Document:

EXHIBIT 10.3

                              CONSULTING AGREEMENT

         This Consulting Agreement (the "Agreement") is entered into this 3rd
day of January 2000 is by and amongst TrimFast Group, Inc. (the "Company") and
Jeffrey Klein (The "Consultant").

         WHEREAS, Consultant is skilled in providing legal
services, and has provided legal services to Company in the
past;
         WHEREAS, the Company desires to continue to engage
Consultant to continue to provide legal services; and
         NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration receipt whereof is hereby
acknowledged it is agreed.

         1. The Company hereby engages the Consultant and the Consultant hereby
accepts this engagement on a non- exclusive basis pursuant to the terms and
conditions of this Consulting Agreement.

         2. In addition to any other responsibilities previously agreed to
between the Consultant and the Company, the Consultant shall assist litigation
counsel with such matters as counsel deems necessary in order to facilitate the
litigation process. Consultant shall not be required to enter any court
appearances on behalf of the Company.

         3. In consideration of the services to be provided, Consultant shall
receive a fee equal to 5,000 shares of the Company's common stock.

         4.  The Company will register these shares pursuant to
a registration statement on Form S-8.

         5. During the term of this Agreement, each party may have access to
trade secrets, know how, formulae, customer and price lists all of which are
valuable, special, proprietary and unique assets of each. The parties agree

<PAGE>

that all knowledge and information which each other shall acquire during the
term of this Agreement shall be held in trust and in a fiduciary capacity for
the sole benefit of the other party, its successors and assigns, and each agrees
not to publish or divulge either during the term of this Agreement or subsequent
thereto, knowledge of any technical or confidential information acquired during
their term of this Agreement.

         At the termination of this Agreement, or at any other time either party
may request the other party to deliver to the other, without retaining any
copies, notes or excerpts thereof, all memoranda, diaries, notes, records,
plans, specifications, formulae or other documents relating to, directly or
indirectly, to any confidential information made or compiled by, or delivered or
made available to or otherwise obtained by the respective parties. However, the
foregoing provision shall not prohibit Consultant from engaging in any work at
any time following his termination of this Agreement which does not conflict
with the terms of this Agreement.

         6. Except as otherwise provided herein, any notice or other
communication to any party pursuant to or relating to this Agreement and the
transactions provided for herein shall be deemed to have been given or delivered
when deposited in the United States Mail, registered or certified, and with
proper postage and registration or certification fees prepaid, addressed at
their principal place of business or to such other address as may be designated
by either party in writing.

         7. This Agreement shall be governed by and interpreted pursuant to the
laws of the state of Florida. By entering into this Agreement, the parties agree
to the jurisdiction of the Florida courts with venue in Palm Beach, County

<PAGE>

Florida. In the event of any breach of this Agreement, the prevailing party
shall be entitled to recover all costs including reasonable attorney's fees.

         8. This Agreement may be executed in any number of counterparts, each
of which when so executed an delivered shall be deemed an original, and it shall
not be necessary, in making proof of this Agreement to produce or account for
more than one counterpart.

         IN WITNESS WHEREOF, the parties hereto have subscribed their hands an
seals the day and year first above written.

CONSULTANT:                                        COMPANY:
                                                   TRIMFAST GROUP, INC.

/s/ Jeffrey Klein                                  BY: /s/ Michael Muzio
---------------------------                        ---------------------------
  JEFFREY KLEIN                                        Michael Muzio, PresidentFY2000 10K LINE

                                                                   EXHIBIT 10.18

CREDIT AGREEMENT

(LINE OF
CREDIT)

 

This Agreement (the "Agreement") is made and entered into as of
September 18 2000, by and between SANWA BANK CALIFORNIA (the
"Bank") and APPLIED SIGNAL TECHNOLOGY, INC. (the "Borrower"), on the terms and
conditions that follow:

SECTION

1

DEFINITIONS

 
1.1Certain Defined Terms: Unless elsewhere
defined in this Agreement, the following terms shall have the following meanings
(such meanings to be generally applicable to the singular and plural forms of
the terms defined):

 
1.1.1"Advance": shall mean an advance to the
Borrower under the credit facility (ies) described in Section 2.

 

1.1.2"Business Day": shall mean a day, other than
a Saturday or Sunday, on which commercial banks are open for business in
California.

 

1.1.3"Close-Out Date": shall mean the Business Day
on which the Bank closes out and liquidates an FX Transaction.

 

1.1.4"Closing Value": has the meaning given to it
in Section 7.5(i) hereof.

 

1.1.5"Closing Gain" and "Closing Loss": shall mean
the amount determined in accordance with Section 7.5(ii) hereof.

 

1.1.6"Credit Percentage": shall mean 15%.

 

1.1.7"Current Liabilities": shall mean current
liabilities as determined in accordance with generally accepted accounting
principles, including any negative cash balance on the Borrower's financial
statement and Indebtedness for borrowed money under lines of credit with the
Bank used by the Borrower for working capital purposes.

 

1.1.8"Debt": shall mean all liabilities of the
Borrower less Subordinated Debt, if any.

 

1.1.9"Effective Tangible Net Worth": shall mean
the Borrower's stated net worth plus Subordinated Debt but less all intangible
assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights,
organization expense, and similar intangible items including, but not limited
to, investments in and all amounts due from affiliates, officers or
employees).

 

1.1.10"Environmental Claims": shall mean all
claims, however asserted, by any governmental authority or other person alleging
potential liability or responsibility for violation of any Environmental Law or
for release or injury to the environment or threat to public health, personal
injury (including sickness, disease or death), property damage, natural
resources damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), cleanup, removal, remedial or response costs,
restitution, civil or criminal penalties, injunctive relief, or other type of
relief, resulting from or based upon (a) the presence, placement, discharge,
emission or release (including intentional and unintentional, negligent and non-
negligent, sudden or non-sudden, accidental or non-accidental placement, spills,
leaks, discharges, emissions or releases) of any Hazardous Material at, in, or
from property, whether or not owned by the Borrower, or (b) any other
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law.

 

1.1.11"Environmental Laws": shall mean all
federal, state or local laws, statutes, common law duties, rules, regulations,
ordinances and codes, together with all administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements with, any
governmental authorities, in each case relating to environmental, health, safety
and land use matters; including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Clean Air Act, the
Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the
Federal Resource Conservation and Recovery Act, the Toxic Substances Control
Act, the Emergency Planning and Community Right-to-Know Act, the California
Hazardous Waste Control Law, the California Solid Waste Management, Resource,
Recovery and Recycling Act, the California Water Code and the California Health
and Safety Code.

 

1.1.12"Environmental Permits": shall have the
meaning provided in Section 4.11 hereof.

 

1.1.13"ERISA": shall mean the Employee Retirement
Income Security Act of 1974, as amended from time to time, including (unless the
context otherwise requires) any rules or regulations promulgated thereunder.

 

1. 1.14"Event of Default": shall have the meaning
set forth in Section 6.

 

1.1.15"Expiration Date": shall mean March 15,
2002, or the date of termination of the Bank's commitment to lend under
this Agreement pursuant to Section 7, whichever shall occur first.

 

1.1.16"Foreign Currency": shall mean any legally
traded currency other than US dollars and which may be transferred by paperless
wire transfer or cash and in which the Bank regularly trades.

 

1.1.17"Foreign Exchange Facility": shall mean the
credit facility described as such in Section 2.

 

1.1.18"FX Risk Liability": shall mean the product
of (a) the Credit Percentage, times (b) the aggregate of the Notional Values of
all FX Transactions outstanding, net of any Offsetting Transactions.

 

1.1.19"FX Limit": shall mean $50,000.00.

 

1.1.20"FX Transaction": shall mean any transaction
between the Bank and the Borrower pursuant to which the Bank has agreed to sell
to or to purchase from the Borrower a Foreign Currency of an agreed amount at an
agreed price in US dollars or such other agreed upon Foreign Currency,
deliverable and payable on an agreed date.

 

1.1.21"Hazardous Materials": shall mean all those
substances which are regulated by, or which may form the basis of liability
under, any Environmental Law, including all substances identified under any
Environmental Law as a pollutant, contaminant, hazardous waste, hazardous
constituent, special waste, hazardous substance, hazardous material, or toxic
substance, or petroleum or petroleum derived substance or waste.

 

1.1.22"Indebtedness": shall mean, with respect to
the Borrower, (i) all indebtedness for borrowed money or for the deferred
purchase price of property or services in respect of which the Borrower is
liable, contingently or otherwise, as obligor, guarantor or otherwise, or in
respect of which the Borrower otherwise assures a creditor against loss and (ii)
obligations under leases which shall have been or should be, in accordance with
generally accepted accounting principles, reported as capital leases in respect
of which the Borrower is liable, contingently or otherwise, or in respect of
which the Borrower otherwise assures a creditor against loss.

 

1.1.23"Letter of Credit Facility": shall mean the
credit facility described as such in Section 2.

 

1. 1.24 "Line Account": shall have the meaning
provided in Section 2.4 hereof.

 

1.1.25"Line of Credit": shall mean the credit
facility described as such in Section 2.

 

1.1.26"Notional Value": shall mean the US Dollar
equivalent of the price at which the Bank agreed to purchase or sell to the
Borrower a Foreign Currency.

 

1.1.27"Obligations": shall mean all amounts owing
by the Borrower to the Bank pursuant to this Agreement including, but not
limited to, the unpaid principal amount of Advances.

 

1.1.28"Offsetting Transaction": shall mean a FX
Transaction to purchase a Foreign Currency and a FX Transaction to sell the same
Foreign Currency , each with the same Settlement Date and designated as an
Offsetting Transaction at the time of entering into the FX Transaction.

 

1.1.29"Ordinary Course of Business": shall mean,
with respect to any transaction involving the Borrower or any of its
subsidiaries or affiliates, the ordinary course of the Borrowers business, as
conducted by the Borrower in accordance with past practice and undertaken by the
Borrower in good faith and not for the purpose of evading any covenant or
restriction in this Agreement or in any other document, instrument or agreement
executed in connection herewith.

 

1.1.30"Permitted Liens": shall mean: (i) liens and
security interests securing indebtedness owed by the Borrower to the Bank; (ii)
liens for taxes, assessments or similar charges not yet due; (iii) liens of
materialmen, mechanics, warehousemen, or carriers or other like liens arising in
the Ordinary Course of Business and securing obligations which are not yet
delinquent; (iv) purchase money liens or purchase money security interests upon
or in any property acquired or held by the Borrower in the Ordinary Course of
Business to secure Indebtedness outstanding on the date hereof or permitted to
be incurred herein; (v) liens and security interests which, as of the date
hereof, have been disclosed to and approved by the Bank in writing; and (vi)
those liens and security interests which in the aggregate constitute an
immaterial and insignificant monetary amount with respect to the net value of
the Borrower's assets.

 

1.1.31"Reference Rate": shall mean an index for a
variable interest rate which is quoted, published or announced by Bank as its
reference rate and as to which loans may be made by Bank at, above or below such
rate.

 

1.1.32"Settlement Date': shall mean the Business
Day on which the Borrower has agreed to (a) deliver the required amount of
Foreign Currency, or (b) pay in US dollars the agreed upon purchase price of the
Foreign Currency.

 

1.1.33'Subordinated Debt': shall mean such
liabilities of the Borrower which have been subordinated to those owed to the
Bank in a manner acceptable to the Bank.

 

1.1.34"Variable Rate Advance": shall have the
respective meaning as it is defined for each facility under Section 2,
hereof.

 

1.1.35"Variable Rate": shall have the respective
meaning as it is defined for each facility under Section 2, hereof.

 

1.2Accounting Terms: All references to financial
statements, assets, liabilities, and similar accounting items not specifically
defined herein shall mean such financial statements or such items prepared or
determined in accordance with generally accepted accounting principles
consistently applied and, except where otherwise specified, all financial data
submitted pursuant to this Agreement shall be prepared in accordance with such
principles.

 

1.3Other Terms: Other terms not otherwise defined
shall have the meanings attributed to such terms in the California Uniform
Commercial Code.

SECTION

2

CREDIT FACILITIES

2.1THE LINE OF CREDIT

 
2.1.1The Line of Credit: On terms and conditions
as set forth herein, the Bank agrees to make Advances to the Borrower from time
to time from the date hereof to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed $3,000,000.00
(the "Line of Credit"). Within the foregoing limits, the Borrower may borrow,
partially or wholly prepay, and reborrow under this Section 2.1. Proceeds of the
Line of Credit shall be used for working capital purposes.

 

2.1.2Making Line Advances: Each Advance shall be
conclusively deemed to have been made at the request of and for the benefit of
the Borrower (i) when credited to any deposit account of the Borrower maintained
with the Bank or (ii) when paid in accordance with the Borrower's written
instructions. Subject to the requirements of Section 3 and provided such request
is made in a timely manner as provided in Section 2.1.5 below, Advances shall be
made by the Bank under the Line of Credit.

 

2.1.3Repayment: On the Expiration Date, the
Borrower hereby promises and agrees to pay to the Bank in full the aggregate
unpaid principal amount of all Advances then outstanding, together with all
accrued and unpaid interest thereon.

 

2.1.4Interest on Advances: Interest shall accrue
from the date of each Advance under the Line of Credit at a variable rate per
annum equivalent to the Reference Rate (the 'Variable Rate"). Interest shall be
adjusted concurrently with any change in the Reference Rate. An Advance based
upon the Variable Rate is hereinafter referred to as a "Variable Rate
Advance".

Interest shall be computed on the basis of 360 days per
year, but charged on the actual number of days elapsed. The Borrower hereby
promises and agrees to pay interest in arrears on the first day of each month
commencing August 1, 2000.

 

If interest is not paid as and when it is due, it shall
be added to the principal, become and be treated as a part thereof, and shall
thereafter bear like interest

 

2.1.5Notice of Borrowing: Upon written or
telephonic notice which shall be received by the Bank at or before 2:00 p.m.
(California time) on a Business Day, the Borrower may borrow under the Line of
Credit by requesting a Variable Rate Advance. A Variable Rate Advance may be
made on the day notice is received by the Bank, provided however, that if the
Bank shall not have received notice at or before 2:00 p.m. on the day such
Advance is requested to be made, such Variable Rate Advance may, at the Bank's
option, be made on the next Business Day.

 

2.1.6Non-Usage Fee: The Borrower hereby promises
and agrees to pay the following fees in connection with this facility: The
Borrower shall be assessed and shall pay to the Bank each quarter in arrears, a
fee in an amount equal to 0.25% of the difference (if any) between $3,000,000.00
and the average daily outstanding principal balance of Advances under this Line
of Credit Facility, and the total face amount of all Letters of Credit
outstanding under the Letter of Credit Sub-Facility contained in section 2.2 of
this Agreement during the preceding quarter.

2.2LETTER OF CREDIT SUB-FACILITY

 
2.2.1Letter of Credit Sub-Facility: The Bank
agrees to issue standby letters of credit (each a "Letter of Credit") on behalf
of the Borrower of up to $2,000,000.00. At no time, however, shall the total
principal amount of all Advances outstanding under the Foreign Exchange
Facility, together with the total face amount of all Letters of Credit
outstanding, less any partial draws paid by the Bank, exceed the Line of
Credit.

 

For the purposes hereof, any Letters of Credit issued and
outstanding for the account of the Borrower as of the date hereof shall be
deemed to be issued hereunder.

 
(i)Upon the Bank's request, the Borrower shall promptly
pay to the Bank issuance fees and such other fees, commissions, costs and any
out-of-pocket expenses charged or incurred by the Bank with respect to any
Letter of Credit.

 

(ii)The commitment by the Bank to issue Letters of Credit
shall, unless earlier terminated in accordance with the terms of the Agreement,
automatically terminate on the Expiration Date of the Line of Credit and no
Letter of Credit shall expire on a date which is 90 days after the Expiration
Date.

 

 

(iii)Each Letter of Credit shall be in form and substance
satisfactory to the Bank and in favor of beneficiaries satisfactory to the Bank,
provided that the Bank may refuse to issue a Letter of Credit due to the nature
of the transaction or its terms or in connection with any transaction where the
Bank, due to the beneficiary or the nationality or residence of the beneficiary,
would be prohibited by any applicable law, regulation or order from issuing such
Letter of Credit

 

(iv)Prior to the issuance of each Letter of Credit, but
in no event later than 10:00 a.m. (California time) on the day such Letter of
Credit is to be issued (which shall be a Business Day), the Borrower shall
deliver to the Bank a duty executed form of the Bank's standard form of
application for issuance of a Letter of Credit with proper insertions.

 

(v)The Borrower shall, upon the Bank's request, promptly
pay to and reimburse the Bank for all costs incurred and payments made by the
Bank by reason of any future assessment, reserve, deposit or similar requirement
or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's
compliance with any directive or requirement of any regulatory authority
pertaining or relating to any Letter of Credit.

 

In the event that the Borrower fails to pay any drawing under
any Letter of Credit or the balances in the depository account or accounts
maintained by the Borrower with Bank are insufficient to pay such drawing,
without limiting the rights of Bank hereunder or waiving any Event of Default
caused thereby, Bank may, and Borrower hereby authorizes Bank to create an
Advance bearing interest at the rate or rates provided in Section 8.2 hereof to
pay such drawing.

2.3FOREIGN EXCHANGE SUB-FACILITY

 
2.3.1Foreign Exchange Sub-Facility: The Bank
agrees to enter into FX Transactions with the Borrower, at the Borrower's
request therefor made prior to the Expiration Date, provided however, that at no
time shall the aggregate FX Risk Liability of the Borrower exceed the FX Limit,
and provided further, at no time shall the aggregate FX Risk Liability combined
with the total face amount of all Letters of Credit outstanding, less any
partial draws paid by the Bank, together with the total principal amount of all
outstanding Advances, exceed the Line of Credit Each FX Transaction shall be
used to hedge the Borrower's foreign exchange exposure.

 
(i)Requests. Each request for a FX Transaction
shall be made by telephone to the Bank's Treasury Department ("Request"), shall
specify the Foreign Currency to be purchased or sold, the amount of such Foreign
Currency and the Settlement Date. Each Request shall be communicated to the Bank
no later than 3:00 p.m. California time on the Business Day on which the FX
Transaction is requested.

 

 

(ii)Tenor. No FX Transaction shall have a
Settlement Date which is more than 365 days after the date of entry into such FX
Transaction, and provided further, no FX Transaction shall expire on a date
which is more than 365 days after the Expiration Date.

 

(iii)Availability. Bank may refuse to enter into a
FX Transaction with the Borrower where the Bank, at its sole discretion,
determines that (1) the requested Foreign Currency is unavailable, or (2) the
Bank is not then dealing in the requested Foreign Currency, or (3) the Bank
would be prohibited by any applicable law, rule, regulation or order from
purchasing such Foreign Currency.

 

(iv)Payment. Payment is due on the Settlement Date
of the relevant FX Transaction. The Bank is hereby authorized by the Borrower to
charge the full settlement price of any FX Transaction against the depository
account or accounts maintained by the Borrower with the Bank on the Settlement
Date. In the event that the Borrower fails to pay the settlement price of any FX
Transaction on the Settlement Date or the balances in the depository account or
accounts maintained with Bank are insufficient to pay the settlement price,
without limiting the rights of Bank hereunder or waiving any Event of Default
caused thereby, Bank may , and Borrower hereby authorizes Bank to, create an
Advance bearing interest at the Variable Rate to pay the settlement price on the
Settlement Date.

 

(v)Increased Costs. Borrower shall promptly pay to
and reimburse the Bank for all costs incurred and payments made by the Bank by
reason of any assessment, reserve, deposit, capital maintenance or similar
requirement or any surcharge, tax or fee imposed upon the Bank or as a result of
the Bank's compliance with any directive or requirement of any regulatory
authority pertaining or relating to any FX Transaction.

 

(vi)Impossibility of Performance. In the
event that the Borrower or the Bank cannot perform under a FX Transaction due to
force majeure or an act of State or it becomes unlawful or impossible to
perform, all in the good faith judgement of the Borrower or the Bank, then upon
notice to the other party, the Borrower or the Bank may require the close-out
and liquidation of the affected FX Transaction in accordance with the provisions
of this Agreement.

 

2.4Line Account: The Bank shall maintain on its books a record of
account in which the Bank shall make entries for each Advance and such other
debits and credits as shall be appropriate in connection with the credit
facilities granted hereunder (the "Line Account"). The Bank shall provide the
Borrower with a statement of the Borrower's Line Account, which statement shall
be considered to be correct and conclusively binding on the Borrower unless the
Borrower notifies the Bank to the contrary within 30 days after the Borrowers
receipt of any such statement which it deems to be incorrect.

 

2.5Payments: If any payment required to be made by the Borrower
hereunder becomes due and payable on a day other than a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and interest
thereon shall be payable at the then applicable rate during such extension. All
payments required to be made hereunder shall be made to the office of the Bank
designated for the receipt of notices herein or such other office as Bank shall
from time to time designate.

 

2.6Late Payment: In addition to any other rights
the Bank may have hereunder, if any payment of principal or interest or any
portion thereof, under this Agreement is not paid within 5 days of when due, a
late payment charge equal to five percent (5%) of such past due payment may be
assessed and shall be immediately payable.

SECTION

3

CONDITIONS PRECEDENT

 
3.1Conditions Precedent to the Initial Advance:
The obligation of the Bank to make the initial Advance and the first
extension of credit to or on account of the Borrower hereunder is subject to the
conditions precedent that the Bank shall have received before the date of such
initial Advance and such first extension of credit all of the following, in form
and substance satisfactory to the Bank:

 
(i)Authority to Borrow. Evidence that the
execution, delivery and performance by the Borrower of this Agreement and any
document, instrument or agreement required hereunder have been duly
authorized.

 

(ii)Miscellaneous: Such other evidence as the Bank
may request to establish the consummation of the transaction contemplated
hereunder and compliance with the conditions of this Agreement.

 

3.2Conditions Precedent to All Advances: The obligation of the
Bank to make each Advance and each other extension of credit to or on account of
the Borrower (including the initial Advance and the first extension of credit)
shall be subject to the further conditions precedent that, on the date of each
Advance or each extension of credit and after the making of such Advance or
extension of credit:

 
(i)Subsequent Approvals. The Bank shall have
received such supplemental approvals, opinions or documents as the Bank
may reasonably request.

 

(ii)Representations and Warranties. The
representations contained in Section 4 and in any other document, instrument or
certificate delivered to the Bank hereunder are true, correct and complete.

 

(iii)Event of Default No event has occurred and is
continuing which constitutes, or with the lapse of time or giving of notice or
both, would constitute an Event of Default.

 

The Borrowers acceptance of the Proceeds of any loan advance
or extension of credit or the Borrowers execution of any document or instrument
evidencing or creating any Obligation hereunder shall be deemed to constitute
the Borrower's representation and warranty that all of the above statements are
true and correct.

SECTION

4

REPRESENTATIONS AND WARRANTIES

 

The Borrower hereby makes the following representations
and warranties to the Bank, which representations and warranties are
continuing:

 
4.1Status: The Borrower is a corporation duly
organized and valid existing under the laws of the state of California and is
property licensed and is qualified to do business and in good standing in, and,
where necessary to maintain the Borrower's rights and privileges, has Complied
with the fictitious name statute of every jurisdiction in which the Borrower is
doing business.

 

4.2 Authority: The execution, delivery and
performance by the Borrower of this Agreement and any instrument, document or
agreement required hereunder have been duly authorized and do not and will not:
(i) violate any provision of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
application to the Borrower, (ii) result in a breach of or constitute a default
under any material indenture or loan or credit agreement or other material
agreement, lease or instrument to which the Borrower is a party or by which it
or its properties may be bound or affected; or (iii) require any consent or
approval of its stockholders or violate any provision of its articles of
incorporation or by-laws.

 

4.3Legal Effect: This Agreement constitutes, and
any instrument, document or agreement required hereunder when delivered
hereunder will constitute, legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms.

 

4.4Fictitious Trade Styles: There are no
fictitious trade styles used by the Borrower in connection with its business
operations. The Borrower shall notify the Bank not less than 30 days prior to
effecting any change in the matters described herein or prior to using any other
fictitious trade style at any future date, indicating the trade style and
state(s) of its use.

 

 

4.5Financial Statements: All financial statements,
information and other data which may have been or which may hereafter be
submitted by the Borrower to the Bank are true, and have been or will be
prepared in accordance with generally accepted accounting principles
consistently applied and accurately represent the financial condition or, as
applicable, the other information disclosed therein. Since the most recent
submission of such financial information or data to the Bank, the
Borrower represents and warrants that no material adverse change in the
Borrower's financial condition or operations has occurred which has not been
fully disclosed to the Bank in writing.

 

4.6Litigation: Except as have been disclosed to
the Bank in writing, there are no actions, suits or proceedings pending or, to
the knowledge of the Borrower, threatened against or affecting the Borrower or
the Borrower's properties before any court or administrative agency which, if
determined adversely to the Borrower, would have a material adverse effect on
the Borrower's financial condition or operations or on the Collateral.

 

4.7Title to Assets: The Borrower has good and
marketable title to all of its assets (including, but not limited to, the
Collateral) and the same are not subject to any security interest, encumbrance,
lien or claim of any third person except for Permitted Liens.

 

4.8ERISA: If the Borrower has a pension, profit
sharing or retirement plan subject to ERISA, such plan has been and will
continue to be funded in accordance with its terms and otherwise complies with
and continues to comply with the requirements of ERISA.

 

4.9Taxes: The Borrower has filed all tax returns
required to be filed and paid all taxes shown thereon to be due, including
interest and penalties, other than such taxes which are currently payable
without penalty or interest or those which are being duly contested in good
faith.

 

4.10Margin Stock. The proceeds of any loan or
advance hereunder will not be used to purchase or carry margin stock as such
term is defined under Regulation U of the Board of Governors of the Federal
Reserve System.

 

4.11Environmental Compliance. The operations of
the Borrower comply, and during the term of this Agreement will at all times
comply, in all respects with all Environmental Laws; the Borrower has obtained
all licenses, permits, authorizations and registrations required under any
Environmental Law ("Environmental Permits") and necessary for its
ordinary course operations, all such Environmental Permits are in good standing,
and the Borrower is in compliance with all material terms and conditions of such
Environmental Permits; neither the Borrower nor any of its present property or
operations is subject to any outstanding written order from or agreement with
any governmental authority nor subject to any judicial or docketed
administrative proceeding, respecting any Environmental Law, Environmental Claim
or Hazardous Material; there are no Hazardous Materials or other conditions or
circumstances existing, or arising from operations prior to the date of this
Agreement, with respect to any property of the Borrower that would reasonably be
expected to give rise to Environmental Claims; provided, however, that
with respect to property leased from an unrelated third party, the foregoing
representation is made to the best knowledge of the Borrower. In addition, (i)
the Borrower does not have any underground storage tanks that are not property
registered or permitted under applicable Environmental Laws, or that are leaking
or disposing of Hazardous Materials off-site, and (ii) the Borrower has notified
all of their employees of the existence, if any, of any health hazard arising
from the conditions of their employment and have met all notification
requirements under Title III of CERCLA and all other Environmental
Laws.

SECTION

5

COVENANTS

 

The Borrower covenants and agrees that, during the term
of this Agreement, and so long thereafter as the Borrower is indebted to the
Bank under this Agreement the Borrower will, unless the Bank shall otherwise
consent in writing:

 
5.1Reporting and Certification Requirements: Deliver or cause to
be delivered to the Bank in form and detail satisfactory to the Bank:

 
(i)Not later than 100 days after the end of each of the
Borrower's fiscal years, a copy of the annual audited financial report of the
Borrower for such year, prepared by a firm of certified public accountants
acceptable to Bank and accompanied by an unqualified opinion of such firm.

 

(ii)Not later than 55 days after the end of each fiscal
quarter, the Borrowers financial statement as of the end of such period.

 

(iii)Concurrently with the delivery of the financial
reports required hereunder, a compliance certificate stating that the Borrower
is in compliance with all covenants contained herein and that no Event of
Default or potential Event of Default has occurred or is continuing, and
certified to by the chief financial officer of the Borrower.

 

(iv)Promptly upon the Bank's request, such other
information pertaining to the Borrower, the Collateral or any guarantor
hereunder as the Bank may reasonably request.

 

5.2Financial Condition: The Borrower promises and agrees, during
the term of this Agreement and until payment in full of all of the Borrower's
Obligations, the Borrower will maintain at all times:
(i)A minimum Effective Tangible Net Worth of at least
$55,000,000.00.

 

(ii)A ratio of Debt to Effective Tangible Net Worth of
not more than .75 to 1.

 

 

(iii)A ratio of the sum of cash, cash equivalents and
accounts receivable less unbilled receivables to Current Liabilities of not less
than 1.25 to 1.

 

(iv)Profitability by not allowing any quarterly
losses.

 

5.3Preservation of Existence; Compliance with Applicable Laws:
Maintain and preserve its existence and all rights and privileges now
enjoyed; and conduct its business and operations in accordance with all
applicable laws, rules and regulations.

 

5.4Merge or Consolidate: Not liquidate or
dissolve, merge or consolidate with or into, or acquire any other business
organization, provided however, that this Section 5.4 shall not apply to
transactions in which Borrower is the surviving entity.

 

5.5Maintenance of Insurance: Maintain insurance in
such amounts and covering such risks as is usually carried by companies engaged
in similar businesses and owning similar properties in the same general areas in
which the Borrower operates and maintain such other insurance and coverages as
may be required by the Bank. All such insurance shall be in form and amount and
with companies satisfactory to the Bank.

 

5.6Payment of Obligations and Taxes: Make timely
payment of all assessments and taxes and all of its liabilities and obligations
including, but not limited to, trade payables, unless the same are being
contested in good faith by appropriate proceedings with the appropriate court or
regulatory agency. For purposes hereof, the Borrower's issuance of a check,
draft or similar instrument without delivery to the intended payee shall not
constitute payment.

 

5.7Inspection Rights and Accounting Records: The
Borrower will maintain adequate books and records in accordance with generally
accepted accounting principles consistently applied and in a manner otherwise
acceptable to Bank, and, at any reasonable time and from time to time, permit
the Bank or any representative thereof to examine and make copies of the records
and visit the properties of the Borrower and discuss the business and operations
of the Borrower with any employee or representative thereof. If the Borrower
shall maintain any records (including, but not limited to, computer generated
records or computer programs for the generation of such records) in the
possession of a third party, the Borrower hereby agrees to notify such third
party to permit the Bank free access to such records at all reasonable times and
to provide the Bank with copies of any records which it may request, all at the
Borrower's expense, the amount of which shall be payable immediately upon
demand.

 

5.8Redemption or Repurchase of Stock:
Not redeem or repurchase any class of the Borrower's stock now or hereafter
outstanding, except stock in an amount of up to $7,000,000.00 in any one fiscal
year.

 

5.9Liens and Encumbrances: Not create, assume or
permit to exist any security interest, encumbrance, mortgage, deed of trust, or
other lien (including, but not limited to, a lien of attachment, judgment or
execution) affecting any of the Borrower's properties, or execute or allow to be
filed any financing statement or continuation thereof affecting any of such
properties, except for Permitted Liens or as otherwise provided in this
Agreement and except liens and security interests associated with Indebtedness
of up to $3,000,000.00 in the aggregate.

 

5.10Transfer Assets: Not, after the date hereof,
sell, contract for sale, convey, transfer, assign, lease or sublet, any of its
assets (including, but not limited to, the Collateral) except in the Ordinary
Course of Business and, then, only for full, fair and reasonable
consideration.

 

5.11Change in Nature of Business:
Not make any material change in its financial structure or the nature of its
business as existing or conducted as of the date hereof.

 

5.12Compensation of Employees:
Compensate its employees for services rendered at an hourly rate at least
equal to the minimum hourly rate prescribed by any applicable federal or state
law or regulation.

 

5.13Notice: Give the Bank prompt written notice of
any and all (i) Events of Default (ii) litigation, arbitration or administrative
proceedings to which the Borrower is a party and in which the claim or liability
exceeds $500,000.00; (iii) other matters which have resulted in, or might result
in a material adverse change in the financial condition or business operations
of the Borrower.

 

5.14Environmental Compliance: The Borrower shall
conduct its operations and keep and maintain all of its property in compliance
with all Environmental Laws and, upon the written request of the Bank, the
Borrower shall submit to the Bank, at the Borrower's sole cost and expense, at
reasonable intervals, a report providing the status of any environmental, health
or safety compliance, hazard or liability.

SECTION

6

EVENTS OF DEFAULT

 
Any one or more of the following described events shall
constitute an event of default (an "Event of Default") under this Agreement:

 

6.1Non-Payment: Any Borrower shall fail to pay the
principal amount of any Obligations when due or interest on the Obligations
within 5 days of when due.

 

6.2Performance Under This Agreement The Borrowers
shall fail in any material respect to perform or observe any term, covenant or
agreement contained in this Agreement or in any document, instrument or
agreement relating to this Agreement or any other document or agreement executed
by the Borrowers with or in favor of Bank and any such failure shall continue
unremedied for more than 30 days after the occurrence thereof.

 

 

6.3Representations and Warranties; Financial
Statements: Any representation or warranty made by the Borrower under or in
connection with this Agreement or any financial statement given by the Borrower
or any guarantor shall prove to have been incorrect in any material respect when
made or given or when deemed to have been made or given.

 

6.4Other Agreements: If there is a default under
any other agreement with Bank or under an agreement to which Borrower is a party
with Bank or with a third party or parties resulting in a right by the Bank or
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness.

 

6.5Insolvency: The Borrower or any guarantor
shall: (i) become insolvent or be unable to pay its debts as they mature; (ii)
make an assignment for the benefit of creditors or to an agent authorized to
liquidate any substantial amount of its properties and assets; (iii) file a
voluntary petition in bankruptcy or seeking reorganization or to effect a plan
or other arrangement with creditors; (iv) file an answer admitting the material
allegations of an involuntary petition relating to bankruptcy or reorganization
or join in any such petition; (v) become or be adjudicated a bankrupt (vi) apply
for or consent to the appointment of, or consent that an order be made,
appointing any receiver, custodian or trustee, for itself or any of its
properties, assets or businesses; or (vii) in an involuntary proceeding, any
receiver, custodian or trustee shall have been appointed for all or substantial
part of the Borrower's or guarantors properties, assets or businesses and shall
not be discharged within 30 days after the date of such appointment.

 

6.6Execution: Any writ of execution or attachment
or any judgment lien shall be issued against any property of the Borrower and
shall not be discharged or bonded against or released within 30 days after the
issuance or attachment of such writ or lien.

 

6.7Suspension: The Borrower shall voluntarily
suspend the transaction of business or allow to be suspended, terminated,
revoked or expired any permit, license or approval of any governmental body
necessary to conduct the Borrower's business as now conducted.

 

6.8Material Adverse Change: If there occurs a
material adverse change in the Borrower's business or financial condition, or if
there is a material impairment of the prospect of repayment of any portion of
the Obligations.

 

6.9Change in Ownership: There shall occur a sale,
transfer, disposition or encumbrance (whether voluntary or involuntary), or an
agreement shall be entered into to do so, with respect to more than 10% of the
issued and outstanding capital stock of the Borrower.

 

SECTION

7

REMEDIES ON DEFAULT

 

Upon the occurrence of any Event of Default the Bank may, at
its sole and absolute election, without demand and only upon such notice as may
be required by law:

 
7.1Acceleration: Declare any or all of the
Borrowers indebtedness owing to the Bank, whether under this Agreement or any
other document, instrument or agreement, immediately due and payable, whether or
not otherwise due and payable.

 

7.2Cease Extending Credit: Cease making Advances
or otherwise extending credit to or for the account of the Borrower under this
Agreement or under any other agreement now existing or hereafter entered into
between the Borrower and the Bank.

 

7.3Termination: Terminate this Agreement as to any
future obligation of the Bank without affecting the Borrowers obligations to the
Bank or the Bank's rights and remedies under this Agreement or under any other
document instrument or agreement.

 

7.4Letters of Credit: Require the Borrower to pay
immediately to the Bank, for application against drawings under any outstanding
Letters of Credit, the outstanding principal amount of any such Letters of
Credit which have not expired. Any portion of the amount so paid to the Bank
which Is not applied to satisfy draws under any such Letters of Credit or any
other obligations of the Borrower to the Bank shall be repaid to the Borrower
without interest.

 

7.5Close-Out and Liquidation: Close-out and
liquidate each outstanding FX Transaction so that each FX Transaction is
canceled in accordance with the following:

 
(i)Closing Value. The Bank shall calculate value
of such canceled FX Transaction by converting (1) in the case of a FX
Transaction whose Settlement Date is the same as or later than the Close-Out
Date, the amount of Foreign Currency into US dollars at a rate of exchange at
which the Bank can buy or sell US dollars with or against the Foreign Currency
for delivery on the Settlement Date of the relevant FX Transaction; or (2) in
the case of a FX Transaction whose Settlement Date precedes the Close-Out Date,
the amount of the Foreign Currency adjusted by adding interest with respect
thereto at the Variable Rate from the Settlement Date to the Close-Out Date,
into US Dollars at a rate of exchange at which the Bank can buy or sell US
dollars with or against the Foreign Currency for delivery on the Close-Out
Date.

 

 

(ii)Closing Gain or Loss. (1) For a FX Transaction
for which the Bank agreed to purchase a Foreign Currency, the amount by which
the Closing Value exceeds the Notional Value shall be a Closing Loss and the
amount by which the Closing Value is less than the Notional Value shall be a
Closing Gain; and (2) For a FX Transaction for which the Bank agreed to sell a
Foreign Currency, the amount by which the Closing Value exceeds the Notional
Value shall be a Closing Gain and the amount by which the Closing Value is less
than the Notional Value shall be a Closing Loss.

 

(iii)Net Present Value. The Closing Gain or
Closing Loss for each Settlement Date falling after the Close-out Date will be
discounted by the Bank to it net present value.

 

(iv)Payment: To the extent that the net amount of
the aggregate Closing Gains exceeds the Closing Losses, such amount shall be
payable by the Bank to the Borrower. To the extent that the aggregate net amount
of the Closing Losses exceeds the Closing Gains, such amount shall be payable by
the Borrower to the Bank.

 

7.6Non-Exclusivity of Remedies: Exercise one or
more of the Bank's rights set forth herein or seek such other rights or pursue
such other remedies as may be provided by law, in equity or in any other
agreement now existing or hereafter entered into between the Borrower and the
Bank, or otherwise.

 

SECTION

8

MISCELLANEOUS

 
8.1Amounts Payable on Demand: If the Borrower
shall fail to pay on demand any amount so payable under this Agreement, the Bank
may, at its option and without any obligation to do so and without waiving any
default occasioned by the Borrower having so failed to pay such amount, create
an Advance under this Agreement in an amount equal to the amount so payable,
which Advance shall thereafter bear interest as provided hereunder.

 

8.2Default Interest Rate: If an Event of Default,
or an event which, with notice or passage of time could become an Event of
Default, has occurred or is continuing, the Borrower shall pay to the Bank
interest on any Indebtedness or amount payable under this Agreement at a rate
which is 3% in excess of the rate or rates then in effect under this
Agreement.

 

8.3Reliance and Further Assurances: Each warranty,
representation, covenant, obligation and agreement contained in this Agreement
shall be conclusively presumed to have been relied upon by the Bank regardless
of any investigation made or information possessed by the Bank and shall be
cumulative and in addition to any other warranties, representations, covenants
and agreements which the Borrower now or hereafter shall give, or cause to be
given, to the Bank. Borrower agrees to execute all documents and instruments and
to perform such acts as the Bank may reasonably deem necessary to confirm and
secure to the Bank all rights and remedies conferred upon the Bank by this
agreement and all other documents related thereto.

 

8.4Attorneys' Fees: Borrower shall pay to the Bank
all costs and expenses, including but not limited to reasonable attorneys fees,
incurred by Bank in connection with the administration, enforcement, including
any bankruptcy, appeal or the enforcement of any judgment or any refinancing or
restructuring of this Agreement or any document, instrument or agreement
executed with respect to, evidencing or securing the indebtedness hereunder.

 

8.5Notices: All notices, payments, requests,
information and demands which either party hereto may desire, or may be required
to give or make to the other party hereto, shall be given or made to such party
by hand delivery or through deposit in the United States mail, postage prepaid,
or by facsimile delivery, or to such other address as may be specified from time
to time in writing by either party to the other.

 

	

To the Borrower:

	

To the Bank:

	

APPLIED SIGNAL TECHNOLOGY INC.

400 W. California Avenue

Sunnyvale, CA 94086

Attn:GARY YANCEY

CEO and President

FAX: (408) 522-2800

	

SANWA BANK CALIFORNIA

San Jose Office

220 Almaden Boulevard

San Jose, CA 95113

Attn:Jillian Mathur

Vice President

FAX:(408) 2924092

8.6Waiver: Neither the failure nor delay by the
Bank in exercising any right hereunder or under any document, instrument or
agreement mentioned herein shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder or under any other document,
instrument or agreement mentioned herein preclude other or further exercise
thereof or the exercise of any other right nor shall any waiver of any right or
default hereunder, or under any other document, instrument or agreement
mentioned herein, constitute a waiver of any other right or default or
constitute a waiver of any other default of the same or any other term or
provision.

 

8.7Conflicting Provisions: To the extent the
provisions contained in this Agreement are inconsistent with those contained in
any other document, instrument or agreement executed pursuant hereto, the terms
and provisions contained herein shall control. Otherwise, such provisions shall
be considered cumulative.

 

8.8Binding Effect; Assignment: This Agreement
shall be binding upon and inure to the benefit of the Borrower and the Bank and
their respective successors and assigns, except that the Borrower Shall not have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Bank. The Bank may sell, assign or grant
participation in all or any portion of its rights and benefits hereunder. The
Borrower agrees that, in connection with any such sale, grant or assignment the
Bank may deliver to the prospective buyer, participant or assignee financial
statements and other relevant information relating to the Borrower and any
guarantor.

 

8.9Jurisdiction: This Agreement, any notes issued
hereunder, the rights of the parties hereunder to and concerning the Collateral,
and any documents, instruments or agreements mentioned or referred to herein
shall be governed by and construed according to the laws of the State of
California without regard to conflict of law principles, to the jurisdiction of
whose courts the Parties hereby submit.

 

8.10Waiver of Jury Trial: THE BORROWER AND THE
BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION,PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK EACH AGREE THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.

 

8.11Telephone Recording: The Borrower agrees that
the Bank may electronically record all telephone conversations between the
Borrower and the Bank with respect to any FX Transaction and that any such
recording may be submitted in evidence in any arbitration or other legal
proceeding. Such recording shall be deemed to be conclusive evidence as to the
terms of any FX Transaction in the event of a dispute.

 

8.12Counterparts: This Agreement may be executed
in any number of counterparts and all such counterparts taken together shall be
deemed to constitute one and the same instrument.

 

8.13Headings: The headings herein set forth are
solely for the purpose of identification and have no legal significance.

  

8.14Entire Agreement and Amendments: This
Agreement and all documents, instruments and agreements mentioned herein
constitute the entire and complete understanding of the parties with respect to
the transactions contemplated hereunder. All previous conversations, memoranda
and writings between the parties pertaining to the transactions contemplated
hereunder not incorporated or referenced in this Agreement or in such documents,
instruments and agreements are superseded hereby. This Agreement may be amended
only by an instrument in writing signed by the Borrower and the Bank.

 

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

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