Document:

Exhibit 10.1

 

AGREEMENT

 

 

HILTON HOTELS CORPORATION

BOARD OF DIRECTORS

 

 

In
consideration of the election by the Compensation Committee of the Board of
Directors pursuant to Section 5(g) of the 1996 Chief Executive Stock Incentive
Plan to deliver to me, upon the exercise of options to purchase 6,000,000
shares, a combination of common stock and a cash amount to pay taxes with
respect thereto, I hereby agree not to transfer any of the 725,484 shares of
common stock (or any interest therein) I receive as a result of such exercise
for as long as I remain the Chief Executive Officer of Hilton Hotels
Corporation.  I further agree that a
restrictive legend may be placed on the stock certificate(s) representing such
725,484 shares, provided that such restrictive legend be removed when I cease
to be the Chief Executive Officer of Hilton Hotels Corporation.

 

 

	
  Dated:  September 10, 2003

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
    /s/ Stephen F. Bollenbach

  	
   

  
	
   

  	
  Stephen F.
  BollenbachExhibit 10.1

 

WJ COMMUNICATIONS, INC.

 

AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT

 

 

This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is
entered into as of September 23, 2003, by and between COMERICA BANK,
successor in interest to COMERICA BANK-CALIFORNIA (“Bank”) and WJ COMMUNICATIONS, INC. (“Borrower”) (this “Agreement”).

 

RECITALS

 

A.
           Bank and Borrower are parties to that certain
Loan and Security Agreement dated as of December 15, 2000, as amended (the
“Original Agreement”).

 

B.
           Borrower and Bank wish to amend and restate
the terms of the Original Agreement. 
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 made, or Letters of Credit issued, 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.

 

“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

 

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such “person” or “group” to
elect a majority of the Board of Directors of Borrower, who did not have such
power before such transaction.

 

“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, 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 issued for the account of that Person,
services relating to initiation of electronic funds transfer entries, corporate
credit cards, or merchant services 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 a 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.

 

“Copyrights” means any and
all copyright rights, copyright applications, copyright registrations and like
protections in each work or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also constitutes a trade
secret, now or hereafter existing, created, acquired or held.

 

“Credit Extension” means each
Advance, Letter of Credit, ACH service provided by Bank under Section 2.1.3,
Swing Loan, or any other extension of credit by Bank for the benefit of
Borrower hereunder.

 

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

 

“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.

 

“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.

 

2

 

“Intellectual Property
Collateral” means all of Borrower’s right, title, and interest in and to the
following:

 

(a)           Copyrights, Trademarks and Patents;

 

(b)           Any and all trade secrets, and any and all intellectual property rights
in computer software and computer software products now or hereafter existing,
created, acquired or held;

 

(c)           Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;

 

(d)           Any and all claims for damages by way of past, present and future
infringement of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;

 

(e)           All licenses or other rights to use any of the Copyrights, Patents or
Trademarks, and all license fees and royalties arising from such use to the
extent permitted by such license or rights;

 

(f)            All amendments, renewals and extensions of
any of the Copyrights, Trademarks or Patents; and

 

(g)           All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.

 

“Interest Period” means for
each LIBOR Rate Advance, a period thirty (30), sixty (60), and ninety (90)
days, as Borrower may elect, provided that a LIBOR option is quoted for such
period on the applicable LIBOR interbank market and that the last day of an
Interest Period for a LIBOR Rate Advance shall be determined in accordance with
the practices of the LIBOR interbank market as from time to time in effect,
provided, further, in all cases such period shall expire not later than the
applicable Revolving Maturity Date.

 

“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.

 

“Letter of Credit” means a
letter of credit issued under this Agreement.

 

“LIBOR Base Rate” means, for
any Interest Period for a LIBOR Rate Advance, the rate of interest per annum
determined by Bank to be the per annum rate of interest at which deposits in
United States Dollars are offered to Bank in the London interbank market in
which Bank customarily participates at 10:00 a.m. California time on the day
that is the first day of such Interest Period for a period approximately equal
to such Interest Period and in an amount approximately equal to the amount of
such Advance.

 

“LIBOR Rate” shall mean, for
any Interest Period for a LIBOR Rate Advance, a rate per annum (rounded
upwards, if necessary, to the nearest whole 1/8 of 1%) equal to (i) the LIBOR
Base Rate for such Interest Period divided by (ii) 1 minus the Reserve
Requirement for such Interest Period.

 

3

 

“LIBOR Rate Advances” means
any Advances made or a portion thereof on which interest is payable based on
the LIBOR Rate in accordance with the terms hereof.

 

“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 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, financial or
other condition 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.

 

“Material Subsidiary” means
a Subsidiary with assets having a fair market value of more than $250,000.

 

“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.

 

“Patents” means all patents,
patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.

 

“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)           Subject to the capital expenditures limitation set forth in Section
7.12 below, Indebtedness with respect to capital lease obligations or
Indebtedness secured by a lien described in clause (c) of the defined term
“Permitted Liens,” provided such Indebtedness does not exceed the lesser of the
cost or fair market value of the equipment financed with such Indebtedness
determined as of the date of such financing;

 

(d)           Subordinated Debt; and

 

(e)           Extensions, renewals, refundings, refinancings, modifications,
amendments and restatements of any of the items of Permitted Indebtedness (a)
through (d) above, provided that
the principal amount thereof is not increased or the terms thereof are not
modified to impose more burdensome terms upon Borrower.

 

“Permitted Investment”
means:

 

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

 

4

 

(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; and

 

(c)           Investments permitted pursuant to Borrower’s investment policy in the
form presented to Bank as of the Closing Date, as amended from time to time
upon notice to Bank.

 

“Permitted Liens” means the
following:

 

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

 

(b)           Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings;

 

(c)           Liens (i) upon or in any equipment acquired, leased or held by Borrower
or any of its Subsidiaries to secure the purchase price or lease amount 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;

 

(e)           Liens securing claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons or entities incurred in the
ordinary course of business and imposed without action of such parties; and

 

(f)            Liens incurred or deposits made in the
ordinary course of Borrower’s business in connection with worker’s
compensation, unemployment insurance, social security and other like laws.

 

“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.

 

“Reserve Requirement” means,
for any Interest Period, the average maximum rate at which reserves (including
any marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D against “Eurocurrency
liabilities” (as such term is used in Regulation D) by member banks of the
Federal Reserve System, adjusted by Bank for expected changes in such reserve
percentage during the applicable Interest Period.  Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by Bank
by reason of any Regulatory Change against (i) any category of liabilities
which includes deposits by reference to which the LIBOR Rate is to be
determined as provided in the definition of “LIBOR Base Rate” or (ii) any
category of extensions of credit or other assets which include Advances.

 

“Responsible Representative”
means each authorized signer named on the Corporate Resolutions to Borrow dated
September 23, 2003, as thereafter amended.

 

5

 

“Revolving Facility” means
the facility under which Borrower may request Bank to issue Advances, as
specified in Section 2.1.1 hereof.

 

“Revolving Line” initially
means Credit Extensions of up to Twenty Million Dollars ($20,000,000).  Notwithstanding the foregoing, the amount of
the Revolving Line may be reduced by Borrower in increments of not less than
One Million Dollars ($1,000,000) upon five (5) Business Days prior written notice
to Bank and repayment of the Obligations as required to bring the outstanding
balance to an amount equal to or less than the new Revolving Line amount
requested by Borrower.

 

“Revolving Maturity Date”
means September 22, 2005.

 

“Schedule” means the
schedule attached hereto, if any.

 

“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 in
writing 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.

 

“Swing Loan” has the meaning
set forth in Section 2.1.4.

 

“Tangible Net Worth” means
at any date as of which the amount thereof shall be determined, all assets of
Borrower, excluding any value of goodwill, trademarks, patents, copyrights,
organization expenses and other similar intangible items, less Total
Liabilities.

 

“Total Liabilities” means at
any date as of which the amount thereof shall be determined, all obligations
that should, in accordance with GAAP, be classified as liabilities on the
consolidated balance sheet of Borrower, including in any event all
Indebtedness.

 

“Trademarks” means any
trademark and servicemark rights, whether registered or not, applications to
register and registrations of the same and like protections, and the entire
goodwill of the business of Borrower connected with and symbolized by such
trademarks.

 

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.

 

2.1.1       Revolving Advances.

 

(a)           Subject to and upon the terms and conditions of this Agreement,
Borrower may request Advances in an aggregate outstanding amount not to exceed
the Revolving Line minus the aggregate face amount of outstanding Letters of
Credit, including any drawn but unreimbursed Letters of Credit, and the ACH
Reserves (as defined below).  Subject to
the terms and conditions of this Agreement, amounts borrowed pursuant to

 

6

 

this Section 2.1.1 may be
repaid and reborrowed at any time prior to the Revolving Maturity Date, at
which time all Advances under this Section 2.1.1 shall be immediately due and
payable.

 

(b)           Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 10:00 a.m. California time,
on the Business Day that is one (1) Business Day prior to the Business Day on
which a Prime Rate Advance is to be made (or prior to 11:00 a.m. California
time, on the Business Day that a Swing Loan is to be made), and noon California
time on the Business Day that is three (3) Business Days prior to the Business
Day on which a LIBOR Rate Advance is made. 
Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B-1 or Exhibit B-2 hereto.  Bank is authorized to make Advances under
this Agreement, based upon instructions received from a Responsible
Representative or a designee of a Responsible Representative.  Bank shall be entitled to rely on any
telephonic notice given by a person whom Bank reasonably believes to be a
Responsible Representative 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 2.1.1 to Borrower’s deposit account,
as specified by Borrower.

 

Each such notice shall
specify:

 

(i)            the date such Advance is to be made, which
shall be a Business Day;

 

(ii)           the amount of such Advance;

 

(iii)          whether such Advance is to be a Prime Rate Advance or a LIBOR Rate
Advance; and

 

(iv)          if the Advance is to be a LIBOR Rate Advance, the Interest Period for
such Advance;

 

Each written request for an
Advance, and each confirmation of a telephone request for such an Advance,
shall be in substantially the form of Exhibit B-1 or Exhibit B-2 hereto
executed by Borrower.

 

(c)           Prime Rate Advances. 
Except for Prime Rate Advances that are Swing Loans, each Prime Rate
Advance shall be in an amount of not less than Five Hundred Thousand Dollars
($500,000).  Unless otherwise agreed to
by Bank in writing, each Swing Loan shall not be in an amount of less than Two
Hundred Fifty Thousand Dollars ($250,000). 
The outstanding principal balance of each Prime Rate Advance shall bear
interest until principal is due (computed daily on the basis of a 360 day year
and actual days elapsed), at a floating rate per annum equal to the Prime Rate
less One Half Percent (0.5%).  Borrower
shall pay the entire outstanding principal amount of each Prime Rate Advance on
the Revolving Maturity Date.

 

(d)           LIBOR Rate Advances. 
Each LIBOR Rate Advance shall be in an amount of not less than One
Million Dollars ($1,000,000).  The
outstanding principal balance of each LIBOR Rate Advance shall bear interest
until principal is due (computed daily on the basis of a 360 day year and
actual days elapsed) at a rate per annum equal to the LIBOR Rate plus One
Percent (1.0%) for such LIBOR Rate Advance. 
Unless converted or continued pursuant to Section 2.6, the entire
outstanding principal amount of each LIBOR Rate Advance shall be due and payable
on the earlier of (i) the last day of the LIBOR Rate Interest Period for such
LIBOR Rate Advance, and (ii) the Revolving Maturity Date.  At no time may the outstanding LIBOR Rate
Advances be subject to more than three LIBOR Rate Interest Periods.

 

(e)           Prepayment of the Advances. 
Borrower may at any time prepay any Prime Rate Advance or any LIBOR Rate
Advance, in full or in part.  Each
partial prepayment for a Swing Loan shall be in an amount not less than Two
Hundred Fifty Thousand Dollars ($250,000), unless otherwise agreed to by Bank,
and each partial prepayment for a LIBOR Rate Advance shall be in an amount not
less than One Hundred Thousand Dollars ($100,000).  Each prepayment shall be made upon the irrevocable written or
telephone notice of Borrower received by Bank not later than 10:00 a.m.
California time on the date of the prepayment of a Prime Rate Advance, and not
less than three (3) Business Days prior to the date of the prepayment of a
LIBOR Rate Advance.  The notice

 

7

 

of prepayment shall specify
the date of the prepayment, the amount of the prepayment, and the Advance or
Advances prepaid.  Each prepayment of a
LIBOR Rate Advance shall be accompanied by the payment of accrued interest on
the amount prepaid and any amount required by Section 2.6.

 

2.1.2       Letters of Credit.

 

(a)           Subject to the terms and conditions of this Agreement, at any time
until ten (10) days prior to the Revolving Maturity Date, Bank agrees to issue
or cause to be issued standby, documentary, or performance Letters of Credit
for the account of Borrower in an aggregate outstanding amount of undrawn
Letters of Credit not to exceed the Revolving Line minus the then outstanding
principal balance of the Advances (including Advances that arise by virtue of
amounts paid by Bank under Letters of Credit) and ACH Reserves (as defined
below); provided the aggregate face amount of such Letters of Credit shall not
in any case exceed Fifteen Million Dollars ($15,000,000) in aggregate.  All Letters of Credit shall be, in form and
substance, acceptable to Bank in its reasonable discretion and shall be subject
to the terms and conditions of Bank’s form of standard application and letter
of credit agreement, including Bank’s fee of one percent (1.0%), payable on the
date of issuance of each Letter of Credit. 
All amounts actually paid by Bank in respect of a Letter of Credit
shall, when paid, constitute an Advance. 
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 so
long as Bank acts reasonably and in good faith in connection with such Letters
of Credit.  All Letters of Credit shall
have an expiration date which is not later than the earlier of (i) twelve (12)
months from the date of issuance (or one hundred twenty (120) days from the
date of issuance for documentary Letters of Credit) and (ii) ten (10) days
prior to the Revolving Maturity Date.

 

2.1.3       ACH Sublimit.  Subject to the terms and conditions of this Agreement, Borrower
may request ACH origination services by delivering to Bank a duly executed ACH
application on Bank’s standard form; provided, however, that availability under
the Revolving Line shall be reduced by the aggregate amount of the ACH
processing reserves established by Bank (the “ACH Reserves”).  At no time shall the ACH services requested
by Borrower be such that the ACH Reserves exceed $3,500,000 in the
aggregate.  In addition, Bank may, in its
sole discretion, charge as Advances any amounts that become due or owing to
Bank in connection with the ACH services. 
All ACH services will be terminated and no further ACH services will be
provided after the date which is ten (10) days prior to the Revolving Maturity
Date.

 

2.1.4       Swing Line.

 

(a)           Subject to the terms and conditions set forth in Section 2.1.1(b), any
Advance that Borrower requests be made on the same Business Day requested (any
such advance being referred to as a “Swing Loan” and such advances being
referred to collectively as “Swing Loans”) shall be subject to all the terms
and conditions applicable to other Advances, except that no Swing Loan shall be
a LIBOR Rate Advance.  The aggregate
amount of all outstanding Swing Loans shall not exceed Five Million Dollars
($5,000,000) at any time.

 

(b)           The Swing Loans shall bear interest at the rate applicable from time to
time to Advances that are Prime Rate Advances (unless another rate has
previously been agreed to in writing by Bank and Borrower).

 

(c)           Upon notice by Bank to Borrower that a Swing Loan has been converted
into an Advance that is not a Swing Loan, such Swing Loan shall thereafter be
deemed an Advance that is not a Swing Loan under Section 2.1.1 for all
purposes.

 

2.2          Interest Rates, Payments, and Calculations.

 

(a)           Interest Rates  Except as set forth in Section 2.2(b), the Advances shall bear
interest, on the outstanding daily balance thereof, at the rates specified in
Section 2.1.1.

 

8

 

(b)           Default Rate.  All
Obligations shall bear interest, from and after the occurrence and during the
continuance of an Event of Default, at a rate equal to three (3) percentage
points above the interest rate applicable immediately prior to the occurrence
of an 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, provided interest on LIBOR
Advances shall be payable on the last day of the applicable Interest Period.  Notwithstanding the foregoing, all
outstanding interest shall be due and payable on the Revolving Maturity
Date.  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.  Bank shall deliver to
Borrower statements of account in the ordinary course of business.

 

(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.

 

2.3          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 and
continuance 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 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.

 

2.4          Fees.  Borrower shall pay to Bank the following:

 

(a)           Unused Facility Fee.  On
the last day of each fiscal quarter, an amount equal to twenty one-hundredths
of one percent (0.20%) of the difference between the Revolving Line and the
average Daily Balance (including the face amount of outstanding Letters of
Credit and the ACH Reserves) during that quarter (such fee to be automatically
charged by Bank against Borrower’s deposit account at Bank);

 

(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.

 

2.5          Conversion/Continuation of Advances.

 

(a)           Borrower may from time to time submit in writing a request that Prime
Rate Advances be converted to LIBOR Rate Advances or that any existing LIBOR
Rate Advances continue for an additional Interest Period.  Such request shall specify the amount of the
Prime Rate Advances which will constitute LIBOR Rate Advances (subject to the
limits set forth below) and the Interest Period to be applicable to such LIBOR
Rate Advances.  Each written request for
a conversion to a LIBOR Rate Advance or a continuation of a LIBOR Rate Advance
shall be substantially in the form of a Libor Rate Conversion/Continuation
Certificate as set forth on Exhibit B-2, which shall be duly executed by a Responsible
Representative.  Subject to the terms
and conditions contained herein, three (3) Business Days after Bank’s receipt
of such a request from Borrower, such Prime Rate Advances shall be converted to
LIBOR Rate Advances or such LIBOR Rate Advances shall continue, as the case may
be provided that:

 

(i)            no Event of Default or event which with
notice or passage of time or both would constitute an Event of Default exists;

 

9

 

(ii)           no party hereto shall have sent any notice of termination of the
Agreement;

 

(iii)          Borrower shall have complied with such customary procedures as Bank has
established from time to time for Borrower’s requests for LIBOR Rate Advances;

 

(iv)          the amount of a LIBOR Rate Advance shall be $1,000,000 or such greater
amount which is an integral multiple of $100,000; and

 

(v)           Bank shall have determined that the Interest Period or LIBOR Rate is
available to Bank as of the date of the request for such LIBOR Rate Advance.

 

Any request by Borrower to
convert Prime Rate Advances to LIBOR Rate Advances or continue any existing
LIBOR Rate Advances shall be irrevocable. 
Notwithstanding anything to the contrary contained herein, Bank shall
not be required to purchase United States Dollar deposits in the London
interbank market or other applicable LIBOR Rate market to fund any LIBOR Rate
Advances, but the provisions hereof shall be deemed to apply as if Bank had
purchased such deposits to fund the LIBOR Rate Advances.

 

(b)           Any LIBOR Rate Advances shall automatically convert to Prime Rate
Advances upon the last day of the applicable Interest Period, unless Bank has
received and approved a complete and proper request to continue such LIBOR Rate
Advance at least three (3) Business Days prior to such last day in accordance
with the terms hereof.  Any LIBOR Rate
Advances shall, at Bank’s option, convert to Prime Rate Advances in the event
that an Event of Default shall occur and be continuing.  Borrower shall pay to Bank, upon demand by
Bank any amounts required to compensate Bank for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as a result of
the conversion of LIBOR Rate Advances to Prime Rate Advances pursuant to any of
the foregoing.

 

2.6          Additional Requirements/Provisions Regarding LIBOR Rate
Advances.

 

(a)           If for any reason (including voluntary or mandatory prepayment or
acceleration), Bank receives all or part of the principal amount of a LIBOR
Rate Advance prior to the last day of the Interest Period for such LIBOR Rate
Advance, Borrower shall on demand by Bank, pay Bank the amount (if any) by
which (i) the additional interest which would have been payable on the amount
so received had it not been received until the last day of such Interest Period
or term exceeds (ii) the interest which would have been recoverable by Bank by
placing the amount so received on deposit in the certificate of deposit markets
or the offshore currency interbank markets or United States Treasury investment
products, as the case may be, for a period starting on the date on which it was
so received and ending on the last day of such Interest Period or term at the
interest rate determined by Bank.

 

(b)           Borrower shall pay to Bank, upon demand by Bank, from time to time such
amounts as Bank may reasonably determine to be necessary to compensate it for
any costs incurred by Bank that Bank determines are attributable to its making
or maintaining of any amount receivable by Bank hereunder in respect of any
Advances relating thereto (such increases in costs and reductions in amounts
receivable being herein called “Additional Costs”), in each case resulting from
any change in applicable law (a “Regulatory Change”) that:

 

(i)            changes the basis of taxation of any amounts
payable to Bank under this Agreement in respect of any Advances (other than
changes which affect taxes measured by or imposed on the overall net income of
Bank; or

 

(ii)           imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of Bank (including any Advances or any
deposits referred to in the definition of “LIBOR Base Rate”); or

 

(iii)          imposes any other material condition affecting this Agreement (or any
of such extensions of credit or liabilities).

 

10

 

Bank will notify Borrower of
any event occurring after the date of the Agreement which will entitle Bank to
compensation pursuant to this section as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation.  Bank will furnish Borrower with a statement
setting forth the basis and amount of each request by Bank for compensation
under this Section 2.6.

 

(c)           Borrower shall pay to Bank, upon the request of Bank, such amount or
amounts as shall be sufficient (in the sole good faith opinion of Bank) to
compensate it for any reasonable loss, costs or expense incurred by it as a
result of any failure by Borrower to borrow a LIBOR Rate Advance on the date
for such borrowing specified in the relevant notice of borrowing hereunder.

 

(d)           If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with any respect or directive regarding capital
adequacy of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on capital of Bank or any person
or entity controlling Bank (a “Parent”) as a consequence of its obligations
hereunder to a level below that which Bank (or its Parent) could have achieved
but for such adoption, change or compliance (taking into consideration its
policies with respect to capital adequacy) by an amount deemed by Bank to be
material, then from time to time, within 15 days after demand by Bank, Borrower
shall pay to Bank such additional amount or amounts as will compensate Bank for
such reduction.

 

(e)           If at any time Bank, in its sole and absolute discretion, determines
that:  (i) the amount of the LIBOR Rate
Advances for periods equal to the corresponding Interest Periods or any other
period are not available to Bank in the offshore currency interbank markets, or
(ii) the LIBOR Rate does not accurately reflect the cost to Bank of lending the
LIBOR Rate Advance, then Bank shall promptly give notice thereof to Borrower,
and upon the giving of such notice Bank’s obligation to make the LIBOR Rate
Advances shall terminate, unless Bank and Borrower agree in writing to a
different interest rate applicable to LIBOR Rate Advances.  If it shall become unlawful for Bank to
continue to fund or maintain any Advances, or to perform its obligations
hereunder, upon demand by Bank, Borrower shall prepay the Advances in full with
accrued interest thereon and all other amounts payable by Borrower hereunder
(including, without limitation, any amount payable in connection with such
prepayment pursuant to Section 2.6(a).

 

2.7          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:

 

(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;

 

(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.

 

2.8          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

 

11

 

terminate its obligation to
make Credit Extensions under this Agreement immediately 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;

 

(c)           Intellectual Property Security Agreement;

 

(d)           UCC National Form Financing Statement;

 

(e)           an executed Compliance Certificate in the form of Exhibit C attached
hereto;

 

(f)            agreement to provide insurance;

 

(g)           securities account control agreement (Bear Sterns);

 

(h)           payment of the Bank Expenses then due specified in Section 2.4 hereof;

 

(i)            current financial statements of Borrower; and

 

(j)
           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(b).

 

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, 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.

 

12

 

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 except for Letters of Credit with a
face amount of less than $250,000, all financing statements and other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected 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 once 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 and audit Borrower’s Books in order to verify
Borrower’s financial condition or the amount, condition of, or any other matter
relating to, the Collateral.

 

4.4          Pledge of Collateral.  Borrower hereby pledges,
assigns and grants to Bank a security interest in all shares of stock which are
part of the Collateral, including without limitation all Borrower’s equity
interests in its Subsidiaries (the “Shares”), together with all proceeds and
substitutions thereof, all cash, stock and other moneys and property paid
thereon, all rights to subscribe for securities declared or granted in
connection therewith, and all other cash and noncash proceeds of the foregoing,
as security for the performance of the Obligations.  The certificate or certificates for 100% of the Shares of all
Material Subsidiaries (or 65% of the Shares of any Material Subsidiary which is
not formed under the laws of the United States and is not treated as a
disregarded entity for United States tax purposes) will be delivered to Bank,
accompanied by an instrument of assignment duly executed in blank by Borrower,
and Borrower shall cause the books of each entity whose shares are part of the
Shares and any transfer agent to reflect the pledge of the Shares.  Upon the occurrence of an Event of Default,
Bank may effect the transfer of the Shares into the name of Bank and cause new
certificates representing such securities to be issued in the name of Bank or
its transferee.  Borrower will execute
and deliver such documents, and take or cause to be taken such actions, as Bank
may reasonably request to perfect or continue the perfection of Bank’s security
interest in the Shares.  Unless an Event
of Default shall have occurred and be continuing, Borrower shall be entitled to
exercise any rights with respect to the Shares and to give consents, waivers
and ratifications in respect thereof, provided that no vote shall be cast or
consent, waiver or ratification given or action taken which would be
inconsistent with any of the terms of this Agreement or which would constitute
or create any violation of any of such terms.

 

5.             REPRESENTATIONS AND WARRANTIES.

 

Borrower represents and
warrants as follows:

 

5.1          Due Organization and Qualification. 
Borrower and each Material 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 except where the failure to be so
qualified and licensed will not have a Material Adverse Effect.

 

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 Articles 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 agreement to which it is a party or by which it is bound, which default is
reasonably likely 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 Accounts.  Except for Accounts for which
Borrower maintains normal reserves in accordance with GAAP, the Accounts are
bona fide existing obligations.  All
Accounts are maintained and reported on in accordance with GAAP.

 

5.5          Merchantable Inventory.  Except for reserves
maintained in accordance with GAAP, all Inventory is in all material respects
of good and marketable quality, free from all material defects.

 

13

 

5.6          Intellectual Property.  Borrower is the sole owner of
the Intellectual Property Collateral, except for licenses granted by or to
Borrower.  Each of the Patents is valid
and enforceable, and no part of the Intellectual Property Collateral has been
judged invalid or unenforceable, in whole or in part, and no claim has been
made that any part of the Intellectual Property Collateral violates the rights
of any third party, except to the extent that such invalidity, unenforceability
or violation has not and will not cause a Material Adverse Effect.  Except as set forth in the Schedule,
Borrower’s rights as a licensee of intellectual property do not give rise to
more than five percent (5%) of its gross revenue in any given month, including
without limitation revenue derived from the sale, licensing, rendering or
disposition of any product or service. 
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 in the Schedule or in
Section 7.10, 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 is
reasonably likely to have a Material Adverse Effect.

 

5.9          No Material Adverse Change in Financial Statements.  All
consolidated financial statements other than projections related to Borrower
and any Subsidiary that are delivered by Borrower to Bank fairly present in all
material respects Borrower’s consolidated financial condition as of the date
thereof and Borrower’s consolidated results of operations for the period then
ended.  There has not been a material
adverse change in the consolidated 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 Material Subsidiary have met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject to the
minimum funding requirements of ERISA. 
No event has occurred resulting from Borrower’s failure to comply with
ERISA that is reasonably likely to result in Borrower’s incurring any liability
that is reasonably likely to have a Material Adverse Effect.  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 in all material respects 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 is reasonably likely to have a Material
Adverse Effect.

 

5.12        Environmental Condition. 
Except as disclosed in the Schedule, none of the properties or assets
currently owned, leased or occupied by Borrower or any Material Subsidiary has
ever been used by Borrower or any Material 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 Material
Subsidiary; and neither Borrower nor any Material 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 Material Subsidiary resulting in the
releasing, or otherwise disposing of hazardous waste or hazardous substances
into the environment.

 

14

 

5.13        Taxes. 
Borrower and each Material Subsidiary has filed or caused to be filed
all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein, except those
contested in good faith.

 

5.14        Subsidiaries. 
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 Material Subsidiary has 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, make or give which is reasonably likely to have a Material Adverse
Effect.

 

5.16        Shares. 
Borrower has full power and authority to create a first lien on the
Shares and no disability or contractual obligation exists that would prohibit
Borrower from pledging the Shares pursuant to this Agreement.  There are no subscriptions, warrants, rights
of first refusal or other restrictions on, or options exercisable with respect
to the Shares.  The Shares have been and
will be duly authorized and validly issued, and are fully paid and
non-assessable.  The Shares are not the
subject of any present or overtly threatened suit, action, arbitration,
administrative or other proceeding, and Borrower knows of no reasonable grounds
for the institution of any such proceedings.

 

5.17        Full Disclosure.  No
representation, warranty or other statement made by Borrower in any certificate
or written statement furnished to Bank 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
Material Subsidiaries’ corporate existence in its jurisdiction of incorporation
and maintain qualification in each jurisdiction in which the failure to so
qualify is reasonably likely to have a Material Adverse Effect.  Borrower shall maintain, and shall cause
each of its Material Subsidiaries to maintain in force all licenses, approvals
and agreements, the loss of which is reasonably likely to have a Material
Adverse Effect.

 

6.2          Government Compliance.  Borrower shall meet, and
shall cause each Material 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
Material Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which is reasonably likely to have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank’s Lien on the Collateral.

 

6.3          Financial Statements, Reports, Certificates. 
Borrower shall deliver to Bank: 
(a) as soon as available, but in any event within forty-five (45) days
after the end of each quarter, Borrower’s report on Form 10-Q, including
Borrower’s company prepared financial statements, (b) as soon as available, but
in any event within ninety (90) days after the end of Borrower’s fiscal year,
audited consolidated and consolidating 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 and Borrower’s report on
Form 10-K; (c) promptly upon receipt of notice thereof, a report of any legal
actions pending or overtly threatened against Borrower or any Subsidiary that
is reasonably likely to result in damages or costs to Borrower or any
Subsidiary of Five-Hundred Thousand Dollars ($500,000) or more; (d) within
thirty (30) 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 material
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 material 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; and (e) such budgets, sales

 

15

 

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.

 

Borrower shall deliver to
Bank with the quarterly 10Q report a Compliance Certificate (including covenant
calculations providing detail acceptable to Bank) signed by a Responsible
Representative in substantially the form of Exhibit C hereto, provided that
Borrower shall deliver covenant calculations for the covenant set forth in
Section 6.8 within thirty (30) days of the last day of each month at all times
that the aggregate balance of Borrower’s unrestricted cash and cash equivalents
located in the United States minus the aggregate balance of all Indebtedness (including
without limitation any Contingent Obligations) owing from Borrower to Bank, is
less than Thirty Five Million Dollars ($35,000,000).

 

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 in accordance
with GAAP.  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 One Million Dollars ($1,000,000).

 

6.5          Taxes.  Borrower shall make, and shall cause each
Material 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 Material 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 satisfactory to Bank indicating
that Borrower or a Material Subsidiary has made such payments or deposits;
provided that Borrower or a Material 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
conducted on the date hereof.  Borrower
shall also maintain insurance relating to Borrower’s 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 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          Tangible Net Worth.  Borrower shall maintain a
Tangible Net Worth of not less than Twenty Million Dollars ($20,000,000) plus an
amount equal to fifty percent (50%) of Borrower’s net income for each quarter
after the quarter ending June 30, 2003, calculated in accordance with
GAAP, plus an amount equal to seventy-five percent (75%) of the proceeds
received after the Closing Date from the sale or issuance by Borrower of its
equity or Subordinated Debt securities.

 

6.8          Domestic Cash Balance.  The aggregate balance of
Borrower’s unrestricted cash and cash equivalents located in the United States minus
the aggregate balance of all Indebtedness (including without limitation any
issued Letters of Credit (whether drawn or undrawn) and other Contingent
Obligations) owing from Borrower to Bank, shall be at least Twenty Five Million
Dollars ($25,000,000) at all times.

 

16

 

6.9          Principal Depository. Borrower shall maintain its principal depository, money market and
operating accounts with Bank.

 

6.10        Subsidiary Guaranties. 
Promptly upon acquisition or formation, each Material Subsidiary formed under
the laws of the United States shall sign a guaranty of the Obligations, in form
and substance satisfactory to Bank, secured by all of such Subsidiary’s assets,
along with such other documents as Bank deems necessary or advisable to
effectuate such secured guaranty, including without limitation a third party
security agreement, intellectual property security agreement, and UCC financing
statement, each in form and substance satisfactory to Bank.

 

6.11        Intellectual Property
Rights.

 

(a)           Borrower shall register or cause to be registered (to the extent not
already registered) with the United States Patent and Trademark Office or the
United States Copyright Office, as the case may be, those registerable
intellectual property rights now owned or hereafter developed or acquired by
Borrower, to the extent that Borrower, in its reasonable business judgment,
deems it appropriate to so protect such intellectual property rights.

 

(b)           Borrower shall promptly give Bank written notice of any applications or
registrations of intellectual property rights filed with the United States
Patent and Trademark Office, including the date of such filing and the
registration or application numbers, if any. 
Borrower shall (i) give Bank not less than 30 days prior written notice
of the filing of any applications or registrations with the United States
Copyright Office, including the title of such intellectual property rights to
be registered, as such title will appear on such applications or registrations,
and the date such applications or registrations will be filed, and (ii) prior
to the filing of any such applications or registrations, shall execute such
documents as Bank may reasonably request for Bank to maintain its perfection in
such intellectual property rights to be registered by Borrower, and upon the
request of Bank, shall file such documents simultaneously with the filing of
any such applications or registrations. 
Upon filing any such applications or registrations with the United States
Copyright Office, Borrower shall promptly provide Bank with (i)  a copy of such applications or
registrations, without the exhibits, if any, thereto, (ii) evidence of the
filing of any documents requested by Bank to be filed for Bank to maintain the perfection
and priority of its security interest in such intellectual property rights, and
(iii) the date of such filing.

 

(c)           Borrower shall execute and deliver such additional instruments and
documents from time to time as Bank shall reasonably request to perfect and
maintain the priority of Bank’s security interest in the Intellectual Property
Collateral.  Borrower shall (i) protect,
defend and maintain the validity and enforceability of the trade secrets,
Trademarks, Patents and Copyrights, (ii) use commercially reasonable efforts to
detect infringements of the 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.

 

(d)           Bank may audit Borrower’s Intellectual Property Collateral to confirm
compliance with this Section, provided such audit may not occur more often than
twice per year, unless an Event of Default has occurred and is continuing.  Bank shall have the right, but not the
obligation, to take, at Borrower’s sole expense, any actions that Borrower is
required under this Section to take but which Borrower fails to take, after 15
days’ written notice to Borrower. 
Borrower shall reimburse and indemnify Bank for all reasonable costs and
reasonable expenses incurred in the reasonable exercise of its rights under
this Section.

 

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:

 

17

 

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; (iii) Transfers of worn -out or obsolete
Equipment; and (iv) Transfers of fixed assets in the ordinary course of
business that do not exceed $2,500,000 in the aggregate during the term of this
Agreement.  Notwithstanding the
foregoing, nothing in this Section 7.1 shall prohibit Borrower from selling its
Gallium Arsenide foundry located in Milpitas, California (the “Gallium Arsenide
Sale”).

 

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, excluding the Gallium Arsenide
Sale; or suffer or permit a Change in Control or a change in management; or
without thirty (30) days prior written notification to Bank, relocate its chief
executive office or state of incorporation or change its legal name; 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
(collectively, “Merger and Acquisition Activities”).  Notwithstanding the foregoing, Borrower may engage in Merger and
Acquisition Activities (i) that are generally entered into in Borrower’s
industry, and (ii) at the end of which, Borrower is the surviving entity as a
result of such transaction and there is no change in Borrower’s executive
management, provided that Borrower may not engage in any Merger and Acquisition
Activity if an Event of Default has occurred and is continuing at the time of
such a proposed transaction, if an Event of Default would exist after giving
effect to such transaction, or if Borrower would not be in compliance with all
covenants set forth in this Agreement on a pro forma basis for the remaining
term of this Agreement after giving effect to such transaction.  Notwithstanding any of the foregoing,
Borrower shall not use the proceeds of any Advance hereunder in connection with
any Merger and Acquisition Activity unless it has submitted to Bank a combined,
post-merger balance sheet prior to its request for such Advance and such
balance sheet is satisfactory to Bank.

 

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, 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.  Borrower will not enter into any agreement
with any Person other than Bank that prohibits or otherwise restricts Borrower
from encumbering any of its property other than restrictions in equipment
leases or equipment financing documents on Liens on the specific equipment
being leased or financed.

 

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 other than stock splits, except that Borrower may
repurchase certain of its capital stock in an aggregate amount not to exceed
Five Million Dollars ($5,000,000).

 

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 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.

 

18

 

7.9          Subordinated Debt.  Make any payment in respect
of any Subordinated Debt, or permit any of its Material 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. 
Other than Inventory which does not exceed an aggregate value of
$5,000,000 at any time sent to contractors in the ordinary course of business
for refinement and packaging and Inventory sold on consignment, store the
Inventory or the Equipment with a bailee, warehouseman, or 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.  Except for Inventory sold in
the ordinary course of business and except for such other locations as Bank may
approve in writing, 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 to the extent applicable, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur, which such Reportable Event or
Prohibited Transaction could reasonably be expected to have a Material Adverse
Effect, fail to comply in any material respect with the Federal Fair Labor
Standards Act or violate any law or regulation, which violation is reasonably
likely to 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        Capital Expenditures. 
Make or become committed to make capital expenditures (excluding any
capital expenditures for Merger and Acquisition Activities) in excess of Seven
Million Five Hundred Thousand Dollars ($7,500,000) in the aggregate during any
calendar year.

 

7.13        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
within five (5) Business Days, 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 default under such
other term, provision, condition, covenant or agreement that can be cured, has
failed to cure such default within ten (10) Business Days after Borrower
receives written notice from Bank with respect thereto; provided, however, that
if the default cannot by its nature be cured within such period or cannot after
diligent attempts by Borrower be cured within such 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 sixty (60)
days) to attempt to cure such default, and within such reasonable time period
the failure to 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 Change.  If
there occurs a material adverse change in Borrower’s business or financial
condition, or if there is a material impairment of the prospect of repayment of
any portion of the Obligations or a material impairment of the aggregate value
or priority of Bank’s security interests in the Collateral;

 

19

 

8.4          Attachment.  If
any material 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 in any event not less than
five (5) Business Days prior to the date of any proposed sale thereunder, 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 thirty (30) 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 sixty (60) 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 in any agreement to which Borrower is a party with a third
party or parties resulting in the right by such third party or parties whether
or not exercised, to accelerate the maturity of any Indebtedness in an amount
in excess of Five Hundred Thousand Dollars ($500,000) or that is reasonably
likely 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 that is not insured under
coverage confirmed by Borrower’s insurance company in an amount, individually
or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000) 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);

 

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 Representative pursuant to this Agreement
or to induce Bank to enter into this Agreement or any other Loan Document which
is reasonably likely to result in a Material Adverse Effect; or

 

8.10        Guaranty.  If
any guaranty of all or a portion of the Obligations (a “Guaranty”) ceases for
any reason to be in full force and effect, or any guarantor fails to perform
any obligation under any Guaranty or a security agreement securing any Guaranty
(collectively, the “Guaranty Documents”), or any event of default occurs under
any Guaranty Document or any guarantor revokes or purports to revoke a
Guaranty, or any material misrepresentation or material misstatement exists now
or hereafter in any warranty or representation set forth in any Guaranty Document
or in any certificate delivered to Bank in connection with any Guaranty
Document, or if any of the circumstances described in Sections 8.3 through 8.8
occur with respect to any guarantor or any guarantor dies or becomes subject to
any criminal prosecution, or any circumstances arise causing Bank, in good
faith, to become insecure as to the satisfaction of any of any guarantor’s
obligations under the Guaranty Documents.

 

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, 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);

 

20

 

(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;

 

(c)           Require that Borrower (i) deposit cash with Bank in an amount equal to
the amount of any Letters of Credit remaining undrawn, as collateral security
for the repayment of any future drawings under such Letter of Credit, and
Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance
all Letters of Credit fees scheduled to be paid or payable over the remaining
term of the Letters of Credit;

 

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

 

(e)           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;

 

(f)            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;

 

(g)           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;

 

(h)           Dispose of the Collateral in accordance with the Code, and apply any
proceeds to the Obligations in whatever manner or order Bank deems appropriate;

 

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

 

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

 

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; (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; (g) 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; (h) file, in its

 

21

 

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; (i)
dispose of the Collateral to the extent permitted under the Code; and (j)
transfer the Intellectual Property Collateral into the name of Bank or a third
party to the extent permitted under the Code; provided Bank may exercise such
power of attorney to sign the name of Borrower on any of the documents
described in Section 4 regardless of whether an Event of Default has
occurred.  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 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.  Following an
Event of Default and during the continuance thereof, 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 the Revolving Facility 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.

 

9.8          Shares. 
Borrower recognizes that Bank may be unable to effect a public sale of
any or all the Shares, by reason of certain prohibitions contained in federal
securities laws and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. 
Borrower acknowledges and agrees that any such private sale may result
in prices and other terms less favorable than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such private sale shall
be deemed to have been made in a commercially reasonable manner.  Bank shall be under no obligation to delay a
sale of any of the Shares for the period of time necessary to permit the issuer
thereof to register such securities for public sale under federal securities
laws or under applicable state securities laws, even if such issuer would agree
to do so.

 

22

 

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:

  	
   

  	
  WJ COMMUNICATIONS, INC.

  
	
   

  	
   

  	
  401 River Oaks Parkway

  
	
   

  	
   

  	
  San Jose, CA 95134

  
	
   

  	
   

  	
  Attn: Fred Krupica

  
	
   

  	
   

  	
  Fax:  (408) 577-6620

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Shumaker, Loop &
  Kendrick, LLP

  
	
   

  	
   

  	
  101 East Kennedy
  Boulevard, Suite 2800

  
	
   

  	
   

  	
  Tampa, FL 33602

  
	
   

  	
   

  	
  Attn: Darrell C. Smith,
  Esq.

  
	
   

  	
   

  	
  Fax:  (813) 229-1660

  
	
   

  	
   

  	
   

  
	
  If to Bank:

  	
   

  	
  Comerica Bank

  
	
   

  	
   

  	
  9920 S. La Cienega Blvd.,
  Suite 1401

  
	
   

  	
   

  	
  Inglewood, CA 90301

  
	
   

  	
   

  	
  Attn: Manager

  
	
   

  	
   

  	
  Fax:  (310) 338-6110

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Comerica Bank

  
	
   

  	
   

  	
  226 Airport Blvd., Suite
  100

  
	
   

  	
   

  	
  San Jose, CA 95110

  
	
   

  	
   

  	
  Attn: Guy Simpson

  
	
   

  	
   

  	
  Fax:  (408) 451-8568

  

 

Notwithstanding the
foregoing, notice sent to Borrower in accordance with this Section 10 shall be
effective despite any failure to provide a copy of such notice to Borrower’s
counsel.  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.  Such notices and demands shall be deemed to have been delivered
on the date personally delivered or transmitted by facsimile, one Business Day after
having been sent by overnight delivery service or three Business Days after
having been deposited in the U.S. mail as provided above.

 

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 nonexclusive 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.

 

23

 

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 reasonable 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, provided
that such transferee shall have assets in excess of $100,000,000.

 

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 the parties 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.  This Agreement cannot be amended or
terminated orally.  All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this
Agreement, 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.

 

12.8        Effect of Amendment and
Restatement.  This Agreement is intended to and does
completely amend and restate, without novation, the Original Agreement.  All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.

 

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

 

	
   

  	
  WJ COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMERICA BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

24

 

EXHIBIT
A

 

COLLATERAL
DESCRIPTION ATTACHMENT

TO
AMENDED AND RESTATED 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;

 

(b)           all common law and statutory copyrights and copyright registrations,
applications for registration, now existing or hereafter arising, in the United
States of America or in any foreign jurisdiction, obtained or to be obtained on
or in connection with any of the forgoing, or any parts thereof or any
underlying or component elements of any of the forgoing, together with the
right to copyright and all rights to renew or extend such copyrights and the
right (but not the obligation) of Secured Party to sue in its own name and/or
in the name of the Debtor for past, present and future infringements of
copyright;

 

(c)           all trademarks, service marks, trade names and service names and the
goodwill associated therewith, together with the right to trademark and all
rights to renew or extend such trademarks and the right (but not the
obligation) of Secured Party to sue in its own name and/or in the name of the
Debtor for past, present and future infringements of trademark;

 

(d)           all (i) patents and patent applications filed in the United States
Patent and Trademark Office or any similar office of any foreign jurisdiction,
and interests under patent license agreements, including, without limitation,
the inventions and improvements described and claimed therein, (ii) licenses
pertaining to any patent whether Debtor is licensor or licensee, (iii) income,
royalties, damages, payments, accounts and accounts receivable now or hereafter
due and/or payable under and with respect thereto, including, without
limitation, damages and payments for past, present or future infringements
thereof, (iv) right (but not the obligation) to sue in the name of Debtor
and/or in the name of Secured Party for past, present and future infringements
thereof, (v) rights corresponding thereto throughout the world in all
jurisdictions in which such patents have been issued or applied for, and (vi)
reissues, divisions, continuations, renewals, extensions and
continuations-in-part with respect to any of the foregoing; and

 

(e)           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.

 

25

 

EXHIBIT B-1

 

The undersigned hereby
certifies as follows:

 

I,
                                           ,
am the duly elected and acting
                                           
of WJ COMMUNICATIONS, INC. (“Borrower”).

 

This Advance Request Form is
delivered on behalf of Borrower to Comerica Bank, pursuant to that certain
Amended and Restated Loan and Security Agreement between Borrower and Comerica
Bank dated September 23, 2003 (the “Agreement”).  The terms used herein which are defined in the Agreement have the
same meaning herein as ascribed to them therein.

 

Borrower hereby requests on
                                           ,
200   [an Advance / a Swing Loan] (the “Advance”) as follows:

 

(a)           The date on which the Advance is to be made is
                  ,
200   .

 

(b)           The amount of the Advance is to be
                                       
($                    ),
in the form of a Prime Rate Advance of
$                                 ;
and/or a LIBOR Rate Advance of
$                        
for an Interest Period of
                                          months.

 

All representations and
warranties of Borrower stated in the Agreement are true, correct and complete
in all material respects as of the date of this request for an Advance;
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.

 

IN WITNESS WHEREOF, this
Advance Request Form is executed by the undersigned as of this
             day of
                                     ,
200   .

 

	
   

  	
  WJ COMMUNICATIONS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

26

 

EXHIBIT B-2

 

LIBOR RATE
CONVERSION/CONTINUATION CERTIFICATE

 

The undersigned hereby
certifies as follows:

 

I,
                                                       ,
am the duly elected and acting
                                       
of WJ Communications, Inc. (“Borrower”).

 

This certificate is
delivered on behalf of Borrower to Bank, pursuant to Section 2 of that certain
Amended and Restated Loan and Security Agreement between Borrower and Bank (the
“Agreement”).  The terms used in this
LIBOR Rate Conversion/Continuation Certificate which are defined in the
Agreement have the same meaning herein as ascribed to them therein.

 

Borrower hereby requests on
                                  ,
200    a LIBOR Rate Advance (the “Advance”) as follows:

 

(a)           (i)            A rate conversion of an existing Prime Rate
Advance from a Prime Rate Advance to a LIBOR Rate Advance; or

 

(ii)           A continuation of an existing LIBOR Rate Advance as a LIBOR Rate
Advance.

 

[Check
(i) or (ii) above]

 

(b)           The date on which the Advance is to be made is
                                     ,
200   .

 

(c)           The amount of the Advance is to be
                                           
($                       ),
for an Interest Period of                                    
month(s).

 

All representations and
warranties of Borrower stated in the Agreement are true, correct and complete
in all material respects as of the date of this request for an Advance;
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.

 

IN WITNESS WHEREOF, this
LIBOR Rate Conversion/Continuation Certificate is executed by the undersigned
as of this
                              
day of
                                        ,
200   .

 

	
   

  	
  WJ Communications, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

For
Internal Bank Use Only

 

	
  LIBOR Pricing Date

  	
   

  	
  LIBOR Rate

  	
   

  	
  LIBOR Rate Variance

  	
   

  	
  Maturity Date

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  —

  	
  %

  	
   

  	
   

  

 

27

 

EXHIBIT C

 

COMPLIANCE CERTIFICATE

 

TO:                    COMERICA BANK

FROM :             WJ COMMUNICATIONS, INC.

 

The undersigned authorized
officer of WJ COMMUNICATIONS, INC. hereby certifies that in accordance with the
terms and conditions of the Amended and Restated 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. 
Attached herewith are the required documents supporting the above
certification.  The undersigned officer
further certifies that the documents identified below were 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

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Quarterly
  10Q/Financial statements

  	
   

  	
  Quarterly within 45 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Annual
  (CPA Audited)

  	
   

  	
  FYE within 90 days
  (consolidated and consolidating)

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10-K
  Report

  	
   

  	
  FYE within 90 days

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum Unrestricted
  Domestic Cash

  	
   

  	
  $25,000,000

  plus Bank debt

  	
   

  	
  $

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum
  Tangible Net Worth

  	
   

  	
  $20,00,000*

  	
   

  	
  $

  	
   

  	
  Yes

  	
   

  	
  No

  	
   

  

 

*              Borrower shall maintain a Tangible Net Worth
of not less than Twenty Million Dollars ($20,000,000) plus an amount equal to
fifty percent (50%) of Borrower’s net income for each quarter after the quarter
ending June 30, 2003, calculated in accordance with GAAP, plus an amount equal
to seventy-five percent (75%) of the proceeds received after the Closing Date
from the sale or issuance by Borrower of its equity or Subordinated Debt
securities.

 

 

	
   

  	
  Comments Regarding
  Exceptions:

  	
  BANK USE ONLY

  
	
   

  	
   

  	
   

  
	
   

  	
  See Attached.

  	
   

  
	
   

  	
   

  
	
  Sincerely,

  	
  Received
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SIGNATURE

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  TITLE

  	
   

  	
  Reviewed
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DATE

  	
  Compliance
  Status: Yes / No

  
									

 

28

 

CORPORATE RESOLUTIONS TO BORROW

 

 

Borrower:               WJ COMMUNICATIONS, INC.

 

I, the undersigned Secretary
or Assistant Secretary of WJ COMMUNICATIONS, 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

  	
   

  	
  POSITIONS

  	
   

  	
  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 (“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 Agreement.  To execute and deliver to Bank the Amended
and Restated Loan and Security Agreement dated as of September 23, 2003 (the
“Loan Agreement”) and any other agreement entered into between the 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 letters of credit applications
and other related documents pertaining to Bank’s issuance of letters of credit.

 

29

 

ACH.  To
execute applications and other related documents pertaining to Bank’s
initiation of electronic funds transfer entries on the Corporation’s behalf.

 

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 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 September 23, 2003 and attest that the signatures set
opposite the names listed above are their genuine signatures.

 

 

	
   

  	
  CERTIFIED TO AND ATTESTED
  BY:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  X

  	
   

  	
   

  

 

30

 

AGREEMENT TO PROVIDE INSURANCE

 

	
  TO:

  	
   

  	
  COMERICA BANK  

  	
  Date:

  	
   

  	
  September 23, 2003

  
	
   

  	
   

  	
  attn: Collateral
  Operations, M/C 4604

  9920 South La Cienega Blvd, 14th Floor

  Inglewood, CA 90301

  	
  Borrower:

  	
   

  	
  WJ COMMUNICATIONS, INC.

  
								

 

In
consideration of a loan in the amount of $20,000,000, 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 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, 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:

  	
   

  
							

 

31

 

COMERICA BANK

Member FDIC

 

ITEMIZATION OF AMOUNT FINANCED

DISBURSEMENT INSTRUCTIONS

(Revolving Line)

 

	
  Name(s):  WJ COMMUNICATIONS, INC.

  	
   

  	
  Date:  September 23, 2003

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

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

  
	
   

  
	
   

  
	
  Amounts paid to others on
  your behalf:

  
	
   

  
	
  $                                     to
  Bank counsel fees and expenses 

  
	
   

  
	
  $                                     to
                              
  

  
	
   

  
	
  $                                     to
                              

  
	
   

  
	
  $20,000,000                   TOTAL
  (AMOUNT FINANCED)

  

 

 

Upon consummation of this
transaction, this document will also serve as the authorization for Comerica
Bank to disburse the loan proceeds as stated above.

 

 

	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  Signature

  

 

32

 

	
  COMERICA
  BANK

  	
   

  	
   

  
	
  Member FDIC

  	
   

  	
  AUTOMATIC
  DEBIT AUTHORIZATION

  

 

To:
Comerica Bank

 

Re:
Loan #                                                         

 

You
are hereby authorized and instructed to charge account
No.                                             in
the name of WJ COMMUNICATIONS, INC. for principal and interest payments due on
above referenced loan as set forth below and credit the loan referenced above.

 

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

 

o            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

  
	
   

  	
   

  
	
   

  	
  September 23, 2003

  
	
   

  	
   

  

 

33

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