Document:

Exhibit 10.8

 

 

	
   

  
	
  TRIPATH TECHNOLOGY INC.

  
	
   

  
	
  LOAN AND SECURITY AGREEMENT

  
	
   

  

 

 

 

This LOAN AND SECURITY AGREEMENT is entered into as of
July 12, 2002, by and between COMERICA BANK - CALIFORNIA (“Bank”) and TRIPATH
TECHNOLOGY INC. (“Borrower”).

RECITALS

Borrower wishes to obtain credit from time to time
from Bank, and Bank desires to extend credit to Borrower.  This Agreement sets forth the terms on which
Bank will advance credit to Borrower, and Borrower will repay the amounts owing
to Bank.

AGREEMENT

The parties agree as follows:

1.             DEFINITIONS
AND CONSTRUCTION.

1.1           Definitions.  As used in this Agreement, the following
terms shall have the following definitions:

“Accounts” means all presently existing and hereafter arising accounts,
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of goods (including, without limitation, the licensing
of software and other technology) or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.

“Advance” or “Advances” means a cash advance or cash advances under the
Revolving Facility.

“Affiliate” means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person’s senior executive officers, directors, and partners.

“Bank Expenses” means all: 
reasonable costs or expenses (including reasonable attorneys’ fees and
expenses) incurred in connection with the preparation, negotiation,
administration, and enforcement of the Loan Documents; reasonable Collateral
audit fees; and Bank’s reasonable attorneys’ fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and
expenses of appeal), incurred before, during and after an Insolvency Proceeding,
whether or not suit is brought.

 “Borrower’s Books” means all of
Borrower’s books and records including: 
ledgers; records concerning Borrower’s assets or liabilities, the
Collateral, business operations or financial condition; and all computer programs,
or tape files, and the equipment, containing such information.

“Borrowing Base” means an amount equal to eighty percent (80%) of
Eligible Accounts (other than certain Eligible Foreign Accounts for which the
advance rate shall be 60%, as set forth in the definition of Eligible Foreign
Accounts below), as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.

 “Business Day” means any day
that is not a Saturday, Sunday, or other day on which banks in the State of
California are authorized or required to close.

“Change in Control” shall mean a transaction in which any “person” or
“group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of a
sufficient number of shares of all classes of stock then outstanding of
Borrower ordinarily entitled to vote in the election of directors, empowering
such “person” or “group” to elect a majority of the Board of Directors of
Borrower, who did not have such power before such transaction.

 

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“Closing Date” means the date of this Agreement.

“Code” means the California Uniform Commercial Code.

“Collateral” means the property described on Exhibit A
attached hereto.

“Contingent Obligation” means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit, corporate credit cards, or merchant services issued or provided for the
account of that Person; and (iii) all obligations arising under any interest
rate, currency or commodity swap agreement, interest rate cap agreement,
interest rate collar agreement, or other agreement or arrangement designed to
protect such Person against fluctuation in interest rates, currency exchange
rates or commodity prices; provided, however, that the term “Contingent
Obligation” shall not include endorsements for collection or deposit in the
ordinary course of business.  The amount
of any Contingent Obligation shall be deemed to be an amount equal to the stated
or determined amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such
Person in good faith; provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.

 “Credit Extension” means each
Advance, Letter of Credit or any other extension of credit by Bank for the benefit
of Borrower hereunder.

“Current Liabilities” means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date, plus,
to the extent not already included therein, all outstanding Credit Extensions
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendible at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination.

“Daily Balance” means the amount of the Obligations owed at the end of
a given day.

“Eligible Accounts” means those Accounts that arise in the ordinary
course of Borrower’s business that comply with all of Borrower’s
representations and warranties to Bank set forth in Section 5.4; provided,
that standards of eligibility may be fixed and revised from time to time by
Bank in Bank’s reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. 
Unless otherwise agreed to by Bank, Eligible Accounts shall not include
the following:

(a)           Accounts
that the account debtor has failed to pay within ninety (90) days of invoice
date;

(b)           Accounts
with respect to an account debtor, twenty-five percent (25%) of whose Accounts
the account debtor has failed to pay within ninety (90) days of invoice date;

(c)           Accounts
with respect to which the account debtor is an officer, employee, or agent of
Borrower;

(d)           Accounts
with respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional;

(e)           Accounts
with respect to which the account debtor is an Affiliate of Borrower;

 

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(f)            Accounts
with respect to which the account debtor does not have its principal place of
business in the United States, except for Eligible Foreign Accounts;

(g)           Accounts
with respect to which the account debtor is the United States or any
department, agency, or instrumentality of the United States;

(h)           Accounts
with respect to which Borrower is liable to the account debtor for goods sold
or services rendered by the account debtor to Borrower or for deposits or other
property of the account debtor held by Borrower, but only to the extent of any
amounts owing to the account debtor against amounts owed to Borrower;

(i)            Accounts
with respect to an account debtor, including Subsidiaries and Affiliates, whose
total obligations to Borrower exceed twenty percent (20%) of all Accounts (the
“Concentration Limit”), to the extent such obligations exceed the
aforementioned percentage except as approved in writing by the Bank, provided
that the Concentration Limit shall be 50% for Komatsu Semiconductor Corp.,
Quanta Computer Inc., Solectron Technology Singapore PTE LTD, and World Vantage
Tech (Holdings) LTD (such exceptions are reviewable on an ongoing basis);

(j)            Accounts
with respect to which the account debtor disputes liability or makes any claim
with respect thereto as to which Bank believes, in its sole discretion, that
there may be a basis for dispute (but only to the extent of the amount subject
to such dispute or claim), or is subject to any Insolvency Proceeding, or
becomes insolvent, or goes out of business; and

(k)           Accounts
the collection of which Bank reasonably determines to be doubtful.

“Eligible Foreign Accounts” means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that (i) are supported by one or more letters of credit in an
amount and of a tenor, and issued by a financial institution, acceptable to
Bank, or (ii) are supported by credit insurance acceptable to Bank, or (iii)
are Accounts on which the account debtor is approved in writing by Bank,
including without limitation Komatsu Semiconductor Corp., Quanta Computer Inc.,
and Solectron Technology Singapore PTE LTD (provided that the advance rate on
such accounts shall be 60% unless supported by a letter of credit or credit
insurance as set forth in subsections (i) or (ii) hereof) (such exceptions are
reviewable on an ongoing basis).

“Equipment” means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

 “ERISA” means the Employee
Retirement Income Security Act of 1974, as amended, and the regulations
thereunder.

“Event of Default” has the meaning assigned in Article 8.

“GAAP” means generally accepted accounting principles as in effect from
time to time in the United States.

“Indebtedness” means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all
Contingent Obligations.

“Insolvency Proceeding” means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.

 

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“Inventory” means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products intended
for sale or lease or to be furnished under a contract of service, of every kind
and description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower’s Books relating
to any of the foregoing.

“Investment” means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

“IRC” means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.

“Lien” means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.

“Loan Documents” means, collectively, this Agreement, any note or notes
executed by Borrower, and any other agreement entered into between Borrower and
Bank in connection with this Agreement, all as amended or extended from time to
time.

“Material Adverse Effect” means a material adverse effect on (i) the
business operations, condition (financial or otherwise) or prospects of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower
to repay the Obligations or otherwise perform its obligations under the Loan
Documents or (iii) the value or priority of Bank’s security interests in the Collateral.

“Negotiable Collateral” means all of Borrower’s present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower’s Books
relating to any of the foregoing.

“Obligations” means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing
or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.

 “Periodic Payments” means all
installments or similar recurring payments that Borrower may now or hereafter
become obligated to pay to Bank pursuant to the terms and provisions of any
instrument, or agreement now or hereafter in existence between Borrower and
Bank.

“Permitted Indebtedness” means:

(a)           Indebtedness
of Borrower in favor of Bank arising under this Agreement or any other Loan
Document;

(b)           Indebtedness
existing on the Closing Date and disclosed in the Schedule;

(c)           Indebtedness
secured by a lien described in clause (c) of the defined term “Permitted
Liens,” provided (i) such Indebtedness does not exceed the lesser of the cost
or initial fair market value of the equipment financed with such Indebtedness
and (ii) such Indebtedness does not exceed $750,000 in the aggregate at any given
time; and

(d)           Subordinated
Debt.

 

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“Permitted Investment” means:

(a)           Investments
existing on the Closing Date disclosed in the Schedule; and

(b)           (i) marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or any agency or any State thereof maturing within one (1) year from
the date of acquisition thereof, (ii) commercial paper maturing no more
than one (1) year from the date of creation thereof and currently having rating
of at least A-2 or P-2 from either Standard & Poor’s Corporation
or Moody’s Investors Service, (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by Bank and
(iv) Bank’s money market accounts.

“Permitted Liens” means the following:

(a)           Any
Liens existing on the Closing Date and disclosed in the Schedule or arising
under this Agreement or the other Loan Documents;

(b)           Liens
for taxes, fees, assessments or other governmental charges or levies, either
not delinquent or being contested in good faith by appropriate proceedings,
provided the same have no priority over any of Bank’s security interests;

(c)           Liens
(i) upon or in any equipment acquired or held by Borrower or any of its
Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition of such equipment,
or (ii) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment;

(d)           Liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by Liens of the type described in clauses (a) through (c)
above, provided that any extension, renewal or replacement Lien shall be
limited to the property encumbered by the existing Lien and the principal
amount of the indebtedness being extended, renewed or refinanced does not
increase.

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

“Prime Rate” means the variable rate of interest, per annum, most
recently announced by Bank, as its “prime rate,” whether or not such announced
rate is the lowest rate available from Bank.

“Quick Assets” means, at any date as of which the amount thereof shall
be determined, the unrestricted cash and net billed trade accounts receivable,
of Borrower determined in accordance with GAAP.

 “Responsible Officer” means
each of the Chief Executive Officer and the Chief Financial Officer of
Borrower.

“Revolving Facility” means the facility under which Borrower may
request Bank to issue Advances, as specified in Section 2.1(a) hereof.

“Revolving Line” means a credit extension of up to Ten Million Dollars
($10,000,000).

“Revolving Maturity Date” means June 30, 2003.

“Schedule” means the schedule of exceptions attached hereto and
approved by Bank, if any.

 

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“Subordinated Debt” means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms reasonably
acceptable to Bank (and identified as being such by Borrower and Bank).

“Subsidiary” means any corporation, company or partnership in which
(i) any general partnership interest or (ii) more than 50% of the
stock or other units of ownership which by the terms thereof has the ordinary
voting power to elect the Board of Directors, managers or trustees of the
entity, at the time as of which any determination is being made, is owned by
Borrower, either directly or through an Affiliate.

“Tangible Net Worth” means at any date as of which the amount thereof
shall be determined, the sum of the capital stock and additional paid-in
capital plus retained earnings (or minus accumulated deficit) of Borrower and
its Subsidiaries minus intangible assets, plus Subordinated Debt, on a
consolidated basis determined in accordance with GAAP.

1.2           Accounting
Terms.  All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations made hereunder shall be made in accordance with GAAP.  When used herein, the terms “financial
statements” shall include the notes and schedules thereto.

2.             LOAN
AND TERMS OF PAYMENT.

2.1           Credit
Extensions.

Borrower promises to pay to the order of Bank, in lawful money of the
United States of America, the aggregate unpaid principal amount of all Credit
Extensions made by Bank to Borrower hereunder. 
Borrower shall also pay interest on the unpaid principal amount of such
Credit Extensions at rates in accordance with the terms hereof.

(a)           Revolving
Advances.

(i)            Subject
to and upon the terms and conditions of this Agreement, Borrower may request
Advances in an aggregate outstanding amount not to exceed the lesser of
(i) the Revolving Line or (ii) the Borrowing Base, minus, in
each case, the aggregate face amount of all outstanding Letters of Credit.  Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaid and
reborrowed at any time prior to the Revolving Maturity Date, at which time all
Advances under this Section 2.1(a) shall be immediately due and payable.  Borrower may prepay any Advances without
penalty or premium.

(ii)           Whenever
Borrower desires an Advance, Borrower will notify Bank by facsimile
transmission or telephone no later than 3:00 p.m. Pacific time, on the
Business Day that the Advance is to be made. 
Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B hereto.  Bank is authorized to make Advances under
this Agreement, based upon instructions received from the Borrower’s Chief
Financial Officer or a designee of the Borrower’s Chief Financial Officer, or
without instructions if in Bank’s discretion such Advances are necessary to
meet Obligations which have become due and remain unpaid.  Bank shall be entitled to rely on any
telephonic notice given by a person who Bank reasonably believes to be the
Borrower’s Chief Financial Officer or a designee thereof, and Borrower shall
indemnify and hold Bank harmless for any damages or loss suffered by Bank as a
result of such reliance.  Bank will
credit the amount of Advances made under this Section 2.1(a) to Borrower’s
deposit account.

(b)           Letters
of Credit.

(i)            Subject
to the terms and conditions of this Agreement, Bank agrees to issue or cause to
be issued letters of credit for the account of Borrower (each, a “Letter of
Credit” and collectively, the “Letters of Credit”) in an aggregate outstanding
face amount not to exceed the lesser of the Revolving Line or the Borrowing
Base minus, in each case, the aggregate amount of the outstanding Advances at
any time, provided that the aggregate face amount of all outstanding Letters of
Credit shall not exceed $1,500,000.  All
Letters of Credit

 

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shall
be, in form and substance, reasonably acceptable to Bank in its sole discretion
and shall be subject to the terms and conditions of Bank’s form of standard
application and letter of credit agreement (the “Application”), which Borrower
hereby agrees to execute, including Bank’s standard fee equal to 0.75% per
annum of the face amount of each Letter of Credit.  On any drawn but unreimbursed Letter of Credit, the unreimbursed
amount shall be deemed an Advance under Section 2.1(a).  Prior to the Revolving Maturity Date,
Borrower shall secure in cash all obligations under any outstanding Letters of
Credit on terms reasonably acceptable to Bank.

(ii)           The
obligation of Borrower to reimburse Bank for drawings made under Letters of
Credit shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement, the Application, and
such Letters of Credit, under all circumstances whatsoever.  Borrower shall indemnify, defend, protect,
and hold Bank harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys’ fees, arising out of or in connection
with any Letters of Credit, except for expenses caused by Bank’s gross
negligence or willful misconduct.

2.2           Overadvances.  If the aggregate amount of the outstanding
Advances plus the aggregate face amount of all outstanding Letters of Credit
exceeds the lesser of the Revolving Line or the Borrowing Base at any time,
Borrower shall immediately either (i) pay to Bank, in cash, the amount of such
excess on account of the outstanding Advances or (ii) cash secure the amount of
such excess to the satisfaction of Bank.

2.3           Interest
Rates, Payments, and Calculations.

(a)           Interest
Rates.

(i)            Advances.  Except as set forth in Section 2.3(b),
the Advances shall bear interest, on the outstanding Daily Balance thereof, at
a rate equal to 0.875% above the Prime Rate.

(b)           Late
Fee; Default Rate.  If any payment
is not made within ten (10) days after the date such payment is due, Borrower
shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of
the amount of such unpaid amount or (ii) the maximum amount permitted to
be charged under applicable law.  All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to five (5) percentage
points above the interest rate applicable immediately prior to the occurrence
of the Event of Default.

(c)           Payments.  Interest hereunder shall be due and payable
on the first (1st) calendar day of each month during the term hereof.  Bank shall, at its option, charge such
interest, all Bank Expenses, and all Periodic Payments against any of
Borrower’s deposit accounts or against the Revolving Line, in which case those
amounts shall thereafter accrue interest at the rate then applicable
hereunder.  Any interest not paid when
due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable
hereunder.  All payments shall be free
and clear of any taxes, withholdings, duties, impositions or other charges, to
the end that Bank will receive the entire amount of any Obligations payable
hereunder, regardless of source of payment.

(d)           Computation.  In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased, effective as of the day the Prime Rate is changed, by
an amount equal to such change in the Prime Rate.  All interest chargeable under the Loan Documents shall be
computed on the basis of a three hundred sixty (360) day year for the actual
number of days elapsed.

2.4           Crediting
Payments.  Prior to the occurrence
of an Event of Default, Bank shall credit a wire transfer of funds, check or
other item of payment to such deposit account or Obligation as Borrower
specifies.  After the occurrence of an
Event of Default, the receipt by Bank of any wire transfer of funds, check, or
other item of payment shall be immediately applied to conditionally reduce
Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such
check or other item of payment is honored when presented for payment.  Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after
12:00 noon Pacific time shall be deemed to have been

 

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received
by Bank as of the opening of business on the immediately following Business
Day.  Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the
next Business Day, and additional fees or interest, as the case may be, shall
accrue and be payable for the period of such extension.

2.5           Fees.  Borrower shall pay to Bank the following:

(a)           Commitment
Fee.  On the Closing Date, a
Commitment Fee equal to $50,000, which shall be nonrefundable; and

(b)           Bank
Expenses.  On the Closing Date, all
Bank Expenses incurred through the Closing Date, including reasonable
attorneys’ fees and expenses and, after the Closing Date, all Bank Expenses,
including reasonable attorneys’ fees and expenses, as and when they become due.

2.6           Additional
Costs.  In case any law, regulation,
treaty or official directive or the interpretation or application thereof by
any court or any governmental authority charged with the administration thereof
or the compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):

(a)           subjects
Bank to any tax with respect to payments of principal or interest or any other
amounts payable hereunder by Borrower or otherwise with respect to the
transactions contemplated hereby (except for taxes on the overall net income of
Bank imposed by the United States of America or any political subdivision
thereof);

(b)           imposes,
modifies or deems applicable any deposit insurance, reserve, special deposit or
similar requirement against assets held by, or deposits in or for the account
of, or loans by, Bank; or

(c)           imposes
upon Bank any other condition with respect to its performance under this
Agreement,

and the result of any of the foregoing is to increase
the cost to Bank, reduce the income receivable by Bank or impose any expense
upon Bank with respect to the Obligations, Bank shall notify Borrower
thereof.  Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank’s
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.

2.7           Term.  This Agreement shall become effective on the
Closing Date and, subject to Section 12.7, shall continue in full force
and effect for so long as any Obligations remain outstanding or Bank has any
obligation to make Credit Extensions under this Agreement.  Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the continuance
of an Event of Default.  Notwithstanding
termination, Bank’s Lien on the Collateral shall remain in effect for so long
as any Obligations are outstanding.

3.             CONDITIONS
OF LOANS.

3.1           Conditions
Precedent to Initial Credit Extension. 
The obligation of Bank to make the initial Credit Extension is subject
to the condition precedent that Bank shall have received, in form and substance
reasonably satisfactory to Bank, the following:

(a)           this
Agreement;

(b)           a
certificate of the Secretary of Borrower with respect to incumbency and
resolutions authorizing the execution and delivery of this Agreement;

 

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(c)           a
financing statement (Form UCC-1);

(d)           an
intellectual property security agreement;

(e)           agreement
to provide insurance in the form provided to Borrower as of the Closing Date;

(f)            payment
of the fees and Bank Expenses then due specified in Section 2.5 hereof;

(g)           an
audit of the Collateral, the results of which shall be reasonably satisfactory
to Bank; and

(h)           such
other documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate.

3.2           Conditions
Precedent to all Credit Extensions. 
The obligation of Bank to make each Credit Extension, including the
initial Credit Extension, is further subject to the following conditions:

(a)           timely
receipt by Bank of the Payment/Advance Form as provided in Section 2.1;
and

(b)           the
representations and warranties contained in Section 5 shall be true and
correct in all material respects on and as of the date of such Payment/Advance
Form and on the effective date of each Credit Extension as though made at and
as of each such date, and no Event of Default shall have occurred and be
continuing, or would exist after giving effect to such Credit Extension
(provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date).  The making
of each Credit Extension shall be deemed to be a representation and warranty by
Borrower on the date of such Credit Extension as to the accuracy of the facts
referred to in this Section 3.2.

4.             CREATION
OF SECURITY INTEREST.

4.1           Grant
of Security Interest.  Borrower
grants and pledges to Bank a continuing security interest in all presently
existing and hereafter acquired or arising Collateral in order to secure prompt
repayment of any and all Obligations and in order to secure prompt performance
by Borrower of each of its covenants and duties under the Loan Documents.  Except as set forth in the Schedule and
except for Permitted Liens, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof.

4.2           Delivery
of Additional Documentation Required. 
Borrower shall from time to time execute and deliver to Bank, at the
request of Bank, all Negotiable Collateral, all financing statements and other
documents that Bank may reasonably request, in form reasonably satisfactory to
Bank, to perfect and continue the perfection of Bank’s security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under the Loan Documents.

4.3           Right
to Inspect.  Bank (through any of
its officers, employees, or agents) shall have the right, upon reasonable prior
notice, from time to time during Borrower’s usual business hours but no more
than twice a year (unless an Event of Default has occurred and is continuing),
to inspect Borrower’s Books and to make copies thereof and to check, test, and
appraise the Collateral in order to verify Borrower’s financial condition or
the amount, condition of, or any other matter relating to, the Collateral.

5.             REPRESENTATIONS
AND WARRANTIES.

Borrower represents and warrants as follows except as otherwise set
forth on the Schedule:

 

9

5.1           Due
Organization and Qualification. 
Borrower and each Subsidiary is a corporation duly existing under the
laws of its state of incorporation and qualified and licensed to do business in
any state in which the conduct of its business or its ownership of property
requires that it be so qualified.

5.2           Due
Authorization; No Conflict.  The
execution, delivery, and performance of the Loan Documents are within
Borrower’s powers, have been duly authorized, and are not in conflict with nor
constitute a breach of any provision contained in Borrower’s Certificate of
Incorporation or Bylaws, nor will they constitute an event of default under any
material agreement to which Borrower is a party or by which Borrower is
bound.  Borrower is not in default under
any material agreement to which it is a party or by which it is bound, which
default reasonably could be expected to have a Material Adverse Effect;

5.3           No
Prior Encumbrances.  Borrower has
good and marketable title to its property, free and clear of Liens, except for
Permitted Liens.

5.4           Bona
Fide Eligible Accounts.  The
Eligible Accounts are bona fide existing obligations.  The property and services giving rise to such Eligible Accounts
has been delivered or rendered to the account debtor or to the account debtor’s
agent for immediate and unconditional acceptance by the account debtor.  Borrower has not received notice of actual
or imminent Insolvency Proceeding of any account debtor that is included in any
Borrowing Base Certificate as an Eligible Account.

5.5           Merchantable
Inventory.  All Inventory is in all
material respects of good and marketable quality, free from all material
defects, except for Inventory for which adequate reserves have been made,
provided, however, that work-in-process is not of marketable quality.

5.6           Intellectual
Property.  Borrower is the sole
owner of its patents, trademarks, copyrights, and other intellectual property,
except for licenses granted by Borrower to its customers in the ordinary course
of business.  To Borrower’s knowledge, each
of Borrower’s patents is valid and enforceable, and no part of its intellectual
property has been judged invalid or unenforceable, in whole or in part, and no
claim has been made to Borrower that any part of its intellectual property
violates the rights of any third party. 
Except as set forth in the Schedule, Borrower is not a party to, or
bound by, any agreement that restricts the grant by Borrower of a security
interest in Borrower’s rights under such agreement.

5.7           Name;
Location of Chief Executive Office. 
Except as disclosed in the Schedule, Borrower has not done business
under any name other than that specified on the signature page hereof.  The chief executive office of Borrower is
located at the address indicated in Section 10 hereof.  Except as set forth on the Schedule, all
Borrower’s Inventory and Equipment is located only at the location set forth in
Section 10 hereof.

5.8           Litigation.  Except as set forth in the Schedule, there
are no actions or proceedings pending by or against Borrower or any Subsidiary
before any court or administrative agency in which an adverse decision could
have a Material Adverse Effect, or a material adverse effect on Borrower’s
interest or Bank’s security interest in the Collateral.

5.9           No
Material Adverse Change in Financial Statements.  All consolidated and consolidating financial statements related
to Borrower and any Subsidiary that Bank has received from Borrower fairly
present in all material respects Borrower’s financial condition as of the date
thereof and Borrower’s consolidated and consolidating results of operations for
the period then ended.  There has not
been a material adverse change in the consolidated or the consolidating
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank.

5.10         Solvency,
Payment of Debts.  Borrower is
solvent and able to pay its debts (including trade debts) as they mature.

5.11         Regulatory
Compliance.  Borrower and each
Subsidiary have met the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA, and no event has occurred
resulting from Borrower’s failure to comply with ERISA that could result in
Borrower’s incurring any material

 

10

 

liability.  Borrower is not an “investment company” or a
company “controlled” by an “investment company” within the meaning of the
Investment Company Act of 1940. 
Borrower is not engaged principally, or as one of the important
activities, in the business of extending credit for the purpose of purchasing
or carrying margin stock (within the meaning of Regulations T and U of the
Board of Governors of the Federal Reserve System).  Borrower has complied with all the provisions of the Federal Fair
Labor Standards Act.  Borrower has not
violated any statutes, laws, ordinances or rules applicable to it, violation of
which could have a Material Adverse Effect.

5.12         Environmental
Condition.  Except as disclosed in
the Schedule, none of Borrower’s or any Subsidiary’s properties or assets has
ever been used by Borrower or any Subsidiary or, to the best of Borrower’s
knowledge, by previous owners or operators, in the disposal of, or to produce,
store, handle, treat, release, or transport, any hazardous waste or hazardous
substance other than in accordance with applicable law; to the best of
Borrower’s knowledge, none of Borrower’s properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute; no lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by Borrower or any Subsidiary; and
neither Borrower nor any Subsidiary has received a summons, citation, notice,
or directive from the Environmental Protection Agency or any other federal,
state or other governmental agency concerning any action or omission by
Borrower or any Subsidiary resulting in the releasing, or otherwise disposing
of hazardous waste or hazardous substances into the environment.

5.13         Taxes.  Borrower and each Subsidiary have filed or
caused to be filed all tax returns required to be filed, and have paid, or have
made adequate provision for the payment of, all taxes reflected therein.

5.14         Subsidiaries.  Except as set forth on the Schedule,
Borrower does not own any stock, partnership interest or other equity
securities of any Person, except for Permitted Investments.

5.15         Government
Consents.  Borrower and each
Subsidiary have obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of Borrower’s
business as currently conducted, the failure to obtain which could have a
Material Adverse Effect.

5.16         Accounts.  Except as set forth on the Schedule, none of
Borrower’s nor any Subsidiary’s property is maintained or invested with a
Person other than Bank.

5.17         Full
Disclosure.  No representation,
warranty or other statement made by Borrower in any certificate or written
statement furnished to Bank, taken together as a whole, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained in such certificates or statements not
misleading.

6.             AFFIRMATIVE
COVENANTS.

Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:

6.1           Good
Standing.  Borrower shall maintain
its and each of its Subsidiaries’ corporate existence and good standing in its
jurisdiction of incorporation and maintain qualification in each jurisdiction
in which it is required under applicable law. 
Borrower shall maintain, and shall cause each of its Subsidiaries to
maintain, in force all licenses, approvals and agreements, the loss of which
could have a Material Adverse Effect.

6.2           Government
Compliance.  Borrower shall meet,
and shall cause each Subsidiary to meet, the minimum funding requirements of
ERISA with respect to any employee benefit plans subject to ERISA.  Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect.

 

11

 

6.3           Financial
Statements, Reports, Certificates. 
Borrower shall deliver the following to Bank:  (a) as soon as available, but in any event within twenty (20)
days after the end of each quarter, a company prepared consolidated balance
sheet, income, and cash flow statement covering Borrower’s consolidated
operations during such period, prepared in accordance with GAAP, consistently
applied, in a form reasonably acceptable to Bank and certified by a Responsible
Officer; (b) as soon as available, but in any event within one hundred twenty
(120) days after the end of Borrower’s fiscal year, audited consolidated
financial statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements of
an independent certified public accounting firm reasonably acceptable to Bank;
(c) if applicable, copies of all statements, reports and notices sent or made
available generally by Borrower to its security holders or to any holders of
Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the
Securities and Exchange Commission; (d) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against Borrower
or any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of Fifty Thousand Dollars ($50,000) or more; (e) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time generally prepared by Borrower in the
ordinary course of business; and (f) within twenty (20) days of the last day of
each fiscal quarter, a report signed by Borrower, in form reasonably acceptable
to Bank, listing any applications or registrations that Borrower has made or
filed in respect of any Patents, Copyrights or Trademarks and the status of any
outstanding applications or registrations, as well as any material change in
Borrower’s intellectual property, including but not limited to any subsequent
ownership right of Borrower in or to any Trademark, Patent or Copyright not
specified in Exhibits A, B, and C of the Intellectual Property Security
Agreement delivered to Bank by Borrower in connection with this Agreement.

Within fifteen (15) days after the last day of each
month, Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in substantially the form of Exhibit C hereto,
together with aged listings of accounts receivable and accounts payable.

Within twenty (20) after the last day of each month,
Borrower shall deliver to Bank a Compliance Certificate signed by a Responsible
Officer in substantially the form of Exhibit D hereto.

Bank shall have a right from time to time hereafter to
audit Borrower’s Accounts and appraise Collateral at Borrower’s expense,
provided that such audits will be conducted no more often than every six (6)
months unless an Event of Default has occurred and is continuing.

6.4           Inventory;
Returns.  Borrower shall keep all
Inventory in good and marketable condition, free from all material defects
except for Inventory for which adequate reserves have been made.  Returns and allowances, if any, as between
Borrower and its account debtors shall be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at the time of
the execution and delivery of this Agreement. 
Borrower shall promptly notify Bank of all returns and recoveries and of
all disputes and claims, where the return, recovery, dispute or claim involves
more than Fifty Thousand Dollars ($50,000).

6.5           Taxes.  Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make, and will
cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including,
but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,
and local, state, and federal income taxes, and will, upon request, furnish
Bank with proof reasonable satisfactory to Bank indicating that Borrower or a
Subsidiary has made such payments or deposits; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment
is contested in good faith by appropriate proceedings and is reserved against
(to the extent required by GAAP) by Borrower.

6.6           Insurance.

(a)           Borrower,
at its expense, shall keep the Collateral insured against loss or damage by
fire, theft, explosion, sprinklers, and all other hazards and risks, and in
such amounts, as ordinarily insured against by other owners in similar
businesses conducted in the locations where Borrower’s business is

 

12

 

conducted
on the date hereof.  Borrower shall also
maintain insurance relating to Borrower’s business, ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
Borrower’s.

(b)           All
such policies of insurance shall be in such form, with such companies, and in
such amounts as reasonably satisfactory to Bank.  All such policies of property insurance shall contain a lender’s
loss payable endorsement, in a form reasonably satisfactory to Bank, showing
Bank as an additional loss payee thereof, and all liability insurance policies
shall show the Bank as an additional insured and shall specify that the insurer
must give at least twenty (20) days notice to Bank before canceling its policy
for any reason.  Upon Bank’s request,
Borrower shall deliver to Bank certified copies of such policies of insurance
and evidence of the payments of all premiums therefor.  All proceeds payable under any such policy
shall, at the option of Bank, be payable to Bank to be applied on account of
the Obligations.

6.7           Accounts.  Borrower shall maintain and shall cause each
of its Subsidiaries to maintain its primary depository, operating, and
investment accounts with Bank and/or Comerica Securities, Inc.  At least the greater of (i) 50% of
Borrower’s cash and cash equivalents or (ii) $7,500,000 shall be maintained in
operating, depository or investment accounts at Bank or Comerica Securities,
Inc. at all times.  Borrower will
execute account control agreements with Comerica Securities, Inc. as a
condition precedent to opening its accounts there.

6.8           Quick
Ratio.  Measured as of the last day
of each month, Borrower shall maintain a ratio of Quick Assets to Current
Liabilities of at least 1.5 to 1.0.

6.9           Tangible
Net Worth.  Measured as of the last
day of each month, Borrower shall maintain a Tangible Net Worth of at least
$20,000,000, provided that such required amount shall increase by 50% of
Borrower’s quarterly net profit after tax after the Closing Date and by 50% of
any net proceeds received by Borrower in any given quarter from the sale and
issuance of its equity securities after the Closing Date.

6.10         Revenue.  Borrower shall show quarterly revenue of at
least the following amounts for each of the following quarters:

	
  Quarter End Date

  	
   

  	
  Minimum Revenue

  for such Quarter

  
	
  3/31/02

  	
   

  	
  $

  	
  3,600,000

  
	
  6/30/02

  	
   

  	
  $

  	
  4,800,000

  
	
  9/30/02

  	
   

  	
  $

  	
  7,500,000

  
	
  12/31/02

  	
   

  	
  $

  	
  9,800,000

  
	
  3/31/03

  	
   

  	
  $

  	
  11,440,000

  

 

6.11         Intellectual
Property Rights.

(a)           Borrower
shall register or cause to be registered on an expedited basis (to the extent
not already registered) with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable:  (i) those intellectual property rights listed on Exhibits A, B
and C to the Intellectual Property Security Agreement delivered to Bank by
Borrower in connection with this Agreement, within forty five (45) days of the
date of this Agreement, (ii) all registerable intellectual property rights
Borrower has developed as of the date of this Agreement but heretofore failed
to register, within forty five (45) days of the date of this Agreement, and
(iii) those additional intellectual property rights developed or acquired by
Borrower from time to time in connection with any product or service, prior to
the sale or licensing of such product or the rendering of such service to any
third party, and prior to Borrower’s use of such product (including without
limitation major revisions or additions to the

 

13

 

intellectual
property rights listed on such Exhibits A, B and C).  Borrower shall give Bank notice of all such applications or
registrations.

(b)           Borrower
shall execute and deliver such additional instruments and documents from time
to time as Bank shall reasonably request to perfect Bank’s security interest in
the proceeds of its intellectual property.

(c)           Borrower
shall use commercially reasonable efforts to (i) protect, defend and maintain
the validity and enforceability of its trademarks, patents and copyrights, (ii)
detect infringements of its trademarks, patents and copyrights and promptly
advise Bank in writing of material infringements detected and (iii) not allow
any material trademarks, patents or copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld.

6.12         Further
Assurances.  At any time and from time
to time Borrower shall execute and deliver such further instruments and take
such further action as may reasonably be requested by Bank to effect the
purposes of this Agreement.

7.             NEGATIVE
COVENANTS.

Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Bank may have any commitment to make any Credit Extensions,
Borrower will not do any of the following:

7.1           Dispositions.  Convey, sell, lease, transfer or otherwise
dispose of (collectively, a “Transfer”), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than:  (i) Transfers of Inventory in the
ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; or (iii) Transfers of
worn-out or obsolete Equipment which was not financed by Bank.

7.2           Change
in Business; Change in Control or Executive Office.  Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related
thereto (or incidental thereto); or cease to conduct business in the manner
conducted by Borrower as of the Closing Date; or suffer or permit a Change in
Control; or without thirty (30) days prior written notification to Bank,
relocate its chief executive office or state of incorporation; or without
Bank’s prior written consent, change the date on which its fiscal year ends.

7.3           Mergers
or Acquisitions.  Merge or
consolidate, or permit any of its Subsidiaries to merge or consolidate, with or
into any other business organization, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person.

7.4           Indebtedness.  Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.

7.5           Encumbrances.  Create, incur, assume or suffer to exist any
Lien with respect to any of its property, including its intellectual property,
or assign or otherwise convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries so to do, except for Permitted
Liens.  Agree with any Person other than
Bank not to grant a security interest in, or otherwise encumber, any of its
property, including its intellectual property, or permit any Subsidiary to do
so.

7.6           Distributions.  Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock, or permit any of its Subsidiaries to do so, except that
Borrower may repurchase the stock of former employees pursuant to stock
repurchase agreements as long as an Event of Default does not exist prior to
such repurchase or would not exist after giving effect to such repurchase.

 

14

 

7.7           Investments.  Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments; or maintain or invest any of its
property with a Person other than Bank or permit any of its Subsidiaries to do
so unless such Person has entered into an account control agreement with Bank
in form and substance reasonably satisfactory to Bank; or suffer or permit any
Subsidiary to be a party to, or be bound by, an agreement that restricts such
Subsidiary from paying dividends or otherwise distributing property to
Borrower.

7.8           Transactions
with Affiliates.  Directly or
indirectly enter into or permit to exist any material transaction with any
Affiliate of Borrower except for transactions that are in the ordinary course
of Borrower’s business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm’s length transaction
with a non-affiliated Person.

7.9           Subordinated
Debt.  Make any payment in respect
of any Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except in compliance with the terms of such Subordinated Debt, or
amend any provision contained in any documentation relating to the Subordinated
Debt without Bank’s prior written consent.

7.10         Inventory
and Equipment. Except as set forth in the Schedule, store the Inventory or
the Equipment with a bailee, warehouseman, or other third party unless the
third party has been notified of Bank’s security interest and Bank (a) has
received an acknowledgment from the third party that it is holding or will hold
the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of
the warehouse receipt, where negotiable, covering such Inventory or Equipment.
Store or maintain any Equipment or Inventory at a location other than the
location set forth in Section 10 of this Agreement.

7.11         Compliance.  Become an “investment company” or be
controlled by an “investment company,” within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Credit
Extension for such purpose.  Fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the
Federal Fair Labor Standards Act or violate any law or regulation, which
violation could have a Material Adverse Effect, or a material adverse effect on
the Collateral or the priority of Bank’s Lien on the Collateral, or permit any
of its Subsidiaries to do any of the foregoing.

7.12         Negative
Pledge Agreements. Permit the inclusion in any contract to which it or a
Subsidiary becomes a party of any provisions that could restrict or invalidate
the creation of a security interest in any of Borrower’s or such Subsidiary’s
property.

8.             EVENTS
OF DEFAULT.

Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:

8.1           Payment
Default.  If Borrower fails to pay,
when due, any of the Obligations;

8.2           Covenant
Default.  If Borrower fails to
perform any obligation under Article 6 or violates any of the covenants
contained in Article 7 of this Agreement, or fails or neglects to perform,
keep, or observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or in any
other present or future agreement between Borrower and Bank and as to any such
default under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure such default within twenty (20) days after
Borrower receives notice thereof or any officer of Borrower becomes aware
thereof; provided, however, that if the default cannot by its nature be cured
within the twenty (20) day period or cannot after diligent attempts by Borrower
be cured within such twenty (20) day period, and such default is likely to be
cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed forty five (45) days) to
attempt to cure such default, and within such reasonable time period the
failure to

 

15

 

have
cured such default shall not be deemed an Event of Default (provided that no
Credit Extensions will be required to be made during such cure period);

8.3           Material
Adverse Effect.  If there occurs any
circumstance or circumstances that could have a Material Adverse Effect;

8.4           Attachment.  If any portion of Borrower’s assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or levy
has not been removed, discharged or rescinded within thirty (30) days, or if
Borrower is enjoined, restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business affairs, or if a
judgment or other claim becomes a lien or encumbrance upon any material portion
of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower’s assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within ten (10) days after Borrower receives notice thereof, provided that none
of the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith
contest by Borrower (provided that no Credit Extensions will be required to be
made during such cure period);

8.5           Insolvency.  If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within forty five
(45) days (provided that no Credit Extensions will be made prior to the
dismissal of such Insolvency Proceeding);

8.6           Other
Agreements.  If there is a default
or other failure to perform in any agreement to which Borrower is a party or by
which it is bound resulting in a right by a third party or parties, whether or
not exercised, to accelerate the maturity of any Indebtedness in an amount in
excess of Fifty Thousand Dollars ($50,000); or which could reasonably be
expected to have a Material Adverse Effect;

8.7           Subordinated
Debt.  If Borrower makes any payment
on account of Subordinated Debt, except to the extent such payment is allowed
under any subordination agreement entered into with Bank;

8.8           Judgments.  If a judgment or judgments for the payment
of money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or

8.9           Misrepresentations.  If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.

9.             BANK’S
RIGHTS AND REMEDIES.

9.1           Rights
and Remedies.  Upon the occurrence
and during the continuance of an Event of Default, Bank may, at its election,
without notice of its election and without demand, do any one or more of the
following as permitted by the Code, all of which are authorized by Borrower:

(a)           Declare
all Obligations, whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable (provided that upon the
occurrence of an Event of Default described in Section 8.5, all
Obligations shall become immediately due and payable without any action by
Bank);

(b)           Cease
advancing money or extending credit to or for the benefit of Borrower under
this Agreement or under any other agreement between Borrower and Bank;

 

16

 

(c)           Settle
or adjust disputes and claims directly with account debtors for amounts, upon
terms and in whatever order that Bank reasonably considers advisable;

(d)           Make
such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral.  Borrower agrees to assemble the Collateral if Bank so requires,
and to make the Collateral available to Bank as Bank may designate.  Borrower authorizes Bank to enter the
premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Bank’s determination appears to be prior
or superior to its security interest and to pay all expenses incurred in
connection therewith.  With respect to
any of Borrower’s owned premises, Borrower hereby grants Bank a license to
enter into possession of such premises and to occupy the same, without charge,
in order to exercise any of Bank’s rights or remedies provided herein, at law,
in equity, or otherwise;

(e)           Set
off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Bank, or (ii) indebtedness at any time owing to or for
the credit or the account of Borrower held by Bank;

(f)            Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the Collateral.  Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use,
without charge, Borrower’s labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank’s exercise of its rights under this
Section 9.1, Borrower’s rights under all licenses and all franchise
agreements shall inure to Bank’s benefit;

(g)           Dispose
of the Collateral by way of one or more contracts or transactions, for cash or
on terms, in such manner and at such places (including Borrower’s premises) as
Bank determines is commercially reasonable, and apply any proceeds to the
Obligations in whatever manner or order Bank deems appropriate;

(h)           Bank
may credit bid and purchase at any public sale; and

(i)            Any
deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by Borrower.

Bank will comply with all applicable laws in enforcing
its remedies hereunder.

9.2           Power
of Attorney. Effective only upon the occurrence and during the continuance
of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of
Bank’s designated officers, or employees) as Borrower’s true and lawful
attorney to:  (a) send requests for
verification of Accounts or notify account debtors of Bank’s security interest
in the Accounts; (b) endorse Borrower’s name on any checks or other forms of
payment or security that may come into Bank’s possession; (c) sign Borrower’s
name on any invoice or bill of lading relating to any Account, drafts against
account debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to account debtors; (d) dispose of any Collateral as
permitted by the Code; (e) make, settle, and adjust all claims under and
decisions with respect to Borrower’s policies of insurance; (f) settle and
adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable; and
(g) to file, in its sole discretion, one or more financing or continuation
statements and amendments thereto, relative to any of the Collateral without
the signature of Borrower where permitted by law; provided Bank may exercise
such power of attorney to sign the name of Borrower on any of the documents
described in Section 4.2 regardless of whether an Event of Default has
occurred, including without limitation to modify, in its sole discretion, any
intellectual property security agreement entered into between Borrower and Bank
without first obtaining Borrower’s approval of or signature to such
modification by amending Exhibits A, B, and C, thereof, as appropriate, to
include reference to any right, title or interest in any copyrights, patents or
trademarks acquired by Borrower after the execution hereof or to delete any
reference to any right, title or interest in any copyrights, patents or
trademarks in which Borrower no longer has or claims to have any right, title
or interest.  The appointment of Bank as
Borrower’s attorney in fact, and each and every one of Bank’s rights and
powers, being coupled with an interest, is

 

17

 

irrevocable
until all of the Obligations have been fully repaid and performed and Bank’s
obligation to provide Credit Extensions hereunder is terminated.

9.3           Accounts
Collection.  At any time during the
term of this Agreement, Bank may notify any Person owing funds to Borrower of
Bank’s security interest in such funds and verify the amount of such Account.  Borrower shall collect all amounts owing to
Borrower for Bank, receive in trust all payments as Bank’s trustee, and
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.

9.4           Bank
Expenses.  If Borrower fails to pay
any amounts or furnish any required proof of payment due to third persons or
entities, as required under the terms of this Agreement, then Bank may do any
or all of the following after reasonable notice to Borrower:  (a) make payment of the same or any
part thereof; (b) set up such reserves under a loan facility in Section
2.1 as Bank deems necessary to protect Bank from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type
discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent.  Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
then applicable rate hereinabove provided, and shall be secured by the
Collateral.  Any payments made by Bank
shall not constitute an agreement by Bank to make similar payments in the
future or a waiver by Bank of any Event of Default under this Agreement.

9.5           Bank’s
Liability for Collateral.  So long
as Bank complies with reasonable banking practices, Bank shall not in any way
or manner be liable or responsible for: 
(a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever.  All risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.

9.6           Remedies
Cumulative.  Bank’s rights and
remedies under this Agreement, the Loan Documents, and all other agreements
shall be cumulative.  Bank shall have
all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity.  No exercise
by Bank of one right or remedy shall be deemed an election, and no waiver by
Bank of any Event of Default on Borrower’s part shall be deemed a continuing
waiver.  No delay by Bank shall
constitute a waiver, election, or acquiescence by it.  No waiver by Bank shall be effective unless made in a written
document signed on behalf of Bank and then shall be effective only in the
specific instance and for the specific purpose for which it was given.

9.7           Demand;
Protest.  Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Bank on which
Borrower may in any way be liable.

10.           NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other informational documents which may be sent by first-class mail,
postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:

	
  If to Borrower:

  	
   

  	
  TRIPATH TECHNOLOGY INC.

  
	
   

  	
   

  	
  3900 Freedom Circle

  
	
   

  	
   

  	
  Santa Clara, CA 95054

  
	
   

  	
   

  	
  Attn:  Chief Financial Officer

  
	
   

  	
   

  	
  FAX:  (408) 565-6824

  
	
   

  	
   

  	
   

  
	
  If to Bank:

  	
   

  	
  Comerica Bank-California

  
	
   

  	
   

  	
  9920 S. La Cienega Blvd.,
  Suite 1401

  
	
   

  	
   

  	
  Inglewood, CA 90301

  
	
   

  	
   

  	
  Attn:  Manager

  
	
   

  	
   

  	
  FAX:  (310) 338-6110

  

 

 

18

 

	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Comerica Bank-California

  
	
   

  	
   

  	
  Five Palo Alto Square,
  Suite 800

  
	
   

  	
   

  	
  3000 El Camino Real

  
	
   

  	
   

  	
  Palo Alto, CA 94306

  
	
   

  	
   

  	
  Attn:  Satjeet Grewal

  
	
   

  	
   

  	
  FAX:  (650) 213-1710

  

 

The parties hereto may change the address at which
they are to receive notices hereunder, by notice in writing in the foregoing
manner given to the other.

11.           CHOICE
OF LAW AND VENUE; JURY TRIAL WAIVER.

This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law.  Each of Borrower and
Bank hereby submits to the exclusive jurisdiction of the state and Federal
courts located in the County of Santa Clara, State of California.  BORROWER AND BANK EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT.  EACH PARTY REPRESENTS AND WARRANTS THAT IT
HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.

12.           GENERAL
PROVISIONS.

12.1         Successors
and Assigns.  This Agreement shall
bind and inure to the benefit of the respective successors and permitted
assigns of each of the parties; provided, however, that neither this Agreement
nor any rights hereunder may be assigned by Borrower without Bank’s prior
written consent, which consent may be granted or withheld in Bank’s sole
discretion.  Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank’s
obligations, rights and benefits hereunder.

12.2         Indemnification.  Borrower shall defend, indemnify and hold
harmless Bank and its officers, employees, and agents against:  (a) all obligations, demands, claims,
and liabilities claimed or asserted by any other party in connection with the
transactions contemplated by this Agreement; and (b) all losses or Bank
Expenses in any way suffered, incurred, or paid by Bank as a result of or in
any way arising out of, following, or consequential to transactions between
Bank and Borrower whether under this Agreement, or otherwise (including without
limitation reasonable attorneys’ fees and expenses), except for losses caused
by Bank’s gross negligence or willful misconduct.

12.3         Time
of Essence.  Time is of the essence
for the performance of all obligations set forth in this Agreement.

12.4         Severability
of Provisions.  Each provision of
this Agreement shall be severable from every other provision of this Agreement
for the purpose of determining the legal enforceability of any specific
provision.

12.5         Amendments
in Writing, Integration.  Neither
this Agreement nor the Loan Documents cannot be amended or terminated
orally.  All prior agreements,
understandings, representations, warranties, and

 

19

 

negotiations
between the parties hereto with respect to the subject matter of this Agreement
and the Loan Documents, if any, are merged into this Agreement and the Loan
Documents.

12.6         Counterparts.  This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and all
of which, when taken together, shall constitute but one and the same Agreement.

12.7         Survival.  All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. 
The obligations of Borrower to indemnify Bank with respect to the
expenses, damages, losses, costs and liabilities described in Section 12.2
shall survive until all applicable statute of limitations periods with respect
to actions that may be brought against Bank have run.

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

	
   

  	
  TRIPATH TECHNOLOGY INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  COMERICA BANK - CALIFORNIA

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  

 

20

	
  DEBTOR

  	
  TRIPATH
  TECHNOLOGY INC.

  
	
   

  	
   

  
	
  SECURED
  PARTY:

  	
  COMERICA
  BANK - CALIFORNIA

  

 

EXHIBIT A

COLLATERAL
DESCRIPTION ATTACHMENT

TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or
“Debtor”) whether presently existing or hereafter created or acquired, and
wherever located, including, but not limited to:

(a)           all accounts
(including health-care-insurance receivables), chattel paper (including
tangible and electronic chattel paper), deposit accounts, documents (including
negotiable documents), equipment (including all accessions and additions
thereto), general intangibles (including payment intangibles and software),
goods (including fixtures), instruments (including promissory notes), inventory
(including all goods held for sale or lease or to be furnished under a contract
of service, and including returns and repossessions), investment property
(including securities and securities entitlements), letter of credit rights,
money, and all of Debtor’s books and records with respect to any of the
foregoing, and the computers and equipment containing said books and records;
and

(b)           any and all cash
proceeds and/or noncash proceeds of any of the foregoing, including, without
limitation, insurance proceeds, and all supporting obligations and the security
therefor or for any right to payment. 
All terms above have the meanings given to them in the California
Uniform Commercial Code, as amended or supplemented from time to time, including
revised Division 9 of the Uniform Commercial Code-Secured Transactions, added
by Stats. 1999, c.991 (S.B. 45), Section 35, operative July 1, 2001.

Notwithstanding the foregoing, the Collateral shall not include any
copyrights, patents, trademarks, servicemarks and applications therefor, now
owned or hereafter acquired, or any claims for damages by way of any past,
present and future infringement of any of the foregoing (collectively, the
“Intellectual Property”); provided, however, that the Collateral shall include
all accounts and general intangibles that consist of rights to payment and
proceeds from the sale, licensing or disposition of all or any part, or rights
in, the foregoing (the “Rights to Payment”). 
Notwithstanding the foregoing, if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in the Rights to Payment,
then the Collateral shall automatically, and effective as of the Closing Date,
include the Intellectual Property to the extent necessary to permit perfection
of Bank’s security interest in the Rights to Payment.

 

21

 

EXHIBIT B

LOAN
PAYMENT/ADVANCE TELEPHONE REQUEST FORM

DEADLINE FOR SAME
DAY PROCESSING IS 3:00 P.M., PACIFIC TIME

	
  TO:  TECHNOLOGY & LIFE SCIENCES DIVISION

  	
   

  	
  DATE:  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  FAX #:  650-846-6840  Attn: 
  Compliance

  	
   

  	
  TIME:  

  	
   

  

 

	
   

  	
   

  
	
  FROM:

  	
  TRIPATH TECHNOLOGY INC.

  
	
   

  	
  CLIENT
  NAME (BORROWER)

  
	
   

  	
   

  	
   

  
	
  REQUESTED BY:

  	
   

  
	
   

  	
  AUTHORIZED
  SIGNER’S NAME

  
	
   

  	
   

  	
   

  
	
  AUTHORIZED SIGNATURE:

  	
   

  
	
   

  	
   

  	
   

  
	
  PHONE NUMBER:

  	
   

  
	
   

  	
   

  	
   

  
	
  FROM ACCOUNT # 

  	
   

  	
   

  	
  TO ACCOUNT #

  	
   

  
	
   

  	
   

  	
   

  
											

 

	
  REQUESTED TRANSACTION TYPE

  	
   

  	
  REQUEST DOLLAR AMOUNT

  
	
   

  	
   

  	
  $

  	
   

  
	
  PRINCIPAL INCREASE
  (ADVANCE)

  	
   

  	
  $

  	
   

  
	
  PRINCIPAL PAYMENT (ONLY)

  	
   

  	
  $

  	
   

  
	
  INTEREST PAYMENT (ONLY)

  	
   

  	
  $

  	
   

  
	
  PRINCIPAL AND INTEREST
  (PAYMENT)

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  
	
  OTHER INSTRUCTIONS:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
   

  
	
  All
  representations and warranties of Borrower stated in the Loan and Security
  Agreement are true, correct and complete in all material respects as of the
  date of the telephone request for an Advance confirmed by this Borrowing
  Certificate; provided, however, that those representations and warranties
  expressly referring to another date shall be true, correct and complete in
  all material respects as of such date.

  
	
   

  
							

 

	
  BANK
  USE ONLY

  
	
   

  	
   

  	
   

  
	
  TELEPHONE REQUEST:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  The following person is
  authorized to request the loan payment transfer/loan advance on the advance
  designated account and is known to me.

  
	
   

  	
   

  	
   

  
	
  Authorized
  Requester

  	
   

  	
  Phone
  #

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Received
  By (Bank)

  	
   

  	
  Phone
  #

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Authorized
  Signature (Bank)

  	
   

  
	
   

  	
   

  	
   

  
							

 

 

22

 

EXHIBIT C

BORROWING BASE
CERTIFICATE

 

	
   

  	
   

  
	
  Borrower:  TRIPATH TECHNOLOGY INC.

  	
  Lender:  Comerica Bank-California 

  
	
   

  	
   

  
	
  Commitment Amount:  $10,000,000

  	
   

  
	
   

  

 

	
  ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
   

  
	
  1.

  	
  Accounts Receivable Book
  Value as of ___

  	
   

  	
   

  	
  $

  	
   

  
	
  2.

  	
  Additions (please explain
  on reverse)

  	
   

  	
   

  	
  $

  	
   

  
	
  3.

  	
  TOTAL ACCOUNTS RECEIVABLE

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ACCOUNTS RECEIVABLE
  DEDUCTIONS (without duplication)

  	
   

  	
   

  	
   

  
	
  4.

  	
  Amounts over 90 days due

  	
  $

  	
   

  	
   

  	
   

  
	
  5.

  	
  Balance of 25% over 90 day
  accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  6.

  	
  Concentration Limits

  	
  $

  	
   

  	
   

  	
   

  
	
  7.

  	
  Foreign Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  8.

  	
  Governmental Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  9.

  	
  Contra Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  10.

  	
  Demo Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  11.

  	
  Intercompany/Employee
  Accounts

  	
  $

  	
   

  	
   

  	
   

  
	
  12.

  	
  Other (please explain on
  reverse)

  	
  $

  	
   

  	
   

  	
   

  
	
  13.

  	
  TOTAL ACCOUNTS RECEIVABLE
  DEDUCTIONS

  	
   

  	
   

  	
  $

  	
   

  
	
  14.

  	
  Eligible Accounts (#3
  minus #13)

  	
   

  	
   

  	
  $

  	
   

  
	
  15.

  	
  LOAN VALUE OF ACCOUNTS
  (80%* of #14)

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  BALANCES

  	
   

  	
   

  	
   

  
	
  16.

  	
  Maximum Loan Amount

  	
   

  	
   

  	
  $

  	
  10,000,000

  
	
  17.

  	
  Total Funds Available
  [Lesser of #16 or #15]

  	
   

  	
   

  	
  $

  	
   

  
	
  18.

  	
  Present balance owing on
  Line of Credit

  	
   

  	
   

  	
  $

  	
   

  
	
  19.

  	
  Outstanding under
  Sublimits (Letters of Credit)

  	
   

  	
   

  	
  $

  	
   

  
	
  20.

  	
  RESERVE POSITION (#17
  minus #18 and #19)

  	
   

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

The undersigned represents and
warrants that the foregoing is true, complete and correct, and that the
information reflected in this Borrowing Base Certificate complies with the
representations and warranties set forth in the Loan and Security Agreement
between the undersigned and Comerica Bank-California.

	
  TRIPATH TECHNOLOGY INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Signer

  	
   

  
	
   

  	
   

  

 

*or 60% for Eligible Foreign Accounts not supported by
a letter of credit or credit insurance

 

23

 

EXHIBIT D

COMPLIANCE CERTIFICATE

	
  TO:

  	
  COMERICA BANK - CALIFORNIA

  
	
   

  	
   

  
	
  FROM:

  	
  TRIPATH TECHNOLOGY INC.

  

 

The
undersigned authorized officer of TRIPATH TECHNOLOGY INC. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the “Agreement”), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof (provided, however, that those representations and
warranties expressly referring to another date are true and correct in all
material respects as of such date). 
Attached herewith are the required documents supporting the above
certification.  The Officer further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) and are consistently applied from one period to
the next except as explained in an accompanying letter or footnotes.

Please
indicate compliance status by circling Yes/No under “Complies” column.

	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Financial statements

  	
   

  	
  Quarterly within 20 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  Annual (CPA Audited)

  	
   

  	
  FYE within 120 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  10K and 10Q

  	
   

  	
  (If applicable)

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  A/R Audit

  	
   

  	
  Semi-Annual

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  A/R & A/P Agings, Borrowing Base Cert.

  	
   

  	
  Monthly within 15 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  Total amount of Borrower’s cash and investments

  	
   

  	
  Amount:  $________

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  Total amount of Borrower’s cash and investments maintained with Bank

  	
   

  	
  Amount:  $________

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain on a Monthly Basis:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
      Minimum Quick Ratio

  	
   

  	
  1.50:1.00

  	
   

  	
  _____:1.00

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
      Minimum Tangible Net Worth

  	
   

  	
  $20,000,000*

  	
   

  	
  $________

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
  Minimum Quarterly Revenue

  	
   

  	
  **

  	
   

  	
  $________

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

*                                         such required amount shall
increase by 50% of Borrower’s quarterly net profit after tax after the Closing
Date and by 50% of any proceeds received by Borrower in any given quarter from
the sale and issuance of its debt or equity securities after the Closing Date

**                                  3/31/02,
$3,600,000; 6/30/02, $4,800,000; 9/30/02, $7,500,000; 12/31/02, $9,800,000;
3/31/03, $11,440,000

	
  Comments Regarding Exceptions:  See Attached.

  	
   

  	
  BANK USE ONLY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Received by:

  	
   

  
	
  Sincerely,

  	
   

  	
   

  	
  AUTHORIZED
  SIGNER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  
	
  SIGNATURE

  	
   

  	
   

  	
  AUTHORIZED
  SIGNER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  
	
  TITLE

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Compliance Status

  	
  Yes

  	
  No

  
	
   

  	
   

  	
   

  
	
  DATE

  	
   

  	
   

  
									

 

24

 

SCHEDULE OF
EXCEPTIONS

Permitted
Indebtedness 
(Section 1.1)

None.

Permitted
Investments 
(Section 1.1)

Shares
of Borrower’s wholly-owned Japanese subsidiary, Tripath Technology Japan Ltd.

Permitted
Liens  (Section 1.1)

None.

Prior
Names  (Section 5.7)

None.

Litigation  (Section 5.8)

None.

Accounts
(Section 5.16)

Borrower’s accounts held with Union Bank of
California and Salomon Smith Barney.

Tripath
Technology Japan Ltd’s accounts held with Tokyo Mitsubishi Bank and Dai-Ichi
Kangyo Bank.

Inventory
and Equipment (Section 7.10)

Inventory
held at ASE Korea, Techmosa.

 

25

 

CORPORATE
RESOLUTIONS TO BORROW

	
  Borrower:

  	
  TRIPATH TECHNOLOGY INC.

  

 

I,
the undersigned Secretary or Assistant Secretary of TRIPATH TECHNOLOGY INC.
(the “Corporation”), HEREBY CERTIFY that the Corporation is organized and
existing under and by virtue of the laws of the State of Delaware.

I
FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation, as amended, and the Restated
Bylaws of the Corporation, each of which is in full force and effect on the
date hereof.

I
FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.

BE
IT RESOLVED, that any one (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:

	
  NAMES

  	
   

  	
  POSITION

  	
   

  	
  ACTUAL SIGNATURES

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  

acting
for and on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

Borrow
Money.  To borrow from time to time
from COMERICA BANK - CALIFORNIA (“Bank”), on such terms as may be agreed upon
between the officers, employees, or agents of the Corporation and Bank, such
sum or sums of money as in their judgment should be borrowed, without
limitation.

Execute
Loan Documents.  To execute and deliver to Bank that certain
Loan and Security Agreement dated as of July 12, 2002 (the “Loan Agreement”)
and any other agreement entered into between Corporation and Bank in connection
with the Loan Agreement, including any amendments, all as amended or extended
from time to time (collectively, with the Loan Agreement, the “Loan
Documents”), and also to execute and deliver to Bank one or more renewals,
extensions, modifications, refinancings, consolidations, or substitutions for
the Loan Documents, or any portion thereof.

Grant
Security.  To grant a security interest to Bank in the
Collateral described in the Loan Documents, which security interest shall
secure all of the Corporation’s Obligations, as described in the Loan
Documents.

Negotiate
Items.  To
draw, endorse, and discount with Bank all drafts, trade acceptances, promissory
notes, or other evidences of indebtedness payable to or belonging to the
Corporation or in which the Corporation may have an interest, and either to
receive cash for the same or to cause such proceeds to be credited to the
account of the Corporation with Bank, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.

Letters of
Credit.  To
execute letter of credit applications and other related documents pertaining to
Bank’s issuance of letters of credit.

Further
Acts.  In
the case of lines of credit, to designate additional or alternate individuals
as being authorized to request advances thereunder, and in all cases, to do and
perform such other acts and things, to pay any and all fees and costs, and to
execute and deliver such other documents and agreements as they may in their
discretion deem reasonably necessary or proper in order to carry into effect
the provisions of these Resolutions.

BE IT FURTHER RESOLVED, that any and all acts
authorized pursuant to these resolutions and performed prior to the passage of
these resolutions are hereby ratified and approved, that these Resolutions
shall remain in full force and effect and Bank

 

1

 

may rely on these Resolutions until written notice
of their revocation shall have been delivered to and received by Bank.  Any such notice shall not affect any of the
Corporation’s agreements or commitments in effect at the time notice is given.

I FURTHER CERTIFY that the officers, employees, and
agents named above are duly elected, appointed, or employed by or for the
Corporation, as the case may be, and occupy the positions set forth opposite
their respective names; that the foregoing Resolutions now stand of record on
the books of the Corporation; and that the Resolutions are in full force and
effect and have not been modified or revoked in any manner whatsoever.

IN WITNESS WHEREOF, I have hereunto set my hand on
July 12, 2002 and attest that the signatures set opposite the names listed
above are their genuine signatures.

	
   

  	
  CERTIFIED AND ATTESTED BY:

  
	
   

  	
   

  
	
   

  	
  X

  	
   

  
	
   

  	
   

  

 

 

2

 

COMERICA BANK - CALIFORNIA

Member FDIC

ITEMIZATION OF AMOUNT FINANCED

DISBURSEMENT
INSTRUCTIONS

 

	
  Name(s):  TRIPATH TECHNOLOGY INC.

  	
  Date:  July 12, 2002

  
	
   

  	
   

  
	
       $

  	
  credited to deposit
  account No. ___________ when Advances are requested by Borrower

  
	
   

  	
   

  
	
  Amounts paid to others on
  your behalf:

  
	
   

  	
   

  
	
       $50,000

  	
  to COMERICA BANK -
  CALIFORNIA for Loan Fee

  
	
       $

  	
  to Bank counsel fees and
  expenses

  
	
       $

  	
  to _______________

  
	
       $

  	
  to _______________

  
	
       $10,000,000

  	
  TOTAL (AMOUNT FINANCED)

  
	
   

  	
   

  
			

 

Upon
consummation of this transaction, this document will also serve as the
authorization for COMERICA BANK - CALIFORNIA to disburse the loan proceeds as
stated above.

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  

 

 

 

 

AGREEMENT TO PROVIDE INSURANCE

	
  TO:

  	
  COMERICA
  BANK - CALIFORNIA

  	
  Date:  July 12, 2002

  	
   

  
	
   

  	
  attn:  Collateral Operations, M/C 4604

  	
   

  	
   

  
	
   

  	
  9920 South La Cienega
  Blvd, 14th Floor

  	
   

  	
   

  
	
   

  	
  Inglewood, CA  90301

  	
  Borrower:  TRIPATH TECHNOLOGY INC.

  	
   

  

 

In
consideration of a loan in the amount of $10,000,000, secured by all tangible
personal property including inventory and equipment.

I/We
agree to obtain adequate insurance coverage to remain in force during the term
of the loan.

I/We
also agree to advise the below named agent to add COMERICA BANK - CALIFORNIA as
lender’s loss payable on the new or existing insurance policy, and to furnish
Bank at above address with a copy of said policy/endorsements and any
subsequent renewal policies.

I/We
understand that the policy must contain:

1.             Fire and extended coverage in an
amount sufficient to cover:

(a)           The
amount of the loan, OR

(b)           All
existing encumbrances, whichever is greater,

But not in excess of the replacement value of
the improvements on the real property.

2.             Lender’s “Loss Payable” Endorsement
Form 438 BFU in favor of COMERICA BANK - CALIFORNIA, or any other form
acceptable to Bank.

	
   

  	
   

  	
  INSURANCE
  INFORMATION

  
	
   

  	
   

  	
   

  
	
  Insurance Co./Agent

  	
   

  	
  Telephone No.:

  
	
   

  	
   

  	
   

  
	
  Agent’s Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature of Obligor:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Signature of Obligor:

  	
   

  	
   

  
						

 

	
   

  	
   

  	
   

  
	
  FOR
  BANK USE ONLY

  	
   

  
	
   

  	
   

  
	
  INSURANCE VERIFICATION:
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Person Spoken to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Policy Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Effective From:                               To:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Verified by:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
								

 

 

 

	
  COMERICA BANK -

  CALIFORNIA

  	
   

  	
   

  
	
  California’s
  Business Banks

  	
   

  	
  AUTOMATIC DEBIT AUTHORIZATION

  
	
  Member
  FDIC

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

	
  To:  COMERICA BANK - CALIFORNIA

  
	
   

  
	
  Re:  Loan #

  	
   

  	
   

  
	
   

  
	
  You are hereby authorized
  and instructed to charge account No. _________________________ in the name of

  TRIPATH TECHNOLOGY INC.

  
	
  for principal and interest
  payments due on above referenced loan as set forth below and credit the loan
  referenced above.

  
	
   

  
	
   

  	
  X

  	
   

  	
  Debit each interest
  payment as it becomes due according to the terms of the note and any renewals
  or

  
	
   

  	
   

  	
   

  	
  amendments thereof.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  X

  	
   

  	
  Debit each principal
  payment as it becomes due according to the terms of the note and any renewals
  or

  
	
   

  	
   

  	
   

  	
  amendments thereof.

  
	
   

  
	
  This Authorization is to
  remain in full force and effect until revoked in writing.

  
	
   

  
	
  Borrower Signature

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  July 12, 2002

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
								

 

 

	
  DEBTOR:

  	
  TRIPATH TECHNOLOGY INC.

  
	
   

  	
   

  
	
  SECURED PARTY:

  	
  COMERICA BANK - CALIFORNIA

  

 

EXHIBIT A

COLLATERAL
DESCRIPTION ATTACHMENT

TO UCC-1 FINANCING STATEMENT

All
personal property of Borrower (herein referred to as “Borrower” or “Debtor”)
whether presently existing or hereafter created or acquired, and wherever
located, including, but not limited to:

(a)
          all accounts (including
health-care-insurance receivables), chattel paper (including tangible and
electronic chattel paper), deposit accounts, documents (including negotiable
documents), equipment (including all accessions and additions thereto), general
intangibles (including payment intangibles and software), goods (including
fixtures), instruments (including promissory notes), inventory (including all
goods held for sale or lease or to be furnished under a contract of service,
and including returns and repossessions), investment property (including
securities and securities entitlements), letter of credit rights, money, and
all of Debtor’s books and records with respect to any of the foregoing, and the
computers and equipment containing said books and records; and

(b)
          any and all cash proceeds and/or
noncash proceeds of any of the foregoing, including, without limitation,
insurance proceeds, and all supporting obligations and the security therefor or
for any right to payment.  All terms
above have the meanings given to them in the California Uniform Commercial
Code, as amended or supplemented from time to time, including revised Division
9 of the Uniform Commercial Code-Secured Transactions, added by Stats. 1999,
c.991 (S.B. 45), Section 35, operative July 1, 2001.

Notwithstanding
the foregoing, the Collateral shall not include any copyrights, patents,
trademarks, servicemarks and applications therefor, now owned or hereafter
acquired, or any claims for damages by way of any past, present and future
infringement of any of the foregoing (collectively, the “Intellectual
Property”); provided, however, that the Collateral shall include all accounts
and general intangibles that consist of rights to payment and proceeds from the
sale, licensing or disposition of all or any part, or rights in, the foregoing
(the “Rights to Payment”). 
Notwithstanding the foregoing, if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in the Rights to Payment,
then the Collateral shall automatically, and effective as of the Closing Date,
include the Intellectual Property to the extent necessary to permit perfection
of Bank’s security interest in the Rights to Payment.Exhibit
10.9

FIRST AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This First Amendment to Loan and Security Agreement is
entered into as of August 23, 2002 (the “Amendment”), by and between
COMERICA BANK – CALIFORNIA (“Bank”) and TRIPATH TECHNOLOGY INC. (“Borrower”).

RECITALS

Borrower and Bank are parties to that certain Loan and
Security Agreement dated as of July 12, 2002, as amended (collectively, the
“Agreement”).  The parties desire to
amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1.             Subsection
(i) of the definition of “Eligible Accounts” in Section 1.1 of the Agreement is
hereby amended to read as follows: 
“(i)  Accounts with respect to an
account debtor, including Subsidiaries and Affiliates, whose total obligations
to Borrower exceed twenty percent (20%) of all Accounts (the “Concentration
Limit”), to the extent such obligations exceed the aforementioned percentage
except as approved in writing by the Bank, provided that the Concentration Limit
shall be 50% for Komatsu Semiconductor Corp., Quanta Computer Inc., Solectron
Technology Singapore PTE LTD, World Vantage Tech (Holdings) LTD, and Dynax
Electronics (HK) LTD (such exceptions are reviewable on an ongoing basis);”.

2.             The
following defined term in Section 1.1 of the Agreement is hereby amended in its
entirety to read as follows:

                “Eligible Foreign
Accounts” means Accounts with respect to which the account debtor does not have
its principal place of business in the United States and that (i) are supported
by one or more letters of credit (A) in an amount and of a tenor, and issued by
a financial institution, acceptable to Bank, and (B) upon which Bank is the
beneficiary, or (ii) are supported by credit insurance acceptable to Bank, or (iii)
are Accounts on which the account debtor is approved in writing by Bank,
including without limitation Komatsu Semiconductor Corp., Quanta Computer Inc.,
and Solectron Technology Singapore PTE LTD (provided that the advance rate on
such accounts shall be 60% unless supported by a letter of credit or credit
insurance as set forth in subsections (i) or (ii) hereof) (such exceptions are
reviewable on an ongoing basis).

3.             The
reference to “$1,500,000” in Section 2.1(b)(i) of the Agreement is hereby
amended to read “$2,000,000”.

4.             Unless
otherwise defined, all initially capitalized terms in this Amendment shall be
as defined in the Agreement.  The
Agreement and the other Loan Documents, as amended hereby, shall be and remain
in full force and effect in accordance with its respective terms and hereby is
ratified and confirmed in all respects. 
Except as expressly set forth herein, the execution, delivery, and
performance of this Amendment shall not operate as a waiver of, or as an
amendment of, any right, power, or remedy of Bank under the Agreement, as in
effect prior to the date hereof. 
Borrower ratifies and reaffirms the continuing effectiveness of all
promissory notes, guaranties, security agreements, mortgages, deeds of trust,
environmental agreements, and all other instruments, documents and agreements
entered into in connection with the Agreement.

5.             This
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one instrument.

 

1

 

6.             Borrower
represents and warrants that the representations and warranties contained in
the Agreement are true and correct as of the date of this Amendment, and that
no Event of Default has occurred and is continuing.

IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of the first date above written.

	
   

  	
  TRIPATH
  TECHNOLOGY INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  COMERICA
  BANK - CALIFORNIA

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  

 

2

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