Document:

International Business Associates, Ltd.

 Exhibit 10.1 
  
 

 
  
 AGENCIA
NACIONAL DE HIDROCARBUROS 
 REPÚBLICA DE
COLOMBIA 
 MODEL OF CONTRACT FOR EXPLORATION AND EXPLOITATION 
 (Unofficial English Translation. Spanish version is binding) 
  

			
	CONTRACT NAME:	  	LOS HATOS
	CONTRACTOR:	  	HARKEN DE COLOMBIA LIMITED
	EFFECTIVE DATE:	  	NOVEMBER 03 OF 2004

  
 The Contracting parties, of the one
part Agencia Nacional de Hidrocarburos hereinafter ANH, a special administrative unit attaché to the Ministry of Mines and Energy, created by the Decree 1760 of 26 June 2003, with registered offices in Bogotá D.C., represented
by JOSE ARMANDO ZAMORA REYES, of legal age, ID No. 19.303.017 issued in Bogotá, D.C. domiciled in Bogotá D.C., who states: 1. That as General Director of ANH, he acts on behalf of that Agency, and 2. That he
has been authorized by the Board of Directors of ANH to execute this Contract, as evidenced in Minutes No. 022, dated October 11, 2004 and of the other HARKEN DE COLOMBIA LIMITED - company organized in accordance with the laws of
Cayman Islands, with registered offices in Cayman Islands and a branch established in Colombia, and registered offices in Bogotá, in accordance with public deed N° 406, dated february 19, 1993 granted in Notary 11th Bogotá represented by GUILLERMO SANCHEZ, American, of legal age, with Passport Number 132457597, who states that:
1. As legal representative he acts in representation of the (Name of the Company) 2. He is fully authorized to execute this Contract, as evidenced in the Incumbency Certificate issued by the Bogotá Chamber of Commerce 3.
He states under oath and that he is not in any way disqualified to enter into this Contract, and 4. HARKEN DE COLOMBIA LIMITED has accredited that it has, and undertakes to maintain, the financial capacity, the technical competence, and the
professional skills required to undertake activities under this Contract. The above company shall be known for all purposes in this Contract as THE CONTRACTOR. 
  
 ANH and THE CONTRACTOR place it on record that they have entered into the Contract contained in the following Clauses:

  
 CLAUSE 1- DEFINITIONS 
  
 For the purposes of this Contract, the expressions given below carry the meaning assigned to
them here. 
  
 Annexes A, B and C form an integral part of this Contract, and
therefore every time that the expressions referred to in this Clause are used in those Annexes, they will carry the same meanings as are given here. 
  

 1.1 Abandonment: The plugging and abandonment of wells, the dismantling of constructions and the cleaning
and environmental restoration of areas in which Exploration, Evaluation or Exploitation Operations had taken place under this Contract, in accordance with Colombian law. 
  
 1.2 Year: The period of twelve consecutive months of the Gregorian calendar, counted from a specific date. 
  
 1.3 Calendar Year: The period of 12 months between 1 January and 31 December,
both included, of each Year. 
  
 1.4 Contract Area: The surface and its
projections as identified in Clause 3, and located in Annex A, in which THE CONTRACTOR is authorized by this Contract to undertake Exploration, Evaluation and Exploitation operations for Hydrocarbons which are the object of the same.

  
 1.5 Evaluation Area: The portion of the Contract Area in which
THE CONTRACTOR makes a Discovery, and in which he decides to Perform an Evaluation Program in order to establish commerciality or lack of the same, in accordance with Clause 7. This area will be demarcated as a regular polygon on the surface,
preferably four-sided, which will comprise the limits of the vertical projection on the surface of the geological structure which contains the Discovery. 
  
 1.6 Exploitation Area: The portion of the Contract Area in which one or more Commercial Fields are found, as established in Clause 9 (Section 9.3) of this
Contract. The area of the Commercial Fields will comprise the area of the vertical projection on the surface of the reservoir or reservoirs forming them, and which the Ministry of Mines and Energy defines in accordance with the Decree 3229 of 11
November 2003, or regulations which modify or replace it. 
  
 1.7
Barrel: The unit of measurement of volume of Liquid Hydrocarbons consisting of 42 US gallons, corrected to standard conditions of 60° Fahrenheit and one atmosphere of absolute pressure. 
  
 1.8 Good Oil Industry Practices: These are good, safe and efficient operations
and procedures, commonly used by prudent and diligent operators in international oil industry, in similar conditions and circumstances to those arising in the course of activities under this Contract, principally in matters related to the use of
appropriate methods and processes to obtain the maximum economic benefits in the final recovery of reserves, reduction of losses, safe operations, and protection of the environment, amongst others, to the extent that they are not contrary to
Colombian law. 
  
 1.9 Commercial Field: A portion of the Contract
Area, in whose subsurface one or more reservoirs have been discovered, and which THE CONTRACTOR has decided to exploit. 
  
 1.10 Declaration of Commerciality: This is the written communication from THE CONTRACTOR to ANH, declaring that the discovery which it has
made in the Contract Area is a Commercial Field. 
  
 1.11 Discovery:
This is the finding of rock in which there are accumulated Hydrocarbons, and which acts as an independent unit with regard to production mechanisms, petrophysical properties, fluid properties, as evaluated after drilling, or using some similar
means, and taking the related fluid tests. 

 1.12 Discovery of Non-associated Natural Gas: This is the Discovery whose official production tests, on the
understanding that the text is representative of the reservoir or reservoirs discovered, indicates a Gas/Oil ratio (GOR) of more than 15,000 standard cubic feet of gas for one barrel of Liquid Hydrocarbons, and a molar composition of heptane
(C7+) of less than 4%. The gas/oil ratio is understood to be the ratio between the volume of natural gas in cubic
feet per Day, and the volume of Liquid Hydrocarbons in Barrels per Day produced by a well, and the molar composition of heptanes (C7+) and other Hydrocarbons of higher molecular weight. The Gas/Oil ratio (GOR) of a Discovery with several reservoirs will be determined on the basis of the weighted average production of each reservoir and the molar composition of
heptane (C7+) as a simple arithmetical average. 
  
 1.13 Day: A period of 24 hours starting at 00:00 and ending at 24:00. 
  
 1.14 Development/Development Operations: Activities and work undertaken by
THE CONTRACTOR including (for example only) drilling, completion and equipping development wells, the design, construction, installation and maintenance of equipment, pipe, transfer lines, storage tanks, transport systems, treatment storage
etc. in an Exploitation Area in the Contract Area, and outside it, as necessary. 
  
 1.15 Exploration/Exploration Operations: Studies and work executed by THE CONTRACTOR to determine the existence and location of Hydrocarbons in the subsurface, including (as examples only) geophysical, geochemical,
geological, cartographic work and in general the activities of surface prospecting, the drilling of Exploration Wells and other operations directly related to the search for Hydrocarbons in the subsurface. 
  
 1.16 Evaluation/Evaluation Operations: All operations and activities undertaken
by THE CONTRACTOR in an Evaluation Area under Clause 7 below in order to evaluate the Discovery, demarcate the geometry of the reservoir(s) in the Evaluation Area and determine, amongst other things, the viability of extracting the
Hydrocarbons in economically exploitable quantities and qualities and the impact of commercial Exploitation on the environment and social situation. The operations include the drilling of Exploration Wells, the acquisition of detailed seismic data,
the conducting of production tests and in general; operations designed to determine whether the Discovery is a Commercial Field and to demarcate it. 
  
 1.17 Exploitation: Development and Production. 
  
 1.18 Effective Date: The date of signature of this Contract, as of which terms begin to be counted. 
  
 1.19 Natural Gas: The mixture of Hydrocarbons in a gaseous state at standard
conditions (of temperature 60°F and one atmosphere at obsolute pressure), composed of the most volatile members of the paraffin series of Hydrocarbons. 
  
 1.20 Hydrocarbons: All the organic compounds comprised mainly of the natural mixture of carbon and hydrogen and substances that accompany them or are
derived from them. 
  

 1.21 Liquid Hydrocarbons: All Hydrocarbons produced in the Contract Area which at standard conditions of
temperature and pressure (60°F and one atmosphere at absolute pressure) are in a Liquid state at the wellhead or in the separator, and distilled and condensed substances extracted from gas. 
  
 1.22 Heavy Liquid Hydrocarbons: Liquid Hydrocarbons with an API gravity of less
than 15°. 
  
 1.23 Penalty Interest: In pesos, the maximum legal
penalty rate certified by the competent authority; in US dollars, 3-month LIBOR plus 4%. 
  
 1.24 Month: The period counted from any Day of a calendar month and ending of the same Day of the next calendar month; or, if the first Day of a month, from that Day to the last Day of that same month.

  
 1.25 Parties: At the time of execution of the Contract,
ANH and THE CONTRACTOR. Subsequently and at any time, ANH and THE CONTRACTOR and/or assigned duly accepted by ANH. 
  
 If the Party “THE CONTRACTOR” consists of more than one company, said companies will appoint one of their number to act as their representative with
ANH. 
  
 1.26 Exploration Period: The period of 5 Years and 4
months counting from the Effective Date, together with any extension granted, during which THE CONTRACTOR shall execute the Minimum Exploration Program. 
  

1.27 Exploitation Period: With respect to each Exploitation Area, up to 24 Years together with any extensions granted, counting from the date of
Declaration of commerciality of the related Commercial Field, during which THE CONTRACTOR shall execute Development and Production Operations. 
  
 1.28 Exploitation Plan: A guideline document prepared by THE CONTRACTOR in accordance with Clauses 9 and 10 below, to implement the technical,
efficient and economic Exploitation of each Exploitation Area and will contain, amongst other things, the calculation of Hydrocarbons reserves, a description of the Production facilities and the transport of Hydrocarbons, forecasts for the
Production of Hydrocarbons in the short and medium term, a program for Abandonment and the Exploitation Work Programs for the rest of the current Calendar Year or the following Calendar Year. 
  
 1.29 Exploration Well: A well to be drilled by THE CONTRACTOR in the
Contract Area searching for Hydrocarbons reservoirs in an untested area, to find reservoirs additional to a Discovery, or to extend the limits of known reservoirs of a known Discovery. 
  
 1.30 Production/Production Operations: All operations and activities undertaken by THE CONTRACTOR in the Exploitation Area in
relation to processes of extraction, collection, treatment, storage and transport of Hydrocarbons to the Delivery Point, Abandonment and other operations related to the obtaining of Hydrocarbons. 
  
 1.31 Minimum Exploration Program: The Program of Exploration Operations agreed under
Section 5.1 below, which is the minimum that THE CONTRACTOR agrees to perform in each phase of the Exploration Period. 

 1.32 Additional Exploration Program: The Exploration Program that THE CONTRACTOR undertakes to execute
after the end of the Exploration Period as stipulated in Section 5.5 below. 
  
 1.33 Evaluation Program: The Evaluation Operations Plan presented by THE CONTRACTOR to ANH under Clause 7 below to evaluate a Discovery and determine whether there is a Commercial Field. Execution of the Evaluation
Program and also the presentation of the final report to the ANH are requirements to declare whether a Discovery is a commercial Field. 
  
 1.34 Work Program: The description of activities and Exploration Activities, Evaluation Activities or Exploitation Activities in the Contract Area under the terms
of this Contract. The Work Program will include the schedule for THE CONTRACTOR to start and finish activities, with budgets. 
  
 1.35 Delivery Point: The place agreed by the Parties to measure the production of Hydrocarbons for each Commercial Field in the minimum specifications to enter any
system of transport or refining, in order to determine the volume of Hydrocarbons subject to royalties and the volume of Hydrocarbons due to THE CONTRACTOR. 
  
 CLAUSE 2 – OBJECT 
  
 2.1 Object. This Contract grants THE CONTRACTOR the exclusive right to explore the Contract Area and to exploit Hydrocarbons belonging to the Nation that
are discovered in that area. THE CONTRACTOR will be entitled to the share of the Hydrocarbons coming from the Contract Area which are due to it under Clause 14 below. 
  
 2.2 Scope. THE CONTRACTOR will, in the exercise of this right, perform the activities and conduct the operations that are the
matter of the same at its sole cost and risk, providing all resources required to project, prepare and perform activities and Exploration, Evaluation, Development and Production Operations in the Contract Area. 
  
 2.3 Exclusion of rights over other natural resources. The rights granted under
this Contract refer exclusively to the Hydrocarbons owned by the Nation discovered in the Contract Area, and therefore do not extend to any other natural resource that may be present there. 
  
 CLAUSE 3-CONTRACT AREA 
  
 3.1 Area. The Contract Area covers a total of 34.3430,6442 hectares. It is described
in Annex A, which forms part of this Contract and is located in the municipal jurisdiction(s) of Maní Casanare Department. The Contract Area will be gradually reduced as stipulated in this Clause. 
  
 3.2 Restrictions. If a portion of the Contract Area extends to areas within the
National Nature Park System or other reserved, restricted or excluded places, geographically demarcated by 

 the appropriate authority, or if zones with such characteristics are extended into the Contract Area, THE
CONTRACTOR will observe the conditions imposed on such areas by the competent authorities. ANH assumes no responsibility in this regard. 
  
 If ANH comes to know of a claim for private ownership of Hydrocarbons in the subsurface of the Contract Area, it will proceed as required by the relevant
provisions of law. 
  
 3.3 Relinquishment of Areas in Exploration,
Evaluation and Exploitation. THE CONTRACTOR will relinquish areas in Exploration, Evaluation and Exploitation in all cases provided for in this Contract as causes of relinquishment, such as simple surrender, expiry of terms, events
provided for in Section 8.2 or failure to perform the activities in the related Work Programs or in general any other contractual cause that obliges THE CONTRACTOR to relinquish the area concerned. 
  
 3.4 Voluntary relinquishment. THE CONTRACTOR may at any time effect
partial relinquishments of the Contract Area provided that it has performed the obligations contracted by virtue of this Contract. If these voluntary relinquishments are effected during the Exploration Period they will be counted for the purposes of
the mandatory relinquishment of areas. 
  
 3.5 Restoration of areas
relinquished. THE CONTRACTOR will perform all Abandonment activities required and restore the areas relinquished as provided for in Colombian law and this Contract. 
  
 3.6 Demarcation of areas relinquished. The areas relinquished by THE CONTRACTOR will contain the minimum possible
number of contiguous rectangular blocks limited by lines running North-South and East-West, following a grid pattern similar to that formed by the Instituto Geográfico Agustín Codazzi mapping system. 
  
 3.7 Formalization of relinquishment of areas. All relinquishments effected
under this Contract will be formalized in notes of record signed by the Parties. 
  
 CLAUSE 4 – DURATION AND PERIODS 
  
 4.1 Duration. The
duration of the Contract is determined by the following Clauses. 
  
 4.2
Exploration Period. The Exploration Period will last for five Years and four months from the Effective Date and be divided into the phases described below. The first phase commences on the Effective Date and the following phases on the Calendar
Day immediately following the end of the preceding phase: 
  
 Phase 1 lasting
sixteen (16) months 
 Phase 2 lasting twelve (12)months 
 Phase 3
lasting twelve (12)months 
 Phase 4 lasting twelve (12)months 
 Phase n lasting twelve (12)months 
  
 4.2.1 Right to resign
during Exploration. THE CONTRACTOR may, during any phase of the Exploration Period, resign the Contract provided that it has satisfied the requirements of 

 the Minimum Exploration Program of the current phase and other obligations for its account. In order to do this THE
CONTRACTOR will complete the phase in progress and advise ANH of its decision in writing. 
  
 4.2.2 Extension of the Exploration Period. ANH will, at the request of THE CONTRACTOR, extend the phase of the Exploration Period in progress until the Exploration Wells have been drilled
and /or the seismic program has been completed, plus two months, provided that the following conditions are satisfied: 
  

	 	a)	The Exploration Operations mentioned have been started at least one month before the date set for the completion of that phase of the Exploration Period; 

 

	 	b)	THE CONTRACTOR has performed its Exploration Operations uninterruptedly; and 

  

	 	c)	That despite the diligence applied in Exploration Operations. THE CONTRACTOR reasonably believes that the remaining time is insufficient to complete them before the expiry
date of the phase in progress. 

  
 When it requests the extension
THE CONTRACTOR will deliver to ANH the documents on which it bases that request and the related guarantee in accordance with the requirements of Clause 22 below. 
  
 4.2.3 Termination of Contract upon expiry of the Exploration Period. If the Exploration Period expires and there is no
Evaluation Area or Exploitation Area in the Contract Area, THE CONTRACTOR will relinquish all the Contract Area to ANH, without prejudice to performance of its other obligations. 
  
 At all events THE CONTRACTOR is obliged to relinquish all the Contract Area and show
that it has performed its obligations of Abandonment, showing that wells drilled have been duly plugged and abandoned, that surface constructions have been totally dismantled and that the work of cleaning and environmental restoration have been
completed in accordance with applicable regulations. 
  
 4.3 Exploitation
Period. The Exploitation Period is established separately for each Exploitation Area and therefore all mentions of duration extension or termination of the Exploitation Period refer to each individual Exploitation Area. 
  
 4.3.1 Duration. The Exploitation Area will last for 24 Years counted from the date on
which ANH received the Declaration of Commerciality from THE CONTRACTOR under Clause 8 below. 
  
 4.3.2 Extension. ANH will, at the request of THE CONTRACTOR, extend the Exploitation Period up to the economic limit of the commercial field, provided that the following conditions are satisfied:

  

	 	a)	THE CONTRACTOR makes a written request to ANH not more than 4 Years nor less than 1 Year prior to the expiry of the Exploitation Period for the Exploitation Area
concerned; 

  

	 	b)	The Exploitation Area is producing Hydrocarbons regularly at the date of the request; and 

	 	c)	THE CONTRACTOR can show that during the 4 Calendar Years prior to the date of the request it has conducted a drilling program that includes at least one well per Calendar
Year and/or has had an active project for pressure maintenance or secondary, tertiary or enhanced recovery. 

  
 Paragraph: If THE CONTRACTOR does not meet all the conditions or meets (c) incompletely, ANH may analyze the justifications offered by THE
CONTRACTOR and grant the extension, and it is understood that denial by ANH is not a reason of disagreement and will not be subject to the procedure established in Clause 27 below. At all events the extension of the Exploitation Period
will be formalized by a Supplementary Clause to this Contract. 
  
 4.3.3 Voluntary termination of the Exploitation Period. THE CONTRACTOR may at any time terminate this Contract with respect to any Exploitation Area, and to do so, will inform ANH of its decision in writing not
less than 3 Months in advance without prejudice to performance of its other obligations. 
  
 4.3.4 Effects of termination of the Exploitation Period. If for any reason the operating rights and obligations cease with regard to an Exploitation Area, THE CONTRACTOR will leave the production of
wells producing at the time in perfect conditions and other real property in good condition and pass them free of charge to ANH with all easements and goods acquired for the purposes of Exploitation, even if they are outside the Exploitation
Area. With regard to the moveable assets used solely in the service of the Exploitation Area, if termination occurs before 18 Years of the Exploitation Period have elapsed, THE CONTRACTOR will offer them to ANH for sale at book value.
If within 3 Months from the date of the offer ANH has not responded affirmatively, THE CONTRACTOR is free to dispose of them. If termination takes place after the first 18 Years of the Exploitation Period, the assets will pass to
ANH free of charge. ANH will set the criterion with respect to the productivity of the wells. Any disagreement with regard to the nature and destination of the assets will be subject to the procedure set forth in Clause 27 below.
Likewise, THE CONTRACTOR will be obliged to assign to ANH or to the entity indicated by ANH, the Environmental License and the economic resources required to attend to the obligations of Abandonment. The application of this
Clause does not imply that ANH is to assume THE CONTRACTOR ́s employment obligations to its personnel. 
  
 CLAUSE 5 – MINIMUM EXPLORATION PROGRAM 
  
 5.1 Minimum Exploration Program for each phase. During the Exploration Period THE CONTRACTOR will implement a Minimum Exploration Program for each phase as
described in Annex B which forms part of this Contract. For performance of the Minimum Exploration Program obligations, the Exploration Wells proposed by THE CONTRACTOR will be Exploration Wells for a new field (Type A-3) or Exploration Wells
that form part of an Evaluation Program as described in subsection 7.3.(b) below. Otherwise, an Exploration Well proposed by THE CONTRACTOR will require prior acceptance by ANH. 

 5.2 Programs of Exploration Work. THE CONTRACTOR undertakes to furnish ANH with the Program
for Exploration Work for the phase being started, describing how obligations will be discharged, not less than 8 calendar Days before each phase of the Exploration Period begins. For the first phase, THE CONTRACTOR should summit the Program
for Exploration Work during the following 30 days from the Effective Date. 
  
 5.3 Modifications to the Minimum Exploration Program. 
  
 5.3.1 During the phase in progress. During the first half of any phase of the Exploration other than the first phase, THE CONTRACTOR may substitute the acquisition and processing of a seismic program in the Minimum
Exploration Program by the drilling of one or more Exploration Wells or by the acquisition and processing of a seismic program of a more modern technology, provided that the financial effort of the new Minimum Exploration Program is equal to or
greater than that originally proposed for the phase in progress. In that event, THE CONTRACTOR will inform ANH of the substitution of Exploration Operations proposed, in advance and in writing. 
  
 5.3.2 For the following phase: If an Exploration Well proves dry, and THE
CONTRACTOR sees that the prospects for the Contract area do not justify the drilling of an Exploration Well contained in the Minimum Exploration Program of the following phase of the Exploration Period, THE CONTRACTOR may substitute the
drilling with seismic acquisition and processing provided that the financial effort is the same or greater that in the original Minimum Exploration Program for the phase, and THE CONTRACTOR informs ANH of the substitution proposed in
advance and in writing. 
  
 5.4 Additional Exploration. THE
CONTRACTOR may perform Exploration Operations in addition to those included in the Minimum Exploration Program or the Subsequent Exploration Program but such Exploration Operations will not change the term agreed for the execution of the Minimum
Exploration Program or the Subsequent Exploration Program of the phase in progress or the phases that follow it. In order to exercise this right THE CONTRACTOR will first inform ANH of the additional Exploration Operations proposed. If
mentioned exploration operations are defined in the Minimum Exploration program for the next phase, ANH will accredit mentioned Exploration Operations to compliance with agreed for the next phase. If THE CONTRACTOR wishes the Additional
Exploration Operations to be credited to compliance with agreed Exploration commitments for the next phase, if any, it will request ANH approval for this in writing and ANH has the discretion to accept the request or deny it. If
ANH accepts it ANH will determine how all or part of the additional Exploration Operations executed will be credited in the next phase of the Exploration Period. 
  
 5.5 Problems in the drilling of Exploration Wells. If, during the drilling of an Exploration Well for the Minimum Exploration Program
or Subsequent Exploration Program and before 

 reaching the target depth, uncontrollable geological problems arise such as cavities, abnormal pressures, impenetrable
formations, severe loss of circulation or other technical difficulties which prevent the drilling of the Exploration Well from continuing despite the efforts of THE CONTRACTOR to continue with drilling work in accordance with Good Oil
Industry Practices, THE CONTRACTOR may request ANH to treat the obligation to drill as having been discharged with the presentation of a technical report to give a detailed description of the situation and efforts made to overcome the
problem. The reports must be presented to ANH not more than 15 calendar Days from the date that the uncontrollable problem arises. If ANH accepts that THE CONTRACTOR should terminate the drilling operations for the well in
question, THE CONTRACTOR will abandon or complete the well to the depth drilled and the obligation of the Minimum Exploration Program or Subsequent Exploration Program for that well will be considered to have been discharged. 
  
 CLAUSE 6 – SUBSEQUENT EXPLORATION PROGRAM 
  
 6.1 Subsequent Exploration Program. If the Exploration Period ends and provided that
there is at least one Evaluation Area or Exploitation Area, THE CONTRACTOR may retain 50% of the Contract Area (excluding Exploitation Areas) to implement a Subsequent Exploration Program in the area retained outside of an Evaluation Area or
Exploitation Area. The following procedure will apply: 
  
 a) Before
completing the final phase of the Exploration Period THE CONTRACTOR will advise ANH in writing that it intends to implement a Subsequent Exploration Program; 
  
 b) The notice will describe the Exploration Operations in the Subsequent Exploration Program which THE CONTRACTOR undertakes
to perform; dividing the Program into two phases of two Years each, the first to count as of the expiry date of the last phase of the Minimum Exploration Program. Each phase of the Subsequent Exploration Program will contain at least the same
Exploration Operations as were agreed for the last phase of the Minimum Exploration Program; 
  
 c) If the obligations of the first phase of the Subsequent Exploration Program are duly discharged THE CONTRACTOR may elect not to continue with the second phase and in exchange must relinquish all the
areas retained for that purpose or it may elect to continue with the second phase, and must relinquish only 50% of those areas excluding any existing Evaluation Areas and Exploitation Areas. THE CONTRACTOR will inform ANH in writing of
its decision within one month of the end of the first phase. 
  
 d) The
relinquishment of areas mentioned in this Clause is understood to be without prejudice to the existing Evaluation Areas and Exploitation Areas. 
  
 6.2 When the Subsequent Exploration Program is completed, the Contract Area will be reduced to the Evaluation Areas and/or Exploitation Areas existing at that
time. 

 CLAUSE 7 – DISCOVERY AND EVALUATION 
  
 7.1 Notice of Discovery. At any time within four Months of finishing the drilling of the Exploration Well whose results indicate that
there has been a Discovery, THE CONTRACTOR will so advise ANH in writing, attaching its technical report with the results of tests made, the description of geological aspects and the analysis of fluids and rocks in the form indicated
by the Ministry of Mines and Energy or the authority that takes its place. 
  
 Paragraph: if the Discovery is of Non-Associated Natural Gas or Heavy Liquid Hydrocarbons, THE CONTRACTOR will also deliver calculations and other supporting information presented to the Ministry of Mines and Energy for
classification purposes. 
  
 7.2 Presentation of the Evaluation
Program. If THE CONTRACTOR considers that the Discovery has commercial potential it will present and implement an Evaluation Program for that Discovery as described in this Clause. If the Discovery occurs during the Exploration Period
THE CONTRACTOR will present the Evaluation Program within six months of finishing the drilling of the discovery well and at all events before the end of the Exploration Period. If the Discovery is the result of the execution of the Subsequent
Exploration Program, THE CONTRACTOR will present the Evaluation Program within six months of finishing the drilling of the discovery Exploration Well and at all events prior to the next relinquishment of areas under Clause 6 above.

  
 7.3 Content of the Evaluation Program. The Evaluation Program
will contain at least the following: 
  
 a) A map with the coordinates of
the Evaluation Area. 
  
 b) The description and objectives of each of the
Evaluation Operations and the information that is to be obtained in order to determine whether the Discovery may be declared to be a Commercial Field. If in the Evaluation Programs carried out during the Exploration Period, THE CONTRACTOR
includes drilling of Exploration Wells, CONTRACTOR may accredit both compliance with the Minimum Exploratory Program as well as with the corresponding Evaluation Program, up to the drilling of two Exploration Wells whenever the same one concludes
provided said wells are completed before the expiration of the term for the Evaluation Program in which they were included or completion of the phase of the Exploration Period to which the wells correspond, whichever is closest. 
  
 c) The total budget for the Evaluation Program, Year by Year; 
  
 d) Total term of the Evaluation Program, up to two Years if the program includes the
drilling of Exploration Wells and up to one Year in all other cases, counting from the date of presentation to ANH; and should include the time estimate as required for obtaining the permits to be issued by other authorities. 
  
 e) The schedule of Evaluation Operations in the term mentioned in (d); 
  
 f) Information about the destination of the Hydrocarbons and other fluids that THE
CONTRACTOR expects to recover as a result of Evaluation Operations. 

 g) A proposal for a Delivery Point for consideration by ANH. 
  
 7.4 Extension of Term of the Evaluation Program. If THE CONTRACTOR
decides to drill Exploration Wells not provided for in the initially presented Evaluation Program, ANH will extend the term of that Program for up to one Year provided that the following conditions are satisfied: 
  
 a) THE CONTRACTOR has requested the extension from ANH in writing at least two
months in advance of the expiry of the original term; 
  
 b) THE
CONTRACTOR is executing the Evaluation Operations contained in the Evaluation Program diligently; and 
  
 c) The extension required is justified by the time needed to drill and test one or more additional Exploration Wells. 
 THE CONTRACTOR will attach the documents on which its request has been based. 
  
 7.5 Changes to the Evaluation Program. At any time during the six months following presentation of the Evaluation Program to ANH THE CONTRACTOR may introduce changes, of which it will
promptly inform ANH and will adjust the total term of the same as described in Subsection 7.3(d) above, but will not change the starting date given. 
  
 7.6 Results of the Evaluation Program. THE CONTRACTOR will furnish ANH with a full report of the results of the Evaluation Program within
three months of completing the same. The report will contain at least a geological description of the Discovery and structural features, the physical properties of the rocks and fluids present on the reservoirs associated with the Discovery; the
pressure, volume and temperature analysis of the fluids in the reservoirs, production capacity (per well and for the whole Discovery); and an estimate of the recoverable reserves of Hydrocarbons there. 
  
 Paragraph: If the Discovery is of Non-Associated Natural gas or a Heavy Liquid
Hydrocarbons, and at any time during the second half of the Evaluation Program, there being time remaining, THE CONTRACTOR may request ANH to extend the Evaluation for up to two additional Years in order to conduct feasibility studies
for the construction of infrastructure, production methods and/or the development of markets. In such cases the request will include the information related to the feasibility studies that THE CONTRACTOR considers necessary in the Evaluation
program. When the term of the extension expires THE CONTRACTOR will deliver its conclusions and recommendations of the feasibility studies to ANH. 
  

7.7 This Clause will only apply to Exploration Wells drilled by THE CONTRACTOR and making a Discovery outside the areas classed as Evaluation Areas or
Exploitation Areas. Therefore when the new volumes of Hydrocarbons found become part of an existing Evaluation Area or Exploitation Area, there will be no Evaluation Period. 

 CLAUSE 8 – DECLARATION OF COMMERCIALITY 
  
 8.1 Notice. Within three months following the expiry of the term stipulated for the execution of the Evaluation Program, or upon
expiry of the term agreed under Section 7.6 above, if applicable, THE CONTRACTOR will deliver to ANH a written declaration which will state clearly and precisely its unconditional decision to exploit the Discovery, or not to do so. If
the decision is positive, the Discovery will be treated as a Commercial Field as of the time of that declaration. 
  
 8.2 Surrender of rights if the decision is negative. If THE CONTRACTOR does not deliver the declaration to ANH within the time allowed it will
be understood that THE CONTRACTOR has concluded that the Discovery is not a Commercial Field. If the declaration is negative, or there is no declaration, THE CONTRACTOR accepts that no rights have been generated in its favor and
therefore it waives any claim of rights over the Discovery. 
  
 CLAUSE 9 –
EXPLOITATION PLAN 
  
 9.1 Presentation and Content. Within three
months of the presentation of the Declaration of Commerciality under Clause 8, THE CONTRACTOR will deliver the Exploitation Plan to ANH, containing at least the following elements: 
  
 a) Map with coordinates of the Exploitation Area. 
  
 b) Calculation of Hydrocarbons reserves and accumulated production of Hydrocarbons,
for each type of Hydrocarbons. 
  
 c) General scheme of development of the
Commercial Field, to include a description of the plan for drilling development wells, methods of extraction, facilities and treatment of fluids extracted before the Delivery Point. 
  
 d) Annual production forecast for Hydrocarbons, with sensitivities, using the optimum production rate that will allow the maximum
economic recovery of reserves. 
  
 e) Identification of critical factors
for the execution of the Exploitation Plan such as environmental, social, economic, logistical etc. factors and options to deal with them. 
  
 f) A proposed Delivery Point for ANH to consider. 
  
 g) A proposed basket of up to three crudes of a similar quality for calculation of the Fee for High Prices described in Clause 16 below. 
  
 h) A program for Abandonment for the purposes of Clause 30. 
  
 9.2. Acceptance of the Exploitation Plan. ANH will not accept the
Exploitation Plan until it has received the above information. If it has not received all the information within 15 calendar Days following presentation it may demand the missing information and THE CONTRACTOR will have 30 calendar Days from
the receipt of the demand to deliver it. If ANH makes no pronouncement within 15 calendar Days of presentation of the Exploitation Plan by THE CONTRACTOR, it will be understood that the Plan is accepted. If THE CONTRACTOR does
not deliver the Exploitation Plan on the date given in Section 9.2 or if ANH has not received the missing documentation within the 30 Days mentioned in this Section, this will be a breach giving rise to the application of Clause 28.

 9.3 Exploitation Area. The Exploitation Area will be demarcated as a regular polygon, four-sided, which
will comprise the Commercial Field of the portion of it within the Contract Area, plus a margin around the Commercial Field of not more than one kilometer provided that the Contract Area so permits. Since the area of the Commercial Field in the
Contract Area may vary, the Exploitation Area will remain unalterable except as allowed in Section 9.4 below. 
  
 9.4 Enlargement of the Exploitation Area. During the Exploitation Period in an Exploitation Area, if THE CONTRACTOR determines that a Commercial Field extends beyond the Exploitation Area but
within the valid Contract Area, it may ask ANH to enlarge the Exploitation Area, attaching supporting documentation to its request. If ANH is satisfied with the request it will enlarge the Exploitation Area but it is understood that if
the enlargement overlaps another Exploitation Area, the duration of the Exploitation Period to be applied to the new global Exploitation Area will be that whose commerciality was declared first. 
  
 Paragraph: If the Exploitation Area requested by THE CONTRACTOR under
Section 9.4 extends beyond the bounds of the Contract Area, ANH will enlarge the Contract Area giving the enlargement requested the Contractual status of an Evaluation Area, unless the area in question offers one of the following situations:

  
 a) There are rights granted to another person for activities which are
the same or similar to those of this Contract; 
  
 b) ANH is
negotiating or has opened a contest for rights over it; 
  
 c) A competent
authority has ordered restrictions, which impede the activities object of the Contract. 
  
 9.5 Updating of the Exploitation Plan. THE CONTRACTOR will adjust the Exploitation Plan annually and present it in February of each calendar Year subject to the procedure described in Section 9.2 above, for each of the
Exploitation Areas established under the Contract. If the actual production for the preceding Calendar Year is a 15% different from the annual production forecast indicated in the Exploitation Plan for any Exploitation Area, THE CONTRACTOR
will provide appropriate explanations. 
  
 CLAUSE 10 – EXPLOITATION WORK
PROGRAM 
  
 10.1 Preparation and Presentation. If the presentation of
the Exploitation Plan referred to in Clause 9 takes place more than six months before the end of a Calendar Year THE CONTRACTOR will present the first Exploitation Work Program for the rest of that calendar Year. The Plan will then
subsequently be presented Year by Year for the remaining Years, each November. 
  
 10.2 Content of the Exploitation Work Program. The Exploitation Work program for each Exploitation Area will contain at least the following: 
  
 a) A detailed description of the Development Operations and Production Operations which THE CONTRACTOR expects to execute
during the Year with a schedule detailed by project and Calendar Quarter, also including the time allowed for obtaining authorizations and permits from the competent authorities. 

 b) A forecast of monthly production in the Exploitation Area for each Calendar Year; 
  
 c) An estimate of costs (investments plus expenses) for the four following Calendar
Years or through to the end of the Production Period if less than 4 Years; 
  
 d) The terms and conditions for the development of the community programs in the areas of influence of the Exploitation Area in question. 
  
 10.3 Execution and Adjustments. Development Operations and Production Operations in the Exploitation Work program mentioned in (a) above are
mandatory. THE CONTRACTOR will start those Exploitation Operations in accordance with the schedule submitted. During the execution of the Exploitation Work Program THE CONTRACTOR may make adjustments to the program for the current
Calendar Year provided that they do not reduce production by more than 15% of the initial forecast. Adjustments may not be made more often than three monthly, except for emergency situations. THE CONTRACTOR will give advance written notice of
any adjustment to the Exploitation Work Program. 
  
 CLAUSE 11 –
MANAGEMENT OF OPERATIONS 
  
 11.1 Autonomy. THE CONTRACTOR will
have control of all operations and activities considered necessary for a technically valid, efficient and economical Exploration of the Contract Area and Evaluation and Exploitation of Hydrocarbons found there. THE CONTRACTOR will plan,
prepare, effect and control all activities with its own means and with technical and management autonomy as defined in Colombian legislation and observing Good Oil Industry Practices. THE CONTRACTOR will perform all activities directly or
through subcontractors. 
  
 11.2 Responsibilities. THE CONTRACTOR
will conduct all operations under this Contract diligently, responsibly, efficiently and with appropriate technical and economic criteria. It will ensure that all subcontractors observe the terms of this Contract and Colombian law. THE
CONTRACTOR will be solely liable for any damages caused through operations and activities derived from this Contract including those caused by subcontractors, but it is understood that at no time shall it be responsible for errors of judgment or
damages and losses which are not the result of gross negligence or deceit. If the Contract subcontracts the work and services subcontracted will be executed in its name and therefore THE CONTRACTOR will remain directly responsible for all
obligations in the subcontract and derived from the same, and is not relieved by the existence of the subcontracts. ANH assumes no direct or several responsibility for this matter. 
  
 11.3 Obtaining permits. THE CONTRACTOR undertakes to obtain, for its own account and risk, all licenses,
authorizations, permits and other rights required by law and necessary for the operations to be executed under this Contract. 

 11.4. Damage to Assets. All costs and expenses required to replace or repair damage to or loss of assets
and equipment due to fire, flood, storm, accidents or other similar events will be a risk of THE CONTRACTOR and THE CONTRACTOR will inform ANH of losses or damage suffered as soon as possible after the event. 
  
 12. CLAUSE 12 – ROYALTIES 
  
 12.1 Collection. THE CONTRACTOR will make available to ANH the
percentage of Hydrocarbons production established in the law as royalties in cash or in kind, as ordered by the competent authority. 
  
 12.2 Payment of shares. ANH will pay the entities indicated in the law their share of the royalty and THE CONTRACTOR will in no event be
responsible for payment to any of those entities. 
  
 12.3 Collection in
kind. If the royalty is collected in kind, THE CONTRACTOR will deliver the appropriate volume of Hydrocarbons and the Parties will agree on a procedure to program deliveries and other elements required. At all events, ANH has one
Month to withdraw that volume. If this term has expired and ANH has not withdrawn the royalty volume, THE CONTRACTOR undertakes to store the Hydrocarbons for three consecutive months and ANH will pay it a monthly storage fee,
which will be agreed by the Parties in each case. At the end of that time THE CONTRACTOR may sell the Hydrocarbons as provided in Section 12.4 below. 
  
 Paragraph: If storage is not available, THE CONTRACTOR will produce the field and take the royalties volume, accrediting ANH, for a later submission,
this royalty volume that the ANH had the right to receive bud it did not. 
  
 12.4 Sale of royalty volumes. If ANH considers it convenient and provided that regulations so permit, THE CONTRACTOR will sell the royalty Hydrocarbons and deliver the cash proceeds of sale to ANH. For
this purpose the Parties will agree on the details of the sale but THE CONTRACTOR will at all events make best efforts to sell that production at the highest price available in the market. ANH will pay THE CONTRACTOR the direct
cost and a reasonable selling margin. 
  
 12.5 Collection in cash.
If THE CONTRACTOR is required to pay the royalty in cash, it will deliver the sums payable to ANH within the time allowed by the competent authority. If payment is made late, THE CONTRACTOR will pay ANH the principal
amount together with penalty interest and any expenses incurred in securing payment. 
  
 CLAUSE 13 – MEASUREMENT 
  
 13.1 Measurement. THE
CONTRACTOR will effect metering, sampling and quality control of the Hydrocarbons produced and will keep the equipment or instruments used for metering calibrated in accordance with standards and methods accepted by Good Oil Industry 

 Practice, and law and regulations in force, making such analyses may need to be made, and effect corrections as relevant
to the Liquidation of the net volumes of Hydrocarbons received and delivered in standard conditions. THE CONTRACTOR will adopt all measures necessary to preserve the integrity, reliability, and safety of the installations and the equipment or
instruments used for metering. Also, it will maintain regular calibration records of such equipment and instruments and of daily measurements of production and consumption of Hydrocarbons and fluids in the Commercial Field for ANH or the
competent authorities to review. ANH will be entitled to inspect the metering equipment installed by the Contract, and all the units used for measurement in general. 
  
 13.2 Common Installations. When two or more production fields use the same development installations, they must include a
metering system, which allows determination of the production coming from each of those fields. 
  
 CLAUSE 14-AVAILABILITY OF PRODUCTION 
  
 14.1 Determination of volumes. THE CONTRACTOR will transport the Hydrocarbons produced, except those which had been used for the benefit of operations and this Contract, and those that are inevitably lost in these functions,
to the Delivery Point. The Hydrocarbons will be measured in accordance with the procedure described in Section 13.1 above, and based on that measurement, the volume of royalties referred to in Clause 12 will be established, and the remaining
Hydrocarbons will be the property of THE CONTRACTOR. 
  
 14.2
Availability. As of the Delivery Point, and without prejudice to the provisions of law which regulate this matter, THE CONTRACTOR will be free to sell the Hydrocarbons in Colombia or export them, or to dispose of them in any other manner.

  
 CLAUSE 15-NATURAL GAS 
  
 15.1 Use. THE CONTRACTOR will avoid wasting natural gas extracted from a
field, as provided for in law and regulation on the matter, and before the Delivery Point concerned, it may use that gas as fuel for operations, as a source of energy for maximum final recovery of Hydrocarbon reserves, or confining it in the
reservoirs, in order to use it for these purposes during the life of the Contract. 
  
 15.2 The use of associated natural gas. If THE CONTRACTOR discovers one or more Commercial Fields with associated natural gas, it will, within the next three Years after starting Exploitation of the Commercial Field,
present ANH with a project for the use of the associated natural gas. If THE CONTRACTOR fails to perform this obligation, ANH may dispose of the associated natural gas coming from those fields, free of charge, subject to the
provisions of law in force. 

 CLAUSE 16-CONTRACTUAL ECONOMIC RIGHTS OF ANH. 
  
 16.1 Fee for the use of the subsurface. THE CONTRACTOR will pay ANH the following fees for the use of the
subsurface: 
  
 16.1.1 Areas in Exploration. As of the second phase
of the Exploration, and for each other phase, THE CONTRACTOR will pay ANH a fee denominated in dollars, which will be the result of multiplying the number of hectares and fraction of a hectare of the Contract Area, excluding
Exploitation Areas, by the amount in US Dollars presented in the following table. Payment will be made in the month following the start of the phase concerned. 
  

Value per phase in US$ / Hectare 
  

									
	 Size of urea ®

	  	For the first
100.000 Has.

	  	For each
additional
Hectare.

	 Duration of the Phase

	  	£12
months

	  	> 12
months

	  	£12
months

	  	> 12
months

	 In polygons A y B
	  	0.75	  	1.0	  	1.0	  	1.5
					
	 Outside from Polygons
	  	0.5	  	0.75	  	0.75	  	1.0
		
	 Areas Offshore
	  	0.25

  
 16.1.2 Evaluation and
Exploitation areas. THE CONTRACTOR will pay ANH a fee in an amount denominated in dollars, which results from multiplying the production of Hydrocarbons corresponding to the Contract to and a Clause 14 by US$0.10 for each barrel of
Liquid Hydrocarbons. This amount will increase according to I(n-2) defined in clause 16.2 as of the January
1st, 2006 For natural gas, this amount will be US$0.01 per 1000 cubic feet. This payment will be made half-Yearly in
arrears, in the first month of the next half-Year. 
  
 16.2 Fee for High
Prices. 
  
 For Liquid Hydrocarbons: When the accumulated production
from the Exploitation area, including the royalty volume, exceeds 5 million Barrels of Liquid Hydrocarbons, and if the price of the marker crude West Texas Intermediate (WTI) exceeds the base price Po, THE CONTRACTOR will
pay ANH an amount denominated in US dollars, payable by calendar month in arrears, within 30 calendar Days following each due date. 
  
 For Natural Gas: five (5) years after a field started exploitation, according to the approval minute issued by the authority, and if the price of the marker
Natural Gas “U.S. Gulf Coast Henry Hub” exceeds the base price Po, THE CONTRACTOR will pay ANH an amount denominated in US dollars, payable by calendar month in arrears, within 30 calendar Days following each
due date. 

 The amount due for this fee for each Exploitation Area will be the result of applying the following formula: 

 
 

 
  
 Where: 
  
 Value of Liquid Hydrocarbons at the Delivery Point 
  
 For Liquid Hydrocarbons  
  
 For the purpose of this formula, it will be the reference price for the
corresponding calendar Month expressed in US dollars per barrel, from a basket of a maximum of three oil crudes of a similar quality to that coming from the Exploitation Area, presented by THE CONTRACTOR in the Exploitation Plan agreed with
ANH, and adjusted for the Delivery Point by a pre-agreed margin. 
  
 If, having applied the procedure for the determination of the value of the Liquid Hydrocarbons in accordance with preceding paragraph, differences arise in shortages or overages in the reference price of the basket
and real sale price at the Delivery Point by more than 3%, the Party which considers that it is affected may request a review of the basket or of the margin of adjustment. For the purposes of this process, the real sale price of Liquid Hydrocarbons
produced in the Exploitation area for the corresponding calendar month will be a weighted average of the sale prices agreed by THE CONTRACTOR with buyers who are not related parties and have no other kind of corporate relationship, and where
at all events the transactions are conducted in a framework of normal commercial practice, deducting the cost of transport and handling between the Delivery Point and the reference sale point in accordance with tariffs provided by the Ministry of
Mines and Energy. 
  
 When THE CONTRACTOR sells the
Hydrocarbons for refining for internal supply, the terms of Section 16.5 will apply. 
  
 For Natural Gas  
  
 For
the purpose of this formula, it will be the real selling price of the Natural Gas for the corresponding calendar Month expressed in US dollars per million of British Thermal Units (US$/MMBTU) agreed by THE CONTRACTOR with buyers, excluding
transportation & processing costs between the Delivery Point and the real selling point. At any moment, ANH will require supporting documentation to verify real selling prices of the Natural Gas. 

 Volume of Hydrocarbons of THE CONTRACTOR. 
  
 This is the volume of Hydrocarbons expressed in Barrels for Liquid Hydrocarbons and in British Thermal Units (BTU) for
Natural Gas, which correspond to THE CONTRACTOR according to Clause 14, in a given calendar Month. 
  
 P: 
  
 For Liquid
Hydrocarbons, is the average price per Barrel of the market crude West Texas Intermediate (WTI), in US dollars per Barrel (US$/Bl), and for Natural Gas is the average price of the marker “U.S. Gulf Coast Henry Hub” in US dollars per
million of British Thermal Units (US$/MMBTU). This average prices are for the relevant calendar Month, whose specifications and locations are published in media of international repute. 
  
 Po 
  
 For Liquid Hydrocarbons, is the base price per Barrel of the market crude, in US dollars per Barrel (US$/Bl), and for Natural Gas is the average price in
US dollars per million of British Thermal Units (US$/MMBTU), indicated in the following table: 
  

					
	 	 	 API OF LIQUID HYDROCARBONS PRODUCED

	 	Po (US$/Bbl)

			
	 	 	>15 & <=22	 	28
			
	 	 	>22 & <=29	 	27
			
	 	 	>29	 	26
			
	 	 	 PRODUCED EXPORTED NATURAL GAS

	 	Po (US$/MMBTU)

	 	 	 	 	6

  
 For heavy Liquid
Hydrocarbons with an API above of ten degrees (10o), Po will be forty US$ dollars per barrel (40 USD$/Bl) and for
heavy Liquid Hydrocarbons with an API equal or below to ten degrees (10o) THE CONTRACTOR will pay nothing to
ANH for high prices scenarios. For Natural Gas to the internal Colombian consume, in case of its price will be regulated by Comisión de Regulación de Energía y Gas –CREG – or another similar organism,
THE CONTRACTOR will pay nothing to ANH for high prices scenarios; otherwise, the parties will agree a natural Gas marker and Po value, signing the agreement. 
  
 This base price will be adjusted annually as of the first of January 2006, applying the following formula: 
  
 Po = Po(n-1) x (1+I(n-2))

  
 where 
  

	 	Po(n-1)	is the value of Po for the preceding calendar Year 

  

	 	I(n-2)	is the annual variation expressed as a fraction of the US-CPI during the Calendar Year, two Years before that for which the calculation is made, as published by the
US Department of Labor. 

  
 The calculation
mentioned above will be made in December of each Year. 

 Paragraph: if the price of the marker crude West Texas Intermediate (P) or of the Natural Gas Marker “US Gulf
Coast Henry Hub” lose recognition as international marker prices, ANH will select a new marker crude or Natural gas marker, and will modify the table based on the new index, maintaining equivalencies with the Po values for the
marker crude West Texas Intermediate or for the Natural Gas marker “US Gulf Coast Henry Hub”. 
  
 Not less than three months in advance, ANH may request Contractor in writing to pay the fee to ANH in kind for a period of not less than six months. THE CONTRACTOR will accede to this request
provided that it does not effect affect its commercial commitments. The volume corresponding to ANH will be that which results from calculating the “A” factor. 
  
 16.3 Production Tests. The Liquid Hydrocarbons obtained as a result of the
production tests conducted by THE CONTRACTOR will also pay the fee mentioned in the preceding Sections, provided the conditions of Section 16.2 are satisfied. Natural Gas obtained in Production Tests conducted by THE CONTRACTOR will
not pay the fees for high prices. 
  
 16.4 Participation in production
during the extension of the Exploitation period. In all cases of extension of the Exploitation Period in an Exploitation Area, THE CONTRACTOR will recognize and pay ANH as a production participation, a sum equivalent of 10% of the
production of light Liquid Hydrocarbons and the Delivery Point, or 5% of non-associated natural gas or Heavy Liquid Hydrocarbons obtained by THE CONTRACTOR as of the expiry date of the initial duration of the Exploitation Period, valued at
the Delivery Point after deducting the royalty percentage. The fees mentioned in Sections 16.1.2 and 16.2 will not be accrued on this participation. During the extension to the Exploitation Period, fees for the use of the subsurface and for high
prices from subsections 16.1.2 and 16.2, respectively, will apply only on the volume of THE CONTRATIST, excluding the production participation mentioned in paragraph. 
  
 16.5 Prices for internal supply. If THE CONTRACTOR sells its crude to attend to refining needs for internal supply, the
prices will be calculated in the manner established in Resolution 18-1709 of 23 December 2003 of the Ministry of Mines and Energy, or any of provision of law regulation, which amends or replaces it. 
  
 CLAUSE 17-UNIFICATION 
  
 When an economically viable reservoir extends continuously to one or more areas outside the Contract area, THE CONTRACTOR, under
agreement with ANH and the interested parties, will, subject to prior approval the competent authority, implement of cooperative plan for unified Exploitation, subject to the provisions of Colombian law. 

 CLAUSE 18 - OWNERSHIP OF ASSETS 
  
 18.1 Ownership. In furtherance of the terms of Subsection 4.3.4, the installations, assets, materials and equipment owned by
THE CONTRACTOR and used for Exploitation Operations will pass free of charge to the ownership of ANH when the Contract area is relinquished, or upon termination of this Contract, when either event takes place after the first 18 Years
of the Exploitation, even if those assets are outside the Contract Area. 
  
 18.2 THE CONTRACTOR will transfer to ANH - free of charge, upon relinquishing the area or upon termination of the Contract, when either event occurs in the first 18 Years of the Exploitation Period - all rights
derived from Contracts under the project financing such as leasing, build-operate-transfer (BOT), build-operate-maintain-transfer (BOMT), build-own-operate-transfer (BOOT), and modernize-operate-transfer (MOT), and similar, which upon termination
establish the obligation to transfer ownership of the assets, equipment and installations to THE CONTRACTOR, when those Contracts have been entered into for the Exploitation Period of the respective area. In all cases, when those contracts
were signed lasting more than the Exploitation Period, it is necessary an authorization by ANH. 
  
 18.3 Inventories. THE CONTRACTOR will take physical inventories of the equipment and assets attached to Exploitation Operations, at reasonable intervals, at least every three calendar Years,
classifying them, as the case may be, as being the property of THE CONTRACTOR or of third parties. ANH will be entitled to be represented when such inventory is taken. For this purpose, THE CONTRACTOR will advise ANH not
less than 15 Calendar Days in advance. 
  
 18.4 Arrangement of
assets. THE CONTRACTOR may sell the assets or equipment not essential for maintaining existing Exploitation conditions. Nonetheless, after 18 Years of the Exploitation, for each Exploitation area, or when 80% of the proven reserves had
been produced, whichever shall occur first, THE CONTRACTOR will require the prior approval of ANH to make such sales. 
  
 CLAUSE 19-SUPPLY OF INFORMATION AND CONFIDENTIALITY 
  
 19.1 Technical information. THE CONTRATIST will keep ANH promptly and constantly informed on the progress and results of operations.
Therefore, in addition to documents required in the course of this Contract, THE CONTRACTOR will deliver to ANH, as and when obtained, and before the expiry date of each of the phases of the Exploration Period, and by calendar Year
during the Exploration Period, all the information of a scientific, technical and environmental nature, obtained during performance of this Contract. This information on Exploration and Exploitation will be delivered to ANH in accordance with
the Manual for the Supply of Exploration and Exploitation Information. 
  
 19.2 Confidentiality of Information. The Parties agree that all data and information produced, obtained or developed as a result of the operations and this Contract are considered to be strictly confidential for five (5)
calendar Years afterwards, counted from the end of the calendar Year in which they are produced, obtained or developed, or until 

 termination of Contract or at the moment of partial relinquishment of areas for the acquired information in those areas,
whichever shall first occur. For interpretation of data coming from the operations executed under this contract, the confidentiality term will be twenty (20) years, counted from the date to deliver it to ANH or until termination of Contract or at
the moment of partial relinquishment of areas for the acquired information in those areas, whichever shall first occur. This stipulation does not apply to data or information which the Parties should supply in accordance with provisions of law or
regulations in force, nor those required by affiliates, consultants, contractors, auditors, legal advisers, financial institutions and competent authorities with jurisdiction over the Parties or their affiliates, and or due to the rules of any stock
exchange on which the shares of THE CONTRACTOR or its related parties are listed; however, the delivery of information must be communicated to the other Party. Restrictions on the disclosure of information will not impede THE
CONTRACTOR from supplying data or information to companies interested in the possible assignment of rights in relation to the Contract Area, provided that such companies sign a related confidentiality agreement, and agree to comply with the
terms of this Clause. ANH undertakes not to deliver to third parties any information or data obtained as a result of THE CONTRACTOR’s operations, except as necessary to comply with some provision of law applicable to ANH,
or the normal course of its functions. For the rest of the cases, ANH will require a previous authorization by THE CONTRATIST. 
  
 19.3 Use of Information. If the period of confidentiality in the preceding Clause expires, it is understood that THE CONTRACTOR transfers all rights
of data and interpretations to ANH. From that time onwards, ANH may dispose of the information freely. 
  
 19.4 Information meetings. ANH may call THE CONTRACTOR to hold an information meeting at any time during the life of this Contract.

  
 19.5 Half-Yearly executive report. In addition to the
information referred to in other Clauses of this Contract, the Manual for the Supply of Information, and the requirements of Colombian legislation, THE CONTRACTOR will deliver to ANH basic and summary information on matters such as
productivity, reserves, and production and forecasts, Exploration Operations, Evaluation Operations, Exploitation Operations executed and projected for the following calendar Year, personnel, industrial safety, environment and communities, national
content in hiring and procurement, etc. The report for the second half-Year is the annual operations report, and the Program for execution in the following calendar Year. This report will be delivered within 60 calendar Days following the end of
each calendar half-Year. 
  
 CLAUSE 20-INSPECTION AND FOLLOW UP 

 
 20.1 Visits to the Contracted Area. During the life of this Contract,
ANH may at its own risk and any time, and using procedures considered appropriate, visit the Contract Area to inspect it and to follow up the activities of THE CONTRACTOR and subcontractors, directly related to this Contract, and to
ensure that this Contract is being performed. At the same time, it may 

 check the accuracy of information received. If the inspector detects failures or irregularities on the part of THE
CONTRACTOR, he may make observations which THE CONTRACTOR will reply to writing, within the time given by ANH. 
  
 THE CONTRACTOR will, at its own cost, place at the disposal of ANH representative such facilities of transport, accommodation, meals and facilities on the
same conditions as those provided for its own personnel. 
  
 20.2
Delegation. ANH may delegate inspection and follow-up operations in the Contract Area in order to ensure that THE CONTRACTOR is performing obligations contracted under the terms of this contract and Colombian law. The absence of
activities of inspection and follow-up by ANH in no way relieves THE CONTRACTOR from complying with Contract obligations by virtue of this Contract, and does not imply any reduction in the same. 
  
 CLAUSE 21 – INSURANCE 
  
 21.1 Insurance. THE CONTRACTOR will take all insurances required by
Colombian law and on its discretion; it may take any other normal insurance expected in Good Oil Industry Practices. At the same time, it will require each [sub]contractor performed anywhere in the Contract area, to take or maintain the insurances
which it considers necessary. The costs incurred by the taking and maintenance of these insurances are for the account and responsibility of THE CONTRACTOR. 
  
 21.2 Employment liability insurance. THE CONTRACTOR will establish an insurance policy to guarantee payment of
salaries, benefits and indemnities and other employment liabilities which might arise from court orders derived from claims made by employees contracted by THE CONTRACTOR, as the sole and true employer of the same. The validity of the policy
will be not less than three Years from the date of termination of this Contract, and the sum insured the equivalent of 10% of THE CONTRACTOR’s payroll for employees assigned to the performance of this Contract during the Year prior to
termination. 
  
 CLAUSE 22-GUARANTEES 
  
 22.1 Object Of The Guarantees. THE CONTRACTOR will issue in favor of
ANH, in the form, and on the terms and conditions provided for in this Contract, guarantees to secure the performance and correct execution of all obligations of each phase of the Exploration Period, and of the subsequent Exploration Program
if any, and activities inherent in such obligations. In no case will this guarantee have the nature of a penalty clause. 
  
 22.2 Form of Guarantees. THE CONTRACTOR will, at its own expense, establish one or more standby letters of credit, which shall be unconditional and
irrevocable, payable at sight and opened with a bank or financial institution established in Colombia or other instrument or organism accepted by ANH. 

 22.3 Delivery of Guarantees. THE CONTRACTOR will deliver guarantees mentioned in this Clause to
ANH, in accordance with the essential terms of forms contained in Annex C of this Contract, not less than eight calendar Days prior to the start of each phase of the Exploration Period, or of the subsequent Exploration Program if any. To the
first phase THE CONTRACTOR will delivers within 30 calendar days following each due date. If for reasons alien to the wishes of THE CONTRACTOR, duly justified, THE CONTRACTOR is unable to deliver the guarantees to ANH in the
time permitted here, ANH may extend the delivery date at the request of THE CONTRACTOR. If THE CONTRACTOR fails to deliver guarantees within the terms permitted will be a cause of breach of Contract. 
  
 22.4 Amount of Guarantees. THE CONTRACTOR will deliver the guarantees
corresponding to each phase of the Exploration Period or the Subsequent Exploration Program, as the case may be, for 10% of the budget value of the phase of the Minimum Exploration Program or the subsequent Exploration Program as the case may be,
denominated in dollars and payable in Colombian pesos The amount of guarantee for each phase may not be less than US$100,000. The amount of guarantee for each phase may not be higher than US$3,000,000. 
  
 22.5. Validity of guarantees. Each and every guarantee must be valid for the
term of the phase whose obligations are being guaranteed, plus three (3) months more. In a case of extensions, guarantees must also be extended or replaced by others of the same value, with a minimum period of the time of the extension plus three
(3) months more. 
  
 22.6 Rejection Of Guarantees. ANH will
reject guarantees provided by THE CONTRACTOR if they fail to comply with the requirements of this Clause. ANH will have one Month from the time of receipt and mentioned in Section 22.3, to advise THE CONTRACTOR of rejection, and
to return the guarantee presented. THE CONTRACTOR will have 15 days calendar to correct the guarantees If not correct the guarantees, guarantees rejected will be understood not to have been delivered for the purposes of Section 22.3. 
  
 22.7 Calls on Guarantees. ANH will call on guarantees if THE
CONTRACTOR is in breach of all or part of any of the obligations guaranteed, without prejudice to the performance of obligations contracted. The payment of standby letters of credit does not relieve THE CONTRACTOR of its obligation to pay
indemnities for damages caused by its beach. ANH reserves the right to resort to mechanisms for the solution of disputes when the value of the guarantee is not sufficient to cover the amount of indemnities. 
  
 CLAUSE 23 - SUBCONTRACTORS, PERSONNEL AND TECHNOLOGY TRANSFER 
  
 23.1 Subcontractors. In order to conduct operations under this contract,
THE CONTRACTOR may, observing the terms of Colombian law, enter into contracts for its own account and risk, to obtain goods and services in Colombia or abroad. THE CONTRACTOR will include stipulations in its contracts, which bind
subcontractors to the observance of Colombian legislation, and the terms of this contract. 

 23.2 List of Contracts and Subcontractors. THE CONTRACTOR will keep an updated list of contracts for
work, services and suppliers, and will place it at the disposal of ANH upon request. The list will specify at least the name of the supplier, contractor or subcontractor, the object of the contract, its value, and its duration. 
  
 23.3 National Procurement. THE CONTRACTOR will give preference to
national bidders for the supply of goods and services, on equality of conditions, being competitive in quality, delivery and price. 
  
 23.4 Personnel. For all legal purposes, THE CONTRACTOR acts as sole employer of the employees which it contracts for activities undertaken in this
Contract, and therefore, will be responsible for employment obligations arising from employment relations or contracts, such as payment of salaries and social benefits, payroll taxes, affiliation and payment of pension contributions, health and
occupational risks to the social security system, as required by law. THE CONTRACTOR will train Colombian personnel appropriately and diligently, to find personnel that contractor considers necessary for operations under this contract. At all
events, THE CONTRACTOR will comply with the provisions of law which govern the proportion of local and expatriate employees in executive and non-executive posts. 
  
 23.5 Technology Transfer. THE CONTRACTOR undertakes to pay for, or to hold for its account, training programs for
professionals, or to use sponsorship for research projects, as designated by ANH in areas related to the development of this Contract, and during the life of the same. Training will be related to the oil industry, in technical, environmental,
commercial, or legal areas, amongst others. Training may be effected through the integration of professionals appointed by ANH to THE CONTRACTORs working group organized for the Contract area, or for other related activities. All the
costs of training, except for employment costs incurred in favor of professionals received, in compliance with THE CONTRACTOR ́s obligations under this clause, will be fully assumed by THE CONTRACTOR. THE CONTRACTOR will
not a bear any costs derived from the employment relationship of the beneficiaries of training. In order to comply with the obligations of technology transfer in accordance with the terms of this Clause, each of the phases of the Exploration Period
and its extensions will contain a commitment from THE CONTRACTOR to advance technology transfer programs for a value equivalent to a 25% of the amount of the fee for the use of the subsurface mentioned in SubSection 16.1.1 of the phase in the
course of the Exploration Period. With regard to Exploitation Areas, technology transfer will be for a value equivalent to 10% of amount of the fee for the use of the subsurface mentioned in SubSection 16.1.2 for the Calendar Year. In no event, will
THE CONTRACTOR be required to pay more than US$ 100.000 per phase or per Calendar Year as the case may be, in technology transfer. The technology transfer programs will be agreed in advance by ANH and THE CONTRACTOR. 

 CLAUSE 24-OPERATOR 
  
 24.1 Without prejudice to its entitlement to perform operations directly, THE CONTRACTOR may contract a third-party to act as operator, provided that the
latter can show experience, suitability, and financial soundness. In such cases, the designation of the operator will require the final approval of ANH. 
  

24.2 If THE CONTRACTOR is formed by two or more companies, it will state which of them will act as operator. 
  
 24.3 If more of 2 different operators at the same time in this Contract are required,
it will be approval by ANH. 
  
 24.4 If the operator decides to
resign, it shall give at least 90 calendar Days ́ notice. 
  
 24.5
Being the Operator a third party, if ANH becomes aware that the operator has engaged in negligent practices, practices not in accordance with Good Oil Industry Practices in relation to compliance with the obligations under this Contract, it
will so advise Contractor, which will have 90 calendar Days from date of requirement to adopt corrective measures. If after this time the deficient conduct continues, ANH will require THE CONTRACTOR to change the operator. 

 
 CLAUSE 25-THE RIGHT TO MAKE ASSIGNMENTS 
  
 25.1 The Right. THE CONTRACTOR has the right to assign or transfer all
or part of its interest, rights and obligations under this Contract, with the prior written authorization of ANH, to another person or company which has the financial capacity, the technical competence, the professional skills and the legal
capacity required to act in Colombia. 
  
 25.2 Procedure. For this
purpose, THE CONTRACTOR will send a written request to ANH, indicating the essential elements of the negotiations, such as the name of the potential assign, the information on its legal, financial, technical and operational capacities,
the value of the rights and obligations to be assigned, the scope of operations, etc. Within 60 working Days of receipt of the request presented in full form, ANH will exercise its discretion to analyze information supplied by THE
CONTRACTOR, after which it will make a decision, and will not be obliged to explain the decision. If any of companies forming THE CONTRACTOR is involved in a process of merger, spin off, absorption, or transformation into another type of
Corporation, it will be sufficient to advise ANH promptly, without prejudice to the information that other Colombian authorities may require. ANH reserves the right to evaluate the new situation of THE CONTRACTOR or any of the
companies thus formed, with regard to financial capacity, technical competence, professional skills and legal capacity required to act, and may require that guarantees be supplied. 
  
 Paragraph: When the right to make assignments is in favour of companies that control or manage THE CONTRACTOR, or in favour of
one of the companies that are part of it or 

 branches or between companies belonging to the same economic group, if ANH does not give an answer within the
established time, it will be understood that the operation was authorized. 
  
 CLAUSE 26 - FORCE MAJEURE AND ACT OF THIRD PARTIES 
  
 26.1 Definitions. For the purposes of this Contract, force majeure is an unforeseen event which it is not possible to resist, such as a law, an act of authority, a shipwreck, an earthquake, etc; and an act of a third party is
an irresistible act, legally alien to the party alleging it, such as a war, and ill-intentioned act of third parties, etc. For the purposes of this Contract, both force majeure and the act of third parties will be considered to relieve
responsibility, and to excuse performance of non-financial obligations affected by such circumstances, provided that they have an alien cause, and the Party receiving notice of the same accepts that it is irresistible, and that the event occurring
represented an impediment. 
  
 26.2 Suspension. The performance of
obligations under this Contract will be suspended throughout the time during which either Party is unable to perform all or part of its obligations, for reasons of force majeure or irresistible acts of third parties. If either Party is affected by
any of such circumstances, it will advise the other within 15 calendar Days following, invoking this Clause, and presenting appropriate justification, specifying the causes originating the impediment, the manner in which compliance of the related
obligation is affected, the estimated period of suspension of activities, and any other information which allows it to be shown that the event has occurred, and was irresistible. 
  
 26.3 Acceptance. Within 15 calendar Days following receipt of advice, the Party not affected will respond in writing, accepting the
circumstance and relieve the other of responsibility, or rejecting the circumstance, and if accepted, the terms for compliance with obligations affected will be suspended. In this case, the suspension will commence from the moment at which the event
invoked as a cause for suspension occurred. If the Party not affected does not reply within the time given, it will be understood that it accepts the occurrence of the cause invoked, and performance of the obligations affected will be suspended.
Suspension will only interrupt compliance of the obligations affected. 
  
 26.4 Cessation Of Suspension. The Party affected by the cause relieving responsibility will resume compliance of obligations suspended within one month following the disappearance of the event invoked as a cause of suspension.
In this case, it will inform the other Party within 15 calendar Day following. The Party obliged to perform the obligation will employ best efforts to perform within the terms and conditions agreed by the Parties. 
  
 26.5 Effects On Terms. If the suspension impedes the performance of any of the
Exploration Operations contained in any of the phases of the Minimum Exploration Program, or of the Subsequent Exploration Program, and that impediment is prolonged for more than two consecutive months, ANH will restore the terms required by
the Contract for a period equal to that of the impediment, without prejudice to the fact that THE CONTRACTOR must extend the existing guarantee or obtain a new one, in the terms of Clause 22. 

 CLAUSE 27 - SOLUTION OF DISPUTES BETWEEN THE PARTIES 
  
 27.1 Executive Instance. Any difference or disagreement arising in regard to
performance of this Contract will be solved by the officers of the Parties authorized for this purpose. If the disagreement has not been resolved within thirty calendar Days from date of written notice, the matter will be referred to the most senior
executive of the Parties resident in Colombia, in order to seek a joint solution. If within thirty calendar Days following the date on which one of the Parties has requested the other that the disagreement the submitted to those senior executives as
mentioned, the Parties reach an agreement or decision on the matter in question, within fifteen calendar Days of reaching such an agreement or decision, that agreement or decision adopted will be signed. 
  
 27.2 Expert Intervention, and Arbitration. If within the thirty Days mentioned,
the senior executives of the Parties cannot reach an agreement or decision, or if within the fifteen Days mentioned, no agreement or decision adopted is signed, either Party may resort to the mechanisms provided for in Subsections 27.2.1, 27.2.2,
and 27.2.4, as the case may be, and as follows: 
  
 27.2.1 Technical
Experts. If the matter is a technical disagreement, it will be submitted to the opinion of experts appointed as follows: one by each party, and the third named by the other two experts. Should the experts not agree, at the petition of either
party, the third expert will be appointed by the association of professionals on the matter involved in the dispute or a related area, where the association is a technical body acting as consultative institution for the Government, based in Bogota.

  
 Once the experts have been appointed: 
  
 a) the experts will issue their opinion within thirty Days of appointment. The
experts will indicate the place and time for the receipt of information from the Parties. At the request of the experts, the Parties may grant an extension of the initial term allowed. 
  
 b) The Parties will deliver all relevant information, which the experts may consider to be necessary; 
  
 c) The Parties will focus and demarcate the matter on which the experts are to decide;

  
 d) The costs and expenses of the technical experts will be borne by the
Parties in equal portions; and 
  
 e) The opinion will be issued by
majority, and will be binding on the Parties for the purposes of settlement. 
  
 27.2.2 Accounting Experts. If the disagreement is an accounting matter, it will be submitted to the opinion of experts who will be qualified public accountants, one appointed by each party, and the third by the two principal experts.
Should the two experts fail to agree, and at the petition of either party, the third expert will be appointed by the Junta Central de 

 Contadores (Colombia ́s Board of Public Accountants) in Bogota. Once the experts have been appointed, the
procedure will be similar to that stipulated in sub-paragraphs (a) to (e) of the preceding paragraph.. 
  
 27.2.3 Dispute As To Nature. If the disagreement between the Parties is with regard to its nature, as a technical, accounting or legal matter, then it will be considered to be a legal matter. 

 
 27.2.4 Arbitration. Any disagreement or controversy derived from or related
to this Contract, and which is not a technical or accounting disagreement, will be resolved by arbitration. The arbitration tribunal will be composed of three arbitrators named by mutual agreement between the Parties. If the Parties cannot agree on
the appointment of the arbitrators, they will be appointed by the Bogota Chamber of Commerce Arbitration and Conciliation Centre, upon the request of either Party. At all events, the arbitrators will have accredited experience of more than five
Years in matters related to the oil industry. The tribunal will apply Colombia substantive law in force, and its decision will be in law. Arbitration proceedings will be conducted in Spanish. 
  
 27.2.5 Exclusion. In accordance with the terms of Subsection 4.3.2 above, the
lack of agreement between the Parties regarding the extension of the Exploitation Period for each Exploitation Area will not be deemed to be a disagreement, and will not be subject to the procedures established in this Clause. 
  
 CLAUSE 28 – TERMINATION 
  
 28.1 Causes Of Termination. This Contract will terminate and THE
CONTRACTOR’s rights will cease in any of the following circumstances: 
  
 a) Expiry of the Exploration Period, with no discovery having been made by THE CONTRACTOR; 
  
 b) Expiry of the Exploitation Period. In this case, the effects of this Contract with regard to the Exploitation Area will cease, with regard to that area in which
the Exploitation Period has terminated; 
  
 c) Resignation of Contractor
during Exploration, in the cases provided for in Subsection 4.2.1; 
  
 d)
Resignation of THE CONTRACTOR at any time during the Exploitation Period; 
  
 e) At any time, by mutual agreement between the Parties; 
  
 f) Through a declaration of breach on the part of Contractor; 
  
 g) Through the application of any of the causes of unilateral termination provided for in this Contract; 
  
 h) With the occurrence of any of the causes of termination or forfeiture ordered by the law. 
  
 In the circumstances provided for in (f), (g) and (h) ANH will call on the guarantee mentioned in Clause 22, without prejudice to any
recourse it may have, or actions which may decide to bring. 

 28.2 Causes of Termination due to Breach. The causes of termination due to breach are the following:

  
 a) Assignment of all or part of this Contract, without observing the
provisions of Clause 25; 
  
 b) Unjustified suspension of Exploration
Operations for more than six continuous months in any given phase; 
  
 c)
Unjustified continuous suspension of Evaluation Operations or Exploitation Operations during half the term of the Evaluation Program in an Evaluation Area, or for 6 consecutive months in an Exploitation area. In such cases, the effects of this
Contract will cease with regard to the Evaluation Area or the Exploitation area in which the suspension of operations has occurred; 
  
 d) Improper use of resources and minerals which are not part of an object of this Contract; 
  
 e) Omission or delay in the delivery the delivery of Exploration Operation results, Evaluation technical information delivery o
production impida desarrollo de las funciones de la ANH 
  
 f) Omission or
delay in the delivery of guarantees on conditions satisfactory to ANH; 
  
 g) Breach of any other obligations contracted by THE CONTRACTOR under this Contract. 
  
 28.3 Procedure for a Declaration of Breach. Should any of the causes of breach occur, ANH may terminate this Contract sixty Days after having sent written requirements to THE CONTRACTOR,
indicating the cause invoked for such a declaration, provided that THE CONTRACTOR has not presented any explanations satisfactory to ANH within 20 working Days after the date of the requirement, or has not corrected its performance of
the Contract within sixty Days. If within the term of 20 Days as mentioned, THE CONTRACTOR presents explanations satisfactory to ANH, and the remaining term to complete the terms of sixty calendar Days is not sufficient to perform the
obligations pending, ANH may grant additional time for performance, without prejudice to any demand for guarantees required to support it. If at the end of this time, the corrective measures necessary have not yet been taken, ANH will
declare breach and termination of this Contract. It is understood that the term provided for compliance with pending obligations in no case modifies the term agreed for the execution of the Minimum Exploration Program for the following phase of
phases of the Exploration Program, if any. 
  
 28.4 Causes of Unilateral
Termination. ANH may declare this Contract terminated at any time in the following circumstances: 
  
 a) If a process of Liquidation of THE CONTRACTOR is initiated, THE CONTRACTOR being a corporate entity; 
  
 b) If a judicial embargo is placed on THE CONTRACTOR which seriously affects performance of the Contract. 
  
 If THE CONTRACTOR is formed by a number of corporate entities or natural persons or
both, the causes mentioned above will apply if they seriously affect the performance of the Contract. 
  
 28.5 Mandatory Clauses. ANH will declare termination, forfeiture or the mandatory liquidation of this Contract with the occurrence of causes given in the law, such as those provided for in Law 418
of 1997, successively extended and amended by Laws 540 of 1999 and 782 of 2002 or Law 40 of 1993, or in laws which replace or amend them.  

 28.6 Subsequent Obligations. If this Contract is terminated for any cause, and at any time, the Parties are
obliged to perform their legal obligations to each other, and to third parties, as contracted in this Contract. This includes the assumption of responsibility for loss and damage resulting from the unilateral termination and for causes acceptable to
THE CONTRACTOR, where there are mandatory indemnities or compensation to pay. 
  
 CLAUSE 29-ENVIRONMENT 
  
 29.1 THE CONTRACTOR will
pay special attention to the protection of the environment, and to compliance with regulations on the matter. At the same time, THE CONTRACTOR will adopt and implement specific contingency plans to attend to emergencies, and repair damage in
the most efficient and timely way possible. 
  
 29.2 THE CONTRACTOR
will make a half-Yearly report to ANH on environmental aspects of operations in progress, the application of preventive plans and contingency plans, and with regard to the state of activities or applications to the environment convert
environmental authorities with regard to permits, authorizations, concessions or licenses, as the case may be. 
  
 29.3 If an activity or Exploration Operations requires permits, authorizations, concessions or environmental licenses, THE CONTRACTOR will not pursue that activity or operation until the permit,
authorizations, concession or license is obtained. 
  
 29.4 THE
CONTRACTOR may not commence Exploitation without approval of the environmental impact study and the issue of related environmental licenses. 
  
 29.5 Failure to comply with any of the obligations in terms of subsection 29.3 and 29.4, is a cause of termination of breach, in terms of Subsection 28.2 (g).

  
 CLAUSE 30-ABANDONMENT 
  
 30.1 Abandonment. Without prejudice to the terms of Subsection 4.3.4 of this
Contract, in all cases where there is application for the relinquishment of onshore or offshore areas, THE CONTRACTOR will program and undertake all activities of Abandonment, in accordance with Colombian legislation, and observing Good Oil
Industry Practices. 
  
 30.2 Relinquishment of Exploration Areas and
Evaluation Areas. Within sixty Days of the date on which an Exploration Area or Evaluation Area should be relinquished, THE CONTRACTOR will implement a program for Abandonment to the satisfaction of ANH and other competent
authorities. 
  
 30.3 Relinquishment of Exploitation Areas.
The Exploitation Plan for each Exploitation Area will include the related Abandonment Program. That is, THE CONTRACTOR will make the necessary adjustments to the Abandonment Program in it is updating of the Exploitation Plan, as required by
Section 9.4. 

 30.4 Abandonment fund. 
  

30.4.1 Creation. When the first calendar Year of the Month in which THE CONTRACTOR commenced commercial and regular production expires, for the
production of Hydrocarbons from some Exploitation Area, from that time onwards THE CONTRACTOR will keep a special account in its books, denominated “Abandonment Fund”, and in order to guarantee the availability of funds required to
implement the Abandonment Program mentioned in the preceding Section, THE CONTRACTOR will establish an escrow account or a bank guarantee; and in either case, the terms and conditions of the guarantee determined by the Parties within the Year
preceding the date on which the Abandonment Fund must be established. If there is no agreement on the matter, THE CONTRACTOR will establish a bank guarantee in the terms of this Clause. 
  
 30.4.2 The Amount of the Abandonment Fund. The amount of the Abandonment Fund
at the end of each Calendar Year will be the result of applying the following formula: 
  
 where: 
  
 AMA = (PAH/RIH)2 x CAB 
  
 AMA is the value of the Abandonment Fund which THE CONTRACTOR must show has been made for each Exploitation Area, at the end of the Calendar Year. 
  
 PAH is the accumulated volume of Hydrocarbons produced in each Exploitation Area, from the start of production until 31 December of the
Year for which the calculation is made. 
  
 RIH are the proven reserves of Hydrocarbons in each Exploitation
Area, expressed in Liquid Hydrocarbons Barrels, in accordance with the Exploitation Plan and its updates. This includes accumulated production (PAH_) plus remaining proven reserves. 
  

CAB is the estimated updated costs of the Abandonment operations for each Exploitation Area. In case of annual adjustments, they will be reduced by the value of Abandonment costs already executed.

  
 All calculations of production and reserves of Hydrocarbons mentioned
above (PAH and RIH) will be made in Liquid Hydrocarbons Barrels. For this purpose, the Parties agree that for the purposes of the conversion, 5700 ft.3 of gas at standard conditions are equivalent to one Barrel of
Liquid Hydrocarbons. 
  
 The variables in the formula will be reviewed and updated
annually by THE CONTRACTOR, based on real disbursements in Abandonment activities, and in terms of production and reserve volumes for Hydrocarbons. 
  
 Paragraph: For the purposes of this Clause, proven reserves are the volume of Hydrocarbons which, after due geological analysis and engineering, THE
CONTRACTOR 

 estimates with reasonable certainty to be recoverable commercially, since Exploitation began, based on known reservoirs,
and in accordance with the economic conditions, operating methods and the regulatory framework in force at the time of the calculation. 
  
 30.5 The performance of the obligations of this Clause does not relieve THE CONTRACTOR from its obligation to undertake all Abandonment operations in each
Exploitation Area for its own account and risk. 
  
 CLAUSE 31- CONTRACT
DOMICILE AND APPLICABLE LAW 
  
 For all purposes of this Contract, the
Parties establish as their domicile the city of Bogota, Colombia. This Contract will be governed in all its parts by Colombian law, and THE CONTRACTOR waives any attempt at diplomatic claims to support its rights and obligations under this
Contract, except in the case of denial of justice. It is understood that there will not be denial of justice if THE CONTRACTOR has had access to all recourse and means of action available under Colombian law. 
  
 CLAUSE 32-REPRESENTATION 
  
 Without prejudice to THE CONTRACTOR ́s legal rights derived from provisions of
law or the Clauses of this Contract, ANH will speak for THE CONTRACTOR before the Colombian authorities with regard to activities undertaken under this Contract, provided that it should do so and will supply government officials and
agencies with all data and reports they may legally require. THE CONTRACTOR will be obliged to prepare those reports and send them to ANH. Expenses incurred by ANH to attend to any matter referred to in this Clause will be for
account of THE CONTRACTOR, but THE CONTRACTOR ́s approval will be required when those expenses exceed US$5,000 or colombian pesos equivalent. The Parties declare that, for any relations with third parties, neither the terms of
this Clause nor those of any other Clause of this Contract imply the granting of any general powers of representation nor that the Parties have formed a civil or commercial corporation or other relationship in which either Party could be considered
to be severally liable for the acts or omissions of the other or to have the authority or mandate to commit the other with regard to some obligation. This Contract refers to activities within the territory of the Republic of Colombia. 
  
 CLAUSE 33- PAYMENTS AND CURRENCY 
  
 33.1 Currency. All payments to be made by THE CONTRACTOR to ANH under
this Contract will be made in United States dollars if permitted by exchange regulations or in Colombian pesos and at the bank designated by ANH. THE CONTRACTOR may make payments in other currencies when exchange regulation permit and
ANH gives its authorization. 

 33.2 Exchange Rate. If currency is to be converted, the Market Reference Rate (TRM) for the date of payment
will be applied, as published by the Superintendency of Banks, or the agency that replaces it. 
  
 33.3 Penalty interest. If payments due from THE CONTRACTOR to ANH are not made within the terms established, THE CONTRACTOR will pay Penalty Interest. 
  
 CLAUSE 34 – TAXES 
  
 THE CONTRACTOR accepts that it is subject to Colombian tax law. 
  
 CLAUSE 35 – SERVICE OF NOTICE AND COMMUNICATIONS 
  
 35.1 Domicile for Service and Communications. Notice served and communications sent between the Parties will be addressed to their
legal representatives to the domiciles registered for service of judicial notices, which at the date of execution of this Contract are: ANH: Calle 37 No. 7-43 p. 5 Edificio Guadalupe, Bogota, Colombia 
  
 THE CONTRACTOR: Calle 114 No. 9-01 Piso 10, Oficina 1003, Bogotá, Colombia

  
 35.2 Changes. If a Party changes legal representation or
domicile as indicated above, it will officially advise the other within five Days of doing so. 
  
 35.3 Effective date. A communication between the Parties in relation to this Contract will be effective upon receipt by the Party to whom it is addressed at the domicile indicated above and in any case
when delivered to the domicile for service of judicial notice registered at the Chamber of Commerce. 
  
 CLAUSE 36 – EXTERNAL COMMUNICATIONS 
  
 If THE CONTRACTOR needs to make a public statement or announcement or communiqué with respect to the Contract regarding information that might affect the normal performance of the same, THE CONTRACTOR will give
notice to ANH at least two days in advance.. Anyhow, external notices on Discoveries made, declared or to be declared commercial, and and the volumes of reserves of Hydrocarbons shall be authorized by ANH. 
  
 CLAUSE 37 – LANGUAGE 
  
 The official language for all purposes and actions related to this Contract will be Spanish.

  
 CLAUSE 38 – FORMALIZATION 
  
 The signatures of the Parties will formalize this Contract. 

 In witness whereof, this document is signed in Bogotá, this three (3) day of November of year two thousand four
(2004). 
  
 AGENCIA NACIONAL DE HIDROCARBUROS 
  
 JOSÉ ARMANDO ZAMORA REYES 
  
 DIRECTOR GENERAL 
  
 THE CONTRACTOR 
  
 HARKEN DE COLOMBIA LIMITED 
  
 GUILLERMO SANCHEZ 
  
 LEGAL REPRESENTATIVE 

 ANNEX “A” – CONTRACTED AREA 
  
 ANNEX TO THE “HATOS” SECTOR EXPLORATION AND EXPLOITATION
CONTRACT 
  
 The total Contracted Area in the block described below has an
extension of thirty four thousand four hundred and thirty (34,430) hectares and six thousand four hundred and fourty-two (6442) square meters. The cartographic data was taken from the Political Map of Colombia, digital file of I.G.A.C, at a scale of
1:1’500.000. 
  
 HATOS BLOCK 
  
 The area of the polygon taken from the vertexes described below is of thirty four thousand
four hundred and thirty (34,430) hectares and six thousand four hundred and fourty-two (6442) square meters and located in the municipal jurisdictions of Mani in the Casanare Department. This area is described below as appears in the drawing
attached as Annex “A”, which makes an integral part of this Contract, as well as in the corresponding charts: “TELUROMETRO-88” Geodesic Vertex of Instituto Geográfico Agustín Codazzi has been taken as point of
reference, whose GAUSS plane coordinates with origin in Bogotá are: N-1’098.392.7251 meters, E-1’273.368,0672 meters, that correspond to the geographic coordinates Latitude 05° 29’ 01” 0,404 North to the Equator,
Longitude 71° 36’ 53” 0,442 to the West of Greenwich. 
  
 Point
A: 
  
 From this vertex (TELUROMETRO-88) continuing S 33° 40.’
5.” 0,772 thousand W for a distance of 109576.4 meters until reaching Point ‘A’, departure point to mark boundaries whose coordinates are N-1007196.48 meters, E- 1212620.79 meters. 
  
 Point B: 
  
 From this point continuing to the S 67° 33’ 24” 0.987 thousand E for a distance of 3709.75 meters until reaching point
‘B’, whose coordinates are N- 1005780.22 meters, E- 1216049.56 meters. The line A-B is contiguous in all its extension with Alcaravan operated by Harken Company. 
  
 Point C: 
  
 From this point continuing to the S 58° 57’ 42” 0.271 thousand E for a distance of 18356.02 meters until reaching point ‘C’, whose coordinates are
N- 996315.67 meters, E- 1231777.43 meters. 
  
 Point D: 
  
 From this point continuing to the S 41° 31’ 42” 0.246 thousand W for a
distance of 18027.44 meters until reaching point ‘D’, whose coordinates are N- 983463.85 meters, E- 1219135.45 meters. 

 Point E: 
  
 From this point continuing N 49° 44’ 39” 0,517 thousand W for a distance of 21196.86 meters until reaching point ‘E’, whose coordinates are N-
997161.26 meters, E- 1202958.68 meters. 
  
 From this point continuing N 43°
54’ 53” 0,447 thousand E for a distance of 13930.61 meters until reaching point ‘A’, departure point and closing of the boundary. 

 ANNEX “A” OF THE MINIMUM EXPLORATION PROGRAM 
 ANNEX TO “HATOS” SECTOR EXPLORATION AND EXPLOITATION CONTRACT 
 AGENCIA NACIONAL DE HIDROCARBUROS 
  
 Calculation of the area directions, and distances as of the gauss coordinates, origin Bogotá 
 Table of Data and
Results for the HATOS Sector 
  
 Municipal Jurisdictions of
Mani in Casanare Department 
  

													
	 Punto

	  	NORTE

	  	ESTE

	  	Distancia

	  	Dif. Nortes

	  	Dif. Estes

	  	 RUMBOS

	 VERT
	  	1,098,392.72510	  	1,273,368.06720	  	 	  	 	  	 	  	 
	 	  	 	  	 	  	109576.3983	  	-91,196.24902	  	-60,747.27334	  	S 33° 40’ 5.” 0,772 mil W
	 A
	  	1,007,196.47608	  	1,212,620.79386	  	 	  	 	  	 	  	 
	 	  	 	  	 	  	3709.748735	  	-1,416.25255	  	3,428.77010	  	S 67° 33’24” 0,987 mil E
	 B
	  	1,005,780.22353	  	1,216,049.56396	  	 	  	 	  	 	  	 
	 	  	 	  	 	  	18356.01938	  	-9,464.55293	  	15,727.86334	  	S 58° 57’ 42” 0,271 mil E
	 C
	  	996,315.67060	  	1,231,777.42730	  	 	  	 	  	 	  	 
	 	  	 	  	 	  	18027.44393	  	-12,851.81740	  	-12,641.97470	  	S 44° 31’ 42” 0,246 mil W
	 D
	  	983,463.85320	  	1,219,135.45260	  	 	  	 	  	 	  	 
	 	  	 	  	 	  	21196.8612	  	13,697.40680	  	-16,176.77260	  	N 49° 44’ 39” 0,517 mil W
	 E
	  	997,161.26000	  	1,202,958.68000	  	 	  	 	  	 	  	 
	 	  	 	  	 	  	13930.61398	  	10,035.21608	  	9,662.11386	  	N 43° 54’ 53” 0,447 mil E
	 A
	  	1,007,196.47608	  	1,212,620.79386	  	 	  	 	  	 	  	 
					
	 AREA DEL POLIGONO (Has.) :
	  	34,430.000	  	 	  	 	  	 

 MAPA 
  
 

 

 CONTRATO DE EXPLORACIÓN Y EXPLOTACIÓN LOS HATOS 
 Página 41 de 43 
  
 ANNEX “B” OF THE MINIMUM EXPLORATION PROGRAM 
 ANNEX TO
“HATOS” SECTOR EXPLORATION AND EXPLOITATION CONTRACT 
  
 THE
CONTRACTOR agrees to complete as a minimum, the following Minimum Exploration Program: 
  
 During Phase 1, drilling of an Exploration Well and present an integrated report of information at the end of the phase 
  
 During Phase 2, to option of the CONTRACTOR drilling an (1) Exploration Well or to acquire, to process and to interpret a minimum program of 50 kilometers of new
2D seismic. 
  
 During Phases 3, 4 and 5, drilling of an Exploration Well for each
phase. 

 Page 42 
  

 ANNEX “C” – LETTER OF CREDIT FORM 
  
 ANNEX TO THE “HATOS” SECTOR EXPLORATION AND EXPLOITATION
CONTRACT 
  

					
	LETTER OF CREDIT NO.	  	 :
	  	  

			
	PLACE AND DATE OF ISSUANCE	  	 :
	  	  

			
	EXPIRATION DATE	  	 :
	  	 [         The time between this date and the date for termination of the commitments
shall not be of less than 60 days.         ]

			
	PAR VALUE	  	 :
	  	                     
(US$            )

			
	ISSUER BANK	  	 :
	  	 [         Name of the Issuer Bank
        ]

			
	BENEFICIARY	  	 :
	  	 Agencia Nacional de Hidrocarburos - ANH

			
	ORDERING PARTY	  	 :
	  	 [         Name of the Company
        ]

			
	NAME OF THE CONTRACT	  	 :
	  	 HATOS

  
 We hereby inform you that under the
name and to the order of [            Name of the Company             ], we have issued this irrevocable
stand-by letter of credit for the amount in Colombian pesos resulting from the conversion at the market exchange rate on the date the communication of non-fulfillment described below is sent to us for the amount of
             Dollars of the United States of America (US$            ), to guarantee compliance and
correct execution of all the obligations of Phase              for the Exploration Period, having a term of
             and of the other activities and obligations under the EXPLORATION AND EXPLOITATION CONTRACT, entered into between the companies of THE CONTRACTOR and ANH on
            , hereinafter referred to as THE CONTRACT. 
  
 It is agreed that the responsibility of the [            Name of the Issuer Bank
            ] under this stand-by letter of credit is exclusively limited to the above mentioned amount in Colombian legal currency. 
  
 In the event of non-fulfillment by THE CONTRACTOR of any or all the obligations and of other
activities related to said obligations under THE CONTRACT described in the first paragraph of this stand-by letter of credit hereinafter referred to as GUARANTEED OBLIGATIONS, the Beneficiary shall give notice on said non-fulfillment to
[            Name 

 Page 43 
  

 of the Issuer Bank             ] at the offices
in             , within the term of this letter of credit. Within fifteen (15) days after we received said notice, we will proceed to unconditionally pay to the order of the
Beneficiary the claimed amounts charged to this letter of credit, without exceeding in no case, the total guaranteed value. 
  
 If the mentioned notice of non-fulfillment is not given within the term of this letter of credit, our responsibility shall cease. 
  
 The notice informing to the
[            Name of the Issuer Bank             ] on non-fulfillment of the GUARANTEED OBLIGATIONS, shall
consist on a document duly signed by the Legal Representative of ANH or whoever acts in such condition, stating the non-fulfillment by THE CONTRACTOR of the GUARANTEED OBLIGATIONS and requesting payment of this letter of credit. Said notice shall
contain the number of this letter of credit and its value converted to Colombian currency at the market exchange rate effective on the date on which said notice is sent to us as certified by the Colombian Banking Superintendence or the entity
replacing it for said purpose. 
  
 This Document will be governed by the Rules and
Uniform Uses Related to the Documentary Credits (Last Revision) published by the International Chamber of Commerce (CCI). 
  
  

 Signature of the Legal
Representative of the Issuer BankUS Bank Credit Agreement; and Fifth Amendment

  
 
Exhibit 10 (c) 
  
 CREDIT AGREEMENT

 between 
 U.S. BANK
NATIONAL ASSOCIATION 
 and 
 SI TECHNOLOGIES, INC. 
 dated 
 June             , 2002 
  

 58 

					
	 Recitals
	  	 	  	62
			
	 ARTICLE I
	  	 DEFINITIONS
	  	62
	 Section 1.1
	  	 Defined Terms
	  	62
	 Section 1.2
	  	 Accounting Terms
	  	69
	 Section 1.3
	  	 Rules of Construction
	  	69
	 Section 1.4
	  	 Incorporation of Recitals
	  	69
			
	 ARTICLE II
	  	 THE REVOLVING CREDIT FACILITY
	  	70
	 Section 2.1
	  	 The Revolving Credit Facility
	  	70
	 Section 2.2
	  	 Use of Funds Borrowed Under the Revolving Credit Facility
	  	70
	 Section 2.3
	  	 Maximum Revolving Credit Commitment
	  	70
	 Section 2.4
	  	 The Revolving Credit Facility Note
	  	70
	 Section 2.5
	  	 The Revolving Loan Fee
	  	70
	 Section 2.6
	  	 Interest Rate and Payment Terms for the Revolving Credit Facility Note
	  	70
	 Section 2.7
	  	 Payment Terms
	  	70
	 Section 2.8
	  	 The Borrowing Base
	  	70
	 Section 2.9
	  	 Revolving Nature of the Revolving Credit Facility
	  	70
	 Section 2.10
	  	 Maturity Date of the Revolving Credit Facility
	  	71
	 Section 2.11
	  	 Manner of Borrowing
	  	71
	 Section 2.12
	  	 No Borrowing During Pendency of an Event of Default
	  	71
			
	 ARTICLE III
	  	 THE NEW TERM LOAN
	  	71
	 Section 3.1
	  	 The Term Loan
	  	71
	 Section 3.2
	  	 The Term Loan Fee
	  	71
	 Section 3.3
	  	 Interest Rate for the Term Loan
	  	71
	 Section 3.4
	  	 Repayment Terms of the Term Loan
	  	71
	 Section 3.5
	  	 Maturity Date of the Term Loan
	  	71
			
	 ARTICLE IV
	  	 MODIFICATION OF THE EXISTING TERM LOAN
	  	72
	 Section 4.1
	  	 Modified Interest Rate for the Existing Term Loan
	  	72
	 Section 4.2
	  	 Modified Repayment Terms of the Existing Term Loan
	  	72
	 Section 4.3
	  	 Subsequent Excess Cash Flow Payments
	  	72
	 Section 4.4
	  	 Maturity Date of the Existing Term Loan
	  	72
	 Section 4.5
	  	 Amendment of Term Loan Note
	  	72
			
	 ARTICLE V
	  	 CONDITIONS OF LENDING
	  	72
	 Section 5.1
	  	 Conditions Precedent
	  	72
	 Section 5.2
	  	 Ongoing Conditions
	  	73
			
	 ARTICLE VI
	  	 COLLATERAL FOR SI’S OBLIGATIONS
	  	73
	 Section 6.1
	  	 The New Security Agreements
	  	73
	 Section 6.2
	  	 The Guaranties
	  	73
	 Section 6.3
	  	 Continued Validity of the Security Documents
	  	73
	 Section 6.4
	  	 Assignment of Rights Under the Credit Insurance Policy
	  	74
	 Section 6.5
	  	 Other Documents
	  	74
	 Section 6.6
	  	 Appraisals and Collateral Examinations
	  	74

  

 59 

					
	 ARTICLE VII
	  	 MISCELLANEOUS PROVISIONS
	  	74
	 Section 7.1
	  	 Expenses of U.S. Bank
	  	74
	 Section 7.2
	  	 Prohibition on Overdrafts and Unfunded Items
	  	74
	 Section 7.3
	  	 Cash Collateral Account
	  	74
	 Section 7.4
	  	 Release of Claims
	  	74
	 Section 7.5
	  	 Foreign Credit Insurance
	  	75
	 Section 7.6
	  	 Information Regarding Credit Insurance Policy
	  	75
	 Section 7.7
	  	 Claim Procedure
	  	75
			
	 ARTICLE VIII
	  	 REPRESENTATIONS AND WARRANTIES
	  	76
	 Section 8.1
	  	 Existence and Power of SI
	  	76
	 Section 8.2
	  	 Existence and Power of AeroGo
	  	76
	 Section 8.3
	  	 Existence and Power of Revere
	  	76
	 Section 8.4
	  	 Authorization
	  	76
	 Section 8.5
	  	 Government Approvals
	  	76
	 Section 8.6
	  	 Binding Obligations
	  	76
	 Section 8.7
	  	 Litigation
	  	76
	 Section 8.8
	  	 Financial Condition
	  	77
	 Section 8.9
	  	 Title and Liens
	  	77
	 Section 8.10
	  	 Taxes
	  	77
	 Section 8.11
	  	 Other Agreements
	  	77
	 Section 8.12
	  	 Federal Reserve Regulations
	  	77
	 Section 8.13
	  	 Compliance With Laws
	  	77
	 Section 8.14
	  	 Continuing Representations
	  	77
			
	 ARTICLE IX
	  	 AFFIRMATIVE COVENANTS
	  	77
	 Section 9.1
	  	 Use of Proceeds
	  	77
	 Section 9.2
	  	 Payments
	  	77
	 Section 9.3
	  	 Preservation of Existence
	  	78
	 Section 9.4
	  	 Visitation Rights
	  	78
	 Section 9.5
	  	 Keeping of Books and Records
	  	78
	 Section 9.6
	  	 Maintenance of Property
	  	78
	 Section 9.7
	  	 Other Obligations
	  	78
	 Section 9.8
	  	 Insurance
	  	78
	 Section 9.9
	  	 Financial Information
	  	78
	 Section 9.10
	  	 Notification
	  	79
	 Section 9.11
	  	 Notification of Change of Name, Location, or Jurisdiction of Organization
	  	80
	 Section 9.12
	  	 Additional Acts
	  	80
			
	 ARTICLE X
	  	 FINANCIAL COVENANTS
	  	80
	 Section 10.1
	  	 Fixed Charge Coverage Ratio
	  	80
	 Section 10.2
	  	 Minimum EBITDA Covenant
	  	80
	 Section 10.3
	  	 Tangible Net Worth Covenant
	  	80
	 Section 10.4
	  	 Testing of Financial Covenants
	  	80
			
	 ARTICLE XI
	  	 NEGATIVE COVENANTS
	  	80
	 Section 11.1
	  	 Dividends or Distributions
	  	80
	 Section 11.2
	  	 Liquidation, Merger, or Sale of Assets
	  	80
	 Section 11.3
	  	 Indebtedness
	  	81
	 Section 11.4
	  	 Guaranties
	  	81
	 Section 11.5
	  	 Investments
	  	81
	 Section 11.6
	  	 Liens
	  	81
	 Section 11.7
	  	 Capital Expenditures
	  	81
	 Section 11.8
	  	 Operations
	  	81
	 Section 11.9
	  	 Loans and Investments
	  	81
	 Section 11.10
	  	 Operating Leases
	  	81
	 Section 11.11
	  	 Prohibition on Change in Ownership
	  	81

  

 60 

					
	 ARTICLE XII
	  	 EVENTS OF DEFAULT
	  	82
	 Section 12.1
	  	 Events of Default
	  	82
	 Section 12.2
	  	 Consequences of Default
	  	82
			
	 ARTICLE XIII
	  	 GENERAL TERMS AND CONDITIONS
	  	82
	 Section 13.1
	  	 Remedies Cumulative
	  	82
	 Section 13.2
	  	 Governing Law
	  	83
	 Section 13.3
	  	 Consent to Jurisdiction and Venue, Waiver of Immunities
	  	83
	 Section 13.4
	  	 Notices
	  	83
	 Section 13.5
	  	 Assignment
	  	83
	 Section 13.6
	  	 Severability
	  	83
	 Section 13.7
	  	 Waiver of Jury Trial
	  	84
	 Section 13.8
	  	 Entire Agreement
	  	84
	 Section 13.9
	  	 Amendment
	  	84
	 Section 13.10
	  	 Interpretation
	  	84
	 Section 13.11
	  	 Waiver
	  	84
	 Section 13.12
	  	 Headings
	  	84
	 Section 13.13
	  	 Construction
	  	84
	 Section 13.14
	  	 Statutory Notice
	  	84

  

 61 

 CREDIT AGREEMENT 
  
 This Credit Agreement (the “Agreement”) is entered into on June     , 2002, between U.S. BANK NATIONAL ASSOCIATION (“U.S.
Bank”) and SI TECHNOLOGIES, INC. (“SI”). 
  
 RECITALS 
  
 A. U.S. Bank extends to SI a
revolving credit facility in the amount of $8,000,000 and a term loan facility. The terms and conditions of those credit facilities are set forth in an Amended and Restated Credit Agreement dated July 10, 1998, between U.S. Bank and SI (which
agreement, as modified and amended, is referred to herein as the “Existing Credit Agreement”). 
  
 B. As of June 12, 2002, SI owed U.S. Bank the principal amount of $7,010,024.51 and accrued interest of $144,359.66 pursuant to a promissory note dated March 9, 2001, evidencing SI’s obligations in respect of the
existing revolving credit facility extended by U.S. Bank. The promissory note referred to in the preceding sentence is referred to below as the “Existing Revolving Note.” 
  
 C. As of June 12, 2002, SI owed U.S. Bank the principal amount of $4,708,898.71 and accrued interest of $7,913.57 pursuant to a promissory
note dated November 15, 2000, in the original principal amount of $6,891,071.32 (the “Existing Term Loan Note”). The loan evidenced by the Existing Term Loan Note is referred to in this Agreement as the “Existing Term Loan.”

  
 D. Interest continues to accrue on SI’s obligations to U.S. Bank pursuant
to the Existing Revolving Note and the Existing Term Loan Note on and after June     , 2002. In addition, SI is obligated to reimburse U.S. Bank (or pay directly if requested to do so by U.S. Bank) for fees and costs
incurred by U.S. Bank in connection with its banking relationship with SI, including reasonable attorney fees. 
  
 E. SI’s obligations pursuant to the Existing Revolving Note and the Existing Term Loan Note are secured by first priority security interests and liens in, among other things, all accounts, chattel paper,
equipment, general intangibles, and inventory of SI, as more particularly specified in various security agreements executed by SI in favor of U.S. Bank. In addition, SI’s obligations pursuant to the Existing Revolving Note and the Existing Term
Loan Note are secured by first priority security interests and liens in, among other things, all accounts, chattel paper, equipment, general intangibles, and inventory of the Domestic Subsidiaries. The security interests referred to in the two
preceding sentences are referred to collectively in this Agreement as the “Existing Security Agreements.” 
  
 F. SI’s obligations pursuant to the Existing Revolving Note and the Existing Term Loan Note also are secured by a pledge of the stock owned by SI of Allegany, Inc.,
NV Technology, Inc., and Revere. Furthermore, the existing loans are secured by Allegany, Inc.’s, pledge of the stock it owns of Allegany Technologies, Inc., and by Selectaid Limited’s pledge of stock it owns of Revere BV. The pledge
agreements referred to in this Recital F are referred to below collectively as the “Existing Pledge Agreements.” 
  
 G. The credit facility evidenced by the Existing Revolving Note has matured and U.S. Bank’s commitment to extend revolving credit to SI has expired. SI has asked
U.S. Bank to continue to extend a revolving credit facility to SI. U.S. Bank is willing to do so, subject to the terms and conditions set forth in this Agreement. 
  
 NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which hereby are acknowledged, U.S. Bank and SI agree as follows:

  
 ARTICLE I 
  
 DEFINITIONS 
  
 Section 1.1 Defined Terms. As used in this Agreement, the following
terms have the following meanings, which apply to both the singular and plural forms of the terms defined: 
  
 “Accounts” means all accounts (as defined in ORS Chapter 79 (or any successor statute)) of SI and its Subsidiaries.

  
 “Adjusted EBITDA” means,
during any period in question, EBITDA minus (a) cash payments in respect of income taxes of SI and its Subsidiaries, (b) cash dividends or distributions to shareholders of SI and its Subsidiaries, and (c) Unfunded Capital Expenditures of SI and its
Subsidiaries. 
  
 “Advance” and
“Advances” have the meanings specified in Section 2.1 of this Agreement. 
  

 62 

 “AeroGo” means AeroGo, Inc., and any Successor thereof. 
  
 “Affiliate” means any Person (a) that
directly or indirectly controls, is controlled by, or is under common control with SI; (b) that directly or indirectly owns or holds 5 percent or more of any class of voting stock of SI; or (c) 5 percent or more of the voting stock of which is
directly or indirectly owned or held by SI. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise. 
  
 “Aggregate Net Income” has the meaning specified in Section 10.3 of this Agreement. 
  
 “Agreement” means this Credit Agreement, and any amendments, modifications, renewals, or restatements thereof.

  
 “Borrowing Base” has the
meaning specified in Section 2.8 of this Agreement. 
  
 “Budget” has the meaning specified in Section 9.9(j) of this Agreement. 
  
 “Business Day” means a day on which U.S. Bank is open for business in Portland, Oregon, and Minneapolis, Minnesota.

  
 “Capital Expenditures” means
any expenditure by SI and its Subsidiaries for fixed or capital assets, leasehold improvements, Capital Leases, installment purchases of machinery and equipment, acquisitions of real estate, and other similar expenditures including (a) in the case
of a purchase, the entire amount SI (or the Subsidiary) is contractually obligated to pay during the period in question (whether or not paid), (b) in the case of a Capital Lease, the entire implied principal amount SI (or the Subsidiary) is
contractually obligated to pay during the period in question (whether or not paid), and (c) expenditures in any construction in progress account of SI (or a Subsidiary). 
  
 “Capital Lease” means any lease of property (real, personal, or mixed) that in accordance
with GAAP should be capitalized on the lessee’s balance sheet. 
  
 “Capital Lease Obligation” means the amount of the liability with respect to a Capital Lease that should be capitalized in accordance with GAAP. 
  
 “Cash Collateral Account” has the meaning
specified in Section 7.3 of this Agreement. 
  
 “Collateral” means all of the assets of SI and the Subsidiaries described in the Security Documents. 
  
 “Credit Insurance Deductible” means the amount of any deductible payable by SI pursuant to the Credit Insurance Policy.

  
 “Credit Insurance Policy”
means a policy of insurance obtained by SI, which policy must be in a form satisfactory to U.S. Bank in its reasonable discretion and issued by an insurer satisfactory to U.S. Bank in its reasonable discretion, insuring the payment of Accounts of SI
or its Subsidiaries with respect to which the account debtor is not a resident of the United States or Canada or a Person incorporated under the laws of a state in the United States or a province in Canada. 
  
 “Dating” means the practice of giving
credit beyond a stated period by forward dating of an invoice. For example, a buyer otherwise obligated to pay for a purchase within 30 days may be given a postdated invoice bearing a date a month later than the actual date of purchase, which, in
effect, means that the buyer now has 60 days in which to make payment. 
  
 “Default Interest Rate” means, with respect to the loan in question, an interest rate that is 5 percent per annum greater than the interest rate that was applicable to such loan immediately prior to
the Event of Default that resulted in the invocation of the Default Interest Rate. 
  
 “Domestic Subsidiaries” means AeroGo and Revere. 
  
 “EBITDA” means, for any period in question, an amount equal to the Net Income for such
period, plus the following, to the extent deducted or excluded in computing such Net Income: (a) interest expense of SI and its Subsidiaries, (b) income taxes of SI and its Subsidiaries, (c) depreciation of SI and its Subsidiaries, and (d)
amortization of SI and its Subsidiaries (all as determined in accordance with GAAP). 
  

 63 

 “Eligible Accounts Receivable” means all Accounts of SI and the
Subsidiaries meeting all of the following criteria and in which U.S. Bank has a perfected, first priority security interest: 
  
 (a) An Account that arose from a bona fide sale of goods by SI (or a Subsidiary), or as a result of services performed by SI (or a
Subsidiary) under an enforceable contract, provided that such goods have been shipped to the appropriate account debtor (or the sale otherwise has been consummated), and, in the case of services, the services have been performed for the account
debtor in question in accordance with the contract or agreement governing such services; 
  
 (b) An Account as to which the title of SI (or a Subsidiary) to the Account is absolute and is not subject to any prior assignment, claim,
lien, or security interest, other than the security interests created by the Loan Documents; 
  
 (c) An Account as to which the amount shown on the books of SI (or the Subsidiary) is owing to SI (or the Subsidiary) and no partial
payment has been made thereon, except as reflected on the books of SI (or the Subsidiary); 
  
 (d) An Account to the extent that it is not subject to any reduction, counterclaim, setoff, recoupment, or any present claim for credits,
allowances, or adjustment by the account debtor because of returned, inferior, or damaged goods, or unsatisfactory services, or for any other reason, except for customary discounts allowed for prompt payment (provided, however, that at all times SI
shall reduce the amount of Eligible Accounts Receivable by the actual amount of credits, offsets, allowances, or adjustments against Accounts outstanding at the time in question, as reported by SI in its weekly borrowing certificates, subject to
U.S. Bank’s review and approval in its reasonable discretion); 
  
 (e) An Account as to which the account debtor is not an Affiliate of SI, or an officer, director, or employee of SI (or a Subsidiary); 
  
 (f) An Account to the extent that it does not result from, include, or constitute late charges, service
charges, or interest; 
  
 (g) An Account that is
not more than 60 days past due, or more than 90 days old (as measured from the date of invoice); 
  
 (h) An Account that is not an obligation of an account debtor with more than 25 percent of the total amount of its Accounts payable to SI
(and the Subsidiaries) that are more than 60 days past due, or more than 90 days old (as measured from the date of the invoice); 
  
 (i) An Account that does not arise out of a contract with, or order from, an account debtor that by its terms forbids or makes the
assignment of that Account to U.S. Bank void or unenforceable; 
  
 (j) An Account as to which the account debtor is not the United States of America, or any agency, division, unit, instrumentality, or branch thereof; 
  
 (k) An Account as to which SI (or the Subsidiary) has not received any note, trade acceptance, draft, or
other instrument with respect to the goods or services giving rise to the account (and, if any such instrument or chattel paper is received, SI immediately shall notify U.S. Bank and, at U.S. Bank’s request, shall endorse or assign (or cause it
to be endorsed or assigned) and deliver the same to U.S. Bank); 
  
 (l) An Account as to which SI (or a Subsidiary) has not received any notice of the death of the account debtor, or of the dissolution, termination of existence, insolvency, business failure, appointment of a receiver
for any part of the property of, assignment for the benefit of creditors by, or the filing of a petition in bankruptcy or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the account debtor (and upon the
receipt of any such notice, SI immediately shall advise U.S. Bank of the event or occurrence in question); 
  
 (m) An Account as to which the account debtor’s obligation to SI (or a Subsidiary) is denominated and payable in United States
currency; 
  

 64 

 (n) An Account to the extent that it does not consist of Retainage; 
  
 (o) An Account to the extent that it does not result from or
consist of prebillings; 
  
 (p) An Account to the
extent that it does not result from or consist of progress billings in excess of the amount permitted by the terms of the applicable contract; 
  
 (q) An Account to the extent that it does not consist of claims by SI (or a Subsidiary) for work beyond the scope of the original contract
with the account debtor for which no change order has been issued and approved by the account debtor in question; 
  
 (r) An Account that does not arise out of a consignment transaction, or a sale or return agreement; 
  
 (s) An Account that is not subject to an agreement providing
for Dating of the account debtor’s obligation to pay for the goods or services in question (unless, notwithstanding the Dating of an Account, the account debtor is obligated to pay for the goods or services by the earlier of (i) 90 days after
the sale of the goods (or services), or (ii) 90 days after the date of the invoice with respect to such goods (or services)), except the remaining portion (approximately $125,000) due to SI by Consolidated Freightways, Inc., pursuant to a contract
in the original amount of approximately $250,000 that provided for 12 equal monthly payments, the remaining balance of approximately $65,000 owed to SI by Tramanco in respect to Tramanco’s initial order of goods from SI, and an Account from
Roadway Express, Inc., with a remaining balance of approximately $32,000 that relates to certain demonstration equipment; 
  
 (t) An Account as to which the account debtor’s financial condition is acceptable to U.S. Bank in its good faith discretion
(provided, however, that unless U.S. Bank gives SI prior written notice that the financial condition of an account debtor of SI is not acceptable to U.S. Bank, an Account of an existing account debtor of SI (or a Subsidiary) shall not become
ineligible under this item (t) of the definition of Eligible Accounts Receivable without at least 30 days’ prior written notice from U.S. Bank to SI that the financial condition of the account debtor in question is not acceptable to U.S. Bank,
in its good faith discretion); and 
  
 (u) An
Account that is not an Account that U.S. Bank, in its reasonable discretion, determines to be ineligible in whole or in part and has provided SI at least 30 days’ prior written notice thereof. 
  
 If the total amount owed by any account debtor to SI and its Subsidiaries
exceeds 20 percent of the aggregate amount of Eligible Accounts Receivable, U.S. Bank may in its good faith discretion require that amounts in excess of such amount be excluded from the determination of Eligible Accounts Receivable, and may impose
such other limitations on such Accounts as are reasonable. 
  
 “Eligible Domestic Accounts” means all Eligible Accounts Receivable of SI and the Domestic Subsidiaries with respect to which (a) the account debtor is a resident of the United States or Canada, or a
Person incorporated under the laws of a state in the United States or a province in Canada, (b) the account arises out of goods sold or services performed by SI or a Subsidiary in the United States or Canada, and (c) the goods sold or services
performed are delivered or provided to the account debtor in the United States or Canada. 
  
 “Eligible Insured Foreign Accounts” means Eligible Accounts Receivable of SI or a Subsidiary to the extent that such
accounts are covered by the Credit Insurance Policy. If as of the date that an Account is generated by SI (or any Subsidiary covered by the Credit Insurance Policy), any amount owing from the account debtor to SI (or the Subsidiary, as applicable)
is more than 90 days past due (excluding amounts that are less than 10 percent of the Credit Insurance Deductible and amounts disputed by the account debtor, provided that such dispute has been acknowledged by SI (or the Subsidiary, as applicable)),
then the newly generated Account is not an Eligible Insured Foreign Account. Notwithstanding anything in this Agreement to the contrary, an Account that initially was an Eligible Insured Foreign Account shall not cease to be an Eligible Insured
Foreign Account merely because it was not timely paid by the account debtor, provided that (a) the account debtor does not dispute its obligation to pay the Account in question, and (b) SI (or the Subsidiary, as applicable) (i) has timely complied
with all provisions of the Credit Insurance Policy regarding proof of loss (including any requirements involving making demand for payment on the account debtor and submitting proof of loss to the insurer), (ii) has complied with the provisions of
Section 7.7 of this Agreement (if such provisions are applicable to the account or accounts in question), and (iii) has made a claim under the Credit Insurance Policy with respect 

  

 65 

 
to the account in question before the deadline under the Credit Insurance Policy for filing a claim of loss with respect to the full amount of the Account.

  
 “Eligible Inventory” means
all inventory (as defined in ORS Chapter 79 (or any successor statute)) of raw materials and finished goods of SI and the Domestic Subsidiaries in which U.S. Bank has a perfected, first-priority security interest, except the following: 

 
 (a) Work-in-process; 
  
 (b) Slow-moving, damaged, or obsolete inventory (as
determined by U.S. Bank in its reasonable discretion); 
  
 (c) All goods that are on consignment; 
  
 (d) All goods that are leased to or from others by SI (or a Subsidiary); 
  
 (e) Inventory located outside the United States; 
  

(f) Inventory with respect to which SI (or a Subsidiary) has received progress payments, predelivery payments, deposits, or other sums
in anticipation of the sale of such inventory (to the extent of such payments, deposits, or other sums); 
  
 (g) All goods provided to any Person on a demonstration basis, or sold subject to approval after use by the purchaser; 
  
 (h) Inventory that SI (or a Subsidiary) has returned, or
intends to return, to the manufacturer or supplier thereof under the terms of the manufacturer’s or supplier’s warranty agreement or other agreement governing the sale of the goods in question; 
  
 (i) Inventory of SI (or a Subsidiary) to the extent of the
unpaid acquisition cost of such inventory (if such unpaid acquisition cost is secured by a Lien encumbering the inventory); 
  
 (j) Inventory located in a facility owned by a Person other than SI (or a Subsidiary), unless SI has obtained from such Person a written
waiver of any Lien or claim such Person has or hereafter may have or claim to have against such inventory (which waiver shall be in form and content satisfactory to U.S. Bank in its reasonable discretion); and 
  
 (k) Other inventory that U.S. Bank in its reasonable
discretion determines should not be included in the Borrowing Base. 
  
 The value
of Eligible Inventory shall be determined in accordance with the lower of cost or market method of determining inventory value. 
  
 “Environmental Laws” means any and all applicable federal, state, and local environmental, health, or safety statutes,
laws, regulations, rules, and ordinances (whether now existing or hereafter enacted or promulgated), and all applicable judicial, administrative, and regulatory decrees, judgments, and orders, including common law rulings and determinations,
relating to injury to, or the protection of, human health or the environment, including, without limitation, all requirements pertaining to reporting, licensing, permitting, investigation, remediation, and removal of emissions, discharges, releases,
or threatened releases of Hazardous Materials into the environment, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of such Hazardous Materials. 
  
 “Event of Default” has the meaning
specified in Section 12.1 of this Agreement. 
  
 “Excess Cash Flow” has the meaning specified in Section 4.3 of this Agreement. 
  
 “Existing Credit Agreement” has the meaning specified in Recital A of this Agreement. 
  

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 “Existing Pledge Agreements” has the meaning specified in Recital F of
this Agreement, and includes any amendments, modifications, renewals, and restatements thereof. 
  
 “Existing Revolving Note” has the meaning specified in Recital B of this Agreement. 
  
 “Existing Security Agreements” has the
meaning specified in Recital E of this Agreement, and includes any amendments, modifications, renewals, and restatements thereof. 
  
 “Existing Term Loan Maturity Date” has the meaning specified in Section 4.4 of this Agreement. 
  
 “Existing Term Loan Note” has the meaning
specified in Recital C of this Agreement. 
  
 “Fixed Charge Coverage Ratio” has the meaning specified in Section 10.1 of this Agreement. 
  
 “Fixed Charges” means, for any period in question, the sum of (a) interest expense of SI (and its Subsidiaries), (b) the
aggregate amount of all principal payments (other than payments with respect to the Revolving Credit Facility) made, accrued, or becoming due in respect of any Indebtedness of SI (and its Subsidiaries), and (c) Capital Lease expense of SI (and its
Subsidiaries). 
  
 “GAAP” means
the generally accepted accounting principles issued by the American Institute of Certified Public Accountants in effect in the United States at the time of application to the provisions of this Agreement. 
  
 “Government Approval” means an approval,
permit, license, authorization, certificate, or consent of any Governmental Authority. 
  
 “Governmental Authority” means the government of the United States, or any state or any foreign country or any political
subdivision of any thereof, or any branch, department, agency, instrumentality, court, tribunal, or regulatory authority that constitutes a part of or exercises any sovereign power of any of the foregoing. 
  
 “Guaranties” has the meaning specified in
Section 6.2 of this Agreement. 
  
 “Hazardous Material” means any substance (a) the presence of which requires notification, removal, or remediation under any Environmental Law; (b) that is or becomes defined as a “hazardous waste,” “hazardous
material,” or “hazardous substance” under any present or future Environmental Law, or amendments thereto, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601,
et seq.) and any applicable local statutes and the regulations promulgated thereunder; (c) that is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, or otherwise hazardous and that is or becomes regulated pursuant to any
Environmental Law; or (d) without limitation, that contains gasoline, diesel fuel, or other petroleum products, asbestos, or polychlorinated biphenyls. 
  
 “Indebtedness” means (a) all items of indebtedness or liability (except capital surplus, deferred credits, and reserves)
that would be included in determining total liabilities as shown on the liability side of a balance sheet as of the date on which indebtedness is determined, (b) indebtedness secured by any Lien, whether or not such indebtedness shall have been
assumed, (c) any other indebtedness or liability for borrowed money, or for the deferred purchase price of property or services for which the obligor is directly or contingently liable as obligor, guarantor, or otherwise, or in respect of which the
obligor otherwise assures a creditor against loss, and (d) any other obligations of an obligor under a lease that has been (or should be) reflected as a Capital Lease in the obligor’s books and records. 
  
 “Lien” means any security interest, pledge,
mortgage, charge, assignment, hypothecation, encumbrance, attachment, garnishment, execution, or other voluntary or involuntary lien or charge upon (or affecting the revenues of) any real property or personal property. 
  
 “Loan Documents” means this Agreement, the
Notes, the Security Documents, any other documents executed by SI or any Subsidiary in favor of U.S. Bank (whether before, on, or after the date of this Agreement) in relation to the loans evidenced by the Notes or any security for or guaranties of
those loans, and any amendments, modifications, renewals, and restatements thereof. 
  
 “Material Adverse Effect” means (a) a material adverse effect on the business, assets, operations, prospects, or
financial condition of SI and its Subsidiaries (taken as a whole), (b) a material impairment of SI’s ability to pay or perform its obligations under the Loan Documents in accordance with the terms thereof, (c) a material impairment of the
Collateral, U.S. Bank’s Liens on the Collateral, or the priority of such Liens, or (d) a material impairment of U.S. Bank’s rights and remedies under the Loan Documents. 
  

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 “Maturity Date” has the meaning specified in Section 2.10 of this
Agreement. 
  
 “Net Income”
means, for any period in question, the consolidated net income of SI and its Subsidiaries for such period, determined in accordance with GAAP, but in any event there shall be excluded or deducted from such net income (a) any gain or loss arising
from any write-up of assets, except to the extent inclusion thereof shall be approved in writing by U.S. Bank (in its sole and absolute discretion); (b) any extraordinary or nonrecurring gains; (c) the proceeds of any life insurance policy received
during such period; and (d) any reversal of any contingency reserve, except to the extent that provision for such contingency reserve shall have been made from income arising during such period. 
  
 “Net Worth” means, at any date as of which
the amount thereof shall be determined, the consolidated total assets of SI and its Subsidiaries minus (a) the consolidated total liabilities of SI and its Subsidiaries, and (b) the sum of any amounts attributable to (i) all reserves not already
deducted from assets or included in total liabilities, (ii) any write-up in the book value of assets resulting from any revaluation thereof subsequent to the date of the most recent audited annual financial statement of SI provided to U.S. Bank,
(iii) the value of any minority interests in Subsidiaries, (iv) intercompany accounts with Subsidiaries and Affiliates (including receivables due from Subsidiaries and Affiliates) (to the extent included in total assets and not included in total
liabilities), (v) the value, if any, attributable to any capital stock of SI held in treasury, and (vi) the value, if any, attributable to any notes or subscriptions receivable due from stockholders in respect of capital stock. 
  
 “Notes” means the Revolving Credit Facility
Note, the Term Loan Note, and the Existing Term Loan Note, and any amendments, modifications, renewals, and restatements thereof. 
  
 “Obligations” means all of SI’s obligations to U.S. Bank, including, but not limited to, SI’s obligations
pursuant to the Notes, this Agreement, any automated clearing house services or other cash management services U.S. Bank makes available to SI (or any Subsidiary), and all obligations of SI (and the Subsidiaries) in relation to any VISA credit
facilities extended by U.S. Bank (or any Affiliate of U.S. Bank). 
  
 “Permitted Carryover” has the meaning specified in Section 11.7 of this Agreement. 
  
 “Permitted Liens” means, with respect to SI and its Subsidiaries, (a) Liens for taxes, assessments, or other governmental
charges or levies not delinquent, or being contested in good faith and by appropriate proceedings and with respect to which proper reserves have been taken by SI and its Subsidiaries; (b) deposits or pledges securing obligations under worker’s
compensation insurance, unemployment insurance, social security, or public liability laws or similar legislation; (c) deposits or pledges securing bids, tenders, contracts (other than contracts for the payment of money), leases, statutory
obligations, surety bonds and appeal bonds, and other obligations of like nature arising in the ordinary course of SI’s (or a Subsidiary’s) business; (d) judgment Liens that have been stayed or bonded; (e) mechanics’, workers’,
materialmen’s, or other like Liens arising in the ordinary course of SI’s (or a Subsidiary’s) business with respect to obligations that are not due, or that remain payable without penalty, or the validity or amount of which is being
contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof, (f) Liens placed upon fixed assets acquired after the date of this Agreement to secure a portion of the purchase price thereof, provided that any
such Lien shall not encumber any other property of SI (or a Subsidiary); and (g) Liens in favor of U.S. Bank. 
  
 “Person” means an individual, sole proprietorship, partnership, corporation, limited liability company, business trust,
joint stock company, trust, unincorporated association, joint venture, Governmental Authority, or other entity of whatever nature. 
  
 “Prime Rate” means the rate publicly announced by U.S. Bank on the day in question at its principal office as its
“prime rate” or “reference rate” of interest. The Prime Rate is not necessarily the lowest rate of interest charged by U.S. Bank and does not necessarily correspond to the rate offered to U.S. Bank’s most substantial
commercial customer or borrower. 
  
 “Retainage” means that portion of the purchase price of goods sold or services provided by SI (or any Subsidiary) that the buyer thereof is not obligated to pay to SI (or any Subsidiary) until the end of a specified period
of time following the satisfactory performance by SI (or any Subsidiary) under the agreement governing the transaction in question. 
  
 “Revere” means Revere Transducers, Inc., and any Successor thereof. 
  
 “Revere BV” means Revere Transducers Europe
BV, and any Successor thereof. 
  
 “Revolving Credit Facility” has the meaning specified in Section 2.2 of this Agreement. 
  

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 “Revolving Credit Facility Note” has the meaning specified in Section
2.4 of this Agreement, and includes any amendments, modifications, renewals, and restatements thereof. 
  
 “Security Agreements” means the Existing Security Agreements and the security agreements described in Section 6.1 of this
Agreement, and includes any amendments, modifications, renewals, and restatements thereof. 
  
 “Security Documents” means the Security Agreements and the Existing Pledge Agreements. 
  
 “SI” means SI Technologies, Inc., and any
Successor thereof. 
  
 “Subordinated
Indebtedness” means loans to SI that are the subject of a Subordination Agreement. 
  
 “Subordination Agreement” means an agreement in form and content satisfactory to U.S. Bank in its reasonable discretion
whereby certain Persons who have loaned money to SI agree that their right to payment of such loans is junior and subordinate to U.S. Bank’s right to payment of the Obligations. 
  
 “Subsidiary” means any corporation of which shares of stock having ordinary voting power to
elect a majority of the board of directors, or other managers of such corporation, are at the time owned or controlled, directly or indirectly, by SI (or the management of which corporation otherwise is controlled directly or indirectly by SI).

  
 “Successor” means, for any
corporation, limited liability company, or banking association, any successor by merger or consolidation, or by acquisition of substantially all of the stock, membership interests, or assets of the predecessor. 
  
 “Tangible Net Worth” means Net Worth minus
goodwill of SI and its Subsidiaries and all other assets of SI and its Subsidiaries properly classified as intangible assets in accordance with GAAP. 
  
 “Tax” means any tax, assessment, duty, levy, or other charge imposed by any Governmental Authority on any property,
revenue, income, or franchise of any Person, and any interest or penalty with respect to any of the foregoing. 
  
 “Term Loan” has the meaning specified in Section 3.1 of this Agreement. 
  
 “Term Loan Note” has the meaning specified
in Section 3.1 of this Agreement, and includes any amendments, modifications, renewals, and restatements thereof. 
  
 “Unfunded Capital Expenditures” means, for any period in question, the sum of all Capital Expenditures of SI and its
Subsidiaries less the sum of all new financing amounts received or assumed by SI or any Subsidiary to acquire the capital assets in question. 
  
 “U.S. Bank” means U.S. Bank National Association and any Successor or assign thereof. 
  
 Section 1.2 Accounting Terms. Unless otherwise provided in this
Agreement, accounting terms that are not defined specifically in this Agreement shall be interpreted and construed in accordance with GAAP and all accounting procedures shall be performed in accordance with GAAP. 
  
 Section 1.3 Rules of Construction. For purposes of this Agreement, the
following rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or the plural form shall include the singular and the plural
form thereof, (b) the term “or” is not exclusive; (c) the term “including” (or any form of that term) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments thereof
and any successor statutes and regulations; (e) the words “this Agreement,” “herein,” “hereof,” “hereunder,” or other words of similar import refer to this Agreement as a whole, including any schedules,
exhibits, and annexes hereto, as the same may be amended, modified, or supplemented; (f) all references in this Agreement to sections, schedules, exhibits, and annexes shall refer to the corresponding sections, schedules, exhibits, and annexes of or
to this Agreement; and (g) all references to any instruments or agreements, including references to any of the Loan Documents, shall include any and all amendments, extensions, modifications, renewals, and restatements thereof, to the extent
permitted under this Agreement. 
  
 Section 1.4 Incorporation
of Recitals. The Recitals to this Agreement hereby are incorporated into and constitute a part of this Agreement. 
  

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 ARTICLE II 
  
 THE REVOLVING CREDIT FACILITY 
  
 Section 2.1 The Revolving Credit Facility. Upon satisfaction of the conditions precedent specified in Section 5.1 of
this Agreement, and subject to the terms and conditions of this Agreement, U.S. Bank agrees to make loans and advances of credit to SI (each of which loans and advances is referred to in this Agreement as an “Advance,” and all of which are
referred to in this Agreement collectively as the “Advances”). Upon the effective date of this Agreement, the Revolving Credit Facility shall replace and supersede the operating credit facility extended by U.S. Bank to SI pursuant to the
Existing Revolving Note. 
  
 Section 2.2 Use of Funds Borrowed
Under the Revolving Credit Facility. Upon the effective date of this Agreement, SI shall cause an Advance to be made under the Revolving Credit Facility in an amount equal to the principal balance outstanding under the Existing Revolving Note
minus $1,500,000. The funds advanced in accordance with the preceding sentence of this Agreement shall be applied to SI’s obligation to U.S. Bank in respect of the Existing Revolving Note. Thereafter, funds borrowed by SI under the revolving
credit facility governed by this Agreement (which credit facility is referred to in this Agreement as the “Revolving Credit Facility”) shall be used by SI only for general corporate purposes in the ordinary course of SI’s business.

  
 Section 2.3 Maximum Revolving Credit Commitment. The
maximum amount of credit that may be outstanding to SI under the Revolving Credit Facility at any time is the lesser of (a) $6,500,000, or (b) the Borrowing Base at the time in question. If the amount outstanding with respect to the Revolving Credit
Facility at any time exceeds the lesser of the amounts specified in the preceding sentence, SI within three Business Days shall pay U.S. Bank an amount equal to such excess (and SI’s failure to make such payment shall constitute an Event of
Default). 
  
 Section 2.4 The Revolving Credit Facility
Note. Contemporaneously with the execution of this Agreement, SI shall execute and deliver to U.S. Bank a promissory note in form and content satisfactory to U.S. Bank in its reasonable discretion evidencing SI’s obligation to repay amounts
advanced to SI pursuant to the Revolving Credit Facility (the “Revolving Credit Facility Note”). Advances to SI pursuant to the Revolving Credit Facility shall be evidenced by and repaid by SI in accordance with the Revolving Credit
Facility Note and this Agreement. 
  
 Section 2.5 The Revolving
Loan Fee. Contemporaneously with the execution of this Agreement, SI shall pay U.S. Bank a fee of $24,375 in consideration of U.S. Bank’s commitment to extend the Revolving Credit Facility to SI on the basis set forth in this Agreement.

  
 Section 2.6 Interest Rate and Payment Terms for the
Revolving Credit Facility Note. Amounts advanced by U.S. Bank to SI under the Revolving Credit Facility shall bear interest at the Prime Rate plus 2.75 percent per annum. Following the occurrence of an Event of Default (if any) and during the
continuance thereof, U.S. Bank shall be entitled to charge, and SI shall be obligated to pay, interest on the principal balance outstanding under the Revolving Credit Facility Note at the Default Interest Rate. Interest owed by SI pursuant to the
Revolving Credit Facility Note shall be calculated on the basis of a 360-day year (as more particularly described in the Revolving Credit Facility Note). 
  
 Section 2.7 Payment Terms. SI shall make monthly payments of interest in arrears to U.S. Bank in respect of the Revolving Credit Facility Note
commencing on July 1, 2002, and on the first day of each month thereafter until the Maturity Date. 
  
 Section 2.8 The Borrowing Base. As used in this Agreement, the term “Borrowing Base” means the sum of (a) 80 percent of Eligible Domestic
Accounts Receivable at the time in question, (b) 90 percent of Eligible Foreign Accounts Receivable at the time in question, and (c) 50 percent of Eligible Inventory at the time in question, provided, however, that the aggregate amount of Advances
supported by Eligible Inventory shall not exceed $4,000,000 at any time. 
  
 Section 2.9 Revolving Nature of the Revolving Credit Facility. The Revolving Credit Facility is a revolving credit facility. Therefore, subject to the terms of this Agreement, SI may pay, repay, and re-borrow
amounts under that credit facility. 
  

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 Section 2.10 Maturity Date of the Revolving Credit Facility. On the earlier of (a) November 30,
2002, or (b) acceleration of the Obligations following an Event of Default, if any, under this Agreement, U.S. Bank’s commitment to extend credit pursuant to the Revolving Credit Facility shall terminate. The earlier of the dates specified in
the preceding sentence of this Agreement is referred to in this Agreement as the “Maturity Date.” On the Maturity Date, SI shall be obligated to pay in full the entire balance of principal, interest, and fees owed pursuant to the Revolving
Credit Facility Note. 
  
 Section 2.11 Manner of Borrowing.
In order to request an Advance under the Revolving Credit Facility, SI shall provide U.S. Bank with a written borrowing request in a form approved by U.S. Bank in its reasonable discretion. Each borrowing request by SI shall identify in reasonable
detail the amount of the Borrowing Base (as determined in the bi-weekly borrowing base certificate then in effect) and the amount of the Advance requested by SI. Each borrowing request by SI shall constitute a representation and warranty by SI that,
as of the date of the request, no Event of Default (or no event that with the giving of notice, or the passage of time, or both, would constitute an Event of Default) has occurred and is continuing. U.S. Bank will disburse any Advance to which SI is
entitled under this Agreement by crediting the proceeds of the Advance to operating checking account no. 153501647538 maintained by SI with U.S. Bank. U.S. Bank shall not be required to make any Advance requested by SI at any time that SI has not
timely submitted its bi-weekly Borrowing Base certificate in accordance with Section 9.9(a) or Section 9.9(b) of this Agreement. 
  
 Section 2.12 No Borrowing During Pendency of an Event of Default. SI shall not be entitled to borrow under the Revolving Credit Facility at any
time that an Event of Default exists, or at any time that an event has occurred that with the giving of notice, or the passage of time, or both, would constitute an Event of Default. 
  
 ARTICLE III 
  
 THE NEW TERM LOAN 
  
 Section 3.1 The Term Loan. On the effective date of this Agreement, U.S. Bank shall convert to a new term loan (the “Term Loan”)
$1,500,000 of the principal amount owed by SI to U.S. Bank in respect of the Existing Revolving Note as of the effective date of this Agreement. Contemporaneously with the execution of this Agreement, SI shall execute and deliver to U.S. Bank a
promissory note in form and content satisfactory to U.S. Bank in its reasonable discretion evidencing SI’s repayment obligations in respect of the Term Loan (which note is referred to in this Agreement as the “Term Loan Note”). The
Term Loan shall be repaid by SI in accordance with the provisions of the Term Loan Note and this Agreement. 
  
 Section 3.2 The Term Loan Fee. On or before the date of this Agreement, SI shall pay U.S. Bank a fee of $7,500 in respect of the Term Loan. In
addition, if SI is not in compliance with each of the financial covenants set forth in Section 10.1 through Section 10.3 of this Agreement as of the end of SI’s 2002 fiscal year, SI shall pay U.S. Bank an additional fee of $7,500 (which fee
shall be due and payable on or before September 15, 2002). 
  
 Section 3.3 Interest Rate for the Term Loan. SI hereby acknowledges and agrees that interest shall accrue (and shall be paid by SI as more particularly specified below and in the Term Loan Note) on the principal balance of the Term
Loan at the Prime Rate plus 3.25 percent per annum. Following the occurrence of an Event of Default (if any) and during the continuance thereof, U.S. Bank shall be entitled to charge, and SI shall be obligated to pay, interest on the principal
balance outstanding under the Term Loan at the Default Interest Rate. Interest owed by SI pursuant to the Term Loan Note shall be calculated on the basis of a 360-day year (as more particularly described in the Term Loan Note). 
  
 Section 3.4 Repayment Terms of the Term Loan. SI shall make monthly
payments of interest in arrears to U.S. Bank in respect of the Term Loan commencing on July 1, 2002, and on the first day of each month thereafter until the Maturity Date. In addition, on the date of this Agreement, and on July 25, 2002, and the
twenty-fifth day of each month thereafter until the Maturity Date, SI shall make principal payments to U.S. Bank in respect of the Term Loan in the amount of $25,000. 
  
 Section 3.5 Maturity Date of the Term Loan. On the Maturity Date, SI shall pay U.S. Bank the entire balance of
principal, interest, and fees owed pursuant to the Term Loan Note. 
  

 71 

 ARTICLE IV 
  
 MODIFICATION OF THE EXISTING TERM LOAN 
  
 Section 4.1 Modified Interest Rate for the Existing Term Loan. SI hereby acknowledges and agrees that on and after
June 1, 2002, interest shall accrue (and shall be paid by SI as more particularly specified below and in the Existing Term Loan Note (as amended hereby)) on the principal balance of the Existing Term Loan at the Prime Rate plus 1.75 percent per
annum. Following the occurrence of an Event of Default (if any) and during the continuance thereof, U.S. Bank shall be entitled to charge, and SI shall be obligated to pay, interest on the principal balance outstanding under the Existing Term Loan
at the Default Interest Rate. Interest owed by SI pursuant to the Existing Term Loan Note shall be calculated on the basis of a 360-day year, as more particularly described in the Existing Term Loan Note. 
  
 Section 4.2 Modified Repayment Terms of the Existing Term Loan. SI
shall make monthly payments of interest in arrears to U.S. Bank with respect to the Existing Term Loan commencing on July 1, 2002, and on the first day of each month thereafter until the Existing Term Loan Maturity Date. In addition, on the date of
this Agreement and on July 1, 2002, and the first day of each month thereafter until the Existing Term Loan Maturity Date, SI shall make principal payments to U.S. Bank in respect of the Existing Term Loan in the amount of $56,058.32. The payment
described in the preceding sentence that SI must make on the date of this Agreement shall be in lieu of the larger June 2002 payment that was scheduled to be made pursuant to the Existing Term Loan Note prior to the amendment of that note effected
by this Agreement. 
  
 Section 4.3 Subsequent Excess Cash Flow
Payments. In addition to the other payments SI is required to make under this Agreement and under the Notes to U.S. Bank, on or before September 15, 2003, and the same day of each year thereafter through and including 2005, SI shall pay U.S.
Bank (for application to the Existing Term Loan) an amount equal to SI’s Excess Cash Flow (if any). As used in this Agreement, the term “Excess Cash Flow” means the amount by which actual Adjusted EBITDA for SI’s immediately
preceding fiscal year exceeds the amount of Adjusted EBITDA that would have been required to provide a Fixed Charge Coverage Ratio of 1.15 to 1.00 for such year. 
  
 Section 4.4 Maturity Date of the Existing Term Loan. SI shall pay U.S. Bank the entire balance of principal,
interest, and fees owed pursuant to the Existing Term Loan Note on the earlier of (a) November 1, 2005, or (b) acceleration of the Obligations following an Event of Default, if any, under this Agreement (the earlier of which dates is referred to in
this Agreement as the “Existing Term Loan Maturity Date”). 
  
 Section 4.5 Amendment of Term Loan Note. Contemporaneously with the execution of this Agreement, SI shall execute and deliver to U.S. Bank a document in form and content satisfactory to U.S. Bank in its reasonable discretion amending
the Existing Term Loan Note to reflect the changes to the Existing Term Loan described in this Article IV of this Agreement. Following the effective date of this Agreement, references to the Existing Term Loan Note shall mean that note, as amended
hereby. 
  
 ARTICLE V 
  
 CONDITIONS OF LENDING 
  
 Section 5.1 Conditions Precedent. U.S. Bank’s agreements,
obligations, and commitments under this Agreement are subject to fulfillment of all of the following conditions: 
  
 (a) Execution and Delivery of this Agreement, the Revolving Credit Facility Note, and the Term Loan Note. SI shall have executed
and delivered to U.S. Bank this Agreement, the Revolving Credit Facility Note, and the Term Loan Note; 
  
 (b) Amendment of the Existing Term Loan Note. SI shall have executed and delivered to U.S. Bank the amendment of promissory note
required pursuant to Section 4.5 of this Agreement; 
  

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 (c) Payment of Loan Fees. SI shall have paid U.S. Bank $31,875 in respect of the
loan fees specified in Section 2.5 and Section 3.2 of this Agreement; 
  
 (d) Execution and Delivery of the Security Agreements. SI and the Domestic Subsidiaries shall have executed and delivered to U.S. Bank the security agreements required pursuant to Section 6.1 of this Agreement;

  
 (e) Execution and Delivery of the
Guaranties. The Domestic Subsidiaries shall have executed and delivered to U.S. Bank the Guaranties required pursuant to Section 6.2 of this Agreement; 
  
 (f) Payment of Attorney Fees. SI shall have paid U.S. Bank $14,500 for attorney fees and $275 for lien search charges incurred by
U.S. Bank in connection with the negotiation and preparation of this Agreement and the other Loan Documents; 
  
 (g) No Defaults. As of the date of this Agreement, no Event of Default exists, and no event that with the giving of notice, or the
passage of time, or both, would constitute an Event of Default, shall have occurred and be continuing; and 
  
 (h) Other Information. U.S. Bank shall have received such other statements, opinions, certificates, documents, and information with
respect to the matters contemplated by this Agreement as U.S. Bank reasonably may request. 
  
 If SI satisfies all of the above-referenced conditions by June 26, 2002, this Agreement and U.S. Bank’s commitment to extend the Revolving Credit Facility shall become effective and this Agreement shall supersede
the Existing Credit Agreement. If SI fails to satisfy any of the above-referenced conditions precedent by June 26, 2002, U.S. Bank shall have no commitment or obligation to extend the Revolving Credit Facility to SI and the parties’ rights and
obligations with respect to the existing, matured revolving credit facility shall continue to be governed by the Existing Credit Agreement. 
  
 Section 5.2 Ongoing Conditions. U.S. Bank’s commitment to extend credit to SI pursuant to the Revolving Credit Facility is subject to the
conditions that SI’s representations and warranties under Article VIII of this Agreement continue to be accurate and that no Event of Default exists under this Agreement (and that no event has occurred that with the giving of notice, or the
passage of time, or both, would constitute an Event of Default). 
  
 ARTICLE VI 
  
 COLLATERAL FOR SI’S OBLIGATIONS 
  
 Section 6.1
The New Security Agreements. Contemporaneously with the execution of this Agreement, SI shall execute and deliver to U.S. Bank a security agreement in form and content satisfactory to U.S. Bank in its reasonable discretion granting U.S. Bank
a security interest and lien in all of SI’s personal property as collateral for the Obligations. In addition, contemporaneously with the execution of this Agreement, SI shall cause the Domestic Subsidiaries to execute and deliver to U.S. Bank
security agreements in form and content satisfactory to U.S. Bank in its reasonable discretion granting U.S. Bank a security interest and lien in all of the Domestic Subsidiaries’ personal property as collateral for the Obligations. 

 
 Section 6.2 The Guaranties. Contemporaneously with the execution of
this Agreement, SI shall cause the Domestic Subsidiaries to execute and deliver to U.S. Bank guaranties in form and content satisfactory to U.S. Bank in its reasonable discretion (the “Guaranties”). Pursuant to the terms of the Guaranties,
the Domestic Subsidiaries shall guarantee payment and performance of the Obligations. 
  
 Section 6.3 Continued Validity of the Security Documents. SI hereby expressly reaffirms and acknowledges the validity of the Security Documents, the accuracy of the information contained in those documents, and
SI’s (and the Domestic Subsidiaries’) grants of security interests and liens in favor of U.S. Bank in the Collateral. SI acknowledges and agrees that the Security Documents, and the security interests and liens created by those agreements
in the Collateral, secure payment of the Obligations. Furthermore, SI acknowledges and agrees that the Security 

  

 73 

 
Documents, and the security interests and liens created thereby in the Collateral, shall continue in full force and effect after the execution of this
Agreement. 
  
 Section 6.4 Assignment of Rights Under the
Credit Insurance Policy. SI hereby agrees that, upon the issuance of the Credit Insurance Policy, SI shall assign (and shall cause any Subsidiary covered thereby to assign) to U.S. Bank as security for the Obligations all of SI’s (or any
such Subsidiary’s) rights under the Credit Insurance Policy (including, but not limited to, its right to receive any payments thereunder). Prior to or contemporaneously with such assignment, SI shall deliver to U.S. Bank written evidence
satisfactory to U.S. Bank that the insurer under the Credit Insurance Policy has been notified of the assignment described in the preceding sentence of this Agreement and acknowledges that assignment. 
  
 Section 6.5 Other Documents. SI hereby agrees that until SI satisfies
the Obligations in full, SI promptly shall execute and deliver to U.S. Bank all documents deemed necessary or desirable by U.S. Bank in its reasonable discretion to create, evidence, perfect, or continue U.S. Bank’s security interests or liens
in the Collateral. 
  
 Section 6.6 Appraisals and Collateral
Examinations. SI hereby acknowledges and agrees that U.S. Bank may order such appraisals and conduct such examinations of the Collateral as U.S. Bank deems necessary or desirable in its reasonable discretion and that SI shall pay for such
appraisals and collateral examinations (as specified in Section 7.1 of this Agreement). SI understands that U.S. Bank expects to conduct at least one collateral examination each calendar year. 
  
 ARTICLE VII 
  
 MISCELLANEOUS PROVISIONS 
  
 Section 7.1 Expenses of U.S. Bank. SI shall reimburse U.S. Bank for
all expenses reasonably incurred by U.S. Bank in connection with U.S. Bank’s banking relationship with SI, including, but not limited to, recording charges, escrow charges, appraisal costs, environmental survey and investigation costs,
collateral examination and inspection costs, travel costs, and the reasonable fees and expenses of legal counsel for U.S. Bank (including fees and expenses incurred in connection with the preparation, negotiation, closing, administration, amendment,
modification, and enforcement of this Agreement, or the agreement evidenced hereby); the preservation, protection, or disposition of the Collateral (or U.S. Bank’s security interests therein); or as required by applicable law, rules, policies,
and regulations. Except as specified in Section 5.1(f) of this Agreement, the amounts owed by SI pursuant to the preceding sentence of this Agreement shall be paid by SI in the ordinary course of SI’s business after U.S. Bank bills SI for such
amounts, or on the Existing Term Loan Maturity Date, whichever occurs first. 
  
 Section 7.2 Prohibition on Overdrafts and Unfunded Items. SI hereby agrees that it shall maintain sufficient funds in its accounts with U.S. Bank to cover all items drawn on such accounts (i.e., SI shall not
overdraw any account with U.S. Bank). All items presented to U.S. Bank for payment for which there are insufficient funds in the account on which the item is drawn may be dishonored by U.S. Bank in its reasonable discretion without any prior notice
to SI. U.S. Bank shall have no obligation to notify SI in advance (i.e., before the item or items in question is or are returned unpaid) that items have been presented on any of SI’s accounts that will result in an overdraft if funds are not
deposited into the account in question. 
  
 Section 7.3 Cash
Collateral Account. On and after the date of this Agreement, SI shall deposit all payments or other proceeds resulting from the sale or other disposition of all or any part of the Collateral (including Accounts) owned by SI or any Subsidiary
into account no. 153500057812 maintained by SI with U.S. Bank (the “Cash Collateral Account”). The Cash Collateral Account is not an interest-bearing account. All amounts deposited into the Cash Collateral Account shall be applied to
SI’s obligations pursuant to the Revolving Credit Facility Note after a one-Business Day hold (or after such other holding period that may be elected by U.S. Bank in its reasonable discretion). 
  
 Section 7.4 Release of Claims. SI hereby releases and forever
discharges U.S. Bank and U.S. Bank’s agents, principals, successors, assigns, employees, officers, directors, and attorneys, and each of them, of and from any and all claims, demands, damages, suits, rights, defenses, offsets, or causes of
action of every kind and nature that SI has or may have as of the date it executes this Agreement, whether known or unknown, contingent or matured, foreseen or unforeseen, asserted or unasserted, including, but not limited to, all claims for
compensatory, general, special, consequential, incidental, and punitive damages, attorney fees, and equitable relief. In that regard, SI hereby agrees to 

  

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waive and relinquish, and by executing this Agreement shall be deemed to have waived and relinquished to the fullest extent permitted by law, the provisions,
rights, and benefits of Section 1542 of the California Civil Code, which provides that: 
  
 “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his
settlement with the debtor.” 
  
 Furthermore, SI hereby waives any and all
provisions, rights, and benefits conferred by any laws of any state or territory of the United States, or principles of common law, that are similar, comparable, or equivalent to Section 1542 of the California Civil Code. SI recognizes that SI may
discover after the effective date of this Agreement facts in addition to or different from those that SI knows or believes to be true with respect to the subject matter of the released claims but hereby stipulates and agrees that as of the effective
date of this Agreement SI fully, finally, and forever settles and releases any and all released claims, known or unknown, as described above. 
  
 Section 7.5 Foreign Credit Insurance. SI acknowledges that U.S. Bank is not prepared to extend credit to SI secured by Eligible Accounts, other
than Eligible Domestic Accounts, unless such accounts are insured under the Credit Insurance Policy and SI takes all steps required by that policy to recover payment from the insurer with respect to Eligible Insured Foreign Accounts that are not
paid by the account debtor. SI hereby represents and warrants that it shall use its best reasonable efforts to obtain the Credit Insurance Policy as soon as reasonably practicable after the execution of this Agreement. 
  
 Section 7.6 Information Regarding Credit Insurance Policy. SI hereby
agrees that, upon obtaining the Credit Insurance Policy, SI promptly shall provide U.S. Bank with a copy of the Credit Insurance Policy, all endorsements, riders, schedules, and exhibits to that policy, all modifications or amendments of the Credit
Insurance Policy, and all notices received by SI from the insurer under the Credit Insurance Policy. In addition, SI immediately shall notify U.S. Bank in writing of the receipt by SI of any communication from the insurer under the Credit Insurance
Policy informing SI of the insurer’s intention to terminate or cancel the Credit Insurance Policy. SI shall obtain the agreement (in writing) of the insurer under the Credit Insurance Policy to give U.S. Bank at least 45 days’ prior
written notice of the insurer’s intended termination, cancellation, or material modification of the Credit Insurance Policy (provided, however, that if the reason for such termination or cancellation is nonpayment of the policy premium, ten
Business Days’ written notice to U.S. Bank shall be satisfactory). SI hereby acknowledges and agrees that if SI fails to timely pay the policy premium with respect to the Credit Insurance Policy, U.S. Bank may (but shall not be required to) pay
such premium and the amount paid by U.S. Bank shall become part of the Obligations. 
  
 Section 7.7 Claim Procedure. SI recognizes that U.S. Bank expects SI to strictly and timely comply with all provisions of the Credit Insurance Policy related to filing claims under the policy, providing proof
of loss under the policy, and notifying account debtors of their defaults as required by the Credit Insurance Policy and SI hereby agrees to timely comply with all such provisions of the Credit Insurance Policy. SI hereby irrevocably appoints U.S.
Bank as SI’s true and lawful attorney (such appointment being coupled with an interest), with full power of substitution, in the name of SI, to take any and all steps or actions required by the Credit Insurance Policy to timely and
appropriately assert a claim under that policy, subject to the conditions specified in this Agreement. SI hereby agrees that if SI has not submitted a claim with respect to a past-due Eligible Insured Foreign Account within 60 days of the deadline
for submitting a claim under the Credit Insurance Policy for full payment of the Account in question, SI shall deliver to U.S. Bank a completed claim form with respect to the Account in question (which claim form shall be in form and content
satisfactory to the insurer under the Credit Insurance Policy and shall be accompanied by any and all materials required by the insurer to establish proof of loss). At the same time, SI shall notify U.S. Bank in writing whether SI intends to make a
claim under the Credit Insurance Policy with respect to the Account in question. If SI informs U.S. Bank that SI does not intend to make a claim under the Credit Insurance Policy with respect to an Account, the Account in question shall cease to be
an Eligible Insured Foreign Account and SI within three Business Days shall pay U.S. Bank the amount by which SI’s obligation exceeds the Borrowing Base (and SI’s failure to make such payment shall constitute an Event of Default).
Furthermore, if SI fails to timely provide the notice and the claim form specified above, or if SI has not taken any action that U.S. Bank reasonably believes is a condition precedent under the Credit Insurance Policy to receive payment in full
under that policy of a claim with respect to an Account included in the Borrowing Base, and if SI fails to provide the notice and claim form (or take action with respect to a claim under the Credit Insurance Policy, as applicable) within three
Business Days of U.S. Bank giving SI written notice of such failure or inaction, then the Account in question shall cease to be an Eligible Insured Foreign Account and SI shall have three Business Days to pay U.S. Bank an amount equal to the amount
by which the indebtedness under the Revolving Credit Facility exceeds the 

  

 75 

 
Borrowing Base following the removal of that Account from that borrowing base (and SI’s failure to make such payment shall constitute an Event of
Default). If SI fails to make the payment required by either of the two preceding sentences following the removal of an Account from the Borrowing Base, U.S. Bank may use the power of attorney granted in this Section 7.7 to take any and all steps or
actions U.S. Bank reasonably believes are necessary to cause a claim to be made under the Credit Insurance Policy for payment in full of the Account in question (which actions that may be taken by U.S. Bank include, but are not limited to, providing
notice of default to the account debtor, providing proof of loss to the insurer under the Credit Insurance Policy, or asserting a claim for payment under the policy with respect to the Account in question). Notwithstanding the power of attorney
granted herein, U.S. Bank shall have no obligation to take any action on behalf of SI under or with respect to the Credit Insurance Policy. 
  
 ARTICLE VIII 
  
 REPRESENTATIONS AND WARRANTIES 
  
 SI represents and warrants to U.S. Bank as follows: 
  
 Section 8.1 Existence and Power of SI. SI is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and is
qualified to do business in California and each other jurisdiction where the conduct of its business or the ownership of its properties requires such qualification. Furthermore, SI has full power, authority, and legal right to carry on its business
as presently conducted, to own and operate its properties and assets, and to execute, deliver, and perform this Agreement and the other Loan Documents. 
  
 Section 8.2 Existence and Power of AeroGo. AeroGo is a corporation duly organized, validly existing, and in good standing under the laws of
Washington and is qualified to do business in Washington and each other jurisdiction where the conduct of its business or the ownership of its properties requires such qualification. Furthermore, AeroGo has full power, authority, and legal right to
carry on its business as presently conducted, to own and operate its properties and assets, and to execute, deliver, and perform the Guaranty and the other Security Documents. 
  
 Section 8.3 Existence and Power of Revere. Revere is a corporation duly organized, validly existing, and in good
standing under the laws of Delaware and is qualified to do business in California and each other jurisdiction where the conduct of its business or the ownership of its properties requires such qualification. Furthermore, Revere has full power,
authority, and legal right to carry on its business as presently conducted, to own and operate its properties and assets, and to execute, deliver, and perform this Agreement, the Notes, and the other Loan Documents. 
  
 Section 8.4 Authorization. The execution, delivery, and performance by
SI and the Domestic Subsidiaries of this Agreement, the Notes, and the other Loan Documents and any borrowing under this Agreement have been duly authorized by all necessary corporate action of SI and the Domestic Subsidiaries, do not require any
further shareholder approval, or the approval or consent of any trustee or the holders of any Indebtedness of SI or the Domestic Subsidiaries, (do not contravene any law, regulation, rule, or order binding on SI or the Domestic Subsidiaries, or any
of their organizational documents, and do not contravene the provisions of or constitute a default under any indenture, mortgage, contract, or other agreement or instrument to which SI (or a Domestic Subsidiary) is a party, or by which SI (or a
Domestic Subsidiary) or any of its properties may be bound or affected, except as has been disclosed to U.S. Bank in writing. 
  
 Section 8.5 Government Approvals. No Government Approval or filing or registration with any Governmental Authority is required for the making and
performance by SI or the Domestic Subsidiaries of this Agreement or any Loan Document, or in connection with any of the transactions contemplated hereby, except those that have been obtained and are in full force and effect. SI and each Domestic
Subsidiary has obtained all Governmental Approvals that are necessary or required in connection with the conduct of SI’s (or the Domestic Subsidiary’s) business. 
  
 Section 8.6 Binding Obligations. This Agreement, the Notes, and the other Loan Documents have been duly executed and
delivered by SI and the Domestic Subsidiaries and constitute the legal, valid, and binding obligations of SI and the Domestic Subsidiaries enforceable against SI and the Domestic Subsidiaries and their property in accordance with their respective
terms. 
  
 Section 8.7 Litigation. There are no actions,
proceedings, investigations, or claims against or affecting SI or any Subsidiary now pending before any court, arbitrator, or Governmental Authority that if determined adversely to SI or the Subsidiary would be likely to have a Material Adverse
Effect, or that have resulted in, or would be 

  

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likely to result in, a judgment or order against SI or a Subsidiary (in excess of insurance coverage) for more than $100,000 in any one case (or $250,000 in
the aggregate). 
  
 Section 8.8 Financial Condition. The
most recent audited balance sheet of SI that SI provided to U.S. Bank, and the related statements of income and retained earnings of SI for the fiscal year then ended, fairly present the consolidated financial condition of SI and its Subsidiaries as
of the date of such statements and the consolidated results of operations of SI and its Subsidiaries for the period then ended, all in accordance with GAAP. Since that date, there has been no material adverse change in the consolidated financial
condition or operations of SI and its Subsidiaries, except as has been disclosed to U.S. Bank in writing (including interim financial statements provided by SI since the delivery of SI’s most recent audited financial statement to U.S. Bank).

  
 Section 8.9 Title and Liens. SI and each of the
Subsidiaries has good and marketable title to all of its properties and assets. The Collateral is not subject to any Lien prior to U.S. Bank’s security interest in the Collateral. 
  
 Section 8.10 Taxes. SI and each Subsidiary has filed all tax returns and reports required of SI and each Subsidiary
and has paid all Taxes that are due and payable. The charges and accruals on the books of SI and the Subsidiaries in respect of Taxes for all fiscal periods to date are accurate. Taxes not yet due have been provided for as a reserve on the books of
SI (or a Subsidiary). There are no claims or assessments against SI (or a Subsidiary) by any Governmental Authority with respect to any Taxes, except those (if any) disclosed to U.S. Bank in writing. 
  
 Section 8.11 Other Agreements. Neither SI nor any Subsidiary is in
material breach of or default under any agreement to which SI (or a Subsidiary) is a party, or that is binding on SI (or a Subsidiary) or any of its assets, whereby such breach would have a Material Adverse Effect. 
  
 Section 8.12 Federal Reserve Regulations. Neither SI nor any
Subsidiary is engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Federal Reserve Regulation U), and no part of the proceeds
of any loan from U.S. Bank to SI will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock, or for any other purpose that violates the applicable provisions
of any Federal Reserve Regulation. If requested to do so by U.S. Bank, SI will furnish to U.S. Bank a statement conforming with the requirements of Regulation U. 
  
 Section 8.13 Compliance With Laws. SI and the Subsidiaries are in compliance in all material respects with all laws,
regulations, rules, and orders of Governmental Authorities applicable to SI and the Subsidiaries, or to their operations or property (including, but not limited to, laws governing the use or disposition of Hazardous Materials and the Employee
Retirement Income Security Act of 1974 (as amended)), except any thereof whose validity is being contested in good faith by appropriate proceedings upon stay of execution of the enforcement thereof. 
  
 Section 8.14 Continuing Representations. SI hereby acknowledges and
agrees that the representations of SI in this Article VIII of this Agreement are continuing representations and that each request for an Advance by SI under this Agreement constitutes a reaffirmation by SI that such representations are accurate as
of the date of the Advance requested by SI. 
  
 ARTICLE IX 
  
 AFFIRMATIVE COVENANTS

  
 Until SI has paid the Obligations in full and U.S. Bank’s lending
commitment with respect to the Revolving Credit Facility has terminated, SI agrees to do all of the following, unless U.S. Bank otherwise shall consent in writing (which consent shall not be withheld unreasonably): 
  
 Section 9.1 Use of Proceeds. SI shall use funds borrowed under the
Revolving Credit Facility only for purposes permitted by Section 2.1 of this Agreement. 
  
 Section 9.2 Payments. SI shall pay the principal of and interest on the Notes in accordance with the terms of this Agreement and the Notes and shall pay when due all other amounts payable by SI under this
Agreement. 
  

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 Section 9.3 Preservation of Existence. SI shall preserve and maintain (and shall cause each of the
Subsidiaries to preserve and maintain) its corporate existence, rights, franchises, and privileges in the jurisdiction of its organization and will qualify and remain qualified as a foreign organization in each jurisdiction where such qualification
is necessary or advisable in view of the business and operations of SI (or any Subsidiary), or the ownership of its properties. 
  
 Section 9.4 Visitation Rights. At any reasonable time, and from time to time, SI shall permit U.S. Bank to examine and make copies of and abstracts
from SI’s and the Subsidiaries’ records and books of account, to visit the properties of SI and the Subsidiaries, and to discuss the affairs, finances, and accounts of SI and the Subsidiaries with any of the officers and directors of the
Person in question. 
  
 Section 9.5 Keeping of Books and
Records. SI shall keep (and shall cause the Subsidiaries to keep) adequate records and books of account in which complete entries will be made, in accordance with GAAP, reflecting all financial transactions of SI (or the Subsidiaries, as
applicable). 
  
 Section 9.6 Maintenance of Property. SI
shall maintain and preserve (and shall cause each Subsidiary to maintain and preserve) all of its properties in working order and condition, ordinary wear and tear excepted, and shall from time to time make all needed repairs, renewals, or
replacements so that the efficiency of such properties shall be fully maintained and preserved. 
  
 Section 9.7 Other Obligations. SI shall pay and discharge (and shall cause each Subsidiary to pay and discharge) before the same shall become
delinquent all material Indebtedness, Taxes, and other material obligations for which SI (or a Subsidiary) is liable, or to which its income or property is subject, and all material claims for labor and materials or supplies that, if unpaid, might
become by law a Lien upon assets of SI (or a Subsidiary). 
  
 Section 9.8 Insurance. SI shall keep in force upon all of SI’s properties and operations (and shall cause each Subsidiary to keep in force upon the Subsidiary’s properties and operations) policies of insurance carried with
companies in such amounts and covering all such risks as shall be customary in the industry and reasonably satisfactory to U.S. Bank (and, in the case of SI and the Domestic Subsidiaries, naming U.S. Bank as loss payee in respect of insurance
covering the Collateral). SI on request shall deliver to U.S. Bank certificates of insurance or duplicate policies evidencing such coverage, and shall within 30 days of the date of this Agreement deliver to U.S. Bank a schedule setting forth the
amounts and types of insurance then maintained by SI and the Subsidiaries. 
  
 Section 9.9 Financial Information. SI shall deliver to U.S. Bank the statements, reports, and other information listed below: 
  
 (a) Bi-Weekly Borrowing Certificate. On or before July 22, 2002, and the fifth Business Day after the
fifteenth day of August and each month thereafter, a borrowing certificate in a form satisfactory to U.S. Bank in its reasonable discretion identifying the Borrowing Base (and the computation thereof) as of July 15, 2002, and the fifteenth day of
each month thereafter; 
  
 (b) Monthly
Reconciled Borrowing Base Certificate. Within 5 Business Days after the end of each month, a report in a form satisfactory to U.S. Bank in its reasonable discretion describing in reasonable detail the Borrowing Base (and the computation thereof)
as of the end of the immediately preceding month, which report shall be reconciled to the corresponding month-end balance sheet of SI; 
  
 (c) Monthly Report Regarding Accounts Receivable. Within 25 days after the end of each month, a report with respect to the Accounts
of SI and the Domestic Subsidiaries as of the end of the immediately preceding month, which reports shall include reasonable detail regarding the aging of such Accounts and shall be in a form satisfactory to U.S. Bank in its reasonable discretion;

  
 (d) Monthly Report Regarding
Inventory. Within 25 days after the end of each month, a report with respect to the inventory of SI and its Domestic Subsidiaries as of the end of the immediately preceding month, which shall include reasonable detail and shall be in a form
satisfactory to U.S. Bank in its reasonable discretion; 
  

 78 

 (e) Monthly Report Regarding Accounts Payable. Within 25 days after the end of
each month, a report with respect to the accounts payable of SI and its Subsidiaries as of the end of the immediately preceding month, which reports shall include reasonable detail regarding the aging of such accounts payable and shall be in a form
satisfactory to U.S. Bank in its reasonable discretion; 
  
 (f) Monthly Financial Statement and Certificate. Within 30 days after the end of each month, the unaudited consolidated balance sheet and statement of income and retained earnings and statement of cash flow of
SI and its Subsidiaries as of the end of such month (and for the period from the start of the fiscal year to the end of such month) (which shall include a comparison of SI’s actual performance to its financial performance projected in the
Budget) accompanied by a certificate of SI’s Chief Financial Officer that (i) such unaudited balance sheet and statement of income and retained earnings and statement of cash flow present fairly the consolidated financial position and the
results of operations of SI and its Subsidiaries as of the end of and for such month, and (ii) as of the end of such calendar month, no Event of Default, or other event that with the giving of notice, or the passage of time, or both, would become an
Event of Default, had occurred and was continuing (or, if an Event of Default existed at such time, identifying the Event of Default); 
  
 (g) Quarterly Report Regarding Financial Covenants. Within 45 days after the end of each fiscal quarter of SI, a report identifying
SI’s performance with respect to the financial covenants set forth in Section 10.1, Section 10.2, and Section 10.3 (only for the quarter ending as of the end of SI’s fiscal year) of this Agreement, which report shall be in a form
satisfactory to U.S. Bank in its reasonable discretion, shall include reasonable detail regarding the manner in which the financial covenants were calculated, and shall be certified by SI’s Chief Financial Officer to be true and correct in all
material respects; 
  
 (h) Quarterly Financial
Statement and Certificate. Within 45 days after the end of each fiscal quarter, the unaudited consolidated balance sheet and statement of income and retained earnings and statement of cash flow of SI and its Subsidiaries as of the end of such
quarter (and for the period from the start of the fiscal year to the end of such quarter) (which shall include a comparison of SI’s actual performance to its financial performance projected in the Budget) accompanied by a certificate of
SI’s Chief Financial Officer that (i) such unaudited balance sheet and statement of income and retained earnings and statement of cash flow present fairly the consolidated financial position and the results of operations of SI and its
Subsidiaries as of the end of and for such quarter, and (ii) as of the end of such quarter, no Event of Default, or other event that with the giving of notice, or the passage of time, or both, would become an Event of Default, had occurred and was
continuing (or, if an Event of Default existed at such time, identifying the Event of Default); 
  
 (i) Audited Financial Statement. Within 120 days of each fiscal year end of SI, a copy of an audited consolidated financial
statement in respect of SI prepared by a certified public accounting firm acceptable to U.S. Bank in its reasonable discretion; 
  
 (j) Annual Financial Projection. At least 60 days prior to the end of each fiscal year of SI, a detailed projection of SI’s
anticipated financial performance for the upcoming three-year period (which projection is referred to in this Agreement as the “Budget”) in a form satisfactory to U.S. Bank in its reasonable discretion (and which shall include projected
monthly balance sheets and income statements and SI’s underlying assumptions in relation to the Budget); and 
  
 (k) Other Information. All other statements, reports, and information as U.S. Bank reasonably may request concerning the financial
condition and business affairs of SI and its Subsidiaries. 
  
 Section 9.10 Notification. Within two Business Days of learning thereof, SI shall give U.S. Bank written notice of the occurrence of any Event of Default or other event that with the giving of notice, or the passage of time, or both,
would constitute an Event of Default. Furthermore, promptly after learning thereof, SI shall notify U.S. Bank of (a) the details of any action, proceeding, investigation, or claim against or affecting SI instituted before any court, arbitrator, or
Governmental Authority that, if determined adversely to SI would be likely to have a Material Adverse Effect, or to result in a judgment or order against SI (in excess of insurance coverage) for more than $100,000, or, when combined with all other
pending or threatened claims, more than $250,000; (b) any material dispute between SI and any Governmental Authority; (c) any labor controversy that has resulted in, or, to SI’s knowledge, threatens to result 

  

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in, a strike that would be likely to have a Material Adverse Affect; and (d) any contract cancellation that would be likely to have a Material Adverse
Affect. 
  
 Section 9.11 Notification of Change of Name,
Location, or Jurisdiction of Organization. SI shall notify U.S. Bank in writing within five Business Days if (a) SI or any Domestic Subsidiary changes its name or identity in any manner, or (b) SI or any Domestic Subsidiary changes the location
of its principal place of business, or the state in which it is organized. 
  
 Section 9.12 Additional Acts. From time to time, SI shall (a) obtain and promptly furnish to U.S. Bank evidence of all Government Approvals that may be required to enable SI and the Subsidiaries to comply with
its obligations under this Agreement, or any Loan Document; and (b) execute and deliver all instruments, and perform all other acts as U.S. Bank reasonably may request to carry out the transactions contemplated by this Agreement. 
  
 ARTICLE X 
  
 FINANCIAL COVENANTS 
  
 Section 10.1 Fixed Charge Coverage Ratio. SI shall not permit the
ratio of (a) Adjusted EBITDA to (b) Fixed Charges (which ratio is referred to in this Agreement as the “Fixed Charge Coverage Ratio”) to be less than 1.05 to 1.00 for the three-month period ending April 30, 2002, or less than 1.15 to 1.00
for the three-month period ending July 31, 2002. In addition, SI shall not permit the Fixed Charge Coverage Ratio to be less than 1.15 to 1.00 for the twelve-month periods ending on October 31, 2002, and the last day of each fiscal quarter of SI
thereafter. 
  
 Section 10.2 Minimum EBITDA Covenant. SI
shall generate EBITDA during the calendar quarters ending on the dates set forth below of at least the following amounts: 
  

				
	 Calendar Quarter Ending Date

	  	 Minimum
 EBITDA

	 April 30, 2002
	  	$	650,000
	 July 31, 2002
	  	$	700,000

  
 In addition, SI shall generate EBITDA
during its fiscal year 2002 of at least $3,000,000. 
  
 Section
10.3 Tangible Net Worth Covenant. SI shall maintain Tangible Net Worth as of July 31, 2002, and as of the end of each fiscal year of SI thereafter, equal to or greater the sum of (a) SI’s Tangible Net Worth as of July 31, 2001, and (b)
50 percent of the sum of (i) Aggregate Net Income, and (ii) any capital injections or equity infusions during the period in question. As used in this Agreement, the term “Aggregate Net Income” means Net Income during SI’s 2002 fiscal
year and during subsequent fiscal years of SI (without deduction for losses). 
  
 Section 10.4 Testing of Financial Covenants. The financial covenants set forth in Section 10.1 and Section 10.2 of this Agreement shall be tested quarterly and shall be calculated in reasonable detail and
presented in the quarterly compliance certificate that SI is required to provide to U.S. Bank pursuant to Section 9.9(g) of this Agreement. The financial covenant set forth in Section 10.3 of this Agreement shall be tested annually and shall be
calculated in reasonable detail and presented in the quarterly compliance certificate with respect to the quarter ending as of the end of SI’s fiscal year that SI is required to provide U.S. Bank pursuant to Section 9.9(g) of this Agreement.

  
 ARTICLE XI 
  
 NEGATIVE COVENANTS 
  
 Until SI has paid the Obligations in full and U.S. Bank’s lending commitment with
respect to the Revolving Credit Facility has terminated, SI agrees that it shall not do any of the following unless U.S. Bank otherwise shall consent in writing (which consent shall not be withheld unreasonably): 
  
 Section 11.1 Dividends or Distributions. SI shall not make any
distribution or declare or pay any dividend or distribution. 
  
 Section 11.2 Liquidation, Merger, or Sale of Assets. Neither SI nor any Subsidiaries shall (a) liquidate, dissolve, or enter into any merger or consolidation; (b) enter into any joint venture, partnership, or other 

  

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combination, except any operating joint ventures similar to those in which SI (or the Subsidiary) previously has engaged in the normal course of its
operations; or (c) sell, lease, or dispose of any material portion of its business or assets (except sales of goods in the ordinary course of business). 
  
 Section 11.3 Indebtedness. Neither SI nor any Subsidiary shall create, incur, or become liable for any Indebtedness except (a) Indebtedness to U.S.
Bank, (b) existing Indebtedness as of the date of this Agreement, (c) current accounts payable or accrued expenses incurred by SI (or a Subsidiary) in the ordinary course of business, (d) Indebtedness for the deferred purchase price (or for
obligations under leases) of real or personal property used by SI (or a Subsidiary) in its business and not otherwise prohibited by this Agreement, and (e) Subordinated Indebtedness. 
  
 Section 11.4 Guaranties. Neither SI nor any Subsidiary shall assume, guaranty, endorse, or otherwise become directly
or contingently liable for, or obligated to purchase, pay, or provide funds for payment of, any obligation or Indebtedness of any other person, except by endorsement of negotiable instruments for deposit or collection or by similar transactions in
the ordinary course of business. 
  
 Section 11.5
Investments. Neither SI nor any Subsidiary shall make any loan or advance to any Person, or purchase or otherwise acquire the capital stock, obligations of, or any interest in, any Person, except (a) commercial bank time deposits maturing
within one year, (b) marketable general obligations of the United States or a state, or marketable obligations fully guaranteed by the United States, (c) short-term commercial paper, maturing within 270 days after acquisition thereof, with the
highest rating of a generally recognized rating service, or (d) investments in mutual funds or similar investments that relate to SI’s (or a Subsidiary’s) employee benefit programs. 
  
 Section 11.6 Liens. Neither SI nor any Subsidiary shall create,
assume, or suffer to exist any Liens except (a) Liens disclosed to U.S. Bank in writing prior to the date of this Agreement and approved by U.S. Bank, (b) Liens to secure Indebtedness permitted by Section 11.3(d) of this Agreement for the deferred
purchase price of property, but only if they are limited to such property and its proceeds and do not exceed the fair market value thereof, and (c) Permitted Liens. 
  
 Section 11.7 Capital Expenditures. SI and its Subsidiaries (on a consolidated basis) shall not make Capital
Expenditures (including any related to Capital Leases) during fiscal year 2002, or (except as specified in the following sentence) in any fiscal year thereafter, in excess of $200,000 in the aggregate. If SI and its Subsidiaries make Capital
Expenditures in a fiscal year that aggregate to less than $200,000 (plus the Permitted Carryover, if any), SI may carry forward the difference between (a) $200,000 (plus the Permitted Carryover, if any), and (b) its actual aggregate Capital
Expenditures in such year to the subsequent fiscal year and increase the maximum amount of Capital Expenditures SI and its Subsidiaries may make in such subsequent year by that amount. The amount, if any, that may be carried over to a subsequent
year is referred to in this Agreement as the “Permitted Carryover.” 
  
 Section 11.8 Operations. Neither SI nor any Subsidiary shall engage in any activity or introduce any major product that is substantially different from or unrelated to the present business activities or
products of SI (or the Subsidiary), or discontinue any portion of SI’s (or a Subsidiary’s) present business activities that constitutes a substantial portion thereof. 
  
 Section 11.9 Loans and Investments. Neither SI nor any Subsidiary shall make, or contract to make, any loan or
advance to any Person, or purchase or otherwise acquire any capital stock, assets, obligations, or other securities of, make any capital contributions to, or otherwise invest in or acquire any interest in any Person, or participate as a partner or
joint venturer with any other Person. 
  
 Section 11.10
Operating Leases. SI and its Subsidiaries shall not enter into operating leases during fiscal year 2002 or any fiscal year thereafter that create an aggregate liability during the fiscal year in question in excess of $100,000. 
  
 Section 11.11 Prohibition on Change in Ownership. The Subsidiaries
shall not undergo a material change in ownership and neither SI nor any Subsidiary shall undergo a material change in management. 
  

 81 

  
 ARTICLE XII

  
 EVENTS OF DEFAULT 
  
 Section 12.1 Events of Default. The occurrence of any of the
following events shall constitute an “Event of Default” under this Agreement: 
  
 (a) Payment Default. SI shall fail to pay when due any amount of principal or interest owed pursuant to any of the Notes, or any
other amount payable by SI under this Agreement, within three Business Days of the date that U.S. Bank notifies SI of such failure; 
  
 (b) Breach of Warranty. Any representation or warranty made by SI under or in connection with this Agreement or any Loan Document
shall prove to have been incorrect in any material respect when made; 
  
 (c) Breach of Certain Covenants. SI shall fail to have complied with any provision of Section 9.1, Section 9.4, or Section 9.8 of this Agreement, any of the provisions of Article X or Article XI of this
Agreement, or any provision of any Loan Document that specifies that no cure period applies (or where applicable cure periods have expired); 
  
 (d) Breach of Other Covenants. SI shall fail to perform or observe any other covenant, obligation, or term of this Agreement or any
of the Loan Documents (except those governed by part (c) above) and such failure shall remain unremedied for 30 days after written notice thereof shall have been given to SI by U.S. Bank or, if SI fails to give U.S. Bank timely notice of any such
occurrence, then 30 days after the occurrence, provided, however, that if such default is of a nature that cannot be cured within 30 days, but is of a kind reasonably susceptible of being cured, an Event of Default shall occur only if SI fails
within that 30-day period to commence or pursue curative action and fails thereafter to pursue the cure thereof with reasonable diligence; 
  
 (e) Material Adverse Effect. Any event that has had or reasonably could be expected to have a Material Adverse Effect; or

  
 (f) Insolvency or Bankruptcy. SI or
any Domestic Subsidiary shall admit in writing its inability to pay its debts, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by SI or any Domestic Subsidiary in any jurisdiction seeking to
adjudicate SI or any Domestic Subsidiary a bankrupt or insolvent or seeking reorganization, arrangement, adjustment, or composition of SI or any Domestic Subsidiary or its debt under any law relating to bankruptcy, insolvency, or reorganization or
relief of debtors, or seeking appointment of a receiver, trustee, or other similar official for SI or any Domestic Subsidiary or for such part of its property as in the opinion of U.S. Bank is a substantial part; or any such proceeding shall be
instituted against SI or any Domestic Subsidiary that is not dismissed within 60 days after the institution thereof, or SI or any Domestic Subsidiary shall take any corporate action to authorize any of the actions set forth above in this paragraph
(f); or any Governmental Authority shall declare or take any action that operates as a moratorium on the payment of debts of SI or any Domestic Subsidiary. 
  
 Section 12.2 Consequences of Default. If any Event of Default shall occur and be continuing, then in any such case and at any time thereafter so
long as any such Event of Default shall be continuing, U.S. Bank may at its option immediately terminate its commitment with respect to the Revolving Credit Facility. Furthermore, in the event of an uncured Event of Default, U.S. Bank may at its
option declare the principal of and the interest on any or all of the Notes and all other sums payable by SI under this Agreement or under any or all of the Notes to be immediately due and payable (with interest accruing thereon at the Default
Interest Rate), whereupon the same shall become immediately due and payable without protest, presentment, notice, or demand, all of which SI expressly waives. 
  

ARTICLE XIII 
  
 GENERAL TERMS AND CONDITIONS 
  
 Section 13.1 Remedies Cumulative. No failure by U.S. Bank to exercise any right, power, or remedy under this Agreement, or any Loan Document, and
no delay by U.S. Bank in exercising any right, power, or remedy under this Agreement or any Loan Document, shall operate as a waiver thereof, nor shall any single or partial 

  

 82 

 
exercise of any right, power, or remedy under this Agreement or any Loan Document preclude any other or further exercise thereof, or the exercise of any
other right, power, or remedy. The exercise of any right, power, or remedy shall in no event constitute a cure or waiver of any Event of Default under this Agreement or the Notes, or the right of U.S. Bank or the holder of the Notes in the exercise
of any right under this Agreement or the Notes, unless, in the exercise of such right, all obligations of SI under this Agreement and the Notes are paid in full. The rights and remedies provided in this Agreement and the Loan Documents are
cumulative and not exclusive of any right or remedy provided by law. Time is of the essence and the provisions of this Agreement and the other Loan Documents shall be enforced strictly. 
  
 Section 13.2 Governing Law. This Agreement and the other Loan Documents shall be governed by and construed in
accordance with the laws of Washington, without regard to conflicts of law principles. 
  
 Section 13.3 Consent to Jurisdiction and Venue, Waiver of Immunities. SI hereby irrevocably submits to the jurisdiction and venue of any state or federal court sitting in Portland, Oregon, in any action or
proceeding brought to enforce or otherwise arising out of or relating to this Agreement, the Notes, or any other Loan Document. SI irrevocably waives to the fullest extent permitted by law any objection that SI may now or hereafter have to the
laying of venue in any such action or proceeding in any such forum, and hereby further irrevocably waives any claim that any such forum is an inconvenient forum. SI agrees that a final judgment in any such action or proceeding shall be conclusive
and may be enforced in any other jurisdiction by suit on the judgment, or in any other manner provided by law. Nothing in this Agreement shall impair the right of U.S. Bank, or the holder of the Notes, to bring any action or proceeding against SI or
its property in the courts of any other jurisdiction, and SI irrevocably submits to the nonexclusive jurisdiction of the appropriate courts of the jurisdiction in which SI is incorporated, or any court sitting in any place where property or an
office of SI is located. 
  
 Section 13.4 Notices. All
notices and other communications provided for in this Agreement shall be in writing and shall be sent (unless otherwise specified) by certified mail, return receipt requested (with postage prepaid) or delivered to each party at the following
addresses, or at such other address as shall be designated by such party in a written notice to each other party: 
  

							
	U.S. Bank:	 	Suite 810	 	 
	 	 	111 S.W. Fifth Avenue	 	 
	 	 	Portland, Oregon 97204	 	 
	 	 	Attention:	 	Mr. Mark A. Esnoz
	 	 	Vice President	 	 
			
	SI:	 	 	 	14192 Franklin Avenue
	 	 	 	 	Tustin, California 92780
	 	 	 	 	Attention:     Mr. R. A. Beets
	 	 	 	 	Chief Executive Officer

  
 Except as otherwise specified, all
such notices and communications if duly given or made shall be effective upon receipt. 
  
 Section 13.5 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective Successors and assigns. SI may not assign or otherwise transfer all or any part of its
rights or obligations under this Agreement without the prior, written consent of U.S. Bank, and any such assignment or transfer purported to be made without such consent shall be ineffective. U.S. Bank may at any time assign or otherwise transfer
all or any part of its interest under this Agreement, the Notes, and the other Loan Documents (including assignments for security and sales of participations) to any Person and to the extent of such assignment, the assignee shall have the same
rights and benefits as if such assignee were U.S. Bank. SI acknowledges and agrees that U.S. Bank may share such information regarding SI with a prospective assignee or transferee of U.S. Bank’s interest in the Notes and the other Loan
Documents as U.S. Bank reasonably deems appropriate, provided that the prospective assignee or transferee agrees in writing to maintain the confidentiality of such information. 
  
 Section 13.6 Severability. Any provision of this Agreement, the Notes, or any other Loan Document that is prohibited
or unenforceable in any jurisdiction shall as to such jurisdiction be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction. To the extent permitted by applicable law, the 

  

 83 

 
parties waive any provision of law that renders any provision of this Agreement prohibited or unenforceable in any respect. 
  
 Section 13.7 Waiver of Jury Trial. SI HEREBY WAIVES ITS RIGHT TO
TRIAL BY JURY OF ANY CLAIM SI HAS OR HEREAFTER MAY HAVE AGAINST U.S. BANK (INCLUDING CROSS-CLAIMS AND COUNTERCLAIMS), INCLUDING, BUT NOT LIMITED TO, ANY CLAIM ARISING UNDER, IN CONNECTION WITH, OR IN RELATION TO THIS AGREEMENT. 
  
 Section 13.8 Entire Agreement. This Agreement, the Notes, and the Loan
Documents set forth and constitute the entire agreement between the parties hereto with respect to the loans evidenced by the Notes. No oral promise or agreement of any kind or nature, other than those that have been reduced to writing and have been
set forth in this Agreement, the Notes, and the Loan Documents, has been made between U.S. Bank and SI with respect to the loans evidenced by the Notes. 
  
 Section 13.9 Amendment. This Agreement, the Notes, and the Loan Documents may be amended or modified only by a written agreement signed by
authorized representatives of SI and U.S. Bank that by its terms expressly supersedes, modifies, amends, or alters this Agreement. 
  
 Section 13.10 Interpretation. This Agreement is a negotiated agreement. In the event of any ambiguity in this Agreement, such ambiguity shall not
be subject to a rule of contract interpretation that would cause the ambiguity to be construed against either of the parties to this Agreement. 
  
 Section 13.11 Waiver. No waiver of any provision of this Agreement, the Notes, or the Loan Documents by U.S. Bank, or consent by U.S. Bank to any
failure by SI to comply with any provision of this Agreement, the Notes, or the Loan Documents shall be effective unless the same shall be in writing and signed by U.S. Bank, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. 
  
 Section
13.12 Headings. The headings of the various provisions of this Agreement are for convenience of reference only, do not constitute a part of this Agreement, and shall not affect the meaning or construction of any provision of this Agreement.

  
 Section 13.13 Construction. In the event of any
conflict between the terms, conditions, and provisions of this Agreement and those of any other document or instrument referred to in this Agreement, the terms, conditions, and provisions of this Agreement shall control. 
  
 Section 13.14 Statutory Notice. ORAL AGREEMENTS OR ORAL COMMITMENTS
TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. 
  

									
	SI TECHNOLOGIES, INC.	 	 	 	U.S. BANK NATIONAL ASSOCIATION
					
	By	 	 	 	 	 	By	 	 
	 	 	 R.A. Beets
 Chief Executive Officer
	 	 	 	 	 	 Mark A. Esnoz
 Vice President

  

 84 

  
 Exhibit 10 (c) 
  
 FIFTH
AMENDMENT OF CREDIT AGREEMENT 
  
 Between 
  
 U.S. BANK NATIONAL ASSOCIATION 
  
 and 
  
 SI TECHNOLOGIES, INC. 
  

  

 85 

					
	 RECITALS
	  	 	  	88
			
	 Article I
	  	 CONDITIONS PRECEDENT
	  	88
	 1.1
	  	 Conditions Precedent
	  	88
			
	 Article II
	  	 MODIFICATION OF THE REVOLVING CREDIT FACILITY
	  	89
	 2.1
	  	 Reduction of U.S. Bank’s Revolving Credit Commitment
	  	89
	 2.2
	  	 Modification of the Borrowing Base
	  	89
	 2.3
	  	 Extension of U.S. Bank’s Commitment to Provide the Revolving Credit Facility
	  	89
	 2.4
	  	 Revolving Credit Facility Extension Fee
	  	89
	 2.5
	  	 Letter of Credit Subfacility
	  	90
	 2.6
	  	 Letter of Credit Fees and Charges
	  	90
	 2.7
	  	 Revolving Credit Facility Otherwise Unchanged
	  	90
			
	 Article III
	  	 MODIFICATION OF THE TERM LOAN
	  	90
	 3.1
	  	 Revised Payment Schedule
	  	90
	 3.2
	  	 Extension of the Maturity Date of the Term Loan
	  	90
	 3.3
	  	 Term Loan Extension Fee
	  	90
	 3.4
	  	 Term Loan Otherwise Unchanged
	  	91
			
	 Article IV
	  	 REAFFIRMATION OF THE EXISTING TERM LOAN
	  	91
	 4.1
	  	 Clarification of Excess Cash Flow Payment
	  	91
	 4.2
	  	 Existing Term Loan Unchanged
	  	91
			
	 Article V
	  	 COLLATERAL FOR SI’S OBLIGATIONS
	  	91
	 5.1
	  	 Continued Validity of the Security Documents
	  	91
	 5.2
	  	 Other Documents
	  	91
	 5.3
	  	 Anticipated Collateral Examination
	  	91
			
	 Article VI
	  	 MISCELLANEOUS TERMS
	  	92
	 6.1
	  	 Waiver of the Existing Defaults
	  	92
	 6.2
	  	 New Defined Terms
	  	92
	 6.3
	  	 Revised Definition
	  	92
	 6.4
	  	 Revised Base Reporting Requirements
	  	92
	 6.5
	  	 Revised Financial Covenants
	  	93
	 6.6
	  	 Possible New Financial Covenants
	  	93
	 6.7
	  	 Authorization
	  	93
	 6.8
	  	 Additional Event of Default
	  	93
	 6.9
	  	 Permitted Assets Sales
	  	94
	 6.10
	  	 Release of Claims
	  	94
	 6.11
	  	 Expenses of U.S. Bank
	  	94
			
	 Article VII
	  	 GENERAL TERMS
	  	94
	 7.1
	  	 Captions
	  	94
	 7.3
	  	 Negotiated Agreement
	  	95

  

 86 

					
	 7.4
	  	 Voluntary and Entire Agreement
	  	95
	 7.5
	  	 Continued Effectiveness of the Loan Documents
	  	95
	 7.6
	  	 Construction and Conflict with Other Agreements
	  	95
	 7.7
	  	 Applicable Law
	  	95
	 7.8
	  	 Writing Requirement
	  	95

  

 87 

  
 FIFTH
AMENDMENT OF CREDIT AGREEMENT 
  
 This Fifth Amendment of Credit Agreement (the
“Fifth Amendment”) is entered into as of March 1, 2004, between U.S. BANK NATIONAL ASSOCIATION (“U.S. Bank”) and SI TECHNOLOGIES, INC. (“SI”). 
  
 RECITALS 
  
 A. SI and U.S. Bank are parties to a Credit Agreement dated as of June 26, 2002. That agreement, as amended, is referred to in this Fifth Amendment as the “Credit
Agreement.” Capitalized terms used in this Fifth Amendment that are not defined herein have the meanings assigned to such terms in the Credit Agreement. 
  
 B. The Revolving Credit Facility and the Term Loan extended by U.S. Bank to SI pursuant to the Credit Agreement matured on January 2, 2004. Furthermore, SI is in default
under the Credit Agreement as a result of SI’s failure to comply with certain of the financial covenants contained in Article X of the Credit Agreement for measurement periods prior to the date of this Fifth Amendment and SI’s failure to
comply with the limitation on Capital Expenditures contained in Section 11.7 of the Credit Agreement during its fiscal year 2003 (which Events of Default are referred to in this Fifth Amendment collectively as the “Existing Defaults”).

  
 C. SI has asked U.S. Bank to extend the maturity date of the Revolving Credit
Facility and the Term Loan and to waive the Existing Defaults. U.S. Bank is willing to do so, subject to the terms and conditions set forth in this Fifth Amendment. 
  
 NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties to this Fifth
Amendment agree as follows: 
  
 TERMS AND CONDITIONS 
  
 ARTICLE I 
  
 CONDITIONS PRECEDENT 
  

	1.1	Conditions Precedent. This Fifth Amendment, and U.S. Bank’s obligations hereunder, shall not be effective unless all of the following events occur by March 15, 2004:

  
  

	(a)	Execution of the Fifth Amendment. SI shall have executed this Fifth Amendment and delivered it to U.S. Bank; 

  

	(b)	Execution of Promissory Note Amendment Agreements. SI shall have executed and delivered to U.S. Bank agreements in form and content satisfactory to U.S. Bank in its
reasonable discretion amending the Revolving Credit Facility Note and the Term Loan Note to reflect the changes thereto effected by the terms of Article II and Article III of this Fifth Amendment; 

  

	(c)	Payment of Extension Fees. SI shall have paid U.S. Bank $18,000 for the fees owed pursuant to paragraphs 2.2 and 3.3 of this Fifth Amendment; 

  

	(d)	March Principal Payment on Term Loan. SI shall have paid U.S. Bank $175,000 for application to the principal balance of the Term Loan, as required by paragraph 3.1 of this
Fifth Amendment; 

  

	(e)	Borrowing Resolution. SI shall have provided to U.S. Bank the borrowing resolutions and incumbency certificates described in paragraph 6.8 of this Fifth Amendments; and

  

	(f)	Reaffirmation of the Guaranties and the Security Documents. The Domestic Subsidiaries shall have executed and delivered to U.S. Bank the form of Acknowledgment and Consent
set forth in Annex I to this Fifth Amendment reaffirming their obligations under the Guaranties and the Security Documents. 

  

 If all of the above-described conditions precedent have not been satisfied (or waived in writing by U.S. Bank) by March
15, 2004, this Fifth Amendment shall be of no force and effect and the parties’ rights and obligations shall continue to be governed by the Credit Agreement (without giving effect to this Fifth Amendment). 
  
 ARTICLE II 
  
 MODIFICATION OF THE REVOLVING CREDIT FACILITY 
  

	2.1	Reduction of U.S. Bank’s Revolving Credit Commitment. Section 2.2 of the Credit Agreement hereby is modified, amended, and restated as follows: 

 
 “Section 2.3 Maximum Revolving Credit
Commitment. The maximum amount of credit available to SI under the Revolving Credit Facility at any time (including letters of credit issued by U.S. Bank for the account of SI) is the lesser of (a) (i) $6,500,000 through February 29, 2004, and
(ii) $6,000,000 thereafter, or (b) the Borrowing Base at the time in question. If the amount outstanding with respect to the Revolving Credit Facility (including letters of credit issued by U.S. Bank for the account of SI) at any time exceeds the
lesser of the amounts specified in the preceding sentence, SI within three Business Days shall pay U.S. Bank an amount equal to such excess (and SI’s failure to make such payment shall constitute an Event of Default).” 
  

	2.2	Modification of the Borrowing Base. Section 2.8 of the Credit Agreement hereby is modified, amended, and restated as follows: 

  
 “Section 2.8 The Borrowing Base. As used in this
Agreement, the term ‘Borrowing Base’ means the sum of (a) 80 percent of Eligible Domestic Accounts Receivable at the time in question, (b) 90 percent of Eligible Foreign Accounts Receivable at the time in question, and (c) 50 percent of
Eligible Inventory at the time in question, provided, however, that the aggregate amount of Advances supported by Eligible Inventory shall not exceed $3,900,000 from June 1, 2003, through June 30, 2003, $3,825,000 from July 1, 2003, through July 31,
2003, $3,750,000 from August 1, 2003, through March 31, 2004, and $3,625,000 on April 1, 2004, and thereafter” 
  

	2.3	Extension of U.S. Bank’s Commitment to Provide the Revolving Credit Facility. Section 2.10 of the Credit Agreement hereby is modified, amended, and restated as follows:

  
 “On the earlier of (a)
July 31, 2004 (which date shall be extended to January 2, 2005, if SI has satisfied the conditions specified in the following sentence), or (b) acceleration of the Obligations following an Event of Default, if any, under this Agreement, U.S.
Bank’s commitment to extend credit pursuant to the Revolving Credit Facility shall terminate. If SI repays the Term Loan in full by July 31, 2004, and no Default or Event of Default exists on July 31, 2004, U.S. Bank’s commitment to
provide credit to SI pursuant to the Revolving Credit Facility shall be extended to January 2, 2005. The date on which U.S. Bank’s commitment to extend credit to SI terminates, as specified in the first sentence of this Section 2.10 of this
Agreement, is referred to in this Agreement as the “Maturity Date.” On the Maturity Date, SI shall be obligated to pay in full the entire balance of principal, interest, and fees owed pursuant to the Revolving Credit Facility Note.”

  

	2.4	Revolving Credit Facility Extension Fee. Prior to or contemporaneously with the execution of this Fifth Amendment, SI shall pay U.S. Bank $15,000 in consideration of U.S.
Bank’s agreement to extend its commitment in respect of the Revolving Credit Facility on the basis set forth in this Fifth Amendment. In addition, on or before the earlier of (a) July 31, 2004, or (b) acceleration of the Obligations following
an Event of Default, SI shall pay U.S. Bank an additional $15,000. The fee described in the preceding sentence shall be fully earned by U.S. Bank on the date this Fifth Amendment becomes effective, although the obligation of SI to pay that fee has
been deferred as noted above. 

  

 89 

	2.5	Letter of Credit Subfacility. Pursuant to the terms of the Credit Agreement (as amended hereby) and various other agreements (including a reimbursement agreement) executed by
SI in favor of U.S. Bank, U.S. Bank shall issue letters of credit for the account of SI. The aggregate amount of letters of credit issued by U.S. Bank for the account of SI and outstanding at any time shall not exceed $100,000. The face amount of
each letter of credit issued by U.S. Bank for the account of SI and outstanding at any time in question shall constitute an Advance under the Revolving Credit Facility at such time. 

  

	2.6	Letter of Credit Fees and Charges. SI shall pay U.S. Bank an annual issuance fee of 1.25 percent per annum in respect of each outstanding letter of credit issued by U.S. Bank
for the account of SI. In addition, SI promptly shall pay U.S. Bank all other customary fees and charges assessed by U.S. Bank with respect to any letters of credit issued by U.S. Bank for the account of SI. 

  

	2.7	Revolving Credit Facility Otherwise Unchanged. Except as specified in paragraphs 2.1 through 2.6 of this Fifth Amendment, the terms and conditions of the Revolving Credit
Facility are not modified or amended by this Fifth Amendment. That means, among other things, that SI shall continue to make the monthly payments of interest owed in respect of the Revolving Credit Facility. 

  
 ARTICLE III 
  
 MODIFICATION OF THE TERM LOAN 
  

	3.1	Revised Payment Schedule. Section 3.4 of the Credit Agreement hereby is modified, amended, and restated as follows: 

  
 “Section 3.4 Repayment Terms of the Term Loan.
SI shall make monthly payments of interest in arrears to U.S. Bank in respect of the Term Loan commencing on July 1, 2002, and on the first day of each month thereafter. In addition, on the date of this Agreement, and on July 25, 2002, and the
twenty-fifth day of each month thereafter through and including February 25, 2004, SI shall make principal payments to U.S. Bank in respect of the Term Loan in the amount of $25,000. Furthermore, on or about March 1, 2004, and the first day of each
month thereafter through and including July 1, 2004, SI shall make principal payments to U.S. Bank in respect of the Term Loan in the amount of $175,000.” 
  

SI shall make its March 2004 principal payment in respect of the Term Loan in the amount of $175,000 at the time SI executes and delivers this Fifth Amendment to U.S.
Bank. SI hereby authorizes U.S. Bank to cause Advances to be made under the Revolving Credit Facility to make SI’s March 2004 principal payment and subsequent principal payments in respect of the Term Loan. If sufficient credit is not available
to SI under the Revolving Credit Facility to make any such principal payment in respect of the Term Loan when due, and SI does not otherwise timely make such payment in a manner permitted by the terms of the Credit Agreement, an Event of Default
shall occur and exist. 
  

	3.2	Extension of the Maturity Date of the Term Loan. Section 3.5 of the Credit Agreement hereby is modified, amended, and restated as follows: 

  
 “Section 3.5. Maturity Date of the Term Loan. SI
shall pay U.S. Bank the entire balance of principal, interest, and fees owed pursuant to the Term Loan on the earlier of (a) July 31, 2004, or (b) the date, if any, on which the Obligations are accelerated following an Event of Default.”

  

	3.3	Term Loan Extension Fee. Prior to or contemporaneously with the execution of this Fifth Amendment, SI shall pay U.S. Bank $3,000 in consideration of U.S. Bank’s
agreement to extend the maturity date of the Term Loan on the basis set forth herein. 

  

 90 

	3.4	Term Loan Otherwise Unchanged. Except as specified in paragraphs 3.1 through 3.3 of this Fifth Amendment, the terms and conditions of the Term Loan are not modified or
amended by this Fifth Amendment. 

  
 ARTICLE IV

  
 REAFFIRMATION OF THE EXISTING TERM LOAN 
  

	4.1	Clarification of Excess Cash Flow Payment. Section 4.3 of the Credit Agreement hereby is modified, amended, and restated as follows: 

  
 “Section 4.3 Subsequent Excess Flow Payments. In
addition to the other payments SI is required to make under this Agreement and under the Notes to U.S. Bank, on or before September 15, 2003, and the same day of each year thereafter through and including 2005, SI shall pay U.S. Bank (for
application to the Existing Term Loan) an amount equal to SI’s Excess Cash Flow (if any). As used in this Agreement, the term “Excess Cash Flow” means the amount by which actual Adjusted EBITDAR for SI’s immediately preceding
fiscal year exceeds the amount of Adjusted EBITDAR that would have been required to provide a Fixed Charge Coverage Ratio of 1.15 to 1.00 for such year.” 
  

	4.2	Existing Term Loan Unchanged. SI acknowledges and agrees that this Fifth Amendment does not modify, alter, or amend the Existing Term Loan and that SI’s obligations in
respect of the Existing Term Loan remain in full force and effect. That means, among other things, that SI shall continue to make all of the monthly payments required by the promissory note evidencing that loan strictly in accordance with the terms
of that instrument. 

  
 ARTICLE V 
  
 COLLATERAL FOR SI’S OBLIGATIONS 
  

	5.1	Continued Validity of the Security Documents. SI hereby expressly reaffirms and acknowledges the validity of the Security Documents, the accuracy of the information contained
in those documents, and SI’s grant of security interests and liens in favor of U.S. Bank in the Collateral. SI acknowledges and agrees that the Security Documents, and the security interests and liens created by those agreements in the
Collateral, secure payment of the Obligations. Furthermore, SI acknowledges and agrees that the Security Documents, and the security interests and liens created thereby in the Collateral, shall continue in full force and effect after the execution
of this Fifth Amendment. 

  

	5.2	Other Documents. SI hereby agrees that until SI satisfies the Obligations in full and U.S. Bank has no further commitment to extend credit to SI, SI promptly shall execute
and deliver to U.S. Bank all documents reasonably deemed necessary or desirable by U.S. Bank to create, evidence, perfect, or continue U.S. Bank’s security interests or liens in the Collateral. Furthermore, until SI satisfies the Obligations in
full and U.S. Bank has no further commitment to extend credit to SI, SI authorizes U.S. Bank to take such actions as U.S. Bank reasonably deems necessary or desirable to create, evidence, perfect, or continue U.S. Bank’s security interests or
liens in the Collateral (including, but not limited to, filing financing statements). 

  

	5.3	Anticipated Collateral Examination. SI acknowledges that U.S. Bank has informed SI that U.S. Bank intends to conduct an examination of the Collateral promptly after the
parties enter into this Fifth Amendment. SI hereby agrees to provide U.S. Bank access to the Collateral, and to SI’s and the Domestic Subsidiaries’ books and records regarding the Collateral. SI acknowledges that it shall be responsible
for the costs of the above-described examination of the Collateral and shall reimburse U.S. Bank for such costs (or pay such costs in the first instance) in accordance with Section 7.1 of the Credit Agreement. 

  

 91 

 ARTICLE VI 
  
 MISCELLANEOUS TERMS 
  

	6.1	Waiver of the Existing Defaults. Upon timely satisfaction of the conditions precedent set forth in paragraph 1.1 of this Fifth Amendment, U.S. Bank waives the Existing
Defaults (which waiver shall be effective without additional documentation). 

  

	6.2	New Defined Terms. The following defined terms are added to Section 1.1 of the Credit Agreement: 

  
 ““Adjusted EBITDAR” means, for any period in question, EBITDAR minus (a) the Pro-Rated
Maintenance Capital Expenditures), (b) cash dividends or distributions (if any) made by SI, and (c) cash income taxes paid by SI.” 
  
 ““EBITDAR” means, for any period in question, EBITDA plus lease and rent expense of SI.” 
  
 ““Funded Indebtedness” means, as
applied to SI, without duplication, the sum of (a) Indebtedness for borrowed money, (b) Indebtedness in respect of capital lease obligations, (c) all obligations in respect of letters of credit, (d) all other interest-bearing obligations that in
accordance with GAAP should be included as a liability on the balance sheet of SI, and (e) all guarantees of the foregoing.” 
  
 ““Pro-Rated Maintenance Capital Expenditures” means that portion of an agreed-upon level of annual Capital
Expenditures of $275,000 allocable to the measurement period in question on a pro-rated basis. For example, if the measurement period in question is a nine-month period, the Pro-Rated Maintenance Capital Expenditures would be $206,250 (i.e.,
nine-twelfths of $275,000).” 
  

	6.3	Revised Definition. The definition of the term Fixed Charges set forth in Section 1.1 of the Credit Agreement hereby is modified, amended, and restated as follows:

  
 ““Fixed
Charges” means, for any period in question, the sum of (a) interest expense of SI, (b) the aggregate amount of all regularly scheduled principal payments (other than principal payments with respect to the Revolving Credit Facility) in
respect of any Funded Indebtedness (provided, however, that for purposes of calculating the financial covenants in this Agreement, the monthly principal payments with respect to the Term Loan shall be deemed to be $25,000 per month), (c) prepayments
of any Funded Indebtedness (other than the Obligations), and (d) lease and rent expense of SI.” 
  

	6.4	Revised Base Reporting Requirements. Section 9.9(a) and Section 9.9(i) of the Credit Agreement hereby are modified, amended, and restated as follows:

  
 “(a) Weekly Borrowing
Base Certificate. On March 15, 2004, and each Monday thereafter (or, if any such Monday is not a Business Day, on the next Business Day), a report in form and content satisfactory to U.S. Bank in its reasonable discretion calculating the
Borrowing Base as of the previous Friday (or, if any such Friday is not a Business Day, as of the preceding Business Day), which report shall be accompanied by a written certification of an authorized officer of SI that the calculation of the
Borrowing Base is accurate in all material respects;” 
  
 “(i) Audited Financial Statement and Covenant Certification. Within 120 days of the end of SI’s fiscal year, a copy of an audited consolidated financial statement in respect of SI prepared by a
certified public accounting firm acceptable to U.S. Bank in its reasonable discretion 

  

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and a certification by such accounting firm that SI was in compliance with the financial covenants contained in Sections 10.1 through 10.3 of the Credit
Agreement as of the end of SI’s fiscal year in question (or identifying any of such covenants that SI was not in compliance with as of the end of the year in question);” 
  

	6.5	Revised Financial Covenants. Sections 10.1 through 10.4 of the Credit Agreement hereby are modified, amended, and restated as follows: 

  
 “Section 10.1 Fixed Charge Coverage Ratio. SI
shall not permit the ratio of Adjusted EBITDAR to Fixed Charges (which ratio is referred to in this Agreement as the “Fixed Charge Coverage Ratio”) to be less than .93 to 1.00 for the nine-month period ending April 30, 2004, or less than
1.10 to 1.00 for the twelve-month period ending July 31, 2004.” 
  
 “Section 10.2 EBITDA Covenant. SI shall have EBITDA of at least $1,440,000 for the nine-month period ending April 30, 2004, and EBITDA of at least $2,450,000 for the twelve-month period ending July 31,
2004. 
  
 “Section 10.3 Funded
Indebtedness to EBITDAR Ratio. SI shall not permit the ratio of Funded Indebtedness to EBITDAR to exceed 4.25 to 1.00 for the twelve-month period ending July 31, 2004.” 
  
 “Section 10.4 Testing of Financial Covenants. The financial covenants set forth in Section 10.1
through Section 10.3 of this Agreement shall be tested quarterly and shall be calculated in reasonable detail and presented in the quarterly compliance certificate that SI is required to provide to U.S. Bank pursuant to Section 9.9(g) of this
Agreement.” 
  
 Notwithstanding anything in the Credit Agreement to the
contrary, Net Income to be utilized in calculating EBITDA or EBITDAR shall be determined without deductions for current period increases in inventory reserves. 
  

	6.6	Possible New Financial Covenants. If U.S. Bank’s commitment to provide the Revolving Credit Facility to SI is extended beyond July 31, 2004, on the basis set forth in
the second sentence of Section 2.10 of the Credit Agreement, U.S. Bank and SI shall negotiate in good faith to establish financial covenants (based upon SI’s fiscal 2005 Budget) for the fiscal period ending October 31, 2004. If the parties are
unable to agree upon those covenants, U.S. Bank shall determine the covenants and that determination shall be binding on SI. 

  

	6.7	Authorization. SI hereby represents and warrants that the execution, delivery, and performance by SI and the Domestic Subsidiaries of this Fifth Amendment have been duly
authorized by all necessary corporate action of SI and the Domestic Subsidiaries, do not require any further shareholder approval, or the approval or consent of any trustee or the holders of any Indebtedness of SI or the Domestic Subsidiaries, do
not contravene any law, regulation, rule, or order binding on SI or the Domestic Subsidiaries, or any of the organizational documents, and do not contravene the provisions of or constitute a default under any indenture, mortgage, contract, or other
agreement or instrument to which SI (or a Domestic Subsidiary) is a party, or by which SI (or a Domestic Subsidiary) or any of its properties may be bound or affected, except as has been disclosed to U.S. Bank in writing. Contemporaneously with the
execution of this Fifth Amendment, SI shall deliver to U.S. Bank corporate resolutions authorizing SI to obtain the Loans and to enter into this Fifth Amendment and the Loan Documents and identifying the officer or officers of SI and the Domestic
Subsidiaries authorized to execute this Fifth Amendment and other Loan Documents to be executed on or after the date of this Fifth Amendment. 

  

	6.8	Additional Event of Default. In addition to the matters specified in Section 12.1 of the Credit Agreement, the breach by SI of any agreement with any third party that would
be likely to have a Material Adverse Effect (as determined by U.S. Bank in its reasonable discretion) shall constitute a default under Section 12.1 of the Credit Agreement. 

  

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	6.9	Permitted Assets Sales. SI has informed U.S. Bank that SI intends to sell excess equipment and excess inventory of SI. U.S. Bank hereby agrees to such sales, provided that
all net proceeds of the sale of any excess inventory or excess equipment of SI are deposited promptly into the Cash Collateral Account for application to the Revolving Credit Facility. On or before the time that SI is required to deliver its monthly
financial statements to U.S. Bank in accordance with the provisions of Section 9.9(f) of the Credit Agreement, SI shall deliver to U.S. Bank a written report identifying in reasonable detail the types and amounts of excess equipment and excess
inventory sold by SI during the immediately preceding calendar month and the gross proceeds and net proceeds received by SI in connection with such sales. 

  

	6.10	Release of Claims. SI hereby releases and forever discharges U.S. Bank and U.S. Bank’s agents, principals, successors, assigns, employees, officers, directors, and
attorneys, and each of them, of and from any and all claims, demands, damages, suits, rights, defenses, offsets, or causes of action of every kind and nature that SI has or may have as of the date it executes this Fifth Amendment, whether known or
unknown, contingent or matured, foreseen or unforeseen, asserted or unasserted, including, but not limited to, all claims for compensatory, general, special, consequential, incidental, and punitive damages, attorney fees, and equitable relief. In
that regard, SI hereby agrees to waive and relinquish, and by executing this Fifth Amendment shall be deemed to have waived and relinquished to the fullest extent permitted by law, the provisions, rights, and benefits of Section 1542 of the
California Civil Code, which provides that: 

  
 “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the
debtor.” 
  
 Furthermore, SI hereby waives any and all provisions, rights,
and benefits conferred by any laws of any state or territory of the United States, or principles of common law, that are similar, comparable, or equivalent to Section 1542 of the California Civil Code. SI recognizes that SI may discover after the
effective date of this Fifth Amendment facts in addition to or different from those that SI knows or believes to be true with respect to the subject matter of the released claims but hereby stipulates and agrees that as of the effective date of this
Fifth Amendment SI fully, finally, and forever settles and releases any and all released claims, known or unknown, as described above 
  

	6.11	Expenses of U.S. Bank. SI shall reimburse U.S. Bank for all reasonable costs and expenses incurred by U.S. Bank in connection with U.S. Bank’s banking and lending
relationships with SI, including, but not limited to, recording charges, escrow charges, appraisal costs, environmental survey and investigation costs, collateral examination and inspection costs, and the reasonable fees and expenses of legal
counsel for U.S. Bank (including fees and expenses incurred in connection with the preparation, negotiation, closing, administration, amendment, modification, and enforcement of this Fifth Amendment, or the agreement evidenced hereby); the
preservation, protection, or disposition of the Collateral (or U.S. Bank’s security interests therein); or as required by applicable law, rules, policies, and regulations. The amounts owed by SI pursuant to the preceding sentence of this Sixth
Amendment shall be paid by SI in the ordinary course of SI’s business after U.S. Bank bills SI for such amounts, or on the Maturity Date, whichever occurs first. 

  
 ARTICLE VII 
  
 GENERAL TERMS 
  

	7.1	Captions. Any captions for the sections of this Fifth Amendment are for convenience only and do not control or affect the meaning or construction of any of the provisions of
this Fifth Amendment. 

  

	7.2	Severability. If any term, condition, or provision of this Fifth Amendment, or any other document or instrument referred to in this Fifth Amendment, is held invalid for any
reason, such offending term, condition, or provision shall be stricken therefrom, and the remainder of this Fifth Amendment shall not be affected thereby. 

  

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	7.3	Negotiated Agreement. This Fifth Amendment is a negotiated agreement. In the event of any ambiguity in this Fifth Amendment, such ambiguity shall not be subject to a rule of
contract interpretation that would cause the ambiguity to be construed against any of the parties to this Fifth Amendment. 

  

	7.4	Voluntary and Entire Agreement. The only consideration for the execution of this Fifth Amendment is the consideration expressly recited herein. The Credit Agreement (as
amended hereby) and the other agreements and instruments referred to in this Fifth Amendment remain in full force and effect and set forth and constitute the entire agreement between U.S. Bank and SI with respect to the subject matter of this Fifth
Amendment. No oral promise or agreement of any kind or nature, other than those that have been reduced to writing and set forth herein or in the other written agreements between U.S. Bank and SI, has been made between U.S. Bank and SI. SI
acknowledges it has been represented (or has had the opportunity to be represented) by legal counsel in connection with the negotiation and execution of this Fifth Amendment and the other agreements and instruments referred to in this Fifth
Amendment. SI voluntarily executed this Fifth Amendment and the other agreements and instruments referred to in this Fifth Amendment. 

  

	7.5	Continued Effectiveness of the Loan Documents. Except as expressly modified by this Fifth Amendment, the Loan Documents remain in full force and effect in accordance with
their terms. 

  

	7.6	Construction and Conflict with Other Agreements. In the event of any conflict between the terms of this Fifth Amendment and the terms of any other agreements or instruments
referred to in this Fifth Amendment, the terms of this Fifth Amendment shall control. 

  

	7.7	Applicable Law. This Fifth Amendment and any other instruments or agreements required or contemplated under this Fifth Amendment shall be governed by and construed under the
laws of the state of Oregon, without regard to principles of conflicts of law. 

  

	7.8	Writing Requirement. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES, AND COMMITMENTS MADE BY U.S. BANK AFTER OCTOBER 3, 1989, CONCERNING LOANS AND OTHER CREDIT EXTENSIONS
THAT ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S RESIDENCE, MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY U.S. BANK TO BE ENFORCEABLE. 

  

									
	SI TECHNOLOGIES, INC.	 	 	 	U.S. BANK NATIONAL ASSOCIATION
					
	By	 	 	 	 	 	 By
	 	 
	 Name:
	 	 	 	 	 	Roger C. Lundeen
	 Title:
	 	 	 	 	 	Senior Vice President

  

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 ANNEX I 
  
 ACKNOWLEDGMENT AND CONSENT 
  
 Each of the undersigned hereby (a) acknowledges and consents to the
execution, delivery, and performance by SI of the foregoing Fifth Amendment of Credit Agreement and (b) reaffirms and agrees that the Guaranty and Security Documents to which the undersigned is a party and all other documents and agreements executed
and delivered by the undersigned to U.S. Bank in connection with the Credit Agreement (as amended) are in full force and effect, enforceable without defense, offset, or counterclaim. Capitalized terms used herein have the meanings specified in the
Credit Agreement (as amended). 
  
 Dated as of March 1, 2004.

  

									
	AEROGO, INC.	 	 	 	REVERE TRANSDUCERS, INC.
					
	By	 	 	 	 	 	By	 	 
	 Name:
	 	 	 	 Name:

	 Title:
	 	 	 	 Title:

  

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