Document:

Prepared by R.R. Donnelley Financial -- Fourth Amendment to Credit Agreement

  
 Exhibit 10.20 
 FOURTH AMENDMENT TO CREDIT AGREEMENT 
  
  THIS FOURTH AMENDMENT TO CREDIT
AGREEMENT (the “Fourth Amendment”) is made and dated as of the 28 day of June, 2002 by and among THE BANK OF THE WEST, doing business as UNITED CALIFORNIA BANK (the “Bank”), and OSI SYSTEMS, INC., a California corporation (the
“Borrower”). 
  
 RECITALS 
  
 A.    Pursuant to that certain Credit Agreement dates as of February 27, 2001 by and among the Bank and the Borrower (as amended, extended and replace
from time to time, the “Credit Agreement,” and with capitalized terms not otherwise defined herein used with the meanings given such terms in the Credit Agreement), the Bank agreed to extend credit to the Borrower on the terms and subject
to the conditions set forth therein. 
  
 B.    The Borrower has requested the Bank to amend the
Credit Agreement in certain respects and the Bank has agreed to do so on the terms and subject to the conditions set forth herein. 
  
 NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 

 
 AGREEMENT 
  
 1.    Increase in Line of Credit.    To reflect the agreement of the parties hereto in increase the Line of Credit, effective as of the Fourth Amendment Effective Date (as
defined in Paragraph 10 below),Section 2.1.1 of the Credit Agreement is hereby amended to delete the dollar amount “$12,000,000.00” set forth therein and replacing the same with the dollar amount “$22,000,000.00”. 

 
 2.    Extension of Expiration Date of Line of Credit.    To reflect the
agreement of the parties hereto to extend the Expiration Date of the Line of Credit, effective as of the Fourth Amendment Effective Date, the definition of the term “Expiration Date of Line of Credit” set forth in Section 1/1 of the Credit
Agreement is hereby amended by deleting the date “November 30, 2002” set forth therein and replacing the same with the date “November 30, 2003”. 
  
 3.    Increase in Letter of Credit Sub-Facility.    To reflect the agreement of the parties hereto to increase the maximum
aggregate amount of Letter of Credit that may be outstanding at any one time, effective as of the Fourth Amendment Effective Date: 
  
 (a)    Section 2.3.1 of the Credit Agreement is hereby amended by deleting the dollar amount “$10,000,000.00” set forth therein and replacing the same with the dollar
amount “22,000,000.00”. 
  
 (b)    Section 2.4.1 of the Credit
Agreement is hereby amended by deleting the dollar amount “$10,000,000.00” set forth therein and replacing the same with the dollar amount “$22,000,000.00”. 
  
 4.    Addition of Cash Secured Letter of Credit Facility.    To reflect the agreement of the parties hereto to add a new cash
secured letter of credit facility to the Credit Agreement, effective as of the Fourth Amendment Effective Date: 
 

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 (a)    A new Section 2.3A is hereby added to the Credit Agreement to read in its
entirety as follows: 
  
 “2.3A    CASH SECURED LETTER OF CREDIT FACILITY

  
  2.3A.1    Cash Secured Letter of Credit Facility:    The
Bank agrees to issue commercial and/or standby letters of credit secured by cash of the Borrower being held by the Bank (each a “Cash Secured Letter of Credit”) on behalf of the Borrower or any Eligible Borrower of up to $4,000,000.00.

  
 (i)    Upon the Bank’s request, the Borrower or the relevant Eligible
Borrower shall promptly pay to the Bank issuance fees and such other fees, commissions, costs and any out-of-pocket expenses charged or incurred by the Bank with respect to any Cash Secured Letter of Credit. 
  
 (ii)    The commitment by the Bank to issue Cash Secured Letters of Credit shall, unless earlier
terminated in accordance with the terms of the Agreement, automatically terminate on the Expiration Date of Line of Credit and no Cash Secured Letter of Credit shall expire on a date which is 180 days after the Expiration Date of Line of Credit or
as negotiated by the Borrower and the Bank 
  
 (iii)    Each Cash Secured Letter
of Credit shall be in form and substance satisfactory to the Bank and in favor of beneficiaries satisfactory to the Bank, provided that the Bank may refuse to issue a Cash Secured Letter of Credit due to the nature of the transaction or its terms or
in connection with any transaction where the Bank, due to the beneficiary or the nationality or residence of the beneficiary, would be prohibited by any applicable law, regulation or order from issuing such Cash Secured Letter of Credit.

  
 (iv)    Prior to the issuance of each Cash Secured Letter of Credit, but in
no event later than 10:00 am (California time) on the day such Cash Secured Letter of Credit is to be issued (which shall be a Business Day), the Borrower or the relevant Eligible Borrower shall deliver to the Bank a duly executed form of the
Bank’s standard form of application for issuance of a Cash Secured Letter of Credit with proper insertions. 
  
 (v)    The Borrower or the relevant Eligible Borrower shall, upon the Bank’s request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future
assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank’s compliance with any directive or requirement of any regulatory authority pertaining or relating to any Cash
Secured Letter of Credit. 
  
 (vi)    As a condition precedent to the issuance of
each Cash Secured Letter of Credit, the Borrower shall have delivered to the Bank cash in amount equal to the original face amount of such Cash Secured Letter of Credit to be held by the Bank as security for the repayment of any drawings under such
Cash Secured Letter of Credit and all other Obligations relating thereto. The Borrower hereby grants to the Bank a first priority, perfected security interest in and lien upon all cash delivered as required hereunder, in any and all accounts in
which such cash may be held, in all interest and other earnings thereon and in any and all property in which said cash may be invested (collectively, the “Cash Collateral”) as collateral security for the Obligations arising at any time
with respect to the related Cash Secured Letter of Credit and acknowledges that the Bank 
 

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 shall have all rights, remedies and powers with respect thereto of a secured
party under the California Uniform Commercial Code. The Borrower hereby agrees to execute and deliver, and cause to be executed and delivered, to the Bank from time to time such documents, instruments and agreements as the Bank may request to obtain
and maintain for the Bank a first priority, perfected security interest in the Cash Collateral. The Borrower hereby irrevocably authorizes the Bank at any time, including, without limitation, prior to the occurrence of an Event of Default, to debit
the Cash Collateral in the amount of each drawing under the related Cash Secured Letter of Credit and for other amounts payable with respect thereto; provided, however, that the Bank shall have no obligations to so debit the Cash Collateral and
nothing contained herein shall in any manner or to any extent affect the obligation of the Borrower to make such payments from other sources. 
  
 In addition to and not in lieu of the right of the Bank, in its discretion, to debit the Cash Collateral as set forth above, in the event that the Borrower or the relevant Eligible Borrower fails to
pay any drawing under any Cash Secured Letter of Credit or the balances in the depository account or accounts maintained by the Borrower with Bank are insufficient to pay such drawing, without limiting the rights of Bank hereunder or waiving any
Event of Default caused thereby, Bank may, and Borrower hereby authorizes Bank to create an Advance bearing interest at the rate or rates provided in Section 9.2 hereof to pay such drawing.” 
  

(b)    Section 8.4 of the Credit Agreement is hereby amended to read in its entirety as follows: 
  
 “8.4    Letters of Credit:    Require the Borrower to pay immediately
to the Bank, for application against drawings under any outstanding Letters of Credit or Cash Secured Letters of Credit, the outstanding principal amount of any such Letters of Credit or Cash Secured Letters of Credit which have not expired. Any
portion of the amount so paid to the Bank which is not applied to satisfy draws under any such Letters of Credit or Cash Secured Letters of Credit or any other obligations of the Borrower to the Bank shall be repaid to the Borrower without
interest.” 
  
 5.    Unused Line of Credit Fee.    To reflect the
agreement of the parties hereto to add an unused fee with respect to the Line of Credit, effective as of the Fourth Amendment Effective Date, a new Section 2.1.10 is hereby added to the Credit Agreement to read in its entirety as follows:

  
 “2.1.10    Unused Fee:    The Borrower shall
pay to the Bank on the last Business Day of the calendar quarter ending on June 30, 2002, on the last Business Day of each calendar quarter thereafter, and on the Expiration Date of Line of Credit, a non-usage fee for such calendar quarter (or
portion thereof) in the amount set forth in a fee billing delivered by the Bank to the Borrower, which non-usage fee shall equal: (i) the average daily Line of Credit in effect during such calendar quarter (or portion thereof), minus the
daily average amount of Advances outstanding under the Line of Credit and Letters of Credit outstanding during such calendar quarter (or portion thereof), multiplied by (ii) the product of : (a) one eighth of one percent (0.125%), and (b) a
fraction, the numerator of which is the number of days in the applicable calculation period and the denominator if which is 365; provided, however, for the purposes of calculating such fee payable on June 30, 2002, the applicable calculation period
for such quarter shall be deemed to commence on the Fourth Amendment Effective Date (as such term is defined in that certain Fourth Amendment dated as of June 28, 2002 by and among the Bank and the Borrower).” 
  
 6.    Modification of Applicable Margin.    To reflect the agreement of the parties hereto
to modify the Applicable Margin, effective as of the Fourth Amendment Effective Date, the definition of the term “Applicable Margin” set forth in Section 1.1 of the Credit Agreement is hereby amended to read in its entirety as follows:

 

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  “‘Applicable
Margin’:    shall mean the following interest rate percentages based upon the Funded Debt Ratio provided for in Section 6.2(iv) then in effect: 
  
 
	 Funded Debt Ratio
 	    	 Applicable Margin for LIBOR or Fixed Rate:
 
	 	    	 Applicable Margin for Reference Rate:
 
	 
	 Less than 1.50 to 1
 	    	 1.50
 	 %
 	    	 0
 	 %
 
	 1.50 to 1 or greater
 	    	 2.00
 	 %
 	    	 0.15
 	 %
 

 
  
 7.    Modification of Financial
Covenants.    To reflect the agreement of the parties hereto to modify certain of the financial covenants applicable to the Company, effective as of the Fourth Amendment Effective Date: 
  
 (a)    Subsection (i) of Section 6.2 of the Credit Agreement is hereby amended to read in its entirety
as follows: 
  
 “(i)    Net Worth:    A minimum
Effective Tangible Net Worth of at least $55,000,000.00, plus seventy five percent (75%) of the Borrower’s net profit after taxes for the fiscal year ending on June 30, 2002, plus seventy five percent (75%) of the Borrower’s net profit
after taxes for each fiscal year thereafter.” 
  
 (b)    Subsection (iv) of
Section 6.2 of the Credit Agreement is hereby amended to read in its entirety as follows: 
  
 “(iv)    Funded Debt Ratio:    A ratio of Funded Debt to EBITDA of not more than 2.25 to 1 at the end of any fiscal quarter, with EBITDA based upon the immediately preceding three
fiscal quarters and the current quarter just ended.” 
  
 8.    Modification of
Collateral.    To reflect the agreement of the parties hereto to revise the description of the Collateral to conform with certain changes that have been enacted in Article 9 of the California Uniform Commercial Code,
effective as of the Fourth Amendment Effective Date, Section 3.1 of the Credit Agreement is hereby amended to read in its entirety as follows: 
  
 “3.1    The Collateral:    To secure payment and performance of all the Borrower’s Obligations under this Agreement and all other liabilities,
loans, guarantees, covenants and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created, the Borrower hereby
grants the Bank a security interest in and to all of the following property (“Collateral”): 
  
 (i)    All now existing and hereafter arising accounts, chattel paper, documents, instruments, letter-of-credit rights, commercial tort claims, and general intangibles (as those terms are defined in the California
Uniform Commercial Code as in effect from time to time) of Borrower, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights of Borrower now and hereafter arising in and to all
security agreements, guaranties, leases and other writings securing or otherwise relating to any such accounts, chattel paper, documents, instruments, letter-of-credit rights, commercial tort claims and general intangibles, but excluding accounts,
chattel paper, chattel paper, documents, instruments, letter-of-credit rights, commercial tort claims and general intangibles of any Foreign Subsidiary; 
 

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 (ii)    All inventory of Borrower, now owned and hereafter acquired, wherever
located, including, without limitation, all merchandise, goods and other personal property which are held for sale or lease or leased by Borrower or to be furnished under a contract of service, all raw materials, work in process, materials used or
consumed in Borrower’s business and finished goods, all goods in which Borrower has an interest in mass or a joint or other interest or gifts of any kind (including goods in which Borrower has an interest or right as consignee), and all goods
which are returned to or repossessed by Borrower, together with all additions and accessions thereto and replacements therefor and products thereof and documents therefor, but excluding the inventory or any Foreign Subsidiary; 

 
 (iii)    All equipment of Borrower, now owned and hereafter acquired, wherever located, and
all parts thereof and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor, including, without limitation, all machinery, tools, dies, blueprints, catalogues, computer hardware and software,
furniture, furnishings and fixtures, but excluding the equipment of any Foreign Subsidiary; 
  
 (iv)    All now existing and hereafter acquired computer hardware and software, copyrights, patents, trademarks and trade secrets; 
  
 (v)    All deposit accounts, now existing and hereafter arising or established, maintained in Borrower’s name with any financial
institution and any and all funds at any time held therein and all certificates, instruments and other writings, if any, from time to time representing, evidencing or deposited into such accounts, and all interest, dividends, cash, instruments and
other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing, but excluding any interests in deposit accounts of any Foreign Subsidiary; 
  
 (vi)    All of Borrower’s right, title and interest in and to (but not Borrower’s
obligations under) all now existing and hereafter arising contracts and agreements to which Borrower is party, in each case as such agreements may be amended, supplemented or otherwise modified from time to time (such agreements, as so amended,
supplemented or modified, individually, an “Assigned Agreement,” and, collectively, the “Assigned Agreements”), including, without limitation, all rights of Borrower to receive moneys due and to become due under or pursuant to
the Assigned Agreements, all rights of Borrower to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, all claims of Borrower for damages arising out of or for breach of or default under the
Assigned Agreements, and all rights of Borrower to terminate, amend, supplement or modify the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder; provided, however, that with respect
to any such contract or agreement where the grant of a security interest in Borrower’s right, title and interest therein in prohibited by the terms thereof, or would give any other party the right to terminate its obligations thereunder, or is
not permitted because any necessary consent to such grant has not been obtained, the Collateral shall include only the rights of Borrower to receive moneys due and to become due, if any, under or pursuant to such contract or agreement, but excluding
any agreement or contract to which a Foreign Subsidiary is a party (other than any such agreement or contract to which the Borrower is also a party); 
  
 (vii)    All now existing and hereafter acquired books, records, writings, data bases, information and other property relating to, used
or useful in connection with, embodying, incorporating or referring to, any of the foregoing Collateral; 
 

 5 

  
 (viii)    All other property of Borrower now
or hereafter in the possession, custody or control of the Bank, and all property of Borrower in which the Bank now has or hereafter acquires a security interest, but excluding any property of any Foreign Subsidiary; 
  
 (ix)    All now existing and hereafter acquired cash and cash equivalents held by Borrower not
otherwise included in the foregoing Collateral, but excluding any cash and cash equivalents held by any Foreign Subsidiary; and 
  
 (x)    All products and proceeds of the foregoing Collateral. For purposes of this Security Agreement, the term “proceeds” shall have the meaning provided in the
California Uniform Commercial Code as in effect from time to time, and also includes any voluntary or involuntary disposition, and all rights to payment, including return premiums, with respect to any insurance. 
  
 The security interest granted to Bank in the Collateral shall not secure or be deemed to secure any Indebtedness of the Borrower to the
Bank which is, at the time of its creation, subject to the provisions of any state or federal consumer credit or truth-in-lending disclosure statutes. 
  
 The Borrower hereby acknowledges and agrees that the Bank, in connection with the filing of any UCC financing statements necessary to perfect or maintain the perfection of its lien in the Collateral
hereunder, may utilize a general description of the Collateral, such as ‘all now owned and hereafter acquired personal property of the Borrower.’” 
  
 9.    Reaffirmation of Loan Documents.    The Borrower hereby confirms and agrees that the execution and delivery by the Borrower of this Fourth Amendment
shall not in any manner or to any extent be deemed to amend, impair, invalidate or otherwise affect any of the obligations of the Borrower or the rights of the Bank under the Credit Agreement or any other document of instrument made or given by the
borrower in connection therewith and that the term “Obligations” as used in the Credit Agreement as amended hereby. 
  
 10.    Fourth Amendment Effective Date.    This Fourth Amendment shall be effective, as of the day and year first above written, on the date (the “Fourth Amendment Effective
Date”) that there shall have been delivered to the Bank: 
  
 (a)    A copy
of this Fourth Amendment duly executed by all parties required as signatories hereto; 
  
 (b)    From each of UDT Sensors, Inc., Rapiscan Security Products (U.S.A.), Inc., Metorex Security Products, Inc., Aristo Medical Products, Inc., OSI Fibercomm, Inc., Osteometer Meditech, Inc., and Ferson Optics,
Inc. (each a “Guarantor”, and, collectively, the “Guarantors”), a duly executed replacement guaranty in the form of that attached hereto as Exhibit A, which shall replace the existing guaranty previously delivered by each
such Guarantor in its entirety (collectively, the “Replacement Guaranties”); 
  
 (c)    Such amendments to any UCC financing statements previously filed naming the Borrower as the “Debtor” and the Bank as the “Secured Party” thereunder as the Bank may require; 

 
 (d)    An amendment fee payable to the Bank in the amount of $37,500.00; and 

 
 (e)    Such corporate resolutions and other authorizing documentation from the Borrower and
each of the Guarantors as the Borrower may require. 
 

 6 

 11.    No Other Amendment.    Except as expressly amended hereby, the
Credit Agreement and the other loan documents shall remain in full force and effect as written. 
  
 12.    Counterparts.    This Fourth Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement. 
  
 13.    Representations and
Warranties.    The Borrower and, by executing this Fourth Amendment is provided below, each of the Guarantors, hereby represents and warrants to the Bank as follows: 
  
 (a)    The Borrower and each of the Guarantors each have the power and authority and the legal right to execute, deliver and perform
this Fourth Amendment, and in the case of the Guarantors, the Replacement Guaranties, and have taken all corporate action necessary to authorize the execution, delivery and performance of this Fourth Amendment. This Fourth Amendment and the
Replacement Guaranties have been duly executed and delivered on behalf of the Borrower and each of the Guarantors, as applicable, and each such document constitutes the legal, valid and binding obligations of such persons, enforceable against such
Persons in accordance with its terms. 
  
 (b)    Both prior to and after giving
effect to this Fourth Amendment: (1) the representations and warranties of the Borrower and the Guarantors contained in the Credit Agreement, the Replacement Guaranties and the other loan documents are accurate and complete in all respects, and (2)
there has not occurred in Event of Default. 
  
 [Signature Pages Following] 
 

 7 

  
 IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be
executed as of the day and year first above written. 
  
 
	 OSI SYSTEMS, INC., as the Borrower
 
	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA        
 

	  	 	 Deepak Chopra
 

 
  
 
	 THE BANK OF THE WEST, doing business as
 UNITED CALIFORNIA BANK, as the
Bank
 
	 
	 By:
 	 	 /S/    GREGG
HESSICK        
 

	  	 	 Gregg Hessick
 

 
  
 ACKNOWLEDGED AND AGREED TO 
 as of the day and year first above written: 
  
 UDT SENSORS, INC., as a Guarantor 
 
	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA        
 

	  	 	 Deepak Chopra
 

 
  
 RAPISCAN SECURITY PRODUCTS (U.S.A), INC., as a Guarantor 
 
	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA        
 

	  	 	 Deepak Chopra
 

 
  
  
  
  
  
 

 8 

  
 METOREX SECURITY PRODUCTS, INC., as a Guarantor 
  

	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA        
 

	  	 	 Deepak Chopra
 

 
  
 ARISTO MEDICAL PRODUCTS, INC., as a Guarantor 
  
 
	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA        
 

	  	 	 Deepak Chopra
 

 
  
 OSI FIBERCOMM, INC., as a Guarantor 
  

	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA        
 

	  	 	 Deepak Chopra
 

 
  
 FERSON OPTICS, INC., as a Guarantor 
  

	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA        
 

	  	 	 Deepak Chopra
 

 
  
 OSTEOMETER MEDITECH, INC., as a Guarantor 
  
 
	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA        
 

	  	 	 Deepak Chopra
 

 
 

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 EXHIBIT A 
  
 FORM OF 
  
 REPLACEMENT GUARANTY

  
 THIS GUARANTY (the “Guaranty”) is made and dated as of the 28 day of June, 2002 by
            , a California corporation (“Guarantor”). 
  
 RECITALS 
  
 A.    This Guaranty is being executed and delivered by
Guarantor to THE BANK OF THE WEST, doing business as UNITED CALIFORNIA BANK (“Bank”) pursuant to that certain Credit Agreement dated as of February 27, 2001 by and among the Bank and OSI SYSTEMS, INC., a California corporation
(“Borrower”) (as amended, extended and replaced from time to time, the “Credit Agreement,” and with capitalized terms not otherwise defined herein used with the meanings given such terms in the Credit Agreement).

  
 B.    Pursuant to the Credit Agreement Bank has agreed to extend credit to Borrower on the
terms and subject to the conditions set forth therein. 
  
 C.    As a condition precedent
to Bank’s obligation to extend credit under the Credit Agreement, Guarantor was required, among other things, to execute and deliver that certain Continuing Guaranty dated as of February 27, 2001 to Bank (the “Existing
Guaranty”). 
  
 D.    Pursuant to that certain Fourth Amendment to Credit Agreement
dated as of June     , 2002 by and among the Bank and the Borrower (the “Fourth Amendment”), Guarantor is required to execute and deliver this Guaranty, which shall replace the Existing Guaranty. 

 
 NOW, THEREFORE, in consideration of the above Recitals and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, Guarantor hereby agrees as follows: 
  
 AGREEMENT 
  
 1.    Guarantor hereby absolutely and unconditionally guarantees the payment when due, upon maturity, acceleration or
otherwise, of all Obligations of Borrower to Bank under the Credit Agreement, including in all cases, whether heretofore, now, or hereafter made, incurred or created, whether voluntary or involuntary and however arising, absolute or contingent,
liquidated or unliquidated, determined or undetermined, whether or not such Obligations are from time to time reduced, or extinguished and thereafter increased or incurred, whether Borrower may be liable individually or jointly with others, whether
or not recovery upon such Obligations may be or hereafter become barred by any statute of limitations, and whether or not such Obligations may be or hereafter become otherwise unenforceable. 
  
 2.    Guarantor hereby absolutely and unconditionally guarantees the payment of the Obligations, whether or not due or payable by Borrower, upon: (a)
the dissolution, insolvency or business failure of, or any assignment for benefit of creditors by, or commencement of any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceedings by or against, either Borrower or
Guarantor, as applicable, or (b) the appointment of a receiver for, or the attachment, restraint of or making or levying of any order of court or legal process affecting, the property of either Borrower or 
 

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 Guarantor, and unconditionally promises to pay such Obligations to Bank, or order, on demand, in lawful
money of the United States. 
  
 3.    The liability of Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Obligations, whether executed by Guarantor or by any other party, and the liability of Guarantor hereunder is not affected or impaired by (a) any direction of application of payment by
Borrower or by any other party, or (b) any other guaranty, undertaking or maximum liability of Guarantor or of any other party as to the Obligations, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any
revocation or releases of any obligations of any other guarantor of the Obligations, or (e) any dissolution, termination or increase, decrease or change in personnel of Guarantor, or (f) any payment made to Bank on the Obligations which Bank repays
to Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and Guarantor waives any right to the deferral or modification of Guarantor’s obligations hereunder by reason of
any such proceeding. 
  
 4.    (a)    The obligations of Guarantor hereunder
are independent of the obligations of Borrower with respect to the Obligations, and a separate action or actions may be brought and prosecuted against Guarantor whether or not action is brought against Borrower and whether or not Borrower be joined
in any such action or actions. Guarantor waives, to the fullest extent permitted by law, the benefit of any statute of limitations affecting its liability hereunder or the enforcement thereof. Any payment by Borrower or other circumstance which
operates to toll any statute or limitations as to Borrower shall operate to toll the statute of limitations as to Guarantor. 
  
 (b)    All payments made by Guarantor under this Guaranty shall be made without set-off or counterclaim and free and clear of and without deductions for any present or future taxes,
fees, withholdings or conditions of any nature (“Taxes”). Guarantor shall pay any such Taxes, including Taxes on any amounts so paid, and will promptly furnish Bank copies of any tax receipts or such other evidence of payment as Bank may
require. 
  
 5.    Guarantor authorizes Bank (whether or not after termination of this Guaranty),
without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise
change the time for payment of, or otherwise change the terms of Obligations or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or the Obligations and
exchange, enforce, waive and release any such security; (c) apply such security and direct the order or manner of sale thereof as Bank in its discretion may determine; and (d) release or substitute any one or more endorsers, guarantors, Borrower or
other obligors. Bank may, without notice to or the further consent of Borrower or Guarantor, assign this Guaranty in whole or in part to any person acquiring an interest in the Obligations. 
  
 6.    It is not necessary for Bank to inquire into the capacity or power of Borrower or the officers acting or purporting to act on their behalf, and
Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder. 
  
 7.    Guarantor waives any right to require Bank to (a) proceed against Borrower or any other party; (b) proceed against or exhaust any security held from Borrower, or (c) pursue any other remedy whatsoever.
Guarantor waives any personal defense based on or arising out of any personal defense of Borrower other than payment in full of the Obligations, including, without limitation, any defense based on or arising out of the disability of either Borrower,
or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of Borrower other than payment in 
 

 11 

  
 full of the Obligations. Bank may, at its election, foreclose on any security held for the Obligations
by one or more judicial or nonjudicial sales, or exercise any other right or remedy they may have against Borrower, or any security, without affecting or impairing in any way the liability of Guarantor hereunder except to the extent the Obligations
have been paid. Guarantor waives all rights and defenses arising out of an election of remedies, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor’s rights or subrogation and reimbursement against the principal by operation of Section 580d of the California Code of Civil Procedure. 
  
 8.    Guarantor hereby waives any claim or other rights which Guarantor may now have or may hereafter acquire against Borrower or any other guarantor of all or any of the
Obligations that arise from the existence or performance of Guarantor’s obligations under this Guaranty or any other of the Credit Documents (all such claims and rights being referred to as the “Guarantor’s Conditional Rights”),
including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, or indemnification, any right to participate in any claim or remedy which Bank has against Borrower or any collateral which Bank now has or hereafter
acquires for the Obligations, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, by any payment made hereunder or otherwise, including, without limitation, the right to take or receive from
Borrower, directly or indirectly, in cash or other property or by setoff or in any other manner, payment or security on account of such claim or other rights. If, notwithstanding the foregoing provisions, any amount shall be paid to Guarantor on
account of Guarantor’s Conditional Rights and either (a) such amount is paid to Guarantor at any time when the Obligations shall not have been paid or performed in full, or (b) regardless of when such amount is paid to Guarantor any payment
made by Borrower to Bank is at any time determined to be a preferential payment, then such amount paid to Guarantor shall be deemed to be held in trust for the benefit of Bank and shall forthwith be paid to Bank to be credited and applied upon the
Obligations, whether matured or unmatured, in such order and manner as Bank, in its sole discretion, shall determine. To the extent that any of the provisions of this Paragraph 8 shall not be enforceable, Guarantor agrees that until such time as the
Obligations have been paid and preformed in full and the period of time has expired during which any payment made by Borrower or Guarantor may be determined to be a preferential payment, Guarantor’s Conditional Rights to the extent not validly
waived shall be subordinate to Bank’s right to full payment and performance of the Obligations and Guarantor shall not seek to enforce Guarantor’s Conditional Rights during such period. 
  

9.    Guarantor waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional Obligations. Guarantor assumes all responsibility for being and keeping itself informed of
either Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks which Guarantor assumes and incurs hereunder, and agrees that
Bank shall have no duty to advise Guarantor of information known to it regarding such circumstances or risks. 
  
 10.    In addition to the Obligations, Guarantor agrees to pay reasonable attorney’s fees and all other reasonable costs and expenses incurred by Bank in enforcing this Guaranty in any action or proceeding
arising out of or relating to this Guaranty. 
  
 11.    Guarantor hereby represents and warrants
as follows: 
  
 (a)    Guarantor has reviewed and approved the Credit Agreement
and the other credit documents, including, without limitation, the Fourth Amendment. 
 

 12 

 (b)    Guarantor has the power and authority and the legal right to execute, deliver
and perform this Guaranty and has taken all necessary action to authorize the execution, delivery and performance of this Guaranty. This Guaranty has been duly executed and delivered on behalf of Guarantor and constitutes the legal, valid and
binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, subject to the effect of applicable bankruptcy and other similar laws affecting the rights of creditors generally and the effect of equitable principles
whether applied in an action at law or a suit in equity. 
  
 12.    Guarantor hereby covenants
and agrees with Bank that it will cooperate with Borrower to facilitate Borrower’s compliance with all the covenants set forth in the Credit Agreement. Guarantor further agrees to execute any and all further documents, instruments and
agreements as Bank from time to time reasonably requests to evidence Guarantor’s obligations hereunder. 
  
 13.    This Guaranty shall be governed by and construed in accordance with the laws of the State of California without giving effect to its choice of law rules. 
  
 14.    ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE CENTRAL DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. GUARANTOR
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS GUARANTY. GUARANTOR WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 
  
 15.    GUARANTOR, AND BY ACCEPTING THIS GUARANTY BANK, WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY
OR THE TRANSCTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIIMS, TORT CLAIMS, OR OTHERWISE. GUARANTOR AND BANK AGREE THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, GUARANTOR FURTHER AGREES THAT ITS RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.

  
 [Signature page following] 
 

 13 

  
 IN WITNESS WHEREOF, this Guaranty is executed as of the day and year first above
written. 
  
  
 
	                                     , a California
corporation
 
	 
	 By:
 	 	 /S/    DEEPAK
CHOPRA      
 

	  	 	 Deepak Chopra
 

 
  
 

 14EMPLOYMENT AGREEMENT

       THIS AGREEMENT is made as of July 26, 2001, at Vancouver, BC between XML-Global Technologies, Inc., a Colorado corporation, XML-Global Research Inc., a British Columbia corporation (collectively "Corporation" or "Company" or "Employer"), and Peter Shandro ("Employee").       In consideration of the mutual covenants, agreements and provisions contained in this Agreement, the parties agree as follows:

EMPLOYMENT

       1.0     EMPLOYMENT.  Employer employs Employee, and Employee accepts employment as Employer's President and Chief Executive Officer, upon the terms and conditions set forth herein.         

      2.0     TERM.  This Agreement shall commence effective as of April 1, 2001, and shall continue in effect through June 30, 2002 (the "Employment Period"); provided, however, that upon each anniversary date hereof, the Employment Period shall automatically be extended for one additional year.         

       3.0     CHANGE OF CONTROL.  The term "Change in Control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 as in effect on the date of this Agreement or, if Item 5(f) is no longer in effect, any regulations issued by the Securities and Exchange Commission pursuant to the Securities and Exchange Act of 1934 which serve similar proposes; provided that, without limitation, such change in control shall be deemed to have occurred if and when: (a) any "person" (as such term is sued in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or becomes a beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities, or (b) a majority of the individuals who were members of the Board of Directors of the Company immediately prior to the action of the shareholders of the Company involving the election of directors or an action of the Board of Directors without action by the Company's shareholders shall not constitute a majority of the Board of Directors following such action.

       4.0      COMPENSATION.  For all services to be rendered by the Employee pursuant to his duties set forth in Section 9.0 below, the Employee shall be paid as compensation.

              4.1.     Base Salary.  A base or fixed salary, payable pro rata not less often than bi-weekly, in the following amounts for the periods stated:

	
	
Period
	
Annual Base Salary

	 	
April 1, 2001 to June 30, 2002
	
$165,000

After June 30, 2002, such base or fixed salary shall increase, from time to time, in accordance with the Company's regular administrative practices for other salary increases applicable to executive employees of the Company.  This base or fixed salary shall be reviewed from time to time during the term of this Agreement by the corporation's Board of Directors or Compensation and Benefits Committee of the Board, and may be redetermined upon said review subject to the approval of said Board of Directors or Committee and Employee.

              4.2.     Incentive Stock Options.  The Company shall use its best efforts to maintain an Equity Incentive Plan pursuant to which the Company shall be authorized to issue Incentive Stock Options qualified under Section 422 of the Internal Revenue Code of 1986, as amended (the "Plan").  Employee shall be eligible to participate in the Plan as an executive officer and key employee of the Company and shall be granted and entitled to receive Incentive Stock Options in accordance with a Formula Plan to be adopted by the Board of Directors for executive officers of the Company, but in no event shall Employee receive fewer than 25,000 incentive stock options per year during the term hereof.  All Incentive Stock Options granted and issued to Employee shall be exercisable for a period of seven (7) years to purchase shares of the Company's Common Stock at an exercise price equal to 100% of the fair market value of the Company's Common Stock as more fully defined in the Plan, on the date of grant.  For each year during the term, the Company shall effect the option grant effective as
of August 29th and the Options granted for such year shall vest on that date.

              4.3.     Incentive Compensation.  In addition to other items of compensation provided for herein, Employee shall be entitled to receive an annual incentive award or bonus described as follows:

	 	
4.3.1 - Operations - Employee shall be awarded 200,000 stock options at an exercise price of $0.35 which shall vest as follows based on the financial performance of the Company relative to the operating plan approved by the board of directors, as amended from time to time (the "Operating Plan").

	 	 	
*
	
50,000 options if the sales and earnings performance of the Company as published in the 10-QSB meets or exceeds the Operating Plan for the three months ending September 30, 2001;

	 	 	
*
	
50,000 options if the sales and earnings performance of the Company as published in the 10-QSB meets or exceeds the Operating Plan for the three months ended December 31, 2001;

	 	 	
*
	
50,000 options if the sales and earnings performance of the Company as published in the 10-QSB meets or exceeds the Operating Plan for the three months ended March 31, 2002; and

	 	 	
*
	
50,000 options if the sales and earnings performance of the Company as published in the 10-KSB meets or exceeds the Operating Plan for the three months ended June 30, 2002.

	 	 	 	 
	 	
In the event that only one of sales or earnings targets is met in a particular period, then only one-third of the options for that period shall vest.

	 	 	 	 
		
4.3.2 - Financing - Incentive stock options to purchase a number of shares equal to 3% of the financing value in US dollars. The exercise price for the options shall be the share price implicit in the financing. Such incentive compensation shall be payable within 30 days following the completion of the financing.

              4.4.     Employee Benefit Plans.  The Employee, his dependents and beneficiaries, shall be entitled to participate in any pension, profit sharing, medical reimbursement, insurance or other employee payment or benefit plan of the Employer as may be in effect from time to time, subject to the participation standards and other terms thereof, to the same extent as other officers under the benefit practices of the Company.  Without in any way limiting the generality of the foregoing, it is agreed that, at a minimum, Employee shall be entitled to inclusion, with his dependents and beneficiaries, in the Company's health insurance, life insurance and disability insurance programs, the expense of which shall be paid solely by the Company; or, at the option of Employee, Employee may obtain for himself and his dependents and beneficiaries independent health, life and disability insurance policies, the cost of which shall reimbursed to the Employee by the Company.

               4.5.     Cumulative Compensation.  The compensation provided for in Paragraphs 4.1 through 4.4 above, together with the perquisites set forth in Section 6.0 below, are in addition to the benefits provided for upon termination pursuant to Section 11.0 below.

               4.6.     Indemnification.  Subject to applicable law, the Corporation shall indemnify and hold mployee harmless from any and all loss, judgment or claims that the Employee may suffer in the proper discharge of Employee's duties hereunder, including, but not limited to, attorneys' fees and court costs, to the full extent permitted by applicable law.

       5.0     EXPENSES.  During the term hereof, the Corporation will reimburse the Employee for any reasonable out-of-pocket expenses incurred by the Employee in performance of service for the Corporation under this Agreement (e.g., transportation, lodging and food expenses incurred while traveling on Corporation business) and any other expenses incurred by the Employee in furtherance of the Corporation's business; provided, however, that the Employee renders to the Corporation a complete and accurate accounting of all such expenses.

       6.0     PERQUISITES.  During the period of employment, Employee shall be entitled to perquisites, including, without limitation, an appropriate office, secretarial and clerical staff, and fringe benefits accorded executives of equal rank including, without limitation, payment for reimbursement of medical expenses which are otherwise uninsured or unreimbursed, in each case at least equal to those attached to his office on the date of this Agreement.

       7.0     MINIMUM COMPENSATION.  Nothing in this Agreement shall preclude the Company from amending or terminating any employee benefit plan or practice or the provision of certain perquisites; provided, however, that it is the intent of the parties that the Employee shall continue to be entitled, during the period of employment, to compensation, benefits and perquisites as set forth above at least equal to those attached to his position on the date of this Agreement.  Nothing in this Agreement shall operate or be construed to reduce, or authorize a reduction, without the Employee's written consent, in the level of such compensation, benefits and perquisites.

       8.0     VACATIONS.  The Employee shall be entitled to a vacation with full compensation equal to four weeks each year; provided, however, that the Employee's vacation will be scheduled at such time as will least interfere with the business of the Employer.  Attendance at a business or seminar is not to be deemed a vacation; provided, however, that attendance at such meeting or seminar shall be planned so as to least interfere with the business of the Employer.

       9.0     EMPLOYMENT.  The Company hereby agrees to continue the Employee in its employ, and the Employee hereby agrees to remain in the employ of the Company, for the Employment Period as specified in Section 2.0, to exercise such authority and perform such duties as are commensurate with the authority being exercised and duties being performed by the Employee immediately prior to the effective date of this Agreement, which services shall be performed at the location where the Employee was employed immediately prior to the Effective Date of this Agreement or at such other location as the Company may reasonably require; provided that the Employee shall not be required to accept a location which is unreasonable in the light of the Employee's personal circumstances.  The Employee agrees that during the Employment Period he shall devote his substantially equivalent full business time to his executive duties as described herein and perform such duties faithfully and efficiently.

       10.0     PERFORMANCE.  It is contemplated that during the period of employment the Employee shall serve as an executive officer of the Company with the office and title of President and Chief Executive Officer, reporting directly to and only to the Board of Directors.  At all times during the period of employment, the Employee shall hold a position of responsibility and importance and a position of scope, with the functions, duties and responsibilities attached thereto, at least equal to in responsibility and importance and in scope to and commensurate with his position described in general terms in this Section 10.0.

       11.0     TERMINATION.

                 11.1.     During the period of employment, Employee may terminate this Agreement without cause or for cause.  For the purposes of this Section 11.1, the term "cause" shall include the occurrence of any of the following:

                        11.1.1.     The breach or violation by the Company of any of the terms of this Agreement;

                        11.1.2.     Any significant change in position, duties and responsibilities of the Employee to which the Employee does not consent;

                       
11.1.3.     Any move of the Company resulting in or any other requirement that the Employee, without his consent, change his principal residence;

                        11.1.4.     In the event of a change in control as defined in Section 3.0 hereof, any change in the circumstances of employment which the Employee determines, in good faith, results in his being unable to carry out the duties and responsibilities attached to the position and contemplated by the definition of that position set forth in this Agreement.

               11.2.     In the event of an occurrence described in subsections 11.1.1, 11.1.2 or 11.1.3 above, the Employee shall serve written notice of such event upon the Company, setting forth in detail the circumstances which the Employee has determined constitutes "cause" within any of those definitions.  In the event the Company should remedy or otherwise cure the facts constituting the cause relied upon by the Employee within thirty (30) days after such written notice, such fact or circumstance shall not be deemed to constitute "cause" for which employment can be terminated within the meaning of Section 11.1 above.

               11.3.     During the period of employment, the Corporation may terminate this Agreement for cause and upon 30 days written notice and opportunity to cure being given to Employee. For the purpose of this Section 11.3, the term "cause" shall include the occurrence of any of the following:

                        11.3.1.     Employee breaches or violates any of the terms of this Agreement;

                        11.3.2.     Employee is convicted of any felony or is shown to have engaged in any act of dishonesty or fraud upon the Corporation, any of its affiliated companies, or any of its customers or clients;

                        11.3.3.     Employee fails to devote his substantive full time, attention and efforts to the business and affairs of the Corporation or its affiliated companies;

                        11.3.4.     Employee has been grossly negligent in the performance of his employment duties or responsibilities.

               11.4.     During the period of employment, the Corporation may terminate this Agreement without cause upon 180 days' prior written notice.

              
11.5.      This Agreement shall also terminate upon the insolvency, bankruptcy, dissolution, or liquidation of the Corporation or cessation of business by the Corporation for at least thirty (30) consecutive days.

       12.0     TERMINATION PAYMENTS.  In the event of a Termination and subject to the provisions of Sections 11.1.1, 11.1.2, 11.1.3 or 11.4 of this Agreement, the Company shall pay to the Executive and provide him with the following:

               
12.1.     During the remainder of the Employment Period, the Company shall continue to pay the Executive his salary on a monthly basis at the same rate as payable immediately prior to the date of Termination.

              
 12.2.     During the remainder of the Employment Period, the Executive shall continue to be entitled to all benefits and service credit for benefits under medical, insurance, split-dollar life insurance and other employee benefit plans, programs and arrangements of the Company described or referred to in Section 4.4 as if he were still employed during such period under this Agreement.

            
   12.3.     If, despite the provisions of Paragraph 12.2 above, benefits or the right to accrue further benefits under any stock option or other incentive compensation arrangement described in Section 4.3 shall not be provided under any such arrangement to the Executive or his dependents, beneficiaries or estate because he is no longer an employee of the Company, the Company shall, to the extent necessary, pay or provide for payment of such benefits to the Executive or his dependents, beneficiaries or estate.

       13.0     CHANGE OF CONTROL PAYMENT

              
 13.1      In the event that the employment of the Employee under this Agreement shall be terminated by the Corporation without "cause" within twelve months after a Change of Control (as herein defined) of the Corporation, or by the Executive for "Good Reason" (as hereinafter defined) within twelve months after a Change of Control (as herein defined) of the Corporation, in addition to the Salary and other compensation (including accrued vacation, cash bonuses, incentive and performance compensation) earned hereunder and unpaid or not delivered through the date of termination and any benefits referred to in which the Executive has a vested right under the terms and conditions of the plan or program pursuant to which such benefits were granted (without regard to such termination) but in lieu of the Severance Payment, the Corporation shall pay the Executive a cash payment (the "Change of Control Payment") equal in the aggregate to the sum of twelve months' Salary and all bonuses earned by the Executive during the twelve months preceding such termination. 

                13.2     The Change of Control Payment shall be paid to the Executive in three consecutive, equal monthly installments, on the fifteenth day of each calendar month commencing during the month next following the (1) the first to occur of the month in which the Executive is no longer employed by the Corporation and (2) the effective date of a general release from the Executive in customary form for such circumstances. The Change of Control Payment shall be in lieu of any other claim for compensation under this Agreement, any wage continuation law or at common law, or any claim to severance or similar payments or benefits which the Executive may otherwise have or make. If group health plan benefits continue for employees of the Corporation following such Change of Control, the Health Benefit shall also continue for a twelve month period. Without limiting any other rights or remedies which the Corporation may have, it is understood that the Corporation shall be under no further obligation to make any such Change of Control Payments and shall be entitled to be reimbursed therefor by the Executive or his estate if the Executive violates any of the covenants set forth in this Agreement.

                13.3     In the event that the Change of Control Payment shall become payable to the Executive, the Executive shall not be required, either in mitigation of damages or by the terms of any provisions of this Agreement or otherwise, to seek or accept other employment, and if the Executive does accept other employment, any benefits or payments under this Agreement shall not be reduced by any compensation earned or other benefits received as a result of such employment. 

                13.4     For purposes of this Section, "Good Reason" shall mean the occurrence of any of the following events: (a) a material adverse change in the nature or scope of the Executive's responsibilities, authorities, title, powers, functions or reporting procedures prior to a Change of Control (other than changes to reflect the integration of the Corporation with an acquiror's operations which do not amount to the functional equivalent of a demotion); (b) a reduction in the Executive's annual base Salary as in effect immediately prior to a Change of Control; or (c) the relocation of the office at which the Executive is principally employed immediately prior to a Change of Control to a location more than 50 miles from such office or the requirement by the acquiror for the Executive to be based anywhere other than such current office, except for required business travel to an extent substantially consistent with the Executive's business travel obligations immediately prior to the Change or Control.

       14.0     DISABILITY.

               14.1.     If the Employee is unable to perform the Employee's services by reason of illness, physical or mental disability or other incapacity, the Employee's regular compensation shall be continued until such time as Employee begins receiving disability insurance benefits as a result of such condition.  Upon Employee receiving payments on account of the fringe benefit program covering disability provided or paid for by the Corporation, then the Employee's base salary, as defined above, will be reduced to the extent of such entitlement and receipt.

               14.2.      If, because of illness, physical or mental disability or other incapacity, Employee shall fail, for a period of 12 months during the term hereof, to render the services provided for by this Agreement, or if Employee contracts an illness or injury which will permanently prevent performance by him of the services and duties provided for by this Agreement, then the Employer, at its option, may terminate this Agreement by notice to the Employee effective 30 days after the giving of such notice, after which no additional compensation shall be due.

       15.0     DEATH.  In the event of the death of Employee during the term of this Agreement, his employment hereunder shall terminate on the date of his death.  In the accounting between the Employer and the Employee's personal representative, Employee's estate shall be due compensation under this Agreement only through the end of the month in which his death occurred.

       16.0     COMPETITION.

               16.1.      Employee covenants to and with the Employer, its successors and assigns, that during the term of this Agreement and for a period of twelve (12) months from the date of the termination of this Agreement for any reason, he will not directly or indirectly, either as principal, agent, manager, employee, owner, partner (dominant or otherwise), stockholder, director or other officer of a corporation, creditor, consultant or otherwise, solicit, attempt to obtain or assist any other person or entity engage or become interested financially or other wise, in any business, agency, trade or occupation the same as or similar to the business of the Corporation or its affiliates; nor shall Employee, during the term of this Agreement and for a period of twelve (12) months from the date of the termination of this Agreement, consult or enter into any agreement or arrangement with any other person, firm, corporation or entity to conduct any research or development, nor shall Employee directly or indirectly conduct such research or development on his own behalf, related to the discovery of processes, inventions, improvements, developments or commercialization of any device, apparatus or product the same as or competitive with a product developed, produced or reduced to practice by the Corporation, unless Employee shall have first obtained the Corporation's expressed written consent thereto.  Because of the nature of the business, the parties agree that it is reasonable for the covenant to apply to the entire geographic area of the world.  If the geographic area is determined by a court to be overly broad in scope, it shall be modified only to the extent necessary to bring it within the requirements of the law and interpreted to give the Corporation the broadest protection allowed by law.

               16.2.      In the event of a breach or threatened breach by Employee of any provisions of this Section 16.0, the Corporation shall be entitled to an injunction restraining it from the commission of such breach.  Nothing herein contained shall be construed as prohibiting the Corporation from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of money damages.  The covenants contained in this Section 16.0 shall be construed as independent of any other provisions in this Agreement; and the existence of any claim or cause of action of Employee against the Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of said covenants.

               16.3.      The covenants contained in this Section 16.0 shall terminate and, upon termination, shall be unenforceable and of no further legal force and effect, in the event the Corporation, or any successor to the Corporation, becomes insolvent, is liquidated or ceases for any reason to conduct business operations for a continuous period of at least thirty (30) days.

               16.4     The Corporation shall have the right to assign the aforesaid covenants; and Employee agrees to remain bound by the terms of the covenants to any and all subsequent purchasers and assignees of the assets and business of the Corporation.

       17.0     REGISTRATION RIGHTS.

               17.1.      No later than 90 days following the Event of Termination, the Company shall prepare and file, at its sole cost and expense, a Registration Statement registering for sale under the Securities Act of 1933, as amended (the "Registration Statement" and "Securities Act," respectively), all shares of the Company's Common Stock owned by Employee on the date of termination and all shares of Common Stock of the Company issuable upon exercise of any options, warrants or other convertible securities beneficially-owned by Employee on the date of termination.  In connection with such registration, the Company shall (i) cause such registration to be declared effective by the Securities and Exchange Commission within 120 days of the date of termination, (ii) maintain the effectiveness of such registration for a minimum period of 180 days and (iii) shall qualify the sale of all securities owned by the Employee or purchasable upon exercise of outstanding derivatives owned by Employee in such states an under such Blue Sky regulations as Employee may reasonably request.

               17.2.      In the event the Company should default in any of its obligations contained in this Section 17.0, and such default remains uncured after thirty (30) days' written notice of such default from Employee, Employee shall have the right and option to "put" to the Company and compel the Company to purchase within thirty (30) days of demand all shares of Company Common Stock owned by Employee and all options, warrants and other securities convertible into or exercisable to purchase additional shares of Common Stock owned by Employee on the date of termination.  In the event Employee exercises this put option, the Company shall pay to Employee the fair market value of such securities on the date of termination.  For the purposes of this Agreement, the fair market value of derivative securities shall be deemed to be the difference between the fair market value of the underlying shares of Common Stock and the exercise price or conversion value of such derivative.

       18.0     NON-INTERFERENCE WITH EMPLOYEES.

               18.1.      Employee covenants with the Corporation that employees of or consultants to the Corporation and employees of and consultants to firms, corporations or entities affiliated with the Corporation have, of necessity, been exposed to and have acquired certain knowledge, understandings, and know-how concerning the Corporation's business operations which is confidential information and proprietary to the Corporation.

               18.2.      In order to protect the Corporation's confidential information and to promote and insure the continuity of the Corporation's contractual relations with its employees and consultants, Employee covenants and agrees that for so long as Employee holds any position or affiliation with the Corporation, including service to the Corporation as an officer, director, employee, consultant, agent or contractor, and for a period of twelve (12) months from the date Employee ceases to hold any such position or status with the Corporation or otherwise becomes disaffiliated with the Corporation, he will not directly or indirectly, or permit or encourage others to directly or indirectly (i) interfere in any manner whatsoever with the Corporation's contractual or other relations with any or all of its employees or consultants, or (ii) induce or attempt to induce any employee or consultant to the Corporation to cease performing services for or on behalf of the Corporation, or (iii) solicit, offer to retain, or retain, or in any other manner engage or employ the services of, any person or entity who or which is retained or engaged by the Corporation, or any firm, corporation or entity affiliated with the Corporation, as an employee, consultant or agent.

               18.3.      In the event any court of competent jurisdiction determines or holds that all or any portion of the covenants contained in this Section 18.0 are unlawful, invalid, or unenforceable for any reasons, then the parties hereto agree to modify the provisions of this Section 18.0 if and only to the extent necessary to render the covenants herein contained enforceable and otherwise in conformance with all legal requirements.

       19.0     CLIENTS AND CUSTOMERS.

               19.1.      Employee covenants with the Corporation that the clients and customers of the Corporation, both actual and contemplated, constitute actual and prospective business relationships which are proprietary to the Corporation and comprise, in part, the Corporation's confidential information and trade secrets.

               19.2.      In order to protect the Corporation's proprietary rights and to promote and ensure the continuity of the Corporation's contractual relations with its customers and clients, Employee covenants and agrees that, notwithstanding the provisions of Section 15.1 hereof, and for so long as Employee holds any position or affiliation with the Corporation, including service to the Corporation as an officer, director, employee, consultant, agent or contractor, and for a period of twelve (12) months from the date Employee ceases to hold any such position or status with the Corporation or otherwise becomes disaffiliated with the Corporation, he will not directly or indirectly, or permit or encourage others to directly or indirectly (i) interfere in any manner whatsoever with the Corporation's contractual or prospective relations with any clients or customers, or (ii) induce or attempt to induce any client or customer of the Corporation to cease doing business with the Corporation, or (iii) solicit, offer to retain, or retain, or in any other manner engage or enter into any business or other arrangement with any of the Corporation's customers or clients to provide any services or products to any of such customers or clients, except and unless such arrangement for the provision of products or services is not in any way competitive with the products or services actually provided by the Corporation to its clients or customers.

               19.3.      In the event any court of competent jurisdiction determines or holds that all or any portions of the covenants contained in this Section 19.0 are unlawful, invalid or unenforceable for any reason, then the parties hereto agree to modify the provisions of this Section 19.0 if and only to the extent necessary to render the covenants herein contained enforceable and otherwise in conformance with all legal requirements.

       20.0     REPRESENTATIONS OF EMPLOYEE.  The Employee represents that, to the best of his knowledge and belief, neither his affiliation with the Corporation, nor his holding any position as officer, director, Employee, or consultant with the Corporation, nor his ownership of common stock in the Corporation, nor his performing any other services for the Corporation violates any presently existing, valid and enforceable contract, agreement, commitment or other legal relationship between Employee and any other person or entity.

       21.0     ARBITRATION.  All disputes, claims, controversies and differences arising out of or relating to this Agreement, or the termination, breach or validity thereof, shall be submitted, referred to and resolved by compulsory, mandatory and binding arbitration in Phoenix, Arizona in accordance with the Arbitration Rules of the American Arbitration Association relating to commercial disputes.  The determination of such arbitration proceedings shall be binding upon the parties and their respective successors and assigns and may be enforced by the prevailing party as a Final Judgment in any Court of competent jurisdiction.  In any such arbitration proceeding, the prevailing party shall be entitled to an award for its arbitration costs, including attorney's fees.

       22.0     ATTORNEYS' FEES.  In the event there is any litigation or arbitration between the parties concerning this Agreement, the successful party shall be awarded reasonable attorneys' fees and litigation or arbitration costs, including the attorneys' fees and costs incurred in the collection of any judgment.

       23.0     NOTICES.  All notices required or permitted hereunder shall be sufficient if delivered personally or mailed to the parties at the address set forth below or at such other address as either party may designate in writing from time to time.  Any notice by mailing shall be effective 48 hours after it has been set by registered mail, return receipt requested, duly addressed and with postage prepaid.

       24.0     PARTIAL INVALIDITY.  If any provisions of this Agreement are in violation of any statute or rule of law of any state or district in which it may be sought to be enforced, then such provisions shall be deemed null and void only to the extent that they may be in violation thereof, but without invalidating the remaining provisions.

       25.0     BINDING EFFECT.  This Agreement shall be binding upon and inure to the benefit of the respective parties hereto, their heirs, personal representatives, successors and assigns; provided, however, that Employee may not assign his employment hereunder, and any assignment by Employee in violation of this Agreement shall vest no rights in the purported assignee.

       26.0     WAIVER.  No waiver of any breach of any one of the agreements, terms, conditions or covenants of this Agreement by the Employer or the Employee shall be deemed to imply or constitute a waiver of any other agreement, term, condition or covenant of this Agreement.  The failure of either party to insist on strict performance of any agreement, term, condition or covenant, herein set forth, shall not constitute or be construed as a waiver of the rights of either or the other thereafter to enforce any other default of such agreement, term, condition or covenant; neither shall such failure to insist upon strict performance be deemed sufficient grounds to enable either party hereto to forego or subvert or otherwise disregard any other agreement, term, condition or covenants of this Agreement.

       27.0     GOVERNING LAW.  This Agreement and the rights and duties of the parties shall be construed and enforced in accordance with the laws of the Province of British Columbia.

       28.0     ENTIRE AGREEMENT.  This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof. Matters relating to non-disclosure of confidential information and intellectual property matters are addressed by a separate agreement; apart from such matters there are no representations, warranties, conditions or obligations except as herein specifically provided. Any amendment or modification hereof must be in writing.

       IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the day and year first above written.

	 	
EMPLOYER:

	 	
XML-Global Technologies, Inc.

	 	
By:__________________________________

    Simon Anderson, Chief Financial Officer

	 	 
	 	
XML-Global Research Inc.

	 	
By:___________________________________

    Simon Anderson, Chief Financial Officer

	 	 
	 	
EMPLOYEE:

	 	
Peter Shandro

_______________________________________

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