or any
other time.

LATE FEE. If any payment is not received by the Bank within ten (10) days after
its due date, the Bank may assess and the Borrower agrees to pay a late fee
equal to the greater of: (a) five percent (5.00%) of the past due amount or (b)
Twenty Five and 00/100 Dollars ($25.00), up to the maximum amount of One
Thousand Five Hundred and 00/100 Dollars ($1,500.00) per late charge.

BUSINESS LOAN. The Borrower acknowledges and agrees that this Note evidences a
loan for a business, commercial, agricultural or similar commercial enterprise
purpose, and that all advances made under this Note shall not be used for any
personal, family or household purpose.

CREDIT FACILITY. The Bank has approved a credit facility to the Borrower in a
principal amount not to exceed the face amount of this Note. The credit facility
is in the form of advances made from time to time by the Bank to the Borrower.
This Note evidences the Borrower's obligation to repay those advances. The
aggregate principal amount of debt evidenced by this Note is the amount
reflected from time to time in the records of the Bank. Until the earliest of
maturity, the occurrence of any default, or the occurrence of any event that
would constitute a default but for the giving of notice or the lapse of time or
both until the end of any grace or cure period, the Borrower may borrow, pay
down and reborrow under this Note subject to the terms of the Related Documents.

LIABILITIES. The term "Liabilities" in this Note means all obligations,
indebtedness and liabilities of the Borrower to any one or more of the Bank,
BANK ONE CORPORATION, and any of their subsidiaries, affiliates or successors,
now existing or later arising, including, without limitation, all loans,
advances, interest, costs, overdraft indebtedness, credit card indebtedness,
lease obligations, or obligations relating to any Rate Management Transaction,
all monetary obligations incurred or accrued during the pendency of any
bankruptcy, insolvency, receivership or other similar proceedings, regardless of
whether allowed or allowable in such proceeding, and all renewals, extensions,
modifications, consolidations or substitutions of any of the foregoing, whether
the Borrower may be liable jointly with others or individually liable as a
debtor, maker, co-maker, drawer, endorser, guarantor, surety or otherwise, and
whether voluntarily or involuntarily incurred, due or not due, absolute or
contingent, direct or indirect, liquidated or unliquidated. The term "Rate
Management Transaction" in this Note means any transaction (including an
agreement with respect thereto) now existing or hereafter entered into among the
Borrower the Bank or BANK ONE CORPORATION, or any of its subsidiaries or
affiliates or their successors, which is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
forward transaction, currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar transaction (including any
option with respect to any of these transactions) or any combination thereof,
whether linked to one or more interest rates, foreign currencies, commodity
prices, equity prices or other financial measures.

                                        4
<PAGE>
RELATED DOCUMENTS. The term "Related Documents" in this Note means all loan
agreements, credit agreements, reimbursement agreements, security agreements,
mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any
other instrument or document executed in connection with this Note or in
connection with any of the Liabilities.

SECURITY. The term "Collateral" in this Note means all real or personal property
described in all security agreements, pledge agreements, mortgages, deeds of
trust, assignments, or other instruments now or hereafter executed in connection
with this Note or in connection with any of the Liabilities. If applicable, the
Collateral secures the payment of this Note and the Liabilities.

BANK'S RIGHT OF SETOFF. In addition to the Collateral, if any, the Borrower
grants to the Bank a security interest in, and the Bank is authorized to setoff
and apply, all Accounts, Securities and Other Property, and Bank Debt against
any and all Liabilities of the Borrower. This right of setoff may be exercised
at any time and from time to time, and without prior notice to the Borrower.
This security interest and right of setoff may be enforced or exercised by the
Bank regardless of whether or not the Bank has made any demand under this
paragraph or whether the Liabilities are contingent, matured, or unmatured. Any
delay, neglect or conduct by the Bank in exercising its rights under this
paragraph will not be a waiver of the right to exercise this right of setoff or
enforce this security interest. The rights of the Bank under this paragraph are
in addition to other rights the Bank may have in the Related Documents or by
law. In this paragraph: (a) the term "Accounts" means any and all accounts and
deposits of the Borrower (whether general, special, time, demand, provisional or
final) at any time held by the Bank (including all Accounts held jointly with
another, but excluding any IRA or Kcogh Account, or any trust Account in which a
security interest would be prohibited by law); (b) the term "Securities and
Other Property" means any and all securities and other property of the Borrower
in the custody, possession or control of the Bank (other than property held by
the Bank in a fiduciary capacity); and (c) the term "Bank Debt" means all
indebtedness at any time owing by the Bank, to or for the credit or account of
the Borrower.

REPRESENTATIONS BY BORROWER. Each Borrower represents that: (a) the execution
and delivery of this Note and the performance of the obligations it imposes do
not violate any law, conflict with any agreement by which it is bound, or
require the consent or approval of any governmental authority or other third
party; (b) this Note is a valid and binding agreement, enforceable according to
its terms; and (c) all balance sheets, profit and loss statements, and other
financial statements furnished to the Bank in connection with the Liabilities
are accurate and fairly reflect the financial condition of the organizations and
persons to which they apply on their effective dates, including contingent
liabilities of every type, which financial condition has not changed materially
and adversely since those dates. Each Borrower, other than a natural person,
further represents that: (a) it is duly organized, existing and in good standing
pursuant to the laws under which it is organized; and (b) the execution and
delivery of this Note and the performance of the obligations it imposes (i) are
within its powers and have been duly authorized by all necessary action of its
governing body, and (ii) do not contravene the terms of its articles of
incorporation or organization, its by-laws, or any partnership, operating or
other agreement governing its affairs.

EVENTS OF DEFAULT/ACCELERATION. If any of the following events occurs this Note
shall become due immediately, without notice, at the Bank's option:

1.   The Borrower, or any guarantor of this Note (the "Guarantor"), fails to pay
     when due any amount payable under this Note, under any of the Liabilities,
     or under any agreement or instrument evidencing debt to any creditor.

2.   The Borrower or any Guarantor (a) fails to observe or perform any other
     term of this Note; (b) makes any materially incorrect or misleading
     representation, warranty, or certificate to the Bank; (c) makes any
     materially incorrect or misleading representation in any financial
     statement or other information delivered to the Bank; or (d) defaults under
     the terms of any agreement or instrument relating to any debt for borrowed
     money (other than the debt evidenced by this Note) and the effect of such
     default will allow the creditor to declare the debt due before its
     maturity.

3.   In the event (a) there is a default under the terms of any Related
     Document, (b) any guaranty of the loan evidenced by this Note is
     terminated or becomes unenforceable in whole or in part, (c) any Guarantor
     fails to promptly perform under its guaranty, or (d) the Borrower fails to
     comply with, or pay, or perform under any agreement, now or hereafter in
     effect, between the Borrower and BANK ONE CORPORATION, or any of its
     subsidiaries or affiliates or their successors.

4.   There is any loss, theft, damage, or destruction of any Collateral not
     covered by insurance.

5.   A "reportable event" (as defined in the Employee Retirement Income Security
     Act of 1974 as amended) occurs that would permit the Pension Benefit
     Guaranty Corporation to terminate any employee benefit plan of the Borrower
     or any affiliate of the Borrower.

6.   The Borrower or any Guarantor becomes insolvent or unable to pay its debts
     as they become due.

7.   The Borrower or any Guarantor (a) makes an assignment for the benefit of
     creditors; (b) consents to the appointment of a custodian, receiver, or
     trustee for itself or for a substantial part of its assets; or (c)
     commences any proceeding under any bankruptcy, reorganization, liquidation,
     insolvency or similar laws of any jurisdiction.

8.   A custodian, receiver, or trustee is appointed for the Borrower or any
     Guarantor or for a substantial part of its assets without its consent.

9.   Proceedings are commenced against the Borrower or any Guarantor under any
     bankruptcy, reorganization, liquidation, or similar laws of any
     jurisdiction, and they remain undismissed for thirty (30) days after
     commencement; or the Borrower or the Guarantor consents to the commencement
     of those proceedings.

                                        5
<PAGE>
10.  Any judgment is entered against the Borrower or any Guarantor, or any
     attachment, levy, or garnishment is issued against any property of the
     Borrower or any Guarantor.

11.  The Borrower or any Guarantor dies, or a guardian or conservator is
     appointed for the Borrower or any Guarantor or all or any portion of the
     Borrower's assets, any Guarantor's assets, or the Collateral.

12.  The Borrower or any Guarantor, without the Bank's written consent (a) is
     dissolved, (b) merges or consolidates with any third party, (c) leases,
     sells or otherwise conveys a material part of its assets or business
     outside the ordinary course of its business, (d) leases, purchases, or
     otherwise acquires a material part of the assets of any other business
     entity, except in the ordinary course of its business, or (e) agrees to do
     any of the foregoing (notwithstanding the foregoing, any subsidiary may
     merge or consolidate with any other subsidiary, or with the Borrower, so
     long as the Borrower is the survivor).

13.  There is a substantial change in the existing or prospective financial
     condition of the Borrower or any Guarantor that the Bank in good faith
     determines to be materially adverse.

14.  The Bank in good faith deems itself insecure.

CURE PERIODS. Except as expressly provided to the contrary in this Note or any
of the Related Documents, no condition, event or occurrence shall constitute the
occurrence of a default under this Note, of a default under any of the
Liabilities or of a default under any of the Related Documents unless: (a) the
Bank has notified the Borrower of such condition, event or occurrence in writing
(a "Default Notice"); and (b) such condition, event, or occurrence has not been
fully cured (i) within five (5) days after the Borrower's receipt of a Default
Notice, if the condition, event or occurrence giving rise to such Default Notice
can be cured by the payment of money, or (ii) within-ten (10) days after the
Borrower's receipt of a Default Notice, if the condition, event or occurrence
giving rise to such Default Notice is of a nature that it can be cured only by
means other than the payment of money.

Provided, however, that the Borrower shall have no notice and cure rights under
this section if: (a) the condition, event or occurrence giving rise to the
occurrence of a default under this Note, of a default under the Liabilities or
of a default under the Related Documents (i) is a condition, event or occurrence
described in any of clauses 3(b), (6), (7), (8), (9), (11) or (12) of the
section captioned Events of Default/Acceleration section above or (ii)
constitutes a breach of any covenant in any Related Document prohibiting the
sale or transfer of (1) any assets of any Borrower, Mortgagor, Pledgor, Debtor,
Assignor, Trustor or any similar pledging or borrowing party or (2) any of the
Collateral; or (b) the Borrower, during the twelve (12) month period immediately
preceding any Default Notice, has been given either (i) any other Default Notice
covering the same condition, event or occurrence or (ii) three (3) or more other
Default Notices of any nature.

REMEDIES. If this Note is not paid at maturity, whether by acceleration or
otherwise, the Bank shall have all of the rights and remedies provided by any
law or agreement. The Bank is authorized to cause all or any part of the
Collateral to be transferred to or registered in its name or in the name of any
other person or business entity, with or without designating the capacity of
that nominee. Without limiting any other available remedy, the Borrower is
liable for any deficiency remaining after disposition of any Collateral. The
Borrower is liable to the Bank for all reasonable costs and expenses of every
kind incurred in the making or collection of this Note, including without
limitation reasonable attorneys' fees and court costs. These costs and expenses
include without limitation any costs or expenses incurred by the Bank in any
bankruptcy, reorganization, insolvency or other similar proceeding.

WAIVERS. Any party liable on this Note waives (a) to the extent permitted by
law, all rights and benefits under any laws or statutes regarding sureties, as
may be amended; (b) any right to receive notice of the following matters before
the Bank enforces any of its rights: (i) the Bank's acceptance of this Note,
(ii) any demand, diligence, presentment, dishonor and protest, or (iii) any
action that the Bank takes regarding the Borrower, anyone else, any Collateral,
or any of the Liabilities, that it might be entitled to by law or under any
other agreement; (c) any right to require the Bank to proceed against the
Borrower, any other obligor or guarantor of the Liabilities, or any Collateral,
or pursue any remedy in the Bank's power to pursue; (d) any defense based on any
claim that any endorser or other parties' obligations exceed or are more
burdensome than those of the Borrower; (e) the benefit of any statute of
limitations affecting liability of any endorser or other party liable hereunder
or the enforcement hereof; (f) any defense arising by reason of any disability
or other defense of the Borrower or by reason of the cessation from any cause
whatsoever (other than payment in full) of the obligation of the Borrower for
the Liabilities; and (g) any defense based on or arising out of any defense that
the Borrower may have to the payment or performance of the Liabilities or any
portion thereof. Any party liable on this Note consents to any extension or
postponement of time of its payment without limit as to the number or period, to
any substitution, exchange or release of all or any part of the Collateral, to
the addition of any other party, and to the release or discharge of, or
suspension of any lights and remedies against, any person who may be liable for
the payment of this Note. The Bank may waive or delay enforcing any of its
rights without losing them. Any waiver affects only the specific terms and time
period stated in the waiver. No modification or waiver of any provision of this
Note is effective unless it is in writing and signed by the party against whom
it is being enforced. Without limiting any foregoing waiver, consent or
agreement, any party liable on this Note further waives any and all benefits
under. Arizona Revised Statutes Sections 12-1641 through 12-1646, inclusive, and
Rule 17(f) of the Arizona Rules of Civil Procedure, including any revision or
replacement of such statutes or rules hereafter enacted.

SUBORDINATION. Any rights of any party liable on this Note, whether now existing
or hereafter arising, to receive payment on account of any indebtedness
(including interest) owed to any party liable on this Note by the Borrower, or
to withdraw capital invested by it in the Borrower, or to receive distributions
from the Borrower, shall at all times be subordinate to the full and prior
repayment to the

                                        6
<PAGE>
Bank of the Liabilities. No party liable on this Note shall be entitled to
enforce or receive payment of any sums hereby subordinated until the Liabilities
have been paid in full and any such sums received in violation of this paragraph
shall be received by such party in trust for the Bank. Any party liable on this
Note agrees to stand still with regard to the Bank's enforcement of its rights,
including taking no action to delay, impede or otherwise interfere with the
Bank's rights to realize on the Collateral. The foregoing notwithstanding, until
the occurrence of any default, any party liable on this Note is not prohibited
from receiving distributions from the Borrower in an amount equal to any income
tax liability imposed on such party liable on this Note attributable to an
ownership interest, if any, in the Borrower.

RIGHTS OF SUBROGATION. Any party liable on this Note waives and agrees not to
enforce any rights of subrogation, contribution or indemnification that it may
have against the Borrower, any person liable on the Liabilities, or the
Collateral, until the Borrower and such party liable on this Note have fully
performed all their obligations to the Bank, even if those obligations are not
covered by this Note.

REINSTATEMENT. All parties liable on this Note agree that to the extent any
payment is received by the Bank in connection with the Liabilities, and all or
any part of such payment is subsequently invalidated, declared to be fraudulent
or preferential, set aside or required to be repaid by the Bank or paid over to
a trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then this Note shall continue to be effective or shall be reinstated,
as the case may be, and whether or not the Bank is in possession of this Note,
and, to the extent of such payment or repayment by the Bank, the Liabilities or
part thereof intended to be satisfied by such Preferential Payment shall be
revived and continued in full force and effect as if said Preferential Payment
had not been made.

GOVERNING LAW AND VENUE. This Note is delivered in the State of Arizona and
governed by Arizona law (without giving effect to its laws of conflicts). The
Borrower agrees that any legal action or proceeding with respect to any of its
obligations under this Note may be brought by the Bank in any state or federal
court located in the State of Arizona, as the Bank in its sole discretion may
elect. By the execution and delivery of this Note, the Borrower submits to and
accepts, for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of those courts. The Borrower,
waives any claim that the State of Arizona is not a convenient forum or the
proper venue for any such suit, action or proceeding.

RENEWAL AND EXTENSION. This Note is given in replacement, renewal and/or
extension of, but not extinguishing the indebtedness evidenced by, that Line of
Credit Note dated May 31, 2003 executed by the Borrower in the original
principal amount of Two Million Five Hundred Thousand and 00/100 Dollars
($2,500,000.00), including previous renewals or modifications thereof, if any
(the "Prior Note"), and is not a novation thereof. All interest evidenced by the
Prior Note shall continue to be due and payable until paid. If applicable, all
Collateral continues to secure the payment of this Note and the Liabilities. The
provisions of this Note are effective on June 30, 2004.

MISCELLANEOUS. The Borrower, if more than one, is jointly and severally liable
for the obligations represented by this Note, the term "Borrower" means any one
or more of them, and the receipt of value by any one of them constitutes the
receipt of value by the others. This Note binds the Borrower and its successors,
and benefits the Bank, its successors and assigns. Any reference to the Bank
includes any holder of this Note. Section headings are for convenience of
reference only and do not affect the interpretation of this Note. Any notices
and demands under or related to this document shall be in writing and delivered
to the intended party at its address stated herein, and if to the Bank, at its
main office if no other address of the Bank is specified herein, by one of the
following means: (a) by hand, (b) by a nationally recognized overnight courier
service, or (c) by certified mail, postage prepaid, with return receipt
requested. Notice shall be deemed given: (a) upon receipt if delivered by hand,
(b) on the Delivery Day after the day of deposit with a nationally recognized
courier service, or (c) on the third Delivery Day after the notice is deposited
in the mail "Delivery Day" means a day other than a Saturday, a Sunday, or any
other day on which national banking associations are authorized to be closed.
Any party may change its address for purposes of the receipt of notices and
demands by giving notice of such change in the manner provided in this
provision. This Note and any Related Documents embody the entire agreement
between the Borrower and the Bank regarding the terms of the loan evidenced by
this Note and supercede all oral statements and prior writings relating to that
loan. If any provision of this Note cannot be enforced, the remaining portions
of this Note shall continue in effect. The Borrower agrees that the Bank may
provide any information or knowledge the Bank may have about the Borrower or
about any matter relating to this Note or the Related Documents to BANK ONE
CORPORATION, or any of its subsidiaries or affiliates or their successors, or to
any one or more purchasers or potential purchasers of this Note or the Related
Documents. The Borrower agrees that the Bank may at any time sell, assign or
transfer one or more interests or participations in all or any part of its
rights and obligations in this Note to one or more purchasers whether or not
related to the Bank.

GOVERNMENT REGULATION. Borrower shall not (a) be or become subject at any time
to any law, regulation, or list of any government agency (including, without
limitation, the U.S. Office of Foreign Asset Control list) that prohibits or
limits Bank from making any advance or extension of credit to Borrower or from
otherwise conducting business with Borrower, or (b) fail to provide documentary
and other evidence of Borrower's identity as may be requested by Bank at any
time to enable Bank to verify Borrower's identity or to comply with any
applicable law or regulation, including, without limitation, Section 326 of the
USA Patriot Act of 2001, 31 U.S.C Section 5318.

                                        7
<PAGE>
USA PATRIOT ACT NOTIFICATION. The following notification is provided to Borrower
pursuant to Section 326 of the USA Patriot Act of 2001,31 U.S.C. Section 53l8:

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person or entity that opens an account,
including any deposit account, treasury management account, loan, other
extension of credit, or other financial services product. What this means for
Borrower: When Borrower opens an account, if Borrower is an individual Bank will
ask for Borrower's name, taxpayer identification number, residential address,
date of birth, and other information that will allow Bank to identify Borrower,
and if Borrower is not an individual Bank will ask for Borrower's name, taxpayer
identification number, business address, and other information that will allow
Bank to identify Borrower. Bank may also ask, if Borrower is an individual to
see Borrower's driver's license or other identifying documents, and if Borrower
is not an individual to see Borrower's legal organizational documents or other
identifying documents.

WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM
THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.

JURY WAIVER. THE BORROWER AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR
OTHERWISE) BETWEEN THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY
RELATED TO THIS NOTE OR THE OTHER RELATED DOCUMENTS. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE.

                                        Borrower:

Address: 7860 East McClan Drive #2      TASER International, Inc.
         Scottsdale, AZ 85260-1627

                                        By: /s/ Daniel M Behrendt
                                            ------------------------------------
                                            DANIEL M BEHRENDT
                                            Printed Name                   Title

                                        Date Signed: JULY 12, 2004

                                        8
<PAGE>
(BANK ONE LOGO)                                       NEGATIVE PLEDGE AGREEMENT

Dated as of June 22, 2004

FOR VALUABLE CONSIDERATION, the undersigned, TASER International, Inc. (the
"Pledgor"), agrees and pledges to Bank One, NA, with its main office in Chicago,
IL, whose address is 201 N. Central Ave, 21st Floor, AZl-1178, Phoenix, AZ 85004
(the "Bank"), its successors and assigns, that from the date of this agreement
until the "Liabilities" are paid in full, the Pledgor will not, without the
express written consent of the Bank, which consent shall be at the sole
discretion of the Bank, create or permit to exist any mortgage, pledge, title
retention lien, or other encumbrance or security interest with respect to all
assets now owned or hereafter acquired (the "Property"), except liens (i)
securing indebtedness to the Bank, and (ii) of current taxes not delinquent or
as security for taxes being contested in good faith, or in connection with
worker's compensation insurance, unemployment insurance, or of mechanics and
material men for sums not due or sums being contested in good faith.

BORROWER. The term "Borrower" in this agreement means TASER International, Inc.

LIABILITIES. The term "Liabilities" in this agreement means all obligations,
indebtedness and Liabilities of the Borrower to any one or more of the Bank,
BANK ONE CORPORATION, and any of their subsidiaries, affiliates or successors,
now existing or later arising, including, without limitation, all loans,
advances, interest, costs, overdraft indebtedness, credit card indebtedness,
lease obligations, or obligations relating to any Rate Management Transaction,
all monetary obligations incurred or accrued during the pendency of any
bankruptcy, insolvency, receivership or other similar proceedings, regardless of
whether allowed or allowable in such proceeding, and all renewals, extensions,
modifications, consolidations or substitutions of any of the foregoing, whether
the Borrower may be liable jointly with others or individually liable as a
debtor, maker, co-maker, drawer, endorser, guarantor, surety or otherwise, and
whether voluntarily or involuntarily incurred, due or not due, absolute or
contingent, direct or indirect, liquidated or unliquidated. The term "Rate
Management Transaction" in this agreement means any transaction (including an
agreement with respect thereto) now existing or hereafter entered into among the
Borrower, the Bank or BANK ONE CORPORATION, or any of its subsidiaries or
affiliates or their successors, which is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
forward transaction, currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar transaction (including any
option with respect to any of these transactions) or any combination thereof,
whether linked to one or more interest rates, foreign currencies, commodity
prices, equity prices or other financial measures.

The Pledgor represents and warrants to the Bank that: (a) the Pledgor has
disclosed to the Bank in writing any location(s) where the Property may be
located; (b) the Property is free and clear of all security interests, and the
Pledgor has not executed or recorded, or permitted others to execute or record,
any security documents or financing statements relating to any of the Property
(except, if applicable, to the Bank); and (c) all of the Property is titled in
the Pledgor's legal name.

If the Pledgor defaults in the performance of any agreement set forth herein,
the Bank may declare the Liabilities (notwithstanding any provision thereof)
immediately due and payable, without demand or notice of any kind. The Bank
shall promptly advise the Pledgor of any such declaration, but failure to do so
shall not impair the effect of such declaration.

No delay on the part of the Bank in the exercise of any power or right shall
operate as a waiver thereof, nor shall any single or partial exercise of any
power or right preclude other or further exercise thereof, or the exercise of
any other power or right.

Any notices and demands under or related to this document shall be in writing
and delivered to the intended party at its address stated herein, and if to the
Bank, at its main office if no other address of the Bank is specified herein, by
one of the following means: (a) by hand, (b) by a nationally recognized
overnight courier service, or (c) by certified mail, postage prepaid, with
return receipt requested. Notice shall be deemed given: (a) upon receipt if
delivered by hand, (b) on the Delivery Day after the day of deposit with a
nationally recognized courier service, or (c) on the third Delivery Day after
the notice is deposited in the mail. "Delivery Day" means a day other than a
Saturday, a Sunday, or any other day on which national banking associations are
authorized to be closed. Any party may change its address for purposes of the
receipt of notices and demands by giving notice of such change in the manner
provided in this provision.

GOVERNING LAW AND VENUE. This agreement is delivered in the State of Arizona and
governed by Arizona law (without giving effect to its laws of conflicts).
The Pledgor agrees that any legal action or proceeding with respect to any of
its obligations under this agreement may be brought by the Bank in any state or
federal court located in the State of Arizona, as the Bank in its sole
discretion may elect. By the execution and delivery of this agreement, the
Pledgor submits to and accepts, for itself and in respect of its property,
generally and unconditionally, the non-exclusive jurisdiction of those courts.
The Pledgor waives any claim that the State of Arizona is not a convenient forum
or the proper venue for any such suit, action or proceeding.
<PAGE>
WAIVER OF SPECIAL DAMAGES. THE PLEDGOR WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM
THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.

JURY WAIVER. THE PLEDGOR AND THE BANK (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR
OTHERWISE) BETWEEN OR AMONG THE PLEDGOR AND THE BANK ARISING OUT OF OR IN ANY
WAY RELATED TO THIS DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE
BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN.

This agreement shall be binding on the Pledgor and its successors and assigns;
and shall inure to the benefit of the Bank and its successors and assigns.

                                        PLEDGOR:

7860 East McClan Drive #2               TASER International, Inc.
Scottsdale, AZ 85260-1627

                                        By: /s/ Daniel M Behrendt
                                            ------------------------------------
                                            DANIEL M BEHRENDT
                                            Printed Name                   Title
Fax/Telex No.480 991 0791

                                        Date Signed: JULY 12, 2004

                                        2

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