Document:

<PAGE>
                                                                    Exhibit 10.3

                                  BILL OF SALE

This Bill of Sale (the "Agreement or "bill of Sale") for the sale of the below
referenced Asset(s) listed on Attachment A ("Asset(s)") from Personify, Inc.
("Personify") to Accrue Software, Inc. ("Accrue") contains the entire
understanding of the parties with respect to such Assets.

            Asset(s)/Description                            Purchase Price

            See Attachment A                                $60,000.00

      The parties understand and agree that, for good and valuable
      consideration, the receipt and sufficiency of which are hereby
      acknowledged, the above referenced Asset(s) is purchased in "as is" and
      "where is" condition. Packaging, shipping and import/export compliance is
      the sole responsibility of Accrue. No representations or warranties are
      made or extended regarding the Asset(s), except that: (i) Personify owns
      all right, title and interest in, under and to the Asset(s), and has good
      and lawful right to sell the Asset(s) and that all right, title and
      interest in, under and to the Asset(s) are hereby vested in Accrue, free
      and clear of any and all liens, security interests, claims, pledges,
      encumbrances and rights of others of any nature whatsoever ("Liens"), (ii)
      to the best of its knowledge, Personify hereby warrants that the Asset(s)
      do not infringe, or constitute a misappropriation of any third party
      intellectual property, and no claim is pending or threatened asserting
      that the Asset(s) conflict with or infringe, or constitute a
      misappropriation of the intellectual property rights of any third party.
      Accrue has been informed and acknowledged the use of 3rd party software in
      connection with the Assets, and understands that consents of, or new
      licenses by, those licensors are Accrue's responsibility; and (iii)
      Personify has taken reasonable steps to protect and maintain the
      confidentiality of its intellectual property, and the Asset(s). The Third
      Party Licenses are set forth in Schedule 1 attached hereto; however
      Personify makes no representation that this is a complete list of such
      licenses.

      Furthermore, the full source and object code of the software modules and
      components set forth in Attachment A, together with all improvements,
      additions or modifications thereto, and derivative works thereof, and all
      documentation relating thereto and all United States and foreign patents,
      patent applications, patent licenses, trademarks, copyrights and copyright
      registrations (and applications therefor), patentable and nonpatentable
      and copyrighted and copyrightable inventions, trade secrets, processes,
      designs, know-how and formulae owned by Personify and used in connection
      with the software modules and components described above including (but
      not limited to) those items set forth in Attachment A, and all files,
      technical information, notes, Personify's confidential information, and
      other proprietary information owned by and used by Personify in connection
      with the Asset(s) has been sold, assigned, transferred and delivered to
      Accrue.

      Personify represents that, in its opinion and to the best of its
      knowledge, the consideration provided by Accrue for the Asset(s) (i) is
      fair and reasonable, (ii) was the highest and best offer for the Asset(s)
      after competitive bidding at an open auction for the Asset(s) and (iii)
      will provide greater consideration for the Asset(s) than would be provided
      by any other practically available alternative. Personify is not entering
      into this Agreement with the intent to defraud, delay or hinder its
      creditors and the consummation of the transactions contemplated by this
      Agreement, and the other agreements referenced in this Agreement, will not
      have any such effect.

      To the best of Personify's knowledge without any further obligation of
      investigation: (i) the execution and delivery of this Agreement (and all
      other agreements and instruments contemplated under this Agreement) by
      Personify, the performance by Personify of its obligations hereunder and
      thereunder, and the consummation by Personify of the transactions
      contemplated hereby and thereby have been duly authorized by all necessary
      action by the Board of Directors and stockholders of Personify, and no
      other act or proceeding on the part of or on behalf of Personify or its
      stockholders is necessary to
<PAGE>
      approve the execution and delivery of this Agreement and such other
      agreements and instruments, the performance by Personify of its
      obligations hereunder and thereunder and the consummation of the
      transactions contemplated hereby and thereby; (ii) the signatory officers
      of Personify have the power and authority to execute and deliver this
      Agreement to consummate the transactions hereby contemplated and to take
      all other actions required to be taken by Personify pursuant to the
      provisions hereof; and (iii) this Agreement has been duly and validly
      executed and delivered by Personify and constitutes, and the other
      agreements and instruments to be executed and delivered by Personify
      pursuant hereto, upon their execution and delivery by Personify, will
      constitute (assuming, in each case, the due and valid authorization,
      execution and delivery thereof by Buyer), legal, valid and binding
      agreements of Personify, enforceable against Personify in accordance with
      their respective terms.

      To the best of Personify's knowledge, without any further obligation of
      investigation: (i) neither the execution, delivery and performance of this
      Agreement and all of the other agreements and instruments to be executed
      and delivered pursuant hereto, nor the consummation of the transactions
      contemplated hereby or thereby, will (a) conflict with, violate or result
      in any breach of the terms, conditions or provisions of the Certificate of
      Incorporation or Bylaws of Personify, (b) conflict with or result in a
      violation or breach of, or constitute a default or require consent of any
      person (or give rise to any right of termination, cancellation or
      acceleration) under, any of the terms, conditions or provisions of any
      contract, notice, bond, mortgage, indenture, license, franchise, permit,
      agreement, lease or other instrument or obligation to which Personify is a
      party or by which Personify or any of the Assets may be bound, (except
      third party software licenses and source code escrow agreements) or (c)
      violate any statute, ordinance or law or any rule, regulation, order,
      writ, injunction or decree of any Governmental Entity applicable to
      Personify or by which any properties or assets of Personify may be bound;
      (ii) there are no claims, actions, suits, inquiries, proceedings, or
      investigations against Personify, or any of its officers, directors or
      stockholders, relating to the Assets or Personify's employees which are
      currently pending or threatened, at law or in equity or before or by any
      Governmental Entity, or which challenges or seeks to prevent, enjoin,
      alter or materially delay any of the transactions contemplated hereby, nor
      is Personify aware of any basis for such claims, actions, suits,
      inquiries, proceedings, or investigations; (iii) Personify is not aware of
      any facts pertaining to the Assets which affect the Business or the Assets
      in a materially adverse manner or which will in the future affect the
      Business or the Assets in a materially adverse manner; and (iv) neither
      this Agreement nor any other agreement, exhibit, schedule or officer's
      certificate being entered into or delivered pursuant to this Agreement
      contains any untrue statement of a material fact or omits to state any
      material fact necessary in order to make the statements contained in such
      document not misleading.

      Accrue hereby accepts the sale, transfer, conveyance and assignment of the
      above referenced Asset(s). Personify agrees to take any and all actions
      and to assist and cooperate with Accrue, in doing all things necessary,
      proper or advisable, or as reasonably requested by Accrue, to consummate
      and make effective, in the most expeditious manner practicable, the
      transactions contemplated by this Bill of Sale, provided, however, that
      Accrue shall be responsible for payment of all reasonable out-of-pocket
      expenses, including consultant and professional fees, and shall draft any
      and all documents, in connection with any request by Accrue with respect
      to the foregoing.

      This Agreement is executed and delivered in, and shall be construed and
      enforced in accordance with the domestic laws of the State of California,
      and shall be binding upon and shall inure to the benefit of the respective
      successors and assigns of the parties to this Agreement. Personify hereby
      covenants and agrees to warrant and defend the title to the
      above-described Assets hereby conveyed, against the just and lawful claims
      and demands of all persons whomsoever.

      This Agreement may be executed in any number of counterparts, each of
      which shall be deemed an original and all of which together shall
      constitute one and the same instrument.

      The terms of this Agreement may only be modified by a written agreement
      duly signed by persons authorized to sign agreements on behalf of the
      parties hereto.
<PAGE>
      Accrue shall be responsible for any sales tax relating to this
      transaction, if any. Personify will make all reasonable efforts to
      transfer all software and source code referenced to in this Agreement
      electronically.

      Accrue shall, as soon as practicable, but in no event more than 30 days
      after the date hereof, arrange for the shipment and transfer of the
      Asset(s) into its possession.

IN WITNESS WHEREOF, the undersigned have caused their duly authorized officers
to execute this Bill of Sale on this __ day of October, 2002.

ACCRUE SOFTWARE, INC.

/s/ Jonathan D. Becher
____________________________
By:   Jonathan D. Becher
Its:  Chief Executive Officer

PERSONIFY, INC.

/s/ Richard Couch
____________________________
Company Name:
By:
Its:
<PAGE>
                                  ATTACHMENT A

1.    SOURCE CODE

      Source code and complete instructions for setting up the build environment
      and building the product software are included for each of the following
      product versions. The instructions will enable you to recreate the product
      installation package that was included on the release CD. The full
      contents of each release CD are also provided for completeness. The
      release CDs include the product installation package plus additional 3rd
      party software required to use the product (e.g. JDK, Perl, etc.).

      PLEASE NOTE: THIS IS AN "AS-IS" SALE, EXCEPT AS SET FORTH IN THE AGREEMENT
      AND ALL THIRD PARTY LICENSES WILL HAVE TO BE REVIEWED AND POTENTIALLY
      RE-NEGOTIATED BY THE SUCCESSFUL PURCHASER OF THE IP.

      1.1.  PERSONIFY CI

            -     Personify CI 1.1.1 (released 7/2/2001) - This is the last
                  released version of Personify CI with support for Oracle
                  databases, but not SQL Server databases. It includes support
                  for Oracle databases only.

            -     Service Pack 1 for Personify CI 1.1.1 (released 12/4/2001) -
                  This is a required maintenance package for the CI 1.1.1
                  release. It is installed on top of a CI 1.1.1 installation.

            -     Personify CI 1.2 (released 2/28/2002) - This is the last
                  released version of Personify CI with support for SQL Server
                  2000 databases, but not Oracle databases. It includes support
                  for SQL Server 2000 databases only.

            -     Personify CI 2.0 (unreleased) - This is the latest version of
                  the Personify CI code base and was not released to customers.
                  The biggest enhancements in the 2.0 release is 1) a
                  substantially improved capability for extracting visitor
                  profiles out of the system, and 2) unified support for both
                  Oracle and SQL Server databases. All feature development and
                  unit testing have been completed for this release, but
                  functional and system testing have not been completed.

      1.2.  PERSONIFY SITE ANALYTICS

            -     Site Analytics 1.0.1 (released 8/10/2001) - This is the last
                  released version of Site Analytics with support for Oracle
                  databases, but not SQL Server databases. It includes support
                  for Oracle databases only. This version of Site Analytics
                  requires that Personify CI 1.1.1 be installed.

            -     Service Pack 1 for Site Analytics 1.0.1 (released 12/4/2001) -
                  This is a required maintenance package for the Site Analytics
                  1.0.1 release. It is installed on top of a Site Analytics
                  1.0.1 installation and also requires that Service Pack 1 for
                  CI 1.1.1 be installed.
<PAGE>
            -     Site Analytics 1.2 (released 2/28/2002) - This is the last
                  released version of Site Analytics with support for SQL Server
                  databases, but not Oracle databases. It includes support for
                  SQL Server 2000 databases only. This version of Site Analytics
                  requires that Personify CI 1.2 is installed.

            -     Site Analytics 2.0 (unreleased) - This is the latest version
                  of the Site Analytics code base and was not released to
                  customers. There were only minor changes since the 1.2
                  release, but the version number was increased to stay
                  consistent with the CI numbering. All feature development and
                  unit testing have been completed for this release, but
                  functional and system testing have not been completed.

      1.3.  PERSONIFY ESSENTIALS

            -     Personify Essentials 2.5 - Personify Essentials is the
                  predecessor product to Personify CI. It contains a subset of
                  the functionality of Personify CI, is less scalable and is
                  built around a more proprietary architecture. A number of
                  customers chose to remain on this platform to avoid the
                  additional hardware cost and effort of upgrading to Personify
                  CI.

            -     Proactive for Profile Exchange - This is an add-on product for
                  Personify Essentials that enables you to extract profiles out
                  of the system.

            -     Proactive for Email - This is an add-on product for Personify
                  Essentials that is similar to Profile Exchange, but tailored
                  specifically for publishing profiles for email targeting.

            -     Accelerators - These are add-on modules for Personify
                  Essentials that provide additional reporting capabilities.

      1.4.  CONSTRUCTA

            -     Constructa is a product that allows you to automatically
                  generate a data warehouse database schema based on metadata
                  that is defined using the products graphical user interface.
                  Personify acquired the rights to this software when it
                  acquired Anubis, but it was never marketed or sold under the
                  Personify name.

2.    PRODUCT DOCUMENTATION

-     Source files for the product documentation of each product version
      mentioned in the Source Code section above. All of the source files are in
      FrameMaker format, except for Constructa, which is in Microsoft Word
      format.

-     Final documentation files in PDF format are also provided for each of the
      released products.

3.    ALL PATENT AND TRADEMARK APPLICATIONS

-     Lists to be provided.
<PAGE>
4.    PRODUCT DEVELOPMENT & QUALITY ASSURANCE RESOURCES

      4.1.  PRODUCT MANAGEMENT DOCUMENTATION

            -     Product Requirements Documents are provided where available.
                  Not all product releases have complete Product Requirements
                  Documents.

            -     Tracking spreadsheet with all Personify CI and Site Analytics
                  enhancement requests. This is a detailed record of enhancement
                  requests, with information about when the enhancement was
                  requested, who requested it, and any supporting detail.

            -     Some initial requirements were defined for a Personify CI 3.0
                  release. The 3.0 release was planned to include major
                  innovations in the product's analysis and reporting
                  functionality. Whatever documentation was produced in planning
                  this release is included.

      4.2.  DEVELOPER DOCUMENTATION AND RESOURCES

            -     Engineering Technical Specifications - These are detailed
                  technical documents on the engineering design of Personify CI
                  and Site Analytics. Numerous documents exist, but some areas
                  are covered more thoroughly than others.

            -     "Check-in" notes for all developer changes - This provides a
                  historical record of changes made to the code base since
                  August 2000. This is provided as a Microsoft Outlook mail
                  archive.

            -     Photoshop master files for color schemes, graphics, and icons
                  used in the product.

      4.3.  QUALITY ASSURANCE DOCUMENTATION AND RESOURCES

            -     QA Test Plans and Test Cases - These are documents that
                  describe high-level test plans and detailed test cases used
                  for testing Personify CI and Site Analytics.

            -     QA Test Data - These are data sets that go along with the test
                  cases and are used for testing specific product functionality.

            -     A Linux server containing a customized Bugzilla database with
                  all outstanding bugs/issues logged against all released
                  versions of Personify CI and Site Analytics, and against the
                  2.0 release that was in development. The bug database is very
                  well organized, categorized, up-to-date, and easy-to-use.

5.    PROFESSIONAL SERVICES DEPLOYMENT METHODOLOGY

-     Hardware Calculator Spreadsheet - This is a sophisticated spreadsheet
      model that enables you to estimate hardware requirements for Personify CI
      and Site Analytics based on customer data requirements.

-     A set of templates and best practices used for planning and executing a
      Design for Measurability engagement. A Design for Measurability engagement
      involves
<PAGE>
      analyzing a customer's web site management practices and making
      recommendations to enable more effective use of Personify's analysis
      capabilities.

-     A set of tools, templates, and best practices used for planning and
      executing a Personify CI deployment engagement.

6.    EDUCATIONAL MATERIALS

-     PowerPoint presentation slides used when training customers on Personify
      CI and Site Analytics.

7.    WHITE PAPERS

-     A number of whitepapers covering a variety of topics about Personify's
      products and technology. Topics covered include:

            o     10 Challenges for a Behavior Profile Platform
            o     Behavioral OLAP
            o     Personify CI Architecture
            o     Personify CI Customer Guide - an overview of the deployment
                  methodology
            o     Personify CI's Privacy Features
            o     An explanation of the Discovered Segmentation algorithm
            o     Managing large Personify databases

8.    MARKETING MATERIALS

-     Source files for the following marketing documents:

            o     Personify CI Data Sheet
            o     Site Analytics Data Sheet
            o     Profile Direct Data Sheet (Profile Direct is the name used for
                  the extraction functionality of Personify CI. It was once
                  marketed as a separate product, but is now part of Personify
                  CI.)
            o     A number of customer case studies

9.    SALES MATERIALS

-     Question responses and other supporting materials used for responding to
      RFPs

-     A variety of PowerPoint sales presentations

-     A historical record of sales leads

10.   PERSONIFY CUSTOMERS

-     Personify's historical customer list and any and all information relating
      thereto, including current customers:

            American Century
            Bose Corporation
            Continental Airlines
            Genealogy.com (a division of A&E Television Networks)
            Marcel Dekkar
            Neiman Marcus
            The New York Times Digital
<PAGE>
            Volkswagen of America

-     Account plans for a number of customers - Account plans identify customer
      business goals and plans as they relate to the use of Personify products.

11.   PERSONIFY EMPLOYEES

-     We have compiled a list of key Personify employees with job titles - who
      have expressed potential interest in working with the purchaser of the
      Intellectual Property, and who have granted permission to have their
      contact details provided to the successful purchaser on completion of the
      deal.

12.   LEGAL AND CONTRACT DOCUMENTATION

-     Personify's latest contracts and templates, which have been tailored to
      the Personify CI product, with the associated add-ons (Site Analytics,
      Profile Direct). The Personify CI contracts can be used as discrete
      agreements:

            o     Software License Agreement (with Exhibit defining Maintenance
                  and Support Services)
            o     Implementation Services Agreement
            o     Application Administration Outsourcing Services Agreement
                  (used when customer wants servers to reside at another hosting
                  facility, and software vendor will provide defined application
                  administration services)
            o     Evaluation/Demonstration Licenses defining limited
                  'non-commercial' use of these software products

-     Physical copies of historical contracts and licenses, along with all Third
      Party Licenses.

PLEASE NOTE THIS SECTION REFERS TO DOCUMENTATION ONLY AND NOTHING HEREIN SHALL
PROVIDE THAT PERSONIFY IS ASSIGNING ITS EXISTING CUSTOMER CONTRACTS TO ACCRUE.
ALSO NOTE THIS IS AN "AS-IS" SALE EXCEPT AS SET FORTH IN THE AGREEMENT, AND ALL
THIRD PARTY LICENSES WILL HAVE TO BE REVIEWED AND POTENTIALLY RE-NEGOTIATED BY
ACCRUE.

13.   ASSOCIATED HARDWARE & FIXED ASSETS

MISCELLANEOUS DEVELOPMENT SOFTWARE SERVER

Hardware: Dell Power Edge 1300, Win NT 4.0 Enterprise Server, PIII 500MHz, 0.5GB
RAM, 10 GB Hard Disk

Purpose: Repository of general/miscellaneous development software used for the
development of Personify CI and Personify Essentials Server. Hosts the Personify
Essentials Server SourceSafe source control database and archive. This server
contains miscellaneous software used in the development of Personify software.
It also contains quality assurance test cases and automated test data.

SOURCE CONTROL SERVER

Hardware: Compaq Proliant 1850R, Linux, Dual PIII 600 MHz, 0.5 GB RAM, 4 x 18 GB
INT Hard Disk

Purpose: Hosts the Perforce source control database and archive used for the
development of Personify CI. Hosts the Perforce server software which each the
Perforce client connects to for access to the source archive.
<PAGE>
SOFTWARE DEFECT AND ENHANCEMENT SERVER

Hardware: Dell OptiPlex GX-110 Tower, Linux OS, PIII 500MHz, 0.5 GB RAM, 15-20
MB Hard Disk

Purpose: Hosts the Bugzilla software defect and enhancement tracking software --
Apache and SQL servers. This server hosts Personify's bug tracking server and
controls updates to the database. The interface to the bug database is browser
based and this server also runs the web server.

PERSONIFY INTRANET SERVER

Hardware: Dell Power Edge 2450, Win 2000 Server, Dual PIII 600 MHz, 1 GB RAM, 4
x 18 GB Hard Disk

Purpose: Hosts the Personify Intranet. The Personify Intranet is used to store
and serve many documents related to the development of Personify's software. It
contains marketing and technical requirement specifications, software design
specifications, software schedules, software status reports and progress
tracking documents, documents related to development process, and documents
related to development standards.<PAGE>

                                                                   EXHIBIT 10.14

                     SECOND MODIFICATION TO CREDIT AGREEMENT

      This Second Modification to Credit Agreement (the "Second Modification")
is entered into as of September 30, 2002, by and among AXT, INC., a Delaware
corporation ("Borrower"), and U.S. BANK NATIONAL ASSOCIATION ("U.S. Bank"), as a
Lender (defined in the Credit Agreement defined below) and as agent (in such
capacity, "Agent"). U.S. Bank is currently the sole Lender. Except as otherwise
specifically provided herein, all capitalized terms used and not defined herein
shall have the meaning set forth in the Credit Agreement (defined below).

                                    RECITALS

      A. Pursuant to the terms of that certain Credit Agreement (as amended from
time to time, including hereby and by the First Modification described below,
the "Credit Agreement") dated as of August 28, 2000, by and among Borrower,
Lenders and Agent, Lenders and Agent agreed to provide Borrower the following:
(i) a Line of Credit not to exceed at any time the aggregate principal amount of
Twenty Million Dollars ($20,000,000.00); (ii) Term Loan A in the principal
amount of One Million One Hundred Ninety Thousand Dollars ($1,190,000.00); (iii)
Term Loan B in the principal amount of One Million Six Hundred Ten Thousand
Dollars ($1,610,000.00); (iv) Term Loan C in the principal amount of Three
Million Two Hundred Thousand Dollars ($3,200,000.00); and (v) a Letter of Credit
Facility.

      B. Borrower and Agent entered into that certain Modification of Credit
Agreement (the "First Modification") dated December 31, 2001, in order to, among
other things, decrease the amount of the Line of Credit to $5,000,000.00, change
the interest rates applicable to the Credits and to extend the Line Maturity
Date.

      C. As of June 30, 2002, Borrower defaulted under Section 6.9(d) of the
Credit Agreement by reason of Borrower's failure to maintain the Tangible Net
Worth required thereunder. As a result, Borrower and Agent wish to modify the
Credit Agreement to, among other things, amend the financial covenants and add
Additional Collateral (as defined below) to secure the Credits.

                                    AGREEMENT

1.    Recitals. The recitals set forth above are true, accurate and correct.

2.    Reaffirmation of Credit Agreement. The Borrower reaffirms all of its
      obligations under the Credit Agreement and the Borrower acknowledges that
      as

                                      -1-
<PAGE>

      of the date hereof, it has no claims, offsets or defenses with respect to
      the payment of sums due under the Notes or any other Loan Document.

3.    Waiver of Covenant Default. Upon the effectiveness of this Second
      Modification and satisfaction of the conditions precedent set forth
      herein, Agent hereby waives any default by Borrower under Section 6.9(d)
      of the Credit Agreement by reason of Borrower's failure to maintain the
      Tangible Net Worth required thereunder prior to the date hereto.

4.    Termination of Line of Credit and Term Loans. Pursuant to Section 2.8(a)
      of the Credit Agreement, Borrower has elected to terminate the Line of
      Credit and to repay in full the Term Loans. Effective herewith, Lender
      shall no longer have any obligations to fund under the Line of Credit or
      the Term Loans and within five (5) days after the date of this Second
      Modification, Agent shall cause the Deeds of Trust encumbering the El
      Monte Property and the Monterey Park Property to be reconveyed. Upon
      effectiveness of this Second Modification, all representations, warranties
      and covenants shall apply only to the Collateral remaining in effect after
      such reconveyances occur.

5.    Modifications to Credit Agreement. The Credit Agreement is hereby amended
      as follows:

      a.    Permitted Indebtedness. The following subsection (j) is added to the
            definition of "Permitted Indebtedness" in Section 1.1 of the Credit
            Agreement: "(j) Indebtedness incurred by Borrower or any Subsidiary
            which is secured by (i) Borrower's foreign receivables, provided
            Agent and the receivables lender thereunder shall have entered into
            an intercreditor agreement in form and substance satisfactory to
            Agent and/or (ii) fixed assets of Borrower or its Subsidiaries
            located in China."

      b.    Permitted Liens. The following subsection (k) is added to the
            definition of "Permitted Indebtedness" in Section 1.1 of the Credit
            Agreement: "(k) liens securing Indebtedness incurred by Borrower or
            any Subsidiary which is secured by (i) Borrower's foreign
            receivables, provided Agent and the receivables lender thereunder
            shall have entered into an intercreditor agreement in form and
            substance satisfactory to Agent and/or (ii) fixed assets of Borrower
            or its Subsidiaries located in China."

      c.    Tangible Net Worth. The definition of "Tangible Net Worth" in
            Section 1.1 of the Credit Agreement is amended in its entirety to
            read as follows:

            "'Tangible Net Worth' means, as of any date of determination, the
            consolidated stockholder's equity as of that date determined in
            accordance with GAAP, less (i) the [book] value of all assets that
            are considered intangible assets under GAAP, including customer
            lists,

                                      -2-
<PAGE>

            goodwill, covenants not to compete, copyrights, trade names,
            trademarks and patents, less (ii) the book value of the common stock
            Borrower owns in Finisar Corporation."

      d.    Line of Credit/Term Loans. Sections 2.1, 2.2, 2.4, 2.5(a)-(d), 2.6,
            2.8, 2.9, 2.10, 2.11(a)-(c), 2.13 and Section 6.16 are deleted in
            their entirety.

      e.    Letter of Credit Facility Fee. Section 2.5(e) of the Credit
            Agreement is amended in its entirety to read as follows:

            "Letter of Credit Facility Fee. Borrower shall pay to Agent a Letter
            of Credit Facility fee (for itself) in an amount equal to one and
            one-half of one percent (1.50%) per annum of the Stated Amount of
            the Letter of Credit, payable quarterly in advance on the first day
            of each quarterly period beginning December 1, 2002, until the
            earlier of the termination or expiration of the Letter of Credit
            Facility, which fee shall be non-refundable even if the Letter of
            Credit is terminated or canceled before its stated expiration date."

      f.    Required Compensating Balances with Agent. Section 3.4 of the Loan
            Agreement (added pursuant to the First Modification) is deleted in
            its entirety.

      g.    Financial Statements. Section 6.3 of the Credit Agreement is amended
            in its entirety to read as follows:

                  "FINANCIAL STATEMENTS. Provide to Agent all of the following,
            in form and detail satisfactory to Agent:

                  a. not later than one hundred and twenty (120) days after and
            as of the end of each fiscal year, an audited financial statement of
            Borrower and each entity whose financial results are consolidated
            with those of Borrower for reporting purposes, prepared by a
            nationally recognized certified public accountant, to include a
            balance sheet, income statement, statement of cash flows,
            reconciliation of net worth and notes to financial statements,
            together with Borrower's 10-K report;

                  b. not later than thirty (30) days prior to the end of each
            fiscal year, an annual budget for Borrower, prepared by Borrower,
            which shall include three-year

                                      -3-
<PAGE>

            projections of Borrower's operations and planned capital
            expenditures and financial projections for Borrower and each entity
            whose financial results are consolidated with those of Borrower for
            reporting purposes for the next fiscal year;

                  c. not later than forty-five (45) days after and as of the end
            of each fiscal quarter, (i) a financial statement of Borrower and
            each entity whose financial results are consolidated with those of
            Borrower for reporting purposes, prepared by Borrower, to include a
            balance sheet and income statement; and (ii) Borrower's filed 10-Q
            Statement;

                  d. not later than thirty (30) days after and as of the end of
            each fiscal quarter, a certificate of the chief financial officer or
            other executive officer of Borrower that Borrower is in compliance
            with the financial covenant set forth in Section 6.9;

                  e. contemporaneously with each quarterly financial statement
            of Borrower required under (c), above, a certificate of the chief
            financial officer or other executive officer of Borrower that said
            financial statements are accurate, calculating the financial
            covenant set forth in Section 6.9 below and stating that Borrower is
            in compliance with the financial covenant set forth in Section 6.9
            below which Borrower is then required to comply with, and that there
            exists no Event of Default nor any condition, act or event which,
            with the giving of notice or the passage of time or both, would
            constitute an Event of Default;

                  f. within thirty (30) days after the end of each month, a
            report prepared by Borrower indicating the current market value of
            all investments and brokerage accounts pledged to Agent as
            collateral under any Security Agreement, respective advance rates as
            approved by Agent, and the resulting collateral value as per Agent's
            requirements and policies, and verifying that such collateral value
            equals at least 100% of the amount of all obligations owed to Lender
            under the Credit Agreement and otherwise and including copies of the
            applicable brokerage statements for such accounts;

                                      -4-
<PAGE>

                  g. any and all copies of any filing and report made by
            Borrower with the Securities Exchange Commission; and

                  h. from time to time such other information as Agent may
            reasonably request."

      h.    Financial Condition. Section 6.9 of the Credit Agreement is amended
            in its entirety to read as follows:

                  "FINANCIAL CONDITION. Maintain Borrower's financial condition
            as follows, based on the consolidated financial statements of
            Borrower and each entity whose financial results are consolidated
            with those of Borrower for reporting purposes, using generally
            accepted accounting principles consistently applied and used
            consistently with prior practices:

                  a. Maintain, as of the end of each fiscal quarter commencing
            with the quarter ended September 30, 2002, a Tangible Net Worth not
            less than One Hundred and Ten Million Dollars ($110,000,000.00)."

6.    Additional Collateral. In consideration of Agent's waiver of Borrower's
      default of the covenant provided for in Section 6.9(d) of the Credit
      Agreement and in consideration of the modifications contained herein,
      pursuant to that certain Security Agreement (the "Additional Collateral
      Security Agreement") dated as of the date hereof and entered into by and
      between Borrower and Agent, Borrower shall assign to Agent a security
      interest in an investment account in the name of Borrower held within the
      trust department of U.S. Bank (collectively, the "Additional Collateral")
      which Additional Collateral shall at all times have a balance based on the
      then-current marketable value of the securities held therein in excess of
      Lender's Exposure (as defined below) when valued according to the advance
      rates set forth in Exhibit A attached hereto. As used herein, "Exposure"
      shall mean from time to time, the sum of all of Borrower's outstanding
      obligations under the Loan Documents, including the amount of any undrawn
      letters of credit issued by Agent for the benefit of Borrower, and all
      non-credit commitments issued by Agent in favor of Borrower as detailed in
      Exhibit B attached hereto, plus the aggregate related trailing six month
      fee expense related thereto. If the balance of the Additional Collateral
      shall at any time be less than Lender's Exposure, Borrower shall deliver
      additional investments or cash into the Additional Collateral account
      within two (2) business days after Agent's notice to Borrower of such
      deficiency. Borrower shall deliver to Agent account statements and reports
      for

                                      -5-
<PAGE>

      the Additional Collateral as is required under Section 6.3 of the Credit
      Agreement and such other information related thereto as Agent may require.
      The Additional Collateral shall at all times remain subject to a valid
      control agreement in favor of Agent in form and substance satisfactory to
      Agent. Borrower shall not be permitted to make withdrawals with respect to
      the Additional Collateral except with Agent's prior consent.

7.    Conditions Precedent. Before this Second Modification becomes effective
      and any party becomes obligated under it, all of the following conditions
      shall have been satisfied at the Borrower's sole cost and expense in a
      manner acceptable to the Agent in the exercise of Agent's sole judgment:

      a.    The Agent shall have received fully executed and, where appropriate,
            acknowledged originals of the following:

            i.    this Second Modification;

            ii.   a Reaffirmation of Guaranty and Security Agreement executed by
                  each Guarantor (the "Guarantor's Consent");

            iii.  a Closing Certificate executed by Borrower;

            iv.   an incumbency certificate for Borrower;

            v.    the Additional Collateral Security Agreement granting Borrower
                  a security interest in the Additional Collateral;

            vi.   a control agreement executed by Borrower, Agent and the holder
                  of the Additional Collateral, in form and substance
                  satisfactory to Agent;

            vii.  verification that the Additional Collateral has been
                  established with the trust department of U.S. Bank having a
                  balance (based on the current marketable value of the
                  securities held therein margined according to the advance
                  rates set forth in Exhibit A) in excess of Lender's current
                  Exposure of $10,678,885.00; and

            viii. any other agreements or resolutions (including evidence of the
                  Borrower's and each Guarantor's authority to enter into this
                  Second Modification and the Guarantor Consent, respectively)
                  that the Agent may reasonably require or request in connection
                  with this Second Modification or the Credit Agreement.

      b.    Agent shall have filed a UCC-1 with the Secretary of State of
            Delaware with respect to the Additional Collateral and Security
            Agreement.

                                      -6-
<PAGE>

      c.    The Term Loans have been repaid in full.

8.    The Borrower's Representations and Warranties. The Borrower represents and
      warrants to Lenders as follows:

      a.    Credit Agreement. All representations and warranties made and given
            by the Borrower in the Credit Agreement are true, accurate and
            correct.

      b.    No Default. Except for the default being waived hereunder, no Event
            of Default has occurred and is continuing, and no event has occurred
            and is continuing which, with notice or the passage of time or both,
            would be an Event of Default.

      c.    Borrowing Entity. Borrower is a corporation which is duly organized,
            validly existing and in good standing in the State of Delaware and
            is duly qualified in each jurisdiction in which it is required to be
            qualified, except where the failure to be so qualified would not
            have a Material Adverse Effect. Except as otherwise disclosed or
            delivered to Agent, there have been no changes in the formation
            documents of Borrower or any Guarantor since the inception of the
            Credit Agreement.

9.    Incorporation. This Second Modification shall form a part of the Credit
      Agreement, and all references to the Credit Agreement shall mean the
      Credit Agreement as hereby modified.

10.   No Prejudice; Reservation of Rights. Except as specifically amended by
      this Second Modification, this Second Modification shall not effect or
      limit any rights or remedies of the Agent or Lenders under the Credit
      Agreement. The Agent and Lenders reserve, without limitation, all rights
      which they have against any indemnitor, guarantor, or endorser of the
      Credit Agreement.

11.   No Impairment. Except as specifically hereby amended, the Credit Agreement
      shall remain unaffected by this Second Modification and the Credit
      Agreement shall remain in full force and effect.

12.   Purpose and Effect of Approvals. In no event shall any approval of any
      matter in connection with the Credit Agreement of the Agent or Lenders be
      a representation of any kind with regard to the matter being approved or a
      waiver of any rights under the Credit Agreement.

13.   Reimbursement of Expenses. The Borrower agrees to reimburse the Agent for
      all costs and expenses incurred by the Agent in connection with this
      Second Modification, including reasonable legal fees and expenses of the
      Agent's counsel.

                                      -7-
<PAGE>

14.   Integration. The Credit Agreement, including the First Modification and
      the Second Modification: (a) integrate all the terms and conditions
      mentioned in or incidental to the Credit Agreement; (b) supersede all oral
      negotiations and prior and other writings with respect to their subject
      matter; and (c) are intended by the parties as the final expression of the
      agreement with respect to the terms and conditions set forth in those
      documents and as the complete and exclusive statement of the terms agreed
      to by the parties. If there is any conflict between the terms, conditions
      and provisions of this Second Modification and those of any other
      agreement or instrument, the terms, conditions and provisions of this
      Second Modification shall prevail.

15.   Miscellaneous. This Second Modification may be executed in counterparts,
      and all counterparts shall constitute but one and the same document. If
      any court of competent jurisdiction determines any provision of this
      Second Modification, the First Modification or the Credit Agreement to be
      invalid, illegal or unenforceable, that portion shall be deemed severed
      from the rest, which shall remain in full force and effect as though the
      invalid, illegal or unenforceable portion had never been a part of the
      Credit Agreement. This Second Modification shall be governed by the laws
      of the State of California, without regard to the choice of law rules of
      that State. As used here, the word "include(s)" means "includes(s),
      without limitation," and the word "including" means "including, but not
      limited to."

                                      -8-
<PAGE>

            IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first set forth above.

                                        "Borrower"

                                        AXT, INC., a Delaware corporation

                                        By    /s/ Donald L. Tatzin

                                                  Donald L. Tatzin
                                                  Chief Financial Officer

                                        "Agent" and "Lender"

                                        U.S. BANK NATIONAL ASSOCIATION

                                        By    /s/  Karl W. Wilson

                                              Karl W. Wilson
                                              Vice President

                                      -9-
<PAGE>

                                    EXHIBIT A

                  ADVANCE RATES AGAINST U.S. BANK DEPOSITS AND
                             FIXED INCOME SECURITIES

<TABLE>
<CAPTION>
Investment Type                                        Advance Rate
---------------                                        ------------
<S>                                                    <C>
U.S. Bank Deposit Account                                  100%
U.S. Governments or Agencies Securities
with less than 5 years to maturity                          90%
Commercial Paper A2/P2 or better                            80%
Bonds BAA or better by Moodys                               80%
</TABLE>

                                      -10-

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